FEDERATED GOVERNMENT INCOME SECURITIES INC, 497, 1999-04-30

FEDERATED GOVERNMENT INCOME SECURITIES INC
497, 1999-04-30

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PROSPECTUS

Federated Government Income Securities, Inc.

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

A mutual fund seeking current income by investing at least 65% of its assets in
securities guaranteed as to payment of principal and interest by the U.S.
government or its agencies or instrumentalities.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.

APRIL 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the

Fund Invests? 5

What are the Specific Risks of Investing in the Fund? 8

What Do Shares Cost? 9

How is the Fund Sold? 12

How to Purchase Shares 12

How to Redeem and Exchange Shares 14

Account and Share Information 17

Who Manages the Fund? 18

Financial Information 19

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide current income. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in U.S.
government securities, including mortgage backed securities.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* INTEREST RATE RISK. Prices of fixed income securities generally fall when
interest rates rise.

* PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
interest rates, the Fund will be required to reinvest the proceeds at the lower
interest rates available. Also, when interest rates fall, the price of mortgage
backed securities may not rise to as great an extent as that of other fixed
income securities.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or 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.

RISK/RETURN BAR CHART AND TABLE

[Graphic]

The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis. The total returns displayed for the Fund do not
reflect the payment of any sales charges or recurring shareholder account fees.
If these charges or fees had been included, the returns shown would have been
lower.

The Fund's Class A Shares total return from January 1, 1999 to March 31, 1999
was (0.46%).

Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 4.06% (quarter ended September 30, 1998). Its lowest
quarterly return was (1.18%) (quarter ended March 31, 1997).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Class A Shares, Class B Shares, and
Class C Shares Average Annual Returns, reduced to reflect applicable sales
charges, for the calendar periods ending December 31, 1998.

CALENDAR PERIOD CLASS A CLASS B CLASS C ML5YRT LBMBSI LBMBGSI LUSGFA
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year 2.81% 1.25% 5.87% 9.81% 6.96% 8.12% 4.89%
Start of Performance 1 6.32% 6.07% 7.62% 8.52% 8.75% 9.21% 4.91%

</TABLE>

1 The Fund's Class A Shares, Class B Shares and Class C Shares start of
performance date was August 5, 1996.

The table shows the Fund's total returns averaged over a period of years
relative to Merrill Lynch 5 Year Treasury Index (ML5YRT), Lehman Brothers
Mortgage Backed Securities Index (LBMBSI), broad based market indexes, a blended
index comprised of 60% Lehman Brothers Mortgage Backed Securities Index and 40%
Lehman Brothers Government Index (LBMBGSI), and Lipper U.S. Government Funds
Average (LUSGFA), an average of funds with similar investment objectives, for
the calendar periods ended December 31, 1998. Total returns for the indexes
shown do not reflect sales charges, expenses or other fees that the SEC requires
to be reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.

What are the Fund's Fees and Expenses?

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Class A, B or C Shares.

SHAREHOLDER FEES CLASS A CLASS B CLASS C

Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on

Purchases (as a percentage of offering price) 4.50% None None
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, as applicable) 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends (and other
Distributions) (as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable) None None None
Exchange Fee None None None

ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1 Expenses That are Deducted
From Fund Assets (as percentage of average net assets)

Management Fee 2 0.75% 0.75% 0.75% Distribution (12b-1) Fee 0.25% 3 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25% Other Expenses 0.19% 0.19% 0.19%
Total Annual Fund Operating Expenses 1.44% 1.94% 4 1.94% 1 Although not
contractually obligated to do so, the Adviser and Distributor waived certain
amounts. These are shown below along with the net expenses the Fund actually
paid for the fiscal year ended February 28, 1999.

Total Waivers of Fund Expenses 0.46% 0.21% 0.21%
Total Annual Fund Operating Expenses (after waivers) 0.98% 1.73% 1.73%
2 The Adviser voluntarily waived a portion of the management fee. The Adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.54% for the year ended February 28,
1999. 3 Class A Shares distribution (12b-1) fee has been voluntarily reduced.
The distributor can terminate this voluntary reduction at any time. The
distribution fee paid by the Fund's Class A Shares (after the voluntary
reduction) was 0.00% for the year ended February 28, 1999. 4 Class B Shares
convert to Class A Shares (which pay lower ongoing expenses) approximately eight
years after purchase.

</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Class A Shares, Class B Shares and Class C Shares with the cost of investing in
other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Class A Shares, Class
B Shares and Class C Shares for the time periods indicated and then redeem all
of your Shares at the end of those periods. Expenses assuming no redemption are
also shown. The Example also assumes that your investment has a 5% return each
year and that the Fund's Class A Shares, Class B Shares and Class C Shares
operating expenses are BEFORE WAIVERS as shown in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>

CLASS A

Expenses assuming redemption $590 $ 885 $1,201 $2,097
Expenses assuming no redemption $590 $ 885 $1,201 $2,097
CLASS B

Expenses assuming redemption $747 $1,009 $1,247 $2,135
Expenses assuming no redemption $197 $ 609 $1,047 $2,135
CLASS C

Expenses assuming redemption $297 $ 609 $1,047 $2,264
Expenses assuming no redemption $197 $ 609 $1,047 $2,264

</TABLE>

What are the Fund's Investment Strategies?

The Fund invests primarily in a portfolio of U.S. government securities. The
Fund may also invest in certain mortgage backed securities of non-governmental
issuers that are rated AAA by a nationally recognized statistical rating
organization. A description of the various types of securities in which the Fund
invests, and their risks, immediately follows this strategy section.

The Adviser allocates the Fund's portfolio holdings between U.S. government
mortgage backed securities and U.S. Treasury securities. Mortgage backed
securities generally offer higher relative returns versus comparable U.S.
Treasury securities to compensate for prepayment risk. Prepayment risk is the
unscheduled or complete payment of the principal outstanding on a mortgage loan
by the homeowner. One important reason for prepayments is changes in market
interest rates from the time of mortgage origination. The Adviser actively
manages the Fund's portfolio, seeking the higher relative returns of mortgage
backed securities while attempting to limit the prepayment risk.

The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage
backed securities with characteristics that make prepayment less likely.
Characteristics that the Adviser may consider in selecting securities include
the average interest rates of the underlying mortgages, the prior prepayment
history of the mortgages and the federal agencies that securitize the mortgages.
The Adviser attempts to assess the relative returns and risks of mortgage backed
securities by analyzing how the timing, amount and division of cash flows from
the pool of mortgages underlying the security might change in response to
changing economic and market conditions.

The Adviser selects securities with longer or shorter duration based on its
interest rate outlook. Duration measures the price sensitivity of a portfolio of
fixed income securities to changes in interest rates. The Adviser formulates its
interest rate outlook and otherwise attempts to anticipate changes in economic
and market conditions by analyzing a variety of factors such as:

* current and expected U.S. economic growth;

* current and expected interest rates and inflation;

* the Federal Reserve's monetary policy; and

* changes in the supply of or demand for U.S. government securities.

There is no assurance that the Adviser's efforts to forecast market interest
rates and assess the impact of market interest rates on particular securities
will be successful.

The Adviser may use collateralized mortgage obligations ("CMOs") with relatively
predictable cash flows (such as sequential pay, planned amortization class and
targeted amortization class), to reduce prepayment risk. In addition, the
Adviser may use combinations of CMOs, and CMOs and other mortgage backed
securities, to attempt to provide a higher yielding investment with lower
sensitivity to fluctuations in interest rates.

The Adviser may attempt to take advantage of current and potential yield
differentials existing from time to time between various mortgage backed
securities in order to increase the Fund's return. The Fund may also engage in
dollar roll transactions for their potential to enhance income.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the principal types of fixed income securities in which
the Fund invests:

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS

CMOs, including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage backed securities. This creates
different prepayment and interest rate risks for each CMO class.

PRIVATE ISSUE CMOS

The Fund may also invest in CMOs which are rated AAA by a nationally recognized
statistical rating agency and which are issued by private entities such as
investment banking firms and companies related to the construction industry.
Private issue CMOs are not considered to be U.S. government securities within
the meaning of the Fund's investment policy requiring that at least 65% of its
assets be invested in U.S. government securities. The AAA rating is the highest
possible rating assigned to fixed income securities indicating low credit risk.
The CMOs in which the Fund may invest may be: (i) privately issued securities
which are collaterlized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (ii) privately issued securities which
are collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer and such guarantee is collateralized by
the U.S. government securities; and (iii) other privately issued securities in
which the proceeds of the issuance are invested in mortgage backed securities
and payment of the principal and interest are supported by the credit of an
agency or instrumentality of the U.S. government.

The degree of increased or decreased prepayment risk depends upon the structure
of the CMOs. However, the actual returns on any type of mortgage backed security
depend upon the performance of the underlying pool of mortgages, which no one
can predict and will vary among pools.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risk, but not as low as treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risk, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

SPECIAL TRANSACTIONS

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.

TO BE ANNOUNCED SECURITIES (TBAS)

As with other delayed delivery transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the particular
securities to be delivered. Instead, the Fund agrees to accept any security that
meets specified terms. For example, in a TBA mortgage backed transaction, the
Fund and the seller would agree upon the issuer, interest rate and terms of the
underlying mortgages. The seller would not identify the specific underlying
mortgages until it issues the security. TBA mortgage backed securities increase
interest rate risks because the underlying mortgages may be less favorable than
anticipated by the Fund.

DOLLAR ROLLS

Dollar rolls are transactions where the Fund sells mortgage backed securities
with a commitment to buy similar, but not identical, mortgage backed securities
on a future date at a lower price. Normally, one or both securities involved are
TBA mortgage backed securities. Dollar rolls are subject to interest rate and
credit risks.

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to interest rate
changes in the interest paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market factors,
such as the demand for particular fixed income securities, may cause the price
of certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

PREPAYMENT RISKS

Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and a partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing, or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price and yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, like other interest-bearing securities, the values of mortgage backed
securities generally fall when interest rates rise.

Since rising interest rates generally result in decreased prepayments of
mortgage backed securites, this could cause mortgage securities to have greater
average lives than expected and their value may decline more than other fixed
income securities. Conversely, when interest rates fall, their potential for
capital appreciation is limited due to the existence of the prepayment feature.

Generally, mortgage backed securities compensate for greater prepayment risk by
paying a higher yield. The additional interest paid for risk is measured by the
difference between the yield of a mortgage backed security and the yield of a
U.S. Treasury security with a comparable maturity (the spread). An increase in
the spread will cause the price of the security to decline. Spreads generally
increase in response to adverse economic or market conditions.

What Do Shares Cost?

You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV) plus any applicable
front-end sales charge (public offering price).

NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.

The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.

MAXIMUM SALES CHARGE
MINIMUM INITIAL/ CONTINGENT
SUBSEQUENT FRONT-END DEFERRED

SHARES INVESTMENT SALES SALES
OFFERED AMOUNTS 1 CHARGE 2 CHARGE 3
<S> <C> <C> <C>

Class A $1,500/$100 4.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%

</TABLE>

1 The minimum initial and subsequent investment amounts for retirement plans are
$250 and $100, respectively. The minimum subsequent investment amounts for
Systematic Investment Programs is $50. Investment professionals may impose
higher or lower minimum investment requirements

on their customers than those imposed by the Fund.

Orders for $250,000 or more will be invested in Class A Shares instead of Class
B Shares to maximize your return and minimize the sales charges and marketing
fees. Accounts held in the name of an investment professional may be treated
differently. Class B Shares will automatically convert into Class A Shares after
eight full years from the purchase date. This conversion is a non-taxable event.

2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

CLASS A SHARES

Sales Charge
as a Percentage Sales Charge
of Public as a Percentage

Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1 million 2.00% 2.04%
$1 million or greater 1 0.00% 0.00%

</TABLE>

1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance payment
on the transaction.

THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:

* purchasing Shares in greater quantities to reduce the applicable sales
charge;

* combining concurrent purchases of Shares:

- - by you, your spouse, and your children under age 21; or

- - of the same share class of two or more Federated Funds (other than money
market funds);

* accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or

* signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:

* within 120 days of redeeming Shares of an equal or lesser amount;

* by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);

* through wrap accounts or other investment programs where you pay the
investment professional directly for services;

* through investment professionals that receive no portion of the sales
charge;

* as a Federated Life Member (Class A Shares only) and their immediate
family members; or

* as a Director or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.

If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.

SALES CHARGE WHEN YOU REDEEM

Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).

CLASS A SHARES

<S>

A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.

CLASS B SHARES

Shares Held Up To: CDSC
<S> <C>
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
<CAPTION>

CLASS C SHARES

<S>

You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.

</TABLE>

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

* purchased with reinvested dividends or capital gains;

* purchased within 120 days of redeeming Shares of an equal or lesser
amount;

* that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a money
market fund);

* purchased through investment professionals who did not receive advanced
sales payments; or

* if, after you purchase Shares, you become disabled as defined by the IRS.

IN ADDITION, YOU WILL NOT BE CHARGED A CDSC:

* if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;

* if your redemption is a required retirement plan distribution;

* upon the death of the last surviving shareholder of the account.

If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:

* Shares that are not subject to a CDSC, and

* Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund).

*The CDSC is then calculated using the Share price at the time of purchase or
redemption, whichever is lower.

How is the Fund Sold?

The Fund offers four share classes: Class A Shares, Class B Shares, Class C
Shares and Class F Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Class A Shares, Class B Shares and
Class C Shares. Each share class has different sales charges and other expenses,
which affect their performance. Contact your investment professional or call
1-800-341-7400 for more information concerning the other class.

The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals.

When the Distributor receives sales charges and marketing fees, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.

(Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.

How to Purchase Shares

You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.

Where the Fund offers more than one share class and you do not specify the class
choice on your New Account Form or form of payment (e.g., Federal Reserve wire
or check) you automatically will receive Class A Shares.

THROUGH AN INVESTMENT PROFESSIONAL

* Establish an account with the investment professional; and

* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

* Establish your account with the Fund by submitting a completed New
Account Form; and

* Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number, or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

Federated Shareholder Services Company

1099 Hingham Street

Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).

THROUGH AN EXCHANGE

You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.

BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

RETIREMENT INVESTMENTS

You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

* through an investment professional if you purchased Shares through an
investment professional; or

* directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem or exchange Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form. Send requests by mail to:

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

Federated Shareholder Services Company

1099 Hingham Street

Rockland, MA 02370-3317

All requests must include:

* Fund Name and Share Class, account number and account registration;

* amount to be redeemed or exchanged;

* signatures of all shareholders exactly as registered; and

* IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES

Signatures must be guaranteed if:

* your redemption will be sent to an address other than the address of
record;

* your redemption will be sent to an address of record that was changed
within the last 30 days;

* a redemption is payable to someone other than the shareholder(s) of
record; or

* IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

* an electronic transfer to your account at a financial institution that is
an ACH member; or

* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

* to allow your purchase to clear;

* during periods of market volatility; or

* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

REDEMPTIONS FROM RETIREMENT ACCOUNTS

In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.

EXCHANGE PRIVILEGES

You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:

* ensure that the account registrations are identical;

* meet any minimum initial investment requirements; and

* receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.

The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or Adviser may determine from the amount, frequency and pattern of
exchanges that a shareholder is engaged in excessive trading that is detrimental
to the Fund and other shareholders. If this occurs, the Fund may terminate the
availability of exchanges to that shareholder and may bar that shareholder from
purchasing other Federated Funds.

SYSTEMATIC WITHDRAWAL PROGRAM

You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.

Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.

SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES

You will not be charged a CDSC on SWP redemptions if:

* you redeem 12% or less of your account value in a single year;

* you reinvest all dividends and capital gains distributions; and

* your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.

For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund no longer issues Share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares and pays any dividends monthly to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, non- retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be primarily dividends. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.

Who Manages the Fund?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total more than $111 billion in assets as of
December 31, 1998. Federated was established in 1955 and is one of the largest
mutual fund investment managers in the United States with approximately 1,900
employees. More than 4,000 investment professionals make Federated Funds
available to their customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

KATHLEEN M. FOODY-MALUS

Kathleen M. Foody-Malus has been the Fund's portfolio manager since
July 1993. She is Vice President of the Corporation. Ms. Foody-Malus joined
Federated Investors in 1983 and has been a Senior Portfolio Manager since
1996 and a Vice President of the Fund's investment adviser since 1993. She
was a Portfolio Manager and a Vice President of the Fund's investment
adviser from 1993 to 1996. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.

EDWARD J. TIEDGE

Edward J. Tiedge has been the Fund's portfolio manager since April 1997.
Mr. Tiedge joined Federated Investors in 1993 as a Senior Analyst and has
been a Portfolio Manager and a Vice President of the Fund's investment
adviser since 1996. He served as Portfolio Manager and an Assistant Vice
President of the Fund's investment adviser in 1995, and an Investment
Analyst during 1993 and 1994. Mr. Tiedge is a Chartered Financial Analyst
and received his M.S. in Industrial Administration from Carnegie Mellon
University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights - Class A Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED FEBRUARY 28 1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE,

BEGINNING OF PERIOD $ 8.84 $ 8.59 $ 8.63
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.53 2 0.62 2 0.30
Net realized and
unrealized gain (loss)
on investments (0.04) 0.22 (0.02)
TOTAL FROM INVESTMENT

OPERATIONS 0.49 0.84 0.28
LESS DISTRIBUTIONS:

Distributions from net

investment income (0.54) (0.59) (0.32)
NET ASSET VALUE, END OF

PERIOD $ 8.79 $ 8.84 $ 8.59
TOTAL RETURN 3 5.58% 10.10% 3.34%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 0.98% 0.96% 1.03% 4
Net investment income 5.99% 7.13% 6.45% 4
Expense waiver 5 0.46% 0.49% 0.50% 4
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $182,597 $138,554 $289
Portfolio turnover 209% 264% 97%

</TABLE>

1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to February 28, 1997.

2 Per Share information presented is based upon the average number of shares
outstanding.

3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

4 Computed on an annualized basis.

5 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated February 28, 1999, which can be obtained free of charge.

Financial Highlights - Class B Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED FEBRUARY 28 1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE,

BEGINNING OF PERIOD $ 8.84 $ 8.59 $ 8.63
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.46 2 0.58 0.28
Net realized and
unrealized gain (loss)
on investments (0.05) 0.20 (0.02)
TOTAL FROM INVESTMENT

OPERATIONS 0.41 0.78 0.26
LESS DISTRIBUTIONS:

Distributions from net

investment income (0.47) (0.53) (0.30)
NET ASSET VALUE, END OF

PERIOD $ 8.78 $ 8.84 $ 8.59
TOTAL RETURN 3 4.65% 9.34% 3.00%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 1.73% 1.71% 1.71% 4
Net investment income 5.36% 6.51% 5.80% 4
Expense waiver 5 0.21% 0.24% 0.26% 4
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $48,304 $10,819 $2,421
Portfolio turnover 209% 264% 97%

</TABLE>

1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to February 28, 1997.

2 Per Share information presented is based upon the average number of shares
outstanding.

3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

4 Computed on an annualized basis.

5 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated February 28, 1999, which can be obtained free of charge.

Financial Highlights - Class C Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED FEBRUARY 28 1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE,

BEGINNING OF PERIOD $ 8.84 $ 8.59 $ 8.63
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.48 2 0.55 0.27
Net realized and
unrealized gain (loss)
on investments (0.06) 0.23 (0.01)
TOTAL FROM INVESTMENT

OPERATIONS 0.42 0.78 0.26
LESS DISTRIBUTIONS:

Distributions from net

investment income (0.47) (0.53) (0.30)
NET ASSET VALUE, END OF

PERIOD $ 8.79 $ 8.84 $ 8.59
TOTAL RETURN 3 4.76% 9.29% 3.02%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 1.73% 1.71% 1.71% 4
Net investment income 5.38% 6.21% 5.65% 4
Expense waiver 5 0.21% 0.24% 0.26% 4
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $15,682 $2,836 $1,343
Portfolio turnover 209% 264% 97%

</TABLE>

1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to February 28, 1997.

2 Per Share information presented is based upon the average number of shares
outstanding.

3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

4 Computed on an annualized basis.

5 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated February 28, 1999, which can be obtained free of charge.

Federated Government Income Securities, Inc.

CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

APRIL 30, 1999

A Statement of Additional Information (SAI) dated April 30, 1999 is incorporated
by reference into this prospectus. Additional information about the Fund's
investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, and make inquiries,
call your investment professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.

[Graphic]
Federated

Federated Government Income
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-3266
Cusip 313912206

Cusip 313912305
Cusip 313912404

G01090-01 (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION
Federated Government Income Securities, Inc.

CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

CLASS F SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Government Income
Securities Inc. (Fund), dated April 30, 1999.

This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectuses or the Annual Report without charge by calling 1-800-341-7400.

APRIL 30, 1999

[Graphic]
Federated

World-Class Investment Manager
Federated Government Income Securities, Inc.
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

8040406B (4/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 6

How is the Fund Sold? 7

Subaccounting Services 8

Redemption in Kind 9

Account and Share Information 9

Tax Information 9

Who Manages and Provides Services to the Fund? 10

How Does the Fund Measure Performance? 13

Who is Federated Investors, Inc.? 15

Financial Information 16

Addresses 16

How is the Fund Organized?

The Fund is a diversified open-end, management investment company that was
established under the laws of the State of Maryland on February 4, 1986.
The Fund changed its name from Government Income Securities, Inc. to
Federated Government Income Securities, Inc. on February 26, 1996.

The Board of Directors (the Board) has established four classes of shares of the
Fund, known as Class A Shares, Class B Shares, Class C Shares, and Class F
Shares (Shares). This SAI relates to all classes of the above-mentioned Shares.
The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

The following describes the types of fixed income securities in which the Fund
invests:

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

Sequential CMOs

In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the
first class is paid off. This process repeats for each sequential class of CMO.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes.

PACs, TACs and Companion Classes

More sophisticated CMOs include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes.
PACs and TACs receive principal payments and prepayments at a specified rate.
The companion classes receive principal payments and prepayments in excess of
the specified rate. In addition, PACs will receive the companion classes' share
of principal payments, if necessary, to cover a shortfall in the prepayment
rate. This helps PACs and TACs to control prepayment risks by increasing the
risks to their companion classes.

Private Issue CMOs

The Fund may also invest in CMOs which are rated AAA by a nationally recognized
statistical rating agency and which are issued by private entities such as
investment banking firms and companies related to the construction industry.
Private issue CMOs are not considered to be U.S. government securities within
the meaning of the Fund's investment policy requiring that at least 65% of its
assets be invested in U.S. government securities. The AAA rating is the highest
possible rating assigned to fixed income securities indicating low credit risk.
The CMOs in which the Fund may invest may be: (i) privately issued securities
which are collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (ii) privately issued securities which
are collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; and (iii) other privately issued securities in which
the proceeds of the issuance are invested in mortgaged backed securities and
payment of the principal and interest are supported by the credit of an agency
or instrumentality of the U.S. government.

IOS AND POS

CMOs may allocate interest payments to one class (Interest Only or IOs) and
principal payments to another class (Principal Only or POs). POs increase in
value when prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs tend to increase in value when interest rates rise (and
prepayments decrease), making IOs a useful hedge against interest rate risks.

FLOATERS AND INVERSE FLOATERS

Another variant allocates interest payments between two classes of CMOs. One
class (Floaters) receives a share of interest payments based upon a market index
such as LIBOR. The other class (Inverse Floaters) receives any remaining
interest payments from the underlying mortgages. Floater classes receive more
interest (and Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and interest rate risks from the
Floater to the Inverse Floater class, reducing the price volatility of the
Floater class and increasing the price volatility of the Inverse Floater class.

Z CLASSES

CMOs must allocate all payments received from the underlying mortgages to some
class. To capture any unallocated payments, CMOs generally have an accrual (Z)
class. Z classes do not receive any payments from the underlying mortgages until
all other CMO classes have been paid off. Once this happens, holders of Z class
CMOs receive all payments and prepayments. The degree of increased or decreased
prepayment risks depends upon the structure of the CMOs. However, the actual
returns on any type of mortgage backed security depend upon the performance of
the underlying pool of mortgages, which no one can predict and will vary among
pools.

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

HEDGING

The Fund may engage in hedging transactions using derivative contracts. Hedging
transactions are intended to reduce specific risks. For example, to protect the
Fund against circumstances that would normally cause the Fund's portfolio
securities to decline in value, the Fund may buy or sell a derivative contract
that would normally increase in value under the same circumstances. The Fund may
also attempt to hedge by using combinations of different derivatives contracts,
or derivatives contracts and securities. The Fund's ability to hedge may be
limited by the costs of the derivatives contracts. The Fund may attempt to lower
the cost of hedging by entering into transactions that provide only limited
protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

The Fund may trade in the following types of derivative contracts:

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 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/sell financial futures contracts.

OPTIONS

Options are rights to buy or sell an underlying asset 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 from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset 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.

The Fund may:

* Buy call options on securities and financial futures contracts in
anticipation of an increase in value of the underlying asset;

* Buy put options on securities and financial futures contracts in
anticipation of a decrease in the value of the underlying asset; and

* Buy or write options to close out existing options positions.

The Fund may also write call options on financial futures contracts to generate
income from premiums, and in anticipation of a decrease or only limited increase
in the value of the underlying asset. If a call written by the Fund is
exercised, the Fund foregoes any possible profit from an increase in the market
price of the underlying asset over the exercise price plus the premium received.

The Fund may also write put options on securities and financial futures
contracts to generate income from premiums, and in anticipation of an increase
or only limited decrease in the value of the underlying asset. In writing puts,
there is a risk that the Fund may be required to take delivery of the underlying
asset when its current market price is lower than the exercise price.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.

DELAYED DELIVERY TRANSACTIONS

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

SECURITIES LENDING

The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.

Securities lending activities are subject to interest rate and credit risks.

ASSET COVERAGE

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its universal cash.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
risks are described below.

INTEREST RATE RISKS

* Prices of fixed income securities rise and fall in response to interest rate
changes in the interest paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market factors,
such as the demand for particular fixed income securities, may cause the price
of certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.

* Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

CREDIT RISKS

* Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.

PREPAYMENT RISKS

* Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing, or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price or yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, like other interest-bearing securities, the values of mortgage backed
securities generally fall when interest rates rise.

* Since rising interest rates generally result in decreased prepayments of
mortgage backed securities, this could cause mortgage backed securities, this
could cause mortgage securities to have greater average lives than expected and
their value may decline more than other fixed income securities. Conversely,
when interest rates fall, their potential for capital appreciation is limited
due to the existence of the prepayment feature.

* Generally, mortgage backed securities compensate for greater prepayment risk
by paying a higher yield. The additional interest paid for risk is measured by
the difference between the yield of a mortgage backed security and the yield of
a U.S. Treasury security with a comparable maturity (the spread). An increase in
the spread will cause the price of the security to decline. Spreads may
generally increase in response to adverse economic or market conditions.

LIQUIDITY RISKS

* Trading opportunities are more limited for CMOs that have complex terms or
that are not widely held. These features may make it more difficult to sell or
buy a security at a favorable price or time. Consequently, the Fund may have to
accept a lower price to sell a security, sell other securities to raise cash or
give up an investment opportunity, any of which could have a negative effect on
the Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.

* Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative 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.

RISKS ASSOCIATED WITH COMPLEX CMOS

* CMOs with complex or highly variable prepayment terms, such as companion
classes, IOs, POs, and Inverse Floaters, generally entail greater market,
prepayment and liquidity risks than other mortgage backed securities. For
example, their prices are more volatile and their trading market may be more
limited.

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.

INVESTMENT LIMITATIONS

BUYING ON MARGIN

The Fund will not purchase any securities on margin, other than in connection
with the purchase of put options on financial futures contracts, but may obtain
such short-term credits as are necessary for clearance of transactions.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its net assets, including the amounts borrowed.

The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests where the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while any such borrowings are outstanding. During the period any reverse
repurchase agreements are outstanding, but only to the extent necessary to
assure completion of the reverse repurchase agreements, the Fund will restrict
the purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements.

PLEDGING ASSETS

The Fund will not pledge, mortgage, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing. Neither the deposit of underlying
securities and other assets in escrow in connection with the writing of put or
call options on U.S. government securities nor margin deposits for the purchase
and sale of financial futures contracts and related options are deemed to be a
pledge.

INVESTING IN REAL ESTATE

The Fund will not buy or sell real estate, although it may invest in securities
of companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities. However, the Fund may purchase
put options on financial futures contracts. The Fund may also enter into futures
contracts in order to exercise put options on financial futures contracts in its
portfolio. In addition, the Fund reserves the right to hedge the portfolio by
entering into financial futures contracts and to sell calls on financial futures
contracts. The Fund will notify shareholders before such a change in its
operating policies is implemented.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets except portfolio securities. (This
shall not prevent the purchase or holding of U.S. government securities,
repurchase agreements covering U.S. government securities, or other transactions
which are permitted by the Fund's investment objective and policies.)

SELLING SHORT

The Fund will not sell securities short.

RESTRICTED SECURITIES

The Fund will not invest more than 10% of its total assets in securities subject
to restrictions on resale under the Securities Act of 1933.

The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its total assets in
securities which are not readily marketable or which are otherwise considered
illiquid, including over-the-counter options and repurchase agreements providing
for settlement in more than seven days after notice.

WRITING COVERED PUT AND CALL OPTIONS AND PURCHASING PUT OPTIONS

The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment. The Fund will not purchase put options on securities
unless the securities are held in the Fund's portfolio.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of the investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.

The Fund did not engage in reverse repurchase agreements or borrow money in
excess of 5% of the value of its total assets during the last fiscal year, and
has no present intent to do so in the coming fiscal year.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."

Cash items may include short-term obligations such as:

* obligations of the U.S. government or its agencies or
instrumentalities; and

* repurchase agreements.

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. For the fiscal year ended February 28, 1999,
and 1998, the portfolio turnover rates were 209%, and 264%, respectively.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value;

* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and

* for all other securities at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE

You can reduce or eliminate the applicable front-end sales charge, as follows:

QUANTITY DISCOUNTS

Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.

ACCUMULATED PURCHASES

If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.

CONCURRENT PURCHASES

You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.

LETTER OF INTENT-CLASS A SHARES AND CLASS F SHARES

You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.

REINVESTMENT PRIVILEGE

You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.

PURCHASES BY AFFILIATES OF THE FUND

The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:

* the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;

* Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc.

(Federated) on December 31, 1997;

* any associated person of an investment dealer who has a sales agreement
with the Distributor; and

* trusts, pension or profit-sharing plans for these individuals.

FEDERATED LIFE MEMBERS

Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:

* through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or

* as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.

Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:

* following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;

* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of 70
1/2;

* representing a total or partial distribution from a qualified plan. A total or
partial distribution does not include an account transfer, rollover or other
redemption made for purposes of reinvestment. A qualified plan does not include
an Individual Retirement Account, Keogh Plan, or a custodial account, following
retirement;

* which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements;

* which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;

* of Shares that represent a reinvestment within 120 days of a previous
redemption;

* of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and

* of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES

The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.

RULE 12B-1 PLAN (CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES)

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professionals.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

When an investment professional's customer purchases shares, the investment
professional may receive:

* an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to a
reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)

* an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.

* an amount on the NAV of Class F Shares purchased as follows: up to 1% on
purchases below $2 million; 0.50% on purchases from $2 million but below $5
million; and 0.25% on purchases of $5 million or more.

In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A and Class F Shares that its
customer has not redeemed over the first year.

CLASS A SHARES

Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:

ADVANCE PAYMENTS
AS A PERCENTAGE

AMOUNT OF PUBLIC OFFERING PRICE
<S> <C>

First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>

For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.

Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.

A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.

CLASS F SHARES

Investment professionals purchasing Class F Shares for their customers are
eligible to receive an advance payment from the distributor of 0.25% of the
purchase price.

Subaccounting Services

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

Account and Share Information

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of the Fund have
equal voting rights, except that in matters affecting only a particular class,
only Shares of that class are entitled to vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding shares.

As of April 6, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class A Shares of the Fund: MLPF&S, for the
sole benefit of its customers, Jacksonville, Florida, owned 19,993,071 Shares
(95.63%).

As of April 6, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class B Shares of the Fund: MLPF&S, for the
sole benefit of its customers, Jacksonville, Florida, owned 901,669 Shares
(14.39%).

As of April 6, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class C Shares of the Fund: MLPF&S, for the
sole benefit of its customers, Jacksonville, Florida, owned 1,357,139 Shares
(70.08%).

As of April 6, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class F Shares of the Fund: MLPF&S, for the
sole benefit of its customers, Jacksonville, Florida, owned 54,858,566 Shares
(40.30%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

Who Manages and Provides Services to the Fund?

BOARD OF DIRECTORS

The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each person's
name, address, birth date, present position(s) held with the Fund's, principal
occupations for the past five years and positions held prior to the past five
years, total compensation received as a Director from the Fund for its most
recent fiscal year, and the total compensation received from the Federated Fund
Complex for the most recent calendar year. The Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of April 6, 1999, the Fund's Board and Officers as a group owned
approximately less than 1% of the Fund's outstanding Class A, B, C, and F
Shares.

An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM FUND AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer $0 $0 for the Fund
Birth Date: July 28, 1924 and Director or Trustee and 54 other investment
Federated Investors Tower of the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN and DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment
Management, Company; Chairman and
Director, Federated Investment
Counseling, and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of $1,997.09 $113,860.22 for the Fund
Birth Date: February 3, 1934 the Federated Fund and 54 other investment
15 Old Timber Trail Complex; Director, Member companies in the
Pittsburgh, PA of Executive Committee, Fund Complex
DIRECTOR Children's Hospital of
Pittsburgh; formerly: Senior Partner,
Ernst & Young LLP; Director, MED 3000
Group, Inc.; Director, Member of
Executive Committee, University of
Pittsburgh.

JOHN T. CONROY, JR. Director or Trustee of $2,197.13 $125,264.48for the Fund
Birth Date: June 23, 1937 the Federated Fund and 54 other investment
Wood/IPC Commercial Dept. Complex; President, companies in the
John R. Wood Associates, Inc. Realtors Investment Properties Fund Complex
3255 Tamiami Trail North Corporation; Senior Vice
Naples, FL President, John R. Wood
DIRECTOR and Associates, Inc.,
Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of $1,997.09 $47,958.02for the Fund
Birth Date: September 3, 1939 the Federated Fund and 39 other investment
175 Woodshire Drive Complex; formerly: companies in the
Pittsburgh, PA Partner, Andersen Fund Complex
DIRECTOR Worldwide SC.

JOHN F. CUNNINGHAM++ Director or Trustee of $483.00 $0 for the Fund
Birth Date: March 5, 1943 some of the Federated and 43 other investment
353 El Brillo Way Fund Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
DIRECTOR Executive Officer,
Cunningham & Co., Inc.;
Trustee Associate, Boston
College; Director, EMC
Corporation; formerly:
Director, Redgate
Communications.
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer, Wang
Laboratories; Director,
First National Bank of
Boston; Director, Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of $1,997.09 $113,860.22 for the Fund
Birth Date: October 11, 1932 the Federated Fund and 54 other investment
3471 Fifth Avenue Complex; Professor of companies in the
Suite 1111 Medicine, University of Fund Complex
Pittsburgh, PA Pittsburgh; Medical
DIRECTOR Director, University of
Pittsburgh Medical Center - Downtown;
Hematologist, Oncologist, and
Internist, University of Pittsburgh
Medical Center; Member, National Board
of Trustees, Leukemia Society of
America.

PETER E. MADDEN Director or Trustee of $2045.47 $113,860.22 for the Fund
Birth Date: March 16, 1942 the Federated Fund and 54 other investment
One Royal Palm Way Complex; formerly: companies in the
100 Royal Palm Way Representative, Fund Complex
Palm Beach, FL Commonwealth of
DIRECTOR Massachusetts General
Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
Previous Positions:
Director, VISA USA and
VISA International;
Chairman and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM FUND AND FUND COMPLEX
<S> <C> <C> <C>
Charles F. Mansfield, Jr.++ Director or Trustee of $483.00 $0 for the Fund
Birth Date: April 10, 1945 some of the Federated and 43 other investment
80 South Road Fund Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
DIRECTOR Previous Positions: Chief
Executive Officer, PBTC International
Bank; Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank;
Senior Vice President, Marine Midland
Bank; Vice President, Citibank;
Assistant Professor of Banking and
Finance, Frank G. Zarb School of
Business, Hofstra University.

JOHN E. MURRAY, JR., J.D., S.J.D. Director or Trustee of $2,045.47 $113,860.22 for the Fund
Birth Date: December 20, 1932 the Federated Fund and 54 other investment
President, Duquesne University Complex; President, Law companies in the
Pittsburgh, PA Professor, Duquesne Fund Complex
DIRECTOR University; Consulting
Partner, Mollica &
Murray.
Previous Positions: Dean
and Professor of Law,
University of Pittsburgh
School of Law; Dean and
Professor of Law,
Villanova University
School of Law.

MARJORIE P. SMUTS Director or Trustee of $1,997.09 $113,860.22 for the Fund
Birth Date: June 21, 1935 the Federated Fund and 54 other investment
4905 Bayard Street Complex; Public companies in the
Pittsburgh, PA Relations/Marketing/ Fund Complex
DIRECTOR Conference Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; business owner.

JOHN S. WALSH++ Director or Trustee of $483.00 $0 for the Fund
Birth Date: November 28, 1957 some of the Federated and 40 other investment
2007 Sherwood Drive Fund Complex; President companies in the
Valparaiso, IN and Director, Heat Wagon, Fund Complex
DIRECTOR Inc.; President and

Director, Manufacturers Products, Inc.;
President, Portable Heater Parts, a
division of Manufacturers Products,
Inc.; Director, Walsh & Kelly, Inc.;
formerly: Vice President, Walsh &
Kelly, Inc.

RICHARD B. FISHER* President or Vice $0 $0 for the Fund
Birth Date: May 17, 1923 President of some of the and 6 other investment
Federated Investors Tower Funds in the Federated companies in the
1001 Liberty Avenue Fund Complex; Director or Fund Complex
Pittsburgh, PA Trustee of some of the
PRESIDENT and DIRECTOR Funds in the Federated
Fund Complex; Executive
Vice President, Federated
Investors, Inc.; Chairman
and Director, Federated
Securities Corp.

J. CHRISTOPHER DONAHUE+ President or Executive $0 $0 for the Fund
Birth Date: April 11, 1949 Vice President of the and 22 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of Fund Complex
Pittsburgh, PA some of the Funds in the
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
President and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company, President and Director,
Federated Investment Counseling and
Federated Global Investment Management
Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder
Services Company; Director, Federated
Services Company.

EDWARD C. GONZALES Trustee or Director of $0 $0 for the Fund
Birth Date: October 22, 1930 some of the Funds in the and 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer
EXECUTIVE VICE PRESIDENT of some of the Funds in
the Federated Fund
Complex; Vice Chairman,
Federated Investors,
Inc.; Vice President,
Federated Investment
Management Company and
Federated Investment
Counseling, Federated
Global Investment
Management Corp. and
Passport Research, Ltd.;
Executive Vice President
and Director, Federated
Securities Corp.;
Trustee, Federated
Shareholder Services
Company.

JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Fund
Birth Date: October 26, 1938 and Secretary of the and 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex

Pittsburgh, PA Secretary, and Director,
EXECUTIVE VICE PRESIDENT Federated Investors,
and SECRETARY Inc.; Trustee, Federated

Investment Management Company;
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Director,
Federated Services Company; Director,
Federated Securities Corp.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM FUND AND FUND COMPLEX
<S> <C> <C> <C>
Richard J. Thomas Treasurer of the $0 $0 for the Fund
Birth Date: June 17, 1954 Federated Fund Complex; and 54 other investment
Federated Investors Tower Vice President - Funds companies in the
1001 Liberty Avenue Financial Services Fund Complex
Pittsburgh, PA Division, Federated
TREASURER Investors, Inc.;
formerly: various
management positions
within Funds Financial
Services Division of
Federated Investors, Inc.

WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Fund
Birth Date: March 3, 1949 of this Fund and various and 41 other investment
Federated Investors Tower other Funds in the companies in the

1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment

Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.

KATHLEEN M. FOODY-MALUS Kathleen M. Foody-Malus $0 $0 for the Fund
Birth Date: March 26, 1960 has been the Fund's and 3 other investment
Federated Investors Tower portfolio manager since companies in the
1001 Liberty Avenue July 1993. She is Vice Fund Complex
Pittsburgh, PA President of the Fund.
VICE PRESIDENT Ms. Foody-Malus joined

Federated Investors in 1983 and has
been a Senior Portfolio Manager since
1996 and a Vice President of the Fund's
investment adviser since 1993. She was
a Portfolio Manager and a Vice
President of the Fund's investment
adviser from 1993 to 1996. Ms. Foody-
Malus received her M.B.A. in
Accounting/Finance from the University
of Pittsburgh.

</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Fund.

++ Messrs. Cunningham, Mansfield and Walsh became members of the Board of
Directors on January 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar year.
They did not receive any fees as of the fiscal year end of the Fund.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.

RESEARCH SERVICES

Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.

For the fiscal year ended February 28, 1999, the Fund paid no brokerage
commissions.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

AVERAGE AGGREGATE
DAILY NET ASSETS

MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS <S> <C> 0.150 of 1% on the
first $250 million 0.125 of 1% on the next $250 million 0.100 of 1% on the next
$250 million 0.075 of 1% on assets in excess of $750 million </TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by

shareholders.

INDEPENDENT AUDITORS

Deloitte & Touche LLP is the independent auditor for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED FEBRUARY 28, 1999 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $ 11,358,153 $ 12,503,435 $ 14,913,257
Advisory Fee Reduction 3,151,420 4,007,152 5,195,862
Brokerage Commissions 0 0 0
Administrative Fee 1,141,873 1,258,281 1,502,736
12B-1 FEE

Class A Shares 0 - -
Class B Shares 183,567 - -
Class C Shares 61,686 - -
SHAREHOLDER SERVICES FEE

Class A Shares 411,832 - -
Class B Shares 61,189 - -
Class C Shares 20,562 - -
Class F Shares 3,266,132 - -
</TABLE>

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

How Does the Fund Measure Performance?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year, five-year, ten-year or since inception
periods ended February 28, 1999.

Yield given for the 30-day period ended February 28, 1999.

SINCE

30 -DAY INCEPTION
SHARE CLASS PERIOD 1 YEAR 5 YEARS 10 YEARS ON 8/5/96
CLASS A

<S> <C> <C> <C> <C> <C>
Total Return NA 0.79% NA NA 5.47%
Yield 5.28% NA NA NA NA

CLASS B

<S> <C> <C> <C> <C> <C>
Total Return NA (0.82%) NA NA 5.18%
Yield 4.77% NA NA NA NA

CLASS C

<S> <C> <C> <C> <C> <C>
Total Return NA 3.76% NA NA 6.63%
Yield 4.77% NA NA NA NA

CLASS F

Total Return NA 3.44% 6.24% 7.70% NA
Yield 5.47% NA NA NA NA

</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "U.S. government
funds" category in advertising and sales literature.

LEHMAN BROTHERS MORTGAGE BACKED SECURITIES INDEX

The Lehman Brothers Mortgage Backed Securities Index is a universe of fixed rate
securities backed by mortgage pools of Government National Mortgage Association
(GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and

Federal National Mortgage Association (FNMA).

THE MERRILL LYNCH TAXABLE BOND INDICES

The Merrill Lynch Taxable Bond Indices include U.S. Treasury and agency issues
and were designed to keep pace with structural changes in the fixed income
market. The performance indicators capture all rating changes, new issues, and
any structural changes of the entire market.

MORNINGSTAR, INC.

Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.

Who is Federated Investors, Inc.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B.Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.

Financial Information

The Financial Statements for the Fund for the fiscal year ended February 28,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated Government Income Securities, Inc. dated

February 28, 1999.

Addresses

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

Class A Shares

Class B Shares

Class C Shares

Class F Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN

State Street Bank and Trust Company
P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT AUDITORS

Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110-1617

PROSPECTUS

Federated Government Income Securities, Inc.

CLASS F SHARES

APRIL 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the Fund Invests? 5

What are the Specific Risks of Investing in the Fund? 7

What Do Shares Cost? 8

How is the Fund Sold? 10

How to Purchase Shares 10

How to Redeem and Exchange Shares 11

Account and Share Information 14

Who Manages the Fund? 14

Financial Information 15

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in U.S.
government securities, including mortgage backed securities.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* INTEREST RATE RISK. Prices of fixed income securities generally fall when
interest rates rise.

RISK/RETURN BAR CHART AND TABLE

[Graphic]

The bar chart shows the variability of the Fund's Class F Shares total returns
on a calendar year-end basis.

The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.

The Fund's total return from January 1, 1999 to March 31, 1999 was (0.46%).

Within the period shown in the Chart, the Fund's Class F Shares highest
quarterly return was 8.11% (quarter ended June 30, 1989). Its lowest quarterly
return was (2.17%) (quarter ended March 31, 1994).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Class F Shares Average Annual Total
Returns, reduced to reflect applicable sales charges, for the calendar periods
ending December 31, 1998.

CALENDAR PERIOD CLASS F ML5YRT LBMBSI LBMBGSI LUSGFA
1 Year 5.56% 9.81% 6.96% 8.12% 4.89%
5 Years 6.44% 6.32% 7.23% 7.21% 4.72%
10 Years 7.88% 8.35% 9.13% 9.15% 4.85%

The table shows the Fund's total returns averaged over a period of years
relative to the Merrill Lynch 5 Year Treasury Index (ML5YRT), the Lehman
Brothers Mortgage Backed Securities Index (LBMBSI), broad-based market indexes,
a blended index comprised of 60% Lehman Brothers Mortgage Backed Securities
Index and 40% Lehman Brothers Government Index (LBMBGSI), and Lipper U.S.
Government Funds Average (LUSGFA), an average of funds with similar investment
objectives, for the calendar periods ended December 31, 1998. Total returns for
the indexes shown do not reflect sales charges, expenses or other fees that the
SEC requires to be reflected in the Fund's performance. Indexes are unmanaged,
and it is not possible to invest directly in an index.

What are the Fund's Fees and Expenses?

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Class F Shares.

<TABLE>

SHAREHOLDER FEES

<S> <C>

Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases

(as a percentage of offering price) 1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1

Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.75%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.19%
Total Annual Fund Operating Expenses 1.19%
1 Although not contractually obligated to do so, the Adviser and shareholder
services provider waived certain amounts. These are shown below along with
the net expenses the Fund's Class F Shares actually paid for the fiscal
year ended February 28, 1999.
Total Waivers of Fund Expenses 0.21%
Total Actual Annual Fund Operating Expenses (after waivers) 0.98%

2 The Adviser voluntarily waived a portion of the management fee. The Adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.54% for the year ended February 28,
1999. 3 The shareholder services fee has been voluntarily reduced. This
voluntary reduction does not round to 0.01% of average net assets. This
voluntary reduction can be terminated at any time. The shareholder services fee
paid by the Fund's Class F Shares (after the voluntary reduction) was 0.25% for
the year ended February 28, 1999.

</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Class F Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Class F Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's Class
F Shares operating expenses are BEFORE WAIVERS as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS F SHARES
Expenses assuming redemption $320 $574 $748 $1,529
Expenses assuming no redemption $220 $474 $748 $1,529

What are the Fund's Investment Strategies?

* current and expected U.S. economic growth;

* current and expected interest rates and inflation;

* the Federal Reserve's monetary policy; and

* changes in the supply of or demand for U.S. government securities.

There is no assurance that the Adviser's efforts to forecast market interest
rates and assess the impact of market interest rates on particular securities
will be successful.

The Adviser may attempt to take advantage of current and potential yield
differentials existing from time to time between mortgage backed securities in
order to increase the Fund's return. The Fund may also engage in dollar roll
transactions for their potential to enhance income.

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

The following describes the principal types of fixed income securities in which
the Fund invests:

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

PRIVATE ISSUE CMOS

The Fund may also invest in CMOs which are rated AAA by a nationally recognized
statistical rating agency and which are issued by private entities such as
investment banking firms and companies related to the construction industry.
Private issue CMOs are not considered to be U.S. government securities within
the meaning of the Fund's investment policy requiring that at least 65% of its
assets be invested in U.S. government securities. The AAA rating is the highest
possible rating assigned to fixed income securities indicating low credit risk.
The CMOs in which the Fund may invest may be: (i) privately issued securities
which are collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (ii) privately issued securities which
are collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; and (iii) other privately issued securities in which
the proceeds of the issuance are invested in mortgage backed securities and
payment of the principal and interest are supported by the credit of an agency
or instrumentality of the U.S. government.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

SPECIAL TRANSACTIONS

DELAYED DELIVERY TRANSACTIONS

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

REPURCHASE AGREEMENTS

ASSET COVERAGE

In order to secure its obligations in connection with derivative contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

PREPAYMENT RISKS

Since rising interest rates generally result in decreased prepayments of
mortgage backed securities, this could cause mortgage securities to have greater
average lives than expected and their value may decline more than other fixed
income securities. Conversely, when interest rates fall, their potential for
capital appreciation is limited due to the existence of the prepayment feature.

What Do Shares Cost?

NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.

MINIMUM MAXIMUM SALES CHARGE
INITIAL/ CONTINGENT
SUBSEQUENT FRONT-END DEFERRED
INVESTMENT SALES SALES

SHARES OFFERED AMOUNTS 1 CHARGE 2 CHARGE 3
Class F $1,500/$100 1.00% 1.00%

on their customers than those imposed by the Fund.

2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

CLASS F SHARES

Sales Charge
as a Percentage Sales Charge
of Public as a Percentage

Purchase Amount Offering Price of NAV
Less than $1 million 1.00% 1.01%
$1 million or greater 0.00% 0.00%

The sales charge at purchase may be eliminated by:

* purchasing Shares in greater quantities to reduce the applicable sales
charge;

* combining concurrent purchases of Shares:

- - by you, your spouse, and your children under age 21; or

- - of the same share class of two or more Federated Funds (other than money
market funds);

* accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or

* signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:

* within 120 days of redeeming Shares of an equal or lesser amount;

* when the Fund's Distributor does not advance payment to the investment
professional for your purchase;

* by exchanging shares from the same share class of another Federated Fund;

* for trusts or pension or profit-sharing plans where the third party
administrator has an arrangement with the Fund's Distributor or its affiliates
to purchase shares without a sales charge; or

* through investment professionals that receive no portion of the sales
charge.

If your investment qualifies for an elimination of the sales charge, you or your
investment professional should notify the Fund's Distributor, Federated
Securities Corp., at the time of purchase. If the Distributor is not notified,
you will receive the reduced sales charge only on additional purchases, and not
retroactively on previous purchases.

SALES CHARGE WHEN YOU REDEEM

Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).

CLASS F SHARES

Purchase Amount Shares Held CDSC Up to $2 million 4 years or less 1.00% $2 - $5
million 2 years or less 0.50% $5 million or more 1 year or less 0.25%

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

* purchased with reinvested dividends or capital gains;

* purchased within 120 days of redeeming Shares of an equal or lesser
amount;

* that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a money
market fund);

* purchased through investment professionals who did not receive advanced
sales payments; or

* if, after you purchase Shares, you become disabled as defined by the IRS.

IN ADDITION, YOU WILL NOT BE CHARGED A CDSC:

* if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;

* if your redemption is a required retirement plan distribution;

* upon the death of the last surviving shareholder of the account.

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:

* Shares that are not subject to a CDSC; and

* Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund).

* The CDSC is then calculated using the Share price at the time of purchase or
redemption, whichever is lower.

How is the Fund Sold?

The Fund offers four share classes: Class A Shares, Class B Shares, Class C
Shares and Class F Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Class F Shares. Each share class has
different sales charges and other expenses, which affect their performance.
Contact your investment professional or call 1- 800-341-7400 for more
information concerning the other classes.

The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals.

When the Distributor receives sales charges, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

* Establish an account with the investment professional; and

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

* Establish your account with the Fund by submitting a completed New
Account Form; and

* Send your payment to the Fund by Federal Reserve wire or check.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE

Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire

ABA Number 011000028
Attention: EDGEWIRE

Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

* through an investment professional if you purchased Shares through an
investment professional; or

* directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem or exchange Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form. Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

All requests must include:

* Fund Name and Share Class, account number and account registration;

* amount to be redeemed or exchanged;

* signatures of all shareholders exactly as registered; and

* IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES

Signatures must be guaranteed if:

* your redemption will be sent to an address other than the address of
record;

* your redemption will be sent to an address of record that was changed
within the last 30 days;

* a redemption is payable to someone other than the shareholder(s) of
record; or

* IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.

PAYMENT METHODS FOR REDEMPTIONS

* an electronic transfer to your account at a financial institution that is
an ACH member; or

* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

* to allow your purchase to clear;

* during periods of market volatility; or

* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGES

You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:

* ensure that the account registrations are identical;

* meet any minimum initial investment requirements; and

* receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.

SYSTEMATIC WITHDRAWAL PROGRAM

Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Fund distributions are expected to be primarily dividends. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

KATHLEEN M. FOODY-MALUS

Kathleen M. Foody-Malus has been the Fund's portfolio manager since
July 1993. She is Vice President of the Corporation. Ms. Foody-Malus
joined Federated Investors in 1983 and has been a Senior Portfolio Manager
since 1996 and a Vice President of the Fund's investment adviser since
1993. She was a Portfolio Manager and a Vice President of the Fund's
investment adviser from 1993 to 1996. Ms. Foody-Malus received her M.B.A.
in Accounting/Finance from the University of Pittsburgh.

EDWARD J. TIEDGE

ADVISORY FEES

YEAR 2000 READINESS

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

Financial Information

FINANCIAL HIGHLIGHTS

Financial Highlights-Class F Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>

YEAR ENDED FEBRUARY 28 OR 29 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,

BEGINNING OF PERIOD $ 8.83 $ 8.59 $ 8.75 $ 8.55 $ 9.00
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.53 1 0.61 0.55 0.62 0.63
Net realized and
unrealized gain (loss)
on investments (0.05) 0.24 (0.15) 0.20 (0.46)
TOTAL FROM INVESTMENT

OPERATIONS 0.48 0.85 0.40 0.82 0.17
LESS DISTRIBUTIONS:

Distributions from net

investment income (0.53) (0.61) (0.56) (0.62) (0.62)
NET ASSET VALUE, END OF

PERIOD $ 8.78 $ 8.83 $ 8.59 $ 8.75 $ 8.55
TOTAL RETURN 2 5.49% 10.19% 4.81% 9.87% 2.11%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 0.98% 0.96% 0.96% 0.96% 0.97%
Net investment income 5.95% 6.87% 6.42% 6.96% 7.34%
Expense waiver 3 0.21% 0.24% 0.26% 0.25% 0.23%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $1,221,022 $1,428,591 $1,773,905 $2,264,374 $2,538,013
Portfolio turnover 209% 264% 97% 161% 143%

</TABLE>

1 Per Share information presented is based upon the average number of shares
outstanding.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated February 28, 1999, which can be obtained free of
charge.
[GRAPHIC]
Federated World-Class Investment Manager

PROSPECTUS

Federated Government Income Securities,
Inc.

CLASS F SHARES

APRIL 30, 1999

[Graphic]
Federated

Federated Government Income Securities, Inc.
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-3266
Cusip 313912107

G01090-02 (4/99)

[Graphic]