Federated Government Income Securities, Inc.

485BPOS 1 form.htm Federated Government Income Securities, Inc.

                                    1933 Act File No. 2-74191
                                    1940 Act File No. 811-3266

                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                 Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933     X

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

    Post-Effective Amendment No.   44 _.............        X

                                   and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940       X

    Amendment No.   34   ...........................        X

                FEDERATED GOVERNMENT 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
                            1001 Liberty Avenue
                     Pittsburgh, Pennsylvania 15222-3779
                  (Name and Address of Agent for Service)
             (Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

 x  immediately upon filing pursuant to paragraph (b)
  _ on __________________, 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.



Copies to:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C.  20037

Federated Investors
World-Class Investment Manager

Federated Government Income Securities, Inc.

PROSPECTUS

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April 30, 2004

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CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES

A mutual fund seeking current income by investing primarily in a diversified portfolio of U.S. government 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.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 7

What are the Specific Risks of Investing in the Fund? 12

What Do Shares Cost? 13

How is the Fund Sold? 18

How to Purchase Shares 19

How to Redeem and Exchange Shares 21

Account and Share Information 25

Who Manages the Fund? 26

Legal Proceedings 27

Financial Information 28

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide current income. 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?

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The Fund pursues its investment objective by investing primarily in U.S. government securities, including mortgage-backed securities.

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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 Risk. Prices of fixed income securities generally fall when interest rates rise.
Credit Risk. 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.
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Prepayment Risk. 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
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Liquidity Risk. The non-governmental mortgage-backed securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
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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.

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Risk/Return Bar Chart and Table

The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class F Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

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

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The Fund's Class F Shares total return for the three-month period from January 1, 2004 to March 31, 2004 was 2.18%.

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Within the period shown in the bar chart, the Fund's Class F Shares highest quarterly return was 4.89% (quarter ended September 30, 2002). Its lowest quarterly return was (2.17)% (quarter ended March 31, 1994).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class A, Class B, Class C and Class F Shares are reduced to reflect applicable sales charges. Returns Before Taxes is shown for all classes. In addition, Return After Taxes is shown for the Class F Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for Merrill Lynch 5 Year Treasury Index (ML5T), a broad-based market index, the Lipper General U.S. Government Funds Average (LGUSGFA), an average of funds with similar investment objectives, and a blended index comprised of 60% Lehman Brothers Mortgage-Backed Securities Index and 40% Lehman Brothers Government Index (LBMBGS). Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. However, the average returns are reported net of expenses or other fees that the SEC requ ires to be reflected in a fund's performance. The Indexes and average are unmanaged, and it is not possible to invest directly in an index or an average.

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(For the periods ended December 31, 2003)

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	1 Year	5 Years	10 Years	<R>Start of Performance¹</R>
Class A Shares:
Return Before Taxes	<R>(1.76)%</R>	<R>4.81%</R>	N/A	<R>5.95%</R>
Class B Shares:
Return Before Taxes	<R>(3.34)%</R>	<R>4.65%</R>	N/A	<R>5.82%</R>
Class C Shares:
Return Before Taxes	<R> 0.11%</R>	<R>4.80%</R>	N/A	<R>5.70%</R>
Class F Shares:
Return Before Taxes	<R> 0.88%</R>	<R>5.57%</R>	<R>6.11%</R>	<R>7.00%</R>
<R>Return After Taxes on Distributions²</R>	<R>(0.66)%</R>	<R>3.37%</R>	<R>3.60%</R>	<R>4.18%</R>
Return After Taxes on Distributions and Sale of Fund Shares²	<R> 0.56%</R>	<R>3.36%</R>	<R>3.60%</R>	<R> 4.23%</R>
ML5T	<R> 2.51%</R>	<R>6.18%</R>	<R>6.25%</R>	N/A
LGUSGFA	<R> 1.30%</R>	<R>5.16%</R>	<R>5.69%</R>	N/A
LBMBGS	<R> 2.79%</R>	<R>6.43%</R>	<R>6.82%</R>	N/A

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1 The Fund's Class A, Class B and Class C Shares start of performance date was August 5, 1996.

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2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns are not relevant to investors holding shares through tax-deferred programs, such as IRA or 401(k) plans.

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What are the Fund's Fees and Expenses?

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold Class A, B, C or F Shares of the Fund.

Shareholder Fees	Class A	Class B	Class C	Class F
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	4.50%	None	1.00%	1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	0.00%	5.50%	1.00%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None	None	None
Exchange Fee	None	None	None	None

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.75%	0.75%	0.75%	0.75%
Distribution (12b-1) Fee	0.25%³	0.75%	0.75%	None
Shareholder Services Fee	0.25%	0.25%	0.25%	0.25%
Other Expenses	0.22%	0.22%	0.22%	0.22%
Total Annual Fund Operating Expenses	1.47%	1.97%⁴	1.97%	1.22%

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 February 29, 2004.
Total Waivers of Fund Expenses	0.49%	0.24%	0.24%	0.24%
Total Actual Annual Fund Operating Expenses (after waivers)	0.98%	1.73%	1.73%	0.98%
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 0.51% for the fiscal year ended February 29, 2004.
3 The distribution (12b-1) fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The distribution (12b-1) fee paid by the Fund's Class A Shares (after the voluntary waiver) was 0.00% for the fiscal year ended February 29, 2004.
4 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.

EXAMPLE

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

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

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	$593	$ 894	$1,217	$2,128

Expenses assuming no redemption	$593	$ 894	$1,217	$2,128

Class B:
Expenses assuming redemption	$750	$1,018	$1,262	$2,167

Expenses assuming no redemption	$200	$ 618	$1,062	$2,167

Class C:
Expenses assuming redemption	$398	$ 712	$1,152	$2,373

Expenses assuming no redemption	$298	$ 712	$1,152	$2,373

Class F:
Expenses assuming redemption	$323	$ 583	$ 764	$1,563

Expenses assuming no redemption	$223	$ 483	$ 764	$1,563

What are the Fund's Investment Strategies?

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The Fund invests primarily in a portfolio of U.S. government securities. The Fund may also invest in investment grade mortgage-backed securities issued by non-governmental issuers. A description of the various types of securities in which the Fund invests, and their risks, immediately follows this strategy section.

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The Fund intends to invest in the securities of U.S. government-sponsored entities (GSEs), including GSE securities that are not backed by the full faith and credit of the U.S. government, such as those issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Bank System. These entities are, however, supported through federal subsidies, loans or other benefits. The Fund may also invest in GSE securities that are supported by the full faith and credit of the U.S. government, such as those issued by the Government National Mortgage Association. Finally, the Fund may invest in a few GSE securities that have no explicit financial support, but which are regarded as having implied support because the federal government sponsors their activities. Such securities include those issued by the Farm Credit System and the Financing Corporation.

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The Fund's investment adviser (Adviser) allocates the Fund's portfolio holdings between mortgage-backed securities and U.S. Treasury securities. Mortgage-backed securities generally offer higher relative returns versus comparable U.S. Treasury securities to compensate for prepayment risk. Prepayment risk is the unscheduled or complete payment of the principal outstanding on a mortgage loan by the homeowner. One important reason for prepayments is changes in market interest rates from the time of mortgage origination. The Adviser actively manages the Fund's portfolio, seeking the higher relative returns of mortgage-backed securities while attempting to limit the prepayment risk.

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The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage-backed securities with characteristics that make prepayment less likely. Characteristics that the Adviser may consider in selecting securities include the average interest rates of the underlying mortgages, the prior prepayment history of the mortgages and the federal agencies that securitize the mortgages. The Adviser attempts to assess the relative returns and risks of mortgage-backed securities by analyzing how the timing, amount and division of cash flows from the pool of mortgages underlying the security might change in response to changing economic and market conditions.

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The Adviser selects securities with longer or shorter duration based on its interest rate outlook. Duration measures the price sensitivity of a portfolio of fixed income securities to changes in interest rates. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions by analyzing a variety of factors such as:

current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve's monetary policy; and
changes in the supply of, or demand for, U.S. government securities.

There is no assurance that the Adviser's efforts to forecast market interest rates and assess the impact of market interest rates on particular securities will be successful.

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The Adviser may use collateralized mortgage obligations (CMOs) with relatively predictable cash flows (such as sequential pay, planned amortization class and targeted amortization class), to reduce prepayment risk. In addition, the Adviser may use combinations of CMOs, and CMOs and other mortgage-backed securities, to attempt to provide a higher-yielding investment with lower sensitivity to fluctuations in interest rates.

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The Adviser may attempt to take advantage of current and potential yield differentials existing from time to time between various mortgage-backed securities in order to increase the Fund's return. The Fund may also engage in dollar roll transactions for their potential to enhance income.

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Because the Fund refers to government income investments in its name, it will notify shareholders at least 60 days in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its assets in U.S. government investments.

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.

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:

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Mortgage-Backed Securities

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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.

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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 on to the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.

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Collateralized Mortgage Obligations

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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.

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The degree of increased or decreased prepayment risk 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.

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Non-Governmental Mortgage-Backed Securities

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Non-governmental mortgage-backed securities (including non-governmental CMOs) are issued by private entities, rather than by U.S. government agencies. These securities involve credit risks and liquidity risks. The Fund may invest in non-governmental mortgage backed securities that are rated BBB or higher by a nationally recognized statistical rating organization (NRSRO).

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The non-governmental mortgage-backed securities in which the Fund invests will be treated as mortgage related asset-backed securities.

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Mortgage-Related, Asset-Backed Securities

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Asset-backed securities are payable from pools of obligations other than mortgage-backed securities issued by U.S. government agencies. Most asset-backed securities involve consumer or commercial debts. The Fund will purchase only mortgage-related, asset-backed securities, examples of which include, but are not limited to, home equity loans and manufactured housing obligations. 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. Also, asset-backed securities may be issued by a private entity and, although these securities must be rated investment grade, they present credit risks.

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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

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Agency Securities. Agency securities are issued or guaranteed by a federal agency or other government sponsored entity (GSE) acting under federal authority. Some GSE securities are supported by the full faith and credit of the United States. These include the Government National Mortgage Association, Small Business Administration, Farm Credit System Financial Assistance Corporation, Farmer's Home Administration, Federal Financing Bank, General Services Administration, Department of Housing and Urban Development, Export-Import Bank, Overseas Private Investment Corporation, and Washington Metropolitan Area Transit Authority Bonds.

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Other GSE securities receive support through federal subsidies, loans or other benefits. For example, the U.S. Treasury is authorized to purchase specified amounts of securities issued by (or otherwise make funds available to) the Federal Home Loan Bank System, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Student Loan Marketing Association, and Tennessee Valley Authority in support of such obligations.

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A few GSE securities have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. These include the Farm Credit System, Financing Corporation, and Resolution Funding Corporation.

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Investors regard agency securities as having low credit risks, but not as low as Treasury securities. A Fund treats mortgage-backed securities guaranteed by a GSE as if issued or guaranteed by a federal agency. Although such a guarantee protects against credit risks, it does not reduce market and prepayment risks.

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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.

SPECIAL TRANSACTIONS

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)

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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.

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Dollar Rolls

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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 and credit risks.

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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.

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.

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Securities Lending

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The Fund may lend portfolio securities to borrowers that the Fund's custodian 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.

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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.

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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.

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Securities lending activities are subject to interest rate and credit risks. These transactions may create leverage risks.

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

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the interest 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 S&P 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.

PREPAYMENT RISKS

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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.

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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.

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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.

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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.

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LIQUIDITY RISKS

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 when it wants to. If this happens, the Fund will be required to continue to hold the security, and the Fund could incur losses.

What Do Shares Cost?

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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 this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.

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

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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.

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Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	4.50%	0.00%
Class B	$1,500/$100	None	5.50%
Class C	$1,500/$100	1.00%	1.00%
Class F	$1,500/$100	1.00%	1.00%

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1 The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively. 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. Orders for $100,000 or more will be invested in Class A Shares instead of Class B Shares to maximize your return and minimize the sales charges and marketing fees. Accounts held in the name of an investment professional may be treated differently. After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. This conversion is a non-taxable event.

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%

Class C Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
All Purchases	1.00%	1.01%

Class F Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $1 million	1.00%	1.01%
$1 million or greater	0.00%	0.00%

1 A contingent deferred sales charge of 0.75% may apply. See "Sales Charge When You Redeem."

If your investment qualifies for a reduction or 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 of Class A Shares and Class F Shares only, may be reduced or 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 Class A Shares:

within 120 days of redeeming Shares of an equal or greater amount;
by exchanging shares from the same share class of another Federated fund (other than a money market fund);
through wrap accounts or other investment programs where you pay the investment professional directly for services;
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as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;
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through investment professionals that receive no portion of the sales charge;
as a Federated Life Member (Class A Shares only) and their immediate family members; or
as a Director or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.

The sales charge will be eliminated when you purchase Class F Shares:

within 120 days of redeeming Shares of an equal or greater 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 (Purchase amount of $1 million or greater):
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.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.
Class F Shares:
Purchase Amount	Shares Held	CDSC
Up to $2 million	4 years or less	1.00%
$2 - $5 million	2 years or less	0.50%
$5 million or more	1 year or less	0.25%

If your investment qualifies for a reduction or 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. The beneficiary on an account with a Transfer on Death registration is deemed 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 four Share classes: Class A, Class B, Class C and Class F Shares, each representing interests in a single portfolio of securities.

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

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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, Class B and Class C 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

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Make your check payable to The Federated Funds, note your account number on the check, and send it to:

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

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If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

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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 reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

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 SIP 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 simply calling the Fund at 1-800-341-7400.

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

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You may redeem or exchange Shares by sending a written request to the Fund.

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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.

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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.

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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 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 PROGRAM

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You may automatically redeem 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 Class A, Class C or Class F Shares subject to a sales charge while redeeming Shares using this program.

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Systematic Withdrawal Program (SWP) on Class B Shares

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You will not be charged a CDSC on SWP redemptions if:

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

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You will be subject to a CDSC on redemption amounts that exceed the 12% annual limit. In measuring the redemption percentage, your account is valued when you establish the SWP and then annually at calendar year-end. You can redeem monthly, quarterly, or semi-annually.

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ADDITIONAL CONDITIONS

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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 and pays any dividends monthly to shareholders. Dividends are paid to all shareholders invested in the Fund on the record date. The record date is the date on which a shareholder must officially own Shares in order to earn a dividend.

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.

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

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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?

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The Board of Directors (the "Board") 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. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 136 mutual funds and a variety of separate accounts, which totaled approximately $198 billion in assets as of December 31, 2003. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,650 employees. More than 5,000 investment professionals make Federated funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

Susan M. Nason

Susan M. Nason has been the Fund's Portfolio Manager since February 2001. Ms. Nason joined Federated in 1987 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and received her M.S.I.A. concentrating in Finance from Carnegie Mellon University.

Todd Abraham

Todd A. Abraham has been the Fund's Portfolio Manager since February 2003. Mr. Abraham has been a Portfolio Manager since 1995 and a Vice President of the Fund's Adviser since 1997. Mr. Abraham joined Federated in 1993 as an Investment Analyst and served as Assistant Vice President from 1995 to 1997. Mr. Abraham served as a Portfolio Analyst at Ryland Mortgage Co. from 1992 to 1993. Mr. Abraham is a Chartered Financial Analyst and received his M.B.A. in Finance from Loyola College.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% 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.

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Legal Proceedings

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Like many other mutual fund companies, in September 2003, Federated Investors, Inc., the parent company of the Federated funds' advisers and distributor (collectively, "Federated"), received detailed requests for information on shareholder trading activities in the Federated funds ("Funds") from the Securities and Exchange Commission, the New York State Attorney General, and the National Association of Securities Dealers. Since that time, Federated has received additional inquiries from regulatory authorities on these and related matters, and more such inquiries may be received in the future.

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As a result of these inquiries, Federated and the Funds have conducted an internal investigation of the matters raised, which revealed instances in which a few investors were granted exceptions to Federated's internal procedures for limiting frequent transactions and that one of these investors made an additional investment in another Federated fund. The investigation has also identified inadequate procedures which permitted a limited number of investors (including several employees) to engage in undetected frequent trading activities and/or the placement and acceptance of orders to purchase shares of fluctuating net asset value funds after the funds' closing times. Federated has issued a series of press releases describing these matters in greater detail and emphasizing that it is committed to compensating the Funds for any detrimental impact these transactions may have had on them. In that regard, on February 3, 2004, Federated and the independent directors of the Funds announced the establishment by Feder ated of a restoration fund that is intended to cover any such detrimental impact. The press releases and related communications are available in the "About Us" section of Federated's website www.federatedinvestors.com, and any future press releases on this subject will also be posted there.

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Shortly after Federated's first public announcement concerning the foregoing matters, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Funds were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. The board of the Funds has retained the law firm of Dickstein, Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are r eviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations have been filed, and others may be filed in the future. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

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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 February 28 or 29	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$9.23		$8.82		$8.80		$8.28		$8.79
Income From Investment Operations:
Net investment income	0.34	¹	0.42	¹	0.46	^1,2	0.52		0.50
Net realized and unrealized gain (loss) on investments	(0.06	)	0.43		0.07	²	0.52		(0.49	)

TOTAL FROM INVESTMENT OPERATIONS	0.28		0.85		0.53		1.04		0.01

Less Distributions:
Distributions from net investment income	(0.39	)	(0.44	)	(0.51	)	(0.52	)	(0.52	)

Net Asset Value, End of Period	$9.12		$9.23		$8.82		$8.80		$8.28

Total Return³	3.13	%	9.86	%	6.15	%	12.91	%	0.10	%


Ratios to Average Net Assets:

Expenses	0.98	%	0.98	%	0.98	%	0.98	%	0.98	%

Net investment income	3.70	%	4.69	%	5.23	%²	6.05	%	5.79	%

Expense waiver/reimbursement⁴	0.49	%	0.49	%	0.48	%	0.50	%	0.51	%

Supplemental Data:

Net assets, end of period (000 omitted)	$57,407		$77,994		$123,455		$130,829		$106,328

Portfolio turnover	50	%	424	%	169	%	192	%	152	%

1 Based on average shares outstanding.

2 Effective March 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on debt securities. The effect of this change for the year ended February 28, 2002 was to decrease net investment income per share by $0.05, increase net realized gain/loss per share by $0.05, and decrease the ratio of net investment income to average net assets from 5.73% to 5.23%. Per share, ratios and supplemental data for periods prior to February 28, 2002 have not been restated to reflect this change in presentation.

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

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated February 29, 2004, which can be obtained free of charge.

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended February 28 or 29	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$9.20		$8.80		$8.78		$8.26		$8.78
Income From Investment Operations:
Net investment income	0.27	¹	0.35	¹	0.39	^1,2	0.45		0.43
Net realized and unrealized gain (loss) on investments	(0.05	)	0.42		0.07	²	0.52		(0.50	)

TOTAL FROM INVESTMENT OPERATIONS	0.22		0.77		0.46		0.97		(0.07	)

Less Distributions:
Distributions from net investment income	(0.32	)	(0.37	)	(0.44	)	(0.45	)	(0.45	)

Net Asset Value, End of Period	$9.10		$9.20		$8.80		$8.78		$8.26

Total Return³	2.47	%	8.97	%	5.38	%	12.12	%	(0.76	)%


Ratios to Average Net Assets:

Expenses	1.73	%	1.73	%	1.73	%	1.73	%	1.73	%

Net investment income	2.95	%	3.94	%	4.49	%²	5.30	%	5.04	%

Expense waiver/reimbursement⁴	0.24	%	0.24	%	0.23	%	0.25	%	0.26	%

Supplemental Data:

Net assets, end of period (000 omitted)	$132,496		$179,786		$116,734		$75,544		$58,643

Portfolio turnover	50	%	424	%	169	%	192	%	152	%

1 Based on average shares outstanding.

2 Effective March 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on debt securities. The effect of this change for the year ended February 28, 2002 was to decrease net investment income per share by $0.05, increase net realized gain/loss per share by $0.05, and decrease the ratio of net investment income to average net assets from 4.99% to 4.49%. Per share, ratios and supplemental data for periods prior to February 28, 2002 have not been restated to reflect this change in presentation.

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

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated February 29, 2004, which can be obtained free of charge.

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended February 28 or 29	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$9.23		$8.82		$8.80		$8.28		$8.79
Income From Investment Operations:
Net investment income	0.27	¹	0.35	¹	0.40	^1,2	0.45		0.43
Net realized and unrealized gain (loss) on investments	(0.05	)	0.43		0.06	²	0.52		(0.49	)

TOTAL FROM INVESTMENT OPERATIONS	0.22		0.78		0.46		0.97		(0.06	)

Less Distributions:
Distributions from net investment income	(0.32	)	(0.37	)	(0.44	)	(0.45	)	(0.45	)

Net Asset Value, End of Period	$9.13		$9.23		$8.82		$8.80		$8.28

Total Return³	2.47	%	9.05	%	5.37	%	12.08	%	(0.65	)%


Ratios to Average Net Assets:

Expenses	1.73	%	1.73	%	1.73	%	1.73	%	1.73	%

Net investment income	2.95	%	3.94	%	4.49	%²	5.30	%	5.04	%

Expense waiver/reimbursement⁴	0.24	%	0.24	%	0.23	%	0.25	%	0.26	%

Supplemental Data:

Net assets, end of period (000 omitted)	$33,941		$41,532		$32,997		$19,195		$15,413

Portfolio turnover	50	%	424	%	169	%	192	%	152	%

1 Based on average shares outstanding.

2 Effective March 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on debt securities. The effect of this change for the year ended February 28, 2002 was to decrease net investment income per share by $0.04, increase net realized gain/loss per share by $0.04, and decrease the ratio of net investment income to average net assets from 4.99% to 4.49%. Per share, ratios and supplemental data for periods prior to February 28, 2002 have not been restated to reflect this change in presentation.

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

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated February 29, 2004, which can be obtained free of charge.

Financial Highlights -- Class F Shares

(For a Share Outstanding Throughout Each Period)

Year Ended February 28 or 29	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$9.22		$8.81		$8.79		$8.27		$8.78
Income From Investment Operations:
Net investment income	0.34	¹	0.42	¹	0.46	^1,2	0.52		0.50
Net realized and unrealized gain (loss) on investments	(0.06	)	0.43		0.07	²	0.52		(0.49	)

TOTAL FROM INVESTMENT OPERATIONS	0.28		0.85		0.53		1.04		0.01

Less Distributions:
Distributions from net investment income	(0.39	)	(0.44	)	(0.51	)	(0.52	)	(0.52	)

Net Asset Value, End of Period	$9.11		$9.22		$8.81		$8.79		$8.27

Total Return³	3.14	%	9.88	%	6.15	%	12.94	%	0.10	%


Ratios to Average Net Assets:

Expenses	0.98	%	0.98	%	0.98	%	0.98	%	0.98	%

Net investment income	3.70	%	4.69	%	5.24	%²	6.05	%	5.79	%

Expense waiver/reimbursement⁴	0.24	%	0.24	%	0.23	%	0.25	%	0.26	%

Supplemental Data:

Net assets, end of period (000 omitted)	$652,529		$750,964		$794,482		$866,574		$955,744

Portfolio turnover	50	%	424	%	169	%	192	%	152	%

1 Based on average shares outstanding.

2 Effective March 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on debt securities. The effect of this change for the year ended February 28, 2002 was to decrease net investment income per share by $0.05, increase net realized gain/loss per share by $0.05, and decrease the ratio of net investment income to average net assets from 5.74% to 5.24%. Per share, ratios and supplemental data for periods prior to February 28, 2002 have not been restated to reflect this change in presentation.

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

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated February 29, 2004, which can be obtained free of charge.

<R>

A Statement of Additional Information (SAI) dated April 30, 2004 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's Discussion of Fund Performance 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 to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

</R>

<R>

These documents, as well as additional information about the Fund (including portfolio holdings, performance and distributions), are also available on Federated's Internet site at www.federatedinvestors.com.

</R>

You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's 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 publicinfo@sec.gov 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 Investors
World-Class Investment Manager

Federated Government Income Securities, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Investment Company Act File No. 811-3266

Federated is a registered mark of Federated Investors, Inc. 2004 ©Federated Investors, Inc.

Cusip 313912206
Cusip 313912305
Cusip 313912404
Cusip 313912107

<R>

28301 (4/04)

</R>

FEDERATED GOVERNMENT INCOME SECURITIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
<R>
APRIL 30, 2004

</R>

CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

CLASS F SHARES

<R>

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Government
Income Securities, Inc., (Fund), dated April 30, 2004.

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

CONTENTS
How is the Fund Organized?
1
Securities in Which the Fund Invests
1
What Do Shares Cost? 11
How is the Fund Sold?
12
Subaccounting Services
15
Redemption in Kind
15
Account and Share Information
15
Tax Information 16
Who Manages and Provides Services to the
Fund? 16
How Does the Fund Measure Performance?
25
Who is Federated Investors, Inc.?
29
Financial Information
30
Addresses 31
8040406B (4/04)

</R>

HOW IS THE FUND ORGANIZED?

The Fund is a diversified open-end, management investment company that
was established under the laws of the State of Maryland on February
4, 1986. The Fund's investment adviser is Federated Investment
Management Company (Adviser).

<R>

The Board of Directors (the Board) has established four classes of
shares of the Fund, known as Class A, Class B, Class C and Class F
Shares (Shares). This SAI relates to all classes of Shares.

</R>

SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be a fixed percentage of the principal or
adjusted periodically. In addition, the issuer of a fixed income
security must repay the principal amount of the security, normally
within a specified time. Fixed income securities provide more regular
income than equity securities. However, the returns on fixed income
securities are limited and normally do not increase with the issuer's
earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease
depending upon whether it costs less (a discount) or more (a premium)
than the principal amount. If the issuer may redeem the security before
its scheduled maturity, the price and yield on a discount or premium
security may change based upon the probability of an early redemption.
Securities with higher risks generally have higher yields.
The following describes the types of fixed income securities in which
the Fund may invest:

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

Agency Securities
<R>

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity (GSE) acting under federal authority. Some
GSE securities are supported by the full faith and credit of the United
States. These include the Government National Mortgage Association,
Small Business Administration, Farm Credit System Financial Assistance
Corporation, Farmer's Home Administration, Federal Financing Bank,
General Services Administration, Department of Housing and Urban
Development, Export-Import Bank, Overseas Private Investment
Corporation, and Washington Metropolitan Area Transit Authority Bonds.

Other GSE securities receive support through federal subsidies, loans or
other benefits. For example, the U.S. Treasury is authorized to purchase
specified amounts of securities issued by (or otherwise make funds
available to) the Federal Home Loan Bank System, Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association, Student
Loan Marketing Association, and Tennessee Valley Authority in support of
such obligations.

A few GSE securities have no explicit financial support, but are
regarded as having implied support because the federal government
sponsors their activities. These include the Farm Credit System,
Financing Corporation, and Resolution Funding Corporation.

Investors regard agency securities as having low credit risks, but not
as low as Treasury securities. A Fund treats mortgage -backed
securities guaranteed by a GSE as if issued or guaranteed by a federal
agency. Although such a guarantee protects against credit risks, it does
not reduce market and prepayment risks.
</R>

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 on to the certificate holders once a month.
Holders of pass-through certificates receive a pro rata share of all
payments and prepayments 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. 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.

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.

Non-Governmental Mortgage Backed Securities
Non-governmental mortgage backed securities (including non- governmental
CMOs) are issued by private entities, rather than by U.S. government
agencies. These securities involve credit risks and liquidity risks. The
Fund may invest in non-governmental mortgage backed securities that are
rated BBB or higher by a nationally recognized statistical rating
organization (NRSRO). The non- governmental mortgage backed securities
in which the Fund invests will be treated as mortgage related asset
backed securities.

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
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.

Derivative Contracts
<R>

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.
</R>

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.

<R>

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,
including combinations thereof:

</R>

Futures Contracts
<R>

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. The Fund has claimed an exclusion from the
definition of the term "commodity pool operator" under the Commodity
Exchange Act and, therefore, is not subject to registration or
regulation as a commodity pool operator under that Act. Futures
contracts traded OTC are frequently referred to as forward contracts.
The Fund can buy or sell financial futures contracts.
</R>

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:
<R>

o Buy call options on securities and financial futures contracts in
anticipation of an increase in value of the underlying asset;
o Buy put options on securities and financial futures contracts in
anticipation of a decrease in the value of the underlying asset; and
o Buy or write options to close out existing options positions.
The Fund may also write call options on financial futures contracts 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.
The Fund may also write put options on securities and financial futures
contracts to generate income from premiums, and in anticipation of an
increase or only limited decrease in the value of the underlying asset.
In writing puts, there is a risk that the Fund may be required to take
delivery of the underlying asset when its current market price is lower
than the exercise price.
When the Fund writes options on futures contracts, it will be subject
to margin requirements similar to those applied to futures contracts.

Hedging
The Fund may engage in hedging transactions using derivative contracts.
Hedging transactions are intended to reduce specific risks. For example,
to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or
sell a derivative contract that would normally increase in value under
the same circumstances. The Fund may also attempt to hedge by using
combinations of different derivatives contracts, or derivatives
contracts and securities. The Fund's ability to hedge may be limited by
the costs of the derivatives contracts. The Fund may attempt to lower
the cost of hedging by entering into transactions that provide only
limited protection, including transactions that: (1) hedge only a
portion of its portfolio; (2) use derivatives contracts that cover a
narrow range of circumstances; or (3) involve the sale of derivatives
contracts with different terms. Consequently, hedging transactions will
not eliminate risk even if they work as intended. In addition, hedging
strategies are not always successful, and could result in increased
expenses and losses to the Fund.

</R>

SPECIAL TRANSACTIONS

Inter-Fund Borrowing and Lending Arrangements
<R>

The Securities and Exchange Commission (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 Federated funds, and an inter-fund loan is only
made if it benefits each participating Federated fund. Federated
Investors, Inc. (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 Federated 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 Federated fund
than market-competitive rates on overnight repurchase agreements (Repo
Rate) and more attractive to the borrowing Federated fund than the rate
of interest that would be charged by an unaffiliated bank for short-term
borrowings (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.

</R>

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 and credit risks.

Securities Lending
The Fund may lend portfolio securities to borrowers that the Fund's
custodian 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 and credit
risks. These transactions may create leverage 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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment
companies, including the securities of affiliated money market funds, 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.

Interest Rate Risks
<R>

o Prices of fixed income securities rise and fall in response to
changes in the interest 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.
o 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
o 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.
o 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.
o 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
o 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.
o 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.
o 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.
o 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.

Liquidity Risks
o 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.
o 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.

Risks Associated with Complex CMOs
o CMOs with complex or highly variable prepayment terms, such as
companion classes, IOs, POs and Inverse Floaters, generally entail
greater market, prepayment and liquidity risks than other mortgage
backed securities. For example, their prices are more volatile and
their trading market may be more limited.

Leverage Risks
o 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.
</R>

FUNDAMENTAL INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income. 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 Investment Company
Act of 1940 (1940 Act).

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.

Diversification
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 such U.S. government securities; and
securities of other investment companies) if, as a result, more than 5%
of the value of the Fund's 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.

Concentration
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.
<R>

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.

For purposes of the above 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" and "bank instruments." Except with respect to
borrowing money, if a percentage limitations is adhered to at the time
of 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
limitation.

Cash items may include short-term obligations such as:
o obligations of the U.S. government or its agencies or
instrumentalities; and
o repurchase agreements.
</R>

As a matter of non-fundamental 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.

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.

Restricted Securities
The Fund may invest in restricted securities. Restricted securities are
any securities in which the Fund may invest pursuant to its investment
objective and policies but which are subject to restrictions on resale
under federal securities law. Under criteria established by the
Directors, certain restricted securities are determined to be liquid. To
the extent that restricted securities are not determined to be liquid,
the Fund will limit their purchase, together with other illiquid
securities, to 15% of its net assets.

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.

PORTFOLIO TURNOVER
<R>

Dollar roll transactions and prepayments of mortgage backed securities
will cause the Fund to have an increased portfolio turnover rate.
Portfolio turnover increases the Fund's trading costs and may have an
adverse impact on the Fund's performance. The Fund will not attempt to
set or meet a portfolio turnover rate since any turnover would be
incidental to transactions undertaken in an attempt to achieve the
Fund's investment objective. For the fiscal year ended February 29, 2004,
and February 28, 2003, the portfolio turnover rates were 50% and 437%,
respectively.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined
as follows:
o 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;

o for fixed income securities, according to the mean between bid and
asked prices as furnished by an independent pricing service, except
that fixed income securities with remaining maturities of less than
60 days at the time of purchase may be valued at amortized cost; and

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

</R>

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.

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.

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as
follows:

<R>

Quantity Discounts (Class A Shares) and (Class F Shares)
</R>

Larger purchases of the same Share class reduce or 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.

<R>

Accumulated Purchases (Class A Shares) and (Class F Shares)
</R>

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.
<R>

Concurrent Purchases (Class A Shares) and (Class F Shares)
</R>

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

<R>

Letter of Intent (Class A Shares) and (Class F Shares)
</R>

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:

<R>

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

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

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

Purchases Through Omnibus Accounts (Class C Shares)
Class C Shares may be purchased without an initial sales charge by any
investor who buys Class C Shares through an omnibus account with a
financial intermediary, such as a broker or a bank, that does not accept
or charge the initial sales charge.

Reorganizations (Class A Shares)
Class A Shares may be purchased without an initial sales charge by any
shareholder that originally became a shareholder of the Fund pursuant to
the terms of an agreement and plan of reorganization which permits
shareholders to acquire shares at NAV.

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

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

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

</R>

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:

<R>

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

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

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

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

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

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

Class B Shares Only
o which are qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program;

Class F Shares Only
o 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.

To keep the sales charge as low as possible, the Fund redeems your
Shares in this order:

o Shares that are not subject to a CDSC; and

o 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.

</R>

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
<R>

The Distributor receives a front-end sales charge on certain Share
sales. The Distributor pays a portion of this charge to investment
professionals that are eligible to receive it (the "Dealer Reallowance")
and retains any remaining portion of the front-end sales charge.

When an investment professional's customer purchases Shares, the
investment professional may receive a Dealer Reallowance as follows:

Class A Shares Dealer
------------------------------Reallowance
as a
Purchase Amount Percentage of
Public
Offering Price
Less than $100,000 4.00%
$100,000 but less than 3.25%
$250,000
$250,000 but less than 2.25%
$500,000
$500,000 but less than 1.80%
$1 million
$1 million or greater 0.00%

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

Dealer
------------------------------Reallowance
as a Percentage
Class C Shares of
Public Offering
Price
All Purchase Amounts 1.00%

ADVANCE COMMISSIONS
--------------------------------------------------------------------------
When an investment professional's customer purchases Shares, the
investment professional may receive an advance commission as follows:

Class A Shares (for purchases over $1 million)

------------------------------------------
Advance
------Commission
Purchase Amount as a Percentage
of
Public Offering
Price
First $1 million - 0.75%
$5 million
Next $5 million - 0.50%
$20 million
Over $20 million 0.25%
Advance commissions are calculated on a year by year basis based on
amounts invested during that year. Accordingly, with respect to
additional purchase amounts, the advance commission breakpoint resets
annually to the first breakpoint on the anniversary of the first
purchase.
--------------------------------------------------------------------------

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

Advance
------------------------------------------Commission
as a Percentage
Class B Shares of
Public Offering
Price
All Purchase Amounts Up to 5.50%

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

Advance
-------------------------------------------Commission
as a Percentage
Class C Shares of
Public Offering
Price
All Purchase Amounts 1.00%

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

Class F Shares

Advance Commission
---------------------- as a Percentage
of
Purchase Amount Public Offering
Price
Less than $2 million 1.00%
$2million -but less 0.50%
than $5 million
$5 million or greater 0.25%

RULE 12B-1 PLAN (CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES)
--------------------------------------------------------------------------
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay
the Distributor for activities principally intended to result in the
sale of Shares such as advertising and marketing of Shares (including
printing and distributing prospectuses and sales literature to
prospective shareholders and financial institutions) and providing
incentives to investment professionals to sell Shares. The Rule 12b-1
Plan allows the Distributor to contract with investment professionals to
perform activities covered by the Plan. The Rule 12b-1 Plan is expected
to benefit the Fund in a number of ways. For example, it is anticipated
that the Plan will help the Fund attract and retain assets, thus
providing cash for orderly portfolio management and Share redemptions
and possibly helping to stabilize or reduce other operating expenses. In
addition, the Plan is integral to the multiple class structure of the
Fund, which promotes the sale of Shares by providing a range of options
to investors. 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.

</R>

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.

<R>

Federated and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third
parties who have commissions provided the funds to make advance
commission payments to investment professionals.

SERVICE FEES
The Fund may pay fees not to exceed 0.25% of average daily net assets
(Service Fees) to investment professionals or to Federated Shareholder
Services Company (FSSC), a subsidiary of Federated, for providing
services to shareholders and maintaining shareholder accounts. Under
certain agreements, rather than paying investment professionals
directly, the Fund may pay Service Fees to FSSC and FSSC will use the
fees to compensate investment professionals.

SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees, in significant amounts, out
of the assets of the Distributor. These fees do not come out of Fund
assets. The Distributor may be reimbursed by the Adviser or its
affiliates.

These supplemental payments may be based upon such factors as the number
or value of Shares the investment professional sells or may sell; the
value of client assets invested; and/or the type and nature of services,
sales support or marketing support furnished by the investment
professional.

In addition to these supplemental payments, an investment professional
may also receive payment under the Rule 12b-1 Plan and/or Service Fees.

</R>

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 1940
Act, 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 Fund have equal voting rights, except that in matters
affecting only a particular class, only Shares of that 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
Fund''s outstanding Shares.

<R>

As of April 1, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares:
MLPF&S, Jacksonville, FL, owned approximately 1,396,052 Shares
(22.82%) and Edward Jones & Co, Maryland Heights, MO, owned
approximately 587,924 Shares (9.61%).

As of April 1, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class B Shares:
Citigroup Global Markets Inc., New York, NY, owned approximately
1,878,821 Shares (13.14%) and MLPF&S, Jacksonville, FL, owned
approximately 1.078,433 Shares.

As of April 1, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares:
MLPF&S, Jacksonville, FL, owned approximately 1,549,823 Shares
(41.88%) and Bank One Securities Corp., Columbus, OH, owned approximately
330,067 Shares (8.92%).

As of April 1, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class F Shares:
MLPF&S, Jacksonville, FL, owned approximately 24,537,135 Shares
(34.56%).

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.

</R>

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 be subject to federal corporate income tax.

<R>

The Fund is entitled to a loss carry-forward, which may reduce the
taxable income or gain that the Fund would realize, and to which the
shareholder would be subject, in the future.

</R>

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS
<R>

The Board is responsible for managing the Fund's business affairs and
for exercising all the Fund's powers except those reserved for the
shareholders. The following tables give information about each Board
member and the senior officers of the Fund. Where required, the tables
separately list Board members who are "interested persons" of the Fund
(i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of each
person listed is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA. The Federated Fund Complex consists of 44 investment
companies (comprising 138136 portfolios). Unless otherwise noted, each
Officer is elected annually. Unless otherwise noted, each Board member
oversees all portfolios in the Federated Fund Complex; serves for an
indefinite term; and also serves as a Board member of the following
investment company complexes: Banknorth Funds-four portfolios; Golden
Oak(R) Family of Funds-seven portfolios and WesMark Funds-five portfolios.

As of April 1, 2004, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Class A, B, C and F Shares.

</R>

INTERESTED DIRECTORS BACKGROUND AND COMPENSATION

<R>

Name Total
Birth Date -------------------------------------------Compensation
Address Aggregate From Fund
Positions Held Compensation and
with Fund Principal Occupation(s) for From Fund Federated
Date Service Began Past Five Years, Other (past Fund Complex
Directorships Held and fiscal (past
Previous Position(s) year) calendar
year)
Principal Occupations: $0 $0
John F. Donahue* Officer Chairman and
Birth Date: July Director or Trustee of the
28, 1924 Federated Fund Complex;
CHAIRMAN AND Chairman and Director,
DIRECTOR Federated Investors, Inc.
Began serving: -----------------------------
September 1981
Previous Positions: Trustee,
Federated Investment
Management Company and
Chairman and Director,
Federated Investment
Counseling.

Principal Occupations: $0 $0
J. Christopher orPrincipal Executive
Donahue* ViceOfficer and President of
Birth Date: April the Federated Fund Complex;
11, 1949 Director or Trustee of some
PRESIDENT AND of the Funds in the
DIRECTOR Federated Fund Complex;
Began serving: President, Chief Executive
January 2000 Officer and Director,
Federated Investors, Inc.;
OfficerChairman and Trustee,
Federated Investment
Management Company; Trustee,
Federated Investment
Counseling; OfficerChairman
and Director, Federated
Global Investment Management
Corp.; Chairman, Federated
Equity Management Company of
Pennsylvania, Passport
Research, Ltd. and Passport
Research II, Ltd.; Trustee,
Federated Shareholder
Services Company; Director,
Federated Services Company.

Previous PositionPositions:
President, Federated
Investment Counseling;
President and Chief
Executive Officer, Federated
Investment Management
Company, Federated Global
Investment Management Corp.
and Passport Research, Ltd.

Principal Occupations: $1,591.72 $148,500
Lawrence D. Director or Trustee of the
Ellis, M.D.* Federated Fund Complex;
Birth Date: Professor of Medicine,
October 11, 1932 University of Pittsburgh;
3471 Fifth Avenue Medical Director, University
Suite 1111 of Pittsburgh Medical Center
Pittsburgh, PA Downtown; Hematologist,
DIRECTOR Oncologist and Internist,
Began serving: University of Pittsburgh
August 1987 Medical Center.

Other Directorships Held:
Member, National Board of
Trustees, Leukemia Society
of America.

Previous Positions: Trustee,
University of Pittsburgh;
Director, University of
Pittsburgh Medical Center
Medical Center.

* Family relationships and reasons for "interested" status: John F.
Donahue is the father of J. Christopher Donahue; both are "interested"
due to the positions they hold with Federated and its subsidiaries.
Lawrence D. Ellis, M.D. is "interested" because his son-in-law is
employed by the Fund's principal underwriter, Federated Securities Corp.
--------------------------------------------------------------------------

INDEPENDENT DIRECTORS BACKGROUND AND COMPENSATION

Name Total
Birth Date -------------------------------------------Compensation
Address Aggregate From Fund
Positions Held Compensationand
with Fund Principal Occupation(s) for From Fund Federated
Date Service Began Past Five Years, Other (past Fund Complex
Directorships Held and fiscal (past
Previous Position(s) year) calendar
year)
Principal Occupation: $1,750.89 $163,350
Thomas G. Bigley Director or Trustee of the
Birth Date: Federated Fund Complex.
February 3, 1934
15 Old Timber Other Directorships Held:
Trail Director, Member of
Pittsburgh, PA Executive Committee,
DIRECTOR Children's Hospital of
Began serving: Pittsburgh; Director,
November 1994 University of Pittsburgh.

Previous Position: Senior
Partner, Ernst & Young
LLP.

Principal Occupations: $1,750.89 $163,350
John T. Conroy, Director or Trustee of the
Jr. Federated Fund Complex;
Birth Date: June Chairman of the Board,
23, 1937 Investment Properties
Grubb & Corporation; Partner or
Ellis/Investment Trustee in private real
Properties estate ventures in Southwest
Corporation Florida.
3838 North
Tamiami Trail Previous Positions:
Suite 402 President, Investment
Naples, FL Properties Corporation;
DIRECTOR Senior Vice President, John
Began serving: R. Wood and Associates,
August 1991 Inc., Realtors; President,
Naples Property Management,
Inc. and Northgate Village
Development Corporation.

Principal Occupation: $1,750.89 $163,350
Nicholas P. Director or Trustee of the
Constantakis Federated Fund Complex.
Birth Date:
September 3, 1939 Other Directorships Held:
175 Woodshire Director and Member of the
Drive Audit Committee, Michael
Pittsburgh, PA Baker Corporation
DIRECTOR (engineering and energy
Began serving: services worldwide).
February 1998
Previous Position: Partner,
Andersen Anderson Worldwide
SC.

Principal Occupation: $,591.72 $148,500
John F. Director or Trustee of the
Cunningham Federated Fund Complex.
Birth Date: March
5, 1943 Other Directorships Held:
353 El Brillo Way Chairman, President and
Palm Beach, FL Chief Executive Officer,
DIRECTOR Cunningham & Co., Inc.
Began serving: (strategic business
January 1999 consulting); Trustee
Associate, Boston College.

Previous Positions:
Director, Redgate
Communications and EMC
Corporation (computer
storage systems); 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.

Principal Occupation: $1,591.72 $148,500
Peter E. Madden Director or Trustee of the
Birth Date: March Federated Fund Complex;
16, 1942 Management Consultant.
One Royal Palm
Way Other Directorships Held:
100 Royal Palm Board of Overseers, Babson
Way College.
Palm Beach, FL
DIRECTOR Previous Positions:
Began serving: Representative, Commonwealth
August 1991 of Massachusetts General
Court; President, State
Street Bank and Trust
Company and State Street
Corporation (retired);
Director, VISA USA and VISA
International; Chairman and
Director, Massachusetts
Bankers Association;
Director, Depository Trust
Corporation; Director, The
Boston Stock Exchange.

Principal Occupations: $1,750.89 $163,350
Charles F. Director or Trustee of the
Mansfield, Jr. Federated Fund Complex;
Birth Date: April Management Consultant;
10, 1945 Executive Vice President,
80 South Road DVC Group, Inc. (marketing,
Westhampton communications and
Beach, NY technology) (prior to
DIRECTOR 9/1/00).
Began serving:
January 1999 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, HSBC Bank USA
(formerly, Marine Midland
Bank); Vice President,
Citibank; Assistant
Professor of Banking and
Finance, Frank G. Zarb
School of Business, Hofstra
University.

John E. Murray, Principal Occupations: $1,910.07 $178,200
Jr., J.D., S.J.D. Director or Trustee of the
Birth Date: Federated Fund Complex;
December 20, 1932 Chancellor and Law
Chancellor, Professor, Duquesne
Duquesne University; Partner, Murray,
University Hogue & Lannis.
Pittsburgh, PA
DIRECTOR Other Directorships Held:
Began serving: Director, Michael Baker
February 1995 Corp. (engineering,
construction, operations and
technical services).

Previous Positions:
President, Duquesne
University; Dean and
Professor of Law, University
of Pittsburgh School of Law;
Dean and Professor of Law,
Villanova University School
of Law.

Principal Occupations: $1,591.72 $148,500
Marjorie P. Smuts Director or Trustee of the
Birth Date: June Federated Fund Complex;
21, 1935 Public Relations/ Marketing
4905 Bayard Consultant/Conference
Street Coordinator.
Pittsburgh, PA
DIRECTOR Previous Positions: National
Began serving: Spokesperson, Aluminum
February 1984 Company of America;
television producer;
President, Marj Palmer
Assoc.; Owner, Scandia Bord.

Principal Occupations: $1,591.72 $148,500
John S. Walsh Director or Trustee of the
Birth Date: Federated Fund Complex;
November 28, 1957 President and Director, Heat
2604 William Wagon, Inc. (manufacturer of
Drive construction temporary
Valparaiso, IN heaters); President and
DIRECTOR Director, Manufacturers
Began serving: Products, Inc. (distributor
January 1999 of portable construction
heaters); President,
Portable Heater Parts, a
division of Manufacturers
Products, Inc.

Previous Position: Vice
President, Walsh &
Kelly, Inc.

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

OFFICERS**

Name
Birth Date -------------------------------------------------
Address
Positions Held with Fund
-------------------------
Date Service Began Principal Occupation(s) and Previous Position(s)

Principal Occupations: Executive Vice President
John W. McGonigle and Secretary of the Federated Fund Complex;
Birth Date: October 26, Executive Vice President, Secretary and
1938 Director, Federated Investors, Inc.
EXECUTIVE VICE PRESIDENT
AND SECRETARY Previous Positions: Trustee, Federated
Began serving: September Investment Management Company and Federated
1981 Investment Counseling; Director, Federated
Global Investment Management Corp., Federated
Services Company and Federated Securities Corp.

Principal Occupations: Principal Financial
Richard J. Thomas Officer and Treasurer of the Federated Fund
Birth Date: June 17, Complex; Senior Vice President, Federated
1954 Administrative Services.
TREASURER
Began serving: November Previous Positions: Vice President, Federated
1998 Administrative Services; held various
management positions within Funds Financial
Services Division of Federated Investors, Inc.

Principal Occupations: President Vice Chairman
Richard B. Fisher or Vice President of some of the Funds in the
Birth Date: May 17, 1923 Federated Fund Complex; Vice Chairman,
VICE CHAIRMAN Federated Investors, Inc.; Chairman, Federated
Began serving: August Securities Corp.
2002
Previous Positions: President and Director or
Trustee of some of the Funds in the Federated
Fund Complex; Executive Vice President,
Federated Investors, Inc. and Director and
Chief Executive Officer, Federated Securities
Corp.

Principal Occupations: Chief Investment Officer
William D. Dawson, III of this Fund and various other Funds in the
Birth Date: March 3, Federated Fund Complex; Executive Vice
1949 President, Federated Investment Counseling,
CHIEF INVESTMENT OFFICER Federated Investment Management Company and
Began serving: November Passport Research, Ltd.
1998
Previous Positions: 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.

Susan M. Nason has been the Fund's Portfolio
Susan M. Nason Manager since February 2001. She is Vice
Birth Date: August 29, President of the Fund. Ms. Nason joined
1961 Federated in 1987 and has been a Senior
VICE PRESIDENT Portfolio Manager and Senior Vice President of
Began serving: May 2003 the Fund's Adviser since 1997. Ms. Nason served
as a Portfolio Manager and Vice President of
the Adviser from 1993 to 1997. Ms. Nason is a
Chartered Financial Analyst and received her
M.S.I.A. concentrating in Finance from Carnegie
Mellon University.

</R>
--------------------------------------------------------------------------

** Officers do not receive any compensation from the Fund.
Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer
and Assistant Secretary of Federated and an officer of its various
advisory and underwriting subsidiaries, has served as a Term Member on
the Board of Directors of Duquesne University, Pittsburgh, Pennsylvania,
since May 12, 2000. Mr. John E. Murray, Jr., an Independent Director
of the Fund, served as President of Duquesne from 1988 until his
retirement from that position in 2001, and became Chancellor of Duquesne
on August 15, 2001. It should be noted that Mr. Donahue abstains on
any matter that comes before Duquesne's Board that affects Mr. Murray
personally.

COMMITTEES OF THE BOARD
<R>

Board Meetings
Committee ------------------------------------------------------Held
------- Committee During
Members Committee Functions Last
Fiscal
Year
Executive In between meetings of the full One
John F. Board, the Executive Committee
Donahue generally may exercise all the
John E. powers of the full Board in the
Murray, Jr., management and direction of the
J.D., S.J.D. business and conduct of the affairs
of the Corporation in such manner as
the Executive Committee shall deem
to be in the best interests of the
Corporation. However, the Executive
Committee cannot elect or remove
Board members, increase or decrease
the number of Directors, elect or
remove any Officer, declare
dividends, issue shares or recommend
to shareholders any action requiring
shareholder approval.

Audit The Audit Committee reviews and Three
Thomas G. recommends to the full Board the
Bigley independent auditors to be selected
John T. to audit the Fund'`s financial
Conroy, Jr. statements; meets with the
Nicholas P. independent auditors periodically to
Constantakis review the results of the audits and
Charles F. reports the results to the full
Mansfield, Jr. Board; evaluates the independence of
the auditors, reviews legal and
regulatory matters that may have a
material effect on the financial
statements, related compliance
policies and programs, and the
related reports received from
regulators; reviews the Fund'`s
internal audit function; reviews
compliance with the Fund'`s code of
conduct/ethics; reviews valuation
issues; monitors inter-fund lending
transactions; reviews custody
services and issues and investigates
any matters brought to the
Committee's attention that are
within the scope of its duties.

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF
INVESTMENT COMPANIES AS OF DECEMBER 31, 20022003
--------------------------------------------------------------------------
Aggregate
-------------------------------------- Dollar
Range of
Dollar Range Shares
Interested of Owned in
Board Member Name Shares Owned Federated
in Fund Family of
Investment
Companies
John F. Donahue None Over
$100,000
J. Christopher None Over
Donahue $100,000
Lawrence D. Ellis, $1 - $10,000 Over
M.D. $100,000

Independent
Board Member Name -

Thomas G. Bigley None Over
$100,000
John T. Conroy, Jr. None Over
$100,000
Nicholas P. None Over
Constantakis $100,000
John F. Cunningham None Over
$100,000
Peter E. Madden None Over
$100,000
Charles F. None $50,001 -
Mansfield, Jr. $100,000
John E. Murray, Jr., Over
J.D., S.J.D. - None $100,000

Marjorie P. Smuts $10,001-$50,000 Over
$100,000
John S. Walsh $00.00 - Over
$00.00 $100,000
</R>
--------------------------------------------------------------------------

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 Fund or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of
any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with
the Fund.

As required by the 1940 Act, the Fund's Board has reviewed the Fund's
investment advisory contract. The Board's decision to approve the
contract reflects the exercise of its business judgment on whether to
continue the existing arrangements. During its review of the contract,
the Board considers many factors, among the most material of which are:
the Fund's investment objectives and long term performance; the
Adviser's management philosophy, personnel, and processes; the
preferences and expectations of Fund shareholders and their relative
sophistication; the continuing state of competition in the mutual fund
industry; comparable fees in the mutual fund industry; the range and
quality of services provided to the Fund and its shareholders by the
Federated organization in addition to investment advisory services; and
the Fund's relationship to the Federated funds.

In assessing the Adviser's performance of its obligations, the Board
also considers whether there has occurred a circumstance or event that
would constitute a reason for it to not renew an advisory contract. In
this regard, the Board is mindful of the potential disruptions of the
Fund's operations and various risks, uncertainties and other effects
that could occur as a result of a decision to terminate or not renew an
advisory contract. In particular, the Board recognizes that most
shareholders have invested in the Fund on the strength of the Adviser's
industry standing and reputation and in the expectation that the Adviser
will have a continuing role in providing advisory services to the Fund.

The Board also considers the compensation and benefits received by the
Adviser. This includes fees received for services provided to the Fund
by other entities in the Federated organization and research services
received by the Adviser from brokers that execute fund trades, as well
as advisory fees. In this regard, the Board is aware that various
courts have interpreted provisions of the 1940 Act and have indicated in
their decisions that the following factors may be relevant to an
Adviser's compensation: the nature and quality of the services provided
by the Adviser, including the performance of the Fund; the Adviser's
cost of providing the services; the extent to which the Adviser may
realize "economies of scale" as the Fund grows larger; any indirect
benefits that may accrue to the Adviser and its affiliates as a result
of the Adviser's relationship with the Fund; performance and expenses of
comparable funds; and the extent to which the independent Board members
are fully informed about all facts bearing on the Adviser's service and
fee. The Fund's Board is aware of these factors and takes them into
account in its review of the Fund's advisory contract.

The Board considers and weighs these circumstances in light of its
substantial accumulated experience in governing the Fund and working
with Federated on matters relating to the Federated funds, and is
assisted in its deliberations by the advice of independent legal
counsel. In this regard, the Board requests and receives a significant
amount of information about the Fund and the Federated organization.
Federated provides much of this information at each regular meeting of
the Board, and furnishes additional reports in connection with the
particular meeting at which the Board's formal review of the advisory
contracts occurs. In between regularly scheduled meetings, the Board
may receive information on particular matters as the need arises. Thus,
the Board's evaluation of an advisory contract is informed by reports
covering such matters as: the Adviser's investment philosophy,
personnel, and processes; the Fund's short- and long-term performance
(in absolute terms as well as in relationship to its particular
investment program and certain competitor or "peer group" funds), and
comments on the reasons for performance; the Fund's expenses (including
the advisory fee itself and the overall expense structure of the Fund,
both in absolute terms and relative to similar and/or competing funds,
with due regard for contractual or voluntary expense limitations); the
use and allocation of brokerage commissions derived from trading the
Fund's portfolio securities; the nature and extent of the advisory and
other services provided to the Fund by the Adviser and its affiliates;
compliance and audit reports concerning the Federated funds and the
Federated companies that service them; and relevant developments in the
mutual fund industry and how the Federated funds and/or Federated are
responding to them.

The Board also receives financial information about Federated, including
reports on the compensation and benefits Federated derives from its
relationships with the Federated funds. These reports cover not only
the fees under the advisory contracts, but also fees received by
Federated's subsidiaries for providing other services to the Federated
funds under separate contracts (e.g., for serving as the Federated
funds' administrator and transfer agent). The reports also discuss any
indirect benefit Federated may derive from its receipt of research
services from brokers who execute Federated fund trades.

<R>

The Board bases its decision to approve an advisory contract on the
totality of the circumstances and relevant factors, and with a view to
past and future long-term considerations. Not all of the factors and
considerations identified above are relevant to every Federated fund,
nor does the Board consider any one of them to be determinative.
Because the totality of circumstances includes considering the
relationship of each Federated fund, the Board does not approach
consideration of every Federated fund's advisory contract as if that
were the only Federated fund.

Services Agreement
Federated Advisory Services Company, an affiliate of the Adviser,
provides certain support services to the Adviser. The fee for these
services is paid by the Adviser and not by the Fund.

</R>

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.

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

As required by SEC rules, the Fund, its Adviser, and its Distributor
have adopted codes of ethics. These codes govern securities trading
activities of investment personnel, Fund Directors, and certain other
employees. Although they do permit these people to trade in securities,
including those that the Fund could buy, they also contain significant
safeguards designed to protect the Fund and its shareholders from abuses
in this area, such as requirements to obtain prior approval for, and to
report, particular transactions.

<R>

VOTING PROXIES ON FUND PORTFOLIO SECURITIES
The Board has delegated to the Adviser authority to vote proxies on the
securities held in the Fund's portfolio. The Board has also approved
the Adviser's policies and procedures for voting the proxies, which are
described below.

Proxy Voting Policies
The Adviser's general policy is to cast proxy votes in favor of
proposals that the Adviser anticipates will enhance the long-term value
of the securities being voted. Generally, this will mean voting for
proposals that the Adviser believes will: improve the management of a
company; increase the rights or preferences of the voted securities;
and/or increase the chance that a premium offer would be made for the
company or for the voted securities.

The following examples illustrate how these general policies may apply
to proposals submitted by a company's board of directors. However,
whether the Adviser supports or opposes a proposal will always depend on
the specific circumstances described in the proxy statement and other
available information.

On matters of corporate governance, generally the Adviser will vote for
proposals to: require independent tabulation of proxies and/or
confidential voting by shareholders; reorganize in another jurisdiction
(unless it would reduce the rights or preferences of the securities
being voted); and repeal a shareholder rights plan (also known as a
"poison pill"). The Adviser will generally vote against the adoption of
such a plan (unless the plan is designed to facilitate, rather than
prevent, unsolicited offers for the company).

On matters of capital structure, generally the Adviser will vote:
against proposals to authorize or issue shares that are senior in
priority or voting rights to the securities being voted; for proposals
to grant preemptive rights to the securities being voted; and against
proposals to eliminate such preemptive rights.

On matters relating to management compensation, generally the Adviser
will vote: for stock incentive plans that align the recipients'
interests with the interests of shareholders without creating undue
dilution; and against proposals that would permit the amendment or
replacement of outstanding stock incentives with new stock incentives
having more favorable terms.

On matters relating to corporate transactions, the Adviser will vote
proxies relating to proposed mergers, capital reorganizations, and
similar transactions in accordance with the general policy, based upon
its analysis of the proposed transaction. The Adviser will vote proxies
in contested elections of directors in accordance with the general
policy, based upon its analysis of the opposing slates and their
respective proposed business strategies. Some transactions may also
involve proposed changes to the company's corporate governance, capital
structure or management compensation. The Adviser will vote on such
changes based on its evaluation of the proposed transaction or contested
election. In these circumstances, the Adviser may vote in a manner
contrary to the general practice for similar proposals made outside the
context of such a proposed transaction or change in the board. For
example, if the Adviser decides to vote against a proposed transaction,
it may vote for anti-takeover measures reasonably designed to prevent
the transaction, even though the Adviser typically votes against such
measures in other contexts.
The Adviser generally votes against proposals submitted by shareholders
without the favorable recommendation of a company's board. The Adviser
believes that a company's board should manage its business and policies,
and that shareholders who seek specific changes should strive to
convince the board of their merits or seek direct representation on the
board.

In addition, the Adviser will not vote if it determines that the
consequences or costs outweigh the potential benefit of voting. For
example, if a foreign market requires shareholders casting proxies to
retain the voted shares until the meeting date (thereby rendering the
shares "illiquid" for some period of time), the Adviser will not vote
proxies for such shares.

Proxy Voting Procedures
The Adviser has established a Proxy Voting Committee (Proxy Committee),
to exercise all voting discretion granted to the Adviser by the Board in
accordance with the proxy voting policies. The Adviser has hired
Investor Responsibility Research Center (IRRC) to obtain, vote, and
record proxies in accordance with the Proxy Committee's directions. The
Proxy Committee directs IRRC by means of Proxy Voting Guidelines, and
IRRC may vote any proxy as directed in the Proxy Voting Guidelines
without further direction from the Proxy Committee (and may make any
determinations required to implement the Proxy Voting Guidelines).
However, if the Proxy Voting Guidelines require case-by-case direction
for a proposal, IRRC will provide the Proxy Committee with all
information that it has obtained regarding the proposal and the Proxy
Committee will provide specific direction to IRRC. The Adviser's proxy
voting procedures generally permit the Proxy Committee to amend the
Proxy Voting Guidelines, or override the directions provided in such
Guidelines, whenever necessary to comply with the proxy voting
policies.

Conflicts of Interest
The Adviser has adopted procedures to address situations where a matter
on which a proxy is sought may present a potential conflict between the
interests of the Fund (and its shareholders) and those of the Adviser or
Distributor. This may occur where a significant business relationship
exists between the Adviser (or its affiliates) and a company involved
with a proxy vote. A company that is a proponent, opponent, or the
subject of a proxy vote, and which to the knowledge of the Proxy
Committee has this type of significant business relationship, is
referred to as an "Interested Company."

The Adviser has implemented the following procedures in order to avoid
concerns that the conflicting interests of the Adviser have influenced
proxy votes. Any employee of the Adviser who is contacted by an
Interested Company regarding proxies to be voted by the Adviser must
refer the Interested Company to a member of the Proxy Committee, and
must inform the Interested Company that the Proxy Committee has
exclusive authority to determine how the Adviser will vote. Any Proxy
Committee member contacted by an Interested Company must report it to
the full Proxy Committee and provide a written summary of the
communication. Under no circumstances will the Proxy Committee or any
member of the Proxy Committee make a commitment to an Interested Company
regarding the voting of proxies or disclose to an Interested Company how
the Proxy Committee has directed such proxies to be voted. If the Proxy
Voting Guidelines already provide specific direction on the proposal in
question, the Proxy Committee shall not alter or amend such directions.
If the Proxy Voting Guidelines require the Proxy Committee to provide
further direction, the Proxy Committee shall do so in accordance with
the proxy voting policies, without regard for the interests of the
Adviser with respect to the Interested Company. If the Proxy Committee
provides any direction as to the voting of proxies relating to a
proposal affecting an Interested Company, it must disclose to the Fund's
Board information regarding: the significant business relationship; any
material communication with the Interested Company; the matter(s) voted
on; and how, and why, the Adviser voted as it did.

If the Fund holds shares of another investment company for which the
Adviser (or an affiliate) acts as an investment adviser, the Proxy
Committee will vote the Fund's proxies in the same proportion as the
votes cast by shareholders who are not clients of the Adviser at any
shareholders' meeting called by such investment company, unless
otherwise directed by the Board.

</R>

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. 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.

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
<R>

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

Maximum Average Aggregate
Administrative Fee Daily
Net Assets of the
Federated Funds
0.150 of 1% on the first $5
billion
0.125 of 1% on the next $5 billion
0.100 of 1% on the next $10
billion
0.075 of 1% on assets of over $20
billion
The administrative fee received during any fiscal year shall be at least
$150,000 per portfolio and $40,000 per each additional class of Shares.
Company FAS may voluntarily waive a portion of its fee and may reimburse
the Fund for expenses.
--------------------------------------------------------------------------

Company FAS 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.

</R>

CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
<R>

Federated Services Company, through its registered transfer agent
subsidiary, Company FSSC, 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 AUDITORS
The independent auditors for the Fund, Deloitte & Touche LLP,
conducts its audits in accordance with auditing standards generally
accepted in the United States of America, which require it to plan and
perform its audits to provide reasonable assurance about 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 2004 2003 2002
February 29
Advisory Fee Earned $7,199,026 $7,696,163 $8,085,138
Advisory Fee $2,284,851 $2,413,837 $2,389,142
Reduction
Advisory Fee $17,525 $60,906 $55,991
Reimbursement
Brokerage $0 $0 $0
Commissions
Administrative Fee $724,779 $771,669 $811,397
12b-1 Fee:
Class A Shares $0 -- --
Class B Shares $1,181,542 -- --
Class C Shares $287,659 -- --
Shareholder Services
Fee:
Class A Shares $159,983 -- --
Class B Shares $393,847 -- --
Class C Shares $95,887 -- --
Class F Shares $1,735,959 -- --
</R>
--------------------------------------------------------------------------

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 SEC's standard
methods 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 and/or the value of portfolio holdings 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
<R>

Total returns are given for the one-year, five-year, ten-year or Start
of Performance periods ended February 29, 2004.

Yield is given for the 30-day period ended February 29, 2004.

Start of
--------------------------------------------------Performance-on----------------------------------------------------------
8/5/1996
30-Day 1 Year 5
Period Years
Class A Shares:
Total Return
Before Taxes NA (1.46%) 5.37% 6.04%
After Taxes on NA (2.92%) 3.20% 3.70%
Distributions
After Taxes on
Distributions ---NA (2.08%) 3.21% 3.67%
and Sale of
Shares
Yield 3.32% NA NA NA
-------------------------------------------------------------------

--------------------------------------------------------------------------
Start of
--------------------------------------------------Performance-on----------------------------------------------------------
8/5/1996
30-Day 1 Year 5
Period Years
Class B Shares:
Total Return
Before Taxes NA (2.97%) 5.21% 5.90%
After Taxes on NA (4.23%) 3.31% 3.85%
Distributions
After Taxes on (3.25%) 3.25% 3.75%
Distributions ---NA
and Sale of
Shares
Yield 2.73% NA NA NA

Yield 3.97%

--------------------------------------------------------------------------
Start of
--------------------------------------------------Performance-on----------------------------------------------------------
8/5/1996
30-Day 1 Year 5
Period Years
Class C Shares:
Total Return
Before Taxes NA 0.50% 5.35% 5.78%
After Taxes on NA (0.75%) 3.48% 3.74%
Distributions
After Taxes on
Distributions ---NA (0.29%) 3.39% 3.65%
and Sale of
Shares
Yield 2.70% NA NA NA
-------------------------------------------------------------------

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

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

30-Day 1 Year 5 10
Period Years Years
Class F Shares:
Total Return
Before Taxes NA 1.16% 6.13% 6.29%
After Taxes on NA (0.36%) 3.94% 3.80%
Distributions
After Taxes on
Distributions ---NA 0.11% 3.85% 3.77%
and Sale of
Shares
Yield 3.44% NA NA NA
-------------------------------------------------------

</R>
--------------------------------------------------------------------------

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 $10,000 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 $10,000,
less any applicable sales charge, adjusted over the period by any
additional Shares, assuming the annual reinvestment of all dividends and
distributions. Total returns after taxes are calculated in a similar
manner, but reflect additional standard assumptions required by the SEC.

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:

<R>

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

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

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

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

</R>

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, Inc.
Lipper, 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 specific period
of time. From time to time, the Fund will quote its Lipper ranking in
the "U.S. government funds" category in advertising and sales literature.

Lehman Brothers Mortgage Backed Securities Index
The Lehman Brothers Mortgage Backed Securities Index is an unmanaged
index composed of a universe of fixed rate securities backed by mortgage
pools of Government National Mortgage Association (GNMA), Federal Home
Loan Mortgage Corporation (FHLMC), and Federal National Mortgage
Association (FNMA) including GNMA Graduated Payment Mortgages.

Lehman Brothers Government (Long-Term) Index
An index composed of bonds issued by the U.S. government or its agencies
which have at least $1 million outstanding in principal and which have
maturities of ten years or longer. Index figures are total return
figures calculated monthly.

Lehman Brothers Mortgage Backed Securities Index/ Lehman Brothers
Government Index
A blended index comprised of 60% Lehman Brothers Mortgage Backed
Securities Index, and 40% Lehman Brothers Government Index.

The Merrill Lynch Taxable Bond Indices
The Merrill Lynch Taxable Bond Indices include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the
fixed income market. The performance indicators capture all rating
changes, new issues, and any structural changes of the entire market.

Merrill Lynch 5-10 Year Treasury Index
An unmanaged index tracking U.S. Treasury securities with maturities of
5 and 9.99 years. The index is produced by Merrill Lynch, Pierce, Fenner
& Smith, Inc.

Morningstar, Inc.
Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.

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
<R>

In the municipal sector, as of December 31,2003, Federated managed 14
bond funds with approximately $3.8 billion in assets and 22 money market
funds with approximately $23.0 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 32 years' experience. As
of December 31, 2003, Federated managed 36 equity funds totaling
approximately $25.6 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, 2003, Federated
managed 11 money market funds and 94 bond funds with assets
approximating $61.7 billion and $3.4 billion, respectively.
Federated''s corporate bond decision making--based on intensive, diligent
credit analysis--is backed by over 30 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, 2003, Federated managed 7
mortgage backed, 3 multi-sector government funds, 4 government/agency
and 19 government money market mutual funds, with assets approximating
$4.9 billion, $0.9 billion, $2.9 billion and $56.2 billion,
respectively. Federated trades approximately $90.4 billion in
U.S. government and mortgage backed securities daily and places
approximately $35 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 $50 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 ,2003, Federated managed
$136.2 billion in assets across 52 money market funds, including 19
government, 10 prime, 22 municipal and 1 euro-denominated with assets
approximating $56.2 billion, $59.4 billion, $20.6 billion and
$173.9 million, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: Global Equity - Stephen F. Auth
is responsible for overseeing the management of Federated's domestic and
international equity products; Global Fixed Income - William D. Dawson
III is responsible for overseeing the management of Federated's domestic
and international fixed income and high yield products.

MUTUAL FUND MARKET
Forty-nine percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $6.2 trillion to the approximately
8,300 funds available, according to the Investment Company Institute.

</R>

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

Institutional Clients
<R>

Federated meets the needs of approximately 3,035 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.

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.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--have Federated has over 2,000 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.

</R>

FINANCIAL INFORMATION

<R>

The Financial Statements for the Fund for the fiscal year ended February
29, 2004, are incorporated herein by reference to the Annual Report to
Shareholders of Federated Government Income Securities, Inc., dated
February 29, 2004.

</R>

ADDRESSES

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

Class A Shares
Class B Shares
Class C 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 Auditors
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116

PART C. OTHER INFORMATION.

Item 23. Exhibits:

(a) (i) Conformed copy of Amended and Restated
Articles of Incorporation of the
Registrant; (17)
(ii) Certificate of Correction to Amended and
Restated Articles of Incorporation of the
Registrant 10/96; (17)
(iii) Certificate of Correction to Amended and
Restated Articles of Incorporation of the
Registrant 4/97; (17)
(b) (i) Copy of Amendment No. 2 to the By-Laws of
the Registrant; (6)
(ii) Copy of Amendment No. 3 to the By-Laws of
the Registrant; (17)
(iii) Copy of Amendment No. 4 to the By-Laws of
the Registrant; (17)
(iv) Copy of Amendment No. 5 to the By-Laws of
the Registrant; (17)
(v) Copy of Amendment No. 6 to the By-Laws of the Registrant; (19)
(vi) Copy of Amendment No. 7 to the By-Laws of the Registrant; (+)
(c) (i) Copy of Specimen Certificates for Shares
of Capital Stock for Class A, Class B,
and Class C Shares of the Registrant; (15)
(ii) Copy of Specimen Certificate for Shares
of Capital Stock for Class F Shares of
the Registrant; (15)
(d) (i) Conformed copy of Investment Advisory
Contract of the Registrant; (8)
(ii) Conformed copy of Amendment to Investment
Advisory Contract between Federated
Government Income Securities, inc. and
Federated Investment Management Company;
(18)
(e) (i) Conformed copy of Distributor's Contract
of the Registrant including Exhibit A;
(15)
(ii) Conformed copy of Exhibit B to the
Distributor's Contract; (15)
(iii) Conformed copy of Exhibit C to the
Distributor's Contract; (15)
(iv) Conformed copy of Exhibit D to the
Distributor's Contract; (15)
(v) Conformed copy of Distributor's Contract
(Class B Shares) including Exhibit 1 and
Schedule A; (16)
(vi) Copy of Schedule B and Exhibit 1 to
Distributor's Contract (Class B Shares);
(19)
(vii) Conformed copy of Amendment to
Distributor's Contract between Federated
Government Income Securities, Inc. and
Federated Securities, Corp. (18)
(viii) Conformed copy of Amendment to
Distributor's Contract between Federated
Funds with Class B Shares and Federated
Securities Corp. (18)
(ix) The Registrant hereby incorporates the conformed copy of the
specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service
Agreement; and Plan Trustee/Mutual Funds
Service Agreement from Item 24 (b) 6 of
the Cash Trust Series II Registration
Statement on Form N-1A filed with the
Commission on July 24, 1995. (File Nos.
33-38550 and 811-6269).
(x) Amendment to Distributor's Contract between Federated Funds and
Federated Securities Corp. (+)
(f) Not applicable;

(g) (i) Conformed copy of Custodian Agreement of
the Registrant; (12)
(ii) Conformed copy of Domestic Custody Fee
Schedule; (16)
(iii) Conformed copy of Amendment to Custodian
Agreement of the Registrant; (19)
(h) (i) Conformed copy of Amended and Restated
Agreement for Fund Accounting Services,
Administrative Services, Transfer Agency
Services, and Custody Services
Procurement; (19)
(ii) Conformed copy of Amendment to Agreement
for Fund Accounting Services.
Administrative Services, Transfer Agency
Services, and Custody Services
Procurement between Federated Investment
Companies and Federated Services Company;
(18)
(iii) The Registrant hereby incorporates the
conformed copy of the Second Amended and
Restated Services Agreement from Item 23
(h)(v) of the Investment Series Funds,
Inc. Registration Statement on Form N-1A,
filed with the Commission on April __,
2004. (File Nos. 33-41004 and 811-6307).
(iv) Conformed copy of Principal Shareholder
Servicer's Agreement (Class B Shares)
including Exhibit 1 and Schedule A; (16)
(v) Copy of Schedule B and Exhibit 1 to
Principal Shareholder Servicer's
Agreement (Class B Shares); (19)
(vi) Conformed copy of Shareholder Services
Agreement (Class B Shares) including
Exhibit 1 and Schedule A; (16)
(vii) The responses described in Item 23 (e)
(ix) are hereby incorporated by reference.
(i) Conformed copy of Opinion and Consent of
Counsel as to Legality of Shares Being
Registered; (12)
(j) Conformed copy of Consent of Independent
Auditors; (+)
(k) Not applicable;
(l) Conformed copy of Initial Capital
Understanding; (12)
(m) (i) Conformed copy of Distribution Plan,
including Exhibits A, B and C; (16)
(ii) Conformed copy of Exhibit 1 and Schedule
A to the 12b-1 Distribution Plan (Class B
Shares) of the Registrant; (16)
(n) The Registrant hereby incorporates the
conformed copy of the Multiple Class Plan
from Item (n) of the Federated GNMA Trust
Registration Statement on Form N-1A,
filed with the Commission on March 29,
2004. (File Nos. 2-45670 and 811-3375).
(o) (i) Power of Attorney of the Registrant; (16)
(ii) Power of Attorney of Chief Investment
Officer of the Registrant, (17)
(iii) Power of Attorney of Treasurer of the
Registrant; (17)
(iv) Power of Attorney of Director of the
Registrant; (17)
(v) Power of Attorney of Director of the
Registrant; (17)
(vi) Power of Attorney of Director of the
Registrant; (17)
(vii) Power of Attorney of President and Vice
Chairman of the Registrant; (19)

(p) The Registrant hereby incorporates the
conformed copy of the Code of Ethics for
Access Person from Item 23 (p) of the
Money Market Obligations Trust
Registration Statement on Form N-1A filed
with the Commission on February 26, 2004.
(File Nos. 33-31602 and 811-5950).

__________
+ All exhibits have been filed electronically
6. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 16 on Form N-1A filed April 22,
1988. (File Nos. 2-74191 and 811-3266)
8. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 19 on Form N-1A filed February
26, 1990. (File Nos. 2-74191 and 811-3266)
12. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 30 on Form N-1A filed April 20,
1995. (File Nos. 2-74191 and 811-3266)
15. Response is incorporated by reference to Registrant's
Port-Effective Amendment No. 36 on Form N-1A filed April 29,
1997. (File Nos. 2-74191 and 811-3266)
16. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 37 on Form N-1A filed April 28,
1998. (File Nos. 2-74191 and 811-3266)
17. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 38 on Form N-1A filed February
26, 1999. (File Nos. 2-74191 and 811-3266)
18. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 42 on Form N-1A filed April 26,
2002. (File Nos. 2-74191 and 811-3266)
19. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 43 on Form N-1A filed April 29,
2003. (File Nos. 2-74191 and 811-3266)

Item 24. Persons Controlled by or Under Common Control with
Registrant:

None

Item 25. Indemnification: (1)

___________________
1. Response is incorporated by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A filed December 28,
1981. (File Nos. 2-74191 and 811-3266)

Item 26. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment
adviser, see the section entitled "Who Manages the Fund?" in
Part A. The affiliations with the Registrant of four of the
Trustees and one of the Officers of the investment adviser are
included in Part B of this Registration Statement under "Who
Manages and Provides Services to the Fund?" The remaining
Trustees of the investment adviser and, in parentheses, their
principal occupations are: Thomas R. Donahue, (Chief
Financial Officer, Federated Investors, Inc.), 1001 Liberty
Avenue, Pittsburgh, PA, 15222-3779 and Mark D. Olson (a
principal of the firm, Mark D. Olson & Company, L.L.C. and
Partner, Wilson, Halbrook & Bayard, P.A.), 800 Delaware
Avenue, P.O. Box 2305, Wilmington, DE 19899-2305.

The remaining Officers of the investment adviser are:

President/ Chief Executive Officer
and Trustee: Keith M. Schappert

Vice Chairman: William D. Dawson, III

Senior Vice Presidents: Joseph M. Balestrino
Jonathan C. Conley
Deborah A. Cunningham,
Mark E. Durbiano
Robert M. Kowit
Jeffrey A. Kozemchak
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Richard Tito

Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Randall S. Bauer
Nancy J.Belz
G. Andrew Bonnewell
Lee R. Cunningham, II
B. Anthony Delserone,Jr
. Donald T. Ellenberger
Eamonn G. Folan
John T. Gentry
Patricia L. Heagy
Susan R. Hill
Nikola A. Ivanov
Gina Jacobs
William R. Jamison
Nathan H. Kehm
John C. Kerber
J. Andrew Kirschler
Marian R. Marinack
Kevin McCloskey
Natalie F. Metz
Thomas J. Mitchell
Joseph M. Natoli
Mary Kay Pavuk
Jeffrey A. Petro
Ihab L. Salib
Roberto Sanchez-Dahl, Sr.
John Sidawi
Michael W. Sirianni, Jr.
Christopher Smith
Timothy G. Trebilcock
Vice Presidents: Paolo H. Valle
Stephen J. Wagner
Paige M. Wilhelm
George B. Wright

Assistant Vice Presidents: Lori Andrews
Hanan Callas
Jerome Conner
James R. Crea, Jr.
Karol M. Crummie
Richard Cumberledge
Richard J. Gallo
Kathyrn P. Glass
James Grant
Tracey L. Lusk
Ann Manley
Karl Mocharko
Teri Lynn Moore
Bob Nolte
Rae Ann Rice
Brian Ruffner
Kyle D. Stewart
Mary Ellen Tesla
Nichlas S. Tripodes
Mark Weiss

Secretary: G. Andrew Bonnewell

Treasurer: Thomas R. Donahue

Assistant Secretary: Jay S. Neuman

Assistant Treasurer: Denis McAuley, III

The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are
also officers of a majority of the investment advisers to the
investment companies in the Federated Fund Complex described
in Part B of this Registration Statement.

Item 27. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for
shares of the Registrant, acts as principal
underwriter for the following open-end investment
companies, including the Registrant:

Cash Trust Series, Inc.; Cash Trust Series II;
Federated Adjustable Rate Securities Fund; Federated
American Leaders Fund, Inc.; Federated Core Trust;
Federated Core Trust II, L.P.; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated
Fixed Income Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.;
Federated High Income Bond Fund, Inc.; Federated
High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance
Series; Federated International Series, Inc.;
Federated Investment Series Funds, Inc.; Federated
Limited Duration Government Fund, Inc.; Federated
Managed Allocation Portfolios; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal
Securities Income Trust; Federated Premier
Intermediate Municipal Income Fund; Federated
Premier Municipal Income Fund; Federated Short-Term
Municipal Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Total Return
Government Bond Fund; Federated Total Return Series,
Inc.; Federated U.S. Government Bond Fund; Federated
U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5
Years; Federated World Investment Series, Inc.;
Intermediate Municipal Trust; Edward Jones Money
Market Fund; Money Market Obligations Trust; Regions
Morgan Keegan Select Funds and SouthTrust Funds.

(b)

(1) (2) (3)
Positions and Offices Positions and Offices
With Distributor Name With Registrant
_____________________ _________________ ______________________
Chairman: Richard B. Fisher Vice Chairman

President-Institutional
Sales and Director: John B. Fisher

Executive Vice
Vice President, Assistant
Secretary and Director: Thomas R. Donahue

President-Broker/Dealer
And Director: James F. Getz

Senior Vice Presidents: Mark W. Bloss
Richard W. Boyd
Laura M. Deger
Peter W. Eisenbrandt
Theodore Fadool, Jr.
Christopher Fives
James S. Hamilton
James M. Heaton
H. Joseph Kennedy
Amy Michaliszyn
Keith Nixon
Solon A. Person, IV
Ronald M. Petnuch
Thomas E. Territ
Robert F. Tousignant
(1) (2) (3)
Positions and Offices Positions and Offices
With Distributor Name With Registrant
_____________________ _________________ ______________________
Vice Presidents: Paul Uhlman
Irving Anderson
Dan Berry
John B. Bohnet
Edward R. Bozek
Jane E. Broeren-Lambesis
Brian Burke
Craig Burness
David J. Callahan
Mark Carroll
Dan Casey
Scott Charlton
Steven R. Cohen
Mary J. Combs
James Conely
R. Edmond Connell, Jr.
Kevin J. Crenny
Vice Presidents: Daniel T. Culbertson
G. Michael Cullen
Beth C. Dell
Robert J. Deuberry
Rick A. DiBernardo
Ron Dorman
William C. Doyle
Donald C. Edwards
Lee England
Timothy Franklin
Peter J. Germain
James F. Getz, Jr.
Joseph D. Gibbons
J. Todd Glickson
G. Tad Gullickson
Scott Gundersen
Dayna C. Haferkamp
Raymond J. Hanley
Vincent L. Harper, Jr.
Bruce E. Hastings
Teresa M. Johnson
Christopher L. Johnston
William Kastrell
Stephen Kittel
Michael W. Koenig
Ed Koontz
Christopher A. Layton
Michael H. Liss
Michael R. Manning
Martin J. McCaffrey
Mary A. McCaffrey
Richard C. Mihm
Chris Milliken
Vincent T. Morrow
Alec H. Neilly
Rebecca Nelson
James E. Ostrowski
Thomas A. Peter III
Raleigh Peters
Robert F. Phillips
(1) (2) (3)
Positions and Offices Positions and Offices
With Distributor Name With Registrant
_____________________ _________________ ______________________
Vice Presidents: Josh Rasmussen
Richard A. Recker
Christopher Renwick
Brian S. Ronayne
Timothy A. Rosewicz
Thomas S. Schinabeck
Edward J. Segura
Peter Siconolfi
Edward L. Smith
David W. Spears
John A. Staley
Colin B. Starks
Jeffrey A. Stewart
Kevin Stutz
William C. Tustin
Paul A. Uhlman
G. Walter Whalen
Stephen White
Patrick M. Wiethorn
Edward J. Wojnarowski
Michael P. Wolff

Assistant Vice Presidents: Lisa A. Toma
Robert W. Bauman
Charles L. Davis, Jr.
Brian F. Paluso
William Rose

Treasurer: Denis McAuley, III

Secretary: Stephen A. Keen

Assistant Secretaries: Thomas R. Donahue
Peter J. Germain

The business address of each of the Officers of Federated Securities
Corp. is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779.

Item 28. Location of Accounts and Records:

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

Registrant Reed Smith LLP
Investment Management Group (IMG)
Federated Investors Tower
12th Floor
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(Notices should be sent to Agent for Service at
the above address)

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

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

Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Federated Investment Management Federated Investors Tower
Company ("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

Item 29. Management Services: Not applicable.

Item 30. Undertakings:

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

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED GOVERNMENT
INCOME SECURITIES, INC., certifies that it meets all of the requirements
for effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 29th day of April, 2004.

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

BY: /s/ Daniel M. Miller
Daniel M. Miller
Assistant Secretary
April 29, 2004

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

NAME TITLE DATE
By: Daniel M. Miller Attorney In Fact April 29, 2004
Daniel M. Miller For the Persons
ASSISTANT SECRETARY Listed Below

NAME TITLE

John F. Donahue* Chairman and Director

J. Christopher Donahue* President and Director
(Principal Executive Officer)

Richard B. Fisher* Vice Chairman

William D. Dawson III* Chief Investment Officer

John W. McGonigle* Executive Vice President and Secretary

Richard J. Thomas* Treasurer (Principal Financial Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

Nicholas P. Constantakis* Director

John F. Cunningham* Director

Lawrence D. Ellis, M.D.* Director

Peter E. Madden* Director

Charles F. Mansfield, Jr.* Director

John E. Murray, Jr., J.D., S.J.D.* Director

Marjorie P. Smuts* Director

John S. Walsh* Director

* By Power of Attorney