FIXED INCOME SECURITIES INC, 497, 1997-01-31

FIXED INCOME SECURITIES INC
497, 1997-01-31

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FEDERATED LIMITED TERM 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 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, 1997, with the Securities and
Exchange Commission ("SEC"). 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 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

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

Prospectus dated January 31, 1997

Summary of Fund Expenses 1
Financial Highlights -- Class A Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Investment Limitations 13
Net Asset Value 13
Investing in Class A Shares 14
Share Purchases 14
What Shares Cost 14
Eliminating the Sales Charge 15
Systematic Purchase Features 16
Retirement Plans 16
Exchange Privilege 17
How to Redeem Shares 18
Contingent Deferred Sales Charge 19
Elimination of Contingent Deferred
Sales Charge 19
Special Redemption Features 20
Account and Share Information 20
Fixed Income Securities, Inc. Information 21
Management of the Corporation 21
Distribution of Shares 22
Administration of the Fund 23
Shareholder Information 24
Voting Rights 24
Tax Information 24
Federal Income Tax 24
State and Local Taxes 24
Performance Information 25
Other Classes of Shares 25
Appendix 26
Addresses 28

SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <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) 0.00%
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)

</TABLE>
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(2) 0.14%
12b-1 Fee (after waiver)(3) 0.20%
Total Other Expenses 0.76%
Shareholder Services Fee 0.25%
Total Operating Expenses(4) 1.10%
</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.

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

(3) The 12b-1 fee has been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fee. The distributor can terminate the voluntary waiver
at any time at its sole discretion. The maximum 12b-1 fee is 0.50%.

(4) The total operating expenses would have been 1.66% absent the voluntary
waivers of portions of the management fee and the 12b-1 fee.

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATIONS 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;
(2) redemption at the end of each time
period; and
(3) payment of maximum sales charge $21 $45 $70 $143
</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 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, 1997, on the Fund's
financial statements for the year ended November 30, 1996, is included in
the Annual Report, 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,
1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 9.97 $ 9.48 $10.17 $10.00 $10.01
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.59 0.55 0.53 0.63 0.519
Net realized and
unrealized gain (loss)
on investments (0.06) 0.49 (0.66) 0.19 (0.008)
Total from investment 0.53 1.04 (0.13) 0.82 0.511
operations
LESS DISTRIBUTIONS
Distributions from net (0.59) (0.55) (0.53) (0.63) (0.519)
investment income
Distributions in excess -- -- (0.02) (0.02) (0.002)
of net investment
income(b)
Distributions from net
realized gains on
investment transactions -- -- (0.01) -- --
TOTAL DISTRIBUTIONS (0.59) (0.55) (0.56) (0.65) (0.521)
NET ASSET VALUE, END OF $ 9.91 $ 9.97 $ 9.48 $10.17 $10.00
PERIOD
TOTAL RETURN(C) 5.54% 11.29% (1.30%) 8.19% 5.21%
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.10% 1.10% 1.10% 1.01% 0.67%*
Net investment income 6.04% 6.13% 5.52% 5.75% 6.17%*
Expense 0.56% 0.43% 0.39% 0.49% 1.06%*
waiver/reimbursement(d)
SUPPLEMENTAL DATA
Net assets, end of $116,174 $138,451 $178,771 $248,876 $57,225
period (000 omitted)
Portfolio turnover 104% 63% 63% 38% 60%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from January 13, 1992 (date of
initial public investment) to November 30, 1992. For the period from the
start of business, December 5, 1991 to January 12, 1992, the net investment
income was distributed to the Fund's investment adviser.

(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
purpose.

(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, dated November 30, 1996, which can be obtained free of
charge.

GENERAL INFORMATION

The Fund is designed for investors seeking current income through a
professionally managed, diversified portfolio investing primarily in U.S.
government obligations, corporate debt obligations, and asset-backed
securities. A minimum initial investment of $5,000 is required.

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

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

Although certain portfolio instruments held by the Fund are collateralized
by specific assets, the Fund's Shares themselves are not secured. 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 portfolio of
investment grade securities, at least 65% of which is invested in U.S.
government obligations, and corporate debt obligations and asset-backed
securities rated in one of the four highest categories by a nationally
recognized statistical rating organization. The Fund is not required to sell
securities if the 65% investment level changes due to increases or decreases
in the market value of portfolio securities. A description of the rating
categories is contained in the Appendix to the Statement of Additional
Information.

The prices of fixed income securities fluctuate inversely to the direction
of interest rates. The net asset value of the Fund is expected to fluctuate
with changes in interest rates and bond market conditions, although this
fluctuation should be more moderate than that of a fund with a longer
average portfolio duration. The adviser, however, will attempt to minimize
principal fluctuation through, among other things, diversification, careful
credit analysis and security selection, and adjustments of the Fund's
average portfolio duration. In periods of rising interest rates and falling
bond prices, the adviser may shorten the Fund's average duration to minimize
the effect of declining bond values on the Fund's net asset value.
Conversely, during times of falling interest rates and rising prices a
longer average duration to three years may be sought. Unless indicated
otherwise, the 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 U.S. government obligations, corporate debt
obligations, and asset-backed securities. The Fund may also invest in
derivative instruments of such securities, including instruments with demand
features or credit enhancement, as well as money market instruments and
cash.

The securities in which the Fund invests principally include, but are not
limited to:

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

* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding;

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities;

* foreign and domestic debt obligations having floating or fixed rates of
interest, some of which may include equity features;

* asset-backed securities rated in one of the four highest categories by an
NRSRO, or which are of comparable quality in the judgment of the adviser;

* rated commercial paper which matures in 270 days or less so long as at
least two ratings are high quality ratings by an NRSRO. Such ratings would
include: Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, or F-1 or F-2 by
Fitch;

* time and savings deposits and deposit notes and bankers acceptances
(including certificates of deposit) 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 $100,000,000 in capital; and
* repurchase agreements collateralized by eligible investments.

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.

Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt securities, are generally offered at
an initial interest rate which is at or above prevailing market rates.
Interest rates are reset periodically (most commonly every 90 days) at
different levels on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time. Some increasing
rate securities may, by agreement, revert to a fixed rate status. These
securities may also contain features which allow the issuer the option to
convert the increasing rate of interest to a fixed rate under such terms,
conditions, and limitations as are described in each issue's prospectus.

There are tax uncertainties with respect to whether increasing rate
securities will be treated as having an original issue discount. If it is
determined that the increasing rate securities have original issue discount,
a holder will be required to include as income in each taxable year, in
addition to interest paid on the security for that year, an amount equal to
the sum of the daily portions of original issue discount for each day during
the taxable year that such holder holds the security. There may also be tax
uncertainties with respect to whether an extension of maturity on an
increasing rate note will be treated as a taxable exchange. In the event it
is determined that an extension of maturity is a taxable exchange, a holder
will recognize a taxable gain or loss, which will be a short-term capital
gain or loss if he holds the security as a capital asset, to the extent that
the value of the security with an extended maturity differs from the
adjusted basis of the security deemed exchanged therefor.

FIXED RATE CORPORATE
DEBT OBLIGATIONS

The Fund will also invest in fixed rate securities, including fixed rate
securities with short-term characteristics. Fixed rate securities with
short-term characteristics are long-term debt obligations but are treated in
the market as having short maturities because call features of the
securities may make them callable within a short period of time. A fixed
rate security with short-term characteristics would include a fixed income
security priced close to call or redemption price or a fixed income security
approaching maturity, where the expectation of call or redemption is high.
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.

VARIABLE RATE DEMAND NOTES

Variable rate demand notes are long-term corporate debt instruments that
have variable or floating interest rates and provide the Fund with the right
to tender the security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a rate that is
intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually),
and is normally based on a published interest rate or interest rate index.
Many variable rate demand notes allow the Fund to demand the repurchase of
the security on not more than seven days prior notice. Other notes only
permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals. See "Demand Features."

CORPORATE DEBT OBLIGATIONS

Although the Fund will invest primarily in corporate debt obligations that
are rated as investment grade by an NRSRO, or are determined to be
comparable quality in the judgment of the Adviser, the Fund may invest up to
but less than 35% of the value of its total assets in corporate debt
obligations that are not investment grade bonds, but are rated B or better
by an NRSRO (i.e., "junk bonds"). Corporate debt obligations that are not
determined to be investment grade are high-yield, high-risk bonds, typically
subject to greater market fluctuations and greater risk of loss of income
and principal due to an issuer's default. To a greater extent than
investment grade bonds, lower rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower rated bonds
may be more difficult to dispose of or to value than higher rated,
lower-yielding bonds. Bonds rated "BBB" by S&P or Fitch, 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. The prices
of fixed income securities generally fluctuate inversely to the direction of
interest rates.

ASSET-BACKED SECURITIES

Asset-backed securities are created by the grouping of certain governmental,
government related and private loans, receivables and other lender assets
into pools. Interests in these pools are sold as individual securities.
Payments from the asset pools may be divided into several different tranches
of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments
of principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which
may be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities are generally subject to higher
prepayment risks than most other types of debt instruments. Prepayment risks
on mortgage securities tend to increase during periods of declining mortgage
interest rates, because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Depending upon market conditions, the
yield that the Fund receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the
original mortgage security. As a consequence, mortgage securities may be a
less effective means of "locking in" interest rates than other types of debt
securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as
collateralized mortgage obligations, prepayments may be allocated to one
tranche of securities ahead of other tranches, in order to reduce the risk
of prepayment for the other tranches.

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.

The credit characteristics of asset-backed securities also differ in a
number of respects from those of traditional debt securities. The credit
quality of most asset-backed securities depends primarily upon the credit
quality of the assets underlying such securities, how well the entity
issuing the securities is insulated from the credit risk of the originator
or any other affiliated entities, and the amount and quality of any credit
enhancement to such securities.

NON-MORTGAGE RELATED
ASSET-BACKED SECURITIES

The Fund may invest in non-mortgage related 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 collateralized
mortgage obligations and mortgage pass-through securities, which are
described below.

MORTGAGE-RELATED
ASSET-BACKED SECURITIES

The Fund may also invest in various mortgage-related asset-backed
securities. These types of investments may include adjustable rate mortgage
securities, collateralized mortgage obligations, real estate mortgage
investment conduits, or other securities collateralized by or representing
an interest in real estate mortgages (collectively, "mortgage securities").
Many mortgage securities are issued or guaranteed by government agencies.

ADJUSTABLE RATE MORTGAGE
SECURITIES ("ARMS")

ARMS are pass-through mortgage securities representing interests in
adjustable rather than fixed interest rate mortgages. The ARMS in which the
Fund invests are issued by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), and the
Federal Home Loan Mortgage Corporation ("FHLMC") and are actively traded.
The underlying mortgages which collateralize ARMS issued by GNMA are fully
guaranteed by the Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), while those collateralizing ARMS issued by FHLMC or
FNMA are typically conventional residential mortgages conforming to strict
underwriting size and maturity constraints.

COLLATERALIZED MORTGAGE
OBLIGATIONS ("CMOS")

CMOs are bonds issued by single purpose, stand-alone finance subsidiaries or
trusts of financial institutions, government agencies, investment bankers,
or companies related to the construction industry. CMOs purchased by the
Fund may be:

* 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;

* 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

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

All CMOs purchased by the Fund are investment grade, as rated by an NRSRO.

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, 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.

RESETS OF INTEREST

The interest rates paid on the ARMS, CMOs, and REMICs 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. Others tend to lag changes in market rate levels and
tend to be somewhat less volatile.

To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence, ARMs
which use indices that lag changes in market rates should experience greater
price volatility than adjustable rate mortgage securities that closely
mirror the market. Certain residual interest tranches of CMOs may have
adjustable interest rates that deviate significantly from prevailing market
rates, even after the interest rate is reset, and are subject to
correspondingly increased price volatility. In the event the Fund purchases
such residual interest mortgage securities, it will factor in the increased
interest and price volatility of such securities when determining its
dollar-weighted average duration.

CAPS AND FLOORS

The underlying mortgages which collateralize the ARMS, CMOs, and REMICs 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.

BANK INSTRUMENTS

The Fund only invests in Bank Instruments either issued by an institution
having capital, surplus and undivided profits over $100 million or insured
by BIF or SAIF. Bank Instruments may include Eurodollar Certificates of
Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs") and
Eurodollar Time Deposits ("ETDs").

CREDIT FACILITIES
Demand notes are borrowing arrangements between a corporation and an
institutional lender (such as the Fund) payable upon demand by either party.
The notice period for demand typically ranges from one to seven days, and
the party may demand full or partial payment.

Revolving credit facilities are borrowing arrangements in which the lender
agrees to make loans up to a maximum amount upon demand by the borrower
during a specified term. As the borrower repays the loan, an amount equal to
the repayment may be borrowed again during the term of the facility. The
Fund generally acquires a participation interest in a revolving credit
facility from a bank or other financial institution. The terms of the
participation require the Fund to make a pro rata share of all loans
extended to the borrower and entitles the Fund to a pro rata share of all
payments made by the borrower. Demand notes and revolving facilities usually
provide for floating or variable rates of interest.

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 3 years.

CREDIT ENHANCEMENT

Certain of the Fund's acceptable investments may have been credit enhanced
by a guaranty, letter of credit or insurance. The Fund typically evaluates
the credit quality and ratings of credit enhanced securities based upon the
financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the
Fund will not treat credit enhanced securities as having been issued by the
credit enhancer for diversification purposes. However, under certain
circumstances applicable regulations may require the Fund to treat the
securities as having been issued by both the issuer and the credit enhancer.
The bankruptcy, receivership or default of the credit enhancer will
adversely affect the quality and marketability of the underlying security.

DEMAND FEATURES

The Fund may acquire securities that are subject to puts and standby
commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period
following a demand by the Fund. The demand feature may be issued by the
issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund
with liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership or default by the issuer
of the demand feature, or a default on the underlying security or other
event that terminates the demand feature before its exercise, will adversely
affect the liquidity of the underlying security. Demand features that are
exercisable even after a payment default on the underlying security are
treated as a form of credit enhancement.

INTEREST RATE SWAPS

The Fund reserves the right to engage in interest rate swap transactions;
however, the Securities and Exchange Commission has questioned whether the
Investment Company Act of 1940 permits open-end investment companies to
engage in these transactions. Therefore, the Fund will not engage in these
transactions until the Securities and Exchange Commission has determined
that these transactions are permitted, and the Fund has included appropriate
disclosure in an amendment to this prospectus and notified shareholders of
its intention to engage in these transactions. An interest rate swap is an
agreement between two parties to exchange interest payment obligations
without an exchange of underlying securities. The Fund intends to utilize
interest rate swaps primarily to acquire floating rates of interest which
may be tied to various indices as described above.

FINANCIAL FUTURES AND
OPTIONS ON FUTURES

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

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

The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases a futures contracts, an amount of cash and U.S. Treasury
securities, equal to the underlying commodity value of the futures contracts
(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 contract 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 contract or option. 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.

REPURCHASE AGREEMENTS

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

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.

The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as the
Fund, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must
be in an exempt transaction. Section 4(2) commercial paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity. The Fund believes that
Section 4(2) commercial paper and possibly certain other restricted
securities which meet the criteria for liquidity established by the
Directors are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Directors, including Section 4(2) commercial paper, as determined by the
Fund's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section
4(2) commercial paper is liquid, the Fund intends to not subject such paper
to the limitation applicable to restricted securities.

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 foreign securities.
Investments in foreign securities, particularly those of non-governmental
issuers, involve considerations which are not ordinarily associated with
investments in domestic issuers. These considerations include the
possibility of expropriation, the unavailability of financial information or
the difficulty of interpreting financial information prepared under foreign
accounting standards, less liquidity and more volatility in foreign
securities markets, the impact of political, social, or diplomatic
developments, and the difficulty of assessing economic trends in foreign
countries. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in
the legal systems. Transaction costs in foreign securities may be higher.
The Adviser will consider these and other factors before investing in
foreign securities and will not make such investments unless, in its
opinion, such investments will meet the Fund's standards and objectives.

FOREIGN CURRENCY TRANSACTIONS

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 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.

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. 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.

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

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

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement 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; lend any of its
assets except portfolio securities up to one-third of the value of its total
assets;

* sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions; nor

* with respect to 75% of the value of its total assets, invest more than 5%
in securities of any one issuer other than cash, cash items or securities
issued or guaranteed by the government of the United States, its agencies,
or instrumentalities and repurchase agreements collateralized by such
securities. (For purposes of this Fund, cash items means instruments issued
by a U.S. branch of a domestic bank or savings association having capital
surplus and undivided profits in excess of $100 million at the time of
investment.)

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

The Fund will not:

* invest more than 5% of the value of its total assets in securities of
issuers that have records of 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 share 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.

INVESTING IN CLASS A SHARES

SHARE PURCHASES

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 $5000. 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. 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 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.

PURCHASING SHARES BY WIRE

Once an account has been established, shares may be purchased by Federal
Reserve wire by calling 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 Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attn; EDGEWIRE; For Credit to: (Fund Name) (Fund
Class); (Fund Number -- this number can be found on the account statement or
by contacting the Fund); 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

Once an account has been established, Shares may be purchased by mailing a
check made payable to the name of the Fund (designate class of shares and
account number) to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after
the check is received).

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
services. No sales charge is imposed for Class A Shares purchased through
financial intermediaries that do not receive a reallowance of a sales
charge. However, investors who purchase Class A Shares through a trust
department, investment adviser, or other financial intermediary may be
charged a service or other fee by the financial intermediary. Additionally,
no sales charge is imposed on shareholders designated as Liberty Life
Members or on Class A Shares purchased through "wrap accounts" or similar
programs under which clients pay a fee 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; 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.

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

DEALER CONCESSION

For sales of shares, broker/dealers will normally receive up to 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, 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 significant amounts 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

There is no sales charge for purchases of $1 million or more. The Fund will
combine purchases of Class A Shares made on the same day by the investor,
his spouse, and his children under age 21 when it calculates the sales
charge.

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 the proceeds from the redemption of shares of an unaffiliated
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% for shares purchased under this program. If shares are
purchased in this manner, redemptions of these shares will be subject to a
contingent deferred sales charge for one year from the date of purchase.
Shareholders will be notified prior to the implementation of any special
offering as described above.

SPECIAL PURCHASE FEATURES

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 Shareholder Services Company plus the 1% sales charge
for purchases under $1 million. A shareholder may apply for participation in
this program through Federated Securities Corp. or his financial
institution.

RETIREMENT PLANS

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

EXCHANGE PRIVILEGE
Class A shareholders may exchange all or some of their Shares for Class A
Shares of two or more funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated
Funds"), at net asset value. Neither the Fund nor any of the Federated Funds
imposes any additional fees on exchanges Shareholders in certain other
Federated Funds may exchange all or some of their shares for Class A Shares.

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 Federated Fund, 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.

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.

TAX CONSEQUENCES

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

MAKING AN EXCHANGE

Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes.
If a shareholder cannot contact his broker or financial institution by
telephone, it is recommended that an exchange request be made in writing and
sent by overnight mail to Federated Shareholder Services Company, 1099
Hingham Street, Rockland, Massachusetts 02370-3317.

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 Shareholder 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 Fund before that time
for Shares to be exchanged the same day. Shareholders exchanging into a fund
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 A
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 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 "Redeeming Shares by Mail," should be considered.

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder 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.

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

CONTINGENT DEFERRED SALES CHARGE

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

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
one full year from the date of purchase. 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 one full year from the date of purchase; (3) Shares held for less
than one full year from the date of purchase 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 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 the
last surviving 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 701U2; 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, and their immediate family members; 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.

SPECIAL REDEMPTION FEATURES

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 $5,000 in the Fund (at current offering price),
other than retirement accounts subject to required minimum distributions.

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.

ACCOUNT AND SHARE INFORMATION

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested in writing to Federated Shareholder 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 daily 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.

Shares purchased through a financial institution, for which payment by wire
is received by Federated Shareholder 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 Shareholder
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 Shareholder Services Company.

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

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.

ACCOUNT 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 the minimum requirement because of changes in the Fund's
net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.

FIXED INCOME SECURITIES, INC. INFORMATION

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

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

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 Adviser receives an annual investment advisory fee equal to .40% 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.

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.

The Adviser 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 $76 billion invested across more
than 338 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.

PORTFOLIO MANAGERS'
BACKGROUND

Deborah A. Cunningham and Randall S. Bauer are the Fund's portfolio
managers. Deborah A. Cunningham has been the Fund's portfolio manager since
July 1991. Ms. Cunningham joined Federated Investors in 1981 and has been a
Vice President of the Fund's investment adviser since 1993. Ms. Cunningham
served as an Assistant Vice President of the investment adviser from 1989
until 1992. Ms. Cunningham is a Chartered Financial Analyst and received her
M.S.B.A. in Finance from Robert Morris College.

Randall S. Bauer has been the Fund's portfolio manager since October 1995.
Mr. Bauer joined Federated Investors in 1989 and has been a Vice President
of the Fund's investment adviser since January 1994. Prior to this, Mr.
Bauer served as an Assistant Vice President of the Fund's investment
adviser. Mr. Bauer was an Assistant Vice President of the International
Banking Division at Pittsburgh National Bank from 1982 until 1989. Mr. Bauer
is a Chartered Financial Analyst and received his M.B.A. in Finance from
Pennsylvania State University.

DISTRIBUTION OF 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

The 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 the average daily net asset
value of shares to obtain certain personal services for shareholders and to
maintain 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.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the 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 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 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

MAXIMUM AVERAGE
ADMINISTRATIVE AGGREGATE DAILY
FEE NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may 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 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

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
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 performance information reflects the effect of the maximum sales charge
which, if excluded, would increase the total return and 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 also offers another class of shares called Class F Shares. The
Class F Shares are sold primarily to customers of financial institutions
subject to a front-end sales charge of up to 1%, 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..

Class F Shares and Class A Shares are subject to certain of the same
expenses.

Class F Shares are distributed under a 12b-1 Plan and are also subject to a
shareholder services fee.

Expense differences, however, between Class F Shares and Class A Shares may
affect the performance of each class.

To obtain more information and a prospectus for Class F Shares, investors
may call 1-800-341-7400 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 AND B--Debt rated BB and B, 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. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.

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.

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+.

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.

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.

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

ADDRESSES

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

DISTRIBUTOR

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

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 860
Boston, Massachusetts 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

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

FEDERATED LIMITED
TERM FUND

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

PROSPECTUS

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

January 31, 1997

[Graphic]
Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 338319106
3070701A-A (1/97)
FEDERATED LIMITED TERM FUND

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

PROSPECTUS

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

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, 1997 with the Securities and
Exchange Commission ("SEC"). 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 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated January 31, 1997

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 13
Net Asset Value 13
Investing in Class F Shares 14
Share Purchases 14
Minimum Investment Required 15
What Shares Cost 15
Eliminating the Sales Charge 15
Systematic Investment Program 17
Exchange Privileges 17
Certificates and Confirmations 17
Dividends 18
Capital Gains 18
Retirement Plans 18
Redeeming Class F Shares 18
Through a Financial Institution 18
Redeeming Shares by Telephone 19
Redeeming Shares by Mail 19
Contingent Deferred Sales Charge 20
Systematic Withdrawal Program 21
Accounts with Low Balances 21
Fixed Income Securities, Inc. Information21
Management of the Corporation 21
Distribution of Class F Shares 22
Administration of the Fund 23
Shareholder Information 24
Voting Rights 24
Tax Information 24
Federal Income Tax 24
State and Local Taxes 24
Performance Information 25
Other Classes of Shares 25
Appendix 26
Addresses 28

SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CLASS F SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <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) 0.00%
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) 0.14%
12b-1 Fee (after waiver)(3) 0.13%
Total Other Expenses 0.73%
Shareholder Services Fee (after waiver)(4) 0.22%
Total Operating Expenses(5) 1.00%
</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."

(4) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.

(5) The total operating expenses would have been 1.31% absent the voluntary
waivers of portions of the management fee, the 12b-1 fee and the shareholder
services fee.

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.
<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; (2) redemption at the end of each
time period; and
(3) payment of maximum sales charge $30 $53 $65 $131
You would pay the following expenses on the
same investment, assuming no redemption $20 $42 $65 $131
</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

FEDERATED LIMITED TERM 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, 1997, on the Fund's
financial statements for the year ended November 30, 1996, is included in
the Annual Report, 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,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $ 9.97 $ 9.48 $10.17 $10.24
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.66 0.61 0.55 0.15
Net realized and unrealized gain (0.12) 0.44 (0.67) (0.07)
(loss) on investments
Total from investment operations 0.54 1.05 (0.12) 0.08
LESS DISTRIBUTIONS
Distributions from net investment (0.60) (0.56) (0.55) (0.15)
income
Distributions in excess of net -- -- (0.01) --
investment income(b)
Distributions from net realized -- -- (0.01) --
gain on investments
Total distributions (0.60) (0.56) (0.57) (0.15)
NET ASSET VALUE, END OF PERIOD $ 9.91 $ 9.97 $ 9.48 $10.17
TOTAL RETURN(C) 5.64% 11.39% (1.20%) 0.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.00% 1.00% 0.99% 1.00%*
Net investment income 6.14% 6.22% 5.67% 7.10%*
Expense waiver/reimbursement(d) 0.31% 0.18% 0.13% 0.39%*
SUPPLEMENTAL DATA
Net assets, end of period (000 $8,938 $10,183 $13,415 $7,230
omitted)
Portfolio turnover 104% 63% 63% 38%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from August 31, 1993 (date of initial
public investment) to November 30, 1993.

(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, dated November 30, 1996, 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 F Shares class of the Fund ("Shares").
The Fund is designed for investors seeking current income through a
professionally managed, diversified portfolio investing primarily in U.S.
government obligations, corporate debt obligations, and asset-backed
securities. 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.

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

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The securities in which the Fund invests principally include, but are not
limited to:

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

* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding;

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities;

* foreign and domestic debt obligations having floating or fixed rates of
interest, some of which may include equity features;

* asset-backed securities rated in one of the four highest categories by an
NRSRO, or which are of comparable quality in the judgment of the adviser;

* repurchase agreements collateralized by eligible investments.

FLOATING RATE CORPORATE
DEBT OBLIGATIONS

Some of the floating rate corporate debt obligations in which the Fund may
invest include floating rate corporate debt securities issued by savings
associations and collateralized by adjustable rate mortgage loans, also
known as collateralized thrift notes. Many of these collateralized thrift
notes have received AAA ratings from recognized rating agencies.
Collateralized thrift notes differ from traditional "pass through"
certificates in which payments made are linked to monthly payments made by
individual borrowers net of any fees paid to the issuer or guarantor of such
securities. Collateralized thrift notes pay a floating interest rate which
is tied to a pre-determined index, such as the 180-day Treasury bill rate.
Floating rate corporate debt obligations also include securities issued to
fund commercial real estate construction.
Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt securities, are generally offered at
an initial interest rate which is at or above prevailing market rates.
Interest rates are reset periodically (most commonly every 90 days) at
different levels on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time. Some increasing
rate securities may, by agreement, revert to a fixed rate status. These
securities may also contain features which allow the issuer the option to
convert the increasing rate of interest to a fixed rate under such terms,
conditions, and limitations as are described in each issue's prospectus.

FIXED RATE CORPORATE
DEBT OBLIGATIONS

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.

VARIABLE RATE DEMAND NOTES

CORPORATE DEBT OBLIGATIONS
Although the Fund will invest primarily in corporate debt obligations that
are rated as investment grade by an NRSRO, or are determined to be
comparable quality in the judgment of the Adviser, the Fund may invest up to
but less than 35% of the value of its total assets in corporate debt
obligations that are not investment grade bonds, but are rated B or better
by an NRSRO (i.e., "junk bonds"). Corporate debt obligations that are not
determined to be investment grade are high-yield, high-risk bonds, typically
subject to greater market fluctuations and greater risk of loss of income
and principal due to an issuer's default. To a greater extent than
investment grade bonds, lower rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower rated bonds
may be more difficult to dispose of or to value than higher rated,
lower-yielding bonds. Bonds rated "BBB" by S&P or Fitch, 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. The prices
of fixed income securities generally fluctuate inversely to the direction of
interest rates.

ASSET-BACKED SECURITIES

Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities are generally subject to higher
prepayment risks than most other types of debt instruments. Prepayment risks
on mortgage securities tend to increase during periods of declining mortgage
interest rates, because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Depending upon market conditions, the
yield that the Fund receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the
original mortgage security. As a consequence, mortgage securities may be a
less effective means of "locking in" interest rates than other types of debt
securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as
collateralized mortgage obligations, prepayments may be allocated to one
tranche of securities ahead of other tranches, in order to reduce the risk
of prepayment for the other tranches.

NON-MORTGAGE RELATED
ASSET-BACKED SECURITIES

The Fund may invest in non-mortgage related 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 collateralized
mortgage obligations and mortgage pass-through securities, which are
described below.

MORTGAGE-RELATED
ASSET-BACKED SECURITIES

ADJUSTABLE RATE MORTGAGE
SECURITIES ("ARMS")

COLLATERALIZED MORTGAGE
OBLIGATIONS ("CMOS")

CMOs are bonds issued by single-purpose, stand-alone finance subsidiaries or
trusts of financial institutions, government agencies, investment bankers,
or companies related to the construction industry. CMOs purchased by the
Fund may be:

* 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;

* 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

All CMOs purchased by the Fund are investment grade, as rated by an NRSRO.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")

RESETS OF INTEREST

The interest rates paid on the ARMS, CMOs, and REMICs 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 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. Others tend to
lag changes in market rate levels and tend to be somewhat less volatile.

CAPS AND FLOORS

BANK INSTRUMENTS

CREDIT FACILITIES

Demand notes are borrowing arrangements between a corporation and an
institutional lender (such as the Fund) payable upon demand by either party.
The notice period for demand typically ranges from one to seven days, and
the party may demand full or partial payment.

AVERAGE PORTFOLIO DURATION

CREDIT ENHANCEMENT

DEMAND FEATURES

INTEREST RATE SWAPS

FINANCIAL FUTURES AND OPTIONS
ON FUTURES

The Fund may also write and purchase 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.

RISKS

REPURCHASE AGREEMENTS

RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as the
Fund, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must
be in an exempt transaction. Section 4(2) commercial paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity. The Fund believes that
Section 4(2) commercial paper and possibly certain other restricted
securities which meet the criteria for liquidity established by the
Directors are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Directors, including Section 4(2) commercial paper, as determined by the
Fund's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section
4(2) commercial paper is liquid, the Fund intends not to subject such paper
to the limitation applicable to restricted securities.

FOREIGN SECURITIES

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

LENDING OF PORTFOLIO SECURITIES

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

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;

The Fund will not:

* invest more than 5% of the value of its total assets in securities of
issuers that have records of 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 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

Shares are sold on days on which the New York Stock Exchange is open. Shares
may be purchased through an 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. 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. Financial
institutions may charge additional fees for their services.

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 new account form available from the Fund;

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

* mail both to Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600.

Orders by mail are considered received after payment by check is converted
by the transfer agent's bank, State Street Bank and Trust Company ("State
Street Bank"), into federal funds. This is generally the next business day
after State Street Bank receives the check.

DIRECTLY BY WIRE

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in shares is $1,500, unless the investment is
in an IRA account, which requires a minimum initial investment of $50.
Subsequent investments must be in amounts of at least $100, except for an
IRA account, which must be in amounts of at least $50. (Financial
institutions may impose different minimum investment requirements on their
customers.)

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, or by sales representatives, Directors, and employees 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., their spouses and children under age 21, or any trusts or pension or
profit-sharing plans for these persons, or retirement plans where the third
party administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates. Unaffiliated institutions through whom
Shares are purchased may charge fees for services provided which may be
related to the ownership of Fund Shares. This prospectus should, therefore,
be read together with any agreement between the customer and the institution
with regard to services provided and the fees charged for these services.

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
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.

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 the Fund. 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

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 be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of
intent, which must be $1 million or more of shares, is not purchased. In
this event, an appropriate number of escrowed shares may be redeemed in
order to realize the 1.00% sales charge.

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 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 Class F Shares of two or
more funds for which affiliates of Federated Investors serve as investment
adviser or principal underwriter (the "Federated Funds"), 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. (Not all Federated Funds currently offer Class F Shares. Contact
your financial institution regarding the availability of other Federated
Class F Shares).
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

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 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 Fund, 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.

EXCHANGE PRIVILEGES

Class F shareholders may exchange all or some of their Shares, at net asset
value for Class F Shares of other Federated Funds. Exchanges are made at net
asset value without being assessed a contingent deferred sales charge. In
determining the applicability of the contingent deferred sales charge, the
required holding period for your new Class F Shares received through an
exchange will include the period for which your original Class F Shares were
held.

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. Shareholders who desire to automatically
exchange shares of a predetermined amount on a monthly, quarterly, or annual
basis may take advantage of a systematic exchange privilege.

Before a financial institution may request exchange by telephone on behalf
of a shareholder, an authorization form permitting the Fund to accept
exchange by telephone must first be completed. Telephone exchange
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.

Before making an exchange, a shareholder must receive a prospectus of the
fund for which the exchange is being made.

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

Please contact your financial institution directly or Federated Securities
Corp. at 1-800-341-7400 for information on and prospectuses for the
Federated Funds into which your shares may be exchanged free of charge.
Instructions for exchanging Shares must be given in writing by the
shareholder. Written instructions may require a signature guarantee.

CERTIFICATES AND CONFIRMATIONS

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

DIVIDENDS

Dividends are declared daily 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.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.

RETIREMENT PLANS

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

REDEEMING CLASS F SHARES

The Fund redeems shares at their net asset value less any 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 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.

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 will be
wired the following business day. Questions about telephone redemptions on
days 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

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

CONTINGENT DEFERRED SALES CHARGE

CONTINGENT
DEFERRED
AMOUNT OF SHARES SALES
PURCHASE HELD CHARGE
Up to $1,999,999 4 years or less 1.00%
$2,000,000 to $4,999,999 2 years or less .50%
$5,000,000 or more 1 year or less .25%

To the extent that a shareholder exchanges between or among Class F Shares
in other Federated Funds, the time for which the exchanged for shares were
held will be added, or "tacked," to the time for which the exchanged-from
shares were held for purposes of satisfying the one-year holding period.

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 591U2; or (iii) from the death or total and
permanent disability of the last surviving 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. The
contingent deferred sales charge is not charged in connection with exchanges
of shares for Class F 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 retirement plans
where the third party administrator has entered into certain arrangements
with Federated Securities Corp. or its affiliates, are not subject to the
contingent deferred sales charge to the extent that no payment was advanced
for purchases made by such entities. 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 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
$1,500 in the Fund (at current offering price), other than retirement
accounts subject to required minimum distributions.

A contingent deferred sales charge is charged for shares redeemed through
this program within 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, except retirement plans, 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 the required minimum value
because of changes in the Fund's net asset value. Before shares are redeemed
to close an account, the shareholder is notified in writing and allowed 30
days to purchase additional shares to meet the minimum requirement.

FIXED INCOME SECURITIES, INC. INFORMATION

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

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

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.

DISTRIBUTION OF CLASS F 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

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

Furthermore, in addition to payments made pursuant to the 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 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 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 Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services
Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below:
MAXIMUM AVERAGE
ADMINISTRATIVE AGGREGATE DAILY
FEE NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million

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.

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
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 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.

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 also offers another class of shares called Class A Shares. Class A
Shares are sold primarily to customers of financial institutions subject to
a front-end sales charge of up to 1%. Class A Shares are subject to a
minimum initial investment of $5,000, unless the investment is in a
retirement account in which the minimum investment is $50.

All classes are subject to certain of the same expenses.

Class A Shares are distributed under a 12b-1 Plan and are also subject to a
shareholder services fee.

Expense differences between Class A Shares and Class F Shares may affect the
performance of each class. To obtain more information and a prospectus for
Class A Shares, investors may call 1-800-341-7400 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 AND B -- Debt rated BB and B 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 lower 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.

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.

NR -- Not rated by Moody's.

FITCH INVESTORS SERVICE, INC.
LONG-TERM DEBT RATINGS

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.

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.

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

ADDRESSES

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

DISTRIBUTOR

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

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 860
Boston, Massachusetts 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

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

FEDERATED LIMITED
TERM FUND

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

PROSPECTUS

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

January 31, 1997

[Graphic]
Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 338319304
3070701A-F (1/97)

FEDERATED LIMITED TERM 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 A Shares and Class F Shares of Federated Limited Term
Fund (the "Fund") dated January 31, 1997. 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 1-800-341-7400.

<Graphic>
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated January 31, 1997

Cusip 338319106
Cusip 338319304
3070701B (1/97)
<TABLE>
TABLE OF CONTENTS
<S> <C>
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Non-Mortgage Related Asset-Backed Securities 1
Foreign Bank Instruments 1
Futures and Options Transactions 2
Medium Term Notes and Deposit Notes 3
Average Life 3
Weighted Average Portfolio Duration 3
When-Issued and Delayed Delivery Transactions 4
Lending of Portfolio Securities 4
Restricted and Illiquid Securities 4
Repurchase Agreements 4
Reverse Repurchase Agreements 5
Privately Issued Mortgage-Related Securities 5
Portfolio Turnover 5
INVESTMENT LIMITATIONS 5
FIXED INCOME SECURITIES, INC. MANAGEMENT 9
Fund Ownership 12
Directors Compensation 13
Director Liability 13
INVESTMENT ADVISORY SERVICES 14
Adviser to the Fund 14
Advisory Fees 14
BROKERAGE TRANSACTIONS 14
OTHER SERVICES 14
Fund Administration 14
Custodian and Portfolio Recordkeeper 14
Transfer Agent 15
Independent Auditors 15
PURCHASING SHARES 15
Distribution Plan and Shareholder Services Agreement
15
Purchases by Sales Representatives, Fund Directors, and Employees
15
Determining Net Asset Value 15
Determining Market Value of Securities 16
REDEEMING SHARES 16
Redemption in Kind 16
TAX STATUS 17
The Fund's Tax Status 17
Shareholders' Tax Status 17
TOTAL RETURN 17
YIELD 17
PERFORMANCE COMPARISONS 18
Economic and Market Information 18
ABOUT FEDERATED INVESTORS 18
Mutual Fund Market 19
Institutional Clients 19
Bank Marketing 19
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 19
FINANCIAL STATEMENTS 19
APPENDIX 20
</TABLE>

GENERAL INFORMATION ABOUT THE 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 seek a high level of current
income consistent with minimum fluctuation in principal value through the
compilation of a portfolio, the weighted-average duration of which will at
all times be limited to three years or less. 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

The Fund invests primarily in a portfolio of U.S. government securities and
investment grade corporate bonds and asset-backed securities. At least 65%
of the assets of the Fund shall be invested in securities which are rated in
one of the three highest categories by a nationally recognized statistical
rating organization ("NRSRO") rated Aaa, Aa, or A by Moody's Investors
Service, Inc. ("Moody's"), AAA, AA, or A by Standard & Poor's Ratings Group
("S & P"), or AAA, AA, or A by Fitch Investors Service, Inc. ("Fitch"). The
investment portfolio includes the following securities:

* corporate debt securities rated within the four highest categories by an
NRSRO, including bonds, notes, and indentures;

* asset-backed securities;

* U.S. government securities, including U.S. Treasury bills, notes, and
bonds, and securities issued by agencies and instrumentalities of the U.S.
government; and

* repurchase agreements.

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 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.

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.

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).

MEDIUM TERM NOTES AND DEPOSIT NOTES

Medium term notes ("MTNs") and Deposit Notes are similar to Variable Rate
Demand Notes as described in the Prospectus. MTNs and Deposit Notes trade
like commercial paper, but may have maturities from 9 months to ten years.

AVERAGE LIFE

Average life, as applicable to asset-backed securities, is computed by
multiplying each principal repayment by the time of payment (months or years
from the evaluation date), summing these products, and dividing the sum by
the total amount of principal repaid. The weighted-average life is
calculated by multiplying the maturity of each security in a given pool by
its remaining balance, summing the products, and dividing the result by the
total remaining balance.

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 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:
<TABLE>
<S> <S> <S> <S> <S> <S>
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
</TABLE>

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 eligible for resale under Rule
144A to the Directors. The Directors consider the following criteria in
determining the liquidity of certain restricted securities:

* the frequency of trades and quotes for the security;

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

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

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

REPURCHASE AGREEMENTS

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

REVERSE REPURCHASE AGREEMENTS

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

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

PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES

Privately issued mortgage-related securities generally represent an
ownership interest in federal agency mortgage pass-through securities such
as those issued by Government National Mortgage Association and non agency
mortgage pass-through securities. The terms and characteristics of the
mortgage instruments may vary among pass-through mortgage loan pools. The
market for such mortgage-related securities has expanded considerably since
its inception. The size of the primary issuance market and the active
participation in the secondary market by securities dealers and other
investors makes both government-related and nongovernment-related pools
highly liquid.

PORTFOLIO TURNOVER

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. 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 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.

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.

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.

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.

SELLING SHORT

The Fund will not sell securities short unless:

* during the time the short position is open, it owns an equal amount of the
securities sold or securities readily and freely convertible into or
exchangeable, without payment of additional consideration for securities of
the same issue as, and equal in amount to, the securities sold short; and

* not more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time.

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of the value of its total assets in any
one industry, 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 SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may not own securities of other investment companies unless
permitted to do so by action of the SEC or as part of a merger,
consolidation, reorganization, or other acquisition.

DEALING IN PUTS AND CALLS

The Fund will not purchase puts, calls, straddles, spreads, or any
combination of them, if by reason thereof the value of such securities would
exceed 5% of its total assets.

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.

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

The Fund did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the past fiscal year and does not expect to
do so during the coming fiscal year.

For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch
of a domestic bank or savings 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 or Trustee of the
Funds.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA

Birthdate: February 3, 1934

Director

Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.

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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA

Birthdate: May 18, 1922

Director

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director of the
Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA

Birthdate: October 11, 1932

Director

Professor of Medicine, 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
or Trustee 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.@

Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA

Birthdate: June 18, 1924
Director

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden

One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL

Birthdate: March 16, 1942

Director

Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer

Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA

Birthdate: October 6, 1926

Director

Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee 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 or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA

Birthdate: September 14, 1925

Director

Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, U.S. Space Foundation and Czech
Management Center; President Emeritus, University of Pittsburgh; Founding
Chairman, National Advisory Council for Environmental Policy and Technology,
Federal Emergency Management Advisory Board and Czech Management Center;
Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Director

Public Relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee 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 Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee 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 Shareholder Services Company; 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, Secretary and Treasurer

Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary
of the Funds; 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 Board of
Directors handles the responsibilities of the Board between meetings of the
Board.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; 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 Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs
Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated
High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; 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: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
and World Investment Series, Inc.

FUND OWNERSHIP

Officers and Directors own less than 1% of the Fund's outstanding Class F
Shares and Class A Shares.

As of January 2, 1997, the following shareholder of record owned 5% or more
of the outstanding Class A Shares of the Fund: MLPF&S, for the sole benefit
of its customers, Jacksonville, FL, owned approximately 1,532,553 Shares
(13.58%); and David Lloyd Kreeger Foundation, Washington, DC, owned
approximately 588,476 Shares (5.21%).

As of January 2, 1997, the following shareholders of record owned 5% or more
of the outstanding Class F Shares of the Fund: MLPF&S, for the sole benefit
of its customers, Jacksonville, FL, owned approximately 176,070 Shares
(19.78%); and Legg Mason Trust Company Trustee, Clara M. Cerar Charitable
Remainder Unitrust, Baltimore, MD, owned approximately 78,125 Shares
(8.78%).

DIRECTORS COMPENSATION
<TABLE>
<CAPTION>
NAME, AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH COMPENSATION FROM TO DIRECTORS FROM
CORPORATION CORPORATION#* CORPORATION AND FUND COMPLEX+
<S> <C> <S>
John F. Donahue, $-0- $ -0- for the Corporation and
Chairman and Director 56 investment companies
Richard B. Fisher, $-0- $ -0- for the Corporation and
President and Director 6 investment companies
Thomas G. Bigley,++ $1,248 $108,725 for the Corporation and
Director 56 investment companies
John T. Conroy, Jr., $1,373 $119,615 for the Corporation and
Director 56 investment companies
William J. Copeland, $1,373 $119,615 for the Corporation and
Director 56 investment companies
James E. Dowd, $1,373 $119,615 for the Corporation and
Director 56 investment companies
Lawrence D. Ellis, M.D., $1,248 $108,725 for the Corporation and
Director 56 investment companies
Edward L. Flaherty, Jr., $1,373 $119,615 for the Corporation and
Director 56 investment companies
Peter E. Madden, $1,248 $108,725 for the Corporation and
Director 56 investment companies
Gregor F. Meyer, $1,248 $108,725 for the Corporation and
Director 56 investment companies
John E. Murray, Jr. $1,248 $108,725 for the Corporation and
Director 56 investment companies
Wesley W. Posvar, $1,248 $108,725 for the Corporation and
Director 56 investment companies
Marjorie P. Smuts, $1,248 $108,725 for the Corporation and
Director 56 investment companies
</TABLE>

*# The aggregate compensation provided is for the Corporation which is
comprised of 3 portfolios.

* Information is furnished for the fiscal year ended November 30, 1996.

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

ADVISORY FEES

For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
November 30, 1996, 1995 and 1994, the Adviser earned advisory fees of
$515,204, $656,470 and $959,307, respectively, of which $328,347, $204,367
and $322,154, respectively, were voluntarily waived.

BROKERAGE TRANSACTIONS

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 Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectuses. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and Federated
Administrative Services, Inc. may hereinafter collectively be referred to as
the "Administrators." For the fiscal year ended November 30, 1996, 1995 and
1994 the Administrators earned $155,001, $155,000 and $232,679,
respectively.

CUSTODIAN AND PORTFOLIO RECORDKEEPER

State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh, PA,
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments. The fee paid for this service is based upon
the level of the Fund's average net assets for the period plus out-of-pocket
expenses.

TRANSFER AGENT

Federated Services Company, through it registered transfer agent, Federated
Shareholder 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, Pittsburgh,
Pennsylvania.

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 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 Plan, 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 objective, 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, 1996, the Fund's Class A Shares and
Class F Shares made payments in the amount of $596,032 and $14,391,
respectively, pursuant to the Plan, of which $357,619 and $1,919,
respectively, were voluntarily waived. In addition, for the fiscal year
ended November 30, 1996, the Fund's Class A Shares and Class F Shares paid
shareholder services fees in the amout of $298,016 and $23,986,
respectively, of which $0 and $2,878, respectively, were voluntarily waived.

PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES

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

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

DETERMINING NET ASSET VALUE

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

DETERMINING MARKET VALUE OF SECURITIES

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

* as provided by an independent pricing service;

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

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

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

* quality;

* coupon rate;

* maturity;

* type of issue;

* trading characteristics; and

* other market data.

REDEEMING SHARES

The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Class A Shares" or "Redeeming Class
F Shares." Although Federated Services Company 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.

Under certain circumstances described under "Redeeming Class A Shares" in
the prospectus, shareholders may be charged a contingent deferred sales
charge for shares redeemed within certain time periods of the purchase date.
The contingent deferred sales charge will be calculated based upon the
lesser of the original purchase price of the shares or the net asset value
of the shares when redeemed.

Certain Class F Shares redeemed within one to four years of the purchase
date 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:

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

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

* invest in securities within certain statutory limits; and

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

SHAREHOLDERS' TAX STATUS

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

CAPITAL GAINS

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

TOTAL RETURN

The Fund's average annual total returns for Class A Shares for the fiscal
year ended November 30, 1996, and for the period from January 13, 1992 (date
of initial public investment) through November 30, 1996, were 4.49% and
5.63, respectively. The Fund's average annual total returns for Class F
Shares for the fiscal year ended November 30, 1996, and for the period from
September 1, 1993 (date of initial public investment) through November 30,
1996, were 3.54% and 4.36%, respectively.

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

YIELD

The Fund's yields for Class A Shares and Class F Shares for the thirty-day
period ended November 30, 1996, were 5.96% and 6.60%, respectively.

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.

PERFORMANCE COMPARISONS

The performance of Class A Shares and Class F Shares depends upon such
variables as:

* portfolio quality;

* average portfolio maturity;

* type of instruments in which the portfolio is invested;

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

* changes in the Fund expenses; and

* various other factors.

The 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 Funds' 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 offering
price. The financial publications used/or indices which the Fund uses in
advertising may include:

* 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
"short-term investment grade debt funds" category in advertising and sales
literature.

* 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.

Advertising and sales literature may show the Fund's net asset value history
in relation to certain political and economic events.

From time to time as it deems appropriate, the Fund may advertise its
performance using charts, graphs, and descriptions, compared to federally
insured bank products including certificates of deposit and time deposits
and to money market funds using the Lipper Analytical Services money market
instruments average.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the
mutual fund industry, including the growth of the industry, from sources
such as the Investment Company Institute.

ABOUT FEDERATED INVESTORS

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. Traders handle trillions
of dollars in annual trading volume.

In the government sector, as of December 31, 1996, Federated Investors
managed 9 mortgage-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $6.3 billion, $1.7 billion
and $23.6 billion, respectively. Federated trades approximately $309 million
in U.S. government and mortgage-backed securities daily and places $17
billion in repurchase agreements each day. Federated introduced the first
U.S. government fund to invest in U.S. government bond securities in 1969.
Federated has been a major force in the short- and intermediate-term
government markets since 1982 and currently manages nearly $30 billion in
government funds within these maturity ranges.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000 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.

BANK MARKETING
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by 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 -- we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several surveys
performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for
service quality measurement. The marketing effort to these firms is headed
by James F. Getz, President, Federated Securities Corp.

FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended November 30, 1996, are
incorporated herein by reference to the Annual Report of the Fund dated
November 30, 1996 (File Nos. 33-43472 and 811-6447). A copy of this report
may be obtained without charge by contacting the Fund.

* Source: Investment Company Institute

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.

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

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING

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

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.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

P-1 -- Issuers rated PRIME-1 (for 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: Conservative capitalization structures 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 (for 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.

STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS

A-1 -- This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.

A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1."

FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS

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.

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

FEDERATED 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).

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, 1997, with the Securities and
Exchange Commission ("SEC"). 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 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated January 31, 1997

TABLE OF CONTENTS
<TABLE>
<S> <C>
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 11
Investment Limitations 12
Net Asset Value 12
Investing in Class A Shares 13
Share Purchases 13
What Shares Cost 14
Eliminating the Sales Charge 14
Special Purchase Features 15
Exchange Privilege 16
How to Redeem Shares 17
Redeeming Shares through a Financial Institution 17
Redeeming Shares by Telephone 17
Redeeming Shares by Mail 18
Contingent Deferred Sales Charge 18
Elimination of Contingent Deferred
Sales Charge 19
Special Redemption Features 19
Account and Share Information 20
Fixed Income Securities, Inc. Information 21
Management of the Corporation 21
Distribution of Shares 22
Administration of the Fund 23
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
</TABLE>

SUMMARY OF FUND EXPENSES
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <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) 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(2) 0.00%
12b-1 Fee 0.25%
Total Other Expenses (after expense reimbursement) 0.65%
Shareholder Services Fee 0.25%
Total Operating Expenses(3) 0.90%
</TABLE>

(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, 1997. The total
operating expenses were 0.81% for the fiscal year ended November 30, 1996,
and would have been 1.35% 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 A Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in Class A Shares" and "Fixed
Income Securities Inc. Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 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, (2) redemption at the end of
each time period, and (3) payment of the maximum sales charge $19 $38 $59 $120

</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
(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, 1997, on the Funds
financial statements for the year ended November 30, 1996, 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,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 9.49 $10.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.40 0.46 0.43 0.10
Net realized and unrealized gain (loss) on investments (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.32 0.82 (0.10) 0.12
LESS DISTRIBUTIONS
Distributions from net investment income (0.40) (0.46) (0.43) (0.10)
Distributions in excess of net investment income(b) (0.01) -- -- --
Total distributions (0.41) (0.46) (0.43) (0.10)
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 3.34% 8.67% (0.95%) 1.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81% 0.68% 0.63% 0.50%*
Net investment income 4.14% 4.72% 4.33% 4.30%*
Expense waiver/reimbursement(d) 0.54% 1.03% 0.94% 1.71%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $73,570 $65,179 $32,644 $13,694
Portfolio turnover 49% 47% 135% 0%
</TABLE>

* Computed on an annualized basis.

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

(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, dated November 30, 1996, 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 $5,000 is
required.

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

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 non-governmental users may, for this purpose,
be deemed to be related to the industry in which such non-governmental 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 non-governmental 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 investing in more than 3% of the voting
securities of any other investment company, 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 unless permitted to do so by action
of the SEC. 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

AVERAGE PORTFOLIO DURATION

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

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.

INVESTING IN CLASS A SHARES

SHARE PURCHASES

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 $5,000 for Class A Shares. Additional
investments can be made for as little as $100. (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. The Fund reserves the right to reject any purchase request.

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 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.

PURCHASING SHARES BY CHECK

Once and account has been established, shares may be purchased by mailing a
check made payable to the name of the Fund (designate class of shares and
account number) to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after
the check is received).

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

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by Federal
Reserve wire by calling 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 Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attn; EDGEWIRE; For Credit to: (Fund Name) (Fund
Class); (Fund Number -- this number can be found on the account statement or
by contacting the Fund); 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.

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
financial intermediaries that do not receive a reallowance of a sales
charge. However, investors who purchase Class A Shares through a trust
department, investment adviser, or other financial intermediary may be
charged a service or other fee by the financial intermediary. Additionally,
no sales charge is imposed on shareholders designated as Liberty Life
Members or on Class A Shares purchased through "wrap accounts" or similar
programs under which clients pay a fee for services.

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

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

* or using the reinvestment privilege.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

LETTER OF INTENT

REINVESTMENT PRIVILEGE

PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

SPECIAL PURCHASE FEATURES
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 Shareholder 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.

EXCHANGE PRIVILEGE

Class A shareholders may exchange all or some of their shares for Class A
Shares of two or more funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated
Funds"), at net asset value. Neither the Fund nor any of the Federated Funds
imposes any additional fees on exchanges. Shareholders in certain other
Federated Funds may exchange all or some of their shares for Class A Shares.
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 Federated Fund, as long as they maintain a $500
balance in one of the Federated Funds.

REQUIREMENTS FOR EXCHANGE

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 Shareholder Services Company, 1099 Hingham Street, Rockland,
Massachusetts 02370-3317.

TELEPHONE INSTRUCTIONS

Any shares held in certificate form cannot be exchanged by telephone, but
must be forwarded to Federated Shareholder 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 Fund before that time
for shares to be exchanged the same day. Shareholders exchanging into a fund
begin receiving dividends the following business day. This privilege may be
modified or terminated at any time.

HOW TO REDEEM SHARES

REDEEMING SHARES THROUGH A
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 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.

REDEEMING SHARES BY TELEPHONE

REDEEMING SHARES BY MAIL

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of shares under the following circumstances: 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% 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.

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
one full year from the date of purchase. 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 one full year from the date of purchase; (3) shares held for less
than one full year from the date of purchase 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 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

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS

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 daily 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.

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

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.

ACCOUNTS WITH LOW BALANCES

FIXED INCOME SECURITIES, INC.
INFORMATION

MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS

INVESTMENT ADVISER

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to 0.40% 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

Mary Jo Ochson and Jeff A. Kozemchak 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 an 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.

Jeff A. Kozemchak has been the Fund's portfolio manager since January 1997.
Mr. Kozemchak joined Federated Investors in 1987 and has been a Vice
President of the Fund's investment adviser since 1993. Mr. Kozemchak served
as an Assistant Vice President of the investment adviser from 1990 until
1992, and from 1987 until 1990 he acted as an investment analyst. Mr.
Kozemchak is a Chartered Financial Analyst and received his M.S. in
Industrial Administration from Carnegie Mellon University in 1987.

DISTRIBUTION OF SHARES

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act
of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of .25% of the average daily net assets of
the Fund. 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. The 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.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the 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 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 Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services
Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>

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.

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.

Total return will be calculated separately for Class F Shares and Class A
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 also offers another class of shares called Class F Shares. The
Class F Shares are sold primarily to customers of financial institutions
subject to a contingent deferred sales charge and a minimum initial
investment of $1,500.

Class F Shares and Class A Shares are subject to certain of the same
expenses. The amount of dividends payable to Class F Shares will generally
exceed that of Class A 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.

Class F Shares are distributed under a 12b-1 Plan and are also subject to a
shareholder services fee.

Expense differences, however, between Class F Shares and Class A Shares may
affect the performance of each class.

To obtain more information and a prospectus for Class F Shares, investors
may call 1-800-341-7400 or contact their financial institution.

ADDRESSES

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

DISTRIBUTOR

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

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

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

FEDERATED LIMITED TERM
MUNICIPAL FUND

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

PROSPECTUS

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

January 31, 1997

Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 338319403
3070702A-A (1/97)

FEDERATED LIMITED TERM MUNICIPAL FUND

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

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, 1997, with the Securities and
Exchange Commission ("SEC"). 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 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated January 31, 1997

TABLE OF CONTENTS
<TABLE>
<S> <C>
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 12
Investing in Class F Shares 13
Share Purchases 13
Minimum Investment Required 14
What Shares Cost 14
Systematic Investment Program 14
Exchange Privileges 14
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
Redeeming Class F Shares 16
Through a Financial Institution 16
Redeeming Shares by Telephone 16
Redeeming Shares by Mail 17
Contingent Deferred Sales Charge 17
Systematic Withdrawal Program 18
Accounts with Low Balances 18
Fixed Income Securities, Inc. Information 19
Management of the Corporation 19
Distribution of Class F Shares 20
Administration of the Fund 21
Shareholder Information 21
Voting Rights 21
Tax Information 22
Federal Income Tax 22
State and Local Taxes 22
Performance Information 23
Other Classes of Shares 23
Addresses 24
</TABLE>

SUMMARY OF FUND EXPENSES

CLASS F SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(2) 0.00%
12b-1 Fee (after waiver)(3) 0.00%
Total Other Expenses (after expense reimbursement) 0.65%
Shareholder Services Fee 0.25%
Total Operating Expenses(4) 0.65%
</TABLE>

(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 12b-1 fee has been reduced to reflect the voluntary waiver of the
12b-1 fee. The distributor can terminate the voluntary waiver at any time at
its sole discretion. 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, 1997. The total
operating expenses were 0.56% for the fiscal year ended November 30, 1996,
and would have been 1.25% absent the voluntary waivers of the management
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 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.
<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, (2) redemption at the end of
each time period, and (3) payment of the maximum sales charge $17 $32 $36 $81

You would pay the following expenses on the same
investment, assuming no redemption $7 $21 $36 $81
</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

FEDERATED 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, 1997, on the Fund's
financial statements for the year ended November 30, 1996, 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,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 9.49 $10.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.43 0.47 0.45 0.11
Net realized and unrealized gain (loss) on investments (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.35 0.83 (0.08) 0.13
LESS DISTRIBUTIONS
Distributions from net investment income (0.43) (0.47) (0.45) (0.11)
Distributions in excess of net investment income(b) (0.01) -- -- --
Total distributions (0.44) (0.47) (0.45) (0.11)
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 3.60% 8.86% (0.75%) 1.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.56% 0.49% 0.44% 0.25%*
Net investment income 4.40% 4.91% 4.57% 4.79%*
Expense waiver/reimbursement(d) 0.69% 1.12% 0.94% 1.86%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $26,300 $26,442 $12,804 $3,307
Portfolio turnover 49% 47% 135% 0%
</TABLE>

* Computed on an annualized basis.

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

(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, dated November 30, 1996 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 F 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 $1,500 is
required.

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,
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.

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

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

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
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.

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

VARIABLE AND FLOATING 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

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

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:

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

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. Financial
institutions may charge additional fees for their services.

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 Shareholder 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. (Financial institutions may impose
different minimum investment requirements on their customers.)

WHAT SHARES COST

Fund shares are sold at their net asset value next determined after an order
is received. Unaffiliated institutions through whom shares are purchased may
charge fees for services provided, which may be related to the ownership of
Fund shares. This prospectus should, therefore, be read together with any
agreement between the customer and institution with regard to services
provided, the fees charged for these services, and any restrictions and
limitations imposed.

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.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

The Fund will 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."

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 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 Fund. A shareholder may apply for participation in this
program through Federated Securities Corp. or his financial institution.

EXCHANGE PRIVILEGES

Class F shareholders may exchange all or some of their shares, at net asset
value for Class F Shares of other funds for which affiliates of Federated
Investors serve as investment adviser or principal underwriter (the
"Federated Funds"). (Not all Federated Funds currently offer Class F Shares.
Contact your financial institution regarding the availability of other
Federated Class F Shares). Exchanges are made at net asset value without
being assessed a contingent deferred sales charge. In determining the
applicability of the contingent deferred sales charge, the required holding
period for your new Class F Shares received through an exchange will include
the period for which your original Class F Shares were held.

Before making an exchange, a shareholder must receive a prospectus of the
fund for which the exchange is being made.

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

Please contact your financial institution directly or Federated Securities
Corp. at 1-800-341-7400 for information on and prospectuses for the
Federated Funds into which your shares may be exchanged free of charge.
Instructions for exchanging shares must be given in writing by the
shareholder. Written instructions may require a signature guarantee.

CERTIFICATES AND CONFIRMATIONS

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

DIVIDENDS

Dividends are declared daily 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.

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 Shareholder 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 Shareholder Services
Company.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.

REDEEMING CLASS F SHARES

The Fund redeems shares 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 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.

REDEEMING SHARES BY TELEPHONE

REDEEMING SHARES 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 Class F 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 SHARES SALES
PURCHASE HELD CHARGE
<S> <C> <C>
Up to $1,999,999 4 years or less 1%
$2,000,000 to $4,999,999 2 years or 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 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

A contingent deferred sales charge is charged for Shares redeemed through
this program within 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 the required minimum value because of changes in the
Fund's net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.

FIXED INCOME SECURITIES, INC.
INFORMATION

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

INVESTMENT ADVISER

ADVISORY FEES

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.

Mary Jo Ochson and Jeff A. Kozemchak 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.

DISTRIBUTION OF CLASS F SHARES

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

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 the average daily net asset
value of shares to obtain certain personal services for shareholders and to
maintain 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.

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 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 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 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 Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services
Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>

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.

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 also offers another class of shares called Class A Shares. The
Class A Shares are sold subject to a front-end sales charge of up to 1%.
Class A Shares are subject to a minimum initial investment of $5,000.

Both classes are subject to certain of the same expenses.

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

Class A Shares are distributed under a 12b-1 Plan and are also subject to a
shareholder services fee.

Expense differences between Class A Shares and Class F Shares may affect the
performance of each class.

To obtain more information and a prospectus for Class A Shares, investors
may call 1-800-341-7400 or contact their financial institution.

ADDRESSES

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

DISTRIBUTOR

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

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

CUSTODIAN

State Street Bank and Trust Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

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

FEDERATED LIMITED TERM
MUNICIPAL FUND

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

PROSPECTUS

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

January 31, 1997

Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 338319502
3070702-F (1/97)

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, 1997. 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 1-800-341-7400.

Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Statement dated January 31, 1997
<Graphic>
Cusip 338319403
Cusip 338319502
3070702B (1/97)
<TABLE>
Table of Contents
<S> <C>
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
Participation Interests 1
Municipal Leases 2
Capital Appreciation Bonds 2
Insurance 2
Futures and Options Transactions 2
Weighted Average Portfolio Duration 4
When-Issued and Delayed Delivery Transactions 4
Restricted and Illiquid Securities 5
Temporary Investments 5
Portfolio Turnover 6
Investment Limitations 6
Fixed Income Securities, Inc. Management 8
Fund Ownership 11
Directors Compensation 12
Director Liability 12
Investment Advisory Services 13
Adviser to the Fund 13
Advisory Fees 13
Brokerage Transactions 13
Other Services 14
Fund Administration 14
Custodian and Portfolio Recordkeeper 14
Transfer Agent 14
Independent Auditors 14
Purchasing Shares 14
Distribution Plan and Shareholder Services Agreement 14
Purchases by Sales Representatives,
Fund Directors, and Employees 14
Determining Net Asset Value 15
Determining Market Value of Securities 15
Redeeming Shares 15
Redemption in Kind 15
Tax Status 16
The Fund's Tax Status 16
Shareholders' Tax Status 16
Total Return 16
Yield 16
Tax-Equivalent Yield 17
Tax Equivalency Table 17
Performance Comparisons 18
Economic and Market Information 18
About Federated Investors 19
Mutual Fund Market 19
Institutional Clients 19
Bank Marketing 19
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 20
Financial Statements 20
Appendix 21
</TABLE>

GENERAL INFORMATION ABOUT THE FUND

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:

* general obligation bonds;

* 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;

* industrial development bonds;

* 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");

* municipal notes and tax-exempt commercial paper;
* pre-refunded municipal securities whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations;

* auction rate and tender option securities; and

* 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:

* whether the lease can be terminated by the lessee;

* the potential recovery, if any, from a sale of the leased property upon
termination of the lease;

* the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);

* 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

* 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

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS

CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS

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

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.

Mathematically, duration is measured as follows:
<TABLE>
<S> <S> <S> <S> <S> <S> <S>
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
</TABLE>

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

RESTRICTED AND ILLIQUID SECURITIES

* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

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

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

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

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

REVERSE REPURCHASE AGREEMENTS

PORTFOLIO TURNOVER

INVESTMENT LIMITATIONS

BUYING ON MARGIN

ISSUING SENIOR SECURITIES AND BORROWING MONEY

PLEDGING ASSETS

DIVERSIFICATION OF INVESTMENTS

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

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.

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may not own securities of other investment companies except as
permitted by action of the SEC or 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.

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.

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 or Trustee of the
Funds.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA

Birthdate: February 3, 1934

Director

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

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA

Birthdate: July 4, 1918

Director

James E. Dowd
571 Hayward Mill Road
Concord, MA

Birthdate: May 18, 1922

Director

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director of the
Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA

Birthdate: October 11, 1932

Director

Richard B. Fisher*
Federated Investors Tower
Pittsburgh, PA

Birthdate: May 17, 1923

President and Director

Edward L. Flaherty, Jr.@

Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA

Birthdate: June 18, 1924

Director

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL

Birthdate: March 16, 1942

Director

Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer

Miller, Ament, Henny & Kochuba
205 Ross Street

Pittsburgh, PA

Birthdate: October 6, 1926

Director

Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee 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 or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA

Birthdate: September 14, 1925

Director

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA

Birthdate: June 21, 1935

Director

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA

Birthdate: April 11, 1949

Executive Vice President

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 22, 1930

Executive Vice President

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 26, 1938

Executive Vice President, Secretary and Treasurer

* 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 Board of
Directors handles the responsibilities of the Board between meetings of the
Board.

FUND OWNERSHIP

Officers and Directors own less than 1% of the outstanding Class A Shares
and Class F Shares.

As of January 2, 1997, the following shareholder of record owned 5% or more
of the Class A Shares of the Fund: MLPF&S, for the sole benefit of its
customers, Jacksonville, FL, owned approximately 1,342,335 shares (24.40%);
Elaine D. Sammons, Dallas, TX, owned approximately 610.897 shares (11.10%);
and Carter Jones Lumber Co., Kent, OH, owned approximately 429,526 shares
(7.81%).

As of January 2, 1997, the following shareholders of record owned more than
5% of the outstanding Class F Shares of the Fund: MLPF&S, for the sole
benefit of its customers, Jacksonville, FL, owned approximately 811,602
shares (29.26%); and Robert M. Rosencrans, Greenwhich, CT, owned
approximately 150,014 shares (5.41%).

DIRECTORS COMPENSATION
<TABLE>
<CAPTION>
NAME, AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH COMPENSATION FROM TO DIRECTORS FROM
CORPORATION CORPORATION#* CORPORATION AND FUND COMPLEX+
<S> <C> <S>
John F. Donahue, $ -0- $ -0- for the Corporation and
Chairman and Director 56 investment companies
Richard B. Fisher, $-0- $ -0- for the Corporation and
President and Director 6 investment companies
Thomas G. Bigley,++ $1,248 $108,725 for the Corporation and
Director 56 investment companies
John T. Conroy, Jr., $1,373 $119,615 for the Corporation and
Director 56 investment companies
William J. Copeland, $1,373 $119,615 for the Corporation and
Director 56 investment companies
James E. Dowd, $1,373 $119,615 for the Corporation and
Director 56 investment companies
Lawrence D. Ellis, M.D., $1,248 $108,725 for the Corporation and
Director 56 investment companies
Edward L. Flaherty, Jr., $1,373 $119,615 for the Corporation and
Director 56 investment companies
Peter E. Madden, $1,248 $108,725 for the Corporation and
Director 56 investment companies
Gregor F. Meyer, $1,248 $108,725 for the Corporation and
Director 56 investment companies
John E. Murray, Jr., $1,248 $108,725 for the Corporation and
Director 56 investment companies
Wesley W. Posvar, $1,248 $108,725 for the Corporation and
Director 56 investment companies
Marjorie P. Smuts, $1,248 $108,725 for the Corporation and
Director 56 investment companies
</TABLE>

*# The aggregate compensation provided is for the Corporation which is
comprised of 3 portfolios.

* Information is furnished for the fiscal year ended November 30, 1996.

+ The information provided is for the last calendar year end.

DIRECTOR LIABILITY

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, 1996, 1995 and 1994, the Adviser earned advisory fees of
$381,182, $203,057 and $177,908, respectively, of which $381,182, $203,057
and $177,908, respectively, were voluntarily waived. In addition, for this
same period the Adviser reimbursed the Fund $136,099, $310,300 and $241,409,
respectively, of other operating expenses.

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
years ended November 30, 1996, 1995 and 1994, 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 Company, a subsidiary of Federated
Investors, provides administrative personnel and services to the Fund for a
fee as described in the prospectuses. From March 1, 1994, to March 1, 1996,
Federated Administrative Services served as the Fund's Administrator. Prior
to March 1, 1994, Federated Administrative Services, Inc. served as the
Fund's Administrator. Both former Administrators are subsidiaries of
Federated Investors. For purposes of this Statement of Additional
Information, Federated Services Company, Federated Administrative Services,
and Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the "Administrators." For the fiscal year ended November 30,
1996, 1995 and 1994 the Administrators earned $155,001, $155,000 and
$90,877, respectively.

CUSTODIAN AND PORTFOLIO RECORDKEEPER

TRANSFER AGENT

INDEPENDENT AUDITORS

The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.

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

By adopting the 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.

For the fiscal year ended November 30, 1996, the Fund's Class A Shares and
Class F Shares made payments in the amount of and $166,935 and $42,573,
respectively, pursuant to the Plan, of which $0 and $42,573, respectively,
were voluntarily waived. In addition, for the fiscal year ended November 30,
1996, the Fund's Class A Shares and Class F Shares paid shareholder services
fees in the amount of $166,935 and $71,295, respectively, none of which were
waived.

Purchases by Sales Representatives, Fund Directors, and Employees

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

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

DETERMINING NET ASSET VALUE

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

DETERMINING MARKET VALUE OF SECURITIES

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

* as provided by an independent pricing service;

* for short-term obligations, according to the mean bid and asked prices, as
furnished by an independent pricing service, or unless the Directors
determine this is not fair value; or

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

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

* yield;

* quality;
* coupon rate;

* maturity;

* type of issue;

* trading characteristics; and

* other market data.

REDEEMING SHARES

The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
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.

TAX STATUS

THE FUND'S TAX STATUS

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

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

* invest in securities within certain statutory limits; and

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

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 totals return for Class A Shares for the fiscal
year ended November 30, 1996, and for the period from September 1, 1993
(date of initial public offering) through November 30, 1996, were 2.30% and
3.39%, respectively. The average annual total returns for Class F Shares for
the fiscal year ended November 30, 1996, and for the period from September
1, 1993 (date of initial public offering) through November 30, 1996, were
2.54% and 3.60%, respectively.

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 Fund's yields for Class A Shares and Class F Shares for the thirty-day
period ended November 30, 1996, were 3.89% and 4.14%, respectively.

TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yields for Class A Shares and Class F Shares for
the thirty-day period ended November 30, 1996, were 6.40% and 6.80%,
respectively.

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 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.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050

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%
</TABLE>

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:

* portfolio quality;

* average portfolio maturity;

* type of instruments in which the portfolio is invested;

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

* changes in the Fund expenses; and

* various other factors.

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

* Lipper Analytical Services, Inc., 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.

* 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.

* 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.

* Charts and other illustrations that depict the hypothetical growth of a
tax-free investment as compared to a taxable investment.

* Quotations from the Tax Foundation that illustrate the effect of taxes on
income.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the
mutual fund industry, including the growth of the industry, from sources
such as the Investment Company Institute.

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. Traders handle trillions
of dollars in annual trading volume.

In the government sector, as of December 31, 1996, Federated Investors
managed 9 mortgage-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $6.3 billion,
$1.7 billion and $23.6 billion, respectively. Federated trades approximately
$309 million in U.S. government and mortgage-backed securities daily and
places $17 billion in repurchase agreements each day. Federated introduced
the first U.S. government fund to invest in U.S. government bond securities
in 1969. Federated has been a major force in the short- and
intermediate-term government markets since 1982 and currently manages nearly
$30 billion in government funds within these maturity ranges.

MUTUAL FUND MARKET

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

INSTITUTIONAL CLIENTS

BANK MARKETING

Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

FINANCIAL STATEMENTS

*source: Investment Company Institute

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

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.

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.

FEDERATED 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.
THE FUND MAY INVEST PRIMARILY IN LOWER-RATED BONDS, COMMONLY REFERRED TO AS
"JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO GREATER RISK OF LOSS
OF PRINCIPAL AND INTEREST THAN INVESTMENTS IN HIGHER RATED SECURITIES.
PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT
IN THE FUND.

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,
1997, with the Securities and Exchange Commission ("SEC"). 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
1-800-341-7400. To obtain other information or make inquiries about the
Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).

Prospectus dated January 31, 1997

TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Fund Expenses 1
Financial Highlights 4
General Information 7
Investment Information 7
Investment Objective 7
Investment Policies 7
Investment Limitations 19
Net Asset Value 19
Investing in the Fund 20
How to Purchase Shares 21
Investing in Class A Shares 21
Investing in Class B Shares 23
Investing in Class C Shares 24
Special Purchase Features 25
How to Redeem Shares 27
Special Redemption Features 28
Contingent Deferred Sales Charge 28
Account and Share Information 31
Fixed Income Securities, Inc. Information 32
Management of the Corporation 32
Administration of the Fund 35
Shareholder Information 36
Voting Rights 36
Tax Information 36
Federal Income Tax 36
State and Local Taxes 37
Performance Information 37
Other Classes of Shares 38
Appendix 38
Addresses Inside Back Cover
</TABLE>

SUMMARY OF FUND EXPENSES
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(2) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 1.10%
Shareholder Services Fee 0.25%
Total Operating Expenses(3) 1.10%
</TABLE>

(1) Class A Shares purchased 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 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 0.85%.

(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1997. The total
operating expenses were 1.05% for the fiscal year ended November 30, 1996,
and would have been 2.03% 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 A Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in Class A Shares" and "Fixed
Income Securities, Inc. Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 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; and
(3) payment of the maximum sales charge $56 $78 $103 $173
</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

CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(2) 0.00%
12b-1 Fee 0.75%
Total Other Expenses (after expense reimbursement) 1.10%
Shareholder Services Fee 0.25%
Total Operating Expenses(3)(4) 1.85%
</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.")

(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 0.85%.

(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, 1997. The total
operating expenses were 1.80% for the fiscal year ended November 30, 1996,
and would have been 2.78% 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 of the Fund
will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in Class B 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 $76 $102 $123 $196

You would pay the following expenses on the same
investment, assuming no redemption $19 $58 $100 $196
</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

CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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
</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."

(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 0.85%.

(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1997. The total
operating expenses were 1.80% for the fiscal year ended November 30, 1996,
and would have been 2.78% 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 of the Fund
will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in Class C 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,
(2) redemption at the end of each time period $29 $58 $100 $217

You would pay the following expenses on the same
investment, assuming no redemption $19 $58 $100 $217
</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

(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, 1997, on the Fund's
financial statements and financial highlights for the year ended November
30, 1996, is included in the Annual Report, 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,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.91 0.82 0.45
Net realized and unrealized gain (loss) on investments
and foreign currency 0.42 0.61 (0.45)
Total from investment operations 1.33 1.43 0.00
LESS DISTRIBUTIONS
Distributions from net investment income (0.89) (0.83) (0.45)
Distributions in excess of net investment income(b) (0.03) -- (0.01)
Distributions from net realized gain on investments (0.08) -- --
Total distributions (1.00) (0.83) (0.46)
NET ASSET VALUE, END OF PERIOD $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 13.89% 15.64% 0.05%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.05% 0.25% 0.25%*
Net investment income 8.54% 8.68% 8.38%*
Expense waiver/reimbursement(d) 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $28,021 $5,089 $2,366
Portfolio turnover 47% 158% 34%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 3, 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.

(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, dated November 30, 1996, which can be obtained free of
charge.

FINANCIAL HIGHLIGHTS -- CLASS B SHARES
FEDERATED 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, 1997, on the Fund's
financial statements and financial highlights for the year ended November
30, 1996, is included in the Annual Report, 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,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.14 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.83 0.25
Net realized and unrealized gain (loss) on investments and foreign currency 0.42 0.13
Total from investment operations 1.25 0.38
LESS DISTRIBUTIONS
Distributions from net investment income (0.83) (0.24)
Distributions in excess of net investment income(b) (0.01) --
Distributions from net realized gain on investments (0.08) --
Total distributions (0.92) (0.24)
NET ASSET VALUE, END OF PERIOD $10.47 $10.14
TOTAL RETURN(C) 13.03% 5.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.80% 1.00%*
Net investment income 7.80% 7.95%*
Expense waiver/reimbursement(d) 0.98% 5.69%*(e)
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $120,020 $5,193
Portfolio turnover 47% 158%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from July 27, 1995 (date of initial
public investment) to November 30, 1995.

(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, dated November 30, 1996, which can be obtained free of
charge.

FINANCIAL HIGHLIGHTS -- CLASS C SHARES
FEDERATED 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, 1997, on the Fund's
financial statements and financial highlights for the year ended November
30, 1996, is included in the Annual Report, 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,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.82 0.74 0.40
Net realized and unrealized gain (loss) on investments
and foreign currency 0.43 0.61 (0.44)
Total from investment operations 1.25 1.35 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.80) (0.75) (0.40)
Distributions in excess of net investment income(b) (0.04) -- (0.02)
Distributions from net realized gain on investments (0.08) -- --
Total distributions (0.92) (0.75) (0.42)
NET ASSET VALUE, END OF PERIOD $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 13.05% 14.79% (0.41%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.80% 1.00% 1.00%*
Net investment income 7.70% 7.93% 7.99%*
Expense waiver/reimbursement(d) 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $10,481 $2,323 $1,190
Portfolio turnover 47% 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, dated November 30, 1996, which can be obtained free of
charge.

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.

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

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, with no more than 50% invested in any one
sector. 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;

* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.

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 obli-gated to do so.

MORTGAGE-BACKED SECURITIES

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

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS
PASS-THROUGH SECURITIES

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

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 OF LOWER-RATED DEBT SECURITIES

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, 1996
<S> <C>
BB 15%
B 25%
CCC 1%
41%
</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 OF FOREIGN SECURITIES

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.

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 issuers; the likelihood that securities of foreign issuers may be
less liquid or more volatile; generally high 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 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

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

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.

TEMPORARY INVESTMENTS

The Fund may invest temporarily in debt obligations maturing in one year or
less during times of unusual market conditions for defensive purposes and to
maintain liquidity in anticipation of favorable investment opportunities.

The Fund's temporary investments may include:

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

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

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

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

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

REPURCHASE AGREEMENTS

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

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 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 OF FINANCIAL FUTURES AND OPTIONS

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

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 10% of its total assets in investment companies in
general unless permitted to do so by action of the SEC. 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 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

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

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

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

INVESTMENT LIMITATIONS

The Fund will not:

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

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

* underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale of
restricted securities which the Fund may purchase pursuant to its investment
objective, policies, and limitations.

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

The Fund will not:

* invest more than 10% of the value of its total assets in securities
subject to restrictions 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.)

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 SALES DEALER
CHARGE CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C>
Less than
$100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or
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 financial
intermediaries that do not receive a reallowance of a sales charge. However,
investors who purchase Class A Shares through a trust department, investment
adviser, or other financial intermediary may be charged a service or other
fee by the financial intermediary. Additionally, no sales charge is imposed
on shareholders designated as Liberty Life Members or on Class A Shares
purchased through "wrap accounts" or similar programs under which clients
pay a fee 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 for which affiliates of Federated Investors serve as investment
adviser or principal underwriter (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 the
privilege, 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% 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. Shareholders will be notified prior to the implementation of any
special offering, as described above.

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
Federal Reserve wire by calling 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 Shareholder Services Company, c/o State Street Bank and
Trust Company, Boston, MA; Attn; EDGEWIRE; For Credit to: (Fund Name) (Fund
Class); (Fund Number -- this number can be found on the account statement or
by contacting the Fund); 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

Once an account has been established, shares may be purchased by mailing a
check made payable to the name of the Fund (designate class of shares and
account number) to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after
the check is received).

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

CLASS B SHARES

Class B shareholders may exchange all or some of their shares for Class B
Shares of other Federated Funds. (Not all 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 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 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 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."

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.

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.

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
Shareholder Services Company, 1099 Hingham Street, Rockland, Massachusetts
02370-3317.

TELEPHONE INSTRUCTIONS

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

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

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 Shareholder 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.

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 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.

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, other than retirement accounts subject to
required minimum distributions. 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 the
last surviving 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 701U2; (3) involuntary
redemptions by the Fund of shares in shareholder accounts that do not comply
with the minimum balance requirements; and (4) qualifying redemptions of
Class B Shares under a Systematic Withdrawal Program. To qualify for
elimination of the contingent deferred sales charge through a Systematic
Withdrawal Program, the redemptions of Class B Shares must be from an
account: that is at least 12 months old, has all Fund distributions
reinvested in Fund Shares, and has a value of at least $10,000 when the
Systematic Withdrawal Program is established. Qualifying redemptions may not
exceed 1.00% monthly of the account value as periodically determined by the
Fund. For more information regarding the elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program contact your
financial intermediary or the Fund. 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, and their immediate family members; 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 Fund
reserves the right to discontinue or modify the elimination of the
contingent deferred sales charge. Shareholders will be notified of a
discontinuation. 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 the shareholder is
entitled to such elimination.

ACCOUNT AND SHARE INFORMATION

CERTIFICATES AND CONFIRMATIONS

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 daily 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.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.

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.

FIXED INCOME SECURITIES, INC. INFORMATION

MANAGEMENT OF THE CORPORATION

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

INVESTMENT ADVISER

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 0.85% 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.

Under the terms of the sub-advisory agreement between the Adviser and
Federated Global Research Corp., Federated Global Research Corp. will
provide the Adviser such investment advice, statistical and other factual
information as may, from time to time, be reasonably requested by the
Adviser. 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 the Adviser
out of its resources and is not an incremental Fund expense.

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.

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.
The Adviser, 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 $76
billion invested across more than 338 funds under management and/or
administration by its subsidiaries, as of December 31, 1996, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 2,000 employees, Federated continues to be led
by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.

PORTFOLIO MANAGERS' BACKGROUNDS

Joseph M. Balestrino 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 July 1, 1996. In allocating
the Fund's assets, Mr. Balestrino evaluates the market environment and
economic outlook in each of the Fund's three major sectors. Mr. Balestrino
joined Federated Investors in 1986 and has been a Vice President of the
Fund's investment adviser since 1995. Mr. Balestrino served as an Assistant
Vice President of the investment adviser from 1991 to 1995. Mr. Balestrino
is a Chartered Financial Analyst and received his Master's Degree in Urban
and Regional Planning from the University of Pittsburgh.

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.

Kathleen M. Foody-Malus is the portfolio manager 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.

Micheal W. Casey, Ph.D. has been the Fund's/Trust's portfolio manager since
January 1997. Mr. Casey joined Federated Investors in 1996 as an Assistant
Vice President. Mr. Casey served as an International Economist and Portfolio
Strategist for Maria Fiorini Ramirez Inc. from 1990 to 1996. Mr. Casey
earned a Ph.D. concentrating in economics from The New School for Social
Research and a M.Sc. from the London School of Economics.

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.

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
of 1940 (the "Plan"), the distributor may be paid a fee by the Class B
Shares and Class C Shares in an amount computed at an annual rate of .75% of
the average daily net assets of each class of Shares. 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 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 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 to maintain 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.

SUPPLEMENTAL 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 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, in addition to payments made pursuant to the 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 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 may 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 Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services
Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors, as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>

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.

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.

Class A Shares, Class B Shares, Class C Shares and Class F Shares are
subject to certain of the same expenses; however, the front-end sales charge
for Class F Shares is lower than that for Class A Shares. 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.

Class F Shares are distributed under a 12b-1 Plan and are also subject to a
shareholder services fee.

Expense differences, however, between Class A Shares, Class B Shares, Class
C 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 1-800-341-7400 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.

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.

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.

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 or interest or principal.

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

ADDRESSES

Federated Strategic Income Fund
Class A Shares
Class B Shares
Class C Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR

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

INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

SUB-ADVISER

Federated Global Research Corp.
175 Water Street
New York, New York 10038-4965

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

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

FEDERATED STRATEGIC
INCOME FUND

(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES, CLASS B SHARES,
CLASS C SHARES

PROSPECTUS

A Diversified Management
Investment Company

January 31, 1997

Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 338319700
Cusip 338319866
Cusip 338319809
G01288-01-ABC (1/97)

Federated Strategic Income Fund

(A Portfolio of Fixed Income Securities, Inc.)
Class F Shares
Prospectus

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

The 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.

The Fund may invest primarily in lower-rated bonds, commonly referred to as
"junk bonds." Investments of this type are subject to greater risk of loss
of principal and interest than investments in higher rated securities.
Purchasers should carefully assess the risks associated with an investment
in the Fund.

The Fund has filed a Statement of Additional Information for Class F Shares
dated January 31, 1997 with the Securities and Exchange Commission ("SEC").
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 1-800-341-7400. To obtain other information or to make inquiries
about the Fund, contact your financial institution. The Statement of
Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).

Prospectus dated January 31, 1997

TABLE OF CONTENTS
<TABLE>
<S> <C>
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 16
Share Purchases 16
Minimum Investment Required 17
What Shares Cost 17
Eliminating the Sales Charge 18
Systematic Investment Program 19
Exchange Privilege 19
Certificates and Confirmations 20
Dividends 20
Capital Gains 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 27
Voting Rights 27
Tax Information 28
Federal Income Tax 28
State and Local Taxes 28
Performance Information 28
Other Classes of Shares 29
Appendix 30
Addresses Inside Back Cover
</TABLE>

SUMMARY OF FUND EXPENSES

Class F Shares
Shareholder Transaction Expenses
<TABLE>
<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)
Management Fee (after waiver)(2) 0.00%
12b-1 Fee (after waiver)(3) 0.00%
Total Other Expenses (after expense reimbursement) 1.10%
Shareholder Services Fee 0.25%
Total Operating Expenses(4) 1.10%
</TABLE>

(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 0.85%.

(3) The 12b-1 fee has been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fee. The distributor can terminate this voluntary
waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.50%.

(4) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1997. The total
operating expenses were 1.07% for the fiscal year ended November 30, 1996,
and would have been 2.53% absent the voluntary waiver of the management fee
and a portion of 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 the 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 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, and
(3) payment of the maximum sales charge $31 $56 $70 $143

You would pay the following expenses on the same
investment, assuming no redemption $21 $45 $70 $143
</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

FEDERATED STRATEGIC INCOME FUND

(For a share outstanding throughout each period)

Year Ended November 30,
1996 1995 1994(a)
<S> <C> <C> <C>
Net asset value, beginning of period $10.14 $ 9.54 $10.00
Income from investment operations
Net investment income 0.95 0.77 0.41
Net realized and unrealized gain (loss) on investments
and foreign currency 0.37 0.61 (0.44)
Total from investment operations 1.32 1.38 (0.03)
Less distributions
Distributions from net investment income (0.91) (0.78) (0.41)
Distributions in excess of net investment income(b) -- -- (0.02)
Distributions from net realized gain on investments (0.08) -- --
Total distributions (0.99) (0.78) (0.43)
Net asset value, end of period $10.47 $10.14 $ 9.54
Total return(c) 13.83% 15.07% (0.19%)
Ratios to average net assets
Expenses 1.07% 0.75% 0.75%*
Net investment income 8.48% 8.19% 8.34%*
Expense waiver/reimbursement(d) 1.46% 5.69%(e) 8.87%*
Supplemental data
Net assets, end of period (000 omitted) $17,367 $3,691 $2,326
Portfolio turnover 47% 158% 34%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 9, 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, dated November 30, 1996, 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 Board of
Directors (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.

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

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, with no more than 50% invested in any one
sector. 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;

* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.

MORTGAGE-BACKED SECURITIES

COLLATERALIZED MORTGAGE
OBLIGATIONS AND MULTICLASS
PASS-THROUGH SECURITIES

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.

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

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

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

PREFERRED STOCKS

CONVERTIBLE SECURITIES

NON-GOVERNMENT MORTGAGE-BACKED SECURITIES

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

ASSET-BACKED SECURITIES

ZERO COUPON, PAY-IN-KIND AND DELAYED INTEREST SECURITIES

SPECIAL RISKS OF LOWER-RATED
DEBT SECURITIES

As a Percentage of
Total Market
Value of Security
Holdings as of
Credit Rating November 30, 1996
<S> <C>
BB 15%
B 25%
CCC 1%
41%
</TABLE>

CORPORATE EQUITY SECURITIES

WARRANTS AND RIGHTS

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.

RISKS OF FOREIGN SECURITIES

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.

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

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

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

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

* 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;

* 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

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 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 OF FINANCIAL FUTURES AND OPTIONS

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

RESTRICTED AND ILLIQUID SECURITIES

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

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may 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.

LENDING OF PORTFOLIO SECURITIES

PORTFOLIO TURNOVER

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

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. Financial
institutions may charge additional fees for their services.

DIRECTLY BY MAIL

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

* 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 Shareholder Services
Company, P.O. Box 8600, Boston, Massachusetts 02266-8600.

DIRECTLY BY WIRE

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. (Financial institutions may impose different minimum investment
requirements on their customers.)

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, or by insurance companies, or by sales representatives, Directors,
and employees 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., their spouses and children under
age 21, or any trusts or pension or profit-sharing plans for these persons,
or retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates.
Unaffiliated institutions through whom shares are purchased may charge fees
for services provided which may be related to the ownership of Fund shares.
These institutions, however, may charge fees for services provided which may
relate to ownership of Fund shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution
with regard to services provided and the fees charged for these services.

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.

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 the Fund. 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

CONCURRENT PURCHASES

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

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 Privileges

Class F shareholders may exchange all or some of their shares, at net asset
value for Class F Shares of other Federated Funds. Exchanges are made at net
asset value without being assessed a contingent deferred sales charge. In
determining the applicability of the contingent deferred sales charge, the
required holding period for your new Class F Shares received through an
exchange will include the period for which your original Class F Shares were
held.

Before making an exchange, a shareholder must receive a prospectus of the
fund for which the exchange is being made.

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

Please contact your financial institution directly or Federated Securities
Corp. at 1-800-341-7400 for information on and prospectuses for the
Federated Funds into which your shares may be exchanged free of charge.
Instructions for exchanging shares must be given in writing by the
shareholder. Written instructions may require a signature guarantee.

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

Dividends are declared daily 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

Capital Gains

Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.

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 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. 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

REDEEMING SHARES BY TELEPHONE

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

Contingent Deferred Sales Charge

Contingent
Amount of Deferred
Purchase Shares Held Sales Charge
<S> <S> <C>
Up to $1,999,999 4 years or less 1%
$2,000,000 to $4,999,999 2 years or 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 of 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 591U2; or (iii) from the death or total and
permanent disability of the last surviving 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 Class F 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, other than retirement accounts subject to required minimum
distributions.

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 the required minimum value because of changes in the
Fund's net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.

FIXED INCOME SECURITIES, INC. INFORMATION

Management of the Corporation

BOARD OF DIRECTORS

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 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 0.85% 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.

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.

The Adviser, 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 $76
billion invested across more than 338 funds under management and/or
administration by its subsidiaries, as of December 31, 1996, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 2,000 employees, Federated continues to be led
by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.

Portfolio Managers' Backgrounds

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 Vice President of
the Fund's investment adviser since 1988. Mr. Durbiano is a Chartered
Financial Analyst and received his M.B.A. in 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 20, 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 20, 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 20, 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

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

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.

In addition to payments made pursuant to the 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 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 may 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

Maximum
Administrative Average Aggregate
Fee Daily Net Assets
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>

SHAREHOLDER INFORMATION

Voting Rights

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

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

Directors may be removed by the 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

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 also offers other classes of Shares called 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 the Class B Shares'
average daily net assets, in addition to a shareholder services fee of 0.25
% 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 the Class C Shares' average daily net
assets, in addition to a shareholder services fee of 0.25% 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.

All classes are subject to certain of the same expenses; however, the
front-end sales charge for Class F Shares is lower than that for Class A
Shares. 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.

Expense differences between Class A Shares, Class B Shares, Class C Shares,
and Class F Shares may affect the performance of each class.

To obtain more information and a combined prospectus for Class A Shares,
Class B Shares and Class C Shares, investors may call 1-800-341-7400 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.

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

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

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.

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 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.

ADDRESSES

Federated Strategic Income Fund
Class F Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR

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

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

SUB-ADVISER

Federated Global Research Corp.
175 Water Street
New York, New York 10038-4965

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
Federated Strategic Income Fund

(A Portfolio of Fixed Income Securities, Inc.)
Class F Shares

Prospectus

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

January 31, 1997

[Graphic]

Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

[Graphic]

Cusip 338319882
4031801A-F (1/97)
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, 1997, and the prospectus for Class F Shares,
dated January 31, 1997, 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 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1997

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.

Cusip 338319700
338319866
338319809
338319882
G01288-02 (1/97)

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Types of Investments and Investment Techniques 1
Resets of Interest 1
Caps and Floors 1
Brady Bonds 1
Non-Mortgage Related Asset-Backed Securities 2
Convertible Securities 2
Equity Securities 2
Warrants 2
Futures and Options Transactions 3
Foreign Currency Transactions 4
Foreign Bank Instruments 6
When-Issued and Delayed Delivery Transactions 6
Lending of Portfolio Securities 6
Restricted and Illiquid Securities 7
Repurchase Agreements 7
Reverse Repurchase Agreements 7
Portfolio Turnover 7
Investment Limitations 8
FIXED INCOME SECURITIES, INC. MANAGEMENT 10

Fund Ownership 14
Directors Compensation 15
Director Liability 16
INVESTMENT ADVISORY SERVICES 16

Adviser to the Fund 16

Advisory Fees 16
BROKERAGE TRANSACTIONS 16

OTHER SERVICES 17

Fund Administration 17
Custodian and Portfolio Recordkeeper 17
Transfer Agent 17
Independent Auditors 17
PURCHASING SHARES 17

Distribution of Shares 17
Distribution Plan (Class B Shares, Class C Shares,
and Class F Shares) and Shareholder Services
Agreement 17
Conversion to Federal Funds 18
Purchases by Sales Representatives, Fund Directors,
and Employees 18
DETERMINING NET ASSET VALUE 18

Determining Market Value of Securities 18

REDEEMING SHARES 19

Redemption in Kind 19

Elimination of the Contingent Deferred
Sales Charge 19

TAX STATUS 19

The Fund's Tax Status 19
Foreign Taxes 20
Shareholders' Tax Status 20
TOTAL RETURN 20

YIELD 20

PERFORMANCE COMPARISONS 21

Economic and Market Information 21

ABOUT FEDERATED INVESTORS 22

Mutual Fund Market 22
Institutional Clients 22
Bank Marketing 22
Broker/Dealers and Bank Broker/Dealer Subsidiaries23
FINANCIAL STATEMENTS 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 Strategic Income Fund and Fortress
Shares are now referred to as Class F Shares.
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 (the "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:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security
and the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe 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, 1996 and 1995, the
Fund's portfolio turnover rates were 47% and 158%, 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 SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investments in other investment companies
to an amount not to exceed 3% of the total outstanding voting
securities of any such investment company, 5% of its total assets
in any one investment company, or 10% of its total assets in
investment companies in general unless permitted to do so by action
of the SEC. 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.

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 or Trustee of the
Funds.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Trustee, University of Pittsburgh; Director or Trustee of the Funds.

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; Partner or Trustee in
private real estate ventures in Southwest Florida; formerly, President,
Naples Property Management, Inc. and Northgate Village Development
Corporation; Director or Trustee of the Funds.

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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director of
the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, 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 or Trustee 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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A.,
Western Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State
Street Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee 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 or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University, U.S. Space
Foundation and Czech Management Center; President Emeritus, University
of Pittsburgh; Founding Chairman, National Advisory Council for
Environmental Policy and Technology, Federal Emergency Management
Advisory Board and Czech Management Center; Director or Trustee of the
Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Director
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director
or Trustee 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 Shareholder Services
Company, and Federated Shareholder Services; Director, Federated
Services Company; President or Executive Vice President of the Funds;
Director or Trustee 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 Shareholder Services Company;
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 , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; 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
Board of Directors handles the responsibilities of the Board
between meetings of the Board.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; 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
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; 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: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. -

1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; and World Investment Series, Inc.

FUND OWNERSHIP

Officers and Directors as a group own less than 1% of the Fund's
outstanding Class A Shares, Class B Shares, Class C Shares and Class F
Shares.
As of January 2, 1997, the following shareholders of record owned 5% or
more of the outstanding Class A Shares of the Fund: TRUCOJO, Trust
Company of St. Joseph, St Joseph, MO, owned approximately 191,393 Shares
(7.01%); TRUCOJO #2026337, Trust Company of St. Joseph, St Joseph, MO,
owned approximately 614,579 Shares (22.52%); BHC Securities Inc., Trade
House Acct., Philadelphia, Pennsylvania, owned approximately 151,600
Shares (5.55%); and Key Clearing Corp., A/C 5589-6401, Brookyn, OH,
owned approximately 197,384 Shares (7.23%).
As of January 2, 1997, the following shareholder no shareholder of
record owned 5% or more of the outstanding Class B Shares of the Fund.
As of January 2, 1997, the following shareholder of record owned 5% or
more of the outstanding Class C Shares of the Fund: MLPF&S, for the sole

benefit of its customers, Jacksonville, FL, owned approximately 216,503
Shares (20.49%); and Ash Charitable Remainder Unitrust, First National
Bank of Atmore Trustee, Atmore, AL, owned approximately 77,088 Shares
(7.30%).
As of January 2, 1997, the following shareholder of record owned 5% or
more of the outstanding Class F Shares of the Fund: MLPF&S, for the sole
benefit of its customers, Jacksonville, FL, owned approximately 483,778
Shares (27.93%).

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
56 investment companies
Richard B. Fisher,
President and Director$-0- $ -0- for the Corporation and
6 investment companies
Thomas G. Bigley++,
Director $1,248 $108,725 for the Corporation and
56 investment companies
John T. Conroy, Jr.,

Director $1,373 $119,615 for the Corporation and
56 investment companies
William J. Copeland,
Director $1,373 $119,615 for the Corporation and
56 investment companies
James E. Dowd,
Director $1,373 $119,615 for the Corporation and
56 investment companies
Lawrence D. Ellis, M.D.,
Director $1,248 $108,725 for the Corporation and
56 investment companies
Edward L. Flaherty, Jr.,
Director $1,373 $119,615 for the Corporation and
56 investment companies
Peter E. Madden,
Director $1,248 $108,725 for the Corporation and
56 investment companies
Gregor F. Meyer,
Director $1,248 $108,725 for the Corporation and
56 investment companies
John E. Murray, Jr.
Director $1,248 $108,725 for the Corporation and
56 investment companies
Wesley W. Posvar,
Director $1,248 $108,725 for the Corporation and
56 investment companies
Marjorie P. Smuts,
Director $1,248 $108,725 for the Corporation and

56 investment companies

*# The aggregate compensation provided is for the Corporation which is
comprised of 3 portfolios.
* Information is furnished for the fiscal year ended November 30, 1996.
+ 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 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
years ended November 30, 1996, 1995 and for the period from April 29
1994 (date of initial public investment) through November 30, 1994, the
Adviser earned $629,398, $80,713 and $15,014, respectively, all of which
was voluntarily waived.

BROKERAGE TRANSACTIONS

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, 1996, 1995 and 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 Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectuses. From April 29, 1994, to March 1, 1996,
Federated Administrative Services served as the Fund's Administrator.
Prior to March 1, 1994, Federated Administrative Services, Inc. served

as the Fund's Administrator. Both former Administrators are subsidiaries
of Federated Investors. For purposes of this Statement of Additional
Information, Federated Services Company, Federated Administrative
Services, and Federated Administrative Services, Inc. may hereinafter
collectively be referred to as the "Administrators". For the fiscal
years ended November 30, 1996, 1995 and for the period from April 29
1994 (date of initial public investment) through November 30, 1994, the
Administrators earned $214,999, $195,438 and $61,836, respectively.

CUSTODIAN AND PORTFOLIO RECORDKEEPER

State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect
to the Fund's portfolio investments. The fee paid for this service is
based upon the level of the Fund's average net assets for the period
plus out-of-pocket expenses.

TRANSFER AGENT

Federated Services Company, through it registered transfer agent,
Federated Shareholder 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,
Pittsburgh, Pennsylvania.
PURCHASING SHARES

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 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, 1996, payments in the amount of
$45,147 were made pursuant to the Plan for Class F Shares, of which
$43,577 were voluntarily waived. In addition, for the same periods, the
Fund paid shareholder services fees in the amount of $22,574 for Class F
Shares, none of which were voluntarily waived.
For the fiscal year ended November 30, 1996, payments in the amount of
$42,436 were made pursuant to the Plan for Class C Shares, none of which
were voluntarily waived. In addition, for the same periods, the Fund
paid shareholder services fees in the amount of $14,145 for Class C
Shares, none of which were voluntarily waived.

For the fiscal year ended November 30, 1996, the Fund paid shareholder
services fees in the amount of $27,086 for Class A Shares, none of which
were voluntarily waived.
For the fiscal year ended November 30, 1996, payments in the amount of
$363,937 were made pursuant to the Plan for Class B Shares, none of
which were voluntarily waived. In addition, for the same period, the
Fund paid shareholder services fees in the amount of $121,312 for Class
B Shares, none of which were voluntarily waived.

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:
oas provided by an independent pricing service;
ofor 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
oat 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:
oyield;
oquality;
ocoupon rate;
omaturity;
otype of issue;
otrading characteristics; and
oother market data.

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.

ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amounts that a shareholder may withdraw under a Systematic
Withdrawal Program that qualify for elimination of the Contingent
Deferred Sales Charge may not exceed 12% annually with reference
initially to the value of the Class B Shares upon establishment of the
Systematic Withdrawal Program and then as calculated at the fiscal year
end. Redemptions on a qualifying Systematic Withdrawal Program can be
made at a rate of 1.00% monthly, 3.00% quarterly, or 6.00% semi-annually
with reference to the applicable account valuation amount. Amounts that
exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. To the extent that a
shareholder exchanges Shares for Class B Shares of other 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 12 month holding requirement. However, for
purposes of meeting the $10,000 minimum account value requirement, Class
B Share accounts values will not be aggregated.

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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of
securities held less than three months;
oinvest in securities within certain statutory limits; and
odistribute 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 Fund's Class A Shares' average annual total returns for the fiscal
year ended November 30, 1996, and for the period from May 3, 1994 (date
of initial public offering) through November 30, 1996, were 8.74% and
9.30%, respectively. The Fund's Class B Shares' average annual total
returns for for the fiscal year ended November 30, 1996, and for the
period from July 27, 1995 (date of initial public offering) through
November 30, 1996, were 7.02% and 9.88%, respectively. The Fund's Class
C Shares' average annual total returns for the fiscal year ended
November 30, 1996, and for the period from April 29, 1994 (date of
initial public investment) through November 30, 1996, were 11.98% and
10.43%, respectively. The Fund's Class F Shares' average annual total
returns for the fiscal year ended November 30, 1996, and for the period
from from May 9, 1994 (date of initial public offering), through
November 30, 1995, were 11.65% and 10.14%, respectively.

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 yields for Class A Shares, Class B Shares, Class C Shares, and Class
F Shares for the thirty-day period ended November 30, 1996, were 7.90%,
7.51%, 7.51% and 8.18%, 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:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio
securities;
ochanges in the Fund's or a class of Shares' expenses; and
ovarious 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:
oLIPPER 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.
oLEHMAN 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.

oLEHMAN BROTHERS HIGH YIELD INDEX covers the universe of fixed
rate, publicly issued, noninvestment grade debt registered with
the SEC. All bonds included in the High Yield Index must be
dollar-denominated and nonconvertible and have at least one year
remaining to maturity and an outstanding par value of at least
$100 million. Generally securities must be rated Ba1 or lower by
Moodys Investors Service, including defaulted issues. If no
Moodys rating is available, bonds must be rated BB+ or lower by
S&P; and if no S&P rating is available, bonds must be rated below
investment grade by Fitch Investor's Service. A small number of
unrated bonds is included in the index; to be eligible they must
have previously held a high yield rating or have been associated
with a high yield issuer, and must trade accordingly.

oMORNINGSTAR, 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.

ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute.

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.
Traders handle trillions of dollars in annual trading volume.

In the corporate bond sector, as of December 31, 1996, Federated
Investors managed 12 money market funds and 17 bond funds with assets
approximating $17.2 billion and $4.0 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit
analysis--is backed by over 21 years of experience in the corporate bond
sector. In 1972, Federated introduced one of the first high-yield bond
funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
In the government sector, as of December 31, 1996, Federated Investors
managed 9 mortgage-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $6.3 billion, $1.7
billion and $23.6 billion, respectively. Federated trades approximately
$309 million in U.S. government and mortgage-backed securities daily and
places $17 billion in repurchase agreements each day. Federated
introduced the first U.S. government fund to invest in U.S. government
bond securities in 1969. Federated has been a major force in the short-
and intermediate-term government markets since 1982 and currently
manages nearly $30 billion in government funds within these maturity
ranges.

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
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 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.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is

headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing &
Sales.

*source: Investment Company Institute

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

FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended November 30, 1996,
are incorporated herein by reference to the Annual Report of the Fund
dated November 30, 1996 (File Nos. 33-43472 and 811-6447). A copy of
this report may be obtained without charge by contacting the Fund.