FIXED INCOME SECURITIES INC, 485BPOS, 1994-09-21

FIXED INCOME SECURITIES INC
485BPOS, 1994-09-21

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1933 Act File No. 33-43472
1940 Act File No. 811-6447

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X

Pre-Effective Amendment No.

Post-Effective Amendment No. 13 X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 15 X

FIXED INCOME SECURITIES, INC.

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
X on September 22, 1994 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.

Registrant has filed with the Securities and Exchange
Commission a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and:

X filed the Notice required by that Rule on January 18,
1994; or
intends to file the Notice required by that Rule on or
about ____________; or
during the most recent fiscal year did not sell any
securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need
not file the Notice.

Copies to:

Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin,
L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of FIXED
INCOME SECURITIES, INC.(the "Corporation"), which is comprised
of five portfolios: (1) Limited Term Fund offering two
separate classes of shares, (a) Class A Shares and (b)
Fortress Shares, (2) Multi-State Municipal Income Fund, (3)
Limited Term Municipal Fund offering two separate classes of
shares, (a) Class A Shares and (b) Fortress Shares, (4)
Limited Maturity Government Fund - Select Shares, and (5)
Strategic Income Fund offering three separate classes of
shares, (a) Class A Shares, (b) Class C Shares and (c)
Fortress Shares, relates only to one of the portfolios,
Strategic Income Fund, and is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page (1-5) Cover Page.
Item 2. Synopsis (1-5) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (1-5) Financial Highlights; (1-
5) Performance Information.
Item 4. General Description of
Registrant (1-5) General Information;
[5(a) and 5(b)] Liberty Family
of Funds; [1(b) and 5(c)]
Fortress Investment Program; (1-
5) Investment Information; (1-
5) Investment Objective; (1-5)
Investment Policies; (1-5)
Investment Limitations (2-3)
Investment Risks.

Item 5. Management of the Fund (1-5) Fixed Income Securities,
Inc. Information; (1-5)
Management of the Corporation;
(1-5) Distribution of Fund
Shares; [1-4, 5(b) and 5(c)]
Distribution Plan;
(1-5) Shareholder Services
Plan; (1-5) Administration of
the Fund; (1-5) Expenses of the
Fund.

Item 6. Capital Stock and Other
Securities (1-5) Dividends and
Distributions; (1-5)
Shareholder Information; (1-5)
Voting Rights; (1-5) Tax
Information; (1-5) Federal
Income Tax; (1-5) Pennsylvania
Corporate and Personal Property
Taxes; (2-3) Other State and
Local Taxes.

Item 7. Purchase of Securities Being
Offered (1-5) Net Asset Value; [1(b),
3(b) and 5(c)] Investing in
Fortress Shares; (2) Investing
in the Fund; [1(a), 3(a) and
5(a)] Investing in Class A
Shares; [5(b)] Investing in
Class C Shares; (4) Investing
in Select Shares; (1-5) Share
Purchases; (1-5) Minimum
Investment Required; (1-5) What
Shares Cost; [1, 3, and 5(c)])
Eliminating the Sales Charge;
[5(a)] Reducing the Sales
Charge; (1-5) Systematic
Investment Program; (1, 3-
5) Exchange Privilege; [1(b),2,
3(b) and 5(c)] Exchanges for
Shares of other Funds; (1-5)
Certificates and Confirmations;
(1 and 4) Retirement Plans;
[4,5(a) and 5(b)] Requirements
for Exchange, [4,5(a) and 5(b)]
Tax Consequences, and [4, 5(a)
and 5(b)] Making an Exchange.

Item 8. Redemption or Repurchase [1(b), 3(b) and 5(c)] Redeeming
Fortress Shares; (2) Redeeming
Shares; [1(a), 3(a) and 5(a)]
Redeeming Class A Shares;
[5(b)] Redeeming Class C
Shares; (4) Redeeming Select
Shares; (1-5) Through a
Financial Institution; (1-4)
Directly By Mail; (5) Directly
from the Fund; (1-5)
Signatures; (1-5) Receiving
Payment; (1-5) Systematic
Withdrawal Program; (2)
Reinvestment Privilege; [1(a)
and 3(a)] Purchases With
Proceeds from Redemptions of
Unaffiliated Investment
Companies; (1-5) Accounts With
Low Balances; [1(b), 2, 3(b),
5(b) and 5(c)] Contingent
Deferred Sales Charge; (2)
Elimination of Contingent
Deferred Sales Charge.

Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION.

Item 10. Cover Page (1-5) Cover Page.
Item 11. Table of Contents (1-5) Table of Contents.
Item 12. General Information and
History (1-5) General Information About
the Fund.
Item 13. Investment Objectives and
Policies (1-5) Investment Objective and
Policies.
Item 14. Management of the Fund (1-5) Fixed Income Securities,
Inc. Management.
Item 15. Control Persons and Principal
Holders of Securities (1-5) Fund Ownership.
Item 16. Investment Advisory and Other
Services (1-5) Investment Advisory
Services; (1-5) Administrative
Services; [1-4, 5(b) and 5(c)]
Distribution Plan; (2, 5)
Shareholder Services Plan; (1,
3, 4) Shareholder Servicing.
Item 17. Brokerage Allocation (1-5) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered (1-5) Purchasing Shares;
(1-5) Determining Net Asset
Value; (1-5) Redeeming Shares;
(1,3) Exchange Privilege.
Item 20. Tax Status (1-5) Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data (1-5) Total Return; (1-5)
Yield; (1-5) Performance
Comparisons; (2, 3) Tax-
Equivalent Yield.
Item 23. Financial Statements (1-5) Filed in Part A.

STRATEGIC
INCOME
FUND

CLASS A SHARES

SUPPLEMENT TO PROSPECTUS
DATED APRIL 5, 1994

September 22, 1994

[LOGO] FEDERATED SECURITIES CORP.
----------------------------
Distributor

A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

338319700
G00531-01 (9/94)

STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES
- --------------------------------------------------------------------------------

SUPPLEMENT TO PROSPECTUS DATED APRIL 5, 1994

A. Please insert the following "Financial Highlights--Class A Shares" table
as page 2 of the prospectus following the "Summary of Fund Expenses" and
before the section entitled "General Information." In addition, please add
the heading "Financial Highlights--Class A Shares" to the Table of
Contents page after the heading "Summary of Fund Expenses."

STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ----------------------------------------------------------------------------------------- -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.17
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.16)
- ----------------------------------------------------------------------------------------- --------
Total from investment operations 0.01
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- ----------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.84
- ----------------------------------------------------------------------------------------- --------
TOTAL RETURN+ 0.07%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.25%(b)
- -----------------------------------------------------------------------------------------
Net investment income 7.19%(b)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 9.12%(b)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $940
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- -----------------------------------------------------------------------------------------
</TABLE>

* For the period from May 3, 1994 (date of initial public investment) to July
31, 1994 (unaudited).

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

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).

(b) Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)

B. Please delete the first two sentences of the section entitled "Liberty
Family of Funds", including the list of funds included in the Liberty
Family of Funds which begins on page 2 of the prospectus and replace them
with the following:

"This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:

. American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;

. Capital Growth Fund, providing appreciation of capital primarily through
equity securities;

. Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;

. International Equity Fund, providing long-term capital growth and income
through international securities;

. International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;

. Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;

. Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated, corporate bonds;

. Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;

. Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;

. Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;

. Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;

. Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;

. Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;

. Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;

. Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and

. World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries."

C. Please insert the following as the second sentence of the final paragraph
in the section entitled "Acceptable Investments" on page 4 of the
prospectus: "The prices of fixed income securities fluctuate inversely to
the direction of interest rates."

D. Please delete the section entitled "When-Issued and Delayed Delivery
Transactions" on page 14 of the prospectus and replace it with the
following:

"WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/ less than the market value of the securities
on the settlement date.

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments."

E. Please delete the table under the heading "What Shares Cost" on page 17 of
the prospectus and replace it with the following:

<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS DEALER CONCESSION AS
A PERCENTAGE OF A PERCENTAGE OF A PERCENTAGE OF
"AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED PUBLIC OFFERING PRICE
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or more 0.00% 0.00% 0.25%*
</TABLE>

*See subsection entitled "Dealer Concession" below."

F. Please delete the first paragraph in the subsection entitled "Dealer
Concession" on page 18 of the prospectus and replace it with the
following:

"DEALER CONCESSION. In addition to the dealer concession as noted in the table
above, the distributor will, from time to time, offer to pay dealers up to 100%
of the sales load retained by it. Such payments may take the form of cash or
promotional incentives, such as reimbursement of certain expenses of qualified
employees and their spouses to attend informational meetings about the Fund or
other special events at recreational-type facilities, or items of material
value. In some instances, these incentives will be made available only to
dealers whose employees have sold or may sell a significant amount of Shares. On
purchases of $1 million or more, the investor pays no sales load; however, the
distributor will make twelve monthly payments to the dealer totalling 0.25% of
the public offering price over the first year following the purchase. Such
payments are based on the original purchase price of Shares outstanding at each
month end."

G. Please delete the section entitled "Retirement Plans" on page 20 of the
prospectus and replace it with the following:
"RETIREMENT PLANS

Shares can be purchased as an investment for retirement plans or for IRA
accounts. For further details, contact the Fund and consult a tax adviser."

H. Please delete the section entitled " Other Payments to Financial
Institutions" on page 25 of the prospectus and replace it with the
following:

"OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Shareholder Services Plan, the distributor may
offer to pay a fee from its own assets to financial institutions as financial
assistance for providing substantial marketing and sales support. The support
may include sponsoring sales, educational and training seminars for their
employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates."

I. Please delete the second and third paragraphs included in the section
entitled "Shareholder Services Plan" on page 25 of the prospectus.

J. Please insert the following "Financial Highlights--Class C Shares" and
"Financial Highlights--Fortress Shares" tables immediately following the
section entitled "Other Classes of Shares" but preceding the section
entitled "Appendix." In addition, please add the headings "Financial
Highlights--Class C Shares" and "Financial Highlights--Fortress Shares" to
the Table of Contents page after the heading "Other Classes of Shares."

STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.14
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.00
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)(a)
- ---------------------------------------------------------------------------------------- --------
Total distributions (0.15)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.85
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN+ (0.01%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 1.00%(c)
- ----------------------------------------------------------------------------------------
Net investment income 7.01%(c)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $419
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ----------------------------------------------------------------------------------------
</TABLE>

* For the period from April 29, 1994 (date of initial public investment) to
July 31, 1994 (unaudited).

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

(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).

(See Notes which are an integral part of the Financial Statements)

STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.14
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.00
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)(a)
- ---------------------------------------------------------------------------------------- --------
Total distributions (0.16)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.84
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN+ (0.05%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.75%(c)
- ----------------------------------------------------------------------------------------
Net investment income 7.35%(c)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $591
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ----------------------------------------------------------------------------------------
</TABLE>

* For the period from May 9, 1994 (date of initial public investment) to July
31, 1994 (unaudited).

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

(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).

(See Notes which are an integral part of the Financial Statements)

K. Please insert the following financial statements immediately following the
"Financial Highlights" tables previously added but preceding the section
entitled "Appendix." In addition, please add the heading "Financial
Statements" to the Table of Contents page immediately before the heading
"Appendix."

STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--31.5%
- ---------------------------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--2.6%
-----------------------------------------------------------------------------------
$50,000 Bell & Howell Co., Sr. Sub. Note, 10.75%, 10/1/2002 $ 50,000
----------------------------------------------------------------------------------- -------------
CABLE TV--2.3%
-----------------------------------------------------------------------------------
50,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 44,937
----------------------------------------------------------------------------------- -------------
CHEMICALS & PLASTICS--2.6%
-----------------------------------------------------------------------------------
50,000 Arcadian Partners L.P., Sr. Note (Series B), 10.75%, 5/1/2005 50,250
----------------------------------------------------------------------------------- -------------
CLOTHING & TEXTILES--2.3%
-----------------------------------------------------------------------------------
50,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 45,563
----------------------------------------------------------------------------------- -------------
CONTAINERS & GLASS PRODUCTS--2.6%
-----------------------------------------------------------------------------------
50,000 Owens Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 50,875
----------------------------------------------------------------------------------- -------------
ECOLOGICAL SERVICES & EQUIPMENT--2.5%
-----------------------------------------------------------------------------------
49,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%,
2/15/2003 49,000
----------------------------------------------------------------------------------- -------------
FOOD & DRUG RETAILERS--4.6%
-----------------------------------------------------------------------------------
50,000 Grand Union Co., Sr. Sub. Note, 12.25%, 7/15/2002 43,625
-----------------------------------------------------------------------------------
45,750 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 45,750
----------------------------------------------------------------------------------- -------------
Total 89,375
----------------------------------------------------------------------------------- -------------
FOOD SERVICE--2.4%
-----------------------------------------------------------------------------------
50,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 46,750
----------------------------------------------------------------------------------- -------------
FOREST PRODUCTS--2.4%
-----------------------------------------------------------------------------------
50,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 46,500
----------------------------------------------------------------------------------- -------------
</TABLE>

STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN U.S.
CURRENCY DOLLAR
PAR AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
HOME PRODUCTS & FURNISHINGS--1.6%
-----------------------------------------------------------------------------------
$50,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 $ 31,750
----------------------------------------------------------------------------------- -------------
STEEL--2.4%
-----------------------------------------------------------------------------------
50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 47,250
----------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--3.2%
-----------------------------------------------------------------------------------
100,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%,
9/1/2003 61,750
----------------------------------------------------------------------------------- -------------
TOTAL U.S. CORPORATE BONDS
(IDENTIFIED COST $627,437) 614,000
----------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT AGENCY--32.7%
- ---------------------------------------------------------------------------------------------------
637,895 Federal National Mortgage Association, TBA, 8.00%, 4/1/2024
(identified cost $634,634) 637,895
----------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--34.0%
- ---------------------------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--2.1%
-----------------------------------------------------------------------------------
STATE/PROVINCIAL--2.1%
-----------------------------------------------------------------------------------
50,000 State Bank of New South Wales, 12.25%, 2/26/2001 41,312
----------------------------------------------------------------------------------- -------------
BRITISH POUND--3.6%
-----------------------------------------------------------------------------------
CORPORATE--3.6%
-----------------------------------------------------------------------------------
50,000 Abbey National Treasury, 8.00%, 4/2/2003 71,192
----------------------------------------------------------------------------------- -------------
CANADIAN DOLLAR--3.6%
-----------------------------------------------------------------------------------
AGENCY--3.6%
-----------------------------------------------------------------------------------
100,000 Ontario Hydro, 9.00%, 6/24/2002 69,184
----------------------------------------------------------------------------------- -------------
DANISH KRONE--2.5%
-----------------------------------------------------------------------------------
SOVEREIGN--2.5%
-----------------------------------------------------------------------------------
300,000 Kingdom of Denmark, 8.00%, 5/15/2003 48,198
----------------------------------------------------------------------------------- -------------
</TABLE>

STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOREIGN U.S.
CURRENCY DOLLAR
PAR AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
DEUTSCHE MARK--3.4%
-----------------------------------------------------------------------------------
SOVEREIGN--3.4%
-----------------------------------------------------------------------------------
$100,000 Federal Republic of Germany, 8.00%, 7/22/2002 $ 66,591
----------------------------------------------------------------------------------- -------------
FRENCH FRANC--3.8%
-----------------------------------------------------------------------------------
AGENCY--3.8%
-----------------------------------------------------------------------------------
400,000 KFW International Finance, Inc., 7.00%, 5/12/2000 73,439
----------------------------------------------------------------------------------- -------------
JAPANESE YEN--6.1%
-----------------------------------------------------------------------------------
CORPORATE--6.1%
-----------------------------------------------------------------------------------
10,000,000 Bank of Tokyo Cayman Finance, Sub. Note, 4.25%, 12/31/99 119,196
----------------------------------------------------------------------------------- -------------
NEW ZEALAND DOLLAR--3.3%
-----------------------------------------------------------------------------------
AGENCY--3.3%
-----------------------------------------------------------------------------------
100,000 Electricity Corp. of New Zealand, 10.00%, 10/15/2001 64,548
----------------------------------------------------------------------------------- -------------
U.S. DOLLAR--5.6%
-----------------------------------------------------------------------------------
AGENCY--2.2%
-----------------------------------------------------------------------------------
50,000 Banco Nacional de Comercio Exterior Mexico, 8.00%, 8/5/2003 42,797
----------------------------------------------------------------------------------- -------------
SOVEREIGN--3.4%
-----------------------------------------------------------------------------------
100,000 Argentina Bonos de Consolidacion (Pre 4), 4.375%, 9/1/2002 67,200
----------------------------------------------------------------------------------- -------------
Total U.S. Dollar 109,997
----------------------------------------------------------------------------------- -------------
TOTAL INTERNATIONAL BONDS
(IDENTIFIED COST $677,808) 663,657
----------------------------------------------------------------------------------- -------------
</TABLE>

STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------

* The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated Funds.

+ The cost for federal tax purposes amounts to $2,249,879. The net unrealized
depreciation of investments on a federal tax basis amounts to $24,327, which
is comprised of $7,768 appreciation and $32,095 depreciation at July 31, 1994.

The following abbreviation is used in this portfolio:

TBA-- To be announced.

Note: The categories of investments are shown as a percentage of net assets
($1,951,232) at
July 31, 1994.

(See Notes which are an integral part of the Financial Statements)

STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------------
Investments in other securities, at value (Note 2A) $ 1,915,552
- ----------------------------------------------------------------------------------------
Investments in repurchase agreements, at amortized cost (Note 2B) 310,000
- ---------------------------------------------------------------------------------------- -----------
Total investments (identified & tax cost $2,249,879) $ 2,225,552
- -----------------------------------------------------------------------------------------------------
Cash 3,733
- -----------------------------------------------------------------------------------------------------
Receivable for foreign currency sold 75,341
- -----------------------------------------------------------------------------------------------------
Interest receivable 28,788
- -----------------------------------------------------------------------------------------------------
Receivable for capital stock sold 15,683
- ----------------------------------------------------------------------------------------------------- -----------
Total assets 2,349,097
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased 290,828
- ----------------------------------------------------------------------------------------
Payable for currency purchased 76,140
- ----------------------------------------------------------------------------------------
Dividends payable 7,054
- ----------------------------------------------------------------------------------------
Accrued expenses 23,843
- ---------------------------------------------------------------------------------------- -----------
Total liabilities 397,865
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 198,212 shares of capital stock outstanding $ 1,951,232
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------
Paid-in capital $ 1,980,067
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation of investments (24,327)
- -----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (526)
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (3,982)
- ----------------------------------------------------------------------------------------------------- -----------
Total Net Assets $ 1,951,232
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE:
Class C Shares (net assets of $419,352 / 42,590 SHARES OF CAPITAL STOCK OUTSTANDING) $9.85
- ----------------------------------------------------------------------------------------------------- -----------
CLASS A SHARES (NET ASSETS OF $940,437 / 95,546 SHARES OF CAPITAL STOCK OUTSTANDING) $9.84
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares (net assets of $591,443 / 60,076 SHARES OF CAPITAL STOCK OUTSTANDING) $9.84
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE:
Class C Shares Offering Price Per Share $9.85
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Offering Price Per Share (100/95.5 of $9.84)* $10.30
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Offering Price Per Share (100/99 of $9.84)* $9.94
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF REDEMPTION PROCEEDS:
Class C Shares Redemption Proceeds Per Share (99/100 of $9.85)** $9.75
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Redemption Proceeds Per Share $9.84
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Redemption Proceeds Per Share (99/100 of $9.84)** $9.74
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>

* See "What Shares Cost" in the prospectus.

** See "Contingent Deferred Sales Charge" in the prospectus.

(See Notes which are an integral part of the Financial Statements)

STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
PERIOD ENDED JULY 31, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 27,745
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 3,084
- -----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 27,650
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 1,700
- -----------------------------------------------------------------------------------------
Printing and postage 100
- -----------------------------------------------------------------------------------------
Legal 350
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares (Note 4) 606
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares (Note 4) 125
- -----------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares (Note 4) 176
- -----------------------------------------------------------------------------------------
Distribution fees--Class C Shares (Note 4) 375
- -----------------------------------------------------------------------------------------
Distribution fees--Fortress Shares (Note 4) 352
- -----------------------------------------------------------------------------------------
Miscellaneous 200
- ----------------------------------------------------------------------------------------- ---------
Total expenses 34,718
- -----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) $ 3,084
- ------------------------------------------------------------------------------
--Reimbursement of other operating expenses (Note 4) 30,000 33,084
- ------------------------------------------------------------------------------ --------- ---------
Net expenses 1,634
- ---------------------------------------------------------------------------------------------------- ----------
Net investment income 26,111
- ---------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (3,982)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,327)
- ---------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments (28,309)
- ---------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ (2,198)
- ---------------------------------------------------------------------------------------------------- ----------
</TABLE>

*For the period from April 29, 1994 (date of initial public investment) to July
31, 1994.

(See Notes which are an integral part of the Financial Statements)

STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------
Net investment income $ 26,111
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investments (Note 2D) (3,982)
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,327)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from operations (2,198)
- ---------------------------------------------------------------------------------------- ------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------------------------
Class A Shares (16,721)
- ----------------------------------------------------------------------------------------
Fortress Shares (5,176)
- ----------------------------------------------------------------------------------------
Class C Shares (3,504)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 2C):
- ----------------------------------------------------------------------------------------
Fortress Shares (844)
- ----------------------------------------------------------------------------------------
Class C Shares (391)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from distributions to shareholders (26,636)
- ---------------------------------------------------------------------------------------- ------------------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ----------------------------------------------------------------------------------------
Proceeds from sale of shares 3,487,420
- ----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 10,486
- ----------------------------------------------------------------------------------------
Cost of shares redeemed (1,486,475)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets from capital stock transactions 2,011,431
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets 1,982,597
- ----------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------- ------------------------
End of period $ 1,982,597
- ---------------------------------------------------------------------------------------- ------------------------
</TABLE>

* For the period from April 29, 1994 (date of initial public investment) to July
31, 1994 (unaudited).

(See Notes which are an integral part of the Financial Statements)

STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------

(1) ORGANIZATION

Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end,
management investment company. The Corporation consists of five diversified
portfolios. The financial statements included herein are only those of Strategic
Income Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers three classes of shares (Class A Shares, Class C Shares and Fortress
Shares).

(2) SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

A. INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed-income and
asset backed securities) are valued at last sale price reported on national
securities exchanges. Unlisted bonds and securities and short-term
obligations are valued at the prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or
less may be stated at amortized cost, which approximates value.

B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
at least equals the principal amount of the repurchase agreement, including
accrued interest.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Directors. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.

C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined in accordance with income tax regulations
which may
differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.

D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. However, federal
taxes may be imposed on the Fund upon the disposition of certain
investments in Passive Foreign Investment Companies. Withholding taxes on
foreign dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates.

E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

F. OTHER--Investment transactions are accounted for on the trade date.

(3) CAPITAL STOCK

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
----------------------
CLASS C SHARES SHARES DOLLARS
<S> <C> <C>
- -------------------------------------------------------------------------------------- --------- -----------
Shares sold 45,588 $ 451,902
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 196 1,943
- --------------------------------------------------------------------------------------
Shares redeemed -- --
- -------------------------------------------------------------------------------------- --------- -----------
Net change resulting from Class C Shares transactions 45,784 $ 453,845
- -------------------------------------------------------------------------------------- --------- -----------
</TABLE>

* For the period from April 29, 1994 (date of initial public investment) to July
31, 1994.

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
-------------------------
CLASS A SHARES SHARES DOLLARS
<S> <C> <C>
- --------------------------------------------------------------------------------- ---------- -------------
Shares sold 245,374 $ 2,442,038
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 471 4,658
- ---------------------------------------------------------------------------------
Shares redeemed (150,299) (1,486,416)
- --------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Class A Shares transactions 95,546 $ 960,280
- --------------------------------------------------------------------------------- ---------- -------------
<CAPTION>

YEAR ENDED
NOVEMBER 30, 1994**
-------------------------
FORTRESS SHARES SHARES DOLLARS
<S> <C> <C>
- --------------------------------------------------------------------------------- ---------- -------------
Shares sold 59,690 $ 593,480
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 392 3,885
- ---------------------------------------------------------------------------------
Shares redeemed (6) (59)
- --------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Fortress Shares transactions 60,076 $ 597,306
- --------------------------------------------------------------------------------- ---------- -------------
Total net change resulting from Fund Shares transactions 201,406 $ 2,011,431
- --------------------------------------------------------------------------------- ---------- -------------
</TABLE>

* For the period from May 3, 1994 (date of initial public investment) to July
31, 1994.

** For the period from May 9, 1994 (date of initial public investment) to July
31, 1994.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.85 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.

DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class C Shares and Fortress Shares. The Plan
provides that the Fund may incur distribution expenses up to .75 of 1% and .50
of 1% of the average daily net assets to the Class C Shares and Fortress Shares,
respectively, annually, to compensate FSC.

Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average net assets of
each class of Shares for the period. This fee is to obtain certain personal
services for shareholders and to maintain the shareholder accounts.

TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ fee is
based on the size, type, and number of accounts and transactions made by
shareholders.

ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative
service expenses will be borne initially by the Adviser and are estimated at
$44,600 and $46,630, respectively. The Fund has agreed to reimburse the Adviser
for the organizational expenses and start-up administrative expenses during the
five year period following April 5, 1994 (date the Fund first became effective).

Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended
July 31, 1994, were as follows:

<TABLE> <S>
<C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 2,173,720
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 220,918
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>

September 22, 1994

STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES
PROSPECTUS

The Class A Shares offered by this prospectus represent interests in Strategic
Income Fund (the "Fund"), a diversified investment portfolio of Fixed Income
Securities, Inc. (the "Corporation"), an open-end, management investment company
(a mutual fund).

The investment objective of the Fund is to seek a high level of current income.
The Fund invests in domestic corporate debt obligations, U.S. government
securities, and foreign government and corporate debt obligations.

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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Class A Shares. Keep this prospectus for future reference.

SPECIAL RISKS

FROM TIME TO TIME, THE FUND'S PORTFOLIO MAY CONSIST PRIMARILY OF LOWER-RATED
CORPORATE DEBT OBLIGATIONS, WHICH ARE COMMONLY REFERRED TO AS "JUNK BONDS."
THESE LOWER-RATED BONDS MAY BE MORE SUSCEPTIBLE TO REAL OR PERCEIVED ADVERSE
ECONOMIC CONDITIONS THAN INVESTMENT GRADE BONDS. THESE LOWER-RATED BONDS ARE
REGARDED AS PREDOMINANTLY SPECULATIVE WITH REGARD TO EACH ISSUER'S CONTINUING
ABILITY TO MAKE PRINCIPAL AND INTEREST PAYMENTS. IN ADDITION, THE SECONDARY
TRADING MARKET FOR LOWER-RATED BONDS MAY BE LESS LIQUID THAT THE MARKET FOR
INVESTMENT GRADE BONDS. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED
WITH AN INVESTMENT IN CLASS A SHARES.

The Fund's investment adviser will endeavor to limit these risks through
diversifying the portfolio and through careful credit analysis of individual
issuers.

The Fund has filed a Statement of Additional Information for Class A Shares
dated April 5, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is incorporated
by reference in this prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated April 5, 1994

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------

GENERAL INFORMATION 2
- ------------------------------------------------------

LIBERTY FAMILY OF FUNDS 2
- ------------------------------------------------------

Liberty Family Retirement Program 3

INVESTMENT INFORMATION 3
- ------------------------------------------------------

Investment Objective 3
Investment Policies 4
Special Risks
Acceptable Investments 4
U.S. Government Securities 4
Mortgage-Backed Securities 5
Collateralized Mortgage Obligations
and Multiclass Pass-Through
Securities 5
Real Estate Mortgage Investment
Conduits ("REMICs") 6
Characteristics of Mortgage-Backed
Securities 6
Corporate Bonds and Other Fixed-Income
Obligations 7
Floating Rate Corporate Debt
Obligations 7
Fixed Rate Corporate Debt Obligations 8
Participation Interests 8
Preferred Stocks 8
Convertible Securities 8
Non-Government Mortgage-Backed
Securities 9
Asset-Backed Securities 9
Zero Coupon, Pay-In-Kind and
Delayed Interest Securities 9
Special Risks 9
Corporate Equity Securities 10
Warrants and Rights 10
Foreign Securities 10
Risks 10
Foreign Currency Transactions 11
Forward Foreign Currency Exchange
Contracts 12
Temporary Investments 12
Repurchase Agreements 13
Options 13
Financial Futures and Options on
Financial Futures 13
Risks 14
Investing in Securities of Other
Investment Companies 14
Restricted and Illiquid Securities 14
When-Issued and Delayed Delivery
Transactions 14
Lending of Portfolio Securities 15
Portfolio Turnover 15
Investment Limitations 15

NET ASSET VALUE 16
- ------------------------------------------------------

INVESTING IN CLASS A SHARES 16
- ------------------------------------------------------

Share Purchases 16
Through a Financial Institution 16
Directly from the Distributor 16
Minimum Investment Required 17
What Shares Cost 17
Dealer Concession 18
Reducing the Sales Charge 18
Quantity Discounts and
Accumulated Purchases 18
Letter of Intent 18
Reinvestment Privilege 19
Purchases with Proceeds from
Redemptions of Unaffiliated
Investment Companies 19
Concurrent Purchases 19
Systematic Investment Program 19
Certificates and Confirmations 20
Dividends and Distributions 20
Retirement Plans 20

TABLE OF CONTENTS--CONTINUED
- --------------------------------------------------------------------------------

EXCHANGE PRIVILEGE 20
- ------------------------------------------------------

Reduced Sales Charge 20
Requirements for Exchange 20
Tax Consequences 21
Making an Exchange 21
Telephone Instructions 21

REDEEMING CLASS A SHARES 21
- ------------------------------------------------------

Through a Financial Institution 22
Directly from the Fund 22
By Telephone 22
By Mail 22
Signatures 22
Systematic Withdrawal Program 23
Accounts with Low Balances 24

FIXED INCOME SECURITIES, INC. INFORMATION 23
- ------------------------------------------------------

Management of the Corporation 23
Board of Directors 23
Investment Adviser 23
Advisory Fees 24
Adviser's Background 24
Portfolio Managers' Backgrounds 24
Distribution of Class A Shares 24
Other Payments to Financial Institutions 25
Administration of the Fund 25
Administrative Services 25
Shareholder Services Plan 25
Custodian 26
Transfer Agent and Dividend Disbursing
Agent 26
Legal Counsel 26
Independent Auditors 26
Expenses of the Fund and Class A Shares 26

SHAREHOLDER INFORMATION 26
- ------------------------------------------------------

Voting Rights 26

TAX INFORMATION 27
- ------------------------------------------------------

Federal Income Tax 27
Pennsylvania Corporate and
Personal Property Taxes 27

PERFORMANCE INFORMATION 27
- ------------------------------------------------------

OTHER CLASSES OF SHARES 28
- ------------------------------------------------------

APPENDIX 29
- ------------------------------------------------------

ADDRESSES Inside Back Cover
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................. 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)...................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds,
as applicable)............................................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable).......................................... None
Exchange Fee................................................................................................ None

ANNUAL CLASS A SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)........................................................................... 0.54%
12b-1 Fee................................................................................................... None
Total Other Expenses........................................................................................ 0.81%
Shareholder Servicing Fee.................................................................... 0.25%
Total Class A Shares Operating Expenses (2)......................................................... 1.35%
</TABLE>

- ---------
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.85%.

(2) The Total Class A Shares Operating Expenses are estimated to be 1.66% absent
the anticipated voluntary waiver of a portion of the management fee.

* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30, 1994.
During the course of this period, expenses may be more or less than the
average amount shown.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS A SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CLASS A SHARES" AND "FIXED INCOME
SECURITIES, INC. INFORMATION." Wire-transferred redemptions of less than $5,000
may be subject to additional fees.

<TABLE>
<CAPTION>
Example 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period................................................... $58 $86
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING NOVEMBER
30, 1994.

The information set forth in the foregoing table and example relates only to
the Class A Shares of the Fund. The Fund also offers two other classes of shares
called Class C Shares and Fortress Shares. Class A Shares, Class C Shares and
Fortress Shares are subject to certain of the same expenses. However, Class C
Shares are subject to a 12b-1 fee of 0.75% and a contingent deferred sales
charge of 1.00%, but are not subject to a sales load. Fortress Shares are
subject to a maximum sales load of 1.00%, a 12b-1 fee of 0.50%, and a contingent
deferred sales charge of 1.00%. See "Other Classes of Shares."

GENERAL INFORMATION
- --------------------------------------------------------------------------------

The Corporation was incorporated under the laws of the State of Maryland on
October 15, 1991. The Articles of Incorporation permit the Corporation to offer
separate portfolios and classes of shares. As of the date of this Prospectus,
the Board of Directors (the "Directors") has established five separate
portfolios: Strategic Income Fund, Limited Term Fund, Limited Term Municipal
Fund, Multi-State Municipal Income Fund and Limited Maturity Government Fund.
With respect to the Fund, the Directors have established three classes of shares
known as Class A Shares, Class C Shares and Fortress Shares. This Prospectus
relates only to the Class A Shares of the Fund (the "Shares").

The Fund is designed for investors seeking high current income through a
professionally managed, diversified portfolio investing primarily in domestic
corporate debt obligations, U.S. government securities, and foreign government
and corporate debt obligations. A minimum initial investment of $500 over a
90-day period is required, unless the investment is in a retirement account in
which case the minimum investment is $50.

Shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value.

LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------

This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:

. American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;

. Liberty Capital Growth Fund, providing appreciation of capital primarily
through equity securities;

. Fund for U.S. Government Securities Inc., providing current income
through long-term U.S. government securities;

. International Equity Fund, providing long-term capital growth and income
through international securities;

. International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;

. Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income-producing equity securities;

. Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated, corporate bonds;

. Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;

. Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high quality U.S.
government securities;

. Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas and communication utilities;

. Stock and Bond Fund, Inc., providing relative safety of capital with the
possibility of long-term growth of capital and income through equity
securities, convertible securities, debt securities, and short-term
obligations; and

. Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities.

Prospectuses for these funds are available by writing to Federated Securities
Corp. Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.

The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of a proven, professional investment adviser.

Shareholders of Class A Shares participating in The Liberty Account, are
designated as Liberty Life Members. Liberty Life Members are exempt from sales
charges on future purchases in and exchanges between the Class A Shares of any
Funds in the Liberty Family of Funds, as long as they maintain a $500 balance in
one of the Liberty Funds.

LIBERTY FAMILY RETIREMENT PROGRAM

The Fund is also a member of the Liberty Family Retirement Program, an
integrated program of investment options, plan recordkeeping, and consultation
services for 401(k) and other participant-directed benefit and savings plans.
Under the Program, employers or plan trustees may select a group of investment
options to be offered in a plan which also uses the Program for recordkeeping
and administrative services. Additional fees are charged to participating plans
for these services. As part of the Program, exchanges may readily be made
between investment options selected by the employer or a plan trustee.

The other funds participating in the Liberty Family Retirement Program are:
American Leaders Fund, Inc., Liberty Capital Growth Fund, International Equity
Fund, International Income Fund, Liberty Equity Income Fund, Inc., Liberty High
Income Bond Fund, Inc., Liberty Utility Fund, Inc., Prime Cash Series, and Stock
and Bond Fund, Inc.

No sales charge is imposed on purchases made by qualified retirement plans with
over $l million invested in funds available in the Liberty Family Retirement
Program.

INVESTMENT INFORMATION
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek a high level of current income.
The investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing in a diversified
portfolio primarily consisting of domestic corporate debt obligations, U.S.
government securities, and foreign government and corporate debt obligations.
Under normal circumstances, the Fund's assets will be invested in each of these
three sectors. However, the Fund may from time to time invest up to 100% of its
total assets in any one sector if, in the judgment of the investment adviser,
the Fund has the opportunity of seeking a high level of current income without
undue risk to principal. Accordingly, the Fund's investments should be
considered speculative. Distributable income will fluctuate as the Fund shifts
assets among the three sectors.

There will be no limit to the weighted average maturity of the portfolio. It
will generally be of longer duration. Duration is a commonly used measure of the
potential volatility of the price of a debt security, or the aggregate market
value of a portfolio of debt securities, prior to maturity. Securities with
longer durations generally have more volatile prices than securities of
comparable quality with shorter durations.

Unless indicated otherwise, the Fund's investment policies may be changed by the
Directors without the approval of shareholders. Shareholders will be notified
before any material change in these investment policies becomes effective.

ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally managed,
diversified portfolio consisting of domestic corporate debt obligations, U.S.
government securities, and foreign government and corporate debt obligations.
The Fund also may invest in debt securities issued by domestic and foreign
utilities, as well as money market instruments and other temporary investments.

The securities in which the Fund invests principally are:

. securities issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities;

. domestic corporate debt obligations, some of which may include equity
features; and

. debt obligations issued by foreign governments and corporations.

The allocation of investments across these three principal types of securities
at any given time is based upon the adviser's estimate of expected performance
and risk of each type of investment. In order to benefit from the typical low
correlation of these three types of securities, the Fund will typically invest a
portion of its assets in each category. However, from time to time, the adviser
may change the allocation based upon its evaluation of the marketplace.

The Fund may invest in debt securities of any maturity.

U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the Fund
invests are either issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund invests
principally are:

. direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and

. obligations of U.S. government agencies or instrumentalities, such as
Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Banks for
Cooperatives (including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Tennessee Valley Authority, Export-Import Bank of the United States,
Commodity Credit Corporation, Federal Financing Bank, Student Loan
Marketing Association, Federal Home Loan Mortgage Corporation, or
National Credit Union Administration.

The government securities in which the Fund may invest are backed in a variety
of ways by the U.S. government or its agencies or instrumentalities. Some of
these securities, such as Government National Mortgage Association ("GNMA")
mortgage-backed securities, are backed by the full faith and credit of the U.S.
government. Other securities, such as obligations of the Federal National
Mortgage Association ("FNMA") or Federal Home Loan Mortgage Corporation
("FHLMC"), are backed by the credit of the agency or instrumentality issuing the
obligations but not the full faith and credit of the U.S. government. No
assurances can be given that the U.S. government will provide financial support
to these other agencies or instrumentalities, because it is not obligated to do
so.

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. The mortgage-backed
securities in which the Fund may invest may be issued by an agency of the
U.S. government, typically GNMA, FNMA or FHLMC.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES.
Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but
also may be collateralized by whole loans or private pass-through
securities (such collateral being called "Mortgage Assets"). Multiclass
pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income, provide the funds to pay debt service
on the CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a real estate
mortgage investment conduit, which has certain special tax attributes.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific fixed or floating rate of interest and has a stated maturity or
final distribution date. Principal prepayment on the Mortgage Assets may
cause the CMOs to be retired substantially earlier than their stated
maturities or final distribution dates. Interest is paid or accrues on all
classes of the CMOs on a monthly, quarterly or semi-annual basis. The
principal of and interest on the Mortgage Assets may be allocated among the
several classes of a series of a CMO in innumerable ways. In one structure,
payments of principal, including any principal prepayments, on the Mortgage
Assets are applied to the classes of a CMO in the order of their respective
stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having
an earlier stated maturity or final distribution date have been paid in
full.

CMOs that include a class bearing a floating rate of interest also may
include a class whose yield floats inversely against a specified index
rate. These "inverse floaters" are more volatile than conventional fixed or
floating rate classes of a CMO and the yield thereon, as well as the value
thereof, will fluctuate in inverse proportion to changes in the index on
which interest rate adjustments are based. As a result, the yield on an
inverse floater class of a CMO will generally increase when market yields
(as reflected by the index) decrease and decrease when market yields
increase. The extent of the volatility of inverse floaters depends on the
extent of anticipated changes in market rates of interest. Generally,
inverse floaters provide for interest rate adjustments based upon a
multiple of the specified interest index, which further increases their
volatility. The degree of additional volatility will be directly
proportional to the size of the multiple used in determining interest rate
adjustments.

The Fund may also invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class, which, as
with other CMO structures, must be retired by its stated maturity date or
final distribution date but may be retired earlier. PAC Bonds generally
require payments of a specified amount of principal on each payment date.
PAC Bonds are always parallel pay CMOs with the required principal payment
on such securities having the highest priority after interest has been paid
to all classes.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings
of multiple class real estate mortgage-backed securities which qualify and
elect treatment as such under provisions of the Internal Revenue Code.
Issuers of REMICs may take several forms, such as trusts, partnerships,
corporations, associations, or segregated pools of mortgages. Once REMIC
status is elected and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC interest must
consist of one or more classes of "regular interests," some of which may
offer adjustable rates of interest (the type in which the Fund primarily
invests), and a single class of "residual interests." To qualify as a
REMIC, substantially all the assets of the entity must be in assets
directly or indirectly secured principally by real property.

CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed securities
have yield and maturity characteristics corresponding to the underlying
mortgages. Distributions to holders of mortgage-backed securities include
both interest and principal of the underlying mortgages and any prepayments
of principal due to prepayment, refinancing, or foreclosure of the
underlying mortgages. Although maturities of the underlying mortgage loans
may range up to 30 years, amortization and prepayments substantially
shorten the effective maturities of mortgage-backed securities. Due to
these features, mortgage-backed securities are less effective as a means of
"locking in" attractive long-term interest rates than fixed-income
securities which pay only a stated amount of interest until maturity, when
the entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal generally
and significant prepayments which become more likely as mortgage interest
rates decline. Since comparatively high interest rates cannot be
effectively "locked in," mortgage-backed securities may have less potential
for capital appreciation during periods of declining interest rates than
other non-callable fixed-income government securities of comparable stated
maturities. However, mortgage-backed securities may experience less
pronounced declines in value during periods of rising interest rates.

Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased
at a market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be taxed as
ordinary income when distributed to the shareholders.

Some of the CMOs purchased by the Fund may represent an interest solely in
the principal repayments or solely in the interest payments on
mortgage-backed securities. Due to the possibility of prepayments on the
underlying mortgages, these securities may be more interest-rate sensitive
than other securities purchased by the Fund. If prevailing interest rates
fall below the level at which the securities were issued, there may be
substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only securities and a reduction
in the amount of payments made to holders of interest-only securities. It
is possible that the Fund might not recover its original investment in
interest-only securities if there are substantial prepayments on the
underlying mortgages. Therefore, interest-only securities generally
increase in value as interest rates rise and decrease in value as interest
rates fall, counter to changes in value experienced by most fixed-income
securities. The Fund's adviser intends to use this characteristic of
interest-only securities to reduce the effects of interest rate changes on
the value of the Fund's portfolio, while continuing to pursue current
income.

CORPORATE BONDS AND OTHER FIXED-INCOME OBLIGATIONS. The Fund may invest in both
investment grade and non-investment grade (lower-rated) bonds (which may be
denominated in U.S. dollars or in non-U.S. currencies) and other fixed-income
obligations issued by domestic and foreign corporations and other private
issuers. There are no minimum rating requirements for these investments by the
Fund. The Fund's investments may include U.S. dollar-denominated debt
obligations known as "Brady Bonds," which are issued for the exchange of
existing commercial bank loans to foreign entities for new obligations that are
generally collateralized by zero coupon Treasury securities having the same
maturity. From time to time, the Fund's portfolio may consist primarily of
lower-rated (i.e., rated Ba or lower by Moody's Investors Service, Inc.
("Moody's"), or BB or lower by Standard & Poor's Corporation ("Standard &
Poor's") or Fitch Investors Services, Inc. ("Fitch")) corporate debt
obligations, which are commonly referred to as "junk bonds." A description of
the rating categories is contained in the Appendix to this Prospectus." Certain
fixed-income obligations in which the Fund invests may involve equity
characteristics. The Fund may, for example, invest in unit offerings that
combine fixed-income securities and common stock equivalents such as warrants,
rights and options. It is anticipated that the majority of the value
attributable to the unit will relate to its fixed-income component.

FLOATING RATE CORPORATE DEBT OBLIGATIONS. The Fund expects to invest in
floating rate corporate debt obligations, including increasing rate
securities. Floating rate securities are generally offered at an initial
interest rate which is at or above prevailing market rates. The interest
rate paid on these securities is then reset periodically (commonly every 90
days) to an increment over some predetermined interest rate index. Commonly
utilized indices include the three-month Treasury bill rate, the 180-day
Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the commercial
paper rates, or the longer-term rates on U.S. Treasury securities.

FIXED RATE CORPORATE DEBT OBLIGATIONS. The Fund will also invest in fixed
rate securities. Fixed rate securities tend to exhibit more price
volatility during times of rising or falling interest rates than securities
with floating rates of interest. This is because floating rate securities,
as described above, behave like short-term instruments in that the rate of
interest they pay is subject to periodic adjustments based on a designated
interest rate index. Fixed rate securities pay a fixed rate of interest and
are more sensitive to fluctuating interest rates. In periods of rising
interest rates the value of a fixed rate security is likely to fall. Fixed
rate securities with short-term characteristics are not subject to the same
price volatility as fixed rate securities without such characteristics.
Therefore, they behave more like floating rate securities with respect to
price volatility.

PARTICIPATION INTERESTS. The Fund may acquire participation interests in
senior, fully secured floating rate loans that are made primarily to U.S.
companies. The Fund's investments in participation interests are subject to
its limitation on investments in illiquid securities. The Fund may purchase
only those participation interests that mature in one year or less, or, if
maturing in more than one year, have a floating rate that is automatically
adjusted at least once each year according to a specified rate for such
investments, such as a percentage of a bank's prime rate. Participation
interests are primarily dependent upon the creditworthiness of the borrower
for payment of interest and principal. Such borrowers may have difficulty
making payments and may have senior securities rated as low as C by
Moody's, or D by Standard & Poor's Corporation or Fitch. A description of
the rating categories is contained in the Appendix to this Prospectus.

PREFERRED STOCKS. Preferred stock, unlike common stock, offers a stated
dividend rate payable from the issuer's earnings. Preferred stock dividends
may be cumulative or non-cumulative, participating, or auction rate. If
interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as
call/redemption provisions prior to maturity, a negative feature when
interest rates decline.

CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest generally paid
or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.
Convertible securities have several unique investment characteristics, such
as (a) higher yields than common stocks, but lower yields than comparable
nonconvertible securities, (b) a lesser degree of fluctuation in value than
the underlying stock since they have fixed income characteristics, and (c)
the potential for capital appreciation if the market price of the
underlying common stock increases.

The Fund has no current intention of converting any convertible securities
it may own into equity securities or holding them as an equity investment
upon conversion. A convertible security might be subject to redemption at
the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by the Fund
is called for redemption, the Fund may be required to permit the issuer to
redeem the security, convert it into the underlying common stock or sell it
to a third party.

NON-GOVERNMENT MORTGAGE-BACKED SECURITIES. Non-government mortgage-backed
securities in which the Fund may invest include:

. 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;

. privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest is guaranteed by the
issuer and such guarantee is collateralized by U.S. government
securities; or

. other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest is supported by the credit of an agency or instrumentality
of the U.S. government.

ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities
including, but not limited to, interests in pools of receivables, such as
credit card and accounts receivable and motor vehicle and other installment
purchase obligations and leases. These securities may be in the form of
pass-through instruments or asset-backed obligations. The securities, all
of which are issued by non-governmental entities and carry no direct or
indirect government guarantee, are structurally similar to CMOs and
mortgage pass-through securities, which are described above. However,
non-mortgage related asset-backed securities present certain risks that are
not presented by mortgage securities, primarily because these securities do
not have the benefit of the same security interest in the related
collateral. Credit card receivables, for example, are generally unsecured,
while the trustee of asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables.

ZERO COUPON, PAY-IN-KIND AND DELAYED INTEREST SECURITIES. The Fund may
invest in zero coupon, pay-in-kind and delayed interest securities issued
by corporations. Corporate zero coupon securities are: (i) notes or
debentures which do not pay current interest and are issued at substantial
discounts from par value, or (ii) notes or debentures that pay no current
interest until a stated date one or more years into the future, after which
the issuer is obligated to pay interest until maturity, usually at a higher
rate than if interest were payable from the date of issuance. Pay-in-kind
securities pay interest through the issuance to holders of additional
securities and delayed interest securities do not pay interest for a
specified period. Because values of securities of this type are subject to
greater fluctuations than are the values of securities that distribute
income regularly, they may be more speculative than such securities.

SPECIAL RISKS. From time to time, the Fund's portfolio may consist
primarily of lower-rated (i.e., rated Ba or lower by Moody's or BB or
lower by Standard & Poor's or Fitch) corporate debt obligations, which are
commonly referred to as "junk bonds." A description of the rating
categories is contained in the Appendix to this Prospectus. Lower-rated
securities will usually offer higher yields than higher-rated securities.
However, there is more risk associated with these investments. (For
example, securities rated in the lowest category have been unable to
satisfy their obligations under the bond indenture.) These lower-rated
bonds may be more susceptible to real or perceived adverse economic
conditions than investment grade bonds. These lower-rated bonds are
regarded as predominantly speculative with regard to each issuer's
continuing ability to make principal and interest payments. In addition,
the secondary trading market for lower-rated bonds may be less liquid than
the market for investment grade bonds. As a result of these factors,
lower-rated securities tend to have more price volatility and carry more
risk to principal than higher-rated securities.The Fund's investment
adviser will endeavor to limit these risks through diversifying the
portfolio and through careful credit analysis of individual issuers.
Purchasers should carefully assess the risks associated with an investment
in the Fund.

Many corporate debt obligations, including many lower-rated bonds, permit the
issuers to call the security and thereby redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call bonds during periods
of declining interest rates. In these cases, if the Fund owns a bond which is
called, the Fund will receive its return of principal earlier than expected and
would likely be required to reinvest the proceeds at lower interest rates, thus
reducing income to the Fund.

CORPORATE EQUITY SECURITIES. The Fund may also invest in equity securities,
including common stocks, warrants and rights issued by corporations in any
industry (industrial, financial or utility) which may be denominated in U.S.
dollars or in foreign currencies.

WARRANTS AND RIGHTS. The Fund may invest up to 5% of its total assets in
warrants and rights, including but not limited to warrants or rights (i)
acquired as part of a unit or attached to other securities purchased by the
Fund, or (ii) acquired as part of a distribution from the issuer.

FOREIGN SECURITIES. The Fund may invest in foreign securities, including
foreign securities not publicly traded in the United States. No more than 25% of
the Fund's total assets, at the time of purchase, will be invested in government
securities of any one foreign country. The Fund has no other restriction on the
amount of its assets that may be invested in foreign securities and may purchase
securities issued in any country, developed or undeveloped. There are no minimum
rating requirements for the foreign securities in which the Fund invests.

The percentage of the Fund's assets that will be allocated to foreign securities
will vary depending on the relative yields of foreign and U.S. securities, the
economies of foreign countries, the condition of such countries' financial
markets, the interest rate climate of such countries and the relationship of
such countries' currency to the U.S. dollar. These factors are judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and economic
policies) as well as technical and political data.

RISKS. Investments in foreign securities involve special risks that differ
from those associated with investments in domestic securities. The risks
associated with investments in foreign securities apply to securities
issued by foreign corporations and sovereign governments. These risks
relate to political and economic developments abroad, as well as those that
result from the differences between the regulation of domestic securities
and issuers and foreign securities and issuers. These risks may include,
but are not limited to, expropriation, confiscatory taxation, currency
fluctuations, withholding taxes on interest, limitations on the use or
transfer of assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. If the issuer of
the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, the Fund may have limited legal
recourse in the event of default. Moreover, individual foreign economies
may differ favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.

Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include: less publicly available
information about foreign issuers; credit risks associated with certain
foreign governments; the lack of uniform financial accounting standards
applicable to foreign issuers; less readily available market quotations on
foreign issues; the likelihood that securities of foreign issuers may be
less liquid or more volatile; generally higher foreign brokerage
commissions; and unreliable mail service between countries.

To the extent that debt securities purchased by the Fund are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's net asset value; the value of interest earned;
gains and losses realized on the sale of securities; and net investment
income and capital gain, if any, to be distributed to shareholders by the
Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of the Fund's assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the
U.S. dollar, the value of the Fund's assets denominated in the currency
will decrease.

The risks noted above often are heightened for investments in emerging or
developing countries. Compared to the United States and other developed
countries, emerging or developing countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities. Prices on these exchanges
tend to be volatile and, in the past, securities in these countries have
offered a greater potential for gain (as well as loss) than securities of
companies located in developed countries. Further, investments by foreign
investors are subject to a variety of restrictions in many emerging or
developing countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the type of companies in which foreigners may
invest. Additional restrictions may be imposed at any time by these and
other countries in which a fund invests. In addition, the repatriation of
both investment income and capital from several foreign countries is
restricted and controlled under certain regulations, including in some
cases the need for certain government consents. Although these restrictions
may in the future make it undesirable to invest in emerging or developing
countries, the Fund's adviser does not believe that any current
repatriation restrictions would affect its decision to invest in such
countries.

FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or
cash basis at prevailing rates or through forward foreign currency exchange
contracts.

The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could
unfavorably affect the value of Fund assets which are denominated in
foreign currencies, such as foreign securities or funds deposited in
foreign banks, as measured in U.S. dollars. Although foreign currency
transactions may be used by the Fund to protect against a decline in the
value of one or more currencies, such efforts may also limit any potential
gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract (a "forward contract") is an obligation to purchase or
sell an amount of a particular currency at a specific price and on a future
date agreed upon by the parties.

Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated on the Fund's
records and are maintained until the contract has been settled. The Fund
will not enter into a forward contract with a term of more than six months.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction
occurs (the "trade date"). The period between the trade date and settlement
date will vary between 24 hours and 30 days, depending upon local custom.

The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the adviser will consider the likelihood of
changes in currency values when making investment decisions, the adviser
believes that it is important to be able to enter into forward contracts
when it believes the interests of the Fund will be served.

TEMPORARY INVESTMENTS. The Fund may invest temporarily in debt obligations
maturing in one year or less during times of unusual market conditions for
defensive purposes and to maintain liquidity in anticipation of favorable
investment opportunities. The Fund's temporary investments may include:

. obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities;

. time deposits (including savings deposits and certificates of deposit)
and bankers acceptances in commercial or savings banks whose accounts are
insured by the Bank Insurance Fund ("BIF") or the Savings Association
Insurance Fund ("SAIF"), both of which are administered by the Federal
Deposit Insurance Corporation ("FDIC"), including certificates of deposit
issued by and other time deposits in foreign branches of FDIC insured
banks or who have at least $100 million in capital;

. domestic and foreign issues of commercial paper or other corporate debt
obligations;

. obligations of the types listed above, but not satisfying the standards
set forth above, if they are (a) subject to repurchase agreements or (b)
guaranteed as to principal and interest by a domestic or foreign bank
having total assets in excess of $1 billion, by a corporation whose
commercial
paper may be purchased by the Fund, or by a foreign government having an
existing debt security rated at least Baa by Moody's or BBB by Standard &
Poor's or Fitch; and

. other short-term investments of a type which the adviser determines
presents minimal credit risks and which are of "high quality" as
determined by a nationally recognized statistical rating organization,
or, in the case of an instrument that is not rated, of comparable quality
in the judgment of the adviser.

REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities.

OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25% of its net assets and may purchase
put and call options provided that no more than 5% of the fair market value of
its net assets may be invested in premiums on such options.

A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund forgoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.

Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the fund
may experience material losses. However, in writing options the premium is paid
in advance by the dealer, OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and a wider range of expiration dates
and exercise prices, than are exchange traded options.

FINANCIAL FUTURES AND OPTIONS ON FINANCIAL FUTURES. The Fund may purchase and
sell financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in the future. The
seller of the contract agrees to make delivery of the type of instrument called
for in the contract and the buyer agrees to take delivery of the instrument at
the specified future time.

The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.

The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases a
futures contract, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contract (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.

RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly
with the prices of the securities in the Fund's portfolio. This may cause
the futures contracts and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as interest rate movements. In these events,
the Fund may lose money on the futures contracts or options. It is not
certain that a secondary market for positions in futures contracts or for
options will exist at all times. Although the investment adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any particular time.
The Fund's ability to establish and close out futures and options positions
depends on this secondary market.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting securities of any such investment company,
invest more than 5% of its total assets in any one investment company, or invest
more than 10% of its total assets in investment companies in general. To the
extent that the Fund invests in securities issued by other investment companies,
the Fund will indirectly bear its proportionate share of any fees and expenses
paid by such companies in addition to the fees and expenses payable directly by
the Fund. The Fund will purchase securities of closed-end investment companies
only in open market transactions involving only customary brokers' commissions.
However, these limitations are not applicable if the securities are acquired in
a merger, consolidation, reorganization or acquisition of Fund assets.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies, but which
are subject to restriction on resale under federal securities law. The Fund will
limit investments in illiquid securities, including certain restricted
securities not determined by the Directors to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than seven
days after notice, to 15% of the value of its net assets.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Fund purchases securities with payment and delivery
scheduled for a future time. In when-issued and delayed delivery transactions,
the Fund relies on the seller to complete the transaction. The seller's failure
to complete the transaction may cause the Fund to miss a price or yield
considered to be advantageous.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Directors. In these loan arrangements, the Fund will receive collateral
in the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned.

PORTFOLIO TURNOVER. The Fund may trade or dispose of portfolio securities as
considered necessary to meet its investment objective. During periods of falling
interest rates, the values of outstanding fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. The magnitude of these fluctuations will generally
be greater for securities with longer maturities. Because the Fund will actively
use trading to benefit from short-term yield disparities among different issues
of fixed-income securities or otherwise to increase its income, the Fund may be
subject to a greater degree of portfolio turnover than might be expected from
investment companies which invest substantially all of their assets on a
long-term basis. The Fund cannot accurately predict its portfolio turnover rate,
but it is anticipated that its annual turnover rate generally will not exceed
200% (excluding turnover of securities having a maturity of one year or less).

Higher portfolio turnover results in increased Fund expenses, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of securities and on the reinvestment in other securities, and results in the
acceleration of realization of capital gains or losses for tax purposes. To the
extent that increased portfolio turnover results in sales of securities held
less than three months, the Fund's ability to qualify as a "regulated investment
company" under the Internal Revenue Code may be affected.

INVESTMENT LIMITATIONS

The Fund will not:

. borrow money directly or through reverse repurchase agreements or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the
value of those assets to secure such borrowings;

. lend any of its assets, except portfolio securities up to one-third of
the value of its total assets; or

. 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 restricted securities which the Fund may purchase pursuant to its
investment objective, policies, and limitations.

The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any material
change in these investment limitations becomes effective.

The Fund will not:

. invest more than 10% of the value of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933 except
for certain restricted securities that meet the criteria for liquidity as
established by the Directors; or

. invest more than 15% of the value of its net assets in securities that
are not readily marketable or that are otherwise considered illiquid,
including repurchase agreements providing for settlement in more than
seven days after notice.

NET ASSET VALUE
- --------------------------------------------------------------------------------

The Fund's net asset value per Share fluctuates. The net asset value per Share
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to the Shares, and
dividing the remainder by the total number of Shares outstanding. The net asset
value of the Shares may be different from that of Class C Shares and Fortress
Shares 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.

INVESTING IN CLASS A SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor, or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.

Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.

THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.

DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor once an account has been established. To do
so:

. complete and sign the new account form available from the Fund;

. enclose a check made payable to Strategic Income Fund--Class A Shares;
and

. send both to the Fund's transfer agent, Federated Services Company, c/o
State Street Bank and Trust Company, P.O. Box 8604, Boston, Massachusetts
02266-8604.

To purchase Shares directly from the distributor by wire once an account has
been established, call the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: State Street Bank and
Trust Company, Boston, Massachusetts 02105; Attention: Mutual Fund Servicing
Division; For Credit to: Strategic Income Fund--Class A Shares; Title or Name of
Account; Wire Order Number and/or Account Number. Shares cannot be purchased by
wire on Columbus Day, Veteran's Day or Martin Luther King Day.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $500 over a 90-day period, unless
the investment is in a retirement plan, in which case the minimum initial
investment is $50. Subsequent investments must be in amounts of at least $100.
(Other minimum investment requirements may apply to investments through the
Liberty Family Retirement Program.)

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
<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 $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.00% 0.00%
</TABLE>

No sales charge is imposed for Shares purchased through bank trust departments
or investment advisers registered under the Investment Advisers Act of 1940
purchasing on behalf of their clients, or by insurance companies. These
institutions, however, may charge fees for services provided which may relate to
ownership of Fund shares. This prospectus should, therefore, be read together
with any agreement between the customer and the institution with regard to
services provided and the fees charged for these services.

No sales charge is imposed on purchases made by qualified retirement plans with
over $1 million invested in funds available in the Liberty Family Retirement
Program.

The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

DEALER CONCESSION. For sales of Shares, broker/dealers will normally receive up
to 90% of the applicable sales charge. Any portion of the sales charge which is
not paid to a broker/dealer will be retained by the distributor. However, the
distributor, in its sole discretion, may uniformly offer to pay all
broker/dealers selling Shares additional amounts from all or a portion of the
sales charge which it normally retains or from any other source available to it.
Such additional payments, if accepted by the broker/dealer, may be in the form
of cash or promotional incentives, and will be predicated upon the amount of
Shares or of the Liberty Family of Funds sold by the broker/dealer, or upon the
type or amount of shareholder services and/or marketing support provided.

The sales charge for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp. may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Shares.

REDUCING THE SALES CHARGE

The sales charge can be reduced on the purchase of Shares through:

. quantity discounts and accumulated purchases;

. signing a 13-month letter of intent;

. using the reinvestment privilege;

. purchases with proceeds from redemptions of unaffiliated mutual fund
shares; or

. concurrent purchases.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales charge. In addition, the sales charge, if
applicable, is reduced for purchases made at one time by a trustee or fiduciary
for a single trust estate or a single fiduciary account.

To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Shares are already owned or that purchases are
being combined. The Fund will eliminate the sales charge after it confirms the
purchases.

LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the funds in the Liberty Family of Funds over the next 13 months, the
sales charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment depending
on the amount actually purchased within the 13-month period and a provision for
the Fund's custodian to hold 4.5% of the total amount intended to be purchased
in escrow (in Shares) until such purchase is completed.

The 4.5% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed Shares may be
redeemed in order to realize the difference in the sales charge.

This letter of intent will not obligate the shareholder to purchase Shares, but
if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days
towards the dollar fulfillment of the letter of intent. Prior trade prices will
not be adjusted.

REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a
one-time right, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to receive this elimination of the
sales charge. If the shareholder redeems his Shares, there may be tax
consequences.

PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which was
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. (This does not include shares of a mutual fund which were or
would be subject to a contingent deferred sales charge upon redemption.) The
purchase must be made within 60 days of the redemption, and Federated Securities
Corp. must be notified by the investor in writing, or by his financial
institution, at the time the purchase is made.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
funds in the Liberty Family of Funds, the purchase prices of which include a
sales charge. For example, if a shareholder concurrently invested $30,000 in one
of the other Liberty Funds with a sales charge, and $70,000 in Shares, the sales
charge would be reduced.

To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the transfer agent, plus the applicable sales charge. A shareholder
may apply for participation in this program through his financial institution or
directly through the Fund.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting the Fund.

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid monthly. Distributions of any net realized
long-term capital gains will be made at least once every twelve months.
Dividends are automatically reinvested in additional Shares on payment dates at
the ex-dividend date net asset value, unless cash payments are requested by
shareholders on the application or by writing to the transfer agent. All
shareholders on the record date are entitled to the dividend.

RETIREMENT PLANS

Shares can be purchased as an investment for retirement plans or for IRA
accounts. For further details, including prototype retirement plans, contact the
Fund and consult a tax adviser.

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds. They may also exchange into
certain other funds for which affiliates of Federated Investors serve as
principal underwriter ("Federated Funds"). Certain Federated Funds are sold with
a sales charge different from that of the Fund or with no sales charge;
exchanges into these Federated Funds are made at net asset value plus the
difference between the Fund's sales charge already paid and any sales charge of
the Federated Fund into which the Shares are to be exchanged, if higher. Neither
the Fund nor any of the funds in the Liberty Family of Funds imposes any
additional fees on exchanges. Participants in a plan under the Liberty Family
Retirement Program may exchange all or some of their Shares for Class A Shares
of other funds offered under the plan at net asset value without a contingent
deferred sales charge.

REDUCED SALES CHARGE

If a shareholder making such an exchange qualifies for a reduction of the sales
charge, Federated Securities Corp. must be notified in writing by the
shareholder or by his financial institution.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
of at least $500. Before the exchange, the shareholder must receive a prospectus
of the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. The exchange privilege
may be terminated at any time. Shareholders will be notified of the modification
or termination of the exchange privilege.

Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Boston Financial Data Services, Inc., Attention: Federated Division, Two
Heritage Drive, North Quincy, Massachusetts 02171.

Instructions for exchanges for the Liberty Family Retirement Program should be
given to the plan administrator.

TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the transfer agent. If the instructions are given by a broker, a
telephone authorization form completed by the broker must be on file with the
transfer agent. Shares may be exchanged between two funds by telephone only if
the two funds have identical shareholder registrations.

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent and deposited to the shareholder's account
before being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. Such instructions will be processed as of 4:00
p.m. (Eastern time) and must be received by the transfer agent before that time
for Shares to be exchanged the same day. Shareholders exchanging into a new fund
will not receive that fund's dividend that is payable to shareholders of record
on that date. This privilege may be modified or terminated at any time.
Telephone instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

REDEEMING CLASS A SHARES
- --------------------------------------------------------------------------------

The Fund redeems Shares at their net asset value next determined after the
transfer agent receives the redemption request. Redemptions will be made on days
on which the Fund computes its net asset value. Redemptions can be made through
a financial institution or directly from the Fund. Redemption requests must be
received in proper form. Redemptions of Shares held through the Liberty Family
Retirement Program will be governed by the requirements of the respective plans.

THROUGH A FINANCIAL INSTITUTION

A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value next determined after the Fund receives the redemption
request from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.

DIRECTLY FROM THE FUND

BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The proceeds will
be mailed to the shareholder's address of record or wire transferred to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event longer
than seven days after the request. The minimum amount for a wire transfer is
$1,000. If at any time the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.

An authorization form permitting the transfer agent to accept telephone requests
must first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.

In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.

Telephone instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

BY MAIL. Any shareholder may redeem Shares by sending a written request to the
transfer agent. The written request should include the shareholder's name, the
Fund name and class designation, the account number, and the share or dollar
amount requested, and should be signed exactly as the Shares are registered.

If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders may call the Fund for assistance in redeeming by mail.

SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:

. a trust company or commercial bank whose deposits are insured by the BIF,
which is administered by the FDIC;

. a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;

. a savings bank or savings and loan association whose deposits are insured
by the SAIF, which is administered by the FDIC; or

. any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Fund does not accept signatures guaranteed by a notary public.

The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution. Due
to the fact that Shares are sold with a sales charge, it is not advisable for
shareholders to be purchasing Shares while participating in this program.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, and pay the proceeds to the shareholder, if the
account balance falls below a required minimum value of $500 due to shareholder
redemptions. This requirement does not apply, however, if the balance falls
below $500 because of changes in the Fund's net asset value. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.

FIXED INCOME SECURITIES, INC. INFORMATION
- --------------------------------------------------------------------------------

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. The Executive Committee of the Board of Directors handles the
Directors' responsibilities between meetings of the Directors.

INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser, subject to direction by the Directors.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.

ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to 0.85 of 1% of the Fund's average daily net assets. The fee
paid by the Fund, while higher than the advisory fee paid by other mutual
funds in general, is comparable to fees paid by many mutual funds with
similar objectives and policies. Under the investment advisory contract,
which provides for voluntary waivers of expenses by the adviser, the
adviser may voluntarily waive some or all of its fee. The adviser can
terminate this voluntary waiver of some or all of its advisory fee at any
time at its sole discretion. The adviser has also undertaken to reimburse
the Fund for operating expenses in excess of limitations established by
certain states.

ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $76 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.

PORTFOLIO MANAGERS' BACKGROUNDS. Randall S. Bauer, Mark E. Durbiano and
Gary J. Madich have been the Fund's portfolio managers since its inception.
Mr. Bauer joined Federated Investors in 1989 and has been a Vice President
of the Fund's adviser since 1994. Mr. Bauer was an Assistant Vice President
of the International Banking Division at Pittsburgh National Bank from 1982
until 1989. Mr. Bauer is a Chartered Financial Analyst and received his
M.B.A. in Finance from Pennsylvania State University. Mr. Durbiano joined
Federated Investors in 1982 and has been a Vice President of the Fund's
adviser since 1988. Mr. Durbiano is a Chartered Financial Analyst and
received his M.B.A. in Finance from the University of Pittsburgh. Mr.
Madich joined Federated Investors in 1984 and has been a Senior Vice
President of the Fund's investment adviser since 1993. Mr. Madich served as
a Vice President of the Fund's investment adviser from 1988 until 1993. Mr.
Madich is a Chartered Financial Analyst and received his M.B.A. in Public
Finance from the University of Pittsburgh.

DISTRIBUTION OF CLASS A SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.

OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Shareholder Services Plan, certain financial
institutions may be compensated by the adviser or its affiliates for the
continuing investment of customers' assets in certain funds, including the Fund,
advised by those entities. These payments will be made directly by the
distributor or adviser from their assets, and will not be made from the assets
of the Fund or by the assessment of a sales charge on Shares.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:

<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 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 Administrative Services may choose voluntarily to waive a portion of
its fee.

SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from the interpretations
given to the Glass-Steagall Act and, therefore, banks and financial institutions
may be required to register as dealers pursuant to state laws.

CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for shares of the Fund and dividend
disbursing agent for the Fund.

LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.

INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Boston, Massachusetts.

EXPENSES OF THE FUND AND CLASS A SHARES

Holders of Shares pay their allocable portion of Fund and Corporation expenses.

The Corporation expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost or organizing the Corporation and
continuing its existence; registering the Corporation with federal and state
securities authorities; Directors' fees; auditors' fees; the cost of meetings of
Directors; legal fees of the Corporation; association membership dues and such
non-recurring and extraordinary items as may arise from time to time.

The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and Shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise from time to time.

At present, the only expenses which are allocated specifically to the Shares as
a class are expenses under the Fund's Distribution Plan. However, the Directors
reserve the right to allocate certain other expenses to holders of Shares as it
deems appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: distribution fees; transfer agent fees as identified by the transfer
agent as attributable to holders of Shares; printing and postage expenses
related to preparing and distributing material such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Shares; legal fees relating solely to Shares; and Directors' fees incurred as
a result of issues relating solely to Shares.

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

VOTING RIGHTS

Each Share of the Fund is entitled to one vote in Director elections and other
matters submitted to shareholders for vote. All shares of all classes of each
portfolio in the Corporation have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote.

As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Fund's operation and for the election of Directors under certain
circumstances.

Directors may be removed by the Board of Directors or by the shareholders at a
special meeting. A special meeting of shareholders shall be called by the
Directors upon the request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held their Shares. No federal income tax is due on
any distributions earned in an IRA or qualified retirement plan until
distributed, so long as such IRA or qualified retirement plan meets the
applicable requirements of the Internal Revenue Code.

PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES

In the opinion of Houston, Houston & Donnelly, counsel to the Fund:

. the Fund is subject to the Pennsylvania corporate franchise tax; and

. Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time the Fund advertises the total return and yield for Class A
Shares.

Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.

The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class C
Shares and Fortress Shares. Because Class A Shares are not subject to 12b-1
expenses, the yield for Class A Shares, for the same period, will exceed that of
Class C and Fortress Shares. Because Class C and Fortress Shares are subject to
lower sales charges, the total return for these shares, for the same period, may
exceed that of Class A Shares.

From time to time, the Fund may advertise the performance of Shares using
certain financial publications and/or compare its performance to certain
indices.

OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------

The Fund currently offers Class A Shares, Class C Shares and Fortress Shares.

Class C Shares are sold primarily to customers of financial institutions at net
asset value with no front-end sales charge. Class C Shares are distributed
pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the distributor is
paid a fee of up to 0.75 of 1%, in addition to a shareholder services fee of
0.25 of 1% of the Class C Shares' average daily net assets. In addition, Class C
Shares may be subject to certain contingent deferred sales charges. Investments
in Class C Shares are subject to a minimum initial investment of $1,500, unless
the investment is in a retirement account, in which case the minimum investment
is $50.

Fortress Shares are sold primarily to customers of financial institutions
subject to a front-end sales charge of up to 1.00%. Fortress Shares are
distributed pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the
distributor is paid a fee of up to 0.50 of 1%, in addition to a shareholder
services fee of 0.25 of 1% of the Fortress Shares' average daily net assets. In
addition, Fortress Shares may be subject to certain contingent deferred sales
charges. Investments in Fortress Shares are subject to a minimum initial
investment of $1,500 over a 90-day period, unless the investment is in a
retirement account, in which case the minimum investment is $50.

The amount of dividends payable to Class A and Fortress Shares will generally
exceed that of Class C Shares by the difference between Class Expenses and
distribution and shareholder service expenses borne by shares of each respective
class.

The stated advisory fee is the same for all three classes of shares.

APPENDIX
- --------------------------------------------------------------------------------

STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.

C--The rating C is reserved for income bonds on which no interest is being paid.

D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in AAA securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment.

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Strategic Income Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ---------------------------------------------------------------------------------------------------------------------

Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------

Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------

Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

STRATEGIC INCOME FUND
CLASS A SHARES
PROSPECTUS

A Diversified Portfolio of
Fixed Income Securities, Inc.,
an Open-End, Management
Investment Company

April 5, 1994

[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor

A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

4031801A-A (4/94)

STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES
Supplement to Statement of Additional Information dated April 5,
1994
A. Please delete the section entitled "When-Issued and Delayed
Delivery Transactions" on page 6 and replace it with the
following:
"When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is
considered to be an advantageous price or yield
for the Fund. Settlement dates may be a month or
more after entering into these transactions, and
the market values of the securities purchased may
vary from the purchase prices. No fees or other
expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Fund
sufficient to make payment for the securities to
be purchased are segregated on the Fund's records
at the trade date. These assets are marked to
market daily and are maintained until the
transaction has been settled. The Fund does not
intend to engage in when-issued and delayed
delivery transactions to an extent that would
cause the segregation of more than 20% of the
total value of its assets."
B. Please insert the following as the final sentence under the
section entitled "Portfolio Turnover" on page 7:
"During the period from April 29, 1994 (date of
initial public investment), through July 31, 1994,
the Fund's portfolio turnover rate was 13%."
C. Please delete J. Christopher Donahue's name and biographical
information from the list of Officers and Directors which
begins on page 10 and replace it with the following:
"J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA

Vice President

President and Trustee, Federated Investors;
Trustee and President, Federated Advisers,
Federated Management, and Federated Research;
Director and President, Federated Research Corp.;
President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated
Services Company, and Federated Shareholder
Services; President or Vice President of the
Funds; Director, Trustee, or Managing General
Partner of some of the Funds. Mr. Donahue is the
son of John F. Donahue, Chairman and Director of
the Fund."
D. In the Officers and Directors table which begins on page 10,
please add a "**" after the name of John A. Staley, IV,
which appears on page 12. Accordingly, please add the
following as a third footnote following the table,
immediately before the subsection entitled "The Funds:"
"** Effective July 1, 1994, John A. Staley, IV,
has resigned his position with the Fund."
E. Please delete the section entitled "Fund Ownership" on page
12 and replace it with the following:
"As of September 6, 1994, Officers and Directors
as a group owned approximately 9,798 shares (2.7%)
of the outstanding shares of the Fund.
As of September 6, 1994, the following
shareholders of record owned 5% or more of the
outstanding Class A Shares of the Fund: Merrill
Lynch Pierce Fenner & Smith (as record owner
holding Class A Shares for its clients),
Jacksonville, Florida, owned approximately 22,097
shares (14.0%); Richard B. Fisher Revocable Trust,
Richard B. Fisher, Trustee, Pittsburgh,
Pennsylvania, owned approximately 9,798 shares
(6.3%); Sara F. Little, Kenova, West Virginia,
owned approximately 9,944 shares (6.5%); and
Edward D. Jones and Co., for the account of
Kenneth R. Lineberg, Maryland Heights, Missouri,
owned approximately 7,709 shares (5.0%).
As of September 6, 1994, the following
shareholders of record owned 5% or more of the
outstanding Class C Shares of the Fund: Mary A.
Secrest and Marian L. Hightower, Joint Tennants,
Arvada, Colorado, owned approximately 5,062 shares
(6.8%); William Terrell, Shawna Terrell, Carolyn
Roy, Michael Terrell, Cynthia Shroer and Judith
Terrell-Huffman, Denver, Colorado, owned
approximately 5,107 shares (6.8%); James E. and
Elsie M. Meeker, Joint Tennants, Denver, Colorado,
owned approximately 4,499 shares (6.0%); Joseph T.
Henshaw and Josephine E. Krieger, Joint Tennants,
Denver, Colorado, owned approximately 5,889 shares
(7.8%); NFSC, for the exclusive benefit of
Winifred M. Briggs, Birmingham, Alabama, owned
approximately 5,000 shares (6.7%); Painewebber for
the Benefit of Clayton D. and Virginia R. Beattie,
Joint Tennants, Edwardsville, Illinois, owned
approximately 4,239 shares (5.7%); and Donaldson
Lufkin Jenrette Securities Corporation, Inc.,
Jersey City, New Jersey, owned approximately 4,097
shares (5.5%).
As of September 6, 1994, the following
shareholders of record owned 5% or more of the
outstanding Fortress Shares of the Fund: Ella M.
and Fredric E. Clark, Joint Tennants, Topeka,
Kansas, owned approximately 7,518 shares (5.6%);
and Merrill Lynch Pierce Fenner & Smith (as record
owner holding Fortress Shares for its clients),
Jacksonville, Florida, owned approximately 72,003
shares (53.5%)."
F. Please delete the section entitled "Adviser to the Fund" on
page 13 and replace it with the following:
"Adviser to the Fund
The Fund's investment adviser is Federated
Advisers (the "Adviser"). It is a subsidiary of
Federated Investors. All of the voting securities
of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, his wife
and his son, J. Christopher Donahue."
G. Please insert the following as the second paragraph in the section
entitled "Advisory Fees" on page 13:
"During the period from April 29, 1994 (date of
initial public investment), through July 31, 1994,
the Adviser earned $3,084, all of which was
voluntarily waived."
H.Please delete the section entitled "Shareholder Servicing" from page 13
and delete its reference from the Table of Contents.
I.Please delete the section entitled "Administrative Services" on page 13
and replace it with the following:
"Administrative Services
Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel
and services to the Fund for a fee as described in the
prospectus. During the period from April 29, 1994
(date of initial public investment), through July 31,
1994, no fees were paid to Federated Administrative
Services. Dr. Henry J. Gailliot, an officer of
Federated Advisers, the adviser to the Fund, holds
approximately 20% of the outstanding common stock and
serves as a director of Commercial Data Services, Inc.,
a company which provides computer processing services
to Federated Administrative Services."
J.Please insert the following as the second paragraph of the section
entitled "Shareholder Services Plan" on page 14:
"During the period from May 3, 1994 (date of initial
public investment) through July 31, 1994, payment in
the amount of $606 was made pursuant to the Shareholder
Services Plan for Class A Shares. During the period
from April 29, 1994 (date of initial public
investment), through July 31, 1994, payment in the
amount of $125 was made pursuant to the Shareholder
Services Plan for Class C Shares. During the period
from May 9, 1994 (date of initial public investment),
through July 31, 1994, payment in the amount of $176
was made pursuant to the Shareholder Services Plan for
Fortress Shares."
K. Please insert the following information as the first
paragraph under the section entitled "Total Return" on page
16:
"The Class A Shares' cumulative total return from
May 3, 1994 (date of initial public investment),
through July 31, 1994, was (4.42%). The Class C
Shares' cumulative total return from April 29,
1994 (date of initial public investment), through
July 31, 1994, was (1.03%). The Fortress Shares'
cumulative total return from May 9, 1994 (date of
initial public investment), through July 31, 1994,
was (2.05%). Cumulative total return reflects the
Shares' total performance over a specific period
of time. This total return assumes and is reduced
by the payment of the maximum sales load and any
contingent deferred sales charge. The Shares'
cumulative total return is representative of
approximately three months of Fund activity since
the Shares' date of initial public investment."
L. Please insert the following information as the first
paragraph under the section entitled "Yield" on page 16:
"The yields for Class A Shares, Class C Shares
and Fortress Shares for the thirty-day period
ended July 31, 1994, were 7.91%, 7.52% and 7.70%,
respectively."

September 22, 1994

FEDERATED SECURITIES CORP.

Distributor
A subsidiary of Federated
Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
338319700
G00531-04-A (9/94)

STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the
prospectus of Class A Shares of Strategic Income Fund (the "Fund")
dated April 5, 1994. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write or call the Fund.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated April 5, 1994

(Logo) FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------

Types of Investments and Investment Techniques 1
Resets of Interest 1
Caps and Floors 1
Brady Bonds 1
Non-Mortgage Related Asset-Backed Securities 2
Convertible Securities 2
Equity Securities 2
Warrants 2
Futures and Options Transactions 3
Foreign Currency Transactions 4
Foreign Bank Instruments 6
When-Issued and Delayed Delivery Transactions 6
Lending of Portfolio Securities 7
Restricted and Illiquid Securities 7
Repurchase Agreements 7
Reverse Repurchase Agreements 7
Portfolio Turnover 7
Investment Limitations 8

FIXED INCOME SECURITIES, INC. MANAGEMENT 10
- ---------------------------------------------------------------

Officers and Directors 10
The Funds 12
Fund Ownership 12
Director Liability 12

INVESTMENT ADVISORY SERVICES 13
- ---------------------------------------------------------------

Adviser to the Fund 13
Advisory Fees 13

SHAREHOLDER SERVICING 13
- ---------------------------------------------------------------

ADMINISTRATIVE SERVICES 13
- ---------------------------------------------------------------

Shareholder Services Plan 14

BROKERAGE TRANSACTIONS 14
- ---------------------------------------------------------------

PURCHASING SHARES 14
- ---------------------------------------------------------------

Conversion to Federal Funds 14
Purchases by Sales Representatives,
Fund Directors, and Employees 14

DETERMINING NET ASSET VALUE 15
- ---------------------------------------------------------------

Determining Market Value of Securities 15

REDEEMING SHARES 15
- ---------------------------------------------------------------

Redemption in Kind 15

TAX STATUS 15
- ---------------------------------------------------------------

The Fund's Tax Status 15
Foreign Taxes 15
Shareholders' Tax Status 16

TOTAL RETURN 16
- ---------------------------------------------------------------

YIELD 16
- ---------------------------------------------------------------

PERFORMANCE COMPARISONS 16
- ---------------------------------------------------------------

GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------

The Fund is a portfolio of Fixed Income Securities, Inc. (the "Corporation").
The Corporation was incorporated under the laws of the State of Maryland on
October 15, 1991.

INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

The investment objective of the Fund is to seek a high level of current income.
The investment objective stated above cannot be changed without approval of
shareholders. The investment policies stated below may be changed by the Board
of Directors ("Directors") without shareholder approval. Shareholders will be
notified before any material change in the investment policies becomes
effective.

TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES

RESETS OF INTEREST

The interest rates paid on the mortgage-backed securities in which the Fund
invests generally are readjusted at intervals of one year or less to an
increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels.

To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an adjustable rate mortgage security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, ARMs which use indices that lag
changes in market rates should experience greater price volatility than
adjustable rate mortgage securities that closely mirror the market.

CAPS AND FLOORS

The underlying mortgages which collateralize the mortgage-backed securities in
which the Fund invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may change up
or down: (1) per reset or adjustment interval, and (2) over the life of the
loan. Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization.

The value of mortgage securities in which the Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. Additionally, even though
the interest rates on the underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the effective maturities
of the mortgage securities in which the Fund invests to be shorter than the
maturities stated in the underlying mortgages.

BRADY BONDS

The Fund may invest in U.S. dollar-denominated foreign securities referred to as
"Brady Bonds." These are debt obligations of foreign entities that may be
fixed-rate par bonds or floating-rate discount bonds and are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. However, the
Fund may also invest in uncollateralized Brady Bonds. Brady Bonds are generally
viewed as having three or four valuation components: (i) any collateralized
repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and
(iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute what is referred to as the "residual risk"
of such bonds). In the event of a default with respect to collateralized Brady
Bonds as a result of which the payment obligations of the issuer are
accelerated, the zero coupon U.S. Treasury securities held as collateral for the
payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the

scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.

NON-MORTGAGE RELATED ASSET-BACKED SECURITIES

Non-mortgage related asset-backed securities present certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of asset-backed securities backed
by motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then re-registered because the owner and the obligor move to another state, such
re-registration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee with
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is a possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.

CONVERTIBLE SECURITIES

The Fund may invest in convertible securities. Convertible securities are fixed
income securities that may be exchanged or converted into a predetermined number
of shares of the issuer's underlying common stock at the option of the holder
during a specified period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units consisting
of "usable" bonds and warrants or a combination of the features of several of
these securities. The investment characteristics of each convertible security
vary widely, which allows convertible securities to be employed for a variety of
investment strategies.

The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of the investment adviser, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible shares. In selecting convertible securities, the Fund's investment
adviser evaluates the investment characteristics of the convertible security as
a fixed income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment adviser considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.

EQUITY SECURITIES

Generally, less than 10% of the value of the Fund's total assets will be
invested in equity securities, including common stocks, warrants or rights. The
Fund may exceed this limitation for temporary defensive purposes if unusual
market conditions occur.

WARRANTS

The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock. The Fund will not invest more than 5% of the value of its
total assets in warrants. Warrants acquired in units or attached to securities
may be deemed to be without value for purposes of this policy.

FUTURES AND OPTIONS TRANSACTIONS

The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio securities
and listed put options on futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on portfolio securities
to attempt to increase its current income. The Fund currently does not intend to
invest more than 5% of its total assets in options transactions.

FINANCIAL FUTURES CONTRACTS

A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future. In the fixed
income securities market, price moves inversely to interest rates. A rise
in rates means a drop in price. Conversely, a drop in rates means a rise
in price. In order to hedge its holdings of fixed income securities
against a rise in market interest rates, the Fund could enter into
contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the Fund's anticipated holding
period. The Fund would agree to purchase securities in the future at a
predetermined price (i.e., "go long") to hedge against a decline in
market interest rates.

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS

The Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.

The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the decrease in value of the hedged securities.

Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the
option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in
return for payment of the strike price. If the Fund neither closes out
nor exercises an option, the option will expire on the date provided in
the option contract, and the premium paid for the contract will be lost.

CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS

In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio against
an increase in market interest rates. When the Fund writes a call option
on a futures contract, it is undertaking the obligation of assuming a
short futures position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the option is
exercised. As market interest rates rise, causing the prices of futures
to go down, the Fund's obligation under a call option on a future (to
sell a futures contract) costs less to fulfill, causing the value of the
Fund's call option position to increase.

In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can offset the drop in value of the Fund's fixed income portfolio which
is occurring as interest rates rise.

Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then offset the decrease in value of
the hedged securities.

positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options positions
within this limitation.

"MARGIN" IN FUTURES TRANSACTIONS

Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.

A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will
mark-to-market its open futures positions.

The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.

PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES

The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option.

WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES

The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. The Fund may only sell call options either
on securities held in its portfolio or on securities which it has the
right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration).

PURCHASING AND WRITING OVER-THE-COUNTER OPTIONS

The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options for those options on portfolio securities held by the Fund and
not traded on an exchange. Over-the-counter options are two party
contracts with price and terms negotiated between buyer and seller. In
contrast, exchange-traded options are third party contracts with
standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.

FOREIGN CURRENCY TRANSACTIONS

The Fund may engage without limitation in foreign currency transactions,
including those described below.

CURRENCY RISKS

The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the
Fund values its assets daily in U.S. dollars, the Fund may not convert
its holdings of foreign currencies to U.S. dollars daily. The Fund may
incur conversion costs when it converts its holdings to another currency.
Foreign exchange dealers may realize a profit on the difference between
the price at which the Fund buys and sells currencies.

The Fund will engage in foreign currency exchange transactions in
connection with its investments in the securities. The Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange
market, or through forward contracts to purchase or sell foreign
currencies.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Fund may enter into forward foreign currency exchange contracts in
order to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and a foreign currency
involved in an underlying transaction. However, forward foreign currency
exchange contracts may limit potential gains which could result from a
positive change in such currency relationships. The Fund's investment
adviser believes that it is important to have the flexibility to enter
into forward foreign currency exchange contracts whenever it determines
that it is in the Fund's best interest to do so. The Fund will not
speculate in foreign currency exchange.

The Fund will not enter into forward foreign currency exchange contracts
or maintain a net exposure in such contracts when it would be obligated
to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the Fund's investment adviser believes will tend to be closely correlated
with that currency with regard to price movements. Generally, the Fund
will not enter into a forward foreign currency exchange contract with a
term longer than one year.

FOREIGN CURRENCY OPTIONS

A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option
has the right, but not the obligation, to buy the currency. Conversely,
the owner of a put option has the right, but not the obligation, to sell
the currency.

When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position
during the option period at any time prior to expiration.

A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency depreciates
in value. Although purchasing a foreign currency option can protect the
Fund against an adverse movement in the value of a foreign currency, the
option will not limit the movement in the value of such currency. For
example, if the Fund was holding securities denominated in a foreign
currency that was appreciating and had purchased a foreign currency put
to hedge against a decline in the value of the currency, the Fund would
not have to exercise their put option. Likewise, if the Fund were to
enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a
foreign currency call option to hedge against a rise in value of the
currency, and if the value of the currency instead depreciated between
the date of purchase and the settlement date, the Fund would not have to
exercise its call. Instead, the Fund could acquire in the spot market the
amount of foreign currency needed for settlement.

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS

Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain
additional risks associated with foreign currency options. The markets in
foreign currency options are relatively new, and the Fund's ability to
establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
Fund's investment adviser, the market for them has developed sufficiently
to ensure that the risks in connection with such options are not greater
than the risks in connection with the underlying currency, there can be
no assurance that a liquid secondary market will exist for a particular
option at any specific time. In addition, options on foreign currencies
are affected by all of those factors that influence foreign exchange
rates and investments generally. Foreign currency options that are
considered to be illiquid are subject to the Fund's 15% limitation on
illiquid securities.

The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or
both currencies and may have no relationship to the investment merits of
a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying
foreign currencies at prices that are less favorable than for round lots.

basis. Available quotation information is generally representative of
very large transactions in the interbank market and thus may not reflect
relatively smaller transactions (i.e., less than $1 million) where rates
may be less favorable. The interbank market in foreign currencies is a
global, around-the-clock market. To the extent that the U.S. option
markets are closed while the markets for the underlying currencies remain
open, significant price and rate movements may take place in the
underlying markets that cannot be reflected in the options markets until
they reopen.

FOREIGN CURRENCY FUTURES TRANSACTIONS

By using foreign currency futures contracts and options on such
contracts, the Fund may be able to achieve many of the same objectives as
it would through the use of forward foreign currency exchange contracts.
The Fund may be able to achieve these objectives possibly more
effectively and at a lower cost by using futures transactions instead of
forward foreign currency exchange contracts.

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS

Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition,
there are risks assocated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
futures currencies, as described above.

Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts
is relatively new. The ability to establish and close out positions on
such options is subject to the maintenance of a liquid secondary market.
To reduce this risk, the Fund will not purchase or write options on
foreign currency futures contracts unless and until, in the opinion of
the Fund's investment adviser, the market for such options has developed
sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying
foreign currency futures contracts. Compared to the purchase or sale of
foreign currency futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus
transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss,
such as when there is no movement in the price of the underlying currency
or futures contract.

FOREIGN BANK INSTRUMENTS

Eurodollar Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs"),
Yankee Certificates of Deposit ("Yankee CDs"), and Europaper are subject to
somewhat different risks than domestic obligations of domestic issuers. Examples
of these risks include international, economic and political developments,
foreign governmental restrictions that may adversely affect the payment of
principal or interest, foreign withholdings or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing bank, and
the possible impact of interruptions of the flow of international currency
transactions. Different risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan requirements, loan
limitations, examinations, accounting, auditing, and recording keeping and the
public availability of information. These factors will be carefully considered
by the Fund's adviser in selecting investments for the Fund.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, and not for investment leverage.

These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.

No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled. The Fund may
engage in these transactions to an extent that would cause the segregation of an
amount up to 20% of the total value of its assets.

LENDING OF PORTFOLIO SECURITIES

The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.

RESTRICTED AND ILLIQUID SECURITIES

The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Directors. The
Directors consider the following criteria in determining the liquidity of
certain restricted securities:

.the frequency of trades and quotes for the security;

.the number of dealers willing to purchase or sell the security and the number
of other potential buyers;

.dealer undertakings to make a market in the security; and

.the nature of the security and the nature of the marketplace trades.

REPURCHASE AGREEMENTS

The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that a defaulting seller files for bankruptcy or
becomes insolvent, disposition of securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Directors.

REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into reverse repurchase agreements. A reverse repurchase
transaction is similar to borrowing cash. In a reverse repurchase agreement the
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future, the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.

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, without regard to the length of time a
particular security may have been held. The adviser does not anticipate that
portfolio turnover will result in adverse tax consequences.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

The Fund will not sell securities short or purchase securities on margin,
other than in connection with the purchase and sale of options, financial
futures and options on financial futures, 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 as required by forward
commitments to purchase securities or currencies and except that the Fund
may borrow money and engage in reverse repurchase agreements in amounts
up to one-third of the value of its total 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 when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets 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 mortgage, pledge, 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
15% of the value of total assets at the time of the borrowing. Margin
deposits for the purchase and sale of options, financial futures
contracts and related options are not deemed to be a pledge.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer (other
than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by U.S. government securities) if as
a result more than 5% of the value of its total assets would be invested
in the securities of that issuer or the Fund would own more than 10% of
the outstanding voting securities of that issuer.

INVESTING IN REAL ESTATE

The Fund will not buy or sell real estate, including limited partnership
interests in 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, except that the Fund may
purchase and sell financial futures contracts and related options.
Further, the Fund may engage in transactions in foreign currencies and
may purchase and sell options on foreign currencies and indices for
hedging purposes.

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 restricted securities which the Fund may
purchase pursuant to its investment objective, policies, and limitations.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objective, policies and limitations.

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of the value of its total assets in
any one industry or in government securities of any one foreign country,
except it may invest 25% or more of the value of its total assets in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.

INVESTING IN RESTRICTED SECURITIES

The Fund will not invest more than 10% of the value of its total assets
in securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Directors.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, certain foreign currency options and certain securities not
determined by the Directors to be liquid.

INVESTING IN NEW ISSUERS

The Fund will not invest more than 5% of the value of its total assets in
securities of companies, including their predecessors, that have been in
operation for less than three years. With respect to asset-backed
securities, the Fund will treat the originator of the asset pool as the
company issuing the security for purposes of determining compliance with
this limitation.

INVESTING IN MINERALS

The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs or leases, although it may purchase the
securities of issuers which invest in or sponsor such programs.

INVESTING IN WARRANTS

The Fund will not invest more than 5% of its net assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investments in such warrants not listed on the New York or American Stock
Exchanges to 2% of its net assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholder.) For
purposes of this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by the Fund in
units with or attached to securities may be deemed to be without value.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund will limit its investments in other investment companies to no
more than 3% of the total outstanding voting securities of any such
investment company, will invest no more than 5% of its total assets in
any one investment company, and will invest no more than 10% of its total
assets in investment companies in general. These limitations are not
applicable if the securities are acquired as part of a merger,
consolidation, reorganization, or other acquisition.

DEALING IN PUTS AND CALLS

The Fund may not write or purchase options, except that the Fund may
write covered call options and secured put options on up to 25% of its
net assets and may purchase put and call options, provided that no more
than 5% of the fair market value of its net assets may be invested in
premiums on such options.

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE CORPORATION

The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Corporation or its investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.

violation of such restriction. 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 association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."

The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its total assets during the present fiscal year.

FIXED INCOME SECURITIES, INC. MANAGEMENT
- --------------------------------------------------------------------------------

OFFICERS AND DIRECTORS

Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Advisers,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).

<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE CORPORATION PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*+ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, Aetna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President of the
Corporation.

John R. Wood and Investment Properties Corporation; General Partner or Trustee
Associates, Inc., Realtors in private real estate ventures in Southwest Florida;
3255 Tamiami Trail North Director, Trustee, or Managing General Partner of the Funds;
Naples, FL formerly, President, Naples Property Management, Inc.

William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza 1/2 Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC Bank,
Pittsburgh, PA N.A. and PNC Bank Corp. and Director, Ryan Homes, Inc.

James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.

Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.

Richard B. Fisher* President and Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Director Chairman, Federated Securities Corp.; President or Vice
Pittsburgh, PA President of the Funds; Director or Trustee of some of the

Edward L. Flaherty, Jr.+ Director Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N
5916 Penn Mall Park Restaurants, Inc., and Statewide Settlement Agency,
Pittsburgh, PA Inc.; Director, Trustee, or Managing General Partner of the
Funds; formerly, Counsel, Horizon Financial, F.A., Western
Region.

Peter E. Madden Director Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General Partner
Boston, MA of the Funds; formerly, President, State Street Bank and
Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.

Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.

Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant; Trustee,
1202 Cathedral of Learning Carnegie Endowment for International Peace, RAND Corporation,
University of Pittsburgh Online Computer Library Center, Inc., and U.S. Space
Pittsburgh, PA Foundation; Chairman, Czecho Slovak Management Center;
Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental Policy
and Technology.

Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA

J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee,
Federated Investors Tower Federated Advisers, Federated Management, and Federated
Pittsburgh, PA Research; Trustee, Federated Services Company; President and
Director, Federated Administrative Services, Inc.; President
or Vice President of the Funds; Director, Trustee, or Man-
aging General Partner of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Director of the
Corporation.

Edward C. Gonzales Vice President and Vice President, Treasurer and Trustee, Federated Investors;
Federated Investors Tower Treasurer Vice President and Treasurer, Federated Advisers, Federated
Pittsburgh, PA Management, and Federated Research; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee,
Federated Services Company; Chairman, Treasurer, and
Director, Federated Administrative Services, Inc.; Trustee or
Director of some of the Funds; Vice President and Treasurer
of the Funds.

John W. McGonigle Vice President and Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower Secretary Federated Investors; Vice President, Secretary, and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and Federated
Research; Trustee, Federated Services Company; Executive Vice
President, Secretary, and Director, Federated Administrative
Services, Inc.; Director and Executive Vice President,
Federated Securities Corp.; Vice President and Secretary of
the Funds.

John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive
Federated Investors Tower Vice President, Federated Securities Corp.; President and
Pittsburgh, PA Trustee, Federated Advisers, Federated Management, and
Federated Research; Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company
and President of its Federated Research Division.
</TABLE>

* This Director is deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.

+ Member of the Corporation's Executive Committee. The Executive Committee of
the Board of Directors handles the Directors' responsibilities between
meetings of the Directors.

THE FUNDS

"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Municipal Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; 111 Corcoran Funds; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth
Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series
Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash
Trust; Managed Series Trust; Mark Twain Funds; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; New York Municipal Cash Trust; Peachtree Funds; Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust;
Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and
Trust for U.S. Treasury Obligations.

FUND OWNERSHIP

Officers and Directors own less than 1% of the outstanding Class A Shares (the
"Shares") of the Fund.

DIRECTOR LIABILITY

be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------

ADVISER TO THE FUND

The Fund's investment adviser is Federated Advisers (the "Adviser"). It is a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the Trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue. John F. Donahue, Chairman and Trustee
of Federated Advisers, is Chairman and Trustee of Federated Investors, and
Chairman and Director of the Fund. John A. Staley, IV, President and Trustee of
Federated Advisers, is Vice President and Trustee of Federated Investors,
Executive Vice President of Federated Securities Corp., and Vice President of
the Fund. J. Christopher Donahue, Trustee of Federated Advisers, is President
and Trustee of Federated Investors, Trustee of Federated Services Company,
President and Director of Federated Administrative Services, Inc. and Vice
President of the Fund. John W. McGonigle, Vice President, Secretary and Trustee
of Federated Advisers, is Trustee, Vice President, Secretary and General Counsel
of Federated Investors, Trustee of Federated Services Company, Executive Vice
President, Secretary and Director of Federated Administrative Services, Inc.,
Executive Vice President and Director of Federated Securities Corp., and Vice
President and Secretary of the Fund. The Adviser shall not be liable to the Fund
or any 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.

ADVISORY FEES

For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus.

STATE EXPENSE LIMITATION

The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation.

If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be waived by the Adviser will be
limited, in any single fiscal year, by the amount of the investment
advisory fee. This arrangement is not part of the advisory contract and
may be amended or rescinded in the future.

SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------

In return for providing shareholder servicing to its customers who from time to
time may be owners of record or beneficial owners of Shares, a financial
institution may receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the Shares beneficially owned by the
financial institution's customers for whom it is holder of record or with whom
it has a servicing relationship. These services may include, but not are not
limited to, the provision of personal services and maintenance of shareholder
accounts.

Federated Securities Corp. may also pay financial institutions a fee based upon
the net asset value of the Shares beneficially owned by the financial
institution's clients or customers. This fee is in addition to amounts paid
under the Shareholder Services Plan and will be reimbursed by the Adviser.

ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------

15% and 20%, respectively, of the outstanding common stock and serve as
directors of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Administrative Services, Inc., and Federated
Administrative Services.

SHAREHOLDER SERVICES PLAN

This arrangement permits the payment of fees to Federated Shareholder Services
and, indirectly, to financial institutions to cause services to be provided to
shareholders by a representative who has knowlege of the shareholder's
particular circumstances and goals. These activities and services may include,
but are not limited to, providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.

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. In working with dealers, 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 makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Directors.

The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and 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.

The Adviser and its affiliates exercise reasonable business judgment in
selecting 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.

Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.

PURCHASING SHARES
- --------------------------------------------------------------------------------

Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value plus a sales charge on days the New York Stock Exchange
is open for business. The procedure for purchasing Shares is explained in the
prospectus under "Investing in Class A Shares."

CONVERSION TO FEDERAL FUNDS

It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. State Street Bank and Trust Company ("State Street Bank") acts
as the shareholder's agent in depositing checks and converting them to federal
funds. Orders by mail are considered received after payment by check is
converted by State Street Bank into federal funds. This is generally the next
business day after State Street Bank receives the check.

PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES

Directors, employees, and sales representatives of the Fund, the Adviser, and
Federated Securities Corp. or their affiliates, or any investment dealer who has
a sales agreement with Federated Securities Corp., and their spouses and
children under 21, may buy Shares at net asset value without a sales charge.
Shares may also be sold without a sales charge to trusts or pension or
profit-sharing plans for these persons.

These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.

DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------

Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.

DETERMINING MARKET VALUE OF SECURITIES

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

.as provided by an independent pricing service;

.for short-term obligations, according to the mean bid and asked prices, as
furnished by an independent pricing service, or for short-term obligations with
remaining maturities of less than 60 days at the time of purchase, at amortized
cost unless the Directors determine this is not fair value; or

.at fair value as determined in good faith by the Directors.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:

.yield;

.quality;

.coupon rate;

.maturity;

.type of issue;

.trading characteristics; and

.other market data.

REDEEMING SHARES
- --------------------------------------------------------------------------------

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Class A Shares." Although the transfer agent does
not charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.

REDEMPTION IN KIND

The Corporation is obligated to redeem Shares solely in cash up to $250,000 or
1% of the Fund's net asset value, whichever is less, for any one shareholder
within a 90-day period.

Any redemption beyond this amount will also be in cash unless the Directors
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way that net asset value is determined. The portfolio instruments
will be selected in a manner that the Directors deem fair and equitable.

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

TAX STATUS
- --------------------------------------------------------------------------------

THE FUND'S TAX STATUS

The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:

.derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

.derive less than 30% of its gross income from the sale of securities held less
than three months;

.invest in securities within certain statutory limits; and

.distribute to its shareholders at least 90% of its net income earned during the
year.

FOREIGN TAXES

Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.

SHAREHOLDERS' TAX STATUS

Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations.

CAPITAL GAINS

Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Shares.

TOTAL RETURN
- --------------------------------------------------------------------------------

The average annual total return for the 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 offering price 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 monthly reinvestment of
all dividends and distributions.

YIELD
- --------------------------------------------------------------------------------

The yield of the Shares is determined by dividing the net investment income per
Share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per Share on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-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 the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in the Fund, performance will be reduced for
those shareholders paying those fees.

PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------

The performance of Shares depends upon such variables as:

.portfolio quality;

.average portfolio maturity;

.type of instruments in which the portfolio is invested;

.changes in interest rates and market value of portfolio securities;

.changes in the Fund expenses; and

.various other factors.

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

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any 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. 1/2ranks 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 offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "General Bond
Funds" category in advertising and sales literature.

Advertisements and other sales literature for the Shares may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the historic change in the value of an investment in Shares based on
monthly reinvestment of dividends over a specified period of time.

Advertisements may quote performance information which does not reflect the
effect of the sales charge.

4031801B-A(4/94)

STRATEGIC
INCOME
FUND

CLASS C SHARES

SUPPLEMENT TO PROSPECTUS
DATED APRIL 5, 1994

September 22, 1994

[LOGO] FEDERATED SECURITIES CORP.
----------------------------
Distributor

A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

338319809
G00531-02 (9/94)

STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS C SHARES
- --------------------------------------------------------------------------------

SUPPLEMENT TO PROSPECTUS DATED APRIL 5, 1994

A. Please insert the following "Financial Highlights--Class C Shares" table
as page 2 of the prospectus following the "Summary of Fund Expenses" and
before the section entitled "General Information." In addition, please add
the heading "Financial Highlights--Class C Shares" to the Table of
Contents page after the heading "Summary of Fund Expenses."

STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ----------------------------------------------------------------------------------------- -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.14
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ----------------------------------------------------------------------------------------- --------
Total from investment operations 0.00
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- -----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)(a)
- ----------------------------------------------------------------------------------------- --------
Total distributions (0.15)
- ----------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.85
- ----------------------------------------------------------------------------------------- --------
TOTAL RETURN+ (0.01%)
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 1.00%(c)
- -----------------------------------------------------------------------------------------
Net investment income 7.01%(c)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $419
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- -----------------------------------------------------------------------------------------
</TABLE>