FIXED INCOME SECURITIES INC, 485BPOS, 2000-01-28

FIXED INCOME SECURITIES INC
485BPOS, 2000-01-28

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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. ......................
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Post-Effective Amendment No. 25 .................... X
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and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 25 .................................... 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, 2000,
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.

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

<TABLE>

<CAPTION>
Contents

<S> <C>
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 16
</TABLE>

- ---------------------
| |
| NOT FDIC INSURED |
| |
| MAY LOSE VALUE |
| |
| NO BANK GUARANTEE |
|-------------------|

JANUARY 31, 2000

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.

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:

. Interest Rate Risks. Prices of fixed income securities generally fall when
interest rates rise.

. Credit Risks. There is a possibility that issuers of securities in which the
Fund may invest may default in the payment of interest or principal on the
securities when due, which would cause the Fund to lose money.

. Prepayment Risks. When homeowners prepay their mortgages in response to
lower interest rates, the Fund will be required to reinvest the proceeds at
the lower interest rates available. Also, when interest rates fall, the
price of mortgage backed securities may not rise to as great an extent as
that of other fixed income securities.

. Call Risks. The Fund's performance may be adversely affected by the
possibility that an issuer of a security held by the Fund may redeem the
security prior to maturity at a price below its current market value.

. Risks Associated with Non-Investment Grade Securities. The Fund may invest a
portion of its assets in securities rated below investment grade which may
be subject to greater interest rate, credit and liquidity risks than
investment grade 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.

Risk/Return Bar Chart and Table

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

The "y" axis reflects the "% Total Return" beginning with -2% and increasing in
increments of 4% up to 14%.

The "x" axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features seven 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 is stated directly at the top of each respective bar, for the
calendar years 1994 through 1999. The percentages noted are: 7.31%, (1.26)%,
11.68%, 5.00%, 7.05%, 4.74%, and 1.89%.]

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

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

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%) (quarter ended March 31, 1994).

Average Annual Total Return Table

The following table represents the Fund's Class A Shares Average Annual Total
Returns for the calendar periods ended December 31, 1999. The table shows the
Fund's shares total returns averaged over a period of years relative to the
Merrill Lynch 1-3 Year Short-Term Corporate Index (MLSTC), a broad-based market
index, and Lipper Short Investment Grade Debt Funds Average (LSIGDFA), an
average of funds with similar investment objectives. The MLSTC is an index
trading short-term domestic investment-grade corporate bonds with maturities
between 1 and 2.99 years. Total returns for the index shown do not reflect sales
charges, expenses or other fees that the SEC requires to be reflected in the
Fund's performance. Indexes are unmanaged, and it is not possible to invest
directly in an index performance. Indexes are unmanaged, and it is not possible
to invest directly in an index.

Calendar Period Fund MLSTC LSIGDFA
<S> <C> <C> <C>
1 Year 0.86% 3.90% 2.81%
5 Years 5.80% 7.11% 5.95%
Start of Performance/1/ 5.17% 6.48% 5.30%
</TABLE>

1 The Fund's start of performance date was January 14, 1992.

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

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
Class A Shares of the Fund.

<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%

Shareholder Services
Fee

0.25%

Other
Expenses

0.32%

Total Annual Fund Operating
Expenses

1.47%
</TABLE>

1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along with the net expenses the
Fund actually paid for the fiscal year ended November 30, 1999.

<C>

Total Waiver of Fund
Expenses

0.37%

Total Actual Annual Fund Operating Expenses (after
waivers) 1.10%
</TABLE>

2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.33% for the year ended November
30, 1999.

3 The distributor voluntarily waived a portion of the distribution (12b-1) fee.
The distributor can terminate this voluntary waiver at any time. The
distribution (12b-1) fee paid by the Fund's Class A shares (after the
voluntary waiver) was 0.20% for the year ended November 30, 1999.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class A Shares for
the time periods indicated and then redeem all of your Class A 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 Class A 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:

Calendar Period Fund
<S> <C>
1 Year $ 248
3 Years $ 560
5 Years $ 895
10 Years $1,840
</TABLE>

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. A
description of the various types of securities in which the Fund principally
invests, and their risks, immediately follows this strategy section.

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 and shorter-term 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

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
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 Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.

In addition, the credit risk of an issuer's debt security may 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.

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 known 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 interest rate risks for each CMO class.

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 have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.

Credit Enhancement

Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if 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 usually evaluates 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?

INTEREST RATE RISKS

. Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.

. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.

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, Inc. 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.

PREPAYMENT RISKS

. Unlike traditional fixed income securities, which pay a fixed rate of
interest until maturity (when the entire principal amount is due) payments on
mortgage backed securities include both interest and a partial payment of
principal. Partial payment of principal may be comprised of scheduled
principal payments as well as unscheduled payments from the voluntary
prepayment, refinancing, or foreclosure of the underlying loans. These
unscheduled prepayments of principal create risks that can adversely affect a
Fund holding mortgage backed securities.

. For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline, unscheduled
prepayments can be expected to accelerate, and the Fund would be required to
reinvest the proceeds of the prepayments at the lower interest rates then
available. Unscheduled prepayments would also limit the potential for capital
appreciation on mortgage backed securities.

. Conversely, when interest rates rise, the values of mortgage backed
securities generally fall. Since rising interest rates typically result in
decreased prepayments, this could lengthen the average lives of mortgage
backed securities, and cause their value to decline more than traditional
fixed income securities.

. Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional interest
paid for risk is measured by the difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread). An increase in the spread will cause the price of the
mortgage backed security to decline. Spreads generally increase in response
to adverse economic or market conditions. Spreads may also increase if the
security is perceived to have an increased prepayment risk or is perceived to
have less market demand.

CALL RISKS

. 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.

RISKS ASSOCIATED WITH NONINVESTMENT 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
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).

From time to time the Fund may purchase foreign securities that trade in
foreign markets on days the NYSE is closed. The value of the Fund's assets may
change on days you cannot purchase or redeem Shares.

NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund generally values fixed income
securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain 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 Deferred
Investment Sales Sales
Shares Offered Amounts/1/ Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 1.00% 0.00%
</TABLE>

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." A Contingent Deferred Sales Charge (CDSC)
may be charged under certain circumstances. To determine whether your CDSC,
if applicable, may be waived, see "Eliminating the Contingent Deferred Sales
Charge" in the Fund's Statement of Additional Information.

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
<S> <C> <C>
Less than $1 million 1.00% 1.01%
$1 million or greater1 0.00% 0.00%
</TABLE>

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. To determine whether your CDSC may be waived, see
"Eliminating the Contingent Deferred Sales Charge" in the Fund's Statement of
Additional Information.

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

The sales charge at purchase may be eliminated by:

. purchasing Shares in greater quantities to reduce 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 A Shares

A CDSC 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. To
determine whether your CDSC may be waived, see "Eliminating the Contingent
Deferred Sales Charge" in the Fund's Statement of Additional Information.

If your investment qualifies for an elimination of the CDSC as described below,
you or your investment professional should notify the Distributor at the time of
redemption. If the Distributor is not notified, the CDSC will apply.

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 if the
shares were held for the applicable CDSC holding period (other than a money
market fund);

. purchased through investment professionals who did not receive advanced
sales payments;

. if, after you purchase Shares, you become disabled as defined by the IRS;

. 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; or

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

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; and

. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).

The CDSC is then 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, Federated Securities Corp., markets the Shares
described in this prospectus to individuals, directly or through investment
professionals.

When the Distributor receives marketing fees and sales charges, 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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.

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
section of the New Account Form or by contacting the Fund or your investment
professional.

BY AUTOMATED CLEARING HOUSE (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 at 1-800-341-7400 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 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 PRIVILEGE

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 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 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 Investment Management Company. 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 Adviser and other subsidiaries of Federated advise approximately 176
mutual funds and separate accounts, which totaled approximately $125 billion in
assets as of December 31, 1999. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

Randall S. Bauer

Randall S. Bauer has been the Fund's portfolio manager since 1995. Mr. Bauer
joined Federated in 1989 and has been a Portfolio Manager and a Vice President
of the Fund's Adviser since 1994. Mr. Bauer is a Chartered Financial Analyst and
received his M.B.A. in Finance from Pennsylvania State University.

Robert E. Cauley

Robert E. Cauley has been the Fund's portfolio manager since 1999. Mr. Cauley
joined Federated in 1996 as a Senior Investment Analyst and an Assistant Vice
President of the Fund's Adviser and has been a Portfolio Manager since 1997. Mr.
Cauley has been a Vice President of the Adviser since 1999. Mr. Cauley was a
member of the Asset-Backed Structuring Group at Lehman Brothers Holding, Inc.
from 1994 to 1996. Mr. Cauley earned his M.S.I.A., concentrating in Finance and
Economics, from Carnegie Mellon University.

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.

Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. 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 any
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--Class A Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended November 30 1999 1998
1997 1996 1995
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $ 9.82 $ 9.95
$ 9.91 $ 9.97 $ 9.48
Income from Investment
Operations:

Net investment income 0.57
0.60 0.59 0.59 0.55
Net realized and unrealized gain (loss) (0.35)
(0.13) 0.04 (0.06) 0.49)

oninvestments

TOTAL FROM INVESTMENT OPERATIONS 0.22
0.47 0.63 0.53 1.04
Less
Distributions:

Distributions from net investment income (0.59)
(0.60) (0.59) (0.59) (0.55)
Net Asset Value, End of Period $ 9.45 $ 9.82
$ 9.95 $ 9.91 $ 9.97
Total Return/1/ 2.31%
4.81% 6.52% 5.54% 11.29%

Ratios to Average Net
Assets:

Expenses 1.10%
1.10% 1.10% 1.10% 1.10%
Net investment income 5.98%
6.02% 5.90% 6.04% 6.13%
Expense waiver/reimbursement/2/ 0.37%
0.47% 0.49% 0.56% 0.43%
Supplemental
Data:
Net assets, end of period (000 omitted) $139,452 $101,213
$94,952 $116,174 $138,451
Portfolio turnover 29%
93% 62% 104% 63%
</TABLE>

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

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

Further information about the Fund's performance is contained in the Fund's
annual report, dated November 30, 1999, which can be obtained free of charge.

Federated Limited Term Fund

P R O S P E C T U S

[LOGO OF FEDERATED INVESTORS]

World-Class Investment Manager(R)

Federated
Limited
Term Fund

A Portfolio of Fixed Income
Securities, Inc.

(Effective on or about February 1, 2000,
Fixed Income Securities, Inc. will be
named Federated Fixed Income
Securities, Inc.)

CLASS A SHARES

JANUARY 31, 2000

A Statement of Additional Information (SAI) dated January 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and Semi-
Annual Reports to shareholders as they becomes available. The Annual Report's
Management Discussion and Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. You may also access fund information from the EDGAR Database on
the SEC's Internet site at http://www.sec.gov. You can purchase copies of this
information by contacting the SEC by email at [email protected] or by writing
to the SEC's Public Reference Section, Washington, DC 20549- 0102. Call 1-202-
942-8090 for information on the Public Reference Room's operations and copying
fees.

[LOGO OF FEDERATED INVESTORS]

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

(Effective February 1, 2000, the CUSIP number will
be 31417P106)

3070701A-A (1/00)

Federated is a registered mark
of Federated Investors, Inc.
2000 (C)Federated Investors, Inc.

PROSPECTUS

Federated Limited Term Fund

A Portfolio of Fixed Income Securities, Inc.

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated 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.

<TABLE>

<CAPTION>
Contents

<S> <C>
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? 8
How is the Fund Sold? 10
How to Purchase Shares 11
How to Redeem and Exchange Shares 12
Account and Share Information 14
Who Manages the Fund? 15
Financial Information 16
</TABLE>

NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE

JANUARY 31, 2000

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:

. Interest Rate Risks. Prices of fixed income securities generally fall when
interest rates rise.

Risk/Return Bar Chart and Table

[The graphic presentation displayed here consists of a bar chart representing
the annual total returns of the Class F 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 -2% and increasing in
increments of 2% up to 12%.

The "x" axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. 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 F Shares of the Fund for
each calendar year is stated directly at the top of each respective bar, for the
calendar years 1994 through 1999. The percentages noted are: (1.16)%, 11.79%,
5.10%, 7.16%, 4.83%, and 1.99%.]

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

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

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 Table

The following table represents the Fund's Class F Shares Average Annual Total
Returns for the calendar periods ended December 31, 1999. The table shows the
Fund's Class F Shares total returns averaged over a period of years relative to
the Merrill Lynch 1-3 Year Short-Term Corporate index (MLSTC), a broad-based
market index, and Lipper Short Investment Grade Debt Funds Average (LSIGDFA), an
average of funds with similar investment objectives. The MLSTC is an index
trading short-term domestic investment-grade corporate bonds with maturities
between 1 and 2.99 years. Total returns for the indexes shown do not reflect
sales charges, expenses or other fees that the SEC requires to be reflected in
the Fund's performance. Indexes are unmanaged, and it is not possible to invest
directly in an index.

Calendar Period Fund MLSTIC LSIGDFA
<S> <C> <C> <C>
1 Year 0.01% 3.90% 2.81%
5 Years 5.90% 7.11% 5.95%
Start of Performance/1/ 4.62% 5.98% 4.92%
</TABLE>

1 The Fund's start of performance date was September 1, 1993.

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
Class F Shares of the Fund.

Shareholder Fees

Fees Paid Directly From Your Investment

<S>
<C>

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, asapplicable) 1.00% Maximum Sales Charge
(Load) Imposed on Reinvested Dividends (and other Distributions)
(asapercentageofofferingprice) 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%

Shareholder Services

Fee/4/

0.25%

Other
Expenses

0.32%

Total Annual Fund Operating
Expenses

1.12%
</TABLE>

1 Although not contractually obligated to do so, the adviser, distributor, and
shareholder services provider waived certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year ended
November 30, 1999.

Total Waiver of Fund Expenses 0.12%
Total Actual Annual Fund Operating Expenses (after waivers) 1.00%

3 The distributor voluntarily waived a portion of the distribution (12b-1) fee.
The distributor can terminate this voluntary waiver at any time. The
distribution (12b-1) fee paid by the Fund's Class F shares (after the
voluntary waiver) was 0.13% for the year ended November 30, 1999.

4 The shareholder services provider voluntarily waived a portion of the
shareholder services fee. The shareholder services provider can terminate this
voluntary waiver at any time. The shareholder services fee paid by the Fund's
Class F shares (after the voluntary waiver) was 0.22% for the year ended
November 30, 1999.

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 Class F 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:

Share Class 1 Year 3 Years 5 Years
10 Years
Class F

Expenses assuming redemption $313 $552
$711 $1,450
Expenses assuming no redemption $213 $452
$711 $1,450
</TABLE>

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 types of fixed income securities in which the Fund
invests.

Corporate Debt 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 Service, Inc. have speculative characteristics.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

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, Inc. 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.

PREPAYMENT RISKS

Unlike traditional fixed income securities, which pay a fixed rate of interest
until maturity (when the entire principal amount is due) payments on mortgage
backed securities include both interest and a partial payment of principal.
Partial payment of principal may be comprised of scheduled principal payments as
well as unscheduled payments from the voluntary prepayment , refinancing, or
foreclosure of the underlying loans. These unscheduled prepayments of principal
create risks that can adversely affect a Fund holding mortgage backed
securities.

For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline, unscheduled
prepayments can be expected to accelerate, and the Fund would be required to
reinvest the proceeds of the prepayments at the lower interest rates then
available. Unscheduled prepayments would also limit the potential for capital
appreciation on mortgage backed securities.

Conversely, when interest rates rise, the values of mortgage backed securities
generally fall. Since rising interest rates typically result in decreased
prepayments, this could lengthen the average lives of mortgage backed
securities, and cause their value to decline more than traditional fixed income
securities.

Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional interest
paid for risk is measured by the difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread). An increase in the spread will cause the price of the
mortgage backed security to decline. Spreads generally increase in response to
adverse economic or market conditions. Spreads may also increase if the security
is perceived to have an increased prepayment risk or is perceived to have less
market demand.

CALL RISKS

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.

RISKS ASSOCIATED WITH NONINVESTMENT 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?

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

Minimum Initial/
Maximum Sales Charge

Subsequent Investment Front-End

Sales Contingent Deferred
Shares Offered Amounts/1/
Charge/2/ Sales Charge/3/
<S> <C>
<C> <C>
Class F $1,500/$100
1.00% 1.00%
</TABLE>

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 of Public Sales

Charge as a

Purchase Amount Offering Price Percentage
of NAV
<S> <C> <C>
Less than $1 million 1.00% 1.01%
$1 million or greater 0.00% 0.00%
</TABLE>

The sales charge at purchase may be eliminated by:

. purchasing Shares in greater quantities to reduce 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
<S> <C> <C>
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%
</TABLE>

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 if

the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals who did not receive advanced
sales payments;

. if, after you purchase Shares, you become disabled as defined by the IRS; . 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; or . upon
the death of the last surviving shareholder of the account.

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; and

. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).

The CDSC is then 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.

The Fund's Distributor, Federated Securities Corp., markets the Shares
described in this prospectus to individuals, directly or through investment
professionals.

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

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

BY AUTOMATED CLEARING HOUSE (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

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.

PAYMENT METHODS FOR REDEMPTIONS

. 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 PRIVILEGE

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

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

Robert E. Cauley

Advisory Fees

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 1999
1998 1997 1996 1995
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.82 $
9.95 $ 9.91 $ 9.97 $ 9.48
Income from Investment
Operations:
Net investment income 0.57
0.61 0.60 0.66 0.61
Net realized and unrealized gain (loss) on
investments (0.34)
(0.13) 0.04 (0.12) 0.44
TOTAL FROM INVESTMENT OPERATIONS 0.23
0.48 0.64 0.54 1.05
Less
Distributions:

Distributions from net investment income (0.60)
(0.61) (0.60) (0.60) (0.56)
Net Asset Value, End of Period $ 9.45 $
9.82 $ 9.95 $ 9.91 $ 9.97
Total Return/1/ 2.42%
4.91% 6.63% 5.64% 11.39%

Ratios to Average Net
Assets:

Expenses 1.00%
1.00% 1.00% 1.00% 1.00%
Net investment income 6.00%
6.09% 6.00% 6.14% 6.22%
Expense waiver/reimbursement/2/ 0.12%
0.22% 0.24% 0.31% 0.18%
Supplemental
Data:
Net assets, end of period (000 omitted) $9,520
$13,358 $8,807 $8,938 $10,183
Portfolio turnover 29%
93% 62% 104% 63%
</TABLE>

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

2 This voluntary 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, 1999, which can be obtained free of charge.

[FEDERATED LOGO]
WORLD-CLASS INVESTMENT MANAGER

Federated Limited Term Fund

A Portfolio of Fixed Income Securities, Inc.

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated Fixed Income Securities, Inc.)

CLASS F SHARES

JANUARY 31, 2000

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.

[FEDERATED LOGO]

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

(Effective February 1, 2000, the CUSIP number will be 31417P205)
3070701A-F (1/00)

[RECYCLED LOGO]

PROSPECTUS

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED LIMITED TERM FUND

A Portfolio of Fixed Income Securities, Inc.

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated 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 prospectuses for Class A Shares and Class F Shares
of Federated Limited Term Fund (Fund), dated January 31, 2000.

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

JANUARY 31, 2000

CONTENTS

Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses

3070701B (1/00)

How is the Fund Organized?

The Fund is a diversified portfolio of Fixed Income Securities, Inc.
(Corporation). Effective on or about February 1, 2000, Fixed Income Securities,
Inc. will be named Federated Fixed Income Securities, Inc. 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 renamed 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 Shares. The Fund's investment adviser is Federated Investment
Management Company (Adviser).

The Adviser, formerly known as Federated Advisers, changed its name effective
March 31, 1999.

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

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

Treasury Securities

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded 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. Agency securities are
generally regarded 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.

In addition, the credit risk of an issuer's debt security may 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 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 may invest in taxable municipal securities.

Mortgage Backed Securities

Collateralized Mortgage Obligations (CMOs)

Sequential CMOs

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.

PACs, TACs and Companion 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.

IOs and POs

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 interest rate risks.

Floaters and Inverse Floaters

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 interest rate 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.

Z Classes and Residual Classes

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. 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
have prepayment risks. Like CMOs, asset backed securities may be structured
like Floaters, Inverse Floaters, IOs and POs.

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.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate 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 if 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 usually evaluates 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. If a default occurs, 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. The Fund cannot predict the income it 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 invests.

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:

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

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

. 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 to 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 interest
rate 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 buy and sell the following types of futures contracts: financial
futures contracts 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 may:

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

. Buy call options on financial futures contracts and portfolio securities in
anticipation of an increase in the value of the underlying asset.

. Buy or write options to close out existing options positions.

The Fund may also write 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 agreements
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.

Delayed Delivery Transactions

Delayed delivery transactions, including 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, delayed delivery transactions create
interest rate risks for the Fund. Delayed delivery transactions also involve
credit risks in the event of a counterparty default.

To Be Announced Securities (TBAs)

As with other delayed delivery 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. The seller would not
identify the specific underlying mortgages until it issues the security.
TBA mortgage backed securities increase interest rate 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 interest rate risks and credit 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 interest rate 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 without 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.

Inter-fund Borrowing and Lending Arrangements

The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to
lend and borrow money for certain temporary purposes directly to and from
other Federated funds. Participation in this inter-fund lending program is
voluntary for both borrowing and lending funds, and an inter-fund loan is only
made if it benefits each participating fund. Federated administers the program
according to procedures approved by the Fund's Board, and the Board monitors
the operation of the program. Any inter-fund loan must comply with certain
conditions set out in the exemption, which are designed to assure fairness and
protect all participating funds.

For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may
be made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term
borrowings (the "Bank Loan Rate"), as determined by the Board. The interest
rate imposed on inter-fund loans is the average of the Repo Rate and the Bank
Loan Rate.

Investing in Securities of Other Investment Companies

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated investment companies, as an efficient
means of carrying out its investment policies and managing its uninvested cash.

INVESTMENT RISKS

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

Fixed Income Securities Investment Risks

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.

. Trading opportunities are more limited for CMOs that have complex terms or
that 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 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.

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.

Equity Securities Investment Risks

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.

. 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.

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 companies with larger market capitalizations.

Liquidity Risks

. Trading opportunities are more limited for equity securities that are not
widely held. 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.

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

FUNDAMENTAL INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek a high level of current income
consistent with minimum fluctuation in principal value through the compilation
of a portfolio, the weighted-average duration of which will at all times be
limited to three years or less. The investment objective may not be changed by
the Fund's Directors without shareholder approval.

INVESTMENT LIMITATIONS

Issuing Senior Securities and Borrowing Money

The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.

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; 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; and securities of other investment companies) if, as
a result, more than 5% of the value of its total assets would be invested in the
securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.

Investing in Real Estate

The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.

Investing in Commodities

The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.

Underwriting

The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.

Lending Cash or Securities

The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.

Concentration of Investments

The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.

The above limitations cannot be changed unless authorized by the Board of
Directors (Board) and by the "vote of a majority of its outstanding voting
securities," as defined by the Investment Company Act. The following
limitations, however, may be changed by the Board without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.

Buying On Margin

The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.

Pledging Assets

The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.

Investing in Securities of Other Investment Companies

The Fund may invest its assets in securities of other investment companies,
including securities of affiliated investment companies, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

In applying the Fund's concentration limitation, (a) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric and telephone will be considered a separate industry); (b) financial
service companies will be classified according to the end users of their
services (for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry); and (c) asset-backed securities
will be classified according to the underlying assets securing such securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limitation tests so long as the policy of the SEC
remains in effect. In addition, investments in bank instruments, and investments
in certain industrial development bonds funded by activities in a single
industry, will be deemed to constitute investment in an industry, except when
held for temporary defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will constitute
"concentration."

In applying the Fund's commodities restriction, as a matter of non-fundamental
operating policy, for purposes of the commodities policy, investments in
transactions involving futures contracts and options, forward currency
contracts, swap transactions and other financial contracts that settle by
payment of cash are not deemed to be investments in commodities.

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

For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be cash items.

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

. futures contracts and options are generally valued at 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
generally 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;

. 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.

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 - Class A Shares and Class F Shares

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:

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

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

. 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:

. 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

. 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:

. 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;

. 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;

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

. 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;

. 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;

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

Class F Shares Only

. 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 purposes of reinvestment. A qualified plan does not
include an Individual Retirement Account, Keogh Plan, or a custodial account,
following retirement.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) 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. In
addition, 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:

. 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).

. 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 Shares 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
- ------------------------------------------------------------------------------------------
<S> <C>
First $1 - $5 million 0.75%
- ------------------------------------------------------------------------------------------
Next $5 - $20 million 0.50%
- ------------------------------------------------------------------------------------------
Over $20 million 0.25%
- ------------------------------------------------------------------------------------------
</TABLE>

For accounts with assets over $1 million, the dealer advance payments reset
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 Shares

You 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.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving 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 12, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: Edward Jones &
Co., Maryland Heights, MO owned approximately 4,708,562 shares (34.72%); and
MLPF&S for the sole benefit of its customers, Jacksonville, FL, owned
approximately 1,201,674 shares (8.86%).

As of January 12, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class F Shares: MLPF&S for the
sole benefit of its customers, Jacksonville, FL, owned approximately 151,592
shares (15.02%); HSBC Bank USA, Buffalo, NY, owned approximately 51,984 shares
(5.15%); and Edward Jones & Co., Maryland Heights, MO, owned approximately
50,826 shares (5.04%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

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.

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, birth date, 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 12, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A and F Shares.

Name
Aggregate Total
Birth
Date

Compensation Compensation
Address Principal

Occupations From From Corporation
Position With Corporation for Past Five
Years Corporation and Fund Complex
- ------------------------------
- --------------------------------------------------------------- ------------
- -------------------
<S>

<C> <C> <C>
John F. Donahue*+# Chief Executive Officer and Director or Trustee of
the $0 $0 for the
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director,
Federated Corporation and
Federated Investors Tower Investors, Inc.; Chairman and Trustee,
Federated 43 other investment
1001 Liberty Avenue Investment Management Company; Chairman and
Director, companies in the
Pittsburgh, PA Federated Investment Counseling and Federated
Global Fund Complex
CHAIRMAN AND DIRECTOR Investment Management Corp.; Chairman, Passport
Research, Ltd.

- ------------------------------------------------------------------------------------------------------------------------------------
Thomas G. Bigley Director or Trustee of the Federated Fund Complex;
Director, $1,752.34 $116,760.63 for the
Birth Date: February 3, 1934 Member of Executive Committee, Children's Hospital
of Corporation and
15 Old Timber Trail Pittsburgh; Director, Robroy Industries, Inc. (coated
steel 43 other investment
Pittsburgh, PA conduits/computer storage equipment); formerly:
Senior companies in the
DIRECTOR Partner, Ernst & Young LLP; Director, MED 3000 Group,
Inc. Fund Complex
(physician practice management); Director, Member of
Executive

Committee, University of

Pittsburgh.
- ------------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
President, $1,927.85 $128,455.37 for the
Birth Date: June 23, 1937 Investment Properties Corporation; Senior Vice
President, Corporation and
Grubb & Ellis/Investment John R. Wood and Associates, Inc., Realtors; Partner
or 43 other investment
Properties Corporation Trustee in private real estate ventures in Southwest
Florida; companies in the
3201 Tamiami Trail North formerly: President, Naples Property Management, Inc.
and Fund Complex
Naples, FL Northgate Village Development
Corporation.
DIRECTOR

- ------------------------------------------------------------------------------------------------------------------------------------
Nicholas P. Constantakis Director or Trustee of the Federated Fund Complex;
Director, $1,752.34 $73,191.21 for the

Birth Date: September 3, 1939 Michael Baker Corporation (engineering,
construction, Corporation and

175 Woodshire Drive operations and technical services); formerly:
Partner, 37 other investment
Pittsburgh, PA Andersen Worldwide

SC. companies in the
DIRECTOR

Fund Complex

- ------------------------------------------------------------------------------------------------------------------------------------
John F. Cunningham++ Director or Trustee of the Federated Fund Complex;
Chairman, $0 $93,190.48 for the
Birth Date: March 5, 1943 President and Chief Executive Officer, Cunningham &
Co., Inc. Corporation and
353 El Brillo Way (strategic business consulting); Trustee Associate,
Boston 37 other investment
Palm Beach, FL College; Director, Iperia Corp.
(communications/software); companies in the
DIRECTOR formerly: Director, Redgate Communications and EMC
Corporation Fund Complex
(computer storage systems). Previous Positions:
Chairman of

the Board and Chief Executive Officer, Computer
Consoles,
Inc.; President and Chief Operating Officer,
Wang

Laboratories; Director, First National Bank of
Boston;
Director, Apollo Computer,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Director or Trustee of the Federated Fund Complex;
Professor $1,752.34 $116,760.63 for the
Birth Date: October 11, 1932 of Medicine, University of Pittsburgh; Medical
Director, Corporation and
3471 Fifth Avenue University of Pittsburgh Medical Center -
Downtown; 43 other investment
Suite 1111 Hematologist, Oncologist and Internist, University
of companies in the
Pittsburgh, PA Pittsburgh Medical Center; Member, National Board of
Trustees, Fund Complex
DIRECTOR Leukemia Society of
America.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Director or Trustee of the Federated Fund Complex;
formerly: $1,649.74 $109,153.60 for the
Birth Date: March 16, 1942 Representative, Commonwealth of Massachusetts General
Court; Corporation and
One Royal Palm Way President, State Street Bank and Trust Company and
State Street 43 other investment
100 Royal Palm Way
Corporation.
companies in the
Palm Beach,
FL

Fund Complex

DIRECTOR Previous Positions: Director, VISA USA and VISA
International;
Chairman and Director, Massachusetts Bankers
Association;
Director, Depository Trust Corporation; Director, The
Boston

Stock Exchange.

- ------------------------------------------------------------------------------------------------------------------------------------
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated Fund
Complex; $1,844.13 $102,573.91 for the
Birth Date: April 10, 1945 Executive Vice President, Legal and External Affairs,
Dugan Corporation and
80 South Road Valva Contess, Inc. (marketing, communications,
technology 40 other investment
Westhampton Beach, NY and consulting); formerly: Management
Consultant. companies in the
DIRECTOR

Fund Complex

Previous Positions: Chief Executive Officer, PBTC
International

Bank; Partner, Arthur Young & Company (now Ernst &
Young LLP);
Chief Financial Officer of Retail Banking Sector,
Chase

Manhattan Bank; Senior Vice 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 Complex;
President, $1,927.85 $128,455.37 for the
J.D., S.J.D.# Law Professor, Duquesne University; Consulting
Partner, Corporation and
Birth Date: December 20, 1932 Mollica & Murray; Director, Michael Baker Corp.
(engineering, 43 other investment
President, Duquesne University construction, operations and technical
services). companies in the
Pittsburgh,
PA

Fund Complex

DIRECTOR Previous Positions: Dean and Professor of Law,
University of
Pittsburgh School of Law; Dean and Professor of Law,
Villanova

University School of Law.
- ------------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
Public $1,752.34 $116,760.63 for the
Birth Date: June 21, 1935 Relations/Marketing/Conference
Planning. Corporation and
4905 Bayard
Street
43 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum
Company companies in the
DIRECTOR of America; television producer; business
owner. Fund Complex
- ------------------------------------------------------------------------------------------------------------------------------------
John S. Walsh++ Director or Trustee of some of the Federated Fund
Complex; $0 $94,536.85 for the
Birth Date: November 28, 1957 President and Director, Heat Wagon, Inc.
(manufacturer of Corporation and
2007 Sherwood Drive construction temporary heaters); President and
Director, 39 other investment
Valparaiso, IN Manufacturers Products, Inc. (distributor of
portable companies in the
DIRECTOR construction heaters); President, Portable Heater
Parts, Fund Complex
a division of Manufacturers Products, Inc.;
Director,
Walsh & Kelly, Inc. (heavy highway contractor);
formerly:
Vice President, Walsh & Kelly,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue+* President or Executive Vice President of the
Federated Fund $0 $0 for the
Birth Date: April 11, 1949 Complex; Director or Trustee of some of the Funds in
the Corporation and
Federated Investors Tower Federated Fund Complex; President, Chief Executive
Officer 30 other investment
1001 Liberty Avenue and Director, Federated Investors, Inc.; President
and companies in the
Pittsburgh, PA Trustee, Federated Investment Management Company;
President Fund Complex
EXECUTIVE VICE PRESIDENT and Trustee, Federated Investment Counseling;
President and
AND DIRECTOR Director, Federated Global Investment Management
Corp.;
President, Passport Research, Ltd.; Trustee,
Federated

Shareholder Services Company; Director, Federated
Services

Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Trustee or Director of some of the Funds in the
Federated Fund $0 $0 for the
Birth Date: October 22, 1930 Complex; President, Executive Vice President and
Treasurer of Corporation and
Federated Investors Tower some of the Funds in the Federated Fund Complex; Vice
Chairman, 42 other investment
1001 Liberty Avenue Federated Investors, Inc.; Vice President, Federated
Investment companies in the
Pittsburgh, PA Management Company and Federated Investment
Counseling, Fund Complex
EXECUTIVE VICE PRESIDENT Federated Global Investment Management 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 the Federated Fund
$0 $0 for the Birth Date: October 26, 1938 Complex; Executive Vice President,
Secretary and Director, Corporation and Federated Investors Tower Federated
Investors, Inc.; Trustee, Federated Investment 43 other investment 1001 Liberty
Avenue Management Company and Federated Investment Counseling; companies in the
Pittsburgh, PA Director, Federated Global Investment Management Corp, Fund
Complex EXECUTIVE VICE PRESIDENT Federated Services Company and Federated
Securities Corp.

AND SECRETARY
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice
President - Funds $0 $0 for the
Birth Date: June 17, 1954 Financial Services Division, Federated Investors,
Inc.; Corporation and
Federated Investors Tower formerly: various management positions within Funds
Financial 43 other investment
1001 Liberty Avenue Services Division of Federated Investors,
Inc. companies in the
Pittsburgh,
PA

Fund Complex

TREASURER

- ------------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher President or Vice President of some of the Funds in
the $0 $0 for the
Birth Date: May 17, 1923 Federated Fund Complex; Director or Trustee of some
of the Corporation and
Federated Investors Tower Funds in the Federated Fund Complex; Executive
Vice 41 other investment
1001 Liberty Avenue President, Federated Investors, Inc.; Chairman and
Director, companies in the
Pittsburgh, PA Federated Securities
Corp. Fund Complex
PRESIDENT

- ------------------------------------------------------------------------------------------------------------------------------------
William D. Dawson, III Chief Investment Officer of this Fund and various
other Funds $0 $0 for the
Birth Date: March 3, 1949 in the Federated Fund Complex; Executive Vice
President, Corporation and
Federated Investors Tower Federated Investment Counseling, Federated Global
Investment 42 other investment
1001 Liberty Avenue Management Corp., Federated Investment Management
Company and companies in the
Pittsburgh, PA Passport Research, Ltd.; Registered Representative,
Federated Fund Complex
CHIEF INVESTMENT OFFICER 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

Investment Management Company and Passport Research,
Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph M. Balestrino Joseph M. Balestrino is Vice President of the
Corporation. Mr. $0 $0 for the
Birth Date: November 3, 1954 Balestrino joined Federated in 1986 and has been a
Senior Corporation and
Federated Investors Tower Portfolio Manager and Senior Vice President of the
Fund's 3 other investment
1001 Liberty Avenue Adviser since 1998. He was a Portfolio Manager and a
Vice companies in the
Pittsburgh, PA President of the Fund's Adviser from 1995 to 1998.
Mr. Fund Complex
VICE PRESIDENT Balestrino served as a Portfolio Manager and an
Assistant Vice
President of the 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
Corporation. Mr. $0 $0 for the
Birth Date: January 15, 1960 Kozemchak joined Federated in 1987 and has been a
Senior Corporation and
Federated Investors Tower Portfolio Manager since 1996 and a Senior Vice
President of 3 other investment
1001 Liberty Avenue the Fund's Adviser since 1999. He was a Portfolio
Manager companies in the
Pittsburgh, PA until 1996 and a Vice President of the Fund's Adviser
from Fund Complex
VICE PRESIDENT 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>

* An asterisk denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.

# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.

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

++ Messrs. Cunningham and Walsh became members of the Board of Directors on
January 1, 2000. They did not earn any fees for serving the Fund Complex
since these fees are reported as of the end of the last calendar year.

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 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.

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 Fee Average Aggregate Daily Net Assets of the
Federated Funds
- ----------------------------------------------------------------------------------------------
<S> <C>
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
</TABLE>

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

The independent public accountant for the Fund, Deloitte & Touche LLP, plans and
performs its audit so that it may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES

For the Year Ended November 30, 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fee Earned $583,987 $473,247 $446,254
Advisory Fee Reduction $102,708 $200,457 $214,584
Brokerage Commissions $ 0 $ 0 $ 0
Administrative Fee $155,000 $155,000 $155,001
12b-1 Fee
Class A Shares $667,614 -- --
Class F Shares $ 19,507 -- --
Shareholder Services Fee
Class A Shares $333,777 -- --
Class F Shares $ 32,512 -- --
</TABLE>

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?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

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 are given for the one-year, five-year and Start of Performance
periods ended November 30, 1999.

Yields are given for the 30-day period ended November 30, 1999.

30-Day Period 1 Year 5 Years Start
of Performance on January 14, 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares

- ------------------------------------------------------------------------------------------------------------------------
Total Return NA 1.28% 5.83% 5.21%
- ------------------------------------------------------------------------------------------------------------------------
Yield 6.67% NA NA NA
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

30-Day Period 1 Year 5 Years Start
of Performance on September 1, 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class F Shares

- ------------------------------------------------------------------------------------------------------------------------
Total Return NA 0.43% 5.93% 4.66%
- ------------------------------------------------------------------------------------------------------------------------
Yield 6.77% NA NA NA
- ------------------------------------------------------------------------------------------------------------------------
</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.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-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 30-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:

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

. 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;

. 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 Fund; and

. 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.

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.

Morningstar, Inc. is 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.

Merrill Lynch 1-3 Year Short-Term Corporate Index

The Merrill Lynch 1-3 Year Short-Term Corporate Index is an index trading short-
term domestic investment-grade corporate bonds with maturities between 1 and
2.99 years.

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 a 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, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 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 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 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, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 27 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, 1999, Federated managed 9 mortgage
backed, 11 government/agency and 16 government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 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 $43.8 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,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime, 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1 billion and $115
million, 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 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 1,160 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,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated Limited Term Fund dated November 30, 1999.

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:

. Leading market positions in well-established industries;

. High rates of return on funds employed;

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

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

. 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.

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 Investment Management Company

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

200 Berkeley Street
Boston, MA 02116

PROSPECTUS

Federated Limited Term Municipal Fund

A Portfolio of Fixed Income Securities, Inc.

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated Fixed Income Securities, Inc.)

CLASS A SHARES

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

<TABLE>

<CAPTION>
Contents

<S> <C>
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? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 8
How to Purchase Shares 9
How to Redeem and Exchange Shares 10
Account and Share Information 12
Who Manages the Fund? 13
Financial Information 14
</TABLE>

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

JANUARY 31, 2000

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 pursues its investment objective by investing primarily 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
(AMT).

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:

. Interest Rate Risks. Prices of fixed income securities generally fall when
interest rates rise.
. Credit Risks. Issuers of tax-exempt securities may default on the payment of
interest or principal when due.
. Liquidity Risks. Certain securities in which the Fund invests may be less
readily marketable and may be subject to greater fluctuation in price than
other securities.

. Call Risks. Issuers of tax-exempt securities may redeem the securities prior
to maturity at a price below their current market value.

. Sector Risks. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible
to any developments which affect those sectors emphasized by the Fund.

Risk/Return Bar Chart and Table

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

The "y" axis reflects the "% Total Return" beginning with -5% and increasing in
increments of 5% up to 10%.

The "x" axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. 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 is stated directly at the top of each respective bar, for the
calendar years 1994 through 1999. The percentages noted are: (1.80)%, 8.64%,
3.00%, 5.21%, 4.51%, and 0.88%.]

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

Within the period shown in the Chart, the Fund's Class A Shares 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 Table

The following table represents the Fund's Class A Shares Average Annual Total
Returns for the calendar periods ended December 31, 1999. The table shows the
Fund's Class A Shares total returns averaged over a period of years relative to
the Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB), a broad-based
market index. The LB3YRMB is an index of municipal bonds issued after January 1,
1991 with a minimum credit rating of at least Baa, been issued as part of a deal
worth at least $50 million, have a maturity value of at least $3 million and a
maturity range of 1-5 years. As of January 1996, the index also includes zero
coupon bonds and bonds subject to the AMT. Total returns for the index shown do
not reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.

Calendar Period Fund LB3YRMB
<S> <C> <C>
1 Year (0.13%) 1.96%
5 Years 4.20% 5.17%
Start of Performance/1/ 3.41% 4.43%
</TABLE>

1 The Fund's start of performance date was September 1, 1993.

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
Class A Shares of the Fund.

Shareholder Fees

Fees Paid Directly From Your Investment

<S>
<C>

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
0.25%

Shareholder Services
Fee

0.25%

Other
Expenses

0.31%

Total Annual Fund Operating
Expenses

1.21%
</TABLE>

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, 1999.

Total Waiver of Fund Expenses 0.31%
Total Actual Annual Fund Operating Expenses (after waivers) 0.90%

EXAMPLE

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

Calendar Period Fund
<S> <C>
1 Year $ 222
3 Years $ 480
5 Years $ 758
10 Years $ 1,551
</TABLE>

What are the Fund's Investment Strategies?

The Fund invests at least 80% of its net assets in a portfolio of tax exempt
securities. The Fund's portfolio securities are investment grade and its dollar-
weighted average duration is less than four years. Interest from the Fund's
investments may be subject to AMT. The Fund's investment adviser (Adviser)
actively manages the Fund's portfolio, emphasizing credit quality while seeking
to manage the Fund's interest rate risk and to provide high levels of income.

The Adviser performs a fundamental credit analysis on tax exempt securities
before the Fund purchases such securities. The Adviser considers various
factors, including the following:

. the economic feasibility of revenue bond financings and general purpose
financings;
. the financial condition of the issuer or guarantor; . political developments
that may affect credit quality.

The Adviser monitors the credit risks of all securities on an ongoing basis by
reviewing periodic financial data and ratings of nationally recognized ratings
services.

The Adviser manages the Fund's interest rate risk by adjusting the duration of
its portfolio. "Duration" measures the sensitivity of a security's price to
changes in interest rates. The greater a portfolio's duration, the greater the
change in the portfolio's value in response to a change in market interest
rates. The Adviser will increase or reduce the Fund's portfolio duration based
on its interest rate outlook. When the Adviser expects interest rates to fall,
it will maintain a longer portfolio duration. When the Adviser expects interest
rates to increase, it will shorten the portfolio duration. The Adviser considers
a variety of factors in formulating its interest rate outlook, including the
following:

. current and expected U.S. economic growth;
. current and expected interest rates and inflation;
. the Federal Reserve's monetary policy; 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 attempts to provide high levels of income, subject to the Fund's
quality and duration constraints, through the following management techniques.
The Adviser will engage in a relative value analysis; that is, the Adviser will
assess the cost of a tax exempt security compared with other tax exempt
securities and taxable securities such as U.S. Treasury obligations. The Adviser
may also allocate investments in sectors of the tax exempt market that offer the
highest return. Finally, the Adviser will invest a portion of the portfolio in
tax exempt securities subject to the alternative minimum tax, which may offer
higher returns.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in securities subject to federal income tax. 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 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 that is not
subject to regular federal income taxes. 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.

Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.

The following describes the types of tax exempt securities in which the fund
invests.

General Obligation Bonds

General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
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 such as specific taxes, assessments, tolls, or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would 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 from its
bonds to the company using the factory, and the company would agree to 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 AMT. The
Fund may invest in bonds subject to AMT.

CREDIT ENHANCEMENT

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.

If a security is downgraded below the minimum quality grade discussed above,
the Adviser will reevaluate the security, but will not be required to sell it.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

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 Investors Service. 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.

CALL RISKS

LIQUIDITY RISKS

Trading opportunities are more limited for fixed income securities that have not
received any credit ratings 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
of securities may also lead to an increase in their price volatility.

SECTOR RISKS

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

What do Shares Cost?

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

Maximum Sales Charge

Minimum ------------------------
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Shares Offered Amounts/1/ Charge/2/ Charge/3/
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Class A $1,500/$100 1.00% 0.00%
</TABLE>

1 The minimum subsequent investment amounts for Systematic Investment Programs
(SIPs) 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."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares

- ---------------------------------------------------------------------
Sales Charge as Sales Charge

a Percentage of as a
Public Offering Percentage of

Purchase Amount Price NAV
- ---------------------------------------------------------------------
<S> <C> <C>
Less than $1 million 1.00% 1.01%
$1 million or greater/1/ 0.00% 0.00%
</TABLE>

The sales charge at purchase may be eliminated by:

. purchasing Shares in greater quantities to reduce 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 A Shares

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 if

the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals who did not receive advanced
sales payments;
. if, after you purchase Shares, you become disabled as defined by the IRS; . 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; or . upon the
death of the last surviving shareholder of the account.

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; and

. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).

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

How is the Fund Sold?

The Fund's Distributor, Federated Securities Corp., markets the Shares
described in this prospectus to individuals, directly or through investment
professionals. The Fund may not be a suitable investment for retirement plans.

When the Distributor receives marketing fees and sales charges, 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

How to Purchase 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.

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 SIP section of the New Account Form
or by contacting the Fund or your investment professional.

BY AUTOMATED CLEARING HOUSE (ACH)

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

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:

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.

PAYMENT METHODS FOR REDEMPTIONS

. 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.

EXCHANGE PRIVILEGE

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

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

Due to the high cost of maintaining accounts with low balances, 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. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes. Capital gains and non-exempt
dividends are taxable whether paid in cash or reinvested in the Fund.
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:

Mary Jo Ochson

Mary Jo Ochson has been the Fund's portfolio manager since inception. Ms. Ochson
joined Federated in 1982 and has been a Senior Portfolio Manager and a Senior
Vice President of the Fund's Adviser since 1996. From 1988 through 1995, Ms.
Ochson served as a Portfolio Manager and a Vice President of the Fund's Adviser.
Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance
from the University of Pittsburgh.

Jeff A. Kozemchak

Jeff A. Kozemchak has been the Fund's portfolio manager since 1997. He is Vice
President of Fixed Income Securities, Inc. Mr. Kozemchak joined Federated in
1987 and has been a Senior Portfolio Manager since 1996 and a Senior Vice
President of the Fund's Adviser since 1999. He was a Portfolio Manager until
1996 and a Vice President of the Fund's 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.

ADVISORY FEES

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 A Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended November 30 1999
1998 1997 1996 1995
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.86 $
9.78 $ 9.76 $ 9.85 $ 9.49
Net investment income 0.39
0.40 0.41 0.40 0.46
Net realized and unrealized gain (loss) (0.26)
0.08 0.02 (0.08) 0.36

oninvestments

TOTAL FROM INVESTMENT OPERATIONS 0.13
0.48 0.43 0.32 0.82
Less
Distributions:

Distributions from net investment income (0.39)
(0.40) (0.41) (0.40) (0.46)
Distributions in excess of net investment
income (0.01)/1/
TOTAL DISTRIBUTIONS (0.39)
(0.40) (0.41) (0.41) (0.46)
Net Asset Value, End of Period $ 9.60 $
9.86 $ 9.78 $ 9.76 $ 9.85
Total Return/2/ 1.29%
4.95% 4.45% 3.34% 8.67%

Ratios to Average Net
Assets:

Expenses 0.90%
0.90% 0.90% 0.81% 0.68%
Net investment income 3.94%
4.08% 4.17% 4.14% 4.72%
Expense waiver/reimbursement/3/ 0.31%
0.50% 0.48% 0.54% 1.03%
Supplemental
Data:
Net assets, end of period (000 omitted) $97,612
$72,174 $52,921 $73,570 $65,179
Portfolio turnover 25%
25% 33% 49% 47%
</TABLE>

1 Distributions are determined in accordance with income tax regulations which
may differ from genereally accepted accounting principles. These
distributions did 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 the net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
annual report, dated November 30, 1999, which can be obtained free of charge.
Federated Limited Term Municipal Fund

[FEDERATED LOGO]
WORLD-CLASS INVESTMENT MANAGER

Federated
Limited Term
Municipal Fund

A Portfolio of Fixed Income Securities, Inc.

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated Fixed Income Securities, Inc.)

CLASS A SHARES

JANUARY 31, 2000

A Statement of Additional Information (SAI) dated January 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and Semi-
Annual Reports to shareholders as they become available. The Annual Report's
Management Discussion and Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

[FEDERATED LOGO]

Federated Limited Term Municipal 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 338319403

(Effective February 1, 2000, the CUSIP number will be 31417P304)

3070702A-A (1/00)

Federated is a registered mark of Federated Investors, Inc.

2000 Federated Investors, Inc. [RECYCLED LOGO]

PROSPECTUS

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

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated Fixed Income Securities, Inc.)

CLASS F SHARES

<TABLE>

<CAPTION>
Contents

<S> <C>
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? 6
What Do Shares Cost? 7
How is the Fund Sold? 9
How to Purchase Shares 9
How to Redeem and Exchange Shares 11
Account and Share Information 13
Who Manages the Fund? 14
Financial Information 15
</TABLE>

JANUARY 31, 2000

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

. Interest Rate Risks. Prices of fixed income securities generally fall when
interest rates rise.
. Credit Risks. Issuers of securities may default on the payment of interest
or principal when due.
. Liquidity Risks. Certain securities in which the Fund invests may be less
readily marketable and may be subject to greater fluctuation in price than
other securities.

. Call Risks. Issuers of tax-exempt securities may redeem the securities
prior to maturity at a price below their current market value.

. Sector Risks. Because the Fund may allocate relatively more assets to
certain industry sectors than others, the Fund's performance may be more
susceptible to any developments which affect those sectors emphasized by
the Fund.

Risk/Return Bar Chart and Table

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

The "y" axis reflects the "% Total Return" beginning with -2% and increasing in
increments of 2% up to 10%.

The "x" axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. 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 F Shares of the Fund for
each calendar year is stated directly at the top of each respective bar, for the
calendar years 1994 through 1999. The percentages noted are: (1.61)%, 8.84%,
3.25%, 5.47%, 4.77%, and 1.13%.]

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

The Fund's Class F Shares are sold without a sales charge (load). The total
returns displayed above are based upon net asset value.

Within the period shown in the Chart, the Fund's shares highest quarterly return
was 3.15% (quarter ended March 31, 1995). Its lowest quarterly return was
(2.46%) (quarter ended March 31, 1994).

Average Annual Total Return Table

The following table represents the Fund's Class F shares Average Annual Total
Returns for the calendar periods ended December 31, 1999. The table shows the
Fund's Class F shares total returns averaged over a period of years relative to
the Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB) a broad-based
market index. The LB3YRMB is an index of municipal bonds issued after January 1,
1991 with a minimum credit rating of at least Baa, been issued as part of a deal
worth at least $50 million, have a maturity value of at least $3 million, and a
maturity range of 1-5 years. As of January 1996, the index also includes zero
coupon bonds and bonds subject to AMT. Total returns for the indexes shown do
not reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.

Calendar Period Fund LB3YRMB
<S> <C> <C>
1 Year 0.16% 1.96%
5 Years 4.66% 5.17%
Start of Performance/1/ 3.81% 4.43%
</TABLE>

1 The Fund's start of performance date was September 1, 1993.

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
Class F Shares of the Fund.

Shareholder Fees

Fees Paid Directly From Your Investment

<S>
<C>

Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None 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%

Shareholder Services
Fee

0.25%

Other
Expenses

0.31%

Total Annual Fund Operating
Expenses

1.11%

</TABLE>

/1/ Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along with the net expenses
the Fund actually paid for the fiscal year ended November 30, 1999.

Total Waiver of Fund Expenses 0.46%
Total Actual Annual Fund Operating Expenses (after waivers) 0.65%
/2/ The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.09% for the fiscal year ended
November 30, 1999.

/3/ The distributor voluntarily waived the distribution (12b1) fee. The
distributor can terminate this voluntary waiver at any time. The
distribution (12b1) fee paid by the Fund's Class F Shares (after the
voluntary waiver) was 0.00% for the year ended November 30, 1999.

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.

Share Class 1 Year 3 Years 5 Years 10 Years
Class F
<S> <C> <C> <C> <C>
Expenses assuming $213 $453 $612 $1,352
redemption

Expenses assuming no $113 $353 $612 $1,352
redemption
</TABLE>

What are the Fund's Investment Strategies?

The Adviser performs a fundamental credit analysis on tax exempt securities
before the Fund purchases such securities. The Adviser considers various
factors, including the following:

. the economic feasibility of revenue bond financings and general purpose
financings;
. the financial condition of the issuer or guarantor; . political developments
that may affect credit quality.

The Adviser monitors the credit risks of all securities on an ongoing basis by
reviewing periodic financial data and ratings of nationally recognized ratings
services.

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

TAX EXEMPT SECURITIES

Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.

The following describes the types of tax exempt securities in which the fund
invests.

General Obligation Bonds

Special Revenue Bonds

Private Activity Bonds

The interest on many types of private activity bonds is subject to AMT. The
Fund may invest in bonds subject to AMT.

Credit Enhancement

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

If a security is downgraded below the minimum quality grade discussed above,
the Adviser will reevaluate the security, but will not be required to sell it.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

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 RISKS

LIQUIDITY RISKS

SECTOR RISKS

What Do Shares Cost?

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain 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 Charge/2/
<S> <C> <C> <C>
Class F $1,500/$100 None 1.00%
</TABLE>

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

/2/ See "Sales Charge When You Redeem."

ELIMINATING THE SALES CHARGE
The Fund's Shares are sold at NAV. However, shareholders may eliminate the
applicable sales charge when purchasing Class F Shares of other Federated Funds
by:

. purchasing Shares in greater quantities to reduce 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).

In addition, the sales charge will be eliminated when you purchase Class F
Shares of other Federated Funds:

. 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

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
<S> <C> <C>
Up to $2 million 4 years or less 1.00%
$2 $5 million 2 years or less 0.50%
$2 $25 million 1 year or less 0.25%
$25 million or more N/A None
</TABLE>

You will not be charged a CDSC when redeeming Shares:

shares were held for the applicable CDSC holding period (other than a money
market fund);
. purchased through investment professionals who did not receive advanced sales
payments;
. if, after you purchase Shares, you become disabled as defined by the IRS;
. 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; or . upon
the death of the last surviving shareholder of the account.

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; and

. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).

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

How is the Fund Sold?

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

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.

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

BY AUTOMATED CLEARING HOUSE (ACH)

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

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:

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.

PAYMENT METHODS FOR REDEMPTIONS

. 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.

EXCHANGE PRIVILEGE

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

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

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

Mary Jo Ochson

Jeff A. Kozemchak

ADVISORY FEES

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 1999
1998 1997 1996 1995
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $ 9.86 $ 9.78
$ 9.76 $ 9.85 $ 9.49
Net investment income 0.41
0.42 0.43 0.43 0.47
Net realized and unrealized gain (loss) on
investments (0.26)
0.08 0.02 (0.08) 0.36
TOTAL FROM INVESTMENT OPERATIONS 0.15
0.50 0.45 0.35 0.83
Less
Distributions:

Distributions from net investment income (0.41)
(0.42) (0.43) (0.43) (0.47)
Distributions in excess of net investment income --
- -- -- (0.01)/1/ --
TOTAL DISTRIBUTIONS (0.41)
(0.42) (0.43) (0.44) (0.47)
Net Asset Value, End of Period $ 9.60 $ 9.86
$ 9.78 $ 9.76 $ 9.85
Total Return/2/ 1.54%
5.21% 4.71% 3.60% 8.86%

Ratios to Average Net
Assets:

Expenses 0.65%
0.65% 0.65% 0.56% 0.49%
Net investment income 4.18%
4.28% 4.42% 4.40% 4.91%
Expense waiver/reimbursement/3/ 0.46%
0.65% 0.63% 0.69% 1.12%
Supplemental
Data:
Net assets, end of period (000 omitted) $28,006 $28,964
$20,298 $26,300 $26,442
Portfolio turnover 25%
25% 33% 49% 47%
</TABLE>

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

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 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, 1999, which can be obtained free of charge.

NOTES

[FEDERATED LOGO]

Federated
Limited Term
Municipal Fund

A Portfolio of Fixed Income Securities, Inc.

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated Fixed Income Securities, Inc.)

CLASS F SHARES

JANUARY 31, 2000

A Statement of Additional Information (SAI) dated January 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and Semi-
Annual Reports to shareholders as they become available. The Annual Report's
Management Discussion and Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

[Federated Logo]

Federated Limited Term Municipal 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 338319502

(Effective February 1, 2000, the CUSIP number will be 31417P403)

3070702-F (1/00)

Federated is a registered mark
of Federated Investors, Inc.
2000 (c)Federated Investors, Inc.

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STATEMENT OF ADDITIONAL INFORMATION

Federated Limited Term Municipal Fund

A Portfolio of Fixed Income Securities, Inc.

(Effective on or about February 1, 2000, Fixed Income Securities, Inc. will be
named Federated Fixed Income Securities, Inc.)

CLASS A SHARES
CLASS F SHARES

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

JANUARY 31, 2000

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
3070702B (1/00)

How is the Fund Organized?

The Fund is a diversified portfolio of Fixed Income Securities, Inc.
(Corporation). Effective on or about February 1, 2000, Fixed Income Securities,
Inc. will be named Federated Fixed Income Securities, Inc. 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 as Class F Shares. Effective March 31, 1996,
the Fund changed its name from Limited Term Municipal Fund to Federated Limited
Term Municipal Fund.

The Adviser, formerly known as Federated Advisers, changed its name effective
March 31, 1999.

Securities in Which the Fund Invests

The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in such
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME SECURITIES

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

Tax Exempt Securities

Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.

Inverse Floaters

An inverse floater has a floating or variable interest rate that moves in the
opposite direction of market interest rates. When market interest rates go
up, the interest rate paid on the inverse floater goes down; when market
interest rates go down, the interest rate paid on the inverse floater goes
up. Inverse floaters generally respond more rapidly to market interest rate
changes than fixed rate tax exempt securities. Inverse floaters are subject
to interest rate risks and leverage risks.

Variable Rate Demand Instruments

Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a
variable rate intended to cause the securities to trade at their face value.
The Fund treats demand instruments as short-term securities, because their
variable interest rate adjusts in response to changes in market rates, even
though their stated maturity may extend beyond thirteen months.

Municipal Notes

Municipal notes are short-term tax exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes or
other municipal revenues. Municipalities may also issue notes to fund capital
projects prior to issuing long-term bonds. The issuers typically repay the
notes at the end of their fiscal year, either with taxes, other revenues or
proceeds from newly issued notes or bonds.

Tax Increment Financing Bonds

Tax increment financing (TIF) bonds are payable from increases in taxes or
other revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF
bonds would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and
related tax collections, failed to increase as anticipated.

Municipal Leases

Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject
to annual appropriation. In other words, a municipality may end a lease,
without penalty, by not providing for the lease payments in its annual
budget. After the lease ends, the lessor can resell the equipment or facility
but may lose money on the sale.

The Fund may invest in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation (COPs). However, the Fund may also invest directly in
individual leases.

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. Investors must wait until maturity to receive interest and
principal, which increases the interest rate and credit risks of a zero
coupon security.

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. If a default occurs, 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.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may make temporary defensive investments in the following taxable
securities:

Treasury Securities

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

Agency 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.

Corporate Debt Securities

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 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.

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.

Repurchase agreements are subject to credit risks.

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 a future trade involving the underlying asset. The
other party to a derivative contract is referred to as a counterparty.

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 interest
rate 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 over-the-counter (OTC) are frequently referred to as forward contracts.

The Fund may buy or sell the following types of futures contracts: interest
rate and index financial futures contracts.

Options

The Fund may buy or write options to close out existing options positions.

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

Interest Rate Swaps

Caps and Floors

Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.

Total Return Swaps

Total return swaps are contracts in which one party agrees to make payments
of the total return from the underlying asset during the specified period,
in return for payments equal to a fixed or floating rate of interest or the
total return from another underlying asset.

SPECIAL TRANSACTIONS

Delayed Delivery Transactions

Asset Coverage

Inter-fund Borrowing and Lending Arrangements

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

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

Credit Risks

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 "AAA" - rated general obligation security or index 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.

Tax Risks

In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable. Changes or proposed
changes in federal tax laws may cause the prices of municipal securities to
fall.

Liquidity Risks

Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a futures 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.

Leverage Risks

Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.

Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.

FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide a high level of current income
which is exempt from federal regular income tax (federal regular income tax does
not include the federal alternative minimum tax) consistent with the
preservation of principal. The investment objective may not be changed by the
Fund's Directors without shareholder approval.

Under normal circumstances, the Fund will be invested so that at least 80% of
its net assets are invested in obligations, the interest from which is exempt
from federal regular income tax (excluding federal alternative minimum tax for
individuals and corporations). This policy is fundamental and cannot be changed
without shareholder approval.

INVESTMENT LIMITATIONS

Issuing Senior Securities and Borrowing Money

The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the Investment Company Act of 1940, as
amended (the "1940 Act").

Diversification of Investments

Investing in Real Estate

Investing in Commodities

The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.

Underwriting

Concentration of Investments

The above limitations cannot be changed unless authorized by the Board and by
the "vote of a majority of its outstanding voting securities," as defined by the
1940 Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

Investing in Illiquid Securities

The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.

Lending Cash or Securities

Buying On Margin

Pledging Assets

In applying the Fund's concentration limitation, (a) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric and telephone will be considered a separate industry); (b) financial
service companies will be classified according to the end users of their
services (for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry); and (c) asset-backed securities
will be classified according to the underlying assets securing such securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, the Fund
will not exclude foreign bank instruments from industry concentration limitation
tests so long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be deemed to
constitute investment in an industry, except when held for temporary defensive
purposes. The investment of more than 25% of the value of the Fund's total
assets in any one industry will constitute "concentration."

In applying the Fund's commodities restriction, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are
not deemed to be investments in commodities.