FIXED INCOME SECURITIES INC, 485BPOS, 1996-01-26

FIXED INCOME SECURITIES INC
485BPOS, 1996-01-26

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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. 18 .......... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 18 .......................... 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 January 31, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

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

filed the Notice required by that Rule on ; or
- -- -------------
X intends to file the Notice required by that Rule on or about January 16,
1996; 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.

CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FIXED INCOME SECURITIES,
INC.(the "Corporation"), which is comprised of three portfolios: (1)
Federated Limited Term Fund, offering two separate classes of shares, (a)
Class A Shares and (b) Class F Shares, (2) Federated Limited Term Municipal
Fund, offering two separate classes of shares, (a) Class A Shares and (b)
Class F Shares and (3) Federated Strategic Income Fund, offering four separate
classes of shares, (a) Class A Shares, (b) Class B Shares, (c) Class C Shares
and (d) Class F Shares, relates only to Federated Limited Term Municipal Fund
and Federated 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...............(1-3) Cover Page.
Item 2. Synopsis.................(1-3) Summary of Fund Expenses; (3)
Synopsis.
Item 3. Condensed Financial
Information..............(1-3) Financial Highlights; (1-3)
Performance Information.
Item 4. General Description of
Registrant...............(1-3) General Information; [1,2,3]
Investment Information; (1-3) Investment
Objective; (1-3) Investment Policies; (1-3)
Investment Limitations (3) Investment
Risks.

Item 5. Management of the Fund...(1,2) Fixed Income Securities, Inc.
Information; (3) Fund Information; (1,2)
Management of the Corporation; (3[a-c])
Management of the Fund; [3(d)] Management
of the Corporation; [1(a),2(a)]
Distribution of Class A Shares;[3(a-c)]
Distribution of Shares; [1(b),2(b) and
3(d)] Distribution of Class F Shares;
[1,2,3(d)] Distribution Plan and
Shareholder Services; [3(a-c)] Distribution
Plan and Shareholder Services; (1-3)
Administration of the Fund; (1,2) Expenses
of the Fund.

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

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

Item 8. Redemption or Repurchase.[1(b), 2(b) and 5(d)] Redeeming Class F
Shares; [1(a), 2(a) and 3(a-c)] Redeeming
Class A Shares; [5(a-c)] Redeeming Class B
Shares; [5(a-c)];[5{a-c)] Redeeming Class C
Shares; (1-3) Through a Financial
Institution; (1,2) Directly By Mail; [5(a-
c)] Purchasing Shares by Wire; [5(a-c)]
Purchasing Shares by Check; (1,-3)
Signatures; (1,2) Receiving Payment; (1-3)
Systematic Withdrawal Program; [1(a) ,
2(a), 5(a-c)] Purchases With Proceeds from
Redemptions of Unaffiliated Investment
Companies; (1-3) Accounts With Low
Balances; [1(b), 3(b), 5(a-c)] Contingent
Deferred Sales Charge.
Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page...............(1-3) Cover Page.
Item 11. Table of Contents........(1-3) Table of Contents.
Item 12. General Information and
History..................(1-3) General Information About the Fund.
Item 13. Investment Objectives and
Policies.................(1-3) Investment Objective and Policies.
Item 14. Management of the Fund...(1-3) Fixed Income Securities, Inc.
Management.
Item 15. Control Persons and Principal
Holders of Securities....(1-3) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1-3) Investment Advisory Services; (1-3)
Administrative Services; (1,2) Distribution
and Shareholder Services Plans; [5(a-d)]
Distribution Plan and Shareholder Services
Agreement;
Item 17. Brokerage Allocation.....(1-3) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............Not Applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered (1-3) Purchasing Shares; (1-3)
Determining Net Asset Value; (1-3)
Redeeming Shares; (1-3) Exchange Privilege.
Item 20. Tax Status...............(1-3) Tax Status.
Item 21. Underwriters.............Not Applicable.
Item 22. Calculation of Performance
Data.....................(1-3) Total Return; (1-3) Yield; (1-3)
Performance Comparisons; (2) Tax-Equivalent
Yield.
Item 23. Financial Statements (Incorporated by reference to the Annual
Reports to Shareholders of Fixed Income
Securities, Inc. dated November 30, 1995,
pursuant to Rule 411 under the Securities
Act of 1933. (File No. 811-6447)
(Portfolios 1,2 and 3)

FEDERATED LIMITED TERM MUNICIPAL FUND
(FORMERLY LIMITED TERM MUNICIPAL FUND)
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES

PROSPECTUS

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

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK AND ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, 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.

The Fund has also filed a Statement of Additional Information for Class A Shares
and Class F Shares dated January 31, 1996 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 or a paper copy of this prospectus, if you
have received your prospectus electronically, 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 January 31, 1996

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

Summary of Fund Expenses.......................................................1

Financial Highlights--Class A Shares...........................................2

General Information............................................................3

Investment Information.........................................................3
Investment Objective.........................................................3
Investment Policies..........................................................3
Investment Risks............................................................12
Investment Limitations......................................................12

Net Asset Value...............................................................13

Investing in Class A Shares...................................................13
Share Purchases.............................................................13
Minimum Investment Required.................................................14
What Shares Cost............................................................14
Eliminating the Sales Charge................................................15
Systematic Investment Program...............................................16
Certificates and Confirmations..............................................16
Dividends and Distributions.................................................16

Exchange Privilege............................................................17
Requirements for Exchange...................................................17
Tax Consequences............................................................17
Making an Exchange..........................................................17

Redeeming Class A Shares......................................................18
Through a Financial Institution.............................................18
Directly by Mail............................................................19
Receiving Payment...........................................................19
Contingent Deferred Sales Charge............................................19
Systematic Withdrawal Program...............................................19
Accounts with Low Balances..................................................20

Fixed Income Securities, Inc. Information.....................................20
Management of the Corporation...............................................20
Distribution of Class A Shares..............................................21
Administration of the Fund..................................................22

Shareholder Information.......................................................23
Voting Rights...............................................................23

Tax Information...............................................................24
Federal Income Tax..........................................................24
State and Local Taxes.......................................................24

Performance Information.......................................................25

Other Classes of Shares.......................................................25

Addresses.....................................................................26

- -------------------------------------------------------
-------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED LIMITED TERM MUNICIPAL FUND
(FORMERLY LIMITED TERM MUNICIPAL FUND)
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................. 1.00%
Maximum Sales Charge 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) (1).................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................. None
Exchange Fee................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2).............................................................................. 0.00%
12b-1 Fee...................................................................................................... 0.25%
Total Other Expenses (after expense reimbursement)............................................................. 0.61%
Shareholder Services Fee........................................................................ 0.25%
Total Operating Expenses (3).......................................................................... 0.86%
</TABLE>

(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased and redeemed with a sales load
and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one year of purchase.

(2) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.40%.

(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1996. The total
operating expenses were 0.68% for the fiscal year ended November 30, 1995
and would have been 1.71% absent the voluntary waivers of the management
fee and a portion of the shareholder services fee and the voluntary
reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Class A Shares 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.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <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.......................................................... $24 $37 $57 $115
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $19 $37 $57 $115
</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.

- -------------------------------------------------------
-------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED LIMITED TERM MUNICIPAL FUND
(FORMERLY LIMITED TERM MUNICIPAL FUND)

- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated January 17, 1996, on the Fund's
financial statements for the year ended November 30, 1995, which is included in
the Annual Report and is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may be
obtained from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------
1995 1994 1993(A)
- --------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.49 $ 10.02 $ 10.00
- ---------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------
Net investment income 0.46 0.43 0.10
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.36 (0.53) 0.02
- --------------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.82 (0.10) 0.12
- --------------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------
Distributions from net investment income (0.46) (0.43) (0.10)
- --------------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.49 $ 10.02
- --------------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (B) 8.67% (0.95%) 1.20%
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------
Expenses 0.68% 0.63% 0.50%(d)
- ---------------------------------------------------------------------------------
Net investment income 4.72% 4.33% 4.30%(d)
- ---------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.03% 0.94% 1.71%(d)
- ---------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 65,179 $ 32,644 $ 13,694
- ---------------------------------------------------------------------------------
Portfolio turnover 47% 135% 0%
- ---------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from September 1, 1993 (date of initial
public investment) to November 30, 1993.

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

(d) Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1995 which can be obtained
free of charge.

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

Fixed Income Securities, Inc. 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
three separate portfolios: Federated Limited Term Fund, Federated Limited Term
Municipal Fund and Federated Strategic Income Fund. With respect to the Fund,
the Directors have established two classes of shares known as Class F Shares and
Class A Shares. This prospectus relates only to the Class A Shares class of the
Fund ("Shares").

The Fund is designed for investors seeking current income exempt from federal
regular income tax. A minimum initial investment of $5,000 is required.

Shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value. Fund assets may be used in connection with the
distribution of Shares.

- -------------------------------------------------------

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

As the name of the Fund implies, the investment objective of the Fund is to
provide a high level of current income which is exempt from federal regular
income tax (federal regular income tax does not include the federal alternative
minimum tax) consistent with the preservation of principal. Interest income of
the Fund that is exempt from federal income tax retains its tax-free status when
distributed to the Fund's shareholders. 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 limited to municipal securities, the weighted-average
duration of which will at all times be limited to four years or less. Unless
indicated otherwise, this and the investment policies described below may be
changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.

ACCEPTABLE INVESTMENTS

Municipal securities are debt obligations issued by or on behalf of states,
territories, and possessions of the United States, including the District of
Columbia, and their political subdivisions, agencies and instrumentalities, the
interest from which is exempt from federal regular income tax.

As a matter of investment policy, which may not be changed without shareholder
approval, under normal circumstances, the Fund will be invested so that at
least 80% of its net assets are invested in obligations, the interest from
which is exempt from federal regular income tax. The Fund, which can be changed
without shareholder approval, may invest up to 25% of its assets in securities
of issuers located in the same state.

The Fund may also transact in put and call options, futures contracts, and
options on futures contracts for hedging purposes.

MUNICIPAL SECURITIES

Municipal securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.

The two principal classifications of municipal securities are "general
obligation" and "revenue" issues. General obligation issues are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue issues, however,
are payable only from the revenue generated by the facility financed by the bond
or other specified sources of revenue. Revenue issues do not represent a pledge
of credit or create any debt of or charge against the general revenues of a
municipality or public authority.

Industrial development bonds are typically classified as revenue bonds.
Industrial development bonds are issued by or on behalf of public authorities to
provide financing aid to acquire sites or construct and equip facilities for
privately or publicly owned corporations. The availability of this financing
encourages these corporations to locate within the sponsoring communities and
thereby increases local employment.

Municipal securities may carry fixed, floating or inverse floating rates of
interest. Fixed rate securities bear interest at the same rate from issuance
until maturity. The prices of fixed income securities fluctuate inversely to the
direction of interest rates. The interest rate on floating rate securities is
subject to adjustment based upon changes in market interest rates or indices,
such as a published interest rate or interest rate index. The interest rate may
be adjusted at specified intervals or immediately upon any change in the
applicable index rate. The interest rate for most floating rate securities
varies directly with changes in the index rate, so that the market value of the
security will approximate its stated value at the time of each adjustment.
However, inverse floating rate securities have interest rates that vary
inversely with changes in the applicable index rate, such that the security's
interest rate rises when market interest rates fall and falls when market
interest rates rise. The market value of floating rate securities is less
sensitive than fixed rate securities to changes in market interest rates. In
contrast, the market value of inverse floating rate securities is more sensitive
to market rate changes than fixed or floating rate securities. The effect of
market rate changes on securities depends upon a variety of factors, including
market expectations as to future changes in interest rates and, in the case of
floating and inverse floating rate securities, the frequency with which the
interest rate is adjusted and the multiple of the index rate used in making the
adjustment.

Most municipal securities pay interest in arrears on a semiannual or more
frequent basis. However, certain securities, typically known as capital
appreciation bonds or zero coupon bonds, do not provide for any interest
payments prior to maturity. Such securities are normally sold at a discount
from their stated value, or provide for periodic increases in their stated
value to reflect a compounded interest rate. The market value of these
securities is also more sensitive to changes in market interest rates than
securities that provide for current interest payments.

The Fund will not generally invest more than 25% of its total assets in any one
industry. Governmental issuers of municipal securities are not considered part
of any "industry." However, municipal securities backed only by the assets and
revenues of nongovernmental users may, for this purpose, be deemed to be related
to the industry in which such nongovernmental users engage, and the 25%
limitation would apply to such obligations. It is nonetheless possible that the
Fund may invest more than 25% of its assets in a broader segment of the
municipal securities market, such as industrial development bonds and revenue
obligations of hospitals and other health care facilities, housing agency
revenue obligations, or airport revenue obligations. This would be the case only
if the Fund determines that the yields available from obligations in a
particular segment of the market justified the additional risks associated with
a large investment in such segment. Although such obligations could be supported
by the credit of governmental users or by the credit of nongovernmental users
engaged in a number of industries, economic, business, political and other
developments generally affecting the revenues of such users (for example,
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or products)
may have a general adverse effect on all municipal securities in such a market
segment.

CHARACTERISTICS

The municipal securities in which the Fund invests are rated, at the time of
purchase, Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or
better by Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service
("Fitch"). In certain cases the Fund's adviser may choose bonds which are
unrated if it determines that such bonds are of comparable quality or have
similar characteristics to investment grade bonds. Bonds rated "BBB" by S&P or
"Baa" by Moody's have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to weakened capacity
to make principal and interest payments than higher rated bonds. If the Fund
purchases an investment grade bond, and the rating of such bond is subsequently
downgraded so that the bond is no longer classified as investment grade, the
Fund is not required to drop the bond from the portfolio, but will consider
whether such action is appropriate. A description of the rating categories is
contained in the Appendix to the Statement of Additional Information.

PARTICIPATION INTERESTS

The Fund may purchase participation interests from financial institutions such
as commercial banks, savings associations and insurance companies. These
participation interests give the Fund an undivided interest in one or more
underlying municipal securities. The financial institutions from which the Fund
purchases participation interests frequently provide or obtain irrevocable
letters of credit or guarantees to attempt to assure that the participation
interests are of high quality. The Directors of the Fund will evaluate whether
participation interests meet the prescribed quality standards for the Fund.

MUNICIPAL LEASES

Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract or a participation certificate of any of the above.

Also included within the general category of municipal securities are certain
lease obligations or installment purchase contract obligations and
participations therein (hereinafter collectively called "lease obligations") of
municipal authorities or entities. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. Interest on lease obligations is tax-exempt to the same extent as
if the municipality had issued debt obligations to finance the underlying
project or purchase. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. In addition to
the "non-appropriation" risk, these securities represent a relatively new type
of financing that has not yet developed the depth of marketability associated
with more conventional bonds and some lease obligations may be illiquid.
Although "non-appropriation" lease obligations are generally secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. In addition, the tax treatment of such obligations in the
event of non-appropriation is unclear particularly if payment of such
obligations is guaranteed by a third party guarantor, such as a municipal bond
insurer (MBIA, AMBAC, etc.).

Some municipal leases may be considered to be illiquid. However, some municipal
leases may contain put provisions which grant the Fund the right to sell the
securities to the issuer at a predetermined price and date. Such provisions
improve the marketability and enhance the liquidity of the security. The Fund
does not intend to invest more than 10% of its total assets in non-putable lease
obligations including those that contain "non-appropriation" clauses.
INDUSTRIAL DEVELOPMENT BONDS

As discussed above, industrial development bonds are generally issued to provide
financing aid to acquire sites or construct and equip facilities for use by
privately or publicly owned corporations. Most state and local governments have
the power to permit the issuance of industrial development bonds to provide
financing for such corporations in order to encourage the corporations to locate
within their communities. Industrial development bonds do not represent a pledge
of credit or create any debt of municipality or a public authority, and no taxes
may be levied for payment of principal or interest on these bonds. The principal
and interest is payable solely out of monies generated by the entities using or
purchasing the sites or facilities. These bonds will be considered municipal
securities if the interest paid on them, in the opinion of bond counsel or in
the opinion of the officers of the Fund and/or the adviser of the Fund, is
exempt from federal regular income tax.

INVERSE FLOATERS

The Fund may invest in various types of derivative municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. The effective duration
of an inverse floating rate security, in the absence of rate "ceilings" or
"floors", is greater than that of a fixed rate security of equivalent maturity.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to the Fund when short-term
interest rates rise, and increase the interest paid to the Fund when short-term
interest rates fall. Inverse floaters have varying degrees of liquidity, and
the market for these securities is new and relatively volatile. These
securities tend to underperform the market for fixed rate bonds in a rising
interest rate environment, but tend to outperform the market for fixed rate
bonds when interest rates decline. Shifts in the relationship between
short-term and long-term interest rates may alter this tendency, however. In
return for this volatility, inverse floaters typically offer the potential for
yields exceeding the yields available on fixed rate bonds with comparable
credit quality and stated maturity. These securities usually permit the
investor to convert the floating rate to a fixed rate (normally adjusted
downward), and this optional conversion feature may provide a partial hedge
against rising interest rates if exercised at an opportune time. The Fund does
not intend to invest more than 20% of its total assets in inverse floaters.

MUNICIPAL NOTES

Municipal securities in the form of notes generally are used to provide for
short-term capital needs, in anticipation of an issuer's receipt of other
revenues or financing, and typically have maturities of up to three years. Such
instruments may include Tax Anticipation Notes, Revenue Anticipation Notes, Bond
Anticipation Notes, and Tax and Revenue Anticipation Notes. Tax Anticipation
Notes are issued to finance the working capital needs of governments. Generally,
they are issued in anticipation of various tax revenues, such as income, sales,
property, use and business taxes, and are payable from these specific future
taxes. Revenue Anticipation Notes are issued in expectation of receipt of other
kinds of revenue, such as federal revenues available under Federal Revenue
Sharing programs. Bond Anticipation Notes are issued to provide interim
financing until long-term bond financing can be arranged. In most cases, the
long-term bonds then provide the funds needed for repayment of the notes. Tax
and Revenue Anticipation Notes combine the funding sources of both Tax
Anticipation Notes and Revenue Anticipation Notes. The obligations of an issuer
of municipal notes are generally secured by the anticipated revenues from taxes,
grants or bond financing. An investment in such instruments, however, presents a
risk that the anticipated revenues will not be received or that such revenues
will be insufficient to satisfy the issuer's payment obligations under the notes
or that refinancing will be otherwise unavailable.
TAX-EXEMPT COMMERCIAL PAPER

Issues of commercial paper typically represent short-term, unsecured, negotiable
promissory notes. These obligations are issued by state and local governments
and their agencies to finance working capital needs of municipalities or to
provide interim construction financing and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases, tax-exempt
commercial paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions.

PRE-REFUNDED MUNICIPAL SECURITIES

The Fund may invest in pre-refunded municipal securities. The principal of and
interest on pre-refunded municipal securities are no longer paid from the
original revenue source for the municipal securities. Instead, the source of
such payments is typically an escrow fund consisting of obligations issued or
guaranteed by the U.S. government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities, but usually on more favorable terms. Issuers
of municipal securities use this advance refunding technique to obtain more
favorable terms with respect to municipal securities that are not yet subject to
call or redemption by the issuer. For example, advance refunding enables an
issuer to refinance debt at lower market interest rates, restructure debt to
improve cash flow or eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded municipal securities. However, except
for a change in the revenue source from which principal and interest payments
are made, the pre-refunded municipal securities remain outstanding on their
original terms until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded municipal securities will be the redemption date if the
issuer has assumed an obligation or indicated its intention to redeem such
securities on the redemption date. Pre-refunded municipal securities are usually
purchased at a price which represents a premium over their face value or their
redemption value.

VARIABLE AND FLOATING
RATE SECURITIES

The interest rates payable on certain securities in which the Fund may invest,
which will generally be revenue obligations, are not fixed and may fluctuate
based upon changes in market rates. A variable rate obligation has an interest
rate which is adjusted at predesignated periods. Interest on a floating rate
obligation is adjusted whenever there is a change in the market rate of interest
on which the interest rate payable is based. Variable or floating rate
obligations generally permit the holders of such obligations to demand payment
of principal from the issuer or a third party at any time or at stated
intervals. Variable and floating rate obligations are less effective than fixed
rate instruments at locking in a particular yield. Nevertheless, such
obligations may fluctuate in value in response to interest rate changes if there
is a delay between changes in market interest rates and the interest reset date
for an obligation. The Fund will take demand features into consideration in
determining the average portfolio duration of the Fund and the effective
maturity of individual municipal securities. In addition, the absence of an
unconditional demand feature exercisable within seven days will, and the failure
of the issuer or a third party to honor its obligations under a demand feature
might, require a variable or floating rate obligation to be treated as illiquid
for purposes of the Fund's 15% limitation on illiquid investments.

AUCTION RATE SECURITIES

The Fund may invest in auction rate municipal securities and auction rate
preferred securities issued by closed-end investment companies that invest
primarily in municipal securities (collectively, "auction rate securities"). The
Fund does not intend to invest more than 10% of its total assets in auction rate
securities. Provided that the auction mechanism is successful, auction rate
securities usually permit the holder to sell the securities in an auction at par
value at specified intervals. The interest rate or dividend is reset by "Dutch"
auction in which bids are made by broker-dealers and other institutions for a
certain amount of securities at a specified minimum yield. The interest rate or
dividend rate set by the auction is the lowest interest or dividend rate that
covers all securities offered for sale. While this process is designed to permit
auction rate securities to be traded at par value, there is some risk that an
auction will fail due to insufficient demand for the securities. If so, the
securities may become illiquid and subject to the Fund's 15% limitation on
illiquid securities.

Dividends on auction rate preferred securities issued by a closed-end fund may
be designated as exempt from federal income tax to the extent they are
attributable to exempt income earned by the closed-end fund on the securities
in its portfolio and distributed to holders of the preferred securities,
provided that the preferred securities are treated as equity securities for
federal income tax purposes and the closed-end fund complies with certain tests
under the Internal Revenue Code. For purposes of complying with the 20%
limitation on the Fund's investments in taxable securities, auction rate
preferred securities will be treated as taxable securities unless substantially
all of the dividends on such securities is expected to be exempt from regular
federal income taxes.

The Fund's investments in auction rate preferred securities of closed-end funds
are subject to the limitations prescribed by the Investment Company Act of 1940
and certain state securities regulations. These limitations include a
prohibition against acquiring more than 3% of the voting securities of any other
investment company, and investing more than 5% of the Fund's assets in
securities of any one investment company or more than 10% of its assets in
securities of all investment companies. The Fund will indirectly bear its
proportionate share of any management fees paid by such closed-end funds in
addition to the advisory fee payable directly by the Fund.

DEMAND FEATURES

In order to enhance the liquidity of municipal securities, the Fund may acquire
the right to sell a security to another party at a guaranteed price and date.
Such a right to resell may be referred to as a "demand feature" or liquidity
put, depending on its characteristics. The aggregate price which the Fund pays
for securities with demand features may be higher than the price which otherwise
would be paid for the securities. Demand features may not be available or may
not be available on satisfactory terms.

Demand features may involve letters of credit issued by domestic or foreign
banks supporting the other party's ability to purchase the security from the
Fund. The right to sell may be exercisable on demand or at specified intervals,
and may form part of a security or be acquired separately by the Fund. In
considering whether a security meets the Fund's quality standards, the Fund will
look to the creditworthiness of the party providing the Fund with the right to
sell as well as the quality of the security itself. The Fund values municipal
securities which are subject to demand features at fair market value.

TENDER OPTION BONDS

A tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates.
The bond is typically issued in conjunction with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic intervals,
to tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the bond's fixed coupon
rate and the rate, as determined by a remarketing or similar agent at or near
the commencement of such period, that would cause the securities, coupled with
the tender option, to trade at par at the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
tender option will be taken into consideration in determining the effective
maturity of tender option bonds and the average portfolio duration of the Fund.
The liquidity of a tender option bond is a function of both the credit quality
of the bond issuer and the financial institution providing liquidity.
Consequently, tender option bonds are deemed to be liquid unless, in the opinion
of the Investment Adviser, the credit quality of the bond issuer and the
financial institution is deemed, in light of the Fund's credit quality
requirements, to be inadequate.

Although the Fund intends to invest in tender option bonds the interest on
which will, in the opinion of bond counsel for the issuer or counsel selected
by the Investment Adviser, be exempt from regular federal income tax, there is
a risk that the Fund will not be considered the owner of such tender option
bonds and thus will not be entitled to treat such interest as exempt from such
tax. In addition, tender offer bonds may be considered to be securities of an
unregistered investment company for purposes of the limitations imposed by the
Investment Company Act of 1940 on the Fund's investments in investment company
securities. Accordingly, the Fund will comply with the following percentage
limitations on investments in tender option bonds. The Fund will not acquire
more than 3% of the voting securities of the issuer of the tender option bonds,
invest more than 5% of its assets in any one issue of tender option bonds or
invest more than 10% of its assets in tender option bonds in the aggregate.

ZERO COUPON AND CAPITAL
APPRECIATION BONDS

The Fund may invest in zero coupon and capital appreciation bonds, which are
debt securities issued or sold at a discount from their face value and which do
not entitle the holder to any periodic payment of interest prior to maturity or
a specified redemption date (or cash payment date). The amount of the discount
varies depending on the time remaining until maturity or cash payment date,
prevailing interest rates, the liquidity of the security and the perceived
credit quality of the issuer. These securities also may take the form of debt
securities that have been stripped of their unmatured interest coupons, the
coupons themselves or receipts or certificates representing interest in such
stripped debt obligations or coupons. Discount with respect to stripped
tax-exempt securities or their coupons may be taxable. The market prices of
capital appreciation bonds generally are more volatile than the market prices of
interest bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest bearing securities having similar
maturities and credit quality.

RESTRICTED AND ILLIQUID SECURITIES

The Fund intends to 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.

AVERAGE PORTFOLIO DURATION

Although the Fund will not maintain a stable net asset value, the adviser will
seek to limit, to the extent consistent with the Fund's investment objective of
current income, the magnitude of fluctuations in the Fund's net asset value by
limiting the dollar-weighted average duration of the Fund's portfolio. 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 shorter durations generally have less volatile
prices than securities of comparable quality with longer durations. The Fund
should be expected to maintain a higher average duration during periods of lower
expected market volatility, and a lower average duration during periods of
higher expected market volatility. In any event, the Fund's dollar-weighted
average duration will not exceed four years.

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 in 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.

FUTURES CONTRACTS AND OPTIONS TO BUY OR SELL SUCH CONTRACTS

The Fund may utilize bond futures contracts and options to a limited extent.
Specifically, the Fund may enter into futures contracts provided that not more
than 5% of its assets are required as a futures contract deposit; in addition,
the Fund may enter into futures contracts and options transactions only to the
extent that obligations under such contracts or transactions represent not more
than 20% of the Fund's assets.

Futures contracts and options may be used for several reasons: to maintain cash
reserves while remaining fully invested, to facilitate trading, to reduce
transactions costs, or to seek higher investment returns when a futures contract
is priced more attractively than the underlying municipal security or index. The
Fund may not use futures contracts or options transactions to leverage its
assets.

For example, in order to remain fully invested in bonds, while maintaining
liquidity to meet potential shareholder redemptions, the Fund may invest a
portion of its assets in a bond futures contract. Because futures contracts only
require a small initial margin deposit, the Fund would then be able to maintain
a cash reserve to meet potential redemptions, while at the same time remaining
fully invested. Also, because the transactions costs of futures contracts and
options may be lower than the costs of investing in bonds directly, it is
expected that the use of futures contracts and options may reduce the Fund's
total transactions costs.

The primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the bonds held
by the Fund and the prices of futures contracts and options; and (ii) possible
lack of a liquid secondary market for a futures contract and the resulting
inability to close a futures position prior to its maturity date. The risk of
imperfect correlation will be minimized by investing only in those contracts
whose price fluctuations are expected to resemble those of the Fund's underlying
securities. The risk that the Fund will be unable to close out a futures
position will be minimized by entering into such transactions on a national
exchange with an active and liquid secondary market. Much depends on the ability
of the portfolio manager to predict market conditions based upon certain
economic analysis and factors. In general, the futures market is more liquid
than the municipal bond market, and so by investing in futures, liquidity may be
improved.

TEMPORARY INVESTMENTS

From time to time, during periods of other than normal market conditions, the
Fund may invest in short-term temporary investments which may or may not be
exempt from federal income tax. These temporary investments include:
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of domestic branches of U.S. banks; and repurchase agreements
(arrangements in which the organization selling the Fund a security agrees at
the time of sale to repurchase it at a mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those rated within
the investment grade categories described under "Acceptable
Investments--Characteristics" (if rated) or those which the investment adviser
judges to have the same characteristics as such investment grade securities (if
unrated).

Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.

INVESTMENT RISKS

Yields on municipal securities depend on a variety of factors, including: the
general conditions of the municipal note market and of the municipal bond
market; the size of the particular offering; the maturity of the obligations;
and the rating of the issue. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of municipal
securities and participation interests, or the guarantors of either, to meet
their obligations for the payment of interest and principal when due. Since the
Fund will invest primarily in municipal securities bearing fixed rates of
interest, the net asset value of the Shares will generally vary inversely with
changes in prevailing interest rates.

INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio investment for a percentage of
its cash value with an agreement to buy it back on a set date) 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 10% of the value of
those assets to secure such borrowings.

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

The Fund will not:

invest more than 5% of the value of its total assets in industrial development
bonds where the principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.

--------------------------------------------------------
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 F 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.

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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 an investment dealer who has a sales agreement with the
distributor, Federated Securities Corp., or directly from Federated Securities
Corp. either by mail or wire. The Fund reserves the right to reject any purchase
request.

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 BY MAIL

To purchase Shares by mail directly from Federated Securities Corp.:

complete and sign the application available from the Fund;

enclose a check made payable to Federated Limited Term Municipal Fund--Class A

Shares; and

send both to the Fund's transfer agent, Federated Services Company, P.O. Box
8600, Boston, Massachusetts 02266-8600.

Purchases by mail are considered received after payment by check is converted by
Federated Services Company into federal funds. This is generally the next
business day after Federated Services Company receives the check.

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. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.

DIRECTLY BY WIRE

To purchase Shares directly from Federated Securities Corp. by Federal Reserve
wire, call the Fund. All information needed will be taken over the telephone,
and the order is considered received when Federated Services Company receives
payment by wire. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $5,000. Subsequent investments must
be in amounts of at least $100.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01% of the
net amount invested). There is no sales charge for purchases of $1 million or
more. In addition, 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. 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 shares. No sales charge is imposed for
Class A Shares purchased through bank trust departments, investment advisers
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with
Federated Securities Corp., or its affiliates, or to shareholders designated as
Liberty Life Members. However, investors who purchase Shares through a trust
department, investment adviser, or retirement plan may be charged an additional
service fee by the institution. Additionally, no sales charge is imposed for
Class A Shares purchased through "wrap accounts" or similar programs, under
which clients pay a fee or fees for services.

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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 100% 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, from time to time,
and at the sole discretion of the distributor, all or part of that portion may
be paid to a dealer. 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. On purchases of $1 million or more, the investor pays no
sales charge; however, the distributor will make twelve monthly payments to the
dealer totaling 0.25% of the public offering price over the first year following
the purchase. Such payments are based on the original purchase price of the
Shares outstanding at each month end.

ELIMINATING THE SALES CHARGE

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

quantity discounts and accumulated purchases;

signing a 13-month letter of intent;

or using the reinvestment privilege.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in Class A Shares of other Federated Funds. For
example, if a shareholder already owns Shares having a current value at the
public offering price of $900,000, and he purchases $100,000 or more at the
current public offering price, there will be no sales charge on the additional
purchase.

To receive this sales charge elimination, 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 $1 million of Shares over the next
13 months, the sales charge may be eliminated by signing a letter of intent to
that effect. This letter of intent includes a provision for a sales charge
elimination depending on the amount actually purchased within the 13-month
period and a provision for the Fund's custodian to hold 1.00% of the total
amount intended to be purchased in escrow (in Shares) until such purchase is
completed.

The 1.00% held in escrow will, at the expiration of the 13-month period, be
applied to the payment of the applicable sales charge, unless the amount
specified in the letter of intent, which must be $1 million or more of Shares,
is purchased. In this event, all of the escrowed Shares will be deposited into
the shareholder's account.

This letter of intent will not obligate the shareholder to purchase Shares. This
letter may be dated as of a prior date to include any purchases made within the
past 90 days (purchases within the prior 90 days may be used to fulfill the
requirements of the letter of intent; however, the sales charge on such
purchases will not be adjusted to reflect a lower sales charge).

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
proceeds from the redemption of shares of an investment company which were sold
with a sales charge or commission and were not distributed by Federated
Securities Corp. 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. From time to time,
the Fund may offer dealers a payment of .50 of 1.00% for Shares purchased under
this program. If Shares are purchased in this manner, Fund purchases will be
subject to a contingent deferred sales charge for one year from the date of
purchase.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
monthly from the shareholder's checking account maintained at an Automated
Clearing House ("ACH") member institution, and invested in Shares at the net
asset value next determined after an order is received by Federated Services
Company, plus the 1.00% sales charge for purchases under $1 million. A
shareholder may apply for participation in this program through Federated
Securities Corp. or his financial institution.

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

Shares purchased through a financial institution, for which payment by wire is
received by Federated Services Company on the business day following the order,
begin to earn dividends on the day the wire payment is received. Otherwise,
Shares purchased by wire begin to earn dividends on the business day after wire
payment is received by Federated Services Company. Shares purchased by mail, or
through a financial institution, if the financial institution's payment is by
check, begin to earn dividends on the second business day after the check is
received by Federated Services Company.

Shares earn dividends through the business day that proper written redemption
instructions are received by Federated Services Company.

- -------------------------------------------------------

EXCHANGE PRIVILEGE

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Federated Funds at net asset value. Neither the Fund nor
any of the Federated 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.

The Fund has exchange privileges with the following Federated Funds:

American Leaders Fund, Inc.; Capital Growth Fund Federated Bond Fund; Federated
Small Cap Strategies Fund; Fund for U.S. Government Securities, Inc.; Federated
International Equity Fund; Federated International Income Fund; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty
Utility Fund, Inc.; Federated Limited Term Fund; Federated Limited Term
Municipal Fund; Michigan Intermediate Municipal Trust; Pennsylvania Municipal
Income Fund; Federated Strategic Income Fund; Tax-Free Instruments Trust; and,
Federated World Utility Fund.

Prospectuses for these funds are available by writing to Federated Securities
Corp.

Shareholders of Class A Shares who have been designated Liberty Life Members are
exempt from sales charges on future purchases in and exchanges between the Class
A Shares of any funds in the Federated Funds, as long as they maintain a $500
balance in one of the Federated Funds.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
at least equal to the minimum investment requirements of the fund into which the
exchange is being made. Before the exchange, the shareholder must receive the
prospectus of the fund into which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
fund 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 Class A Shares of the other fund. The exchange
privilege may be modified or 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 Federated
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 to Federated Services
Company, P.O. Box 8600, Boston, Massachusetts 02266-8600.

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 Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, 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 by 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 fund will not receive any
dividend that is payable to shareholders of record on that date. This privilege
may be modified or terminated at any time.

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 Federated
Services Company receives the redemption request. Redemptions will be made on
days on which the Fund computes its net asset value. Redemption requests must be
received in proper form and can be made through a financial institution, or
directly from the Fund by written request.

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. If at
any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.

Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. Telephone redemption
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. 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, such as "Directly by Mail," should be
considered.

DIRECTLY BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates
have been issued, they should be sent unendorsed with the written request by
registered or certified mail to the address noted above.

The written request should state: the Fund name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.

Shareholders requesting 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 their signatures guaranteed by a commercial
or savings bank, trust company or savings and loan association whose deposits
are insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; 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.

RECEIVING PAYMENT

BY CHECK

Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption request
provided Federated Services Company has received payment for shares from the
shareholder.

BY WIRE

Redemption requests will be wired the following business day.

CONTINGENT DEFERRED SALES CHARGE

Shareholders who purchase Shares with proceeds of a redemption of shares of a
mutual fund sold with a sales charge and not distributed by Federated Securities
Corp. may be charged a contingent deferred sales charge by the Fund's
distributor of .50 of 1% for redemptions made within one year. The contingent
deferred sales charge will be calculated based upon the lesser of the original
purchase price of Shares or the net asset value of the Shares when redeemed.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount 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; the minimum withdrawal
amount is $100. 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 balance with a
value of at least $10,000 in the Fund (at current offering price).

A shareholder may apply for participation in this program through Federated
Securities Corp. 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 $5,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $5,000 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

DIRECTORS

The Fund is managed by the 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 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 (the "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.

Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

ADVISORY FEES

The Fund's Adviser receives an annual investment advisory fee equal to 0.40 of
1% of the Fund's average daily net assets. 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. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

PORTFOLIO MANAGER'S BACKGROUND

Mary Jo Ochson and Jonathan C. Conley are the Fund's portfolio managers. Mary Jo
Ochson has been the Fund's portfolio manager since its inception. Ms. Ochson
joined Federated Investors in 1982 and has been a Senior Vice President of the
Fund's investment adviser since January 1996. From 1988 through 1995, Ms. Ochson
served as a Vice President of the Fund's investment adviser. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.

Jonathan C. Conley has been the Fund's portfolio manager since its inception.
Mr. Conley joined Federated Investors in 1979 and has been a Senior Vice
President of the Fund's investment adviser since 1995. Mr. Conley is a Chartered
Financial Analyst and received his M.B.A. in Finance from the University of
Virginia.

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.

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), the Fund will pay to the distributor an
amount, computed at an annual rate of 0.25 of 1% of the average daily net asset
value of Shares to finance any activity which is principally intended to result
in the sale of Shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers, and broker/dealers to provide sales services and
distribution- related support services as agents for their clients or
customers.

The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund 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. Under the Shareholder Services Agreement,
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.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, the Adviser and Federated Shareholder Services, from their
own assets, may pay financial institutions supplemental fees for the performance
of substantial sales services, distribution-related support services, or
shareholder services. The support may include participating in sales,
educational and training seminars at recreational-type facilities, 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 operational support furnished by the financial institution.
Any payments made by the distributor may be reimbursed by the Adviser or its
affiliates.

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>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED FUNDS
<C> <S>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.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 INFORMATION

VOTING RIGHTS

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 Corporation's, or the Fund's operation and for the election of
Directors under certain circumstances.

Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of the shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the outstanding
shares of the Corporation.

- -------------------------------------------------------
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. Shareholders are
not required to pay the federal regular income tax on any dividends received
from the Fund that represent net interest on tax-exempt municipal bonds.
However, under the Tax Reform Act of 1986, dividends representing net interest
earned on some municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.

The alternative minimum tax, equal to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the regular
tax for the taxable year. Alternative minimum taxable income is equal to the
regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.

The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.

In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternate minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculations of the corporation's alternative minimum tax.

Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.

STATE AND LOCAL TAXES

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, yield and
tax-equivalent yield for 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 tax-equivalent yield of Shares is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that Shares would have had
to earn to equal the actual yield, assuming a specific tax rate. The yield and
tax-equivalent yield do 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 charge
which, if excluded, would increase the total return, yield and tax-equivalent
yield.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/ or compare the
Fund's performance to certain indices.

Total return will be calculated separately for Class F Shares and Class A
Shares.

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

The Fund currently offers Class F Shares and Class A Shares. The Class F Shares
are sold subject to a front-end sales charge of up to 1%, and are subject to a
contingent deferred sales charge. Class F Shares are subject to a minimum
initial investment of $1,500.

The amount of dividends payable to Class A Shares will generally be less than
that of Class F Shares by the difference between class expenses and distribution
and shareholder expenses borne by shares of each respective class.

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

To obtain more information and a prospectus for Class A Shares, investors may
call 1-800-235-4669.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>

Federated Limited Term Municipal Fund
Class A Shares Federated Investors Tower
Pittsburgh,

- ---------------------------------------------------------------------------------------------------------------------------

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 Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------------

Transfer Agent and Dividend Disbursing Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------------

Independent Public Accountants
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania15222-5401
- ---------------------------------------------------------------------------------------------------------------------------

</TABLE>

FEDERATED LIMITED TERM
MUNICIPAL FUND
(FORMERLY LIMITED TERM
MUNICIPAL FUND)
CLASS A SHARES

PROSPECTUS

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

January 31, 1996

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Cusip 338319502
3070702A-A (1/96)

FEDERATED LIMITED TERM MUNICIPAL FUND
(FORMERLY LIMITED TERM MUNICIPAL FUND)
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)

CLASS F SHARES
(FORMERLY FORTRESS SHARES)
PROSPECTUS

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

THESE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK AND ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, 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 F Shares. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class F Shares
and Class A Shares dated January 31, 1996, with the Securities and Exchange
Commission. The information contained in the Statement of Additional Information
is incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information or a paper copy of this prospectus, if you
have received your prospectus electronically, free of charge by calling
1-800-235-4669. To obtain other information or to make inquiries about the Fund,
contact your financial institution.

Prospectus dated January 31, 1996

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

Summary of Fund Expenses.......................................................1

Financial Highlights--Class F Shares...........................................2

General Information............................................................3

Investment Information.........................................................3

Investment Objective.........................................................3
Investment Policies..........................................................3
Investment Risks............................................................12
Investment Limitations......................................................12

Net Asset Value...............................................................13

Investing in Class F Shares...................................................13

Share Purchases.............................................................13
Minimum Investment Required.................................................14
What Shares Cost............................................................14
Eliminating the Sales Load..................................................15
Systematic Investment Program...............................................16
Certificates and Confirmations..............................................16
Dividends and Distributions.................................................16

Redeeming Class F Shares......................................................17

Through a Financial Institution.............................................17

Directly by Mail............................................................18
Receiving Payment...........................................................18
Contingent Deferred Sales Charge............................................18
Systematic Withdrawal Program...............................................19
Accounts with Low Balances..................................................19

Fixed Income Securities, Inc. Information.....................................20

Management of the Corporation...............................................20

Distribution of Class F Shares..............................................21

Administration of the Fund..................................................22

Shareholder Information.......................................................23

Voting Rights...............................................................23

Tax Information...............................................................23

Federal Income Tax..........................................................23
State and Local Taxes.......................................................24

Performance Information.......................................................24

Other Classes of Shares.......................................................25

Addresses.....................................................................26

- -------------------------------------------------------
-------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED LIMITED TERM MUNICIPAL FUND
(FORMERLY LIMITED TERM MUNICIPAL FUND)

<TABLE>
<CAPTION>
CLASS F SHARES
(FORMERLY FORTRESS SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................................................... 1.00%
Maximum Sales Charge 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) (1)................................................ 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).................................. None
Exchange Fee........................................................................................ None

<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
management Fee (after waiver) (2)................................................................... 0.00%
12b-1 Fee (after waiver) (3)........................................................................ 0.00%
Total Other Expenses (after expense reimbursement).................................................. 0.61%
Shareholder Services Fee........................................................................ 0.25%
Total Operating Expenses (4)............................................................... 0.61%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
four years of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge."

(3) The maximum 12b-1 fee is 0.15%.

(4) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1996. The total
operating expenses were 0.49% for the fiscal year ended November 30, 1995
and would have been 1.61% absent the voluntary waivers of the management
fee, portions of the shareholder services fee and the 12b-1 fee, and the
voluntary reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class F Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class F 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 5 years 10 years
<S> <C> <C> <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.............. $27 $41 $44 $85
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $16 $29 $44 $85
</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.

- -------------------------------------------------------
-------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FORMERLY FORTRESS SHARES)
FEDERATED LIMITED TERM MUNICIPAL FUND
(FORMERLY LIMITED TERM MUNICIPAL FUND)

- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated January 17, 1996, on the Funds
financial statements for the year ended November 30, 1995, which is included in
the annual report and is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may be
obtained from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C> <C>
1995 1994 1993(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.49 $ 10.02 $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
Net investment income 0.47 0.45 0.11
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.36 (0.53) 0.02
- -------------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.83 (0.08) 0.13
- -------------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions from net investment income (0.47) (0.45) (0.11)
- -------------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.49 $ 10.02
- -------------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (B) 8.86% (0.75%) 1.26%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Expenses 0.49% 0.44% 0.25%(d)
- --------------------------------------------------------------------------------
Net investment income 4.91% 4.57% 4.79%(d)
- --------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.12% 0.94% 1.86%(d)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $26,442 $12,804 $3,307
- --------------------------------------------------------------------------------
Portfolio turnover 47% 135% 0%
- --------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to November 30, 1993.

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

(d) Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

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

The Fund is designed for investors seeking current income exempt from federal
regular income tax. A minimum initial investment of $1,500 is required.

Shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed on certain Shares, other than Shares purchased through reinvestment of
dividends, which are redeemed within one to four years of their purchase dates.
Fund assets may be used in connection with the distribution of Shares.

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

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

As a matter of investment policy, which may not be changed without shareholder
approval, under normal circumstances, the Fund will be invested so that at least
80% of its net assets are invested in obligations, the interest from which is
exempt from federal regular income tax. The Fund, which can be changed without
shareholder approval, may invest up to 25% of its assets in securities of
issuers located in the same state.

The Fund may also transact in put and call options, futures contracts, and
options on futures contracts for hedging purposes.

MUNICIPAL SECURITIES

Industrial development bonds are issued by or on behalf of public authorities to
provide financing aid to acquire sites or construct and equip facilities for
privately or publicly owned corporations. The availability of this financing
encourages these corporations to locate within the sponsoring communities and
thereby increases local employment.

Municipal securities may carry fixed, floating or inverse floating rates of
interest. Fixed rate securities bear interest at the same rate from issuance
until maturity. The prices of fixed income securities fluctuate inversely to the
direction of interest rates. The interest rate on floating rate securities is
subject to adjustment based on a published interest rate or interest rate index.
The interest rate may be adjusted at specified intervals or immediately upon any
change in the applicable index rate. The interest rate for most floating rate
securities varies directly with changes in the index rate, so that the market
value of the security will approximate its stated value at the time of each
adjustment. However, inverse floating rate securities have interest rates that
vary inversely with changes in the applicable index rate, such that the
security's interest rate rises when market interest rates fall and falls when
market interest rates rise. The market value of floating rate securities is less
sensitive than fixed rate securities to changes in market interest rates. In
contrast, the market value of inverse floating rate securities is more sensitive
to market rate changes than fixed or floating rate securities. The effect of
market rate changes on securities depends upon a variety of factors, including
market expectations as to future changes in interest rates and, in the case of
floating and inverse floating rate securities, the frequency with which the
interest rate is adjusted and the multiple of the index rate used in making the
adjustment.

Most municipal securities pay interest in arrears on a semi-annual or more
frequent basis. However, certain securities, typically known as capital
appreciation bonds or zero coupon bonds, do not provide for any interest
payments prior to maturity. Such securities are normally sold at a discount from
their stated value, or provide for periodic increases in their stated value to
reflect a compounded interest rate. The market value of these securities is also
more sensitive to changes in market interest rates than securities that provide
for current interest payments.

CHARACTERISTICS

PARTICIPATION INTERESTS

MUNICIPAL LEASES

Also included within the general category of municipal securities are certain
lease obligations or installment purchase contract obligations and
participations therein (hereinafter collectively called "lease obligations") of
municipal authorities or entities. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. Interest on lease obligations is tax-exempt to the same extent as if
the municipality had issued debt obligations to finance the underlying project
or purchase. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. In addition to the "non-appropriation" risk,
these securities represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional bonds and
some lease obligations may be illiquid. Although "non-appropriation" lease
obligations are generally secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. In addition, the tax
treatment of such obligations in the event of non-appropriation is unclear
particularly if payment of such obligations is guaranteed by a third party
guarantor, such as a municipal bond insurer (MBIA, AMBAC, etc.).

Some municipal leases may be considered to be illiquid. However, some municipal
leases may contain put provisions which grant the Fund the right to sell the
securities to the issuer at a predetermined price and date. Such provisions
improve the marketability and enhance the liquidity of the security. The Fund
does not intend to invest more than 10% of its total assets in non-puttable
lease obligations including those that contain "non-appropriation" clauses.

INDUSTRIAL DEVELOPMENT BONDS

INVERSE FLOATERS

The Fund may invest in various types of derivative municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. The effective duration
of an inverse floating rate security, in the absence of rate "ceilings" or
"floors", is greater than that of a fixed rate security of equivalent maturity.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to the Fund when short-term
interest rates rise, and increase the interest paid to the Fund when short-term
interest rates fall. Inverse floaters have varying degrees of liquidity, and the
market for these securities is new and relatively volatile. These securities
tend to underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in the relationship between short-term and
long-term interest rates may alter this tendency, however. In return for this
volatility, inverse floaters typically offer the potential for yields exceeding
the yields available on fixed rate bonds with comparable credit quality and
stated maturity. These securities usually permit the investor to convert the
floating rate to a fixed rate (normally adjusted downward), and this optional
conversion feature may provide a partial hedge against rising interest rates if
exercised at an opportune time. The Fund does not intend to invest more than 20%
of its total assets in inverse floaters.

MUNICIPAL NOTES

TAX-EXEMPT COMMERCIAL PAPER

PRE-REFUNDED MUNICIPAL SECURITIES

The Fund may invest in pre-refunded municipal securities. The principal of and
interest on pre-refunded municipal securities are no longer paid from the
original revenue source for the municipal securities. Instead, the source of
such payments is typically an escrow fund consisting of obligations issued or
guaranteed by the U.S. government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities, but usually on more favorable terms. Issuers
of municipal securities use this advance refunding technique to obtain more
favorable terms with respect to municipal securities that are not yet subject to
call or redemption by the issuer. For example, advance refunding enables an
issuer to refinance debt at lower market interest rates, restructure debt to
improve cash flow or eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded municipal securities. However, except
for a change in the revenue source from which principal and interest payments
are made, the pre-refunded municipal securities remain outstanding on their
original terms until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded municipal securities will be the redemption date if the
issuer has assumed an obligation or indicated its intention to redeem
such securities on the redemption date. Pre-refunded municipal securities are
usually purchased at a price which represents a premium over their face value or
their redemption value.

VARIABLE AND FLOATING
RATE SECURITIES

AUCTION RATE SECURITIES

Dividends on auction rate preferred securities issued by a closed-end fund may
be designated as exempt from federal income tax to the extent they are
attributable to exempt income earned by the closed-end fund on the securities in
its portfolio and distributed to holders of the preferred securities, provided
that the preferred securities are treated as equity securities for federal
income tax purposes and the closed-end fund complies with certain tests under
the Internal Revenue Code. For purposes of complying with the 20% limitation on
the Fund's investments in taxable securities, auction rate preferred securities
will be treated as taxable securities unless substantially all of the dividends
on such securities are expected to be exempt from regular federal income taxes.

DEMAND FEATURES

TENDER OPTION BONDS

Although the Fund intends to invest in tender option bonds the interest on which
will, in the opinion of bond counsel for the issuer or counsel selected by the
Investment Adviser, be exempt from regular federal income tax, there is a risk
that the Fund will not be considered the owner of such tender option bonds and
thus will not be entitled to treat such interest as exempt from such tax. In
addition, tender offer bonds may be considered to be securities of an
unregistered investment company for purposes of the limitations imposed by the
Investment Company Act of 1940 on the Fund's investments in investment company
securities. Accordingly, the Fund will comply with the following percentage
limitations on investments in tender option bonds. The Fund will not acquire
more than 3% of the voting securities of the issuer of the tender option bonds,
invest more than 5% of its assets in any one issue of tender option bonds or
invest more than 10% of its assets in tender option bonds in the aggregate.

ZERO COUPON AND CAPITAL APPRECIATION BONDS

RESTRICTED AND ILLIQUID SECURITIES

AVERAGE PORTFOLIO DURATION

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

FUTURES CONTRACTS AND OPTIONS TO BUY OR SELL SUCH CONTRACTS.

The primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the bonds held
by the Fund and the prices of futures contracts and options; and (ii) possible
lack of liquid secondary market for a futures contract and the resulting
inability to close a futures position prior to its maturity date. The risk of
imperfect correlation will be minimized by investing only in those contracts
whose price fluctuations are expected to resemble those of the Fund's underlying
securities. The risk that the Fund will be unable to close out a futures
position will be minimized by entering into such transactions on a national
exchange with an active and liquid secondary market. Much depends on the ability
of the portfolio manager to predict market conditions based upon certain
economic analysis and factors. In general, the futures market is more liquid
than the municipal bond market, and so by investing in futures, liquidity may be
improved.

TEMPORARY INVESTMENTS
From time to time, during periods of other than normal market conditions, the
Fund may invest in short-term temporary investments which may or may not be
exempt from federal income tax. These temporary investments include: obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities;
other debt securities; commercial paper; certificates of deposit of domestic
branches of U.S. banks; and repurchase agreements (arrangements in which the
organization selling the Fund a security agrees at the time of sale to
repurchase it at a mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those rated within
the investment grade categories described under "Acceptable
Investments-Characteristics" (if rated) or those which the investment adviser
judges to have the same characteristics as such investment grade securities (if
unrated).

Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.

INVESTMENT RISKS

INVESTMENT LIMITATIONS

The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio investment for a percentage of
its cash value with an agreement to buy it back on a set date) 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 10% of the value of
those assets to secure such borrowings.

The Fund will not:

--------------------------------------------------------
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 A 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 F SHARES

SHARE PURCHASES

THROUGH A FINANCIAL INSTITUTION

The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Supplemental Payments to Financial Institutions").

DIRECTLY BY MAIL

To purchase Shares by mail directly from Federated Securities Corp.:

complete and sign the application available from the Fund;

enclose a check made payable to Federated Limited Term Municipal Fund--Class F
Shares; and

send both to the Fund's transfer agent, Federated Services Company, P.O. Box
8600, Boston, Massachusetts 02266-8600.

CONVERSION TO FEDERAL FUNDS

DIRECTLY BY WIRE

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,500. Subsequent investments must
be in amounts of at least $100.

WHAT SHARES COST

Under certain circumstances described under "Redeeming Fortress Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.

DEALER CONCESSION

ELIMINATING THE SALES CHARGE

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

quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or concurrent purchases.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in Shares. For example, if a shareholder already owns
Shares having a current value at the public offering price of $900,000, and he
purchases $100,000 or more at the current public offering price, there will be
no sales charge on the additional purchase. The Fund will also combine purchases
for the purpose of reducing the contingent deferred sales charge imposed on some
Shares redemptions. For example, if a shareholder already owns Shares having a
current value at public offering price of $1 million and purchases an additional
$1 million at the current public offering price, the applicable contingent
deferred sales charge would be reduced to 0.50% of those additional Shares. For
more information on the levels of the contingent deferred sales charge and
holding periods, see the section entitled "Contingent Deferred Sales Charge."

LETTER OF INTENT

levels of the contingent deferred sales charge and holding periods, see the
section entitled "Contingent Deferred Sales Charge."

REINVESTMENT PRIVILEGE

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge elimination, a shareholder has the
privilege of combining concurrent purchases of two or more Federated Funds
offering Class F Shares, the purchase prices of which include a sales charge.
For example, if a shareholder concurrently invested $400,000 in Class F Shares
of one of the other Federated Funds and $600,000 in Shares, the sales charge
would be eliminated.

To receive this sales charge elimination, 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 eliminate the sales charge
after it confirms the purchases.

SYSTEMATIC INVESTMENT PROGRAM

CERTIFICATES AND CONFIRMATIONS

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 daily and paid monthly. Distributions of any net realized
long-term capital gains will be made at least once every twelve months.
Dividends and distributions are automatically reinvested in additional Shares on
payment dates at net asset value without a sales charge, unless cash payments
are requested by shareholders on the application or by writing to Federated
Securities Corp.
Shares purchased through a financial institution, for which payment by wire is
received by Federated Services Company on the business day following the order,
begin to earn dividends on the day the wire payment is received. Otherwise,
Shares purchased by wire begin to earn dividends on the business day after wire
payment is received by Federated Services Company. Shares purchased by mail, or
through a financial institution, if the financial institution's payment is by
check, begin to earn dividends on the second business day after the check is
received by Federated Services Company.

Shares earn dividends through the business day that proper written redemption
instructions are received by Federated Services Company.

- -------------------------------------------------------

REDEEMING CLASS F SHARES

The Fund redeems Shares at their net asset value next determined after Federated
Services Company receives the redemption request, less any applicable contingent
deferred sales charge. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in proper
form and can be made through a financial institution, or directly from the Fund
by written request.

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, less any applicable contingent deferred
sales charge. 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. If at any time the Fund
shall determine it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.

Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. Telephone redemption 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.
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, such as "Directly by Mail," should be considered.

DIRECTLY BY MAIL

RECEIVING PAYMENT

BY CHECK

BY WIRE

Redemption requests will be wired the following business day.

CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming Shares from their Fund accounts within certain time
periods of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the Shares redeemed as follows:
<TABLE>
<CAPTION>
CONTINGENT
AMOUNT OF DEFERRED
PURCHASE SHARES HELD SALES CHARGE
<S> <C> <C>
less than 4
Up to $1,999,999 years 1%
$2,000,000 to less than 2
$4,999,999 years .50%
$5,000,000 or
more less than 1 year .25%
</TABLE>

In instances in which Shares have been acquired in exchange for Class F
Shares in other Federated Funds: (i) the purchase price is the price of the
shares when originally purchased and (ii) the time period during which the
shares are held will run from the date of the original purchase. The contingent
deferred sales charge will not be imposed on Shares acquired through the
reinvestment of dividends or distributions of long-term capital gains. In
computing the amount of contingent deferred sales charge for accounts with
Shares subject to a single holding period, if any, redemptions are deemed to
have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) purchase of Shares
occurring prior to the number of years necessary to satisfy the applicable
holding period; and (3) purchases of Shares occurring within the current holding
period. For accounts with Shares subject to multiple Share holding periods, the
redemption sequence will be determined first, with reinvested dividends and
long-term capital gains, and second, on a first-in, first-out basis.

The contingent deferred sales charge will not be imposed when a redemption
results from a return based upon from the death or total and permanent
disability of the beneficial owner. The contingent deferred sales charge is not
charged in connection with exchanges of Shares for shares in other Federated
Funds or in connection with redemptions by the Fund of accounts with low
balances. Shares of the Fund originally purchased through a bank trust
department or investment adviser registered under the Investment Advisers Act of
1940 are not subject to the contingent deferred sales charge to the extent the
distributor does not make advance payments. In addition, Shares held in the Fund
by a financial institution for its own account which were originally purchased
by the financial institution directly from the Fund's distributor without a
sales charge may be redeemed without a contingent deferred sales charge. For
more information, see "Other Payments to Financial Institutions."

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount 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; the minimum withdrawal amount
is $100. 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.

A contingent deferred sales charge is imposed on Shares, other than Shares
purchased through reinvestment of dividends, which are redeemed through this
program within one to four years of their purchase dates.

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 $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 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

DIRECTORS

INVESTMENT ADVISER

ADVISORY FEES

ADVISER'S BACKGROUND

PORTFOLIO MANAGER'S BACKGROUND

Mary Jo Ochson and Jonathan C. Conley are the Fund's portfolio managers. Mary Jo
Ochson has been the Fund's portfolio manager since its inception. Ms. Ochson
joined Federated Investors in 1982 and has been a Senior Vice President of the
Fund's investment adviser since January 1996. From 1988 thrugh 1995, Ms. Ochson
served as a Vice President of the Fund's investment adviser. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.

DISTRIBUTION OF CLASS F SHARES

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the Fund will pay to the distributor an amount,
computed at an annual rate of 0.15 of 1% of the average daily net asset value of
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. The distributor may select
financial institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/ dealers to provide sales services and
distribution-related support services as agents for their clients or customers.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors under which
the Fund 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. Under the Shareholder Services Agreement,
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.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

The distributor will pay financial institutions, for distribution and/or
administrative services, an amount equal to 1% of the offering price of the
Shares acquired by their clients or customers on purchases up to $1,999,999,
0.50% of the offering price on purchases of $2,000,000 to $4,999,999, and 0.25%
of the offering price on purchases of $5,000,000 or more. The financial
institution may elect to receive amounts less than those stated which would
reduce the stated contingent deferred sales charge and/or the holding period
used to calculate the fee. Furthermore, in addition to payments made pursuant to
the Distribution Plan and Shareholder Services Agreement, the Adviser and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include participating in sales, educational and training seminars at
recreational-type facilities, 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
operational support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Adviser or its affiliates.

The fees paid to financial institutions by the distributor will be reimbursed by
the Adviser.

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>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
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 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 fund or class, only shares of that fund or class are
entitled to vote. As of January 2, 1996, Merrill Lynch Pierce Fenner & Smith (as
owner of record holding shares for its clients), Jacksonville, Florida, owned
40.02% of the voting securities of the Fund, and, therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.

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

FEDERAL INCOME TAX

Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.

STATE AND LOCAL TAXES

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, yield and
tax-equivalent yield for Shares.

The performance information reflects the effect of the maximum sales charge and
the contingent deferred sales charge which, if excluded, would increase the
total return, yield and tax-equivalent yield.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/ or compare the
Fund's performance to certain indices. Total return will be calculated
separately for Class F Shares and Class A Shares.

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

The Fund currently offers Class F Shares and Class A Shares. The Class A Shares
are sold subject to a front-end sales charge of up to 1%, but without any
contingent deferred sales charge. Class A Shares are subject to a minimum
initial investment of $5,000.

The amount of dividends payable to Class A Shares will generally be less than
that of Class F 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 both classes of shares.

To obtain more information and a prospectus for Class A Shares, investors may
call 1-800-235-4669.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>

Federated Limited Term Municipal Fund
Class F Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

- ---------------------------------------------------------------------------------------------------------------------

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------

Independent Public Accountants
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------

</TABLE>

FEDERATED LIMITED TERM
MUNICIPAL FUND
(FORMERLY LIMITED TERM
MUNICIPAL FUND)
CLASS F SHARES
(FORMERLY FORTRESS SHARES)

PROSPECTUS

A Diversified Portfolio of
Fixed Income Securities, Inc.,
an Open-End, Management
Investment Company
January 31, 1996

FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Cusip 338319403
3070702-F (1/96)

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

The shares of Federated Strategic Income Fund (the "Fund") offered by this
prospectus represent interests in the Fund, which is a diversified investment
portfolio in Fixed Income Securities, Inc. (the "Corporation"), an open-end,
management investment company (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, Class B Shares and Class C Shares of the Fund. Keep
this prospectus for future reference.

SPECIAL RISKS

THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN 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 (I.E., THE BONDS ARE SUBJECT TO THE RISK OF
DEFAULT). IN ADDITION, THE SECONDARY TRADING MARKET FOR LOWER-RATED BONDS MAY BE
LESS LIQUID THAN THE MARKET FOR INVESTMENT GRADE BONDS. PURCHASERS SHOULD
CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THESE SHARES. SEE
THE SECTION OF THIS PROSPECTUS ENTITLED "SPECIAL RISKS."

The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares and Class F Shares, dated January 31,
1996, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-235-4669. To obtain other
information or make inquiries about the Fund, contact your financial
institution.

Prospectus dated January 31, 1996

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TABLE OF CONTENTS

Summary of Fund Expenses...................................................... 1

Financial Highlights.......................................................... 4

General Information........................................................... 7

Investment Information........................................................ 8

Investment Objective........................................................ 8

Investment Policies......................................................... 8

Investment Limitations......................................................20

Net Asset Value...............................................................21

Investing in the Fund.........................................................21

How to Purchase Shares........................................................22

Investing in Class A Shares.................................................23

Investing in Class B Shares.................................................25

Investing in Class C Shares.................................................25

Special Purchase Features...................................................26

How to Redeem Shares..........................................................29
Special Redemption Features.................................................30

Contingent Deferred Sales Charge............................................30
Account and Share Information...............................................32

Fund Informati.on...........................................................32

Administration of the Fund..................................................36
Brokerage Transactions......................................................37
Expenses of the Corporation and Shares......................................37

Shareholder Information.......................................................38
Voting Rights...............................................................38

Tax Information...............................................................38
Federal Income Tax..........................................................38
State and Local Taxes.......................................................39

Performance Information.......................................................39

Other Classes of Shares.......................................................40

Appendix......................................................................40

Addresses.....................................................................43

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SUMMARY OF FUND EXPENSES
FEDERATED STRATEGIC INCOME FUND
(FORMERLY, STRATEGIC INCOME FUND)

<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................. 4.50%
Maximum Sales Charge 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) (1)................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................ None
Exchange Fee.................................................................................................. None

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................................. 0.00%
12b-1 Fee..................................................................................................... None
Total Other Expenses (after expense reimbursement)............................................................ 1.35%
Shareholder Services Fee....................................................................... 0.25%
Total Operating Expenses (3)......................................................................... 1.35%
</TABLE>

(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased and redeemed with a sales charge
and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one year of purchase.

(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1996. The total
operating expenses were 0.25% for the fiscal year ended November 30, 1995
and would have been 5.94% absent the voluntary waiver of the management fee
and the voluntary reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <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.............. $63 $86 $116 $200
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $58 $86 $116 $200
</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.

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SUMMARY OF FUND EXPENSES
FEDERATED STRATEGIC INCOME FUND
(FORMERLY, STRATEGIC INCOME FUND)

<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................. None
Maximum Sales Charge 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) (1)................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................ None
Exchange Fee.................................................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................................. 0.00%
12b-1 Fee..................................................................................................... 0.75%
Total Other Expenses (after expense reimbursement)............................................................ 1.35%
Shareholder Services Fee....................................................................... 0.25%
Total Operating Expenses (3)(4)...................................................................... 2.10%
</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter, see "Contingent Deferred Sales
Charge".

(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

(4) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1996. The total
operating expenses were 1.00% for the fiscal year ended November 30, 1995
and would have been 6.69% absent the voluntary waiver of the management fee
and the voluntary reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<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.......................................................... $78 $109
You would pay the following expenses on the same investment,
assuming no redemption............................................................................. $21 $66
</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.

- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED STRATEGIC INCOME FUND
(FORMERLY, STRATEGIC INCOME FUND)

<TABLE>
<S> <C> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................. None
Maximum Sales Charge 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) (1)................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................ None
Exchange Fee.................................................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................................. 0.00%
12b-1 Fee..................................................................................................... 0.75%
Total Other Expenses (after expense reimbursement)............................................................ 1.35%
Shareholder Services Fee....................................................................... 0.25%
Total Operating Expenses (3)......................................................................... 2.10%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge."

(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1996. The total
operating expenses were 1.00% for the fiscal year ended November 30, 1995
and would have been 6.69% absent the voluntary waiver of the management fee
and the voluntary reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <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.............. $32 $66 $113 $243
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $21 $66 $113 $243
</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.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED STRATEGIC INCOME FUND
(FORMERLY, STRATEGIC INCOME FUND)

- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated January 17, 1996, on the funds
financial statements for the year ended November 30, 1995 which is incorporated
by reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income 0.82 0.45
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 0.61 (0.45)
- ------------------------------------------------------------------------------------------------------ --------- ---------
Total from investment operations 1.43 0.00
- ------------------------------------------------------------------------------------------------------ --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------
Distributions from net investment income (0.83) (0.45)
- ------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.01)
- ------------------------------------------------------------------------------------------------------ --------- ---------
Total distributions (0.83) (0.46)
- ------------------------------------------------------------------------------------------------------ --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 9.54
- ------------------------------------------------------------------------------------------------------ --------- ---------
TOTAL RETURN (C) 15.64% 0.05%
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------
Expenses 0.25% 0.25%*
- ------------------------------------------------------------------------------------------------------
Net investment income 8.68% 8.38%*
- ------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.69 (e) 8.87%*
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $5,089 $2,366
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 158% 34%
- ------------------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.
(a) Reflects operations for the period from May 3, 1994 (date of initial public
offering) to November 30, 1994.

(b) 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.

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

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

(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This
expense decrease is reflected in both the expense and net investment
income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS B SHARES
FEDERATED STRATEGIC INCOME FUND
(FORMERLY, STRATEGIC INCOME FUND)

- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated January 17, 1996 on the funds financial
statements for the year ended November 30, 1995 which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
<S> <C>
1995(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income 0.25
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 0.13
- ------------------------------------------------------------------------------------------------------ -------
Total from investment operations 0.38
- ------------------------------------------------------------------------------------------------------ -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------
Distributions from net investment income (0.24)
- ------------------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 10.14
- ------------------------------------------------------------------------------------------------------ -------
TOTAL RETURN (B) 5.13%
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------
Expenses 1.00%*
- ------------------------------------------------------------------------------------------------------
Net investment income 7.95%*
- ------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 5.69%*(d)
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $5,193
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 158%
- ------------------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.
(a) Reflects operations for the period from July 27, 1995 (date of initial
public offering) to November 30, 1995.

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

(d) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This
expense decrease is reflected in both the expense and net investment
income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS C SHARES
FEDERATED STRATEGIC INCOME FUND
(FORMERLY, STRATEGIC INCOME FUND)

- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income 0.74 0.40
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 0.61 (0.44)
- ------------------------------------------------------------------------------------------------------ --------- ---------
Total from investment operations 1.35 (0.04)
- ------------------------------------------------------------------------------------------------------ --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------
Distributions from net investment income (0.75) (0.40)
- ------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.02)
- ------------------------------------------------------------------------------------------------------ --------- ---------
Total distributions (0.75) (0.42)
- ------------------------------------------------------------------------------------------------------ --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 9.54
- ------------------------------------------------------------------------------------------------------ --------- ---------
TOTAL RETURN (C) 14.79% (0.41%)
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------
Expenses 1.00% 1.00%*
- ------------------------------------------------------------------------------------------------------
Net investment income 7.93% 7.99%*
- ------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.69 (e) 8.87%*
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $2,323 $1,190
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 158% 34%
- ------------------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from April 29, 1994 (date of initial
public investment) to November 30, 1994.

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

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

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

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GENERAL INFORMATION

The Corporation was established under the laws of the State of Maryland on
October 15, 1991. The Corporation's address is Liberty Center, Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of
Incorporation permit the Corporation to offer separate series of shares
representing interests in separate portfolios of securities. As of the date of
this prospectus, the Directors have established three separate portfolios:
Federated Strategic Income Fund, Federated Limited Term Fund and Federated
Limited Term Municipal Fund. With respect to the Fund, the Directors have
established four classes of shares, known as Class A Shares, Class B Shares,
Class C Shares and Class F Shares. This prospectus relates only to the Class A
Shares, Class B Shares and Class C Shares of the Fund (individually and
collectively as the context requires, "Shares").

Shares of the Fund are designed for investors seeking high current income
through a professionally managed, diversified portfolio investing primarily in
domestic and corporate debt obligations, U.S. government securities and foreign
government and corporate debt obligations.

For information on how to purchase the Shares offered by this prospectus, please
refer to "How to Purchase Shares." The minimum initial investment for Class A
Shares is $500. The minimum initial investment for Class B Shares and Class C
Shares is $1500. However, the minimum initial investment for a retirement
account in any class is $50. Subsequent investments in any class must be in
amounts of at least $100, except for retirement plans which must be in amounts
of at least $50.

Class A Shares are sold at net asset value plus an applicable sales charge and
are redeemed at net asset value. However, a contingent deferred sales charge is
imposed under certain circumstances. For a more complete description, see "How
to Redeem Shares."

Class B Shares are sold at net asset value and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares which
are redeemed within six full years of purchase. See "How to Redeem Shares."

Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first full 12 months
following purchase. See "How to Redeem Shares."

- -------------------------------------------------------------------------------
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 object, 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 may also 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. The prices of fixed
income securities fluctuate inversely to the direction of interest rates.

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; Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Tennessee Valley
Authority; Export-Import Bank of the United States; Commodity Credit
Corporation; Federal Financing Bank; Student Loan Marketing Association; or
Federal Home Loan Mortgage Corporation.

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

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
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 accrued 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 the 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 payment 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 Ratings Group ("Standard &
Poor's") or Fitch Investors Service, 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 published interest rate or interest rate
index. 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 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.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF
TOTAL MARKET
VALUE OF SECURITY
HOLDINGS AS OF
CREDIT RATING NOVEMBER 30, 1995
<S> <C>
BB 23.26%
B 74.84%
CCC 1.61%
------
99.71%
------
</TABLE>

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 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 respect as growth of
gross national product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.

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 that 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 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
instru mentalities;

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 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 foregoes 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.

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 a 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 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 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

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 restrictions 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

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 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.

There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

PORTFOLIO TURNOVER

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 resale under the Securities Act of 1933 except for certain
restricted securities that meet 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 for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.

The net asset value of each class of Shares of the Fund is determined as of the
close of trading, (normally 4:00 p.m., Eastern time), on the New York Stock
Exchange, 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; or (iii)
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

- --------------------------------------------------------------------------------
INVESTING IN THE FUND

This prospectus offers investors three classes of Shares that carry sales
charges and contingent deferred sales charges in different forms and amounts and
which bear different levels of expenses.

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales charge of 4.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales charges. See "Reducing the
Sales Charge--Class A Shares." Class A Shares have no conversion feature.

CLASS B SHARES

Class B Shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee.

CLASS C SHARES

Class C Shares are sold without an initial sales charge, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within
the first 12 months following purchase. Class C Shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but will have a higher expense ratio and pay lower dividends
than Class A Shares due to the higher 12b-1 fee. Class C Shares have no
conversion feature.

- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)

In connection with any sale, 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. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.

INVESTING IN CLASS A SHARES

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

<TABLE>
<CAPTION>
SALES DEALER
CHARGE CONCES-
SALES AS A SION
CHARGE PERCENTAGE AS A
AS A OF PRICE PERCENTAGE
PERCENTAGE NET OF PUBLIC
OF PUBLIC AMOUNT OFFERING
AMOUNT OF TRANSACTION OFFERING INVESTED 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 $1,000,000 2.00% 2.04% 1.80%
$1,000,000 or greater 0.00% 0.00% 0.25%*
</TABLE>

*See sub-section entitled "Dealer Concession."

No sales charge is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, or to
shareholders designated as Liberty Life Members. However, investors who purchase
Shares through a trust department, investment adviser, or retirement plan may be
charged an additional service fee by the institution. Additionally, no sales
charge is imposed for Class A Shares purchased through "wrap accounts" or
similar programs, under which clients pay a fee or fees for services.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales charge 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 charge; however, the distributor will make
twelve monthly payments to the dealer totaling 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.

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 OR ELIMINATING
THE SALES CHARGE.

The sales charge can be reduced or eliminated on the purchase of Class A Shares
through:

quantity discounts and accumulated purchases;

concurrent purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

purchases with proceeds from redemptions of unaffiliated investment company
shares.
QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

As shown in the table above, larger purchases reduce the sales charge paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's 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.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the 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 Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more
funds in the Federated Funds, the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $30,000 in one of
the Class A Shares in the Federated Funds with a sales charge, and $70,000 in
this Fund, 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.

LETTER OF INTENT

If a shareholder intends to purchase at least $100,000 of shares in the funds in
the Federated Funds (excluding money market 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
custodian to hold up to 4.50% of the total amount intended to be purchased in
escrow (in shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales charge.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
Federated Funds, excluding money market accounts, will be aggregated to provide
a purchase credit towards fulfillment of the letter of intent. Prior trade
prices will not be adjusted.

REINVESTMENT PRIVILEGE

If Class A Shares in the Fund have been redeemed, the shareholder has a 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 eliminate a sales charge. If the shareholder redeems his Class A
Shares in the Fund, there may be tax consequences.

PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

Investors may purchase Class A Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or redeemed with a sales charge or
commission and were not distributed by Federated Securities Corp. 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. From time to time, the Fund may offer dealers a
payment of .50 of 1.00% for Shares purchased under this program. If Shares are
purchased in this manner, Fund purchases will be subject to a contingent
deferred sales charge for one year from the date of purchase.

INVESTING IN CLASS B SHARES

Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales charge,
under certain circumstances described under "Contingent Deferred Sales
Charge--Class B Shares," a contingent deferred sales charge may be applied by
the distributor at the time Class B Shares are redeemed.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales charge, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of another
fund in the Federated Funds will convert into Class A Shares based on the time
of the initial purchase. For purposes of conversion to Class A Shares, Shares
purchased through the reinvestment of dividends and distributions paid on Class
B Shares will be considered to be held in a separate sub-account. Each time any
Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares in the sub-account will also convert to Class A Shares. The conversion of
Class B Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur if such ruling or
opinion is not available. In such event, Class B Shares would continue to be
subject to higher expenses than Class A Shares for an indefinite period.

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

INVESTING IN CLASS C SHARES

Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."

PURCHASING SHARES 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 placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. 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. Financial
institutions may charge additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received immediately. Payment for purchases which are subject to a
sales charge must be received within three business days following the order.
Payment for purchases on which no sales charge is imposed must be received
before 3:00 p.m. (Eastern time) on the next business day following the order.
Federal funds should be wired as follows: Federated Services Company, c/o State
Street Bank and Trust Company, Boston, MA; Attn; EDGEWIRE; For Credit to: (Fund
Name) (Fund Class); (Fund Number); Account Number; Trade Date and Order Number;
Group Number or Dealer Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire transfers
are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.

PURCHASING SHARES BY CHECK

Shares may be purchased by sending a check to: Federated Services Company, P.O.
Box 8600, Boston, MA 02266-8600. The check should be made payable to the name of
the Fund (designate class of Shares and account number). Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received), and Shares begin
earning dividends the next day.

SPECIAL PURCHASE FEATURES

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 at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales charge, if applicable. Shareholders should
contact their financial institution or the Fund to participate in this program.

RETIREMENT PLANS

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

EXCHANGE PRIVILEGE CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Federated Funds at net asset value. Neither the Fund nor
any of the funds in the Federated Funds imposes any additional fees on
exchanges.

CLASS B SHARES

Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Federated Funds. (Not all funds in the Federated Funds
currently offer Class B Shares. Contact your financial institution regarding the
availability of other Class B Shares in the Federated Funds). Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged Shares. To the extent that a shareholder exchanges Shares for
Class B Shares in other funds in the Federated Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period.

CLASS C SHARES

Class C shareholders may exchange all or some of their Shares for Class C Shares
in other funds in the Federated Funds at net asset value without a contingent
deferred sales charge. (Not all funds in Federated Funds currently offer Class C
Shares. Contact your financial institution regarding the availability of other
Class C Shares in the Federated Funds.) Participants in a retirement plan under
the Program may exchange some or all of their Shares for Class C Shares of other
funds offered under their plan at net asset value without a contingent deferred
sales charge. To the extent that a shareholder exchanges Shares for Class C
Shares in other funds in the Federated Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales Charge."

The Fund has exchange privileges with the following Federated Funds:

American Leaders Fund, Inc.; Capital Growth Fund; Federated Bond Fund; Federated
Small Cap Strategies Fund; Fund for U.S. Government Securities, Inc.; Federated
International Equity Fund; Federated International Income Fund; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty
Utility Fund, Inc.; Federated Limited Term Fund; Federated Limited Term
Municipal Fund; Michigan Intermediate Municipal Trust; Pennsylvania Municipal
Income Fund; Federated Strategic Income Fund; Tax-Free Instruments Trust; and,
Federated World Utility Fund.

Prospectuses for these funds are available by writing to Federated Securities
Corp.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. 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
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or 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 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 for the Federated Funds 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 Federated Services Company, 500 Victory Road-2nd
Floor, North Quincy, Massachusetts 02171.

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 Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. 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 Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 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 Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.

- --------------------------------------------------------------------------------

HOW TO REDEEM SHARES

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.
REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION

Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge 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
(such as banks) 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. Customary fees and commissions may be charged by the financial
institution for this service.

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund, provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared. Proceeds from redemption requests received on holidays when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, MA 02266-8600.
If share certificates have been issued, they should be sent unendorsed with the
written request by registered or certified mail to the address noted above.

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

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 $500 for Class A Shares and $1,500 for Class B Shares and Class C Shares.
A shareholder may apply for participation in this program through his financial
institution. Due to the fact that Class A Shares are sold with a sales charge,
it is not advisable for shareholders to continue to purchase Class A Shares
while participating in this program. A contingent deferred sales charge may be
imposed on Class B and C Shares.

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:

CLASS A SHARES

Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Federated Securities Corp.
may be charged a contingent deferred sales charge of .50 of 1.00% for
redemptions made within one full year of purchase. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
</TABLE>

CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares; (3) Shares held for
fewer than six years with respect to Class B Shares and one full year from the
date of purchase with respect to Class C Shares and applicable Class A Shares on
a first-in, first-out basis. A contingent deferred sales charge is not assessed
in connection with an exchange of Fund Shares for Shares of other funds in the
Federated Funds in the same class (see "Exchange Privilege"). Any contingent
deferred sales charge imposed at the time the exchanged for Shares are redeemed
is calculated as if the shareholder had held the Shares from the date on which
he became a shareholder of the exchanged-from Shares. Moreover, the contingent
deferred sales charge will be eliminated with respect to certain redemptions
(see "Elimination of Contingent Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of

the Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of Shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with
Federated Securities Corp. or its affiliates, or any other financial
institution, to the extent that no payments were advanced for purchases made
through such entities. The Directors reserve the right to discontinue
elimination of the contingent deferred sales charge. Shareholders will be
notified of such elimination. Any Shares purchased prior to the termination of
such waiver would have the contingent deferred sales charge eliminated as
provided in the Fund's prospectus at the time of the purchase of the Shares. If
a shareholder making a redemption qualifies for an elimination of the contingent
deferred sales charge, the shareholder must notify Federated Securities Corp. or
the transfer agent in writing that he is entitled to such elimination.

ACCOUNT AND SHARE INFORMATION

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
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.

DIVIDENDS

Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Dividends and distributions are automatically reinvested in
additional Shares of the Fund on payment dates at the ex-dividend date net asset
value without a sales charge, unless shareholders request cash payments on the
new account form or by contacting the transfer agent. All shareholders on the
record date are entitled to the dividend. If Shares are redeemed or exchanged
prior to the record date or purchased after the record date, those Shares are
not entitled to that month's dividend.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share Class. 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.

FUND INFORMATION

MANAGEMENT OF THE FUND
DIRECTORS

The Fund is managed by the Directors. The Directors are responsible for managing
the Fund's business affairs and for exercising all the Fund's powers except
those reserved for the shareholders. An Executive Committee of the 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.

Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to .85 of 1% of the
Fund's average daily net assets. Gross income includes, in general, discounts
earned on U.S. Treasury bills and agency discount notes, interest earned on all
interest-bearing obligations, and dividend income recorded on the ex-dividend
date but does not include capital gains or losses or reduction for expenses. The
Adviser may voluntarily choose to waive a portion of its fee or reimburse the
Funds for certain operating expenses. The Adviser can terminate this voluntary
reimbursement of expenses 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.

Under the terms of the sub-advisory agreement between Federated Advisers and
Federated Global Research Corp., Federated Global Research Corp. will provide
Federated Advisers such investment advice, statistical and other factual
information as may, from time to time, be reasonably requested by Federated
Advisers. For its services under the sub-advisory agreement, Federated Global
Research Corp. receives an allocable portion of the Fund's advisory fee. Such
allocation is based on the amount of foreign securities which Federated Global
Research Corp. manages for the Fund. This fee is paid by Federated Advisers out
of its resources and is not an incremental Fund expense.

ADVISERS BACKGROUND

Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940.

SUB-ADVISER'S BACKGROUND

Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940.

The adviser and sub-adviser are subsidiaries 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 son, J. Christopher Donahue, who is President and
Trustee of Federated Investors.

Federated Advisers, Federated Global Research Corp. 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. With over $80
billion invested across more than 250 funds under management and/or

administration by its subsidiaries, as of December 31, 1994, Federated Investors
is one of the largest mutual fund investment managers in the United States. With
more than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.

PORTFOLIO MANAGERS' BACKGROUNDS

James D. Roberge is the portfolio manager for the Fund and performs the overall
allocation of the assets of the Fund among the various asset categories. He has
performed these duties since January 1996. In allocating the Fund's assets, Mr.
Roberge evaluates the market environment and economic outlook in each of the
Fund's three major sectors. Mr. Roberge joined Federated Investors in 1990 and
has been a Vice President of the Fund's investment adviser since October 1994.
Prior to this, Mr. Roberge served as an Assistant Vice President of the Fund's
investment adviser. From 1990 until 1992, Mr. Roberge acted as an investment
analyst. Mr. Roberge is a Chartered Financial Analyst and received his M.B.A. in
Finance from the Wharton School of the University of Pennsylvania.

The portfolio managers for each of the individual asset categories are as
follows:

Mark E. Durbiano is the co-portfolio manager for the domestic corporate debt
category. He has served in this capacity since the Fund's inception. Mr.
Durbiano joined Federated Investors in 1982 and has been a Senior Vice President
of the Fund's investment adviser since January 1996. He served as a Vice
President of the adviser since 1988. Mr. Durbiano is a Chartered Financial
Analyst and received his M.B.A. in Finance from the University of Pittsburgh.

James D. Roberge and Kathleen M. Foody-Malus are the co-portfolio managers for
the U.S. government securities category. Ms. Foody-Malus has served in this
capacity since March 1995. Ms. Foody-Malus joined Federated Investors in 1983
and has been a Vice President of the Fund's investment adviser since 1993. Ms.
Foody-Malus served as an Assistant Vice President of the investment adviser from
1990 until 1992. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from
the University of Pittsburgh.

Henry A. Frantzen, Drew J. Collins and Robert M. Kowit are the co-portfolio
managers for the foreign government/foreign corporate debt categories.

Henry A. Frantzen has served in this capacity since November 1995. Mr. Frantzen
joined Federated Investors in 1995 as an Executive Vice President of Federated
Global Research Corp. Mr. Frantzen served as Chief Investment Officer of
international equities at Brown Brothers Harriman & Co. from 1992 to 1995. He
was the Executive Vice President and Director of Equities at Oppenheimer
Management Corporation from 1989 to 1991. Mr. Frantzen received his B.S. in
finance and marketing from the University of North Dakota.

Drew J. Collins has served in this capacity since November 1995. Mr. Collins
joined Federated Investors in 1995 as a Senior Vice President of Federated
Global Research Corp. Mr. Collins served as Vice President/Portfolio Manager of
international equity portfolios at Arnhold and S. Bleichroeder, Inc. from 1994
to 1995. He served as an Assistant Vice President/Portfolio Manager for
international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the Wharton School of the University of Pennsylvania.

Robert M. Kowit has served in this capacity since November 1995. Mr. Kowit
joined Federated Investors in 1995 as a Vice President of Federated Global
Research Corp. Mr. Kowit

served as a Managing Partner of Copernicus Global Asset Management from January
1995 through October 1995. From 1990 to 1994, he served as Senior Vice President
of International Fixed Income and Foreign Exchange for John Hancock Advisers.
Mr. Kowit received his M.B.A. from Iona College with a concentration in finance.

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. 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.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

The distributor may offer to pay financial institutions an amount up to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.

The distributor will pay dealers an amount equal to 5.50% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.

DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of .75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution-related support services
pursuant to the Plan.

The Distribution Plan is a compensation type Plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts. Under
the Shareholder Services Agreement, 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.

In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.

OTHER PAYMENTS TO FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset value
of Class A Shares purchased by their clients or customers under certain
qualified retirement plans as approved by Federated Securities Corp. (Such
payments are subject to a reclaim from the financial institution should the
assets leave the program within 12 months after purchase.)

Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
and in addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, the distributor, and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. 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 Adviser or its
affiliates.

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 Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED FUNDS
<C> <S>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.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.

BROKERAGE TRANSACTIONS

EXPENSES OF THE CORPORATION AND SHARES

Holders of Class A, Class B, and Class C Shares pay their allocable portion of
Corporation and portfolio expenses.

The Corporation expenses for which holders of Class A, Class B, and Class C
Shares pay their allocable portion include, but are not limited to: the cost of
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 portfolio expenses for which holders of Class A, Class B, and Class C Shares
pay their allocable portion include, but are not limited to: registering the
portfolio and Shares of the portfolio; 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 Class A, Class
B, and Class C Shares as classes are expenses under the Corporation's
Distribution Plan and fees for Shareholder Services. However, the Directors
reserve the right to allocate certain other expenses to holders of Class A,
Class B, and Class C 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 Class A, Class
B, and Class C Shares; fees for Shareholder Services; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and registration fees paid to
state securities commissions; expenses related to administrative personnel and
services as required to support holders of Class A, Class B, and Class C Shares;
legal fees relating solely to Class A, Class B, and Class C Shares and
Directors' fees incurred as a result of issues relating solely to Class A, Class
B, and Class C Shares.

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

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund 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 Fund 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 Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.

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

FEDERAL INCOME TAX

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 the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed so
long as such qualified retirement plan meets the applicable requirements of the
Internal Revenue Code.

Distributions from the Fund are based on estimates of book income for the year.
Tax basis income includes gains or losses attributable to currency fluctuation,
whereas book income generally consists solely of the coupon income generated by
the portfolio. Due to differences in the book and tax treatment of fixed income
securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations can not be anticipated, a portion of distributions to Shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

STATE AND LOCAL TAXES

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 its total return and yield for each class
of Shares including Class F Shares as described under "Other Classes of Shares."

Total return represents the change, over a specific period of time, in the value
of an investment in each class of 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 each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty day period by the maximum offering price
per share of each class 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 each class of Shares, and therefore, may not correlate
to the dividends or other distributions paid to shareholders.

The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Class F Shares.

From time to time, advertisements for Class A Shares, Class B Shares, Class C
Shares and Class F Shares of the Fund may refer to ratings, rankings, and other
information in certain financial publications and/or compare the performance of
Class A Shares, Class B Shares, Class C Shares and Class F Shares to certain
indices.

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

The Fund also offers another class of shares called Class F Shares. Class F
Shares are sold primarily to customers of financial institutions subject to a
front-end sales charge, a contingent deferred sales charge and a minimum initial
investment of $1,500, unless the investment is in a retirement account in which
the minimum investment is $50.

Shares and Class F Shares are subject to certain of the same expenses. Expense
differences, however, between Shares and Class F Shares may affect the
performance of each class.

To obtain more information and a prospectus for Class F Shares, investors may
call 1-800-235-4669 or contact their financial institution.

- --------------------------------------------------------------------------------

APPENDIX

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS

AAA--Debt rated AAA has the highest rating assigned by S&P. 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 typically is applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The C rating may be used to
cover a situation where a

bankruptcy petition has been filed, but debt service payments are continued.

NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

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
edged." 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.

NR--Not rated by Moody's.

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 obligator'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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain indentifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are in imminent default in payment or interest or principal.

DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.

NR--Indicates that Fitch does not rate the specific issue.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Strategic Income Fund
Class A Shares Federated Investors Tower
Class B Shares Pittsburgh, Pennsylvania 15222-3779
Class C Shares
- ---------------------------------------------------------------------------------------------------------------------

Independent Public Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

THIS PAGE INTENTIONALLY LEFT BLANK

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

COMBINED PROSPECTUS

A Diversified Management
Investment Company

January 31, 1996

[LOGO] FEDERATED SECURITIES CORP.
-----------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

Cusip 338319700
Cusip 338319866
Cusip 338319809
G01288-01 (1/96)

FEDERATED STRATEGIC INCOME FUND

(FORMERLY STRATEGIC INCOME FUND)

(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS F SHARES
(FORMERLY FORTRESS SHARES)

PROSPECTUS

The Class F Shares offered by this prospectus represent interests in Federated
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 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 F Shares. Keep this prospectus for future reference.

SPECIAL RISKS

THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN 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 (I.E., THE BONDS ARE SUBJECT TO THE RISK OF
DEFAULT). 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 F SHARES. SEE
THE SECTION OF THIS PROSPECTUS ENTITLED "SPECIAL RISKS."

The Fund has filed a Statement of Additional Information for Class F Shares
dated January 31, 1996 with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is incorporated
by reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus if you have received
your prospectus electronically, free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact your
financial institution.

Prospectus dated January 31, 1996

- -------------------------------------------------------------------------------

TABLE OF CONTENTS

Summary of Fund Expenses.......................................................1

Financial Highlights--Class F Shares...........................................2

General Information............................................................3

Investment Information.........................................................3
Investment Objective.........................................................3
Investment Policies..........................................................3
Investment Limitations......................................................15

Net Asset Value...............................................................16

Investing in Class F Shares...................................................17

Share Purchases.............................................................17
Minimum Investment Required.................................................17
What Shares Cost............................................................18
Eliminating the Sales Charge................................................18
Systematic Investment Program...............................................20
Exchange Privilege..........................................................20
Certificates and Confirmations..............................................20
Dividends and Distributions.................................................20
Retirement Plans............................................................20

Redeeming Class F Shares......................................................21

Through a Financial Institution.............................................21

Directly From the Fund......................................................21
Contingent Deferred Sales Charge............................................22
Systematic Withdrawal Program...............................................23
Accounts with Low Balances..................................................23

Fixed Income Securities, Inc. Information.....................................24

Management of the Corporation...............................................24
Portfolio Managers' Backgrounds.............................................25

Distribution of Class F Shares..............................................26

Administration of the Fund..................................................27

Shareholder Information.......................................................28
Voting Rights...............................................................28

Tax Information...............................................................28
Federal Income Tax..........................................................28
State and Local Taxes.......................................................28

Performance Information.......................................................29

Other Classes of Shares.......................................................30

Appendix......................................................................31

Addresses.....................................................................34

- -------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED STRATEGIC INCOME FUND
(FORMERLY, STRATEGIC INCOME FUND)

<TABLE>
<S> <C> <C>
CLASS F SHARES
(FORMERLY, FORTRESS SHARES)
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................................................................ 1.00%
Maximum Sales Charge 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) (1)...................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.00%
12b-1 Fee........................................................................................................ 0.50%
Total Other Expenses (after expense reimbursement)............................................................... 1.35%
Shareholder Servicing Fee......................................................................... 0.25%
Total Operating Expenses (3)............................................................................. 1.85%

</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within
four years of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge."

(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1996. The total
operating expenses were 0.75% for the fiscal year ended November 30, 1995
and would have been 6.44% absent the voluntary waiver of the management fee
and the voluntary reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class F Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class F Shares" and "Fixed Income
Securities, Inc. Information." Wire-transferred redemptions of less than $5,000
may be subject to additional fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <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.................. $39 $78 $109 $225
You would pay the following expenses on the same investment, assuming no
redemption....................................................................... $29 $68 $109 $225
</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.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FORMERLY, FORTRESS SHARES)

FEDERATED STRATEGIC INCOME FUND
(FORMERLY, STRATEGIC INCOME FUND)

- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated January 17, 1996 on the Fund's
financial statements for the year ended November 30, 1995 which is incorporated
by reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.77 0.41
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment and foreign currency 0.61 (0.44)
- ----------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.38 (0.03)
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (0.78) (0.41)
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.02)
- ----------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.78) (0.43)
- ----------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 9.54
- ----------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (C) 15.07% (0.19%)
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.75% 0.75%*
- -----------------------------------------------------------------------------------------------
Net investment income 8.19% 8.34%*
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.69 (e) 8.87%*
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,691 $2,326
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 158% 34 %
- -----------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 9, 1994 (date of initial public
offering) to November 30, 1994.

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

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

(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 2.33% of average
net assets, to comply with certain state expense limitations. The
remainder of the reimbursement was voluntary. This expense decrease is
reflected in both the expense and net investment income ratios shown
above.

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

- --------------------------------------------------------------------------------
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 Directors have established three separate portfolios: Federated Strategic
Income Fund, Federated Limited Term Fund and Federated Limited Term Municipal
Fund. With respect to the Fund, the Directors have established four classes of
shares known as Class F Shares, Class A Shares, Class B Shares and Class C
Shares. This Prospectus relates only to the Class F Shares class 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 $1,500 over a
90-day period is required, unless the investment is in a retirement account in
which case the minimum investment is $50.

- --------------------------------------------------------------------------------
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.

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 Fund may invest in debt securities of any maturity. The prices of fixed
income securities fluctuate inversely to the direction of interest rates.

U.S. GOVERNMENT SECURITIES

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

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.

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")

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.

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 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 Ratings Group ("Standard &
Poor's") or Fitch Investors Service, 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

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 published interest rate or interest rate index.
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 or Fitch. A description of the rating
categories is contained in the Appendix to this Prospectus.

PREFERRED STOCKS

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.

NON-GOVERNMENT MORTGAGE-BACKED SECURITIES

Non-government mortgage-backed securities in which the Fund may invest include:

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

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.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF
TOTAL MARKET
VALUE OF SECURITY
HOLDINGS AS OF
CREDIT RATING NOVEMBER 30, 1995
<S> <C>
BB 23.26%
B 74.84%
CCC 1.61%
------
99.71%
------
</TABLE>

CORPORATE EQUITY SECURITIES

WARRANTS AND RIGHTS

FOREIGN SECURITIES

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 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.

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.

TEMPORARY INVESTMENTS

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

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

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

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

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 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.

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

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).

INVESTMENT LIMITATIONS

The Fund will not:

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

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

------------------------------------------------------------------------------
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 A Shares, Class B Shares
and Class C 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 F 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.

THROUGH A FINANCIAL INSTITUTION

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 Federated Strategic Income Fund--Class F
Shares; and

send both to the Fund's transfer agent, Federated Services Company, P.O. Box
8600, Boston, Massachusetts 02266-8600.

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: Federated Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts 02105;
Attention: Mutual Fund Servicing Division; For Credit to: Federated Strategic
Income Fund--Class F Shares; Title or Name of Account; Wire Order Number and/or
Account Number. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,500 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,
except for retirement plans, which must be in amounts of at least $50.

WHAT SHARES COST

Under certain circumstances described under "Redeeming Class F Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.

DEALER CONCESSION

ELIMINATING THE SALES CHARGE

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

quantity discounts and accumulated purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

concurrent purchases.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

There is no sales charge for purchases of $1 million or more. 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.

If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in Shares. For example, if a shareholder already owns
Shares having a current value at the public offering price of $900,000, and he
purchases $100,000 or more at the current public offering price, there will be
no sales charge on the additional purchase. The Fund will also
combine purchases for the purpose of reducing the contingent deferred sales
charge imposed on some Share redemptions. For example, if a shareholder already
owns Shares having a current value at the public offering price of $1 million
and purchases an additional $1 million at the current public offering price, the
applicable contingent deferred sales charge would be reduced to 0.50% of those
additional Shares. For more information on the levels of contingent deferred
sales charges and holding periods, see the section entitled "Contingent Deferred
Sales Charge."

LETTER OF INTENT

If a shareholder intends to purchase at least
$1 million of Shares over the next 13 months, the sales charge may be eliminated
by signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge elimination depending on the amount actually
purchased within the 13-month period and a provision for the Fund's custodian to
hold 1% of the total amount intended to be purchased in escrow (in Shares) until
such purchase is completed.

The 1% held in escrow will, at the expiration of the 13-month period, be applied
to the payment of the applicable sales charge, unless the amount specified in
the letter of intent, which must be $1 million or more of Shares, is purchased.
In this event, all of the escrowed Shares will be deposited into the
shareholder's account.

This letter of intent also includes a provision for reductions in the contingent
deferred sales charge and holding period depending on the amount actually
purchased within the 13-month period. For more information on the various levels
of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."

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.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge elimination, a shareholder has the
privilege of combining concurrent purchases of two or more funds offering Class
F Shares, the purchase prices of which include a sales charge. For example, if a
shareholder concurrently invested $400,000 in one of the other Federated Funds
and $600,000 in Shares, the sales charge would be eliminated.

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 1% sales charge for purchases under $1
million. A shareholder may apply for participation in this program through his
financial institution or directly through the Fund.

EXCHANGE PRIVILEGE

Shares in other Class F Shares may be exchanged for Shares at net asset value
without a sales charge (if previously paid) or a contingent deferred sales
charge.

The ability to exchange shares is available to shareholders residing in any
state in which the shares being acquired may be legally sold. Shareholders using
this privilege must exchange shares having a net asset value of at least $1,500.
A shareholder may obtain further information on the exchange privilege by
calling Federated Securities Corp. or his financial institution.

CERTIFICATES AND CONFIRMATIONS

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, contact the Fund and consult a tax adviser.

- --------------------------------------------------------------------------------

REDEEMING CLASS F SHARES

The Fund redeems Shares at their net asset value next determined after the
transfer agent receives the redemption request, less any applicable contingent
deferred sales charge. 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.

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, less any applicable contingent deferred
sales charge. 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. Proceeds from redemption requests received on holidays when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.

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

The written request should state: the Fund name and the Class designation; the
account name as registered with the Fund; the account number; and the number
of shares to be redeemed or the dollar amount requested. All owners of the
account must sign the request exactly as the shares are registered. Normally,
a check for the proceeds is mailed within one business day, but in no event
more than seven days, after the receipt of a proper written redemption request.
Dividends are paid up to and including the day that a redemption request is
processed.

CONTINGENT DEFERRED SALES CHARGE

Shareholders redeeming Shares from their Fund accounts within certain time
periods of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the Shares redeemed as follows:
<TABLE>
<CAPTION>
CONTINGENT
AMOUNT DEFERRED
OF PURCHASE SHARES HELD SALES CHARGE
<S> <C> <C>
4 years or
Up to $1,999,999 less 1%
2 years or
$2,000,000 to $4,999,999 less .50%
$5,000,000 or more 1 year or less .25%
</TABLE>

In instances in which Shares have been acquired in exchange for Class F Shares
in other Federated Funds, (i) the purchase price is the price of the shares when
originally purchased and (ii) the time period during which the shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on Shares acquired through the reinvestment of
dividends or distributions of long-term capital gains. In computing the amount
of contingent deferred sales charge for accounts with Shares subject to a single
holding period, if any, redemptions are deemed to have occurred in the following
order: (1) Shares acquired through the reinvestment of dividends and long-term
capital gains; (2) purchase of Shares occurring prior to the number of years
necessary to satisfy the applicable holding period; and (3) purchases of Shares
occurring within the current holding period. For accounts with Shares subject to
multiple Share holding periods, the redemption sequence will be determined
first, with reinvested dividends and long-term capital gains, and second, on a
first-in, first-out basis.

The contingent deferred sales charge will not be imposed when a redemption
results from a return under the following circumstances: (i) a total or partial
distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account after the beneficial owner
attains age 59-1/2; or (iii) from the death or total and permanent disability of
the beneficial owner. The exemption from the contingent deferred sales charge
for qualified plans, an IRA, Keogh Plan, or a custodial account does not extend
to account transfers, rollovers, and other redemptions made for purposes of
reinvestment. Contingent deferred sales charges are not charged in connection
with exchanges of Shares for shares in other Federated Funds or in connection
with redemptions by the Fund of accounts with low balances. Shares of the Fund
originally purchased through a bank trust department or investment adviser
registered under the Investment Advisers Act of 1940, or by an insurance
company, are not subject to the contingent deferred sales charge to the extent

the distributor does not make advance payments. In addition, Shares held in the
Fund by a financial institution for its own account which were originally
purchased by the financial institution directly from the Fund's distributor
without a sales charge may be redeemed without a contingent deferred sales
charge. For more information, see "Supplemental Payments to Financial
Institutions."

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 $1,500.

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.

Contingent deferred sales charges are charged for certain Shares, other than
Shares purchased through reinvestment of dividends, which are redeemed through
this program within one to four years of their purchase dates.

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 $1,500 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,500 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

DIRECTORS

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.

Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

ADVISORY FEES

The Fund's adviser receives an annual investment advisory fee equal to .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.

SUB-ADVISER'S BACKGROUND

Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940.

Federated Advisers, Federated Global Research Corp. 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. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

PORTFOLIO MANAGERS' BACKGROUNDS

The portfolio managers for each of the individual asset categories are as
follows:

Henry A. Frantzen, Drew J. Collins and Robert M. Kowit are the co-portfolio
managers for the foreign government/foreign corporate debt categories.

Robert M. Kowit has served in this capacity since November 1995. Mr. Kowit
joined Federated Investors in 1995 as a Vice President of Federated Global
Research Corp. Mr. Kowit served as a Managing Partner of Copernicus Global Asset
Management from January 1995 through October 1995. From 1990 to 1994, he served
as Senior Vice President of International Fixed Income and Foreign Exchange for
John Hancock Advisers. Mr. Kowit received his M.B.A. from Iona College with a
concentration in finance.

DISTRIBUTION OF CLASS F SHARES

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the Fund will pay to the distributor an amount,
computed at an annual rate of 0.50 of 1% of the average daily net asset value of
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. The distributor may select
financial institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/dealers to provide sales services and
distribution-related support services as agents for their clients or customers.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

Furthermore, in addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, the Adviser and Federated Shareholder Services,
from their own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include participating in
sales, educational and training seminars at recreational-type facilities,
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 operational support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

- --------------------------------------------------------------------------------

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 of January 2, 1996, Merrill Lynch Pierce Fenner &
Smith (as owner of record holding shares for its clients), Jacksonville,
Florida, owned 32.83% of the voting securities of the Fund, and, therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.

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 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

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.

STATE AND LOCAL TAXES

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 F
Shares.

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

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares and Class F Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

- --------------------------------------------------------------------------------

OTHER CLASSES OF SHARES

The Fund currently offers Class F Shares, Class A Shares, Class B Shares and
Class C Shares.

Class A Shares are sold primarily to customers of financial institutions subject
to a front-end sales charge of up to 4.50%. Class A Shares are subject to a
minimum initial investment of $500, unless the investment is in a retirement
account, in which case the minimum investment is $50.

Class B Shares are sold primarily to customers of financial institutions at net
asset value. A contingent deferred sales charge is imposed on certain Class B
Shares which are redeemed within six full years of purchase. Class B Shares are
distributed pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the
distributor is paid a fee of 0.75 of 1% of the Class B Shares' average daily net
assets, in addition to a shareholder services fee of 0.25 of 1% of the Class B
Shares' average daily net assets. Investments in Class B 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.

Class C Shares are sold primarily to customers of financial institutions at net
asset value with no up-front 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 0.75 of 1% of the Class C Shares' average daily net assets, 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.

The amount of dividends payable to Class A and Class F Shares will generally
exceed that of Class B and 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 four classes of shares.

To obtain more information and a combined prospectus for Class A Shares, Class B
Shares and Class C Shares, investors may call 1-800-235-4669 or contact their
financial institution.

- --------------------------------------------------------------------------------

APPENDIX

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS

AAA--Debt rated AAA has the highest rating assigned by S&P. 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.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

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
edged." 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.

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.

NR--Not rated by Moody's.

FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS

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+.

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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting

debt service requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are in imminent default in payment of interest or principal.

NR--Indicates that Fitch does not rate the specific issue.
ADDRESSES
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<TABLE>
<S> <C> <C>
Federated Strategic Income Fund
Class F Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------------

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
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</TABLE>

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FEDERATED STRATEGIC
INCOME FUND
(FORMERLY STRATEGIC INCOME FUND)
CLASS F SHARES
(FORMERLY FORTRESS SHARES)
PROSPECTUS
A Diversified Portfolio of
Fixed Income Securities, Inc.,
an Open-End Management
Investment Company
January 31, 1996

FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

Cusip 338319882
4031801A-F (1/96)

FEDERATED LIMITED TERM MUNICIPAL FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
respective prospectuses of Class F Shares and Class A Shares of Federated
Limited Term Municipal Fund (the "Fund") January 31, 199 6. This
Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge by calling 1-800-235-
4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996

GENERAL INFORMATION ABOUT THE FUND Delayed Delivery Transactions 4
1 Restricted and Illiquid Securities
5
INVESTMENT OBJECTIVE AND POLICIES1 Temporary Investments 5
Portfolio Turnover 6
Types of Investments 1
INVESTMENT LIMITATIONS 6
Participation Interests 1
Municipal Leases 2 FIXED INCOME SECURITIES, INC.
Capital Appreciation Bonds 2 MANAGEMENT 9
Insurance 2
Fund Ownership 13
Futures and Options Transactions2
Directors Compensation 14
Weighted Average Portfolio Duration
4
FEDERATED SECURITIES
When-
CORP.

Distributor
Issued A subsidiary of FEDERATED
and INVESTORS

Director Liability 14 DETERMINING NET ASSET VALUE 17
INVESTMENT ADVISORY SERVICES 15
Determining Market Value of
Adviser to the Fund 15 Securities 17
Advisory Fees 15 EXCHANGE PRIVILEGE 17
BROKERAGE TRANSACTIONS 15
Reduced Sales Charge 17
OTHER SERVICES 15 Requirements for Exchange 17
Tax Consequences 18
Fund Administration 16
Making an Exchange 18
Custodian and Portfolio Recordkeeper
REDEEMING SHARES 18
16
Transfer Agent 16 Redemption in Kind 18
Independent Auditors 16 TAX STATUS 18
PURCHASING SHARES 16
The Fund's Tax Status 18
Distribution Plan and Shareholder Shareholders' Tax Status 18
Services Agreement 16 TOTAL RETURN 19
Purchases by Sales Representatives,
YIELD 19
Fund
Directors, and Employees 17 TAX-EQUIVALENT YIELD 19

Tax Equivalency Table 20
PERFORMANCE COMPARISONS 21

ABOUT FEDERATED INVESTORS 21

FINANCIAL STATEMENTS 22

APPENDIX 23

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. Effective January 31, 1996, the fund changed its name to
Federated Limited Term Municipal Fund.
Shares of the Fund are offered in two classes known as Class A Shares and
Class F Shares (individually and collectively referred to as "Shares" as the
context may require). On May 19, 1994, the Directors approved the
reclassification of Investment Shares as Class A Shares. This Statement of
Additional Information relates to both classes of the above mentioned
Shares.
INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to provide a high level of current
income which is exempt from federal regular income tax (federal regular income
tax does not include the federal alternative minimum tax) consistent with
minimum fluctuation in principal value. The Fund pursues this objective through
the compilation of a portfolio, the weighted-average duration of which will at
all times be limited to four years or less. The investment objective and policy
stated above cannot be changed without approval of shareholders. Unless
indicated otherwise, 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
The Fund pursues its investment objective by investing in a diversified
portfolio primarily limited to municipal securities. As a matter of investment

policy, which may not be changed without shareholder approval, under normal
circumstances, the Fund will be invested so that at least 80% of the income from
investments will be exempt from federal regular income tax or that at least 80%
of its net assets are invested in obligations, the interest from which is exempt
from federal regular income tax. The municipal securities in which the Fund
invests are rated, at the time of purchase, Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service ("Fitch"). In certain cases the Fund's
adviser may choose bonds which are unrated if it determines that such bonds are
of comparable quality or have similar characteristics to investment grade bonds.
The following are examples of the types of municipal securities in which the
Fund invests:
o general obligation bonds;
o municipal leases, installment purchase contracts, conditional sales
contracts or participation certificates of any of the above, issued by
state and municipal authorities where payment is provided by installment
payments for equipment, buildings or other facilities acquired by the state
or municipality;
o industrial development bonds;
o derivative municipal securities whose interest rates bear an inverse
relationship to the interest rate on another security or the value of an
index ("inverse floaters");
o municipal notes and tax-exempt commercial paper;
o pre-refunded municipal securities whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations;
o auction rate and tender option securities; and

o zero coupon and capital appreciation bonds, which are issued at a discount
from their face value and do not pay interest prior to maturity or a
specified date.
The Fund may also engage in put and call options, futures contracts, and options
on futures contracts for hedging purposes.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days).
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease payments by
a governmental or non-profit entity. The lease payments and other rights under
the lease provide for and secure the payments on the certificates. Lease
obligations may be limited by municipal charter or the nature of the
appropriation for the lease. In particular, lease obligations may be subject to
periodic appropriation. If the entity does not appropriate funds for the future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot accelerate
lease obligations upon default. The trustee would only be able to enforce lease
payments as they became due. In the event of a default or failure of
appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment.

In determining the liquidity of municipal lease securities, the Fund's
investment adviser, under the authority delegated by the Directors, will base
its determination on the following factors:
o whether the lease can be terminated by the lessee;
o the potential recovery, if any, from a sale of the leased property upon
termination of the lease;
o the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);
o the likelihood that the lessee will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
its operations (e.g., the potential for an "event of non-appropriation");
and
o any credit enhancement or legal recourse provided upon an event of non-
appropriation or other termination of the lease.
CAPITAL APPRECIATION BONDS
Zero coupon and capital appreciation securities carry the risk that, unlike
securities that periodically pay interest to maturity, the Fund will realize no
cash until a specified future payment date unless a portion of such securities
is sold and, if the issuer of such securities defaults, the Fund may obtain no
return at all on its investment. In addition, even though such securities do not
pay current interest in cash, the Fund is nonetheless required to accrue income
on such investments and may be required to distribute such amounts at least
annually. Because no cash is received at the time of the accrual, the Fund may
be required to liquidate other portfolio securities to satisfy the Fund's
distribution obligations.

INSURANCE
The Fund may invest in "insured" municipal securities. Insured municipal
securities are those for which scheduled payments of interest and principal are
guaranteed by a private (nongovernmental) insurance company. The insurance only
entitles the Fund to receive the face or par value of the securities held by the
Fund. The insurance does not guarantee the market value of the municipal
securities or the value of the shares of the Fund.
The Fund may utilize new issue or secondary market insurance. A new issue
insurance policy is purchased by a bond issuer who wishes to increase the credit
rating of a security. By paying a premium and meeting the insurer's underwriting
standards, the bond issuer is able to obtain a high credit rating (usually, Aaa
from Moody's or AAA from S&P) for the issued security. Such insurance is likely
to increase the purchase price and resale value of the security. New issue
insurance policies are non-cancellable and continue in force as long as the
bonds are outstanding. A secondary market insurance policy is purchased by an
investor (such as the Fund) subsequent to a bond's original issuance and
generally insures a particular bond for the remainder of its term. The Fund may
purchase bonds which have already been insured under a secondary market
insurance policy by a prior investor, or the Fund may itself purchase such a
policy from insurers for bonds which are currently uninsured.
An insured municipal security acquired by the Fund will typically be covered by
only one of the above types of policies. All of the insurance policies used by
the Fund will be obtained only from insurance companies rated, at the time of
purchase, Aaa by Moody's or AAA by S&P.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may purchase and sell futures contracts and options on futures
contracts on financial instruments. The Fund will engage in futures and related

options transactions only for bona fide hedging or other appropriate risk
management purposes. The Fund may enter into futures contracts provided that not
more than 5% of its assets are required as a futures contract deposit; in
addition, the Fund may enter into futures contracts and options transactions
only to the extent that obligations under such contracts or transactions
represent not more than 20% of the Fund's assets. All futures contracts entered
into by the Fund are traded on U.S. exchanges or boards of trade that are
licensed and regulated by the Commodity Futures Trading Commission. For example,
the Fund may enter into transactions in futures and related options on U.S.
government securities or on the Bond Buyer Municipal Bond Index, a price-
weighted measure of the market value of 40 large, recently issued tax-exempt
securities.
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.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio plus or minus the unrealized gain
or loss on those open 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.
Perfect correlation between the Fund's futures and options positions and
portfolio positions may be difficult to achieve because no futures
contracts based on individual municipal securities are currently available.
The only futures contracts available to hedge the Fund's portfolio are
various futures on U.S. government securities and a municipal bond index.
"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.
WEIGHTED AVERAGE PORTFOLIO 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. Duration measures the magnitude of the change in
the price of a debt security relative to a given change in the market rate of
interest. The duration of a debt security depends upon three primary variables:
the security's coupon rate, maturity or redemption date and the level of market
interest rates for similar debt securities. Generally, debt securities with
lower coupons or longer maturities will have a longer duration than securities
with higher coupons or shorter maturities.
Duration is calculated by dividing the sum of the time-weighted values of cash
flows of a security or portfolio of securities, including principal and interest
payments, by the sum of the present values of the cash flows. Certain debt
securities, such as asset-backed securities, may be subject to prepayment at
irregular intervals. The duration of these instruments will be calculated based
upon assumptions established by the investment adviser as to the probable amount
and sequence of principal prepayments.
Mathematically, duration is measured as follows:
Duration =PVCF(1) PVCF2(2)PVCF3(3) PVCFn(n)
+ + + . . . . +
-------- -------- -------- --------
PVTCF PVTCF PVTCF PVTCF
where
PVCFt = the present value of the cash flow in period t discounted at the
prevailing yield-to-maturity
t = the period when the cash flow is received

n = remaining number of periods until maturity
PVTCF = total present value of the cash flow from the bond where the
present value is determined using the prevailing yield-to-
maturity
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. 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.
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 eligible for resale under
Rule 144A to the Directors. The Directors consider the following criteria in
determining the liquidity of certain restricted securities:

o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement in more
than seven days after notice, and certain restricted securities not determined
by the Directors to be liquid, including certain municipal leases and inverse
floaters.
TEMPORARY INVESTMENTS
From time to time, during periods of other than normal market conditions, the
Fund may invest in short-term temporary investments which may or may not be
exempt from federal income tax. These temporary investments include: obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities;
other debt securities; commercial paper; certificates of deposit of domestic
branches of U.S. banks; and repurchase agreements.
U.S. GOVERNMENT SECURITIES
The Fund may invest in obligations issued or guaranteed by the U.S.
government and its agencies, authorities or instrumentalities. Some U.S.
government securities, such as Treasury bills, notes and bonds, which
differ only in their interest rates, maturities and times of issuance, are
supported by the full faith and credit of the United States of America.
Others, such as obligations issued or guaranteed by U.S. government
agencies, authorities or instrumentalities, are supported either by (a) the
full faith and credit of the U.S. government (such as securities of the
Small Business Administration), (b) the right of the issuer to borrow from

the Treasury (such as securities of Federal Home Loan Banks), (c) the
discretionary authority of the U.S. government to purchase the agency's
obligations (such as securities of the Federal National Mortgage
Association), or (d) only the credit of the issuer (such as securities of
the Financing Corporation). The U.S. government is under no legal
obligation to purchase the obligations of its agencies, authorities and
instrumentalities. Securities guaranteed as to principal and interest by
the U.S. government and its agencies, authorities or instrumentalities are
deemed to include: (i) securities for which the payment of principal and
interest is based by a guaranty of the U.S. government or its agencies,
authorities or instrumentalities, and
(ii) participations in loans made to foreign governments or their agencies
that are so guaranteed. The secondary market for certain of these
participations is limited. Such participations may therefore be regarded as
illiquid.
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. For the fiscal years ended November 30, 1995
and 1994, the portfolio turnover rates were 47% and 135%, respectively.

INVESTMENT LIMITATIONS

BUYING ON MARGIN
The Fund will not purchase any securities on margin, other than in
connection with the purchase and sale of 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 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.
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 10%
of the value of total assets at the time of the borrowing. Margin deposits
for the purchase and sale of 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 municipal 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 to the
extent that obligations under such contracts or transactions represent not
more than 20% of the Fund's total assets.
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.
CONCENTRATION OF INVESTMENTS
The Fund will not generally invest 25% or more of the value of its total
assets in any one industry. Governmental issuers of municipal securities
are not considered part of any "industry." The Fund may invest more than
25% of the value of its total assets in a broader segment of the municipal
securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or airport
revenue obligations. In addition, for temporary defensive purposes, the

Fund 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.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement in
more than seven days after notice, and certain restricted securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds where the principal and interest are the
responsibility of companies (or guarantors, where applicable) with less
than three years of continuous operations, including the operations of any
predecessor.
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 or sponsor such programs.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may not own securities of other investment companies except as
part of a merger, consolidation, reorganization, or other acquisition, and
except that, subject to the limitations of the Investment Company Act of
1940, the Fund may invest up to 10% of the value of its total assets in
auction rate preferred securities issued by closed-end investment companies
that invest primarily in municipal securities.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary investments or
enter into repurchase agreements in accordance with its investment
objective, policies, and limitations.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of the investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
The Fund does not expect to borrow money or pledge securities during the coming
fiscal year.
The Fund will not sell any securities short, other than in connection with the
purchase and sale of financial futures, but may obtain such short-term credits
as are necessary for clearance of transactions.
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".

FIXED INCOME SECURITIES, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with Fixed Income Securities, Inc., and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company .

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.

James E. Dowd

571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.

Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.

Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty

Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the
Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management

Center; Director, Trustee, or Managing General Partner of the Funds; President
Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council
for Environmental Policy and Technology and Federal Emergency Management
Advisory Board.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global 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 Company.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.

David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors; Controller,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., and Passport Research, Ltd.; Senior Vice President, Federated
Shareholder Services; Vice President, Federated Administrative Services;
Treasurer of some of the Funds.

* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Directors
handles the responsibilities of the Directors between meetings of the
Directors.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;

Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; Federated U.S. Government Securities Fund: 5-10 Years; 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; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust
for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-
Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The Virtus
Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the outstanding Class A Shares and
Class F Shares.
As of January 2, 1996, the following shareholders of record owned 5% or more
of the outstanding Class A Shares of the Fund:

Merrill Lynch Pierce Fenner & Smith 97B96, Jacksonville, Florida, as record
owner holding Class A Shares for its clients, owned approximately 929,257 shares
(16.92%); Elaine D. Sammons, Dallas, Texas, owned approximately 610,896 shares
(11.13%); and Carter Jones Lumber Co., Kent, Ohio, owned approximately 413,370
shares (7.53%).
As of January 2, 1996, the following shareholder of record owned 5% or
more of the outstanding Class F Shares of the Fund:
Merrill Lynch Pierce Fenner & Smith 97B95, Jacksonville, Florida, as record
owner holding Class F Shares for its clients, owned approximately 1,112,699
shares (40.02%).

DIRECTORS COMPENSATION

NAME , AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH COMPENSATION FROM TO DIRECTORS FROM
CORPORATION CORPORATION#* CORPORATION AND FUND COMPLEX +

John F. Donahue,
Chairman and Director $ -0- $ -0- for the Corporation and
54 investment companies
Richard B. Fisher,
President and Director $-0- $ -0- for the Corporation and

6 investment companies
Thomas G. Bigley++,

Director $1,222 $86,331 for the Corporation and
54 investment companies
John T. Conroy, Jr.,
Director $1,336 $115,760 for the Corporation and
54 investment companies
William J. Copeland,
Director $1,336 $115,760 for the Corporation and
54 investment companies
James E. Dowd,
Director $1,336 $115,760 for the Corporation and
54 investment companies
Lawrence D. Ellis, M.D.,
Director $1,222 $104,898 for the Corporation and
54 investment companies
Edward L. Flaherty, Jr.,
Director $1,336 $115,760 for the Corporation and
54 investment companies
Peter E. Madden,
Director $1,222 $104,898 for the Corporation and
54 investment companies
Gregor F. Meyer,
Director $1,222 $104,898 for the Corporation and
54 investment companies
Wesley W. Posvar,
Director $1,222 $104,898 for the Corporation and
54 investment companies
Marjorie P. Smuts,

Director $1,222 $104,898 for the Corporation and
54 investment companies

*# The aggregate compensation is provided is for the Corporation which is
comprised of 3 portfolios.
* Information is furnished for the fiscal year ended November 30, 1995.
+ The information provided is for the last calendar year end.
++ Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was appointed
a Trustee on 15 additional Federated Funds.

DIRECTOR LIABILITY
The Corporation's Articles of Incorporation provide that the Directors will not
be liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise 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 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.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal years ended November 30,
1995, 1994 and 1993, the Fund's Adviser earned $203,057, $177,908 and $6,122,

respectively, of which $203,057, $177,908 and $6,122, respectively, were
voluntarily waived. In addition, the Adviser reimbursed the Fund $310,300,
$241,409 and $20,000, respectively, of other operating expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
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
2.50% per year of the first $30 million of average net assets, 2.0% per
year of the next $70 million of average net assets, and 1.50% 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.
BROKERAGE TRANSACTIONS

guidelines established 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. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund 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. 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. During the fiscal
years ended November 30, 1995, 1994 and 1993, the Fund paid no brokerage
commisions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

OTHER SERVICES

FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated Administrative
Services, Inc., also a subsidiary of Federated Investors, served as the Fund's
administrator. (For purposes of this Statement of Additional Information,
Federated Administrative Services and Federated Administrative Services, Inc.,
may hereinafter collectively be referred to as the "Administrators".) For the
fiscal year ended November 30, 1995, Federated Administrative Services earned
$155,000. For the fiscal year ended November 30, 1994, the Administrators
collectively earned $90,877. For the fiscal year ended November 30, 1993,
Federated Administrative Services, Inc. earned $950. Dr. Henry J. Gailliot, an
officer of Federated Management, 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, Inc. and Federated Administrative Services.

CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company , Boston, Massachusetts, is custodian for
the securities and cash of the Fund. State Street Bank and Trust Company,
Boston, Massachusetts, provides certain accounting and recordkeeping services
with respect to the Fund's portfolio.

TRANSFER AGENT
As transfer agent, Federated Services Company maintains all necessary
shareholder records. For its services, the transfer agent receives a fee based
on the size, type and number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP, Boston,
Massachusetts.
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 of the Fund
is explained in the respective prospectus under "Investing in Class A Shares" or
"Investing in Class F Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; 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.

By adopting the Distribution Plan, Directors expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1995, payments in the amount of $8,210
and $85,924 for Class F Shares and Class A Shares, respectively, were made
pursuant to the Distribution Plan. In addition, for the fiscal year ended
November 30, 1995, the Fund paid shareholder services fees in the amount of
$39,287 and $78,813 for Class F Shares and Class A Shares, respectively.

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:
o as provided by an independent pricing service;
o for short-term obligations, according to the mean bid and asked prices, as
furnished by an independent pricing service, or unless the Directors
determine this is not fair value; or
o 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:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
EXCHANGE PRIVILEGE

Fund shareholders may exchange all or some of their shares for shares in
other Federated Funds or certain Federated Funds which are sold with a sales
charge different from that of the Fund's or with no sales charge and which are

advised by subsidiaries or affiliates of Federated Investors. These exchanges
are made at net asset value.
Shareholders of certain other funds, including funds that are not advised by
subsidiaries or affiliates of Federated Investors which do not have a sales
charge, may exchange their shares for Fund shares on a basis other than their
current offering price. These exchanges may be made to the extent that such
shares were acquired in a prior exchange, at net asset value, for shares of a
Federated Fund carrying a sales charge.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales charge, the shareholder must notify Federated
Securities Corp. or State Street Bank in writing.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange shares having a net asset value
which at least meets the minimum investment required for the fund into which the
exchange is being made. 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 residing in any state in which the
fund 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.
Further information on the exchange privilege and prospectuses for Federated
Funds or certain Federated Funds are available by calling the Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the circumstances, a short or long-term capital gain or
loss may be realized.

MAKING AN EXCHANGE
Instructions for exchanges for Federated Funds or certain Federated Funds
must be given in writing by the shareholder. Written instructions may require a
signature guarantee.
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
respective prospectuses under "Redeeming Class A Shares" or "Redeeming Class F
Shares." Although the Fund 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.
Certain Class F Shares redeemed within one to four years of purchase may be
subject to a contingent deferred sales charge. The amount of the contingent
deferred sales charge is based upon the amount of the administrative fee paid at
the time of purchase by the distributor to the financial institutions for
services rendered, and the length of time the investor remains a holder of Class
F Shares. Should financial institutions elect to receive an amount less than the
administrative fee that is stated in the Class F Shares prospectus for servicing
a particular shareholder, the contingent deferred sales charge and/or holding
period for that particular shareholder will be reduced accordingly.
REDEMPTION IN KIND
The Corporation is obligated to redeem shares solely in cash up to $250,000 or
1% of the respective class'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. To the
extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving 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:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal

alternative minimum tax for corporations. In addition, the Tax Reform Act of
1986 treats interest on certain "private activity" bonds issued after August 7,
1986, as a tax preference item for both individuals and corporations. Thus,
should the Fund purchase any such bonds, a portion of the Fund's dividends may
be treated as a tax preference item.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. 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
Fund shares.
TOTAL RETURN

The Fund's average annual total return for Class A Shares for the one year
period ended November 30, 1995 was 7.54%. For the period from September 1, 1993
(date of initial public offering) to November 30, 1995, the Fund's
cumulative total return for Class A Shares was 7.86%. The average annual total
return for Class F Shares for the one year period ended November 30, 1995 was
7.86%. For the period from September 1, 1993 (date of initial public offering)
to November 30, 1995, the Fund's cumulative total return for Class F Shares was
8.30%.
Cumulative total return of Class A Shares or Class F Shares reflects the
applicable Shares' total performance over a specific period of time. This total
return assumes and is reduced by the payment of the maximum sales charge and, in
the case of Class F Shares, the contingent deferred sales charge.

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, adjusted over the period by any additional
Shares, assuming the monthly reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price or
the net asset value of the Shares redeemed.
YIELD

The yield for Class A Shares for the thirty-day period ended November 30,
1995 was 4.41%. The yield for Class F Shares was 4.66% for the same period.
The yield of the Fund for each of Class A Shares and Class F Shares is
determined by dividing the net investment income per share (as defined by the
Securities and Exchange Commission) earned by Class A Shares or Class F Shares
over a thirty-day period by the maximum offering price per share of the
applicable shares 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 of Class A Shares or Class
F Shares does not necessarily reflect income actually earned by the applicable
shares 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.
TAX-EQUIVALENT YIELD

The tax-equivalent yield for Class A Shares for the thirty-day period ended
November 30, 1995 was 7.35%. The tax-equivalent yield for Class F Shares was
7.76% for the same period.
The tax-equivalent yield of the Fund for each of Class A Shares and Class F
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that the applicable Shares would have to earn to equal their
actual yield, assuming tax rates of 15%, 28%, 31%, 36% and 39.6%, and assuming
that income is 100% tax-exempt.

TAX EQUIVALENCY TABLE
The Fund may also use a tax equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remain free from federal regular income tax,* and often is
free from state and local taxes as well. As the table below indicates, a "tax-
free" investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1996
MULTISTATE MUNICIPAL FUNDS

FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $40,001- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 263,750

TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT

1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.

The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.

PERFORMANCE COMPARISONS

The performance of Class A Shares and Class F Shares depends upon such
variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund expenses; and
o various other factors.
The Fund's performance 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:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in offering price over a specific period
of time. From time to time, the Fund will quote its Lipper ranking in the
"intermediate" or "short-intermediate municipal bond funds" categories in
advertising and sales literature.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
o LEHMAN BROTHERS THREE-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of all state general obligation debt issues with maturities
between two and four years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three and twelve month periods as well as year-to-date.
Total returns are also calculated as of the index inception,
December 31, 1979.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns represent the historic changes in the value of an investment in Class A
Shares or Class F 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 or, in the case of Class F Shares, the contingent
deferred sales charge.
o Charts and other illustrations that depict the hypothetical growth of a
tax-free investment as compared to a taxable investment.
o Quotations from the Tax Foundation that illustrate the effect of taxes on
income.
ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making-structured, straightforward, and consistent. This
has resulted in a history of competitive performance with a range of competitive
investment products that have gained the confidence of thousands of clients and
their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors.
In the municipal sector, as of December 31, 1994, Federated Investors managed 18
bond funds with approximately $1.9 billion in assets and 18 money market funds
with approximately $6.6 billion in total assets. In 1976, Federated Investors
introduced one of the first municipal bond mutual funds in the industry and is
now one of the largest institutional buyers of municipal securities.

J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry

A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Mark R. Gensheimer, Executive
Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more

wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.

*Source: Investment Company Institute

FINANCIAL STATEMENTS

The financial statements for the Fund for the fiscal year ended November 30,
1995, are incorporated herein by reference to the Annual Report to shareholders
of the Fund dated November 30, 1995.

APPENDIX

STANDARD AND POOR'S RATINGS GROUP
MUNICIPAL BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by S&P. 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.

NR-Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL 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
edged." 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.

NR-Not rated by Moody's.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirement.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely

payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
NR--Indicates that Fitch does not rate the specific issue.
STANDARD AND POOR'S RATINGS GROUP
MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC.
SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.

MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC.
SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 ratings.
STANDARD AND POOR'S RATINGS GROUP
COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
MOODY'S INVESTORS SERVICE, INC.
COMMERCIAL PAPER RATINGS
P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics: Leading
market positions in well established industries; High rates of return on funds
employed; Conservative capitalization structure with moderate reliance on debt
and ample asset protection; Broad margins in earning coverage of fixed financial

charges and high internal cash generation; Well established access to a range of
financial markets and assured sources of alternative liquidity.
P-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC.
COMMERCIAL PAPER RATINGS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

Cusip 338319403
Cusip 338319502

3070702 B (1/96)

FEDERATED STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
combined prospectus for Class A Shares, Class B Shares, and Class C Shares,
dated January 31, 1996, and the prospectus for Class F Shares, dated
January 31, 1996, of Federated Strategic Income Fund (the "Fund"). This
Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge by calling 1-800-235-
4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996

GENERAL INFORMATION ABOUT THE FUND y Transactions 4
1 Foreign Bank Instruments 6
When-Issued and Delayed Delivery
INVESTMENT OBJECTIVE AND POLICIES1
Transactions 6
Types of Investments and Investment Lending of Portfolio Securities 6
Techniques 1 Restricted and Illiquid Securities
Resets of Interest 1 7
Caps and Floors 1 Repurchase Agreements 7
Brady Bonds 1 Reverse Repurchase Agreements 7
Non-Mortgage Related Asset-Backed Portfolio Turnover 7
Securities 2 Investment Limitations 7
Convertible Securities 2 FIXED INCOME SECURITIES, INC.
Equity Securities 2 MANAGEMENT 10
Warrants 2
Fund Ownership 14
Futures and Options Transactions3
Directors Compensation 15
Foreign
FEDERATED SECURITIES
Currenc
CORP.

Distributor
A subsidiary of FEDERATED
INVESTORS

Table of Contents

Director Liability 15 PURCHASING SHARES 17
INVESTMENT ADVISORY SERVICES 16
Distribution of Shares 17
Adviser to the Fund 16 Distribution Plan (Class B Shares,
Advisory Fees 16 Class C Shares
BROKERAGE TRANSACTIONS 16 and Class F Shares) and Shareholder
Services Agreement 17
OTHER SERVICES 17
Conversion to Federal Funds 18
Fund Administration 17 Purchases by Sales Representatives,
Custodian and Portfolio Recordkeeper Fund
17 Directors, and Employees 18
Transfer Agent 17 DETERMINING NET ASSET VALUE 18
Independent Auditors 17
Determining Market Value of
Securities 18
EXCHANGE PRIVILEGE (CLASS F SHARES
ONLY) 19

Reduced Sales Charge 19
Requirements for Exchange 19
Tax Consequences 19
Making an Exchange 19
REDEEMING SHARES 19

Redemption in Kind 20
TAX STATUS 20

Table of Contents

The Fund's Tax Status 20 PERFORMANCE COMPARISONS 21
Foreign Taxes 20
ABOUT FEDERATED INVESTORS 22
Shareholders' Tax Status 20
TOTAL RETURN 20 FINANCIAL STATEMENTS 23

YIELD 21
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. Effective Janaury 31, 1996, the Fund Changed its name to
Federated Strategic Income Fund.
Shares of the Fund are offered in four classes known as Class A Shares, Class
B Shares, Class C Shares and Class F Shares (individually and collectively
referred to as "Shares" as the context may require). This Statement of
Additional Information relates to all classes of Shares of the Fund.
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
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.
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, Adjustable Rate Mortgages ("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 its net assets
in warrants. No more than 2% of the Fund's net assets, to be included in the
overall 5% limit on investments in warrants, may be warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange. 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.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio plus or minus the unrealized gain
or loss on those open 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.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely 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 associated 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 made to secure what is considered to be an advantageous
price or yield for the Fund. 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.
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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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. For the fiscal years
ended November 30, 1995 and 1994, the Fund's portfolio turnover rates were 158%
and 34%, respectively.
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. No
more than 2% of the Fund's net assets, to be included within the overall 5%
limit on investments in warrants, may be warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange.
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.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of the investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction. 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 are listed with their addresses, birthdates, present
positions with Fixed Income Securities, Inc., and principal occupations.

James E. Dowd

571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,

University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.

Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; Federated U.S. Government Securities Fund: 5-10 Years; 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; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust
for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-
Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The Virtus
Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors as a group owned 2.15% of the Fund's outstanding shares
as of January 2, 1996.

As of January 2, 1996, the following shareholders of record owned 5% or more
of the outstanding Class A Shares of the Fund:
Merrill Lynch Pierce Fenner & Smith 97D36, Jacksonville, Florida, as record
owner holding Class A Shares for its clients, owned approximately 29,602 shares
(5.76%); and BHC Securities Inc., Trade House Acct., Philadelphia, Pennsylvania,
owned approximately 46,602 shares (9.06%).
As of January 2, 1996, no shareholders of record owned 5% or more of the
outstanding Class B Shares of the Fund.
As of January 2, 1996, the following shareholder of record owned 5% or more
of the Class C Shares of the Fund:
BHC Securities Inc., FAO 22590199, Philadelphia, Pennsylvania, owned
approximately 29,245 shares (12.69%).
As of January 2, 1996, the following shareholder of record owned 5% or more of
the outstanding Class F Shares of the Fund:
Merrill Lynch Pierce Fenner & Smith 97D38, Jacksonville, Florida, as record
owner holding Class F Shares for its clients, owned approximately 123,199 shares
(32.83%).

DIRECTORS COMPENSATION

NAME , AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH COMPENSATION FROM TO DIRECTORS FROM
CORPORATION CORPORATION#* CORPORATION AND FUND COMPLEX +

JOHN F. DONAHUE,

CHAIRMAN AND DIRECTOR $ -0- $ -0- FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
RICHARD B. FISHER,
PRESIDENT AND DIRECTOR $-0- $ -0- FOR THE CORPORATION AND
6 INVESTMENT COMPANIES
THOMAS G. BIGLEY++,
DIRECTOR $1,222 $86,331 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
JOHN T. CONROY, JR.,
DIRECTOR $1,336 $115,760 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
WILLIAM J. COPELAND,
DIRECTOR $1,336 $115,760 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
JAMES E. DOWD,
DIRECTOR $1,336 $115,760 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
LAWRENCE D. ELLIS, M.D.,
DIRECTOR $1,222 $104,898 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
EDWARD L. FLAHERTY, JR.,
DIRECTOR $1,336 $115,760 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
PETER E. MADDEN,
DIRECTOR $1,222 $104,898 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
GREGOR F. MEYER,

DIRECTOR $1,222 $104,898 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
WESLEY W. POSVAR,
DIRECTOR $1,222 $104,898 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES
MARJORIE P. SMUTS,
DIRECTOR $1,222 $104,898 FOR THE CORPORATION AND
54 INVESTMENT COMPANIES

*# The aggregate compensation is provided is for the Corporation which is
comprised of 3 portfolios.
* Information is furnished for the fiscal year ended November 30, 1995.
+ The information provided is for the last calendar year end.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.

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.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the respective prospectuses. For the fiscal year ended
November 30, 1995, and from the period from April 29, 1994 (date of initial
public investment), through November 30, 1994, the Adviser earned $80,712 and
$15,014, all of which was voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
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 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 reimbursed 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.

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
guidelines established 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. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund 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. 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. During the fiscal
year ended November 30, 1995 and for the period from April 29, 1994 (date of
initial public investment) to November 30, 1994, the Fund paid no brokerage
commissions..
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more

other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

OTHER SERVICES

FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal year ended November 30, 1995, and
for the period from April 29, 1994 (date of initial public investment), through
November 30, 1994, $195,438 and $61,836, respectively, in fees were paid to
Federated Administrative Services. Dr. Henry J. Gailliot, an officer of
Federated Advisers, the adviser to the Fund, hold 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.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company , Boston, Massachusetts, is custodian for
the securities and cash of the Fund. State Street Bank and Trust Company,
Boston, Massachusetts, provides certain accounting and recordkeeping services
with respect to the Fund's portfolio.

Except under certain circumstances described in the respective prospectuses,
Shares are sold at their net asset value (plus a sales charge on Class A Shares
and Class F Shares only) on days the New York Stock Exchange is open for
business. The procedure for purchasing Shares is explained in the respective
prospectuses under "How to Purchase Shares" and "Investing in Class F
Shares."
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
DISTRIBUTION PLAN (CLASS B SHARES, CLASS C SHARES AND CLASS F SHARES)
AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; 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.
By adopting the Distribution Plan, (Class B Shares, Class C Shares and Class
F Shares) the Directors expect that the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1995, and for the period from May 9,
1994 (date of initial public offering), through November 30, 1994, payments in
the amount of $16,351 and $2,902, respectively, were made pursuant to the
Distribution Plan for Class F Shares. In addition, for the same periods, the
Fund paid shareholder services fees in the amount of $8,175 and $1,451,
respectively, for Class F Shares.
For the fiscal year ended November 30, 1995, and for the period from April
29, 1994 (date of initial public investment), through November 30, 1994,
payments in the amount of $14,272 and $2,606, respectively, were made pursuant
to the Distribution Plan for Class C Shares. In addition, for the same periods,

the Fund paid shareholder services fees in the amount of $4,758 and $869,
respectively, for Class C Shares.
For the fiscal year ended November 30, 1995 and for the period from May 3,
1994 (date of initial public offering) through November 30, 1994, the Fund paid
shareholder services fees in the amount of $ 8,890 and $2,096 for Class A
Shares.
For the period from July 27, 1995 (date of initial public offering) to
November 30, 1995, payment in the amount of $5,750 was made pursuant to the
Distribution Plan for Class B Shares. In addition, for the same period, the
Fund paid shareholder services fees in the amount of $1,916 for Class B
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. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, 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 respective prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o as provided by an independent pricing service;
o 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
o 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:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.

EXCHANGE PRIVILEGE (CLASS F SHARES ONLY)

This section relates only to Class F Shares of the Fund. For
information regarding the Exchange Privilege for Class A Shares, Class B Shares,

and Class C Shares of the Fund, please see the combined prospectus for these
classes of Shares.
The Securities and Exchange Commission has issued an order exempting the Fund
from certain provisions of the Investment Company Act of 1940. As a result, Fund
shareholders are allowed to exchange all or some of their Class F Shares for
shares in other Federated Funds (which are sold with a sales charge different
from that of the Fund or with no sales charge and which are advised by
subsidiaries or affiliates of Federated Investors) without the assessment of a
contingent deferred sales charge on the exchanged Shares.
The order also allows certain other funds, including funds that are not
advised by subsidiaries or affiliates of Federated Investors, which do not have
a sales charge, to exchange their shares for Class F Shares on a basis other
than the current offering price. These exchanges may be made to extent that
such shares were acquired in a prior exchange at net asset value, for shares of
a Federated fund carrying a sales charge.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales charge, the shareholder must notify Federated
Securities Corp.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Class F Shares having
a net asset value equal to the minimum investment requirements of the fund into
which the exchange is being made. 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 fund shares being acquired may be sold. Upon receipt of proper instructions

and required supporting documents, Class F Shares submitted for exchange are
redeemed and the proceeds invested in shares of the other fund.
Further information on the exchange privilege and prospectuses for
Federated Funds or certain Federated funds are available by calling the
Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the circumstances, a short-term or long-term capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for Federated Funds or certain Federated funds may
be given in writing or by telephone. Written instructions may require a
signature guarantee.
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
Fund or its agents. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund or
its agents. Shares may be exchanged between two funds by telephone only if
the two funds have identical shareholder registrations.
Telephoned exchange instructions may be recorded. They must be received by
the transfer agent before 4:00 p.m. (Eastern time) for shares to be
exchanged that day. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.

REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
respective prospectuses under "How to Redeem Shares" or "Redeeming Class F
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.
Class B Shares redeemed within six years of purchase, Class C Shares redeemed
within one year of purchase, and Class F Shares redeemed within four years of
purchase may be subject to a contingent deferred sales charge. The amount of the
contingent deferred sales charge is based upon the amount of the administrative
fee paid at the time of purchase by the distributor to the financial
institutions for services rendered, and the length of time the investor remains
a shareholder in the Fund. Should financial institutions elect to receive an
amount less than the administrative fee that is stated in the prospectus for
servicing a particular shareholder, the contingent deferred sales charge and/or
holding period for that particular shareholder will be reduced accordingly.
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Directors determine to be fair and
equitable.

The Corporation has elected to be governed by Rule 18f-1 of the
Investment Company Act of 1940 under which the Corporation is obligated to
redeem Shares for any shareholder in cash up to the lesser of $250,000 or 1% of
the Fund's net asset value during any 90-day period.
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:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o 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. The Fund's dividends, and any short-term
capital gains, are taxable as ordinary income.
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
Fund shares.
TOTAL RETURN

The Class A Shares' average annual total return for the fiscal year ended
November 30, 1995 was 10.43%. The Class A Shares'cumulative total return from
May 3, 1994 (date of initial public offering), through November 30, 1995,
was 10.41%. The Class B Shares' cumulative total return from July 27, 1995
(date of initial public offering) to November 30, 1995, was (0.47%). The Class
C Shares' average annual total return for the fiscal year ended November 30,
1995 was 13.66%. The Class C Shares' cumulative total return from April 29,
1994 (date of initial public investment), through November 30, 1995, was 14.26%.
The Class F Shares' average annual total return for the fiscal year ended
November 30, 1995 was 12.76%. The Class F Shares' cumulative total return
from May 9, 1994 (date of initial public offering), through November 30,
1995, was 12.45%.
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 charge and any contingent deferred sales charge.
The Shares' cumulative total return is representative of approximately seven
months of Fund activity since the Shares' date of initial public investment.

The average annual total return for each class of Shares of the Fund 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 on Class A Shares or Class F Shares, adjusted over the period by any
additional Shares, assuming the quarterly reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge is deducted from
the ending value of the investment based on the lesser of the original purchase
price or the offering price of Shares redeemed. Occasionally, total return which
does not reflect the effect of the sales charge may be quoted in
advertising.
YIELD

The yield for Class A Shares, Class B Shares, Class C Shares, and Class F
Shares for the thirty-day period ended November 30, 1995, was 8.15%, 7.66%,
7.82% and 7.99%, respectively.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the SEC) earned by the class of
Shares over a thirty-day period by the maximum offering price per share of the
respective class on the last day of the period. This value is then 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 SEC and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a class
of Shares, the performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS

The performance of each class of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or a class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per Share fluctuate daily. Both net earnings and net asset
value 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:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in 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.
o LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly issued,
fixed rate, non-convertible domestic bonds of companies in industry, public
utilities, and finance. The average maturity of these bonds approximates
nine years. Tracked by Lehman Brothers, Inc., the index calculates total
returns for one-month, three-month, twelve-month, and ten-year periods and
year-to-date.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
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 various sales charges on Class A Shares, Class B Shares, Class C
Shares, and Class F Shares.
ABOUT FEDERATED INVESTORS

competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the corporate bond sector, as of December 31, 1994, Federated Investors
managed 8 money market funds, 5 investment grade and 4 high yield bond funds
with assets approximating $7.4 billion, $.9 billion and $.8 billion,
respectively. Federated Investors' corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 20 years of experience in
the corporate bond sector. In 1972, Federated Investors introduced one of the
first high-yield bond funds in the industry. In 17 years ending December 1994,
Federated Investors' high-yield portfolios experienced a default rate of just
1.86%, versus 3.10% for the market as a whole. In 1983, Federated Investors was
one of the first fund managers to participate in the asset-backed securities
market, a market totaling more than $200 billion.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*

Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios.
The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive
Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute

FINANCIAL STATEMENTS

The financial statements for the Fund for the fiscal year ended November 30,
1995, are incorporated herein by reference to the Annual Report to shareholders
of the Fund dated November 30, 1995.

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements: (Incorporated by reference to the
Annual Reports to Shareholders of Fixed Income
Securities, Inc. dated November 30, 1995, pursuant to
Rule 411 under the Securities Act of 1933. (File No.
811-6447) (Portfolios 1,2 and 3)
(b) Exhibits:
(1) Conformed copy of Articles of Incorporation of the
Registrant(1.);
(i) Conformed copy of Articles Supplementary (dated
April 28, 1993); (12.)
(ii) Conformed copy of Articles Supplementary (dated

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338319866
338319809
338319882
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August 6, 1993); (15)
(iii)Conformed copy of Articles Supplementary (dated
November 24, 1993); (12.)
(iv) Conformed copy of Articles Supplementary (dated
February 25, 1994); (12.)
(v) Conformed copy of Articles Supplementary (dated
June 1, 1994); (12.)
(2) Copy of By-Laws of the Registrant; (1.)
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital
Stock of the Registrant;
(i) Limited Term Fund-Fortress Shares; (6.)
(ii) Limited Term Municipal Fund-Fortress Shares ;
(6.)
(iii)Limited Term Municipal Fund-Class A Shares; (12.)
(iv) Limited Term Fund-Class A Shares; (12.)
(v) Strategic Income Fund-Class A Shares; (14)
(vi) Strategic Income Fund-Class C Shares; (14)
(vii)Strategic Income Fund-Fortress; (14)

+ All Exhibits filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 23, 1991. (File
Nos. 33-43472 and 811-6447)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed July 7, 1993. (File Nos. 33-43472
and 811-6447)

12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed July 26, 1994. (File Nos. 33-
43472 and 811-6447)
14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 13 on Form N-1A filed September, 21, 1994. (File Nos.
33-43472 and 811-6447)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed January 27, l995. (File Nos 33-
43472 and 811-6447)

(5) Conformed copy of Investment Advisory Contract; (7.)
(i) Conformed Copy of Exhibit A to Investment
Advisory Contract; (7.)
(ii) Conformed copy of Exhibit B to Investment
Advisory Contract; (7.)
(iii)Conformed copy of Exhibit C to Investment
Advisory Contract; (12.)
(iv) Conformed Copy of Exhibit D to Investment
Advisory Contract (9.)
(v) Conformed Copy of Exhibit E to Investment
Advisory Contract; (11.)
(6) (i) Conformed Copy of Distributor's Contract of the
Registrant through and including Exhibits A-J; (14)
(ii) The Registrant hereby incorporates the conformed
copy of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement and Plan

Trustee/Mutual Funds Service Agreement from Item 24(b)6
of the Cash Trust Series II Registration Statement on
Form N-1A, filed with the Commission on July 24, 1995.
(File Nos. 33-38550 and 811-6269)
(7) Not applicable;
(8) Conformed copy of Custodian Agreement of the
Registrant; +
(9) (i) Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement of the Registrant;+
(ii) Conformed copy of Administrative Services
Agreement; (12.)
(iii)Conformed copy of Shareholder Services Agreement;
(12.)
(iv) The responses described in Item 24 (6) are hereby
incorporated by reference.

+ All Exhibits filed electronically.

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed October 21, 1993. (File Nos. 33-
43472 and 811-6447)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed December 14, 1993. (File Nos. 33-
43472 and 811-6447)

11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed February 3, 1994. (File Nos. 33-
43472 and 811-6447)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed July 26, 1994. (File Nos. 33-
43472 and 811-6447)
14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 13 on Form N-1A filed September, 21, 1994 (File Nos.
33-43472 and 811-6447)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed January 27, l995 (File Nos 33-
43472 and 811-6447)

(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (15)
(11) Conformed copy of Consent of Independent Public
Accountants; +
(12) Not Applicable;
(13) Conformed copy of Initial Capital Understanding; (2.)
(14) Not Applicable;
(15) (i) Conformed copy of Distribution Plan; (6.)
(ii) Conformed copies of Exhibits B, C, D, E, F, G,
and H to 12b-1 Plan; (12.)
(iii)Conformed Copy of Exhibit A to 12b-1 Plan; (14)
(iv) Conformed copy of Exhibit I to the Distribution
Plan;(16)

(v) The responses described in Item 24(b)6 are hereby
incorporated by reference.
(16) (i) Copy of Schedule for Computation of Fund
Performance Data for Limited Term Municipal Fund;
(9.)
(ii) Copy of Schedule for Computation of Fund
Performance Data for Strategic Income Fund; (14)
(iii)Copy of Schedule for Computation of Fund
Performance Data for Limited Term Fund; (13.)
(17) Copy of Financial Data Schedules; +

+ All Exhibits filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 19, 1991. (File Nos. 33-
43472 and 811-6447)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed July 7, 1993. (File Nos. 33-43472
and 811-6447)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed January 28, 1994. (File Nos. 33-
43472 and 811-6447)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed July 26, 1994. (File Nos. 33-
43472 and 811-6447)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed June 15, 1992. (File Nos. 33-43472
and 811-6447)

14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 13 on Form N-1A filed September 21, 1994 (File Nos. 33-
43472 and 811-6447)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed January 27, l995 (File Nos 33-
43472 and 811-6447)

(18) The Registrant hereby incorporates the conformed copy
of the specimen Multiple Class Plan from Item
24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with
the Commission on January 26, 1996. (File Nos.
33-52149 and 811-07141)
(19) Conformed Copy of Power of Attorney; +
(i) Amendment No. l to Schedule l to Limited
Power of Attorney;(16)

Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of January 2, 1996
-
Shares of capital stock
($0.001 per Share par value)

Federated Limited Term Fund - Class F Shares 603
Federated Limited Term Fund - Class A Shares 11,135
Federated Limited Term Municipal Fund - Class F Shares 446
Federated Limited Term Municipal Fund - Class A Shares 1,140
Federated Strategic Income Fund - Class A Shares 390
Federated Strategic Income Fund - Class C Shares 156
Federated Strategic Income Fund - Class F Shares 166
Federated Strategic Income Fund - Class B Shares 567

+All Exhibits filed electronically.
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed July 11, l995 (File Nos 33-43472
and 811-6447)

Item 27. Indemnification: (2)

Item 28. Business and Other Connections of Investment Adviser:

(a)For a description of the other business of the investment
adviser, see the section entitled "Fixed Income Securities,
Inc. Information - Management of the Corporation" in Part A.
The affiliations with the Registrant of three of the Trustees

and four of the Officers of the investment adviser are
included in Part B of this Registration Statement under
"Fixed Income Securities, Inc. Management." The remaining
Trustee of the investment adviser, his position with the
investment adviser, and, in parentheses, his principal
occupation is: Mark D. Olson, (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are:
William D. Dawson, III, Henry A. Frantzen, J. Thomas Madden,
and Mark L. Mallon, Executive Vice Presidents; Henry J.
Gailliot, Senior Vice President-Economist; Peter R. Anderson,
Drew J. Collins, Jonathan C. Conley and J. Alan Minteer,
Senior Vice Presidents; J. Scott Albrecht, Joseph M.
Balestrino, Randall A. Bauer, David A. Briggs, Kenneth J.
Cody, Deborah A. Cunningham, Michael P. Donnelly; Linda A.
Duessel, Mark E. Durbiano, Kathleen M. Foody-Malus, Thomas M.
Franks, Edward C. Gonzales; Timothy E. Keefe, Stephen A.
Keen, Mark S. Kopinski, Jeff A. Kozemchak, Marian R.
Marinack, Susan M. Nason, Mary Jo Ochson, Robert J.
Ostrowski, Frederick L. Plautz, Jr.; Charles A. Ritter, James
D. Roberge; Frank Semack, William F. Stotz; Sandra L. Weber
and Christopher H. Wiles, Vice Presidents; Thomas R. Donahue,
Treasurer; and Stephen A. Keen, Secretary. The business
address of each of the Officers of the investment adviser is
Federated Investors Tower, Pittsburgh, PA 15222-3779. These
individuals are also officers of a majority of the investment

advisers to the Funds listed in Part B of this Registration
Statement.

2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 19, 1991. (File Nos. 33-
43472 and 811-6447)

Item 29. Principal Underwriters:

(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: American Leaders
Fund, Inc.; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The
Biltmore Municipal Funds; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series, Inc.; Cash Trust Series
II; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Equity Funds;
Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust;
Federated Master Trust; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S.

Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund:
3-5 Years; Federated U.S. Government Securities Fund: 5-10
Years;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; Independence One
Mutual Funds; Insurance Management Series; Intermediate
Municipal Trust; International Series Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Municipal Securities Fund, Inc.; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money
Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; The Monitor Funds; Municipal Securities
Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; RIMCO Monument Funds; SouthTrust
Vulcan Funds; Star Funds; The Starburst Funds; The Starburst
Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust;
Tax-Free Instruments Trust; Tower Mutual Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; The Virtus Funds; Vision Group of
Funds, Inc.; and World Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief President Federated
Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.

John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --

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

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --

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

Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. O'Brien Vice President, --

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

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Michael P. Wolff Vice President, --

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

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Services Company Federated Investors Tower
"Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper"

Federated Administrative Services Federated Investors Tower
"Administrator" Pittsburgh, PA 15222-3779

Federated Advisers Federated Investors Tower
"Adviser" Pittsburgh, PA 1522-3779

State Street Bank and Trust Company P.O. Box 8600
"Custodian" Boston, Massachusetts 02266-8600

Item 31. Management Services: Not applicable.

Item 32. Undertakings: (2)

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual
report to shareholders, upon request and without charge.

2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 19, 1991. (File No. 33-43472
and 811-6447)

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FIXED INCOME SECURITIES, INC.,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
26th day of January 1996.

FIXED INCOME SECURITIES, INC.

BY: /s/ Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
January 26, 1996

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:

NAME TITLE DATE

By:/s/ Charles H. Field
Charles H. Field Attorney In Fact January 26, 1996
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Director
(Chief Executive Officer)

Richard B. Fisher* President and Director

Edward C. Gonzales* Executive Vice President

David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

William J. Copeland* Director

James E. Dowd* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr.* Director

Peter E. Madden* Director

Gregor F. Meyer* Director

John E. Murray, Jr.* Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Page 1 of 3

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors of
Strategic Income Fund
(a portfolio of Fixed Income Securities, Inc.):

We consent to the incorporation in the Post-Effective Amendment No. 18 to
Registration Statement (No. 33-43472) of Strategic Income Fund of our report
dated January 17, 1996, appearing in the Annual Report for the year ended
November 30, 1995, and to the references to us under the heading "Financial
Highlights" in the Prospectuses, which are a part of such Registration
Statement.

/s/DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 24, 1996

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Page 2 of 3

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors of
Limited Term Municipal Fund
(a portfolio of Fixed Income Securities, Inc.):

We consent to the incorporation in the Post-Effective Amendment No. 18 to
Registration Statement (No. 33-43472) of Limited Term Municipal Fund of our
report dated January 17, 1996, appearing in the Annual Report for the year
ended November 30, 1995, and to the references to us under the heading
"Financial Highlights" in the Prospectuses, which are a part of such
Registration Statement.

/s/DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 24, 1996

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Page 3 of 3

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors of
Limited Term Fund
(a portfolio of Fixed Income Securities, Inc.):

We consent to the incorporation in the Post-Effective Amendment No. 18 to
Registration Statement (No. 33-43472) of Limited Term Fund of our report dated
January 17, 1996, appearing in the Annual Report for the year ended November
30, 1995, and to the references to us under the heading "Financial Highlights"
in the Prospectuses, which are a part of such Registration Statement.

/s/DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania

EXHIBT 8 UNDER FORM N-1A
EXHIBIT 10 UNDER ITEM 601/REG. S-K

CUSTODIAN CONTRACT
BETWEEN
FEDERATED INVESTMENT COMPANIES
AND
STATE STREET BANK AND TRUST COMPANY
AND
FEDERATED SERVICES COMPANY

TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It......1
2. Duties of the Custodian With Respect to Property of the
Funds Held by the Custodian................................2
2.1 Holding Securities....................................2
2.2 Delivery of Securities................................2
2.3 Registration of Securities............................5
2.4 Bank Accounts.........................................6
2.5 Payments for Shares...................................7
2.6 Availability of Federal Funds.........................7
2.7 Collection of Income..................................7
2.8 Payment of Fund Moneys................................8
2.9 Liability for Payment in Advance of Receipt of
Securities Purchased..................................9
2.10 Payments for Repurchases or Redemptions of
Shares of a Fund......................................9
2.11 Appointment of Agents................................10
2.12 Deposit of Fund Assets in Securities System..........10
2.13 Segregated Account...................................12
2.14 Joint Repurchase Agreements..........................13
2.15 Ownership Certificates for Tax Purposes..............13
2.16 Proxies..............................................13
2.17 Communications Relating to Fund Portfolio Securities.13
2.18 Proper Instructions..................................14
2.19 Actions Permitted Without Express Authority..........14
2.20 Evidence of Authority................................15
2.21 Notice to Trust by Custodian Regarding

Cash Movement........................................15
3. Duties of Custodian With Respect to the
Books of Account and Calculation of Net Asset
Value and Net Income......................................15
4. Records ..................................................16
5. Opinion of Funds' Independent Public
Accountants/Auditors......................................16
6. Reports to Trust by Independent Public
Accountants/Auditors......................................17
7. Compensation of Custodian.................................17
8. Responsibility of Custodian...............................17
9. Effective Period, Termination and Amendment...............19
10. Successor Custodian.......................................20
11. Interpretive and Additional Provisions....................21
12. Massachusetts Law to Apply................................22
13. Notices ..................................................22
14. Counterparts..............................................22
15. Limitations of Liability..................................22

CUSTODIAN CONTRACT

This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it
may be amended from time to time, (the "Trust"), which may be Massachusetts
business trusts or Maryland corporations or have such other form of
organization as may be indicated, on behalf of the portfolios (hereinafter
collectively called the "Funds" and individually referred to as a "Fund") of
the Trust, having its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian", and FEDERATED SERVICES COMPANY, a Delaware business trust
company, having its principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, hereinafter called ("Company").

WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets of
each of the Funds of the Trust. Except as otherwise expressly provided
herein, the securities and other assets of each of the Funds shall be
segregated from the assets of each of the other Funds and from all other
persons and entities. The Trust will deliver to the Custodian all
securities and cash owned by the Funds and all payments of income,
payments of principal or capital distributions received by them with
respect to all securities owned by the Funds from time to time, and the
cash consideration received by them for shares ("Shares") of beneficial
interest/capital stock of the Funds as may be issued or sold from time to

time. The Custodian shall not be responsible for any property of the
Funds held or received by the Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions, provided
that the Custodian shall have no more or less responsibility or liability
to the Trust or any of the Funds on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held by the
Custodian
2.1Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System", or securities which are
subject to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall maintain records of
all receipts, deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct periodic physical
inspections of certificates representing stocks, bonds and other
securities held by it under this Contract in such manner as the
Custodian shall determine from time to time to be advisable in order
to verify the accuracy of such inventory. With respect to securities
held by any agent appointed pursuant to Section 2.11 hereof, and with
respect to securities held by any sub-custodian appointed pursuant to

Section 1 hereof, the Custodian may rely upon certificates from such
agent as to the holdings of such agent and from such sub-custodian as
to the holdings of such sub-custodian, it being understood that such
reliance in no way relieves the Custodian of its responsibilities
under this Contract. The Custodian will promptly report to the Trust
the results of such inspections, indicating any shortages or
discrepancies uncovered thereby, and take appropriate action to
remedy any such shortages or discrepancies.
2.2Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in accordance
with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of a Fund or into the name of any nominee or nominees of the

Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.11 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom"; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own failure to act in
accordance with the standard of reasonable care or any higher
standard of care imposed upon the Custodian by any applicable law
or regulation if such above-stated standard of reasonable care
were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or

temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
(10) For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified by the
Trust, (b) certificated securities of a description specified by
the Trust, registered in the name of the Fund or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer, or (c) securities of a description
specified by the Trust, transferred through a Securities System
in accordance with Section 2.12 hereof;
(11) For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against receipt
of amounts borrowed, except that in cases where additional
collateral is required to secure a borrowing already made,
further securities may be released for the purpose;
(12) For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund;
(13) For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian, and a Futures

Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transaction for a Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
(15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of a
Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of a
particular Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian which nominee shall be assigned exclusively
to the Fund, unless the Trust has authorized in writing the
appointment of a nominee to be used in common with other registered
investment companies affiliated with the Fund, or in the name or
nominee name of any agent appointed pursuant to Section 2.11 or in
the name or nominee name of any sub-custodian appointed pursuant to

Section 1. All securities accepted by the Custodian on behalf of a
Fund under the terms of this Contract shall be in "street name" or
other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the name of each Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of
each Fund, other than cash maintained in a joint repurchase account
with other affiliated funds pursuant to Section 2.14 of this Contract
or by a particular Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940,
as amended, (the "1940 Act"). Funds held by the Custodian for a Fund
may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to
act as a custodian under the 1940 Act and that each such bank or
trust company and the funds to be deposited with each such bank or
trust company shall be approved by vote of a majority of the Board of
Trustees/Directors ("Board") of the Trust. Such funds shall be
deposited by the Custodian in its capacity as Custodian for the Fund
and shall be withdrawable by the Custodian only in that capacity. If
requested by the Trust, the Custodian shall furnish the Trust, not
later than twenty (20) days after the last business day of each
month, an internal reconciliation of the closing balance as of that
day in all accounts described in this section to the balance shown on
the daily cash report for that day rendered to the Trust.

2.5Payments for Shares. The Custodian shall make such arrangements with
the Transfer Agent of each Fund, as will enable the Custodian to
receive the cash consideration due to each Fund and will deposit into
each Fund's account such payments as are received from the Transfer
Agent. The Custodian will provide timely notification to the Trust
and the Transfer Agent of any receipt by it of payments for Shares of
the respective Fund.
2.6Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from time to
time by the Trust and the Custodian in the amount of checks, clearing
house funds, and other non-federal funds received in payment for
Shares of the Funds which are deposited into the Funds' accounts.
2.7Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to each Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become
due and shall collect interest when due on securities held
hereunder. The collection of income due the Funds on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be

the responsibility of the Trust. The Custodian will have no duty
or responsibility in connection therewith, other than to provide
the Trust with such information or data as may be necessary to
assist the Trust in arranging for the timely delivery to the
Custodian of the income to which each Fund is properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income due
on securities is not collected in due course and will provide the
Trust with monthly reports of the status of past due income
unless the parties otherwise agree.
2.8Payment of Fund Moneys. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1) Upon the purchase of securities, futures contracts or options on
futures contracts for the account of a Fund but only (a) against
the delivery of such securities, or evidence of title to futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form
for transfer, (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in
Section 2.12 hereof or (c) in the case of repurchase agreements
entered into between the Trust and any other party, (i) against
delivery of the securities either in certificate form or through
an entry crediting the Custodian's account at the Federal Reserve

Bank with such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; management, accounting,
transfer agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Executive Committee of the Trust on behalf of a Fund
signed by an officer of the Trust and certified by its Secretary
or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.

2.9Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for purchase of securities for
the account of a Fund is made by the Custodian in advance of receipt
of the securities purchased, in the absence of specific written
instructions from the Trust to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund. From
such funds as may be available for the purpose of repurchasing or
redeeming Shares of a Fund, but subject to the limitations of the
Declaration of Trust/Articles of Incorporation and any applicable
votes of the Board of the Trust pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of shares of such Fund who
have delivered to the Transfer Agent a request for redemption or
repurchase of their shares including without limitation through bank
drafts, automated clearinghouse facilities, or by other means. In
connection with the redemption or repurchase of Shares of the Funds,
the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders.
2.11 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the 1940 Act and any
applicable state law or regulation, to act as a custodian, as its
agent to carry out such of the provisions of this Section 2 as the
Custodian may from time to time direct; provided, however, that the

appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.12 Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a clearing
agency registered with the Securities and Exchange Commission ("SEC")
under Section 17A of the Exchange Act, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if
any, and subject to the following provisions:
(1) The Custodian may keep securities of each Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of the
Funds which are maintained in a Securities System shall identify
by book-entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the account
of each Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian
to reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the account of a
Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian

to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of transfers of
securities for the account of a Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to the
Trust at its request. Upon request, the Custodian shall furnish
the Trust confirmation of each transfer to or from the account of
a Fund in the form of a written advice or notice and shall
furnish to the Trust copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of a Fund.
(4) The Custodian shall provide the Trust with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to
a Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Trust, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the

extent that a Fund has not been made whole for any such loss or
damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and diligence in
making use of any Securities System.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained
in an account by the Custodian pursuant to Section 2.12 hereof, (i)
in accordance with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund, (ii) for
purpose of segregating cash or government securities in connection
with options purchased, sold or written for a Fund or commodity
futures contracts or options thereon purchased or sold for a Fund,
(iii) for the purpose of compliance by the Trust or a Fund with the
procedures required by any release or releases of the SEC relating to
the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board or of the

Executive Committee signed by an officer of the Trust and certified
by the Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring such purposes to
be proper corporate purposes.
2.14 Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any assets
of a Fund and any affiliated funds which are subject to joint
repurchase transactions in an account established solely for such
transactions for the Fund and its affiliated funds. For purposes of
this Section 2.14, "affiliated funds" shall include all investment
companies and their portfolios for which subsidiaries or affiliates
of Federated Investors serve as investment advisers, distributors or
administrators in accordance with applicable exemptive orders from
the SEC. The requirements of segregation set forth in Section 2.1
shall be deemed to be waived with respect to such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of income
or other payments with respect to securities of a Fund held by it and
in connection with transfers of securities.
2.16 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in
the name of a Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such securities.

2.17 Communications Relating to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Trust all written information
(including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and
the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held
for the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Trust desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Trust shall notify the Custodian in writing
at least three business days prior to the date on which the Custodian
is to take such action. However, the Custodian shall nevertheless
exercise its best efforts to take such action in the event that
notification is received three business days or less prior to the
date on which action is required.
2.18 Proper Instructions. Proper Instructions as used throughout this
Section 2 means a writing signed or initialed by one or more person
or persons as the Board shall have from time to time authorized.
Each such writing shall set forth the specific transaction or type of
transaction involved. Oral instructions will be deemed to be Proper
Instructions if (a) the Custodian reasonably believes them to have
been given by a person previously authorized in Proper Instructions
to give such instructions with respect to the transaction involved,
and (b) the Trust promptly causes such oral instructions to be

confirmed in writing. Upon receipt of a certificate of the Secretary
or an Assistant Secretary as to the authorization by the Board of the
Trust accompanied by a detailed description of procedures approved by
the Board, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided
that the Board and the Custodian are satisfied that such procedures
afford adequate safeguards for a Fund's assets.
2.19 Actions Permitted Without Express Authority. The Custodian may in
its discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be accounted
for to the Trust in such form that it may be allocated to the
affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts and
other negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of each Fund
except as otherwise directed by the Trust.
2.20 Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to
have been properly executed on behalf of a Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of the
Trust as conclusive evidence (a) of the authority of any person to

act in accordance with such vote or (b) of any determination of or
any action by the Board pursuant to the Declaration of Trust/Articles
of Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian
of written notice to the contrary.
2.21 Notice to Trust by Custodian Regarding Cash Movement. The Custodian
will provide timely notification to the Trust of any receipt of cash,
income or payments to the Trust and the release of cash or payment by
the Trust.
3. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of the Trust to keep the
books of account of each Fund and/or compute the net asset value per
share of the outstanding Shares of each Fund or, if directed in writing
to do so by the Trust, shall itself keep such books of account and/or
compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of a Fund as described in the
Fund's currently effective prospectus and Statement of Additional
Information ("Prospectus") and shall advise the Trust and the Transfer
Agent daily of the total amounts of such net income and, if instructed in
writing by an officer of the Trust to do so, shall advise the Transfer
Agent periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the
daily income of a Fund shall be made at the time or times described from
time to time in the Fund's currently effective Prospectus.
4. Records.

The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will
meet the obligations of the Trust and the Funds under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and specifically including identified cost records used for
tax purposes. All such records shall be the property of the Trust and
shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of
the Trust and employees and agents of the SEC. In the event of
termination of this Contract, the Custodian will deliver all such records
to the Trust, to a successor Custodian, or to such other person as the
Trust may direct. The Custodian shall supply daily to the Trust a
tabulation of securities owned by a Fund and held by the Custodian and
shall, when requested to do so by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions from
each Fund's independent public accountants/auditors with respect to its
activities hereunder in connection with the preparation of the Fund's
registration statement, periodic reports, or any other reports to the SEC
and with respect to any other requirements of such Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities, futures

contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian for the Fund under this Contract; such
reports shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Trust, to provide reasonable assurance that
any material inadequacies would be disclosed by such examination and, if
there are no such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in carrying
out the provisions of this Contract; provided, however, that the
Custodian shall be held to any higher standard of care which would be
imposed upon the Custodian by any applicable law or regulation if such
above stated standard of reasonable care was not part of this Contract.
The Custodian shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Trust) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice, provided that such action is not in violation of applicable
federal or state laws or regulations, and is in good faith and without
negligence. Subject to the limitations set forth in Section 15 hereof,
the Custodian shall be kept indemnified by the Trust but only from the
assets of the Fund involved in the issue at hand and be without liability
for any action taken or thing done by it in carrying out the terms and
provisions of this Contract in accordance with the above standards.

In order that the indemnification provisions contained in this Section 8
shall apply, however, it is understood that if in any case the Trust may
be asked to indemnify or save the Custodian harmless, the Trust shall be
fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Custodian
will use all reasonable care to identify and notify the Trust promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification. The Trust shall have
the option to defend the Custodian against any claim which may be the
subject of this indemnification, and in the event that the Trust so
elects it will so notify the Custodian and thereupon the Trust shall take
over complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it shall
seek indemnification under this Section. The Custodian shall in no case
confess any claim or make any compromise in any case in which the Trust
will be asked to indemnify the Custodian except with the Trust's prior
written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action
may, in the reasonable opinion of the Custodian, result in the Custodian
or its nominee assigned to a Fund being liable for the payment of money
or incurring liability of some other form, the Custodian may request the
Trust, as a prerequisite to requiring the Custodian to take such action,
to provide indemnity to the Custodian in an amount and form satisfactory
to the Custodian.

Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee from
and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) (referred to herein as authorized
charges) incurred or assessed against it or its nominee in connection
with the performance of this Contract, except such as may arise from it
or its nominee's own failure to act in accordance with the standard of
reasonable care or any higher standard of care which would be imposed
upon the Custodian by any applicable law or regulation if such above-
stated standard of reasonable care were not part of this Contract. To
secure any authorized charges and any advances of cash or securities made
by the Custodian to or for the benefit of a Fund for any purpose which
results in the Fund incurring an overdraft at the end of any business day
or for extraordinary or emergency purposes during any business day, the
Trust hereby grants to the Custodian a security interest in and pledges
to the Custodian securities held for the Fund by the Custodian, in an
amount not to exceed 10 percent of the Fund's gross assets, the specific
securities to be designated in writing from time to time by the Trust or
the Fund's investment adviser. Should the Trust fail to make such
designation, or should it instruct the Custodian to make advances
exceeding the percentage amount set forth above and should the Custodian
do so, the Trust hereby agrees that the Custodian shall have a security
interest in all securities or other property purchased for a Fund with
the advances by the Custodian, which securities or property shall be
deemed to be pledged to the Custodian, and the written instructions of
the Trust instructing their purchase shall be considered the requisite
description and designation of the property so pledged for purposes of
the requirements of the Uniform Commercial Code. Should the Trust fail

to cause a Fund to repay promptly any authorized charges or advances of
cash or securities, subject to the provision of the second paragraph of
this Section 8 regarding indemnification, the Custodian shall be entitled
to use available cash and to dispose of pledged securities and property
as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take
effect not sooner than sixty (60) days after the date of such delivery or
mailing; provided, however that the Custodian shall not act under Section
2.12 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of the Trust has
approved the initial use of a particular Securities System as required in
each case by Rule 17f-4 under the 1940 Act; provided further, however,
that the Trust shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust/Articles of Incorporation, and
further provided, that the Trust may at any time by action of its Board
(i) substitute another bank or trust company for the Custodian by giving
notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the appropriate banking regulatory agency
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.

Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the Trust,
the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form
for transfer, all securities then held by it hereunder for each Fund and
shall transfer to separate accounts of the successor custodian all of
each Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board
of the Trust, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the
Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the 1940 Act, (delete
"doing business ... Massachusetts" unless SSBT is the Custodian) doing
business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $100,000,000, all securities, funds
and other properties held by the Custodian and all instruments held by
the Custodian relative thereto and all other property held by it under
this Contract for each Fund and to transfer to separate accounts of such
successor custodian all of each Fund's securities held in any Securities

System. Thereafter, such bank or trust company shall be the successor of
the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred
to or of the Board to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of
Trust/Articles of Incorporation. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to
be an amendment of this Contract.
12.Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated

Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Custodian at address for SSBT only: 225 Franklin Street, Boston,
Massachusetts, 02110, or to such other address as the Trust or the
Custodian may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust of those Trusts
which are business trusts and agrees that the obligations and liabilities
assumed by the Trust and any Fund pursuant to this Contract, including,
without limitation, any obligation or liability to indemnify the
Custodian pursuant to Section 8 hereof, shall be limited in any case to
the relevant Fund and its assets and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the relevant
Fund, from any other Fund or its shareholders or from the Trustees,
Officers, employees or agents of the Trust, or any of them. In addition,
in connection with the discharge and satisfaction of any claim made by
the Custodian against the Trust, for whatever reasons, involving more
than one Fund, the Trust shall have the exclusive right to determine the
appropriate allocations of liability for any such claim between or among
the Funds.

IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed effective as of the 1st day of December, 1993.

ATTEST: INVESTMENT COMPANIES

/s/John G. McGonigle By /s/John G. Donahue
--------- ----------
John G. McGonigle John F. Donahue
Secretary Chairman

ATTEST: STATE STREET BANK AND TRUST
COMPANY

/s/ Ed McKenzie By /s/ F. J. Sidoti, Jr.
-------------- -------------
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President

ATTEST: FEDERATED SERVICES COMPANY

/s/ Jeannette Fisher-Garber By /s/ James J. Dolan
------ ------------
Jeannette Fisher-Garber James J. Dolan
Secretary President

EXHIBIT 1

CONTRACT
DATE INVESTMENT COMPANY

Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AGREEMENT
FOR
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
AND
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of December 1, 1994, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Trust"), on behalf of the portfolios
(individually referred to herein as a "Fund" and collectively as "Funds") of
the Trust, and FEDERATED SERVICES COMPANY, a Delaware business trust, having
its principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
with authorized and issued shares of capital stock or beneficial interest
("Shares"); and
WHEREAS, the Trust may desire to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company is willing to furnish such services; and
WHEREAS, the Trust may desire to appoint the Company as its transfer agent,
dividend disbursing agent if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept
such appointment; and
WHEREAS, the Trust may desire to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved list
of qualified banks if so indicated on Exhibit 1, and the Company desires to
accept such appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or another
agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for those
investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Trust's Board of Trustees or
Directors ("Board"), the Company will assist the Trust with regard to fund
accounting for the Trust, and/or the Funds, and/or the Classes, and in
connection therewith undertakes to perform the following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent pricing
services selected by the Company in consultation with the adviser, or
sources selected by the adviser, and reviewed by the board; secondarily,
if a designated pricing service does not provide a price for a security
which the Company believes should be available by market quotation, the
Company may obtain a price by calling brokers designated by the
investment adviser of the fund holding the security, or if the adviser
does not supply the names of such brokers, the Company will attempt on
its own to find brokers to price those securities; thirdly, for
securities for which no market price is available, the Pricing Committee
of the Board will determine a fair value in good faith. Consistent with
Rule 2a-4 of the 40 Act, estimates may be used where necessary or
appropriate. The Company's obligations with regard to the prices
received from outside pricing services and designated brokers or other
outside sources, is to exercise reasonable care in the supervision of
the pricing agent. The Company is not the guarantor of the securities
prices received from such agents and the Company is not liable to the
Fund for potential errors in valuing a Fund's assets or calculating the
net asset value per share of such Fund or Class when the calculations
are based upon such prices. All of the above sources of prices used as
described are deemed by the Company to be authorized sources of security
prices. The Company provides daily to the adviser the securities prices
used in calculating the net asset value of the fund, for its use in
preparing exception reports for those prices on which the adviser has
comment. Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents.
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board and
as set forth in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds resulting from
sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Trust, including for each Fund, and/or Class, as required
under Section 31(a) of the 1940 Act and the Rules thereunder in
connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records to be maintained by Rule 31a-1 under the 1940 Act in connection
with the services provided by the Company. The Company further agrees
that all such records it maintains for the Trust are the property of the
Trust and further agrees to surrender promptly to the Trust such records
upon the Trust's request;
G. At the request of the Trust, prepare various reports or other financial
documents required by federal, state and other applicable laws and
regulations; and
H. Such other similar services as may be reasonably requested by the Trust.
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for its services rendered pursuant
to Section One of this Agreement in accordance with the fees agreed upon
from time to time between the parties hereto. Such fees do not include
out-of-pocket disbursements of the Company for which the Funds shall
reimburse the Company upon receipt of a separate invoice. Out-of-pocket
disbursements shall include, but shall not be limited to, the items
agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; costs of printing and mailing stock certificates,
Prospectuses, reports and notices; administrative expenses; interest on
borrowed money; brokerage commissions; taxes and fees payable to
federal, state and other governmental agencies; fees of Trustees or
Directors of the Trust; independent auditors expenses; Federated
Administrative Services and/or Federated Administrative Services, Inc.
legal and audit department expenses billed to Federated Services Company
for work performed related to the Trust, the Funds, or the Classes; law
firm expenses; or other expenses not specified in this Article 3 which
may be properly payable by the Funds and/or classes.
C. The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Trust and/or the Funds and a duly authorized officer of
the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in performing
services under this Section One. Such person or persons may be third-
party service providers, or they may be officers and employees who are
employed by both the Company and the Funds. The compensation of such
person or persons shall be paid by the Company and no obligation shall
be incurred on behalf of the Trust, the Funds, or the Classes in such
respect.
SECTION TWO: SHAREHOLDER RECORDKEEPING.
ARTICLE 4. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement, the Trust
hereby appoints the Company to act as, and the Company agrees to act as,
transfer agent and dividend disbursing agent for each Fund's Shares, and agent
in connection with any accumulation, open-account or similar plans provided to
the shareholders of any Fund ("Shareholder(s)"), including without limitation
any periodic investment plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the Trust,
or the Fund, and the Company promptly cause such oral instructions to be
confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Trust, or the Fund, and the Company are satisfied that such procedures afford
adequate safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
ARTICLE 5. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Trust as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the "Custodian").
The Company shall notify the Fund and the Custodian on a daily
basis of the total amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent, shall
countersign and mail by first class mail, a certificate to the
Shareholder at its address as set forth on the transfer books of
the Funds, and/or Classes, subject to any Proper Instructions
regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by the
number of Shares that had been credited to its account upon receipt
of the check or other order, promptly mail a debit advice to the
Shareholder, and notify the Fund and/or Class of its action. In the
event that the amount paid for such Shares exceeds proceeds of the
redemption of such Shares plus the amount of any dividends paid
with respect to such Shares, the Fund and/the Class or its
distributor will reimburse the Company on the amount of such
excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions of
its governing document and the then-current Prospectus of the Fund.
The Company shall prepare and mail or credit income, capital gain,
or any other payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of any such
distribution, notify the Custodian of the estimated amount required
to pay any portion of said distribution which is payable in cash
and request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with the
Custodian on a daily basis. If a Shareholder is entitled to receive
additional Shares by virtue of any such distribution or dividend,
appropriate credits shall be made to the Shareholder's account, for
certificated Funds and/or Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from the
Custodian with respect to any redemption, the Company shall pay or
cause to be paid the redemption proceeds in the manner instructed
by the redeeming Shareholders, pursuant to procedures described in
the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Trust or the Fund to include a record for each Shareholder's
account of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current maintenance
of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such records
may be inspected by the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund to
the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution agreements,
allocations of sales loads, redemption fees, or other
transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed and
mailed and shall withhold such sums as are required to be withheld
under applicable federal and state income tax laws, rules and
regulations.
(3) In addition to and not in lieu of the services set forth above, the
Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or
periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, mailing Shareholder
reports and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and filing
reports on U.S. Treasury Department Form 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information;
and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund and/or Class sold in each
state ("blue sky reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky reporting
for each state and (ii) verify the classification of
transactions for each state on the system prior to activation
and thereafter monitor the daily activity for each state. The
responsibility of the Company for each Fund's and/or Class's
state blue sky registration status is limited solely to the
recording of the initial classification of transactions or
accounts with regard to blue sky compliance and the reporting
of such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their Share accounts and such other correspondence as may from
time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder Meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and procedures
for safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
ARTICLE 6. DUTIES OF THE TRUST.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes' Prospectus
and for complying with all applicable requirements of the Securities Act
of 1933, as amended (the "1933 Act"), the 1940 Act and any laws, rules
and regulations of government authorities having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of blank
Share certificates and from time to time shall renew such supply upon
request of the Company. Such blank Share certificates shall be properly
signed, manually or by facsimile, if authorized by the Trust and shall
bear the seal of the Trust or facsimile thereof; and notwithstanding the
death, resignation or removal of any officer of the Trust authorized to
sign certificates, the Company may continue to countersign certificates
which bear the manual or facsimile signature of such officer until
otherwise directed by the Trust.

C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 7. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an annual
maintenance fee for each Shareholder account as agreed upon between the
parties and as may be added to or amended from time to time. Such fees
may be changed from time to time subject to written agreement between
the Trust and the Company. Pursuant to information in the Fund
Prospectus or other information or instructions from the Fund, the
Company may sub-divide any Fund into Classes or other sub-components for
recordkeeping purposes. The Company will charge the Fund the same fees
for each such Class or sub-component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust and/or
Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items agreed upon between the
parties, as may be added to or amended from time to time. In addition,
any other expenses incurred by the Company at the request or with the
consent of the Trust and/or the Fund, will be reimbursed by the
appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Trust and/or the Funds and a duly authorized officer of
the Company.
ARTICLE 8. ASSIGNMENT OF SHAREHOLDER RECORDKEEPING.
Except as provided below, no right or obligation under this Section Two may
be assigned by either party without the written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. The Company may without further consent on the part of the Trust
subcontract for the performance hereof with (A) State Street Bank and
its subsidiary, Boston Financial Data Services, Inc., a Massachusetts
Trust ("BFDS"), which is duly registered as a transfer agent pursuant to
Section 17A(c)(1) of the Securities Exchange Act of 1934, as amended, or
any succeeding statute ("Section 17A(c)(1)"), or (B) a BFDS subsidiary
duly registered as a transfer agent pursuant to Section 17A(c)(1), or
(C) a BFDS affiliate, or (D) such other provider of services duly
registered as a transfer agent under Section 17A(c)(1) as Company shall
select; provided, however, that the Company shall be as fully
responsible to the Trust for the acts and omissions of any subcontractor
as it is for its own acts and omissions; or
C. The Company shall upon instruction from the Trust subcontract for the
performance hereof with an Agent selected by the Trust, other than BFDS
or a provider of services selected by Company, as described in (2)
above; provided, however, that the Company shall in no way be
responsible to the Trust for the acts and omissions of the Agent.
SECTION THREE: CUSTODY SERVICES PROCUREMENT.
ARTICLE 9. APPOINTMENT.
The Trust hereby appoints Company as its agent to evaluate and obtain
custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.
ARTICLE 10. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate the nature and the quality of the custodial services provided
by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the Trust as
Custodian of the Trust's assets substantially on the terms set forth as
the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for the benefit
of the Trust, with the Trust as a party to each such agreement. The
Company shall not be a party to any agreement with any such Custodian;
D. establish procedures to monitor the nature and the quality of the
services provided by the Custodians;
E. continuously monitor the nature and the quality of services provided by
the Custodians; and
F. periodically provide to the Trust (i) written reports on the activities
and services of the Custodians; (ii) the nature and amount of
disbursement made on account of the Trust with respect to each custodial
agreement; and (iii) such other information as the Board shall
reasonably request to enable it to fulfill its duties and obligations
under Sections 17(f) and 36(b) of the 1940 Act and other duties and
obligations thereof.
ARTICLE 11. FEES AND EXPENSES.
A. Annual Fee
For the performance by the Company pursuant to Section Three of this
Agreement, the Trust and/or the Fund agree to pay the Company an annual
fee as agreed upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Trust and/or
Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items agreed upon between the
parties, as may be added to or amended from time to time. In addition,
any other expenses incurred by the Company at the request or with the
consent of the Trust and/or the Fund, will be reimbursed by the
appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Trust and/or the Funds and a duly authorized officer of
the Company.
ARTICLE 12. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Three of this Agreement.
SECTION FOUR: GENERAL PROVISIONS.
ARTICLE 13. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Trust shall file with the Company the following documents:
(1) A copy of the Charter and By-Laws of the Trust and all amendments
thereto;
(2) A copy of the resolution of the Board of the Trust authorizing this
Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Trust or the Funds in the forms approved by the Board of the Trust
with a certificate of the Secretary of the Trust as to such
approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Trust authorizing the original
issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing officers to
give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of any
Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the proper
performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
ARTICLE 14. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and by-
laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to authorize it
to enter into and perform its obligations under this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements and in
good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in good
standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws have
been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Trust is an open-end investment company registered under the
1940 Act; and
(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being
offered for sale.
ARTICLE 15. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
The Company shall be held to a standard of reasonable care in carrying
out the provisions of this Contract. The Company shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the
Trust) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice, provided that such
action is not in violation of applicable federal or state laws or
regulations, and is in good faith and without negligence.
B. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund shall
indemnify and hold the Company, including its officers, directors,
shareholders and their agents employees and affiliates, harmless against
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Trust or Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper form
which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties contracted
by or approved by the Trust of Fund for use in the performance
of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the Trust.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Trust or the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer
or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 15.A. from liability for any act or omission resulting from
the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties of failure to meet the standard of
care set forth in 15.A. above.
C. Reliance
At any time the Company may apply to any officer of the Trust or Fund
for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Company under this Agreement, and the Company and its agents or
subcontractors shall not be liable and shall be indemnified by the Trust
or the appropriate Fund for any action reasonably taken or omitted by it
in reliance upon such instructions or upon the opinion of such counsel
provided such action is not in violation of applicable federal or state
laws or regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of
the officers of the Trust or the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion,
and shall keep the other party advised with respect to all developments
concerning such claim. The party who may be required to indemnify shall
have the option to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no
case confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other
party's prior written consent.
ARTICLE 16. TERMINATION OF AGREEMENT.
This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other. Should the Trust exercise its rights
to terminate, all out-of-pocket expenses associated with the movement of
records and materials will be borne by the Trust or the appropriate Fund.
Additionally, the Company reserves the right to charge for any other
reasonable expenses associated with such termination. The provisions of
Article 15 shall survive the termination of this Agreement.
ARTICLE 17. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed
by both parties.
ARTICLE 18. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Trust may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall
be annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the Charter. No interpretive or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
ARTICLE 19. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 20. NOTICES.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Trust or the Company may hereafter specify, shall be
deemed to have been properly delivered or given hereunder to the respective
address.
ARTICLE 21. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
ARTICLE 22. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE TRUST.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust and signed by an authorized officer of the Trust, acting
as such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Trust, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.
ARTICLE 23. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the Trustees
or Shareholders of the Company, but bind only the property of the Company as
provided in the Declaration of Trust.
ARTICLE 24. ASSIGNMENT.
This Agreement and the rights and duties hereunder shall not be assignable
with respect to the Trust or the Funds by either of the parties hereto except
by the specific written consent of the other party.
ARTICLE 25. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 26. SUCCESSOR AGENT.
If a successor agent for the Trust shall be appointed by the Trust, the
Company shall upon termination of this Agreement deliver to such successor
agent at the office of the Company all properties of the Trust held by it
hereunder. If no such successor agent shall be appointed, the Company shall at
its office upon receipt of Proper Instructions deliver such properties in
accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or trust company shall be the successor of the Company
under this Agreement.
ARTICLE 27. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
ARTICLE 28. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign to a
successor all of or a substantial portion of its business, or to a party
controlling, controlled by, or under common control with such party. Nothing
in this Article 28 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
ARTICLE 29. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

ATTEST: INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)

/s/ John W. McGonigle By: /s/ John F. Donahue
------- -- ---
John W. McGonigle John F. Donahue
Secretary Chairman

ATTEST: FEDERATED SERVICES COMPANY

/s/ Jeannette Fisher-Garber By: /s/ James J. Dolan
- -----
Jeannette Fisher-Garber James J. Dolan
Secretary President

EXHIBIT 1

Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FIXED INCOME SECURITIES, INC. and the
Deputy General Counsel of Federated Investors, and each of them, their true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of the
Securities and Exchange Commission's electronic disclosure system known as
EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.

SIGNATURES TITLE DATE

/s/ John F. Donahue Chairman and DirectorJanuary 5, 1996
John F. Donahue (Chief Executive Officer)

/s/ Richard B. Fisher President and DirectorJanuary 5, 1996
Richard B. Fisher

/s/ David M. Taylor Treasurer January 5, 1996
David M. Taylor (Principal Financial and
Accounting Officer)

/s/ Thomas G. Bigley Director January 5, 1996
Thomas G. Bigley

/s/ John T. Conroy, Jr. Director January 5, 1996
John T. Conroy, Jr.

SIGNATURES TITLE DATE

/s/ William J. Copeland Director January 5, 1996
William J. Copeland

/s/ James E. Dowd Director January 5, 1996
James E. Dowd

/s/ Lawrence D. Ellis, M.D. Director January 5, 1996
Lawrence D. Ellis, M.D.

/s/ Edward L. Flaherty, Jr. Director January 5, 1996
Edward L. Flaherty, Jr.

/s/ Peter E. Madden Director January 5, 1996
Peter E. Madden

/s/ Gregor F. Meyer Director January 5, 1996
Gregor F. Meyer

/s/ John E. Murray, Jr. Director January 5, 1996
John E. Murray, Jr.

/s/ Wesley W. Posvar Director January 5, 1996
Wesley W. Posvar

/s/ Marjorie P. Smuts Director January 5, 1996
Marjorie P. Smuts

Sworn to and subscribed before me this 5th day of January, 1996

/s/ Marie M. Hamm
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Fixed Income Securities, Inc.
Limited Term Municipal Fund
Class A
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 90,165,335
<INVESTMENTS-AT-VALUE> 90,832,641
<RECEIVABLES> 2,061,368
<ASSETS-OTHER> 146,106
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 93,040,115
<PAYABLE-FOR-SECURITIES> 1,003,061
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 415,744
<TOTAL-LIABILITIES> 1,418,805
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,380,099
<SHARES-COMMON-STOCK> 6,615,525
<SHARES-COMMON-PRIOR> 3,438,139
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,426,095)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 667,306
<NET-ASSETS> 65,179,363
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,739,807
<OTHER-INCOME> 0
<EXPENSES-NET> 312,499
<NET-INVESTMENT-INCOME> 2,427,308
<REALIZED-GAINS-CURRENT> (439,009)
<APPREC-INCREASE-CURRENT> 2,221,502
<NET-CHANGE-FROM-OPS> 4,209,801
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,622,749
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,713,041
<NUMBER-OF-SHARES-REDEEMED> 2,647,044
<SHARES-REINVESTED> 111,389
<NET-CHANGE-IN-ASSETS> 46,173,344
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,987,086)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 203,057
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 843,964
<AVERAGE-NET-ASSETS> 52,608,322
<PER-SHARE-NAV-BEGIN> 9.490
<PER-SHARE-NII> 0.460
<PER-SHARE-GAIN-APPREC> 0.360
<PER-SHARE-DIVIDEND> 0.460
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.850
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Fixed Income Securities, Inc.
Limited Term Municipal Fund
Fortress Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 90,165,335
<INVESTMENTS-AT-VALUE> 90,832,641
<RECEIVABLES> 2,061,368
<ASSETS-OTHER> 146,106
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 93,040,115
<PAYABLE-FOR-SECURITIES> 1,003,061
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 415,744
<TOTAL-LIABILITIES> 1,418,805
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,380,099
<SHARES-COMMON-STOCK> 2,683,625
<SHARES-COMMON-PRIOR> 1,348,521
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,426,095)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 667,306
<NET-ASSETS> 26,441,947
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,739,807
<OTHER-INCOME> 0
<EXPENSES-NET> 312,499
<NET-INVESTMENT-INCOME> 2,427,308
<REALIZED-GAINS-CURRENT> (439,009)
<APPREC-INCREASE-CURRENT> 2,221,502
<NET-CHANGE-FROM-OPS> 4,209,801
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 804,559
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,014,269
<NUMBER-OF-SHARES-REDEEMED> 719,239
<SHARES-REINVESTED> 40,074
<NET-CHANGE-IN-ASSETS> 46,173,344
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,987,086)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 203,057
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 843,964
<AVERAGE-NET-ASSETS> 52,608,322
<PER-SHARE-NAV-BEGIN> 9.490
<PER-SHARE-NII> 0.470
<PER-SHARE-GAIN-APPREC> 0.360
<PER-SHARE-DIVIDEND> 0.470
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.850
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> Fixed Income Securities, Inc.
Federated Strategic Income Fund
Class A Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 15,658,828
<INVESTMENTS-AT-VALUE> 16,000,755
<RECEIVABLES> 5,571,322
<ASSETS-OTHER> 28,976
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,601,053
<PAYABLE-FOR-SECURITIES> 1,949,086
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,356,701
<TOTAL-LIABILITIES> 5,305,787
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,835,430
<SHARES-COMMON-STOCK> 502,051
<SHARES-COMMON-PRIOR> 248,034
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 135,565
<OVERDISTRIBUTION-GAINS> (7,376)
<ACCUM-APPREC-OR-DEPREC> 331,647
<NET-ASSETS> 5,088,830
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 848,265
<OTHER-INCOME> 0
<EXPENSES-NET> 60,145
<NET-INVESTMENT-INCOME> 788,120
<REALIZED-GAINS-CURRENT> 127,454
<APPREC-INCREASE-CURRENT> 480,617
<NET-CHANGE-FROM-OPS> 1,396,191
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 298,490
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 311,635
<NUMBER-OF-SHARES-REDEEMED> 72,417
<SHARES-REINVESTED> 14,799
<NET-CHANGE-IN-ASSETS> 10,413,291
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (20,967)
<OVERDISTRIB-NII-PRIOR> 14,463
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 80,713
<INTEREST-EXPENSE> 13,608
<GROSS-EXPENSE> 600,295
<AVERAGE-NET-ASSETS> 9,669,087
<PER-SHARE-NAV-BEGIN> 9.540
<PER-SHARE-NII> 0.082
<PER-SHARE-GAIN-APPREC> 0.061
<PER-SHARE-DIVIDEND> 0.830
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.140
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 265,882
<AVG-DEBT-PER-SHARE> 0.263

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> Fixed Income Securities, Inc.
Federated Strategic Income Fund
Class B Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 15,658,828
<INVESTMENTS-AT-VALUE> 16,000,755
<RECEIVABLES> 5,571,322
<ASSETS-OTHER> 28,976
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<ACCUMULATED-NII-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0.263

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 053
<NAME> Fixed Income Securities, Inc.
Federated Strategic Income Fund
Class C Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 15,658,828
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<INTEREST-INCOME> 848,265
<OTHER-INCOME> 0
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<AVG-DEBT-PER-SHARE> 0.263

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 054
<NAME> Fixed Income Securities, Inc.
Federated Strategic Income Fund
Class F
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
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<OVERDISTRIBUTION-GAINS> (7,376)
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</TABLE>