FIXED INCOME SECURITIES INC, 485BPOS, 1999-01-29

FIXED INCOME SECURITIES INC
485BPOS, 1999-01-29

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

Post-Effective Amendment No. 24 ........................ X
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and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 24 ..........................................X
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FIXED INCOME SECURITIES, INC.

(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds

5800 Corporate Drive

Pittsburgh, Pennsylvania 15237-7000

(Address of Principal Executive Offices)

(412) 288-1900

(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,

Pittsburgh, Pennsylvania 15222-3779

(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
_X on January 31, 1999, pursuant to paragraph (b)

_ 60 days after filing pursuant to paragraph (a) (i)
on _________________ pursuant to paragraph (a) (i).

___ 75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

PROSPECTUS

Federated Limited Term Fund

A Portfolio of Fixed Income Securities, Inc.

CLASS A SHARES

A mutual fund seeking a high level of current income by investing primarily
in corporate debt securities, mortgage backed securities, and other asset
backed securities.

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

January 31, 1999

CONTENTS

Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities
in Which the Fund Invests? 5

What are the Specific Risks of Investing in the Fund? 7
What do Shares Cost? 9

How is the Fund Sold? 11
How to Purchase Shares 11

How to Redeem and Exchange Shares 12
Account and Share Information 15

Who Manages the Fund? 16
Financial Information 17

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to seek a high level of current income
consistent with minimum fluctuation in principal value through the
compilation of a portfolio the dollar-weighted average duration of which at
all times will be limited to three years or less. Duration measures the
price sensitivity of a fixed income security to changes in interest rates.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the strategies and policies
described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its objective by investing at least 65% of its assets in
investment grade fixed income securities. The Fund may invest up to 35% of
its assets in fixed income securities rated below investment grade, and the
Fund has no minimum rating requirement for such securities. The portfolio
consists primarily of corporate debt securities, mortgage backed
securities and other asset backed securities.

The Shares offered by this prospectus are not deposits or obligations of
any bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

* a change in prevailing interest rates,

* defaults or an increase in the risk of defaults on portfolio securities,

and

* early redemptions of portfolio securities.

Fixed income securities rated below investment grade, also known as junk
bonds, generally entail greater risks than investment grade fixed income
securities. An investment in the fund involves additional risks such as
liquidity risks and sector risks.

RISK/RETURN BAR CHART AND TABLE

[The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class A Shares of Federated Limited
Term Fund as of the calendar year-end for each of six years.

The `y' axis reflects the "% Total Return" beginning with "-3%" and
increasing in increments of 3% up to 12%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended 1998. The
light gray shaded chart features six distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Class A Shares of the Fund for each calendar year, stated
directly at the top of each respective bar, for the calendar years 1993 through
1998, are 7.31%, -1.26%, 11.68%, 5.00%, 7.05% and 4.74%.]

The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class A Shares of Federated
Limited Term Fund as of the calendar year-end for each of six years.

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

The Fund's Class A Shares are sold subject to a sales charge (load). The
impact of the sales charges are not reflected in the total returns above,
and if these amounts were reflected, returns would be less than those
shown.

Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 4.03% (quarter ended June 30, 1995). Its lowest
quarterly return was (0.72%) (quarters ended March 31, 1994 and June 30,
1994).

Average Annual Total Return for the Fund's Class A Shares compared to the
Merrill Lynch 1-3 Year Short-Term Corporate Index (MLSTC) and the Lipper
Short Investment Grade Debt Funds Average (LSIGDFA).

AVERAGE ANNUAL TOTAL RETURN

LIFE OF THE FUND 1 1 YEAR 5 YEARS
CLASS A 5.65% 3.69% 5.15%
MLSTC 6.85% 7.21% 6.54%
LSIGDFA 5.82% 5.73% 5.43%

1 The start of performance date for the Class A Shares was January 13,
1992.

The table shows the Fund's Class A Shares average annual total returns over
a period of years relative to the MLSTC, a broad-based market index, and
LSIGDFA, an average of funds with similar investment objectives.

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

What are the Fund's Fees and Expenses?

FEDERATED LIMITED TERM FUND

FEES AND EXPENSES

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

<TABLE>

<S> <C>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) 1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.50%
Other Expenses 0.42%
Shareholder Services Fee 0.25%
Total Annual Fund Operating Expenses 1.57%
1 Although not contractually obligated to do so, the adviser
will waive and the distributor will reimburse certain
amounts. These are shown below along with the net expenses
the Fund actually paid for the fiscal year ended
November 30, 1998.
Waiver of Fund Expenses 0.47%
Total Actual Annual Fund Operating Expenses (after waivers) 1.10%

2 The adviser voluntary waived a portion of the managment fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.23% for the year ended
November 30, 1998.
3 The distribution (12b-1) fee for the Fund has been voluntarily reduced.
This voluntary reduction can be terminated at any time. The distribution
(12b-1) fee paid by the Fund (after the voluntary waiver) was 0.20% for
the fiscal year ended November 30, 1998.
</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses are BEFORE WAIVERS as shown in
the table and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:

1 Year $ 258
3 Years $ 591
5 Years $ 947
10 Years $ 1,949

What are the Fund's Investment Strategies?

The Fund pursues its objective by investing in a portfolio with a dollar-
weighted average duration of not more than three years, composed primarily
of corporate debt securities, mortgage backed securities and other asset
backed securities. Duration measures the price sensitivity of a portfolio
of fixed income securities to changes in interest rates. In addition, at
least 65% of the Fund's assets will consist of investment grade fixed
income securities.

The adviser manages the Fund's market risks by adjusting its dollar-
weighted average portfolio duration within the three year limitation. The
adviser will tend to maintain a longer duration when interest rates are
expected to fall, and a shorter one when they are expected to increase. In
determining the portfolio's duration, the adviser may consider a variety of
factors, such as:

* the current state of the economy and the outlook for future economic
activity,

* the current level of interest rates and the likelihood that market
interest rates will change,
* the Federal Reserve Board's policies regarding short-term interest rates,
and
* the potential effects of foreign economic activity on the level of rates.

The adviser adjusts the portfolio's duration by buying and selling
securities of different maturities. The adviser may purchase a security of
any duration, as long as the portfolio's dollar-weighted average duration
remains at three years or less. The adviser uses a two step process to
select these securities. First, the adviser allocates the portfolio among
corporate debt securities, mortgage backed securities and other asset
backed securities. The adviser also determines the amount (up to 35% of
assets) that the Fund should allocate to securities rated below investment
grade. In allocating the portfolio, the adviser also considers the amount
invested in a particular business sector (such as utilities) or type of
obligation supporting mortgage or asset backed securities (such as credit
card obligations).

The adviser makes portfolio allocations by determining which type of
security it expects to perform most favorably under expected economic and
market conditions. In making this determination, the adviser considers the
historical performance of each type of security and a variety of economic
and market indicators. For example, the Fund might respond to an expected
economic downturn by selling lower rated securities and buying asset backed
securities and other highly rated securities.

The second step involves selection of specific securities. Generally, the
adviser attempts to enhance the Fund's returns, subject to the Fund's
quality and duration constraints, by purchasing securities offering the
highest expected returns. The adviser analyzes different factors to select
each type of security. In selecting a corporate debt security, the adviser
analyzes the business, competitive position, and financial condition of
the issuer to assess whether the security's risk is commensurate with its
potential return. In selecting mortgage and other asset backed securities,
the analysis focuses on the expected cash flows from the pool of debt
obligations (and any credit enhancement) supporting the security. To
assess the relative returns and risks of these securities, the adviser
analyzes how the timing, amount and division of cash flows from the pool
might change in response to changing economic and market conditions.

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

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

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

CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt securities. The credit risks of corporate
debt securities vary widely amount issuers. The credit risk of an issuer's
debt security may also vary based on its priority for repayment. For
example, higher ranking (senior) debt securities have a higher priority
than lower ranking (subordinated) securities. This means that the issuer
might not make payments on subordinated securities while continuing to make
payments on senior securities. In addition, in the event of bankruptcy,
holders of senior securities may receive amounts otherwise payable to the
holders of subordinated securities.

MORTGAGE BACKED SECURITIES

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

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

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying pass-
through certificate among holders of different classes of mortgage backed
securities. This creates different prepayment and market risks for each CMO
class. For example, in a sequential pay CMO, one class of CMOs receives all
principal payments and prepayments. The next class of CMOs receives all
principal payments after the first class is paid off. This process repeats
for each sequential class of CMO. As a result, each class of sequential pay
CMOs reduces the prepayment risks of subsequent classes.

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

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

ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial
debts with maturities of less than ten years. However, almost any type of
fixed income assets (including other fixed income securities) may be used
to create an asset backed security. Asset backed securities may take the
form of commercial paper, notes, or pass through certificates. Asset backed
securities may also resemble some types of CMOs.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In
some cases the company providing credit enhancement makes all payments
directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser may evaluate the
credit risk of a fixed income security based solely upon its credit
enhancement.

INVESTMENT RATINGS

Investment grade securities include fixed income securities rated AAA, the
highest rating category, through BBB by a Nationally Recognized Rating
Service (Rating Service) or, if unrated, those securities determined to be
of equivalent quality by the Adviser. Non-investment grade fixed income
securities are rated BB or below by a Rating Service or unrated. When the
Fund invests in fixed income securities some will be non-investment grade
at the time of purchase. Unrated securities will be determined by the
Adviser to be of like quality and may have greater risk but a higher yield
than comparable rated securities.

Securities rated BBB or below by Standard and Poor's or Baa by Moody's
Investors Service, Inc. have speculative characteristics.

What are the Specific Risks of Investing in the Fund?

BOND MARKET RISKS

Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. The Fund attempts to limit this risk by
limiting its duration.

CREDIT RISKS

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

Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the adviser's credit
assessment.

Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.

Credit risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause the
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.

CALL AND PREPAYMENT RISKS

Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below it's current market
price. An increase in the likelihood of a call may reduce the security's
price.

Most obligations supporting mortgage backed and asset backed securities
can be prepaid at any time without penalty. For example, homeowners
frequently refinance high interest rate mortgages when mortgage rates
fall. This results in the prepayment of mortgage backed securities with
higher interest rates. Conversely, prepayments due to refinancings
decrease when mortgage rates increase. This extends the life of mortgage
backed securities with lower interest rates.

As a result, increases in prepayments of high interest rate mortgage backed
or asset backed securities, or decreases in prepayments of lower interest
rate mortgage backed or asset backed securities, may reduce their yield and
price. This relationship between interest rates and debt prepayments makes
the price of most mortgage backed and asset backed securities more volatile
than most other types of fixed income securities with comparable credit
risks.

If a fixed income security is called or prepaid, the Fund may have to
reinvest the proceeds in other fixed income securities with lower interest
rates, higher credit risks, or other less favorable characteristics.

LIQUIDITY RISKS

Trading opportunities are more limited for fixed income securities that
have not received any credit ratings, have received ratings below
investment grade or are not widely held. These features may make it more
difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security,
sell other securities to raise cash or give up an investment opportunity,
any of which could have a negative effect on the Fund's performance.
Infrequent trading may also lead to greater price volatility.

SECTOR RISKS

A substantial part of the Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, or with other
similar characteristics. As a result, the Fund will be more susceptible to
any economic, business, political, or other developments which generally
affect these issuers.

RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES

Securities rated below investment grade, also known as junk bonds,
generally entail greater market, credit and liquidity risks than
investment grade securities. For example, their prices are more volatile,
economic downturns and financial setbacks may affect their prices more
negatively, and their trading market may be more limited.

What do Shares Cost?

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

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

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

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

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

SHARES INVESTMENT SALES SALES
OFFERED AMOUNTS 1 CHARGE 2 CHARGE 3
Class A $1,500/$100 1.00% 0.00%

on their customers than those imposed by the Fund.

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

CLASS A SHARES

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

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

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

THE SALES CHARGE AT PURCHASE MAY BE ELIMINATED BY:

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

* combining concurrent purchases of Shares:

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

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

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

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

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU
PURCHASE SHARES:

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

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

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

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

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

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

SALES CHARGE WHEN YOU REDEEM

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

CLASS A SHARES

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

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

* purchased with reinvested dividends or capital gains;

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

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

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

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

IN ADDITION, YOU WILL NOT BE CHARGED A CDSC:

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

* if your redemption is a required retirement plan distribution;

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

If your redemption qualifies, you or your investment professional should
notify the Distributor at the time of redemption to eliminate the CDSC. If
the Distributor is notified, the CDSC will apply.

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

* Shares that are not subject to a CDSC;

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

How is the Fund Sold?

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

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

RULE 12B-1 PLAN

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

How to Purchase Shares

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

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

THROUGH AN INVESTMENT PROFESSIONAL

* Establish an account with the investment
professional; and

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

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

DIRECTLY FROM THE FUND

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

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

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

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

BY WIRE

Send your wire to:

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

ABA Number 011000028
Attention: EDGEWIRE

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

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

BY CHECK

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

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE

that requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

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

THROUGH AN EXCHANGE

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

BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.

BY AUTOMATED CLEARINGHOUSE (ACH)

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

RETIREMENT INVESTMENTS

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

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

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

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

THROUGH AN INVESTMENT PROFESSIONAL

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

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem or exchange Shares by calling the Fund once you have
completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00
p.m. Eastern time) you will receive a redemption amount based on that day's
NAV.

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

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

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT
DELIVERY SERVICE to:

Federated Shareholder Services Company

1099 Hingham Street
Rockland, MA 02370-3317

All requests must include:

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

* amount to be redeemed or exchanged;

* signatures of all Shareholders exactly as registered; and

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

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

SIGNATURE GUARANTEES

Signatures must be guaranteed if:

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

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

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

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

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

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

REDEMPTION IN KIND

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

* to allow your purchase to clear;

* during periods of market volatility; or

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGES

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

* ensure that the account registrations are identical;

* meet any minimum initial investment requirements; and

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

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

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

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

SHARE CERTIFICATES

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

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.

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

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

ACCOUNTS WITH LOW BALANCES

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

TAX INFORMATION

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

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

Who Manages the Fund?

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

THE FUND'S PORTFOLIO MANAGERS ARE:

RANDALL S. BAUER

Randall S. Bauer has been the Fund's portfolio manager since October 1995.
Mr. Bauer joined Federated Investors, Inc. or its predecessor in 1989 and
has been a Portfolio Manager and 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

Robert K. Kinsey has been the Fund's portfolio manager since July 1997.
Mr. Kinsey joined Federated Investors, Inc. or its predecessor in 1995 as a
Portfolio Manager and Vice President of a Federated advisory subsidiary. He
has been a Portfolio Manager and 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.

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

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

Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase. However, this may be difficult with
certain issuers. For example, funds dealing with foreign service providers
or investing in foreign securities, will have difficulty determining the
Year 2000 readiness of those entities. This is especially true of entities
or issuers in emerging markets. The financial impact of these issues for
the Fund is still being determined. There can be no assurance that
potential Year 2000 problems would not have a material adverse effect on
the Fund.

Financial Information

FINANCIAL HIGHLIGHTS

The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of all
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report,
along with the Fund's audited financial statements, is included in the
Annual Report.

Financial Highlights

(For a share outstanding throughout each period)

YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17
INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.60 0.59 0.59 0.55 0.53
Net realized and unrealized gain (loss) on
investments and foreign currency (0.13) 0.04 (0.06) 0.49 (0.66)
Total from investment operations 0.47 0.63 0.53 1.04 (0.13)
LESS DISTRIBUTIONS:
Distributions from net investment income (0.60) (0.59) (0.59) (0.55) (0.53)
Distributions in excess of net
investment income 1 - - - - (0.02)
Distributions from net realized gain
on investments - - - - (0.01)
Total distributions (0.60) (0.59) (0.59) (0.55) (0.56)
NET ASSET VALUE, END OF PERIOD $ 9.82 $ 9.95 $ 9.91 $ 9.97 $ 9.48
TOTAL RETURN 2 4.81% 6.52% 5.54% 11.29% (1.30%)
RATIOS TO AVERAGE NET ASSETS:

Expenses 1.10% 1.10% 1.10% 1.10% 1.10%
Net investment income 6.02% 5.90% 6.04% 6.13% 5.52%
Expense waiver/reimbursement 3 0.47% 0.49% 0.56% 0.43% 0.39%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $101,213 $94,952 $116,174 $ 138,451 $178,771
Portfolio turnover 93% 62% 104% 63% 63%
</TABLE>

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

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

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

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated November 30, 1998, which can be obtained free of charge.

[Graphic]

PROSPECTUS

Federated Limited Term Fund

A Portfolio of Fixed Income Securities, Inc.

CLASS A SHARES

January 31, 1999

A Statement of Additional Information (SAI) dated January 31, 1999, is
incorporated by reference into this prospectus. Additional information
about the Fund's investments is contained in the Fund's annual and semi-
annual reports to shareholders as they become available. The annual report
discusses market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year. To obtain the
SAI, the annual report, semi-annual report and other information without
charge, call your investment professional or the Fund at
1-800-341-7400.

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

[Graphic]

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-6447
Cusip 338319106

3070701A-A (1/99)

[Graphic]

PROSPECTUS

Federated Limited Term Fund

A Portfolio of Fixed Income Securities, Inc.

CLASS F SHARES

A mutual fund seeking a high level of current income by investing primarily
in corporate debt securities, mortgage backed securities, and other asset
backed securities.

January 31, 1999

CONTENTS

Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities
in Which the Fund Invests? 5

What are the Specific Risks of Investing in the Fund? 7
What do Shares Cost? 9

How is the Fund Sold? 11
How to Purchase Shares 11

How to Redeem and Exchange Shares 13
Account and Share Information 15

Who Manages the Fund? 16
Financial Information 17

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

* a change in prevailing interest rates,

* defaults or an increase in the risk of defaults on portfolio securities,
and
* early redemptions of portfolio securities.

RISK/RETURN BAR CHART AND TABLE

[The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class F Shares of Federated Limited
Term Fund as of the calendar
year-end for each of five years.

The `y' axis reflects the "% Total Return" beginning with "-3%" and
increasing in increments of 3% up to 12%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended 1998. The
light gray shaded chart features five distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Class F Shares of the Fund for each calendar year, stated
directly at the top of each respective bar, for the calendar years 1994 through
1998, are -1.16%, 11.79%, 5.10%, 7.16% and 4.83%.]

The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class F Shares of Federated
Limited Term Fund as of the calendar year-end for each of four years.

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

The Fund's Class F Shares are sold subject to a sales charge (load). The
impact of the sales charges are not reflected in the total returns above,
and if these amounts were reflected, returns would be less than those
shown.

Within the period shown in the Chart, the Fund's Class F Shares highest
quarterly return was 4.06% (quarter ended June 30, 1995). Its lowest
quarterly return was (0.70%) (quarter ended June 30, 1994).

Average Annual Total Return for the Fund's Class A Shares compared to the
Merrill Lynch 1-3 Year Short-Term Corporate Index (MLSTC) and the Lipper
Short Investment Grade Debt Funds Average (LSIGDFA).

AVERAGE ANNUAL TOTAL RETURN

LIFE OF THE FUND 1 1 YEAR 5 YEARS
CLASS F 5.12% 2.81% 5.25%
MLSTC 6.38% 7.21% 6.54%
LSIGDFA 5.38% 5.73% 5.43%

1 The start of performance date for the Class F Shares was August 31, 1993.

The table shows the Fund's Class F Shares average annual total returns over
a period of years relative to the MLSTC, a broad-based market index, and
LSIGDFA, an average of funds with similar investment objectives.

What are the Fund's Fees and Expenses?

FEDERATED LIMITED TERM FUND

FEES AND EXPENSES

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

<S> <C>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) 1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.15%
Other Expenses 0.42%
Shareholder Services Fee 4 0.25%
Total Annual Fund Operating Expenses 1.22%

1 Although not contractually obligated to do so, the adviser
will waive and the shareholder service provider and
distributor will reimburse certain amounts. These are shown
below along with the net expenses the Fund actually paid for
the fiscal year ended November 30, 1998.

Waiver of Fund Expenses 0.22%

Total Actual Annual Fund Operating Expenses (after waivers) 1.00%

3 The distribution (12b-1) fee for the Fund has been voluntarily reduced.
This voluntary reduction can be terminated at any time. The distribution
(12b-1) fee paid by the Fund (after the voluntary waiver) was 0.13% for
the fiscal year ended November 30, 1998.

4 The shareholder services fee for the Fund has been voluntarily reduced. This
voluntary reduction can be terminated at any time. The shareholder services
fee paid by the Fund (after the voluntary reduction) was 0.22% for the fiscal
year ended November 30, 1998.
</TABLE>

EXAMPLE

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

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

1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming redemption $326 $594 $764 $1,563
Expenses assuming no redemption $223 $483 $764 $1,563

What are the Fund's Investment Strategies?

* the current state of the economy and the outlook for future economic
activity,

* the current level of interest rates and the likelihood that market
interest rates will change,

* the Federal Reserve Board's policies regarding short-term interest
rates, and

* the potential effects of foreign economic activity on the level of rates.

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

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

CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt securities. The credit risks of corporate
debt securities vary widely amount issuers. The credit risk of an issuer's
debt security may also vary based on its priority for repayment. For
example, higher ranking (senior) debt securities have a higher priority
than lower ranking (subordinated) securities. This means that the issuer
might not make payments on subordinated securities while continuing to make
payments on senior securities. In addition, in the event of bankruptcy,
holders of senior securities may receive amounts otherwise payable to the
holders of subordinated securities.

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

ASSET BACKED SECURITIES

CREDIT ENHANCEMENT

INVESTMENT RATINGS

Securities rated BBB or below by Standard and Poor's or Baa by Moody's
Investors Services, Inc. have speculative characteristics.

What are the Specific Risks of Investing in the Fund?

BOND MARKET RISKS

Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. The Fund attempts to limit this risk by
limiting its duration.

CREDIT RISKS

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

CALL AND PREPAYMENT RISKS

LIQUIDITY RISKS

SECTOR RISKS

RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES

What do Shares Cost?

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

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

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

MINIMUM MAXIMUM SALES CHARGE
INITIAL CONTINGENT

SUBSEQUENT FRONT-END DEFERRED
SHARES INVESTMENT SALES SALES
OFFERED AMOUNTS1 CHARGE2 CHARGE3
Class F $1,500/$100 1.00% 1.00%

on their customers than those imposed by the Fund.

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

CLASS F SHARES

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

Purchase Amount Offering Price of NAV

Less than $1 million 1.00% 1.01%
$1 million or greater 1 0.00% 0.00%

THE SALES CHARGE AT PURCHASE MAY BE ELIMINATED BY:

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

* combining concurrent purchases of Shares:

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

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

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

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

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:

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

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

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

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

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

SALES CHARGE WHEN YOU REDEEM

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

CLASS F SHARES

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

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

* purchased with reinvested dividends or capital gains;

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

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

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

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

IN ADDITION, YOU WILL NOT BE CHARGED A CDSC:

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

* if your redemption is a required retirement plan distribution;

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

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

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

* Shares that are not subject to a CDSC;

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

How is the Fund Sold?

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

RULE 12B-1 PLAN

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

How to Purchase Shares

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

THROUGH AN INVESTMENT PROFESSIONAL

* Establish an account with the investment
professional; and

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

DIRECTLY FROM THE FUND

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

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

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

BY WIRE

Send your wire to:

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

ABA Number 011000028
Attention: EDGEWIRE

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

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

BY CHECK

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

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE

that requires a street address, mail it to:

Federated Shareholder Services Company

1099 Hingham Street
Rockland, MA 02370-3317

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

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section (SIP) of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.

BY AUTOMATED CLEARINGHOUSE (ACH)

RETIREMENT INVESTMENTS

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

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

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

THROUGH AN INVESTMENT PROFESSIONAL

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

DIRECTLY FROM THE FUND

BY TELEPHONE

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

You will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT
DELIVERY SERVICE to:

Federated Shareholder Services Company

1099 Hingham Street
Rockland, MA 02370-3317

All requests must include:

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

* amount to be redeemed or exchanged;

* signatures of all Shareholders exactly as
registered; and

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

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

SIGNATURE GUARANTEES

Signatures must be guaranteed if:

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

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

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

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

A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union or broker, dealer, or securities exchange
member. A NOTARY PUBIC CONNOT PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

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

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

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

REDEMPTION IN KIND

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

* to allow your purchase to clear;

* during periods of market volatility; or

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGES

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

* ensure that the account registrations are identical;

* meet any minimum initial investment requirements; and

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

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

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

SHARE CERTIFICATES

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

RANDALL S. BAUER

Randall S. Bauer has been the Fund's portfolio manager since October 1995.
Mr. Bauer joined Federated Investors, Inc. or its predecessor in 1989 and
has been a Portfolio Manager and 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

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

ADVISORY FEES

YEAR 2000 READINESS

While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.

Financial Information

FINANCIAL HIGHLIGHTS

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

Financial Highlights-Class F Shares

(For a share outstanding throughout each period)

YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17
INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.61 0.60 0.66 0.61 0.55
Net realized and unrealized gain (loss)
on investments and foreign currency (0.13) 0.04 (0.12) 0.44 (0.67)
Total from investment operations 0.48 0.64 0.54 1.05 (0.12)
LESS DISTRIBUTIONS:
Distributions from net investment income (0.61) (0.60) (0.60) (0.56) (0.55)
Distributions in excess of net
investment income 1 - - - - (0.01)
Distributions from net realized gain
on investments - - - - (0.01)
Total distributions (0.61) (0.60) (0.60) (0.56) (0.57)
NET ASSET VALUE, END OF PERIOD $ 9.82 $ 9.95 $ 9.91 $ 9.97 $ 9.48
TOTAL RETURN 2 4.91% 6.63% 5.64% 11.39% (1.20%)
RATIOS TO AVERAGE NET ASSETS:

Expenses 1.00% 1.00% 1.00% 1.00% 0.99%
Net investment income 6.09% 6.00% 6.14% 6.22% 5.67%
Expense waiver/reimbursement 3 0.22% 0.24% 0.31% 0.18% 0.13%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $13,358 $8,807 $8,938 $10,183 $13,415
Portfolio turnover 93% 62% 104% 63% 63%
</TABLE>

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

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

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated November 30, 1998, which can be obtained free of
charge.

[Graphic]

PROSPECTUS

Federated Limited Term Fund

A Portfolio of Fixed Income Securities, Inc.

CLASS F SHARES

January 31, 1999

[Graphic]

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-6447
Cusip 338319304

3070701A-F (1/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED LIMITED TERM FUND

A Portfolio of Fixed Income Securities, Inc.

CLASS A SHARES

CLASS F SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the respective prospectuses of Class A Shares and
Class F Shares of Federated Limited Term Fund (Fund), dated January 31, 1999.

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

January 31, 1999

CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses

CUSIP338319106

CUSIP 338319304

3070701B ( 1/99)

<PAGE>

HOW IS THE FUND ORGANIZED?

The Fund is a diversified portfolio of Fixed Income Securities, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on October 15,
1991. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. On June 1, 1994, the Board approved the
reclassification of Investment Shares as Class A Shares and Fortress Shares were
re-named Class F Shares. Effective March 31, 1996, the Fund changed its name
from Limited Term Fund to Federated Limited Term Fund.

The Board of Directors (the Board) has established two classes of shares of
the Fund, known as Class A Shares and Class F Shares (individually and
collectively referred to as "Shares" as the context may require). This SAI
relates to both classes of the above-mentioned Shares.

SECURITIES IN WHICH THE FUND INVESTS

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

FIXED INCOME SECURITIES

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

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

The following describes the types of fixed income securities in which the
Fund may invest.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest credit
risks.

AGENCY SECURITIES

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

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

CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers. The credit risk of an issuer's debt security may also vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.

COMMERCIAL PAPER

Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or borrowing [borrowingS?] from bank loans) to repay maturing paper.
If the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. The short maturity of commercial paper reduces
both the market and credit risks as compared to other debt securities of the
same issuer.

DEMAND INSTRUMENTS

Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.

MUNICIPAL SECURITIES

Municipal securities are issued by states, counties, cities and other
political subdivisions and authorities. Although many municipal securities are
exempt from federal income tax, the Fund intends to invest primarily in taxable
municipal securities.

MORTGAGE BACKED SECURITIES

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

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

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying pass-through
certificate among holders of different classes of mortgage backed securities.
This creates different prepayment and market risks for each CMO class. For
example, in a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all principal payments
after the first class is paid off. This process repeats for each sequential
class of CMO. As a result, each class of sequential pay CMOs reduces the
prepayment risks of subsequent classes.

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

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

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

CMOs must allocate all payments received from the underlying mortgages to
some class. To capture any unallocated payments, CMOs generally have an accrual
(Z) class. Z classes do not receive any payments from the underlying mortgages
until all other CMO classes have been paid off. Once this happens, holders of Z
class CMOs receive all payments and prepayments. Similarly, REMICs have residual
interests that receive any mortgage payments not allocated to another REMIC
class.

The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. Z classes, IOs, POs, and Inverse Floaters are among the
most volatile investment grade fixed income securities currently traded in the
United States. However, the actual returns on any type of mortgage backed
security depend upon the performance of the underlying pool of mortgages, which
no one can predict and will vary among pools.

ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities may also resemble
some types of CMOs, such as Floaters, Inverse Floaters, IOs and POs.

Historically, borrowers are more likely to refinance their mortgage than
any other type of consumer or commercial debt. In addition, some asset backed
securities use prepayment to buy additional assets, rather than paying off the
securities. Therefore, while asset backed securities may have some prepayment
risks, they generally do not present the same degree of risk as mortgage backed
securities.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final
maturity unlike debt securities that provide periodic payments of interest
(referred to as a coupon payment). Investors buy zero coupon securities at a
price below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. An investor must wait until maturity to receive interest and
principal, which increases the market and credit risks of a zero coupon
security.

There are many forms of zero coupon securities. Some are issued at a
discount and are referred to as zero coupon or capital appreciation bonds.
Others are created from interest bearing bonds by separating the right to
receive the bond's coupon payments from the right to receive the bond's
principal due at maturity, a process known as coupon stripping. Treasury STRIPs,
IOs and POs are the most common forms of stripped zero coupon securities. In
addition, some securities give the issuer the option to deliver additional
securities in place of cash interest payments, thereby increasing the amount
payable at maturity. These are referred to as pay-in-kind or PIK securities.

BANK INSTRUMENTS

Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

INSURANCE CONTRACTS

Insurance contracts include guaranteed investment contracts, funding
agreements and annuities. The Fund treats these contracts as fixed income
securities.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.

Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes arrangements
where securities or other liquid assets secure payment of a fixed income
security. Following a default, these assets may be sold and the proceeds paid to
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.

CONVERTIBLE SECURITIES

Convertible securities are fixed income securities that the Fund has the
option to exchange for equity securities at a specified conversion price. The
option allows the Fund to realize additional returns if the market price of the
equity securities exceeds the conversion price. For example, the Fund may hold
fixed income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.

Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

EQUITY SECURITIES

Equity securities represent a share of an issuer's earnings and assets,
after the issuer pays its liabilities. Investors cannot predict the income they
will receive from equity securities because issuers generally have discretion as
to the payment of any dividends or distributions. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund may
invest.

COMMON STOCKS

Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.

PREFERRED STOCKS

Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on common
stock. Preferred stocks may also permit the issuer to redeem the stock. The Fund
may also treat such redeemable preferred stock as a fixed income security.

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies,
business trusts and companies organized outside the United States may issue
securities comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.

WARRANTS

Warrants give the Fund the option to buy the issuer's equity securities at
a specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if the
price of the stock does not rise above the exercise price by the expiration
date. This increases the market risks of warrants as compared to the underlying
security. Rights are the same as warrants, except companies typically issue
rights to existing stockholders.

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United
States. The Fund considers an issuer to be based outside the United States if:

o it is organized under the laws of, or has a principal office located in,
another country;

o the principal trading market for its securities is in another country; or

o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same type,
foreign securities are subject currency risks and risks of foreign investing.
Trading in certain foreign markets is also subject to liquidity risks.

DEPOSITARY RECEIPTS

Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
Receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.

FOREIGN EXCHANGE CONTRACTS

In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.

FOREIGN GOVERNMENT SECURITIES

Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.

Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based
upon changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities
exchanges. In this case, the exchange sets all the terms of the contract except
for the price. Investors make payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to close out their contracts by entering into offsetting
contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

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

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

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures CONTRACTS
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts. The Fund may 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 value of the Fund's total
assets.

The Fund may buy/sell the following types of futures contracts: financial
futures on debt instruments; and, forward foreign currency exchange contracts.

OPTIONS

Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option. The Fund currently does not
intend to invest more than 5% of its total assets in options transactions.

The Fund may:

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

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

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

SWAPS

Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreement[s]
that the Fund may use include:

INTEREST RATE SWAPS

Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated principal
amount of fixed income securities, in return for payments equal to a different
fixed or floating rate times the same principal amount, for a specific period.
For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which fluctuates) on
$10 million principal amount in exchange for the right to receive the equivalent
of a stated fixed rate of interest on $10 million principal amount.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

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

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

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

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

WHEN ISSUED TRANSACTIONS

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

TO BE ANNOUNCED SECURITIES (TBAS)

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

DOLLAR ROLLS

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

SECURITIES LENDING

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

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

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

Securities lending activities are subject to market risks and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives contracts
or special transactions, the Fund will either own the underlying assets, enter
into an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.

INVESTMENT RISKS

There are many factors which may effect an investment in the Fund. The
Fund's principal risks are described in its prospectus. Additional risk factors
are outlined below.

STOCK MARKET RISKS

The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.

The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.

LIQUIDITY RISKS

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

Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

RISKS RELATED TO COMPANY SIZE

Generally, the smaller the market capitalization of a company, the fewer
the number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.

Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to capital.
These factors also increase risks and make these companies more likely to fail
than larger, well capitalized companies.

RISKS OF NONIVESTMENT GRADE SECURITIES

If the Fund purchases an investment grade security, and the rating of such
security is subsequently downgraded so that the security is no longer classified
as investment grade, the Fund is not required to sell the security, but will
consider whether such action is appropriate.

Securities rated below investment grade, also known as junk bonds,
generally entail greater market, credit, and liquidity risks than investment
grade securities. For example, their prices are more volatile, economic
downturns and financial setbacks may affect their prices more negatively, and
their trading market may be more limited. The Fund has no minimum rating
requirement for such securities and thus it may be invested in securities rated
as low as "D," which may have suspended interest and/or principal payments and
could be considered in default.

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.

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:

oduring 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

onot 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.

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.

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.

DETERMINING MARKET VALUE OF SECURITIES

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

for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

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

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

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

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

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

TRADING IN FOREIGN SECURITIES

Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.

WHAT DO SHARES COST?

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

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

ELIMINATING THE FRONT-END SALES CHARGE

You can eliminate the applicable front-end sales charge, as follows.

QUANTITY DISCOUNTS

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

ACCUMULATED PURCHASES

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

CONCURRENT PURCHASES

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

LETTER OF INTENT

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

REINVESTMENT PRIVILEGE

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

PURCHASES BY AFFILIATES OF THE FUND

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

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

o Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc. (Federated) on
December 31, 1997;

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

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

FEDERATED LIFE MEMBERS

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

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

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

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

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

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

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

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

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

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

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

HOW IS THE FUND SOLD?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES

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

RULE 12B-1 PLAN

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

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

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be
paid in any one year may not be sufficient to cover the marketing related
expenses the Distributor has incurred. Therefore, it may take the Distributor a
number of years to recoup these expenses.

SHAREHOLDER SERVICES

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

SUPPLEMENTAL PAYMENTS

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

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

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

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

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

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

CLASS A SHARES

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

AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF PUBLIC
OFFERING PRICE

First $1 - $5 0.75%
million
- ---------------------
Next $5 - $20 0.50%
million
- ---------------------
Over $20 million 0.25%

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

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

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

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

CLASS F SHARES

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

EXCHANGING SECURITIES FOR SHARESYou may contact the Distributor to request
a purchase of Shares in exchange for securities you own. The Fund reserves the
right to determine whether to accept your securities and the minimum market
value to accept. The Fund will value your securities in the same manner as it
values its assets. This exchange is treated as a sale of your securities for
federal tax purposes.

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

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

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of the
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.

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

As of January 6, 1999 , the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: MLPF&S for the
sole benefit of its customers, Jacksonville, FL, owned approximately 992,332
shares (9.18 %); and David Lloyd Kreeger Foundation, Washington, DC, owned
approximately 588,475 shares (5.45 %).

As of January 6, 1999 , the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class F Shares: Marine Midland
Bank as Trustee for A/O Thompson & Johnson Equip. Co. Dly, Buffalo, NY, owned
approximately 249,212 shares (18.32 %); Marine Midland Bank as Trustee for BMT
Commodity 401K Daily, Buffalo, NY, owned approximately 247,927 shares (18.23 %);
and MLPF&S for the sole benefit of its customers, Jacksonville, FL, owned
approximately 165,615 shares (12.17 %)

TAX INFORMATION

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive special tax treatment and will pay federal
income tax. The Fund will be treated as a single, separate entity for federal
income tax purposes so that income earned and capital gains and losses realized
by the Corporation's other portfolios will be separate from those realized by
the Fund.

FOREIGN INVESTMENTS

If the Fund purchases foreign securities, their investment income 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. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Distributions from a Fund may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. 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 cannot 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.

If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of the Fund's assets at the end of the tax
year is represented by stock or securities of foreign corporations, the Fund
intends to qualify for certain Code stipulations that would allow shareholders
to claim a foreign tax credit or deduction on their U.S. income tax returns. The
Code may limit a shareholder's ability to claim a foreign tax credit.
Shareholders who elect to deduct their portion of the Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns.

<PAGE>

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS

The Board is responsible for managing the Corporation's business affairs
and for exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of three funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser. As of January 6, 1999 , the Fund's Board and Officers
as a group owned less than 1% of the Fund's outstanding Class A and F Shares.

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

NAME

JOHN F. DONAHUE*+ Chief Executive Officer and Director or $0 $0 for the
BIRTHDATE: JULY 28, 1924 Trustee of the Federated Fund Complex; Corporation and
FEDERATED INVESTORS Chairman and Director, Federated Investors, 54 other
TOWER Inc.; Chairman and Trustee, Federated investment
1001 LIBERTY AVENUE Advisers, Federated Management, and companies
PITTSBURGH, PA Federated Research; Chairman and Director, in the Fund
CHAIRMAN AND DIRECTOR Federated Research Corp., and Federated Complex
Global Research Corp.; Chairman, Passport
Research, Ltd.

- -------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $688.14 $113,860.22 for
Birthdate: February 3, Complex; Director, Member of Executive the
1934 Committee, Children's Hospital of Corporation and
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, Ernst 54 other
Pittsburgh, PA & Young LLP; Director, MED 3000 Group, investment
DIRECTOR Inc.; Director, Member of Executive companies
Committee, University of Pittsburgh. in the Fund
Complex

- -------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $757.08 $125,264.48 for
Birthdate: June 23, 1937 Complex; President, Investment Properties the
Wood/IPC Commercial Corporation; Senior Vice President, Corporation and
Dept. John R. Wood and Associates, Inc., 54 other
John R. Wood Realtors; Partner or Trustee in private investment
Associates, Inc. real estate ventures in Southwest Florida; companies
Realtors formerly: President, Naples Property in the Fund
3255 Tamiami Trial Management, Inc. and Northgate Village Complex
North Naples, FL Development Corporation.

DIRECTOR

- -------------------------
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $688.14 $47,958.02 for
Birthdate: September 3, Complex; formerly: Partner, Andersen the
1939 Worldwide SC. Corporation and
175 Woodshire Drive 29 other
Pittsburgh, PA investment
DIRECTOR companies
in the Fund
Complex

- -------------------------
WILLIAM J. COPELAND Director or Trustee of the Federated Fund $757.08 $125,264.48 for
Birthdate: July 4, 1918 Complex; Director and Member of the the
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; Corporation and
Pittsburgh, PA formerly: Vice Chairman and Director, PNC 54 other
DIRECTOR Bank, N.A., and PNC Bank Corp.; Director, investment
Ryan Homes, Inc. companies
in the Fund

Previous Positions: Director, United Complex
Refinery; Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman, Pittsburgh

Civic Light Opera.

- -------------------------
JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund $757.08 $125,264.48 for
Birthdate: May 18, 1922 Complex; Attorney-at-law; Director, The the
571 Hayward Mill Road Emerging Germany Fund, Inc. Corporation and
Concord, MA 54 other
DIRECTOR Previous Positions: President, Boston Stock investment

Exchange, Inc.; Regional Administrator, companies
United States Securities and Exchange in the Fund
Commission. Complex

- -------------------------
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $688.14 $113,860.22 for
Birthdate: October 11, Complex; Professor of Medicine, University the
1932 of Pittsburgh; Medical Director, University Corporation and
3471 Fifth Avenue of Pittsburgh Medical Center - Downtown; 54 other
Suite 1111 Hematologist, Oncologist, and Internist, investment
Pittsburgh, PA University of Pittsburgh Medical Center; companies
DIRECTOR Member, National Board of Trustees, in the Fund
Leukemia Society of America. Complex

- -------------------------
EDWARD L. FLAHERTY, Director or Trustee of the Federated Fund $757.08 $125,264.48 for
JR., ESQ. # Complex; Attorney, of Counsel, Miller, the
Birthdate: June 18, 1924 Ament, Henny & Kochuba; Director Emeritus, Corporation and
Miller, Ament, Henny & Eat'N Park Restaurants, Inc.; formerly: 54 other
Kochuba Counsel, Horizon Financial, F.A., Western investment
205 Ross Street Region; Partner, Meyer and Flaherty. companies
Pittsburgh, PA in the Fund
DIRECTOR Complex
- -------------------------
PETER E. MADDEN Director or Trustee of the Federated Fund $688.14 $113,860.22 for
Birthdate: March 16, Complex; formerly: Representative, the
1942 Commonwealth of Massachusetts General Corporation and
One Royal Palm Way Court; President, State Street Bank and 54 other
100 Royal Palm Way Trust Company and State Street Corporation. investment
Palm Beach, FL companies
DIRECTOR Previous Positions: Director, VISA USA and in the Fund
VISA International; Chairman and Director, Complex
Massachusetts Bankers Association;

Director, Depository Trust Corporation.

- -------------------------
CHARLES F. MANSFIELD, Director or Trustee of some of the $0 $0 for the
JR.++ Federated Funds; Management Consultant. Corporation and
Birthdate: April 10, 25 other
1945 Previous Positions: Chief Executive investment
80 South Road Officer, PBTC International Bank; Chief companies
Westhampton Beach, NY Financial Officer of Retail Banking Sector, in the Fund
DIRECTOR Chase Manhattan Bank; Senior Vice Complex
President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb School
of Business, Hofstra University.

- -------------------------
JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund $688.14 $113,860.22 for
J.D., S.J.D. Complex; President, Law Professor, Duquesne the
Birthdate: December 20, University; Consulting Partner, Mollica & Corporation and
1932 Murray. 54 other
President, Duquesne investment
University Previous Positions: Dean and Professor of companies
Pittsburgh, PA Law, University of Pittsburgh School of in the Fund
DIRECTOR Law; Dean and Professor of Law, Villanova Complex
University School of Law.

- -------------------------
WESLEY W. POSVAR Director or Trustee of the Federated Fund $688.14 $113,860.22 for
Birthdate: September Complex; President, World Society of the
14, 1925 Ekistics (metropolitan planning), Athens; Corporation and
1202 Cathedral of Professor, International Politics; 54 other
Learning Management Consultant; Trustee, Carnegie investment
University of Pittsburgh Endowment for International Peace, RAND companies
Pittsbugh, PA Corporation, Online Computer Library in the Fund
DIRECTOR Center, Inc., National Defense University Complex
and U.S. Space Foundation; President
Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory
Council for Environmental Policy and
Technology, Federal Emergency Management
Advisory Board; Trustee, Czech Management

Center, Prague.

Previous Positions: Professor, United
States Military Academy; Professor, United
States Air Force Academy.

- -------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $688.14 $113,860.22 for
Birthdate: June 21, 1935 Complex; Public the
4905 Bayard Street Relations/Marketing/Conference Planning. Corporation and
Pittsburgh, PA 54 other
DIRECTOR Previous Positions: National Spokesperson, investment
Aluminum Company of America; business owner. companies
in the Fund
Complex

- -------------------------
J. CHRISTOPHER DONAHUE+ President or Executive Vice President of $0 $0 for the
Birthdate: April 11, the Federated Fund Complex; Director or Corporation and
1949 Trustee of some of the Funds in the 16 other
Federated Investors Federated Fund Complex; President and investment
Tower Director, Federated Investors, Inc.; companies
1001 Liberty Avenue President and Trustee, Federated Advisers, in the Fund
Pittsburgh, PA Federated Management, and Federated Complex
EXECUTIVE VICE PRESIDENT Research; President and Director, Federated
Research Corp. and Federated Global
Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.

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

<PAGE>

EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the
Birthdate: October 22, the Federated Fund Complex; President, Corporation and
1930 Executive Vice President and Treasurer of 1 other
Federated Investors some of the Funds in the Federated Fund investment
Tower Complex; Vice Chairman, Federated company
1001 Liberty Avenue Investors, Inc.; Vice President, Federated in the Fund
Pittsburgh, PA Advisers, Federated Management, Federated Complex
EXECUTIVE VICE PRESIDENT 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.

- -------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the
Birthdate: October 26, the Federated Fund Complex; Executive Vice Corporation and
1938 President, Secretary, and Director, 54 other
Federated Investors Federated Investors, Inc.; Trustee, investment
Tower Federated Advisers, Federated Management, companies
1001 Liberty Avenue and Federated Research; Director, Federated in the Fund
Pittsburgh, PA Research Corp. and Federated Global Complex
EXECUTIVE VICE Research Corp.; Director, Federated
PRESIDENT AND SECRETARY Services Company; Director, Federated
Securities Corp.

- -------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the
Birthdate: June 17, Vice President - Funds Financial Services Corporation and
1954 Division, Federated Investors, Inc.; 54 other
Federated Investors Formerly: various management positions investment
Tower within Funds Financial Services Division of companies
1001 Liberty Avenue Federated Investors, Inc. in the Fund
Pittsburgh, PA Complex
TREASURER

- -------------------------
RICHARD B. FISHER* President or Vice President of some of the $0 $0 for the
Birthdate: May 17, 1923 Funds in the Federated Fund Complex; Corporation and
Federated Investors Director or Trustee of some of the Funds in 6 other
Tower the Federated Fund Complex; Executive Vice investment
1001 Liberty Avenue President, Federated Investors, Inc.; companies
Pittsburgh, PA Chairman and Director, Federated Securities in the Fund
PRESIDENT AND DIRECTOR Corp. Complex
- -------------------------
WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the
Birthdate: March 3, 1949 various other Funds in the Federated Fund Corporation and
Federated Investors Complex; Executive Vice President, 41 other
Tower Federated Investment Counseling, Federated investment
1001 Liberty Avenue Global Research Corp., Federated Advisers, companies
Pittsburgh, PA Federated Management, Federated Research, in the Fund
CHIEF INVESTMENT OFFICER and Passport Research, Ltd.; Registered Complex
Representative, Federated Securities Corp.;
Portfolio Manager, Federated Administrative
Services; Vice President, Federated
Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President,
Federated Investment Counseling
Institutional Portfolio Management Services
Division; Senior Vice President, Federated
Research Corp., Federated Advisers,
Federated Management, Federated Research,
and Passport Research, Ltd.

- -------------------------
JOSEPH M. BALESTRINO Joseph M. Balestrino is Vice President of $0 $0 for the
Birthdate: November 3, the Corporation. Mr. Balestrino joined Corporation and
1954 Federated Investors in 1986 and has been a 3 other
Federated Investors Senior Portfolio Manager and Senior Vice investment
Tower President of the Fund's investment adviser companies
1001 Liberty Avenue since 1998. He was a Portfolio Manager and in the Fund
Pittsburgh, PA a Vice President of the Fund's investment Complex
VICE PRESIDENT adviser from 1995 to 1998. Mr. Balestrino
served as a Portfolio Manager and an
Assistant Vice President of the investment
adviser from 1993 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.

- -------------------------
JEFF A. KOZEMCHAK Jeff A. Kozemchak is Vice President of the $0 $0 for the
Birthdate: January 15, Corporation. Mr. Kozemchak joined Corporation and
1960 Federated Investors in 1987 and has been a 3 other
Federated Investors Senior Portfolio Manager since 1996 and a investment
Tower Senior Vice President of the Fund's companies
1001 Liberty Avenue investment adviser since 1999. He was a in the Fund
Pittsburgh, PA Portfolio Manager and a Vice President of Complex
VICE PRESIDENT the Fund's investment adviser from 1993 to
1998. Mr. Kozemchak is a Chartered
Financial Analyst and received his M.S. in
Industrial Administration from Carnegie
Mellon University in 1987.
</TABLE>

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

+Mr. Mansfield became a member of the Board of Directors on January 1,
1999. He did not earn any fees for serving the Fund Complex since these fees are
reproted as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Fund.

INVESTMENT ADVISER

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

The Adviser is a wholly owned subsidiary of Federated.

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

OTHER RELATED SERVICES

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

BROKERAGE TRANSACTIONS

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

RESEARCH SERVICES

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

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

<PAGE>

ADMINISTRATOR

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

MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE FUNDS
0.150 of 1% on the first $250 million

- -------------------------
0.125 of 1% on the next $250 million
- -------------------------
0.100 of 1% on the next $250 million
- -------------------------
0.075 of 1% on assets in excess of $750 million
- -------------------------

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

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

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

- -------------------------------- 1998 1997 1996
FOR THE YEAR ENDED NOVEMBER 30,

Advisory Fee Earned $473,247 $446,254 $515,204
- ---------------------------------
Advisory Fee Reduction $200,457 $214,584 $328,347
- ---------------------------------
Brokerage Commissions

- ---------------------------------
Administrative Fee $155,000 $155,001 $155,001
- ---------------------------------
12b-1 Fee

- ---------------------------------
Class A Shares $213,502

- ---------------------------------
Class F Shares $14,339

- ---------------------------------
Shareholder Services Fee

- ---------------------------------
Class A Shares $266,877

- ---------------------------------
Class F Shares $24,266

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

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

HOW DOES THE FUND MEASURE PERFORMANCE?

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

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

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year, five-year and since inception periods
ended November 30, 1998.

Yield given for the 30-day period ended November 30, 1998.

30-DAY 1 Year 5 Years Since Inception*
<S> <C> <C> <C> <C> <C> <C>
CLASS A PERIOD

Total Return --- 3.77% 5.09% 5.64%
Yield 6.34% --- --- ---
CLASS F

Total Return --- 2.89% 5.19% 5.10%
Yield 6.48% --- --- ---
*Class A Shares inception date was January 13, 1992.

Class F Shares inception date was August 31, 1993.
</TABLE>

TOTAL RETURN

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

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

<PAGE>

YIELD

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

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

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

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

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

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

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

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

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

LIPPER ANALYTICAL SERVICES, INC.

Ranks funds in various fund categories by making comparative calculations
using total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.

MORNINGSTAR, INC.

An independent rating service, is the publisher of the bi-weekly MUTUAL
FUND VALUES, which rates more than 1,000 NASDAQ-listed mutual funds of all
types, according to their risk-adjusted returns. The maximum rating is five
stars, and ratings are effective for two weeks.

WHO IS FEDERATED INVESTORS, INC.?

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

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

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

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

EQUITY FUNDS

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

CORPORATE BOND FUNDS

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

GOVERNMENT FUNDS

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

MONEY MARKET FUNDS

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

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed
income -

William D. Dawson, III; and global equities and fixed income - Henry A.
Frantzen. The Chief Investment Officers are Executive Vice Presidents of the
Federated advisory companies.

MUTUAL FUND MARKET

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

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

FEDERATED CLIENTS OVERVIEW

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

INSTITUTIONAL CLIENTS

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

BANK MARKETING

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

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

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

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended
November 30, 1998 are incorporated herein by reference to the Annual Report to
Shareholders of Fixed Income Securities, Inc. dated November 30, 1998.

INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

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

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

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

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

BB--Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B-rating.

CC--The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC debt rating.

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.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

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.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

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

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

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

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

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

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

PRIME-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:

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.

o Well established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-2--Issuers rated Prime-1 (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.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1--This designation 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.

FITCH IBCA, 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.

<PAGE>

ADDRESSES

FEDERATED LIMITED TERM FUND

Class A Shares

Class F Shares

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

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

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779

CUSTODIAN

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

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

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

PROSPECTUS

Federated Limited Term Municipal Fund
A Portfolio of Fixed Income Securities, Inc.

CLASS A SHARES

A mutual fund seeking a high level of current income which is exempt from
federal regular income tax by investing primarily in a portfolio of tax-
exempt securities with a dollar-weighted average duration of four years
or less.

January 31, 1999
CONTENTS

Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 6
What do Shares Cost? 7
How is the Fund Sold? 9
How to Purchase Shares 10
How to Redeem and Exchange Shares 12
Account and Share Information 14
Who Manages the Fund? 16
Financial Information 17

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide a high level of current income
which is exempt from federal regular income tax consistent with the
preservation of principal. 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.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund intends to pursue its investment objective by investing in a
portfolio of investment grade tax- exempt securities with a dollar-
weighted average duration of four years or less. Interest from the Fund's
investments may be subject to the federal alternative minimum tax for
individuals and corporations.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose
money by investing in the Fund. The primary factors that may reduce the
Fund's returns include:

* a change in prevailing interest rates, and

* defaults or an increase in the risk of defaults on portfolio securities.

Other risk factors associated with an investment in the Fund include call
risk, liquidity risk, and sector risk.

The Shares offered by this prospectus are not deposits or obligations of
any bank, are not endorsed or guaranteed by any bank, and are not insured
or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.

RISK/RETURN BAR CHART AND TABLE

[The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Federated Limited Term Municipal Fund's
Class A Shares as of the
calendar year-end for each of five years.

The "y" axis reflects the "% Total Return" beginning with "-2.00%" and
increasing in increments of 2% up to 10.00%. The "x" axis represents calculation
periods from the first full calendar year end of the Fund through the calendar
year ended December 31, 1998. The light gray shaded chart features five distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentages for the Class A Shares of Federated
Limited Term Municipal Fund for each calendar year from 1994 through 1998 are
stated directly at the top of each respective bar. The percentages noted are:
(1.80%), 8.64%, 3.00%, 5.21%, and 4.51%.]

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

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

Within the period shown in the Chart, the Fund's highest quarterly return
was 3.11% (quarter ended March 31, 1995). Its lowest quarterly return was
(2.52%) (quarter ended March 31, 1994).

AVERAGE ANNUAL TOTAL RETURN

Average Annual Total Return for the Fund's Class A Shares compared to the
Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB).

LIFE OF THE FUND 1 1 YEAR 5 YEARS
Class A 3.89% 3.45% 3.65%
LB3YRMB - 5.21% 4.90%

1 The start of performance date for the Class A Shares was September 1,
1993.

The table shows the Fund's Class A Shares average annual total returns over
a period of years relative to the LB3YRMB, a broad-based market index.

What are the Fund's Fees and Expenses?

FEDERATED LIMITED TERM MUNICIPAL FUND
FEES AND EXPENSES

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

SHAREHOLDER FEES

<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) 1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(Before Waivers and Reimbursements) 1
<S> <C>
Expenses That are Deducted From Fund Assets (as a
percentage of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 0.25%
Shareholder Services Fee 0.25%
Other Expenses 0.50%
Total Annual Fund Operating Expenses 1.40%
1 Although not contractually obligated to do so, the adviser waived
certain amounts. These are shown below along with the net expenses
the Fund actually paid for the fiscal year ended November 30,1998.

Waiver of Fund Expenses 0.50%
Total Actual Annual Fund

Operating Expenses (after waivers and reimbursements) 0.90%
2 The adviser voluntary waived the managment fee. The adviser
can terminate this voluntary waiver at any time. The management fee
paid by the Fund (after the voluntary waiver) was 0.00% for the year
ended November 30, 1998.

</TABLE>

EXAMPLE

The following Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses are BEFORE WAIVERS as shown in
the table and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:

1 Year $ 241
3 Years $ 539
5 Years $ 858
10 Years $ 1,763

What are the Fund's Investment Strategies?

The Fund intends to pursue its investment objective by investing in a
portfolio of investment grade tax- exempt securities with a dollar-
weighted average duration of four years or less. Duration measures the
price sensitivity of a fixed income security to changes in interest rates.

The adviser manages the Fund's market risk by adjusting its dollar-weighted
average portfolio duration within the four-year limitation. The adviser
targets a dollar-weighted average portfolio duration based upon its
interest rate outlook and the supply of tax-exempt securities available.
The adviser will tend to maintain a longer duration when interest rates are
expected to fall, and a shorter duration when they are expected to
increase. In determining the portfolio's duration, the adviser may
consider a variety of factors, such as:

* the current state of the economy and the outlook for future economic
activity;

* the current level of interest rates and the likelihood that market
interest rates will change;

* the Federal Reserve Board's policies regarding short-term interest
rates; and

* supply and demand factors related to the municipal market and the effect
they may have on the returns offered for various bond maturities.

The adviser adjusts the portfolio's duration by buying and selling
securities of different maturities. For selecting investments, the Fund's
adviser performs a fundamental analysis designed to review the issuer's
ability to pay interest and principal on the security. The analysis focuses
on the sources available for making principal and interest payments to
assess whether the security's risk is commensurate with its potential
return. The adviser attempts to enhance the Fund's income, subject to the
Fund's quality and duration constraints, by purchasing securities offering
the highest expected returns. The adviser may allocate investments in
sectors of the tax-exempt market that offer the highest return.

TEMPORARY DEFENSIVE INVESTMENTS

During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax. Temporary investments will be of comparable
quality to other securities in which the Fund invests. This may cause the
Fund to give up greater after tax investment returns to maintain the safety
of principal. This also may cause the Fund to receive and distribute
taxable income to investors.

What are the Principal Securities in which the Fund Invests?

TAX-EXEMPT SECURITIES

Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax exempt
securities. Tax exempt securities are generally differentiated by their
source of repayment.

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends, or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.

GENERAL OBLIGATION BONDS

General obligation bonds are supported by the issuer's power to exact
property or other taxes. The issuer must levy and collect taxes sufficient
to pay principal and interest on the bonds. However, the issuer's authority
to levy additional taxes may be limited by its charter or state law.

SPECIAL REVENUE BONDS

Special revenue bonds are payable solely from specific revenues received by
the issuer. The revenues may consist of specific taxes, assessments, tolls,
fees, or other types of municipal revenues. For example, a municipality may
issue bonds to build a toll road, and pledge the tolls to repay the bonds.
Bondholders could not collect from the municipality's general taxes or
revenues. Therefore, any shortfall in toll revenues could result in a
default on the bonds.

PRIVATE ACTIVITY BONDS

Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new
factory to improve its local economy. The municipality would lend the
proceeds to the company using the factory, and the company would agree make
loan payments sufficient to repay the bonds. The bonds would be payable
solely from the company's loan payments, not from any other revenues of the
municipality. Therefore, any default on the loan normally would result in a
default on the bonds.

The interest on many types of private activity bonds is subject to the
federal alternative minimum tax ("AMT").

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based
upon the credit ratings given by one or more nationally recognized rating
services. For example, Standard and Poor's, a rating service, assigns
ratings to investment grade securities (AAA, AA, A, and BBB) based on
their assessment of the likelihood of the issuer's inability to pay
interest or principal (default) when due on each security. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment
that the security is comparable to investment grade.

What are the Specific Risks of Investing in the Fund?

Although there are many factors which may affect an investment in the Fund,
the principal risks are described below.

MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. The Fund attempts to manage market risk
by limiting its duration.

CREDIT RISK

Credit risk is the possibility that an issuer or a credit enhancer will
default (the issuer fails to repay interest and principal when due). If an
issuer or a credit enhancer defaults, the Fund will lose money.

The Fund attempts to manage credit risk by purchasing higher quality
securities.

Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating service's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. In the case of unrated securities, the
Fund must rely entirely upon the Adviser's credit assessment.

Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable
maturity (the "spread") measures the additional interest received for
taking risk. Spreads may increase generally in response to adverse economic
or market conditions. A security's spread may also increase if the
security's rating is lowered, or the security is perceived to have an
increased credit risk. An increase in the spread will cause the price of
the security to decline.

CALL RISK
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a "call") at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.

If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.

LIQUIDITY RISKS

Fixed income securities that have not been rated or that are not widely
held may trade less frequently than more widely held securities. This
limits trading opportunities, making it more difficult to sell or buy the
security at a favorable price or time. In response, the Fund may have to
lower the price, sell other securities, or give up an investment
opportunity, any of which could have a negative effect on its performance.
Infrequent trading may also lead to greater price volatility.

SECTOR RISK

A substantial part of the Fund's portfolio may be comprised of tax-exempt
securities issued or credit enhanced by companies in similar businesses, by
issuers located in the same state, or with other similar characteristics.
As a result, the Fund will be more susceptible to any economic, business,
political, or other developments which generally affect these issuers.

What do Shares Cost?

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

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

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

SHARES OFFERED AMOUNTS 1 CHARGE 2 CHARGE 3
Class A $1,500/$100 1.00% 0.00%

1 The minimum subsequent investment amounts for Systematic Investment
Programs is $50. Investment professionals may impose higher or lower
minimum investment requirements on their customers than those imposed by
the Fund.

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

CLASS A SHARES

Sales Charge Sales Charge

as a Percentage as a

of Public Percentage