FIXED INCOME SECURITIES INC, 485APOS, 1997-11-25

FIXED INCOME SECURITIES INC
485APOS, 1997-11-25

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No. ......................

Post-Effective Amendment No. 21 .................... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 21 .................................... X

FIXED INCOME SECURITIES, INC.

(Exact Name of Registrant as Specified in Charter)

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

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

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

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
__ on _______________, pursuant to paragraph (b)
_ 60 days after filing pursuant to paragraph (a) (i) X on January 31, 1998,
pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii) on _________________
pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

<PAGE>

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of FIXED INCOME SECURITIES,
INC. (the "Corporation"), which is comprised of three portfolios: (1) Federated
Limited Term Fund, offering two separate classes of shares, (a) Class A Shares
and (b) Class F Shares, (2) Federated Limited Term Municipal Fund, offering two
separate classes of shares, (a) Class A Shares and (b) Class F Shares, and (3)
Federated Strategic Income Fund, offering four separate classes of shares, (a)
Class A Shares, (b) Class B Shares, (c) Class C Shares and (d) Class F Shares,
is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page....................(1-3) Cover Page.
Item 2. Synopsis......................(1-3) Summary of Fund Expenses; (3) Synopsis.
Item 3. Condensed Financial
Information...................(1-3) Financial Highlights; (1-3) Performance Information.
Item 4. General Description of
Registrant....................(1-3) General Information; [1,2,3] Investment Information;
(1-3) Investment Objective; (1-3)
Investment Policies; (1-3) Investment Limitations (2)
Investment Risks.

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

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

<PAGE>

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

Item 8. Redemption or Repurchase......(1b,2b,3d) Redeeming Class F Shares; (1a,2a,3a-c)
How to Redeem Shares; (1b,2b,3d) Redeeming Class F
Shares; (1b,2b,3d) Through a Financial Institution; (1a,2a)
Redeeming Shares Through a Financial Institution;
(3a-c) Redeeming Shares Through Your Financial Institution;
(1-3) Redeeming Shares By
Mail (1-3) Systematic Withdrawal Program; (1a,2a,3a-c)
Purchases With Proceeds from Redemptions of
Unaffiliated Investment Companies; (1-3) Accounts With Low
Balances; (1-3) Contingent Deferred Sales
Charge.
Item 9. Pending Legal Proceedings.....None.

<PAGE>

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

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

</TABLE>

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

<PAGE>

TABLE OF CONTENTS

Summary of Fund Expenses 1
Financial Highlights -- Class A Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Investment 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

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

<PAGE>

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
securities, at least 65% of which is invested in U.S. government obligations,
corporate debt obligations, and asset-backed securities all 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 of
securities including, but 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;

* covertible securities;

* 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;

* repurchase agreements collateralized by eligible investments; and

* derivative instruments of such securities, including instruments with demand
features or credit enhancement, as well as money market instruments and cash.

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.

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 predetermined 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.

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."

CONVERTIBLE SECURITIES

Convertible securities include a spectrum of securities which can be exchanged
for or converted into common stock. Convertible securities may include, but are
not limited to: convertible bonds or debentures; convertible preferred stock;
units consisting of usable bonds and warrants; or securities which cap or
otherwise limit returns to the convertible security holder, such as DECS-
(Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common Stock when
issued as a debt security), LYONS- (Liquid Yield Option Notes, which are
corporate bonds that are purchased at prices below par with no coupons and are
convertible into stock), PERCS- (Preferred Equity Redemption Cumulative Stock
(an equity issue that pays a high cash dividend, has a cap price and mandatory
conversion to common stock at maturity), and PRIDES- (Preferred Redeemable
Increased Dividend Securities (which are essentially the same as DECS; the
difference is little more than who initially underwrites the issue).

Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.

The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.

Please see "Corporate Debt Obligations".

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 contract, an amount of cash and readily marketable 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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
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.

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.

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 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 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.

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

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

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

ADVISORY FEES

The 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

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.

Robert K. Kinsey has been the Fund's portfolio manager since July 1997. Mr.
Kinsey joined Federated in 1995 as a Vice President of a Federated advisory
subsidiary. He has been a Vice President of the Fund's adviser since March 1997.
From 1992 to 1995, he served as a Portfolio Manager for Harris Investment
Management Co., Inc. Mr. Kinsey received his M.B.A. in Finance from U.C.L.A.

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

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

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

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.

<PAGE>

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

<PAGE>

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

<PAGE>

TABLE OF CONTENTS

Summary of Fund Expenses 1
Financial Highlights -- Class F Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Investment Limitations 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

<PAGE>

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 Fund invests primarily in a professionally managed, diversified portfolio of
securities including, but 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; *
covertible securities;

* 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;

* repurchase agreements collateralized by eligible investments; and

* derivative instruments of such securities, including instruments with demand
features or credit enhancement, as well as money market instruments and cash.

FLOATING RATE CORPORATE
DEBT OBLIGATIONS

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.

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

The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.

Please see "Corporate Debt Obligations".

CORPORATE DEBT OBLIGATIONS

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. 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 readily marketable
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

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

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:

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

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

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.

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 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.

<PAGE>

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

<PAGE>

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.

FEDERATED INVESTORS TOWER

PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated January 31, 1997

Cusip 338319106

Cusip 338319304

3070701B (1/97)

<PAGE>

TABLE OF CONTENTS

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

Purchases by Sales Representatives, Fund Directors, and Employees

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

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.

CONVERTIBLE SECURITIES

DECS, or similar instruments marketed under different names, offer a substantial
dividend advantage with the possibility of unlimited upside potential if the
price of the underlying common stock exceeds a certain level. DECS convert to
common stock at maturity. The amount received is dependent on the price of the
common stock at the time of maturity. DECS contain two call options at different
strike prices. The DECS participate with the common stock up to the first call
price. They are effectively capped at that point unless the common stock rises
above a second price point, at which time they participate with unlimited upside
potential.

PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is limited to
a predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates declines when
the common stock falls, while the cap price limits gains when the common stock
rises.

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.

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:

Duration = PVCF(1) PVCF2(2) PVCF3(3) PVCFn(n)

------ +------ +------ +. . . + -------

PVTCF PVTCF PVTCF PVTCF

where

PVCFt = the present value of the cash flow in period t discounted at the

prevailing yield-to-maturity

t = the period when the cash flow is received

n = remaining number of periods until maturity

PVTCF = total present value of the cash flow from the bond where the

present value is determined using the prevailing yield-to-

maturity

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.

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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

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.

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 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 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.

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.

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 November 7, 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 1,601,922 Shares (16.48%); and
David Lloyd Kreeger Foundation, Washington, DC, owned approximately 588,476
Shares (6.05%).

As of November 7, 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 155,629 Shares (17.68%); and
Legg Mason Trust Company Trustee, Clara M. Cerar Charitable Remainder Unitrust,
Baltimore, MD, owned approximately 78,125 Shares (8.87%).

DIRECTORS COMPENSATION

NAME, AGGREGATE TOTAL COMPENSATION PAID

POSITION WITH COMPENSATION FROM TO DIRECTORS FROM

CORPORATION CORPORATION#* CORPORATION AND FUND COMPLEX+

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

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. For the fiscal years
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 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.

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 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.

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, _____, are
incorporated herein by reference to the Annual Report of the Fund dated November
30, _________ (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

<PAGE>

TABLE OF CONTENTS

Summary of Fund Expenses 1

Financial Highlights -- Class A Shares 2

General Information 3

Investment Information 3

Investment Objective 3

Investment Policies 3

Investment Risks 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

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

<PAGE>

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 securities known as "inverse floaters" which represent
interests in municipal securities. The Fund intends to purchase inverse floaters
to assist in duration management and to seek current income. These obligations
pay interest rates that vary inversely with changes in the interest rates of
specified short-term municipal securities or an index of short-term municipal
securities. The interest rates on inverse floaters will typically decline as
short-term market interest rates increase and increase as short-term market
rates decline. Inverse floaters will generally respond to changes in market
interest rates more rapidly than fixed-rate long-term securities (typically
twice as fast). As a result, the market values of inverse floaters will
generally be more volatile than the market values of fixed-rate municipal
securities. Typically, the portion of the portfolio invested in inverse floaters
will be subject to additional volatility.

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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

RESTRICTED AND ILLIQUID SECURITIES

AVERAGE PORTFOLIO DURATION

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

FINANCIAL FUTURES AND OPTIONS TO BY OR SELL SUCH CONTRACTS

The Fund may purchase and sell interest rate and index financial futures
contracts and options on those contracts. These financial futures contracts and
options may be used to hedge all or a portion of its portfolio against changes
in the market value of portfolio securities and interest rates, provide
additional liquidity, and accomplish its current strategies in a more
expeditious fashion. 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.

As a matter of investment policy, which may be changed without shareholder
approval, the Fund may not purchase or sell futures contracts or options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions would exceed 5% of the market value of the Fund's
total assets. When the Fund purchases futures contracts or options, an amount of
readily marketable municipal securities, cash, or cash equivalents, equal to the
underlying commodity value of the futures contracts or options (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 or
options.

RISKS

When the Fund uses financial futures or options, 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 or option 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 options will exist at all times. Although the
investment adviser will consider liquidity before entering into futures
transactions or options, 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 positions or options depends on this secondary market.

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.

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

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 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

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

MAXIMUM

ADMINISTRATIVE AVERAGE AGGREGATE

FEE DAILY 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

Each share of the Fund is entitled to one vote in Director elections and other
matters submitted to shareholders for vote. All shares of all classes of each
portfolio in the Corporation have equal voting rights except that in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As of November 7, 1997, MLPF&S, for the sole benefit of its
customers, Jacksonville, FL, owned 26.09% of the voting securities of the Fund's
Class A Shares and 28.46% of the voting securities of the Fund's Class F Shares
and, therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the 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.

<PAGE>

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

<PAGE>

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

<PAGE>

TABLE OF CONTENTS

Summary of Fund Expenses 1

Financial Highlights -- Class F Shares 2

General Information 3

Investment Information 3

Investment Objective 3

Investment Policies 3

Investment Risks 12

Investment Limitations 12

Net Asset Value 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

<PAGE>

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

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

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

RESTRICTED AND ILLIQUID SECURITIES

AVERAGE PORTFOLIO DURATION

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

FINANCIAL FUTURES AND OPTIONS TO BY OR SELL SUCH CONTRACTS

RISKS

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

CONTINGENT

AMOUNT DEFERRED

OF SHARES SALES

PURCHASE HELD CHARGE

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%

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

MAXIMUM

ADMINISTRATIVE AVERAGE AGGREGATE

FEE DAILY 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.

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.

<PAGE>

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

<PAGE>

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

Cusip 338319403

Cusip 338319502

3070702B (1/97)

<PAGE>

Table of Contents

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

<PAGE>

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. 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

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 readily marketable
municipal securities, 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.

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:

Duration = PVCF(1) PVCF2(2) PVCF3(3) PVCFn(n)

------ +------ +------ +. . . . + -------

PVTCF PVTCF PVTCF PVTCF

where

PVCFt = the present value of the cash flow in period t discounted at the

prevailing yield-to-maturity

t = the period when the cash flow is received

n = remaining number of periods until maturity

PVTCF = total present value of the cash flow from the bond where the

present value is determined using the prevailing yield-to-

maturity

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

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 ILLIQUID 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

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 November 7, 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 1,297,024 shares (26.09%); and Carter
Jones Lumber Co., Kent, OH, owned approximately 446,180 shares (8.97%).

As of November 7, 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 611,979 shares (28.46%);
and Wells Fargo Bank as agent for Bryan Turner, Calabasas, CA, owned
approximately 110,556 shares (5.14%).

DIRECTORS COMPENSATION

NAME, AGGREGATE TOTAL COMPENSATION PAID

POSITION WITH COMPENSATION FROM TO DIRECTORS FROM

CORPORATION CORPORATION#* CORPORATION AND FUND COMPLEX+

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.

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.

TAXABLE YIELD EQUIVALENT FOR 1997

MULTISTATE MUNICIPAL FUNDS

FEDERAL INCOME TAX BRACKET:

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%

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.

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

The Financial Statements for the fiscal year ended November 30, _____, are
incorporated herein by reference to the Annual Report of the Fund dated November
30, ______ (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 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

<PAGE>

TABLE OF CONTENTS

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

<PAGE>

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

The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.

Please see "Special Risks of Lower-Rated Debt Securities".

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.

The Fund may invest in the High-Yield Bond Portfolio, a portfolio of Federated
Core Trust, as an efficient means of investing in high-yield debt obligations.
Federated Core Trust is a registered investment company advised by Federated
Research Corporation, an affiliate of the Fund's adviser. The High-Yield Bond
Portfolio's investment objective is to seek high current income and its primary
investment policy is to invest in lower-rated, high-yield debt securities. The
High-Yield Bond Portfolio currently is not charged an advisory fee and is sold
without any sales charge. The High-Yield Bond Portfolio may incur expenses for
administrative and accounting services. The Fund's adviser anticipates that the
High Yield Bond Portfolio will provide the Fund broad diversity and exposure to
all aspects of the high-yield bond sector of the market while at the same time
providing greater liquidity than if high-yield debt obligations were purchased
separately for the Fund. The Fund will be deemed to own a pro rata portion of
each investment of the High-Yield Bond Portfolio.

AS A PERCENTAGE OF

TOTAL MARKET

VALUE OF SECURITY

HOLDINGS AS OF

CREDIT RATING NOVEMBER 30, 1996

BB 15%

B 25%

CCC 1%

41%

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

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 two classes of Shares that carry 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. 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:

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

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%

* * 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; or

* using the reinvestment privilege.

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.

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

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

REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION Shares of the Fund may be
redeemed by calling your financial institution to request the redemption. Shares
will be redeemed at the net asset value, less any applicable contingent deferred
sales charge next determined after the Fund receives the redemption request from
the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions (such as banks) must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial institution for this service.

REDEEMING SHARES BY TELEPHONE

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 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:

CONTINGENT

YEAR OF REDEMPTION DEFERRED

AFTER PURCHASE SALES CHARGE

First 5.50%

Second 4.75%

Third 4%

Fourth 3%

Fifth 2%

Sixth 1%

Seventh and thereafter 0%

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 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. 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; (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 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 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
and Federated Research Corp. since 1995. Mr. Balestrino served as an Assistant
Vice President of the investment adviser and Federated Research Corp. 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 and Federated Research Corp. since January
1996. He served as a Vice President of the adviser and Federated Research Corp.
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 and Federated Research Corp. since
1993. Ms. Foody-Malus served as an Assistant Vice President of the investment
adviser and Federated Research Corp. 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 and Federated 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 and Federated 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 and Federated 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 of Federated Global Research Corp and Federated Research Corp. 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

MAXIMUM

ADMINISTRATIVE AVERAGE AGGREGATE

FEE DAILY 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

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 of November 7, 1997, MLPF&S, for the sole benefit of its
customers, Jacksonville, FL, owned 28.88% of the voting securities of the Fund's
Class F Shares and, therefore, may, for certain purposes, be deemed to control
the Fund and be able to affect the outcome of certain matters presented for a
vote of shareholders.

As a Maryland corporation, the 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.

<PAGE>

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.

<PAGE>

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

<PAGE>

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

<PAGE>

TABLE OF CONTENTS

Summary of Fund Expenses 1

Financial Highlights -- Class F Shares 2

General Information 3

Investment Information 3

Investment Objective 3

Investment Policies 3

Investment Limitations 15

Net Asset Value 16

Investing in Class F Shares 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

<PAGE>

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

PARTICIPATION INTERESTS

PREFERRED STOCKS

CONVERTIBLE SECURITIES

The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.

Please see "Special Risks of Lower-Rated Debt 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

BB 15%

B 25%

CCC 1%

41%

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

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

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 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

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%

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.

Portfolio Managers' Backgrounds

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

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

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. and Federated 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. and Federated 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. and Federated 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

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

.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

Each share of the Fund is entitled to one vote in Director elections and other
matters submitted to shareholders for vote. All shares of all classes of each
portfolio in the Corporation have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As of November 7, 1997, MLPF&S, for the sole benefit
of its customers, Jacksonville, FL, owned 28.88% of the voting securities of the
Fund's Class F Shares and, therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.

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

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

TAX INFORMATION

Federal Income Tax

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.

<PAGE>

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.

<PAGE>

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

<PAGE>

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)

<PAGE>

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

<PAGE>

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.

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

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

FINANCIAL FUTURES CONTRACTS

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS

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.

CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS

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

PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES

WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES

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

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

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS

FOREIGN BANK INSTRUMENTS

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

RESTRICTED AND ILLIQUID SECURITIES

The Directors consider the following criteria in determining the liquidity of
certain restricted securities:

o the frequency of trades and quotes for the security;

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

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

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

REPURCHASE AGREEMENTS

REVERSE REPURCHASE AGREEMENTS

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

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.

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.

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

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 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

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

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

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.

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 November 7, 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 650,631 Shares (12.35%); and BHC
Securities Inc., Trade House Acct., Philadelphia, PA, owned approximately
370,655 Shares (7.04%).

As of November 7, 1997, no shareholder of record owned 5% or more of the
outstanding Class B Shares of the Fund.

As of November 7, 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 646,011 Shares (24.66%).

As of November 7, 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 807,563 Shares (28.88%).

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.

DIRECTOR LIABILITY

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND

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

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Directors. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
year ended November 30, 1996, 1995 and 1994 the Fund paid no brokerage
commissions.

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

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 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

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:

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

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

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

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 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

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.

MUTUAL FUND MARKET

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

INSTITUTIONAL CLIENTS

BANK MARKETING

*source: Investment Company Institute

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

FINANCIAL STATEMENTS

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements: To be filed by Amendment.
(b) Exhibits:
(1) Conformed copy of Articles of Incorporation of the
Registrant; (1) (i) Conformed copy of Articles
Supplementary (dated April 28, 1993); (12) (ii)
Conformed copy of Articles Supplementary (dated August
6, 1993); (15) (iii) Conformed copy of Articles
Supplementary (dated November 24, 1993); (12) (iv)
Conformed copy of Articles Supplementary (dated February
25, 1994); (12) (v) Conformed copy of Articles
Supplementary (dated June 1, 1994); (12)
(2) Copy of By-Laws of the Registrant; (1)
(3) Not applicable;
(4) Copy of Specimen Certificates for Shares of Capital
Stock of the Registrant;
(i) Federated Limited Term Fund-Class A Shares and
Class F Shares; (18)
(ii) Federated Limited Term Municipal Fund-Class A
Shares and Class F Shares; (18)
(iii) Federated Strategic Income Fund-Class A Shares,
Class B Shares, Class C Shares and Class F
Shares; (18)
(5) Conformed copy of Investment Advisory Contract; (7)
(i) Conformed Copy of Exhibit A to Investment Advisory
Contract; (7) (ii) Conformed copy of Exhibit B to
Investment Advisory Contract; (7) (iii) Conformed copy
of Exhibit C to Investment Advisory Contract; (12) (iv)
Conformed Copy of Exhibit D to Investment Advisory
Contract (9) (v) Conformed Copy of Exhibit E to
Investment Advisory Contract; (11) (vi) Conformed Copy
of Sub-Advisory Agreement; (18)

+ All Exhibits filed electronically.

1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed October 23, 1991. (File Nos. 33-43472 and
811-6447)

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

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

11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed February 3, 1994. (File Nos. 33-43472
and 811-6447)

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

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

18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed January 28, l997. (File Nos 33-43472
and 811-6447)

(6) (i) Conformed Copy of Distributor's Contract of
the Registrant through and including
Exhibits A-J; (14)
(ii) Conformed Copy of new exhibit J to the
Distributor's Contract of the Registrant; (18) (iii) The
Registrant hereby incorporates the conformed copy of the
specimen Mutual Funds Sales and Service Agreement;
Mutual Funds Service Agreement and Plan Trustee/Mutual
Funds Service Agreement from Item 24(b)6 of the Cash
Trust Series II Registration Statement on Form N-1A,
filed with the Commission on July 24, 1995. (File Nos.
33- 38550 and 811-6269)
(7) Not applicable;
(8) Conformed copy of Custodian Agreement of the Registrant;
(17) (i) Conformed copy of Domestic Custody Fee
Schedule; +
(9) (i) Conformed copy of Agreement for Fund Accounting
Services, Administrative Services, Transfer Agency
Services and Custody Services Procurement; (18) (ii)
Conformed copy of Shareholder Services Agreement; (12)
(iii) The responses described in Item 24(b)6 are hereby
incorporated by reference. (iv) On behalf of Federated
Strategic Income Fund, the Registrant hereby
incorporates the conformed copy of the Shareholder
Services Sub-Contract between National Pensions
Alliance, Ltd. and Federated Shareholder Services from
Item 24(b)(9)(ii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with the
Commission on March 25, 1996. (File Nos. 2-75670 and
811-3375); (v) On behalf of Federated Strategic Income
Fund, the Registrant hereby incorporates
the conformed copy of the Shareholder Services Sub-Contract
between Fidelity and Federated Shareholder Services from Item
24(b)(9)(iii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with the
Commission on March 25, 1996.(File nos.2-75670 and 811-3375);

+ All Exhibits filed electronically.

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

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

17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed January 26, l996 (File Nos
33-43472 and 811-6447)

18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed January 28, l997. (File Nos 33-43472
and 811-6447)

<PAGE>

(10) Conformed copy of Opinion and Consent of Counsel as to legality of shares
being registered; (15)
(11) Not Applicable
(12) Not Applicable;
(13) Conformed copy of Initial Capital
Understanding; (2)
(14) Not Applicable;
(15) (i) Conformed copy of Distribution Plan; (6)
(ii) Conformed copies of Exhibits B, C, D, E, F, G, and
H to 12b-1 Plan; (12) (iii) Conformed Copy of Exhibit A
to 12b-1 Plan; (14) (iv) Conformed copy of Exhibit I to
the Distribution Plan; (16) (v) The responses described
in Item 24(b)6 are hereby incorporated by reference.
(16) (i) Copy of Schedule for Computation of Fund Performance Data for
Limited Term Municipal Fund; (9)
(ii) Copy of Schedule for Computation of Fund Performance Data for
Strategic Income Fund; (14)
(iii) Copy of Schedule for Computation of Fund Performance Data for
Limited Term Fund; (13)
(17) Copy of Financial Data Schedules; +
(18) The Registrant hereby incorporates the conformed copy
of the specimen Multiple Class Plan from Item 24(b)(18)
of the World Investment Series, Inc. Registration
Statement on Form N-1A, filed with the Commission on
January 26, 1996.
(File Nos. 33-52149 and 811-07141)
(19) Conformed Copy of Power of Attorney; (18)
(i) Amendment No. l to Schedule l to Limited
Power of Attorney; (16)

+ All Exhibits filed electronically.

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

6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed July 7, 1993. (File Nos. 33-43472 and
811-6447)

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

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

13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed June 15, 1992. (File Nos. 33-43472 and
811-6447)

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

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

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

18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed January 28, l997. (File Nos 33-43472
and 811-6447)

<PAGE>

Item 25. Persons Controlled by or Under Common Control with Registrant:
None

Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of November 7, 1997_
Shares of capital stock
($0.001 per Share par value)

Federated Limited Term Fund - Class A Shares 6,378
Federated Limited Term Fund - Class F Shares 481
Federated Limited Term Municipal Fund - Class A Shares 812
Federated Limited Term Municipal Fund - Class F Shares 405
Federated Strategic Income Fund - Class A Shares 1,830
Federated Strategic Income Fund - Class B Shares 11,692
Federated Strategic Income Fund - Class C Shares 868
Federated Strategic Income Fund - Class F Shares 908

Item 27. Indemnification: (2)

Item 28. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the investment adviser, see
the section entitled "Fixed Income Securities, Inc. Information -
Management of the Corporation" in Part A. The affiliations with the
Registrant of four of the Trustees and one of the Officers of the
investment adviser are included in Part B of this Registration
Statement "Fixed Income Securities, Inc. Management." The remaining
Trustee of the investment adviser, his position with the investment
adviser, and, in parentheses, his principal occupation is: Mark D.
Olson (Partner, Wilson, Halbrook & Bayard), 107 W. Market Street,
Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Peter R. Anderson
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski

Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David F. Belton
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann

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

<PAGE>

Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka

Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser

Secretary: Stephen A. Keen

Treasurer: Thomas R. Donahue

Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle

Assistant Treasurer: Richard B. Fisher

The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.

<PAGE>

Item 29. Principal Underwriters:

(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the
following open-end investment companies, including the Registrant:

111 Corcoran 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;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty
U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Obligations Trust II; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia Funds; The
Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.;
and World Investment Series, Inc.

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

<PAGE>

(b)

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

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

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

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

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

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

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

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

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

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant

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

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

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

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

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

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

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

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

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

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

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Shareholder Services Company P.O. Box 8600
"Transfer Agent, Dividend Boston, MA 02266-8600
Disbursing Agent and Portfolio
Recordkeeper"

Federated Services Company Federated Investors Tower
"Administrator" Pittsburgh, PA 15222-3779

Federated Advisers Federated Investors Tower
"Adviser" Pittsburgh, PA 15222-3779

Federated Global Research Corp. 175 Water Street
"Sub-Adviser" New York, NY 10038-4965

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

Item 31. Management Services: Not applicable.

Item 32. Undertakings: (2)

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual
report to shareholders, upon request and without charge.

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

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FIXED INCOME SECURITIES, INC.,
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 25th day of November 1997.

FIXED INCOME SECURITIES, INC.

BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
November 25, 1997

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

NAME TITLE DATE

By: /s/ J. Crilley Kelly
J. Crilley Kelly Attorney In Fact November 25, 1997
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Director
(Chief Executive Officer)

Richard B. Fisher* President and Director

Edward C. Gonzales* Executive Vice President

John W. McGonigle* Treasurer, Executive
Vice President and
Secretary
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

William J. Copeland* Director

James E. Dowd* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr.* Director

Peter E. Madden* Director

Gregor F. Meyer* Director

John E. Murray, Jr.* Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

* By Power of Attorney

Exhibit 8(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

STATE STREET
DOMESTIC CUSTODY

FEE SCHEDULE

Federated Funds

I. Custody Services

Maintain custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income. Make
cash disbursements and report cash transactions. Monitor corporate
actions.

ANNUAL FEES

ASSET

Per Fund .25 Basis Points

Wire Fees $3.00 per wire

Settlements:

o Each DTC Transaction $5.00
o Each Federal Reserve Book Entry Transaction $3.75
o Each Repo Transaction (All Repo) $3.75
o Each Physical Transaction (NY/Boston, Private Placement) $15.00
o Each Option Written/Exercised/Expired $18.75
Each Book Entry Muni (Sub-custody) Transaction $15.00
o Government Paydowns $5.00
o Maturity Collections $8.00
o PTC Transactions $6.00

II. Special Services

Fees for activities of a non-recurring nature such as fund consolidation
or reorganization, extraordinary security shipments and the preparation of
special reports will be subject to negotiation.

III. Balance Credit

Municipal Funds
A balance credit equal to 75% of the average demand deposit account
balance in the custodian account for the month billed times the 30 day
T-Bill Rate on the last Monday of the month billed, will be applied
against the month's custodian bill.

Transfer Agent
A balance credit equal to 100% of the average balance in the transfer
agent demand deposit accounts, less the reserve requirement and applicable
related expenses, times 75% of the 30 average Fed Funds Rate.

IV. Payment

The above fees will be charged against the funds' custodian checking
account thirty (30) days after the invoice is mailed to the funds' offices.

V. Term of Contract

The parties agree that this fee schedule shall become effective January 1,
1997.

FEDERATED SERVICES COMPANY STATE STREET

BY: /s/ Douglas L. Hein BY: /s/ Michael E. Hagerty

TITLE: Senior Vice President TITLE: Vice President

DATE: April 15, 1997 DATE: April 8, 1997

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Fixed Income Securities, Inc.
Federated Limited Term Fund
Class A Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 121,840,100
<INVESTMENTS-AT-VALUE> 122,975,647
<RECEIVABLES> 7,112,303
<ASSETS-OTHER> 20,923
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 130,108,873
<PAYABLE-FOR-SECURITIES> 3,795,078
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,201,098
<TOTAL-LIABILITIES> 4,996,176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 135,065,689
<SHARES-COMMON-STOCK> 11,724,886
<SHARES-COMMON-PRIOR> 13,888,396
<ACCUMULATED-NII-CURRENT> 53,308
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,141,846)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,135,546
<NET-ASSETS> 116,174,431
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,206,343
<OTHER-INCOME> 0
<EXPENSES-NET> 1,412,936
<NET-INVESTMENT-INCOME> 7,793,407
<REALIZED-GAINS-CURRENT> (127,055)
<APPREC-INCREASE-CURRENT> (986,773)
<NET-CHANGE-FROM-OPS> 6,679,579
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,170,778
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,805,603
<NUMBER-OF-SHARES-REDEEMED> 5,449,139
<SHARES-REINVESTED> 480,026
<NET-CHANGE-IN-ASSETS> (23,521,601)
<ACCUMULATED-NII-PRIOR> 15,964
<ACCUMULATED-GAINS-PRIOR> (11,014,791)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 515,204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,103,699
<AVERAGE-NET-ASSETS> 129,329,536
<PER-SHARE-NAV-BEGIN> 9.970
<PER-SHARE-NII> 0.590
<PER-SHARE-GAIN-APPREC> (0.060)
<PER-SHARE-DIVIDEND> 0.590
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.910
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Fixed Income Securities, Inc.
Federated Limited Term Fund
Class F Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 121,840,100
<INVESTMENTS-AT-VALUE> 122,975,647
<RECEIVABLES> 7,112,303
<ASSETS-OTHER> 20,923
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 130,108,873
<PAYABLE-FOR-SECURITIES> 3,795,078
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,201,098
<TOTAL-LIABILITIES> 4,996,176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 135,065,689
<SHARES-COMMON-STOCK> 902,100
<SHARES-COMMON-PRIOR> 1,021,539
<ACCUMULATED-NII-CURRENT> 53,308
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,141,846)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,135,546
<NET-ASSETS> 8,938,266
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,206,343
<OTHER-INCOME> 0
<EXPENSES-NET> 1,412,936
<NET-INVESTMENT-INCOME> 7,793,407
<REALIZED-GAINS-CURRENT> (127,055)
<APPREC-INCREASE-CURRENT> (986,773)
<NET-CHANGE-FROM-OPS> 6,679,579
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 585,285
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 250,466
<NUMBER-OF-SHARES-REDEEMED> 404,495
<SHARES-REINVESTED> 34,590
<NET-CHANGE-IN-ASSETS> (23,521,601)
<ACCUMULATED-NII-PRIOR> 15,964
<ACCUMULATED-GAINS-PRIOR> (11,014,791)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 515,204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,103,699
<AVERAGE-NET-ASSETS> 129,329,536
<PER-SHARE-NAV-BEGIN> 9.970
<PER-SHARE-NII> 0.660
<PER-SHARE-GAIN-APPREC> (0.120)
<PER-SHARE-DIVIDEND> 0.600
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.910
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Fixed Income Securities, Inc.
Federated Limited Term Municipal
Fund
Class A
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 102,199,977
<INVESTMENTS-AT-VALUE> 102,057,693
<RECEIVABLES> 1,937,737
<ASSETS-OTHER> 1,655,409
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 105,650,839
<PAYABLE-FOR-SECURITIES> 5,515,726
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264,725
<TOTAL-LIABILITIES> 5,780,451
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102,467,028
<SHARES-COMMON-STOCK> 7,534,098
<SHARES-COMMON-PRIOR> 6,615,525
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (53,333)
<ACCUMULATED-NET-GAINS> (2,401,023)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (142,284)
<NET-ASSETS> 73,570,328
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,726,174
<OTHER-INCOME> 0
<EXPENSES-NET> 701,877
<NET-INVESTMENT-INCOME> 4,024,297
<REALIZED-GAINS-CURRENT> 25,072
<APPREC-INCREASE-CURRENT> (809,590)
<NET-CHANGE-FROM-OPS> 3,239,779
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,808,430
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,903,674
<NUMBER-OF-SHARES-REDEEMED> 4,185,345
<SHARES-REINVESTED> 200,244
<NET-CHANGE-IN-ASSETS> 8,249,078
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,426,095)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 381,182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,261,731
<AVERAGE-NET-ASSETS> 94,508,369
<PER-SHARE-NAV-BEGIN> 9.850
<PER-SHARE-NII> 0.400
<PER-SHARE-GAIN-APPREC> (0.080)
<PER-SHARE-DIVIDEND> 0.410
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.760
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Fixed Income Securities, Inc.
Federated Limited Term Municipal
Fund
Class F
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 102,199,977
<INVESTMENTS-AT-VALUE> 102,057,693
<RECEIVABLES> 1,937,737
<ASSETS-OTHER> 1,655,409
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 105,650,839
<PAYABLE-FOR-SECURITIES> 5,515,726
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264,725
<TOTAL-LIABILITIES> 5,780,451
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102,467,028
<SHARES-COMMON-STOCK> 2,693,304
<SHARES-COMMON-PRIOR> 2,683,625
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (53,333)
<ACCUMULATED-NET-GAINS> (2,401,023)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (142,284)
<NET-ASSETS> 26,300,061
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,726,174
<OTHER-INCOME> 0
<EXPENSES-NET> 701,877
<NET-INVESTMENT-INCOME> 4,024,297
<REALIZED-GAINS-CURRENT> 25,072
<APPREC-INCREASE-CURRENT> (809,590)
<NET-CHANGE-FROM-OPS> 3,239,779
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,269,200
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 812,884
<NUMBER-OF-SHARES-REDEEMED> 884,487
<SHARES-REINVESTED> 81,282
<NET-CHANGE-IN-ASSETS> 8,249,078
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,426,095)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 381,182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,261,731
<AVERAGE-NET-ASSETS> 94,508,369
<PER-SHARE-NAV-BEGIN> 9.850
<PER-SHARE-NII> 0.430
<PER-SHARE-GAIN-APPREC> (0.080)
<PER-SHARE-DIVIDEND> 0.440
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.760
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> Fixed Income Securities, Inc.
Federated Strategic Income Fund
Class A
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 165,624,689
<INVESTMENTS-AT-VALUE> 170,661,218
<RECEIVABLES> 6,453,996
<ASSETS-OTHER> 22,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 177,138,057
<PAYABLE-FOR-SECURITIES> 626,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 623,930
<TOTAL-LIABILITIES> 1,250,180
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,234,705
<SHARES-COMMON-STOCK> 2,677,159
<SHARES-COMMON-PRIOR> 502,051
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 85,759
<ACCUMULATED-NET-GAINS> 710,422
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,028,509
<NET-ASSETS> 28,020,933
<DIVIDEND-INCOME> 38,780
<INTEREST-INCOME> 7,059,920
<OTHER-INCOME> 0
<EXPENSES-NET> 1,187,299
<NET-INVESTMENT-INCOME> 5,911,401
<REALIZED-GAINS-CURRENT> 688,887
<APPREC-INCREASE-CURRENT> 4,696,862
<NET-CHANGE-FROM-OPS> 11,297,150
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 924,874
<DISTRIBUTIONS-OF-GAINS> 41,612
<DISTRIBUTIONS-OTHER> 30,719
<NUMBER-OF-SHARES-SOLD> 2,290,977
<NUMBER-OF-SHARES-REDEEMED> 163,057
<SHARES-REINVESTED> 47,188
<NET-CHANGE-IN-ASSETS> 159,592,611
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 135,565
<OVERDISTRIB-NII-PRIOR> 7,376
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 629,398
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,957,850
<AVERAGE-NET-ASSETS> 76,520,034
<PER-SHARE-NAV-BEGIN> 10.140
<PER-SHARE-NII> 0.930
<PER-SHARE-GAIN-APPREC> 0.400
<PER-SHARE-DIVIDEND> 0.890
<PER-SHARE-DISTRIBUTIONS> 0.080
<RETURNS-OF-CAPITAL> 0.030
<PER-SHARE-NAV-END> 10.470
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> Fixed Income Securities, Inc.
Federated Strategic Income Fund
Class B
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 165,624,689
<INVESTMENTS-AT-VALUE> 170,661,218
<RECEIVABLES> 6,453,996
<ASSETS-OTHER> 22,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 177,138,057
<PAYABLE-FOR-SECURITIES> 626,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 623,930
<TOTAL-LIABILITIES> 1,250,180
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,234,705
<SHARES-COMMON-STOCK> 11,465,981
<SHARES-COMMON-PRIOR> 512,083
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 85,759
<ACCUMULATED-NET-GAINS> 710,422
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,028,509
<NET-ASSETS> 120,018,014
<DIVIDEND-INCOME> 38,780
<INTEREST-INCOME> 7,059,920
<OTHER-INCOME> 0
<EXPENSES-NET> 1,187,299
<NET-INVESTMENT-INCOME> 5,911,401
<REALIZED-GAINS-CURRENT> 688,887
<APPREC-INCREASE-CURRENT> 4,696,862
<NET-CHANGE-FROM-OPS> 11,297,150
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,785,124
<DISTRIBUTIONS-OF-GAINS> 46,342
<DISTRIBUTIONS-OTHER> 26,253
<NUMBER-OF-SHARES-SOLD> 11,345,851
<NUMBER-OF-SHARES-REDEEMED>562,289
<SHARES-REINVESTED> 170,336
<NET-CHANGE-IN-ASSETS> 159,592,611
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 135,565
<OVERDISTRIB-NII-PRIOR> 7,376
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 629,398
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,957,850
<AVERAGE-NET-ASSETS> 76,520,034
<PER-SHARE-NAV-BEGIN> 10.140
<PER-SHARE-NII> 0.840
<PER-SHARE-GAIN-APPREC> 0.410
<PER-SHARE-DIVIDEND> 0.840
<PER-SHARE-DISTRIBUTIONS> 0.080
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.470
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 053
<NAME> Fixed Income Securities, Inc.
Federated Strategic Income Fund
Class C
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 165,624,689
<INVESTMENTS-AT-VALUE> 170,661,218
<RECEIVABLES> 6,453,996
<ASSETS-OTHER> 22,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 177,138,057
<PAYABLE-FOR-SECURITIES> 626,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 623,930
<TOTAL-LIABILITIES> 1,250,180
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,234,705
<SHARES-COMMON-STOCK> 1,000,967
<SHARES-COMMON-PRIOR> 229,157
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 85,759
<ACCUMULATED-NET-GAINS> 710,422
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,028,509
<NET-ASSETS> 10,481,621
<DIVIDEND-INCOME> 38,780
<INTEREST-INCOME> 7,059,920
<OTHER-INCOME> 0
<EXPENSES-NET> 1,187,299
<NET-INVESTMENT-INCOME> 5,911,401
<REALIZED-GAINS-CURRENT> 688,887
<APPREC-INCREASE-CURRENT> 4,696,862
<NET-CHANGE-FROM-OPS> 11,297,150
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 435,543
<DISTRIBUTIONS-OF-GAINS> 18,841
<DISTRIBUTIONS-OTHER> 20,790
<NUMBER-OF-SHARES-SOLD> 824,314
<NUMBER-OF-SHARES-REDEEMED> 80,120
<SHARES-REINVESTED> 27,616
<NET-CHANGE-IN-ASSETS> 159,592,611
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 135,565
<OVERDISTRIB-NII-PRIOR> 7,376
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 629,398
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,957,850
<AVERAGE-NET-ASSETS> 76,520,034
<PER-SHARE-NAV-BEGIN> 10.140
<PER-SHARE-NII> 0.830
<PER-SHARE-GAIN-APPREC> 0.420
<PER-SHARE-DIVIDEND> 0.800
<PER-SHARE-DISTRIBUTIONS> 0.080
<RETURNS-OF-CAPITAL> 0.040
<PER-SHARE-NAV-END> 10.470
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 054
<NAME> Fixed Income Securities, Inc.
Federated Strategic Income
Fund
Class F
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 165,624,689
<INVESTMENTS-AT-VALUE> 170,661,218
<RECEIVABLES> 6,453,996
<ASSETS-OTHER> 22,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 177,138,057
<PAYABLE-FOR-SECURITIES> 626,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 623,930
<TOTAL-LIABILITIES> 1,250,180
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,234,705
<SHARES-COMMON-STOCK> 1,658,618
<SHARES-COMMON-PRIOR> 364,047
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 85,759
<ACCUMULATED-NET-GAINS> 710,422
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,028,509
<NET-ASSETS> 17,367,308
<DIVIDEND-INCOME> 38,780
<INTEREST-INCOME> 7,059,920
<OTHER-INCOME> 0
<EXPENSES-NET> 1,187,299
<NET-INVESTMENT-INCOME> 5,911,401
<REALIZED-GAINS-CURRENT> 688,887
<APPREC-INCREASE-CURRENT> 4,696,862
<NET-CHANGE-FROM-OPS> 11,297,150
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 734,765
<DISTRIBUTIONS-OF-GAINS> 30,084
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,347,566
<NUMBER-OF-SHARES-REDEEMED> 84,996
<SHARES-REINVESTED> 32,001
<NET-CHANGE-IN-ASSETS> 159,592,611
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 135,565
<OVERDISTRIB-NII-PRIOR> 7,376
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 629,398
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,957,850
<AVERAGE-NET-ASSETS> 76,520,034
<PER-SHARE-NAV-BEGIN> 10.140
<PER-SHARE-NII> 0.980
<PER-SHARE-GAIN-APPREC> 0.340
<PER-SHARE-DIVIDEND> 0.910
<PER-SHARE-DISTRIBUTIONS> 0.080
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.470
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>