FEDERATED ADJUSTABLE RATE SECURITIES FUND

485BPOS 1 farsf.htm FEDERATED ADJUSTABLE RATE SECURITIES FUND





                                                       1933 Act File No. 2-98491
                                                      1940 Act File No. 811-4539

                    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.   30   ....................        X


                                  and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X

    Amendment No.   29   ...................................        X

                    FEDERATED ADJUSTABLE RATE SECURITIES FUND
                         (Formerly, Federated ARMs Fund)
               (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
                               1001 Liberty Avenue
                            Federated Investors Tower
                       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:

    immediately upon filing pursuant to paragraph (b)
 X  on October 29, 2003 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 Adjustable Rate Securities Fund

PROSPECTUS

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October 31, 2003

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INSTITUTIONAL SHARES

A mutual fund seeking to provide current income consistent with minimal volatility of principal by investing primarily in adjustable and floating rate 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? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 8

What are the Specific Risks of Investing in the Fund? 13

What Do Shares Cost? 15

How is the Fund Sold? 15

How to Purchase Shares 16

How to Redeem Shares 18

Account and Share Information 21

Who Manages the Fund? 22

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide current income consistent with minimal volatility of principal. 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 adjustable and floating rate securities which are issued or guaranteed by the U.S. government, its agencies or instrumentalities, including mortgage-backed securities and agency securities. Mortgage-backed securities generally offer higher yields than comparable U.S. Treasury securities, but are subject to prepayment risks. The Fund's investment adviser (the "Adviser") seeks to manage this risk by selecting mortgage-backed securities which (based primarily on the Adviser's interest rate outlook) have characteristics that make prepayment less likely. The adjustable rate feature of the securities in which the Fund primarily invests will help to limit sharp movements in the Fund's net asset value (NAV) in response to normal fluctuations in interest rates. As a result, under normal market conditions, the Adviser will not explicitly target a portfolio maturity or duration as part of the Fund's investment strategy. The Fund may invest in non-government mortgage-backed securities that are rated in one of the two highest categories by a nationally recognized statistical rating organization (NRSRO). The Fund limits its investments to those that would enable it to qualify as a permissible investment for federal credit unions and federal savings associations, and as an appropriate direct investment for national banks.

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

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The Fund's Shares are sold without a sales charge (load). The total returns shown in the bar chart above are based upon NAV.

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The Fund's Institutional Shares total return for the nine-month period from January 1, 2003 to September 30, 2003 was 1.26%.

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Within the period shown in the bar chart, the Fund's Institutional Shares highest quarterly return was 3.06% (quarter ended March 31, 1995). Its lowest quarterly return was (0.57)% (quarter ended June 30, 1994).

Average Annual Total Return Table

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Return Before Taxes is shown for the Fund's Institutional Shares. In addition, Return After Taxes is shown for Fund's Institutional 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 the Merrill Lynch 1-Year U.S. Treasury Note Index (ML1T), a broad-based market index. The ML1T is an unmanaged index tracking one-year U.S. government securities. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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(For the periods ended December 31, 2002)

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	1 Year	5 Years	10 Years
Fund:
Return Before Taxes	<R>3.10%</R>	<R>4.91%</R>	<R>5.06%</R>
Return After Taxes on Distributions¹	<R>1.89%</R>	<R>2.85%</R>	2.89%
Return After Taxes on Distributions and Sale of Fund Shares¹	<R>1.89%</R>	<R>2.90%</R>	<R>2.95%</R>
ML1T	<R>3.28%</R>	<R>5.55%</R>	<R>5.31%</R>

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1 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 ADJUSTABLE RATE SECURITIES FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.60%
Distribution (12b-1) Fee		None
Shareholder Services Fee³		0.25%
Other Expenses⁴		0.15%
Total Annual Fund Operating Expenses		1.00%
1 Although not contractually obligated to do so, the adviser, shareholder services provider and transfer and dividend disbursing agent waived certain amounts. This is shown below along with the net expenses the Fund actually paid for the fiscal year ended August 31, 2003.
Total Waivers of Fund Expenses		0.39%
Total Actual Annual Fund Operating Expenses (after waivers)		0.61%
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 0.47% for the fiscal year ended August 31, 2003.
3 The shareholder services fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund (after the voluntary waiver) was 0.00% for the fiscal year ended August 31, 2003.
4 The transfer and dividend disbursing agent voluntarily waived certain operating expenses of the Fund. This voluntary waiver can be terminated at any time. Total other operating expenses paid by the Fund (after the voluntary waiver) were 0.14% for the fiscal year ended August 31, 2003.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Institutional Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional 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:

1 Year		<R>$ 102</R>
3 Years		<R>$ 318</R>

5 Years		<R>$ 552</R>

10 Years		<R>$1,225</R>

What are the Fund's Investment Strategies?

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The Fund, under normal circumstances, invests primarily in adjustable and floating rate securities, including mortgage-backed securities and agency securities. It is anticipated that such a portfolio will generally provide higher current yields than money market securities. The adjustable rate feature of the securities in which the Fund primarily invests will help to limit sharp movements in the Fund's NAV in response to normal fluctuations in interest rates. As a result, under normal market conditions, the Adviser will not explicitly target a portfolio maturity or duration as part of the Fund's investment strategy. While the Fund's NAV will exhibit greater volatility than that of a money market portfolio, it should exhibit less volatility than a portfolio of fixed-rate mortgages. As a fundamental investment policy, the Fund will invest at least 65% of the value of its total assets in a professionally managed portfolio of U.S. government securities consisting of adjustable and floating rate mortgage securities which are issued or guaranteed by the U.S. government, its agencies or instrumentalities. A description of the various types of securities in which the Fund invests, and their risks, immediately follows this strategy discussion.

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Mortgage-backed securities generally offer higher yields than comparable U.S. Treasury securities. The extra yield compensates for prepayment risk. Underlying mortgages, which act as collateral for mortgage securities, may, in most cases, be prepaid by homeowners at any time without penalty. One important reason for prepayments is changes in market interest rates from the time of mortgage origination.

The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage-backed securities with characteristics that make prepayment less likely. An important factor in the Adviser's assessment of these characteristics is the Adviser's interest rate outlook. Characteristics that the Adviser may consider in selecting securities include the interest rate formulas of the underlying mortgages, the index upon which the mortgage rate is based, the length of time the underlying mortgages have been outstanding, the prior prepayment history of the mortgages and the federal agencies (if any) that securitize the mortgages.

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 Board 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 attempt to take advantage of current and potential yield differentials existing from time to time between various government adjustable rate mortgage-backed securities in order to increase the Fund's return. In addition, the Adviser may invest a portion of the Fund's assets in fixed rate U.S. government mortgage securities, in mortgage-backed securities issued by non-governmental entities which are rated in one of the two highest rating categories by a NRSRO, or in U.S. government securities that are not mortgage-backed securities, such as U.S. Treasury securities and U.S. government agency securities, when in the Adviser's judgment, such investment will potentially enhance return or manage risk under current or anticipated economic and market conditions. The Fund may also engage in dollar roll transactions for their potential to enhance income.

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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.

Because the Fund refers to adjustable rate investments in its name, it will notify shareholders at least 60 days in advance of any changes in its investment policies that would enable the Fund to normally invest less than 80% of its assets in adjustable rate 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

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 principally invests:

Treasury Securities

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

Agency Securities

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

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

Mortgage-Backed Securities

Mortgage-backed securities represent interests in "pools" (groups) 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.

Mortgage-backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage-backed securities is 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.

Adjustable Rate Mortgages

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The Fund invests in interest in pools of adjustable rate mortgages, which are known as ARMs. While fixed rate mortgage securities have a stated interest rate, ARMs have periodic adjustments in the interest rate on the underlying mortgages. The adjustable rate feature of the mortgages underlying the ARMs will help to limit sharp movements in the Fund's NAV in response to normal fluctuations in interest rates. As interest rates on the mortgages underlying ARMs reset periodically (for example, semi-annually or annually), the yields of the ARMs held in the portfolio will gradually adjust to reflect the overall changes in interest rates.

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Collateralized Mortgage Obligations (CMOS)

CMOs, including interests in real estate mortgage investment conduits, 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 prepayment risk of CMOs depends upon the structure of the CMOs. However, the actual returns of any type of mortgage-backed security depends upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.

Non-Government Mortgage-Backed Securities

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Non-government 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-government mortgage-backed securities that are rated in one of the two highest rating categories by an NRSRO. The non-government 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, in one of the two highest rating categories by a NRSRO, they present credit risks.

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Adjustable Rate Securities

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Adjustable (including floating) rate securities are fixed income securities with interest rates that are reset periodically. The periodic coupon adjustments reduce the price volatility of adjustable rate securities, relative to fixed income rate securities. Adjustable rate securities consist of agency securities and mortgage-backed securities, including ARMs, non-government mortgage-backed securities and mortgage related asset-backed securities.

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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

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 paid by the dealer or bank 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.

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 market risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default.

TO BE ANNOUNCED SECURITIES (TBAS)

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

DOLLAR ROLLS

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

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.

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.

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

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

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

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

PREPAYMENT RISKS

Unlike traditional fixed income securities, which may 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. This partial payment of principal may be comprised of a scheduled principal payment as well as an unscheduled payment from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled payments of principal can adversely affect the price and yield of mortgage-backed securities. For example, during periods of declining interest rates, prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds at the lower interest rates then available. In addition, like other interest-bearing securities, the values of mortgage-backed securities generally fall when interest rates rise. Since rising interest rates generally result in decreased prepayments of mortgage-backed securities, this could cause mortgage securities to have greater average lives than expected and their value may decline more than other fixed income securities. Conversely, when interest rates fall, their potential for capital appreciation is limited due to the existence of the prepayment feature.

Generally, mortgage-backed securities compensate for greater prepayment risk 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 security to decline. Spreads generally increase in response to adverse economic or market conditions.

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 Investor 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.

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

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

LIQUIDITY RISKS

Trading opportunities are more limited for fixed income securities that have not received any credit ratings, have received ratings below investment grade or are not widely held.

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

Liquidity risk also refers to the possibility that the Fund may not be able to sell a security 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 or redeem 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 NAV. The Fund does not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.

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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.

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

The required minimum initial investment for Fund Shares is $25,000. There is no required minimum subsequent investment amount. An account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.

How is the Fund Sold?

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The Fund offers two Share classes: Institutional Shares and Institutional Service Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Shares. All Share classes have different expenses, which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to financial intermediaries, public and private organizations or to individuals, directly or through 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).

How to Purchase Shares

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

THROUGH AN INVESTMENT PROFESSIONAL

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

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

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.

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

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

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

By Check

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

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

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

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund 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.

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.

How to Redeem Shares

You should redeem 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 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 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

You may redeem Shares by mailing a written request to the Fund.

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed; and
signatures of all shareholders exactly as registered.

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

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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.

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund no longer issues share certificates. If you are redeeming Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption 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 and redemptions. In addition, you will receive periodic statements reporting all account activity, including dividends and capital gains paid.

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ACCOUNT ACTIVITY

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DIVIDENDS AND CAPITAL GAINS

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

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

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

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions 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 are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.

Who Manages the Fund?

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

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The Adviser and other subsidiaries of Federated advise approximately 138 mutual funds and a variety of separate accounts, which totaled approximately $195 billion in assets as of December 31, 2002. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,700 employees. More than 5,000 investment professionals make Federated funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

Todd A. Abraham

Todd A. Abraham has been the Fund's Portfolio Manager since August 1995. He is Vice President of the Fund. 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.

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Robert E. Cauley

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Robert E. Cauley has been the Fund's Portfolio Manager since February 2003. Mr. Cauley joined Federated in 1996 as a Senior Investment Analyst and an Assistant Vice President of the Fund's Adviser and has been a Portfolio Manager since 1997. Mr. Cauley has been a Vice President of the Adviser since 1999. Mr. Cauley was a member of the Asset-Backed Structuring Group at Lehman Brothers Holding, Inc. from 1994 to 1996. Mr. Cauley earned his M.S.I.A., concentrating in Finance and Economics, from Carnegie Mellon University.

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ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.60% 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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FINANCIAL HIGHLIGHTS

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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 Ernst & Young LLP, whose report, along with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2003			2002			2001			2000			1999
Net Asset Value, Beginning of Period	$9.63			$9.59			$9.50			$9.51			$9.67
Income From Investment Operations:
Net investment income	0.21			0.35			0.57			0.55			0.51
Net realized and unrealized gain (loss) on investments	(0.04	)		0.04			0.09			(0.02	)		(0.16	)

TOTAL FROM INVESTMENT OPERATIONS	0.17			0.39			0.66			0.53			0.35

Less Distributions:
Distributions from net investment income	(0.21	)		(0.35	)		(0.57	)		(0.54	)		(0.51	)

Net Asset Value, End of Period	$9.59			$9.63			$9.59			$9.50			$9.51

Total Return¹	1.76	%		4.09	%		7.18	%		5.77	%		3.74	%


Ratios to Average Net Assets:

Expenses	0.61	%		0.61	%		0.58	%		0.57	%		0.55	%

Net investment income	2.18	%		3.58	%		6.00	%		5.75	%		5.28	%

Expense waiver/reimbursement²	0.39	%		0.40	%		0.42	%		0.46	%		0.45	%

Supplemental Data:

Net assets, end of period (000 omitted)	$362,518		$336,567			$241,461			$283,706			$384,011

Portfolio turnover	72	%		64	%		38	%		73	%		83	%

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

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

See Notes which are an integral part of the Financial Statements

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A Statement of Additional Information (SAI) dated October 31, 2003, 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.

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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 Adjustable Rate Securities Fund
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. 811-4539

Federated is a registered mark of Federated Investors, Inc. 2003 ©Federated Investors, Inc.

Cusip 314082108

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8100309A-IS (10/03)

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Federated Investors
World-Class Investment Manager

Federated Adjustable Rate Securities Fund

PROSPECTUS

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October 31, 2003

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INSTITUTIONAL SERVICE SHARES

A mutual fund seeking to provide current income consistent with minimal volatility of principal by investing primarily in adjustable and floating rate securities.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 8

What are the Specific Risks of Investing in the Fund? 13

What Do Shares Cost? 15

How is the Fund Sold? 15

How to Purchase Shares 16

How to Redeem Shares 18

Account and Share Information 20

Who Manages the Fund? 21

Financial Information 22

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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

Risk/Return Bar Chart and Table

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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 Institutional Service 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.

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The Fund's Shares are sold without a sales charge (load). The total returns shown in the bar chart above are based upon NAV.

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The Fund's Institutional Service Shares total return for the nine-month period from January 1, 2003 to September 30, 2003 was 1.07%.

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Within the period shown in the bar chart, the Fund's Institutional Service Shares highest quarterly return was 3.00% (quarter ended March 31, 1995). Its lowest quarterly return was (0.63)% (quarter ended June 30, 1994).

Average Annual Total Return Table

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Return Before Taxes is shown for the Fund's Institutional Service Shares. In addition, Return After Taxes is shown for Fund's Institutional Service 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 the Merrill Lynch 1-Year U.S. Treasury Note Index (ML1T), a broad-based market index. The ML1T is an unmanaged index tracking one-year U.S. government securities. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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(For the periods ended December 31, 2002)

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	1 Year	5 Years	<R>10 Years</R>
Fund:
Return Before Taxes	<R>2.84%</R>	<R>4.65%</R>	<R>4.80%</R>
<R>Return After Taxes on Distributions¹</R>	<R>1.73%</R>	<R>2.70%</R>	<R>2.74%</R>
<R>Return After Taxes on Distributions and Sale of Fund Shares¹</R>	<R>1.73%</R>	<R>2.74%</R>	<R>2.79%</R>
ML1T	<R>3.28%</R>	<R>5.55%</R>	<R>5.31%</R>

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What are the Fund's Fees and Expenses?

FEDERATED ADJUSTABLE RATE SECURITIES FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.60%
Distribution (12b-1) Fee³		0.25%
Shareholder Services Fee		0.25%
Other Expenses⁴		0.15%
Total Annual Fund Operating Expenses		1.25%
1 Although not contractually obligated to do so, the adviser, distributor and transfer and dividend disbursing agent waived certain amounts. This is shown below along with the net expenses the Fund actually paid for the fiscal year ended August 31, 2003.
Total Waivers of Fund Expenses		0.39%
Total Actual Annual Fund Operating Expenses (after waivers)		0.86%
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 0.47% for the fiscal year ended August 31, 2003.
3 The shareholder services fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund (after the voluntary waiver) was 0.00% for the fiscal year ended August 31, 2003.
4 The transfer and dividend disbursing agent voluntarily waived certain operating expenses of the Fund. This voluntary waiver can be terminated at any time. Total other operating expenses paid by the Fund (after the voluntary waiver) were 0.14% for the fiscal year ended August 31, 2003.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Institutional Service Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Service 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:

1 Year		<R>$ 127</R>
3 Years		<R>$ 397</R>

5 Years		<R>$ 686</R>

10 Years		<R>$1,511</R>

What are the Fund's Investment Strategies?

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The Fund, under normal circumstances, invests primarily in adjustable and floating rate securities, including mortgage-backed securities and agency securities. It is anticipated that such a portfolio will generally provide higher current yields than money market securities. The adjustable rate feature of the securities in which the Fund primarily invests will help to limit sharp movements in the Fund's NAV in response to normal fluctuations in interest rates. As a result, under normal market conditions, the Adviser will not explicitly target a portfolio maturity or duration as part of the Fund's investment strategy. While the Fund's NAV will exhibit greater volatility than that of a money market portfolio, it should exhibit less volatility than a portfolio of fixed-rate mortgages. As a fundamental investment policy, the Fund will invest at least 65% of the value of its total assets in a professionally managed portfolio of U.S. government securities consisting primarily of adjustable and floating rate mortgage securities which are issued or guaranteed by the U.S. government, its agencies or instrumentalities. A description of the various types of securities in which the Fund invests, and their risks, immediately follows this strategy discussion.

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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 Board monetary policy; and
changes in the supply of or demand for U.S. government securities.

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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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TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

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

Treasury Securities

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

Agency Securities

Mortgage-Backed Securities

Adjustable Rate Mortgages

Collateralized Mortgage Obligations (CMOS)

Non-Government Mortgage-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, in one of the two highest rating categories by a NRSRO, they present credit risks.

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Adjustable Rate Securities

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Credit Enhancement

SPECIAL TRANSACTIONS

Repurchase Agreements

Delayed Delivery Transactions

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

Asset Coverage

Investment Ratings for Investment Grade Securities

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

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

PREPAYMENT RISKS

CREDIT RISKS

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

LIQUIDITY RISKS

Trading opportunities are more limited for fixed income securities that have not received any credit ratings, have received ratings below investment grade or are not widely held.

What Do Shares Cost?

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You can purchase or redeem 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 NAV. The Fund does not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.

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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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How is the Fund Sold?

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The Fund offers two Share classes: Institutional Shares and Institutional Service Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Service Shares. All Share classes have different expenses, which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to financial institutions, credit unions, savings associations and national banks or to individuals, directly or through investment professionals.

When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Institutional Service 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 or directly from the Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

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

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

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

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

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

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

By Check

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

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

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

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem Shares

You should redeem Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

You may redeem Shares by simply calling the Fund at 1-800-341-7400.

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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.

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By Mail

You may redeem Shares by mailing a written request to the Fund.

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

All requests must include:

Fund Name and Share Class, account number and account registration;
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amount to be redeemed; and
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signatures of all shareholders exactly as registered.

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

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PAYMENT METHODS FOR REDEMPTIONS

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

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

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you will receive periodic statements reporting all account activity, including dividends and capital gains paid.

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ACCOUNT ACTIVITY

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DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Fund distributions are expected to be primarily dividends. Redemptions 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 FUND'S PORTFOLIO MANAGERS ARE:

Todd A. Abraham

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Robert E. Cauley

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ADVISORY FEES

Financial Information

FINANCIAL HIGHLIGHTS

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

Financial Highlights--Institutional Service Shares

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2003			2002			2001			2000			1999
Net Asset Value, Beginning of Period	$9.63			$9.59			$9.50			$9.51			$9.67
Income From Investment Operations:
Net investment income	0.19			0.32			0.55			0.52			0.48
Net realized and unrealized gain (loss) on investments	(0.05	)		0.04			0.09			(0.01	)		(0.15	)

TOTAL FROM INVESTMENT OPERATIONS	0.14			0.36			0.64			0.51			0.33

Less Distributions:
Distributions from net investment income	(0.18	)		(0.32	)		(0.55	)		(0.52	)		(0.49	)

Net Asset Value, End of Period	$9.59			$9.63			$9.59			$9.50			$9.51

Total Return¹	1.51	%		3.83	%		6.91	%		5.50	%		3.49	%


Ratios to Average Net Assets:

Expenses	0.86	%		0.86	%		0.83	%		0.82	%		0.80	%

Net investment income	1.93	%		3.31	%		5.72	%		5.51	%		5.03	%

Expense waiver/reimbursement²	0.39	%		0.40	%		0.42	%		0.46	%		0.45	%

Supplemental Data:

Net assets, end of period (000 omitted)	$80,248		$54,472			$34,266			$28,396			$33,376

Portfolio turnover	72	%		64	%		38	%		73	%		83	%

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

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2003, which can be obtained free of charge.

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Investment Company Act File No. 811-4539

Federated is a registered mark of Federated Investors, Inc. 2003 ©Federated Investors, Inc.

Cusip 314082207

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8100309A-SS (10/03)

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FEDERATED ADJUSTABLE RATE SECURITIES FUND

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Statement of Additional Information

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October 31, 2003

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Institutional Shares
Institutional Service Shares

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This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for the Fund's Institutional Shares and
Institutional Service Shares (Fund), dated October 31, 2003.

</R>

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

Contents
How is the Fund Organized?
Securities in Which the Fund Invests
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What do Shares Cost?
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How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services
to the Fund?
How Does the Fund Measure
Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
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8100309B (10/03)

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HOW IS THE FUND ORGANIZED?

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The Fund is a diversified open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on May 21, 1985.

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The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both classes of Shares. The Fund's investment adviser is
Federated Investment Management Company (Adviser).

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
invests:

Treasury Securities

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

Agency Securities

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

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

Mortgage-Backed Securities

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

Mortgage-backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage-backed securities is
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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Adjustable Rate Mortgages

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The Fund invests in interest in "pools" (groups) of adjustable rate mortgages,
which are known as ARMs. While fixed rate mortgage securities have a stated
interest rate, ARMs have periodic adjustments in the interest rate on the
underlying mortgages. The adjustable rate feature of the mortgages underlying
the ARMs will help to limit sharp movements in the Fund's net asset value in
response to normal fluctuations in interest rates. As interest rates on the
mortgages underlying ARMs reset periodically (for example, semi-annually or
annually), the yields of the ARMs held in the portfolio will gradually adjust to
reflect the overall changes in interest rates.

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Collateralized Mortgage Obligations

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Collateralized mortgage obligations (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.

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Sequential CMOs

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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.

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PACs and TACs

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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.

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Non-Government Mortgage-Backed Securities

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Non-government 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-government mortgage-backed securities that are rated in one of the two
highest rating categories by a nationally recognized statistical rating
organization (NRSRO). The non-government 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

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, in one of the two highest rating
categories by a NRSRO, they present credit risks.

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Adjustable Rate Securities

Adjustable (including floating) rate securities are fixed income securities with
interest rates that are reset periodically. The periodic coupon adjustments
reduce the price volatility of adjustable rate securities, relative to fixed
rate securities. Adjustable rate securities consist of agency securities and
mortgage-backed securities, including ARMs, non-governmental mortgage-backed
securities and mortgage related asset-backed securities.

</R>

Credit Enhancement

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

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Special Transactions

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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.

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 market
risks for the Fund. Delayed delivery transactions also involve credit risks in
the event of a counterparty default.

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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
market risks because the underlying mortgages may be less favorable than
anticipated by the Fund.

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Dollar Rolls

</R>

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

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 risks 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.

Investment Ratings for Non-Government Mortgage-Backed Securities The Adviser
will determine whether a non-government backed security is eligible for
investment by the Fund based upon the credit ratings given by one or more
NRSROs. For example, Standard & Poor's (S&P), a rating service, assigns
ratings to securities based on its assessment of the likelihood of the issuer's
inability to pay interest or principal (default) when due on each security.
Lower credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment that the security is comparable to investment grade.

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

Inter-Fund Borrowing and Lending Arrangements

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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 funds,
and an inter-fund loan is only made if it benefits each participating 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 funds.

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

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

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

Prepayment Risks

Unlike traditional fixed income securities, which may 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. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price and yield of
mortgage-backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, like other interest bearing securities, the values of mortgage-backed
securities generally fall when interest rates rise. Since rising interest rates
generally result in decreased prepayments of mortgage- backed securities, this
could cause mortgage securities to have greater average lives than expected and
their value may decline more than other fixed income securities. Conversely,
when interest rates fall, their potential for capital appreciation is limited
due to the existence of the prepayment feature. Generally, mortgage-backed
securities compensate for greater prepayment risk 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 security to decline. Spreads generally increase in response to
adverse economic or market conditions.

Liquidity Risks

Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held.

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

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

Regulatory Compliance

In accordance with the rules and regulations established by the National Credit
Union Administration (NCUA), unless the purchase is made solely to reduce
interest-rate risk, the Fund will not invest in any CMO or REMIC security that
meets any of the following three tests: (1) the CMO or REMIC has an expected
average life greater than ten years; (2) the average life of the CMO or REMIC
extends by more than four years assuming an immediate and sustained parallel
shift in the yield curve of plus 300 basis points, or shortens by more than six
years assuming an immediately and sustained parallel shift in the yield curve of
minus 300 basis points; or (3) the estimated change in the price of the CMO or
REMIC is more than 17%, due to an immediate and sustained parallel shift in the
yield curve of plus or minus 300 basis points.

Neither test (1) nor (2) above apply to floating or adjustable rate CMOs or
REMICs with all of the following characteristics: (a) the interest rate of the
instrument is reset at least annually; (b) the interest rate is below the
contractual cap of the instrument; (c) the instrument is tied to a widely used
market rate; and (d) the instrument varies directly (no inversely) and is reset
in proportion with the index's changes.

The Fund may not purchase a residual interest in CMO or REMIC. In addition, the
Fund will not purchase zero coupon securities with maturities greater than ten
years.

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Fundamental Investment Objective and Policy

</R>

The Fund's fundamental investment objective is to provide current income
consistent with minimal volatility of principal.

As a fundamental investment policy, the Fund invests at least 65% of the value
of its total assets in a professionally managed portfolio of U.S. government
securities consisting primarily of adjustable and floating rate mortgage
securities which are issued or guaranteed by the U.S. government, its agencies
or instrumentalities.

This investment objective and policy may not be changed by the Fund's Board
without shareholder approval.

INVESTMENT LIMITATIONS

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 its total assets would be invested
in securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.

Borrowing Money and Issuing Senior Securities

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

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

Concentration

The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry. The above limitations cannot be changed unless
authorized by the Board 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.

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.

Investing in Other Investment Companies

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The Fund may invest its assets in securities of other investment companies.

</R>

Purchases 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.

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.

Securities Lending

The Fund may lend portfolio securities up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the investment adviser has determined are creditworthy
under guidelines established by the Fund's Board. The Fund will receive
collateral in the form of cash or U.S. government securities equal to at least
100% of the value of the securities loaned.

Stripped Mortgage Securities

The Fund will not invest in stripped mortgage securities, including securities
which represent a share of only the interest payments or only the principal
payments from underlying mortgage related securities.

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
having capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items." Except with respect to borrowing money,
if a percentage limitation 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.

As a non-fundamental operating policy, for purposes of the foregoing policy,
investments in transactions involving futures contracts and options, forward
currency contracts, swap transaction and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective.

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For the fiscal years ended August 31, 2003, and 2002, the portfolio turnover
rates were 72% and 64% respectively.

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DETERMINING MARKET VALUE OF SECURITIES

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

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.

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.

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.

RULE 12B-1 PLAN (Institutional Service Shares)

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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.

</R>

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.

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.

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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.

</R>

SUPPLEMENTAL PAYMENTS

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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 payments
under the Rule 12b-1 Plan and/or Service fees.

</R>

EXCHANGING SECURITIES FOR SHARES

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

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

Because the Fund has elected to be governed by Rule 18f-1 under the 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.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.

In the unlikely event a shareholder is held personally liable for the Fund's
obligations, the Fund is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Fund will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Fund. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Fund itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

<R>

Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.

</R>

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.

<R>

Trustees 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>

<R>

As of October 1, 2003, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Institutional Shares: LaSalle National Bank,
Chicago, IL, owned approximately 10,416,666 Shares(21.20%); Bank of Ann Arbor,
Ann Arbor, MI, owned approximately 3,650,181 Shares (7.43%);Charles Schwab &
Co., Inc., San Francisco, CA, owned approximately 2,546,693 Shares (5.18%); APCO
Employees Credit Union, Birmingham, AL, owned approximately 5,397,742 Shares
(10.98%).

</R>

<R>

As of October 1, 2003, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Institutional Service Shares: Hawaii Federal
& State Employee Federal Credit Union, Hilo, HI owned approximately 962,094
Shares (14.12%); First Clearing Corporation, Kent, OH, owned approximately
952,512 Shares (13.98%); U.S. Clearing, A Division of Fleet Securities, Inc.,
owned approximately 351,239 Shares (5.16%).

</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.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES

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.

<R>

The Federated Fund Complex consists of 44 investment companies (comprising 138
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; WesMark
Funds-five portfolios and Golden Oak(R) Family of Funds-seven portfolios.

</R>

<R>

As of October 1, 2003, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

</R>

<R>

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

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

May 1985 Previous Positions: Trustee,
Federated Investment Management
Company and Chairman and
Director, Federated Investment
Counseling.

J. Christopher $0 $0
Donahue* Principal Occupations: Principal
Birth Date: April Executive Officer and President
11, 1949 of the Federated Fund Complex;
PRESIDENT AND Director or Trustee of some of
TRUSTEE the Funds in the Federated Fund
Began serving: July Complex; President, Chief
1999 Executive Officer and Director,
Federated Investors, Inc.;
Chairman and Trustee, Federated
Investment Management Company;
Trustee, Federated Investment
Counseling; Chairman and
Director, Federated Global
Investment Management Corp.;
Chairman, Passport Research,
Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services
Company.

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

Principal Occupations: Director
Lawrence D. Ellis, or Trustee of the Federated Fund
M.D.* Complex; Professor of Medicine, $1,251.95 $148,500
Birth Date: October University of Pittsburgh;
11, 1932 Medical Director, University of
3471 Fifth Avenue Pittsburgh Medical Center
Suite 1111 Downtown; Hematologist,
Pittsburgh, PA Oncologist and Internist,
TRUSTEE University of Pittsburgh Medical
Began serving: Center.
August 1987
Other Directorships Held:
Member, National Board of
Trustees, Leukemia Society of
America.

Previous Positions: Trustee,
University of Pittsburgh;
Director, University of
Pittsburgh 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 TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupation: Director
Thomas G. Bigley or Trustee of the Federated Fund $1,377.16 $163,350
Birth Date: Complex.
February 3, 1934
15 Old Timber Trail
Pittsburgh, PA
TRUSTEE Other Directorships Held:
Began serving: Director, Member of Executive
October 1995 Committee, Children's Hospital
of Pittsburgh; Director,
University of Pittsburgh.

Previous Position: Senior
Partner, Ernst & Young LLP.

Principal Occupations: Director
John T. Conroy, Jr. or Trustee of the Federated Fund $1,377.16 $163,350
Birth Date: June Complex; Chairman of the Board,
23, 1937 Investment Properties
Grubb & Corporation; Partner or Trustee
Ellis/Investment in private real estate ventures
Properties in Southwest Florida.
Corporation
Previous Positions: President,
-------------------- Investment Properties
Corporation; Senior Vice
3838 North Tamiami President, John R. Wood and
Trail Associates, Inc., Realtors;
Suite 402 President, Naples Property
Management, Inc. and Northgate
Village Development Corporation.
Naples, FL
TRUSTEE
Began serving:
August 1991

Nicholas P. $1,377.16 $163,350
Constantakis Principal Occupation: Director
Birth Date: or Trustee of the Federated Fund
September 3, 1939 Complex.
175 Woodshire Drive
Pittsburgh, PA
TRUSTEE
Began serving: Other Directorships Held:
February 1998 Director and Member of the Audit
Committee, Michael Baker
Corporation (engineering and
energy services worldwide).

Previous Position: Partner,
Anderson Worldwide SC.

Principal Occupation: Director
John F. Cunningham or Trustee of the Federated Fund $1,251.95 $148,500
Birth Date: March Complex.
5, 1943
353 El Brillo Way Other Directorships Held:
Palm Beach, FL Chairman, President and Chief
TRUSTEE Executive Officer, Cunningham
Began serving: & Co., Inc. (strategic
January 1999 business 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: Director
Peter E. Madden or Trustee of the Federated Fund $1,251.95 $148,500
Birth Date: March Complex; Management Consultant.
16, 1942
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL Other Directorships Held: Board
TRUSTEE of Overseers, Babson College.
Began serving:
August 1991
Previous Positions:
Representative, Commonwealth 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: Director
Charles F. or Trustee of the Federated Fund $1,377.16 $163,350
Mansfield, Jr. Complex; Management Consultant;
Birth Date: April Executive Vice President, DVC
10, 1945 Group, Inc. (marketing,
80 South Road communications and technology)
Westhampton Beach, (prior to 9/1/00).
NY
TRUSTEE Previous Positions: Chief
Began serving: July Executive Officer, PBTC
1999 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: Director
Jr., J.D., S.J.D. or Trustee of the Federated Fund ------------ $178,200
Birth Date: Complex; Chancellor and Law $1,502.34
December 20, 1932 Professor, Duquesne University;
Chancellor, Consulting Partner, Mollica
Duquesne University & Murray.
Pittsburgh, PA
TRUSTEE Other Directorships Held:
Began serving: Director, Michael Baker Corp.
February 1995 (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: Director
Marjorie P. Smuts or Trustee of the Federated Fund ------------ $148,500
Birth Date: June Complex; Public $1,251.95
21, 1935 Relations/Marketing
4905 Bayard Street Consultant/Conference
Pittsburgh, PA Coordinator.
TRUSTEE
Began serving: May Previous Positions: National
1985 Spokesperson, Aluminum Company
of America; television producer;
President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director
John S. Walsh or Trustee of the Federated Fund $1,251.95 $148,500
Birth Date: Complex; President and Director,
November 28, 1957 Heat Wagon, Inc. (manufacturer
2604 William Drive of construction temporary
Valparaiso, IN heaters); President and
TRUSTEE Director, Manufacturers
Began serving: July Products, Inc. (distributor of
1999 portable construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products, Inc.
---------------------------------

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

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

OFFICERS**

<R>

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

Edward C. Gonzales Principal Occupations: Executive Vice President of some
Birth Date: October 22, 1930 of the Funds in the Federated Fund Complex; Vice
EXECUTIVE VICE PRESIDENT Chairman, Federated Investors, Inc.; Trustee, Federated
Administrative Services.

Began serving: June 1995

Previous Positions: President and Trustee or Director
of some of the Funds in the Federated Fund Complex; CEO
and Chairman, Federated Administrative Services; Vice
President, Federated Investment Management Company,
Federated Investment Counseling, Federated Global
Investment Management Corp. and Passport Research,
Ltd.; Director and Executive Vice President, Federated
Securities Corp.; Director, Federated Services Company;
Trustee, Federated Shareholder Services Company.

Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT AND Inc.
SECRETARY
Previous Positions: Trustee, Federated Investment
----------------------------- Management Company and Federated Investment Counseling;
Director, Federated Global Investment Management Corp.,
Began serving: June 1995 Federated Services Company and Federated Securities
Corp.

Richard J. Thomas Principal Occupations: Principal Financial Officer and
Birth Date: June 17, 1954 Treasurer of the Federated Fund Complex; Senior Vice
TREASURER President, Federated Administrative Services.

-----------------------------
Previous Positions: Vice President, Federated
Began serving: November 1998 Administrative Services; held various management
positions within Funds Financial Services Division of
Federated Investors, Inc.

Richard B. Fisher Principal Occupations: Vice Chairman or Vice President
Birth Date: May 17, 1923 of some of the Funds in the Federated Fund Complex;
VICE PRESIDENT Vice Chairman, Federated Investors, Inc.; Chairman,
Federated Securities Corp.
-----------------------------

Began serving: May 1985
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.

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

Todd A. Abraham has been the Fund's Portfolio Manager
Todd A. Abraham since August 1995. He is Vice President of the Fund.
Birth Date: February 10, 1966 Mr. Abraham has been a Portfolio Manager since 1995 and
VICE PRESIDENT 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
Began serving: November 1998 at Ryland Mortgage Co. from 1992-1993. Mr. Abraham is a
Chartered Financial Analyst and received his M.B.A. in
Finance from Loyola College.

** 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 Trustee 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.

</R>

<R>

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

Audit
Thomas G. Bigley ------------------------------------------ Three
John T. Conroy, The Audit Committee reviews and
Jr. recommends to the full Board the
Nicholas P. independent auditors to be selected to
Constantakis audit the Fund`s financial statements;
Charles F. meets with the independent auditors
Mansfield, Jr. periodically to review the results of the
audits and reports the results to the
full 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, 2002

</R>

<R>
Dollar Aggregate
Range of Dollar Range of
Shares Shares Owned in
Owned Federated
in Fund Family of
Interested Investment
Board Member Name Companies

John F. Donahue None Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. None Over $100,000

Independent Board Member Name

Thomas G. Bigley None Over $100,000
John T. Conroy, Jr. None Over $100,000
Nicholas P. Constantakis None Over $100,000
John F. Cunningham None Over $100,000
Peter E. Madden None Over $100,000
Charles F. Mansfield, Jr. None $50,001 - $100,000
John E. Murray, Jr., J.D., S.J.D. None Over $100,000
Marjorie P. Smuts $1 - $10,000 Over $100,000
John S. Walsh None Over $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.

<R>

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.

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 offered by Federated.

</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 Trustees, 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

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

Average Aggregate Daily
Maximum Net Assets of the
Administrative Fee Federated Funds
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
on assets in excess of
0.075 of 1% $750 million

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

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

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

INDEPENDENT AUDITORS

The independent auditor for the Fund, Ernst & Young 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

<R>

For the Year Ended August 31 2003 2002 2001
Advisory Fee Earned $2,626,885 $2,109,743 $1,709,137
Advisory Fee Reduction $559,360 $539,527 $486,177
Advisory Fee Reimbursement $13,403 $11,757 $3,996
Administrative Fee $329,236 $264,472 $214,497
12b-1 Fee:
Institutional Service Shares $-- -- --
Shareholder Services Fee:
Institutional Shares $-- -- --
Institutional Service Shares $138,340 -- --

</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.

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 and ten-year periods ended
August 31, 2003.

</R>

<R>

Yield is given for the 30-day period ended August 31, 2003.

</R>

<R>

30-Day Period 1 Year 5 Years 10 Years
Institutional Shares:
Total Return
Before Taxes N/A 1.76% 4.49% 4.80%
After Taxes on Distributions N/A 0.96% 2.65% 2.72%
After Taxes on Distributions N/A 1.11% 2.67% 2.77%
and Sale of Shares
Yield 1.94% N/A N/A N/A

Institutional Service Shares:
Total Return
Before Taxes N/A 1.51% 4.23% 4.54%
After Taxes on Distributions N/A 0.80% 2.49% 2.57%
After Taxes on Distributions N/A 0.95% 2.51% 2.62%
and Sale of Shares
Yield 1.66% N/A N/A N/A
-------------------------------------------------------------------------------------------
</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:

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.

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:

Lehman Brothers 1-3 Year Government Index

Lehman Brothers 1-3 Year Government Index is comprised of all publicly issued,
non-convertible domestic debt of the U.S. government, or any agency thereof, or
any quasi-federal corporation. The index also includes corporate debt guaranteed
by the U.S. government. Only notes and bonds with a minimum maturity of one year
and maximum maturity of 2.9 years are included.

Merrill Lynch 1-Year Treasury Index

Merrill Lynch 1-Year Treasury Index is an unmanaged index tracking 1-year U.S.
government securities. The index is produced by Merrill Lynch, Pierce, Fenner
& Smith, Inc.

<R>

Lipper, Inc.

</R>

<R>

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. Mortgage Funds" category in
advertising and sales literature.

</R>

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, 2002, Federated managed 14 bond
funds with approximately $3.2 billion in assets and 22 money market funds with
approximately $20.6 billion in total assets.

</R>

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 31 years' experience.

<R>

As of December 31, 2002, Federated managed 37 equity funds totaling
approximately $16.2 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles.

</R>

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

<R>

In the corporate bond sector, as of December 31, 2002, Federated managed 10
money market funds and 9 bond funds with assets approximating $59.4 billion and
$6.0 billion, respectively.

</R>

Federated's corporate bond decision making--based on intensive, diligent credit
analysis--is backed by over 29 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

<R>

In the government sector, as of December 31, 2002, 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.

</R>

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. <R>

As of December 31, 2002, 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.

</R>

<R>

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.

</R>

Mutual Fund Market

Forty-nine percent of American households are pursuing their financial goals
through mutual funds.

<R>

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

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. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.

Bank Marketing

Other institutional clients include more than 1,600 banks and trust
organizations.

<R>

Virtually all of the trust divisions of the top 100 bank holding companies use
Federated funds in their clients' portfolios. The marketing effort to trust
clients is headed by Timothy C. Pillion, Senior Vice President, Bank Marketing
& Sales Division, Federated Securities Corp.

</R>

Broker/Dealers and Bank Broker/Dealer Subsidiaries

<R>

Federated funds are available to consumers through major brokerage firms
nationwide--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.

</R>

Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.

FINANCIAL INFORMATION

<R>

The Financial Statements for the Fund for the fiscal year ended August 31, 2003
are incorporated herein by reference to the Annual Report to Shareholders of
Federated Adjustable Rate Securities Fund dated August 31, 2003.

</R>

INVESTMENT RATINGS

Standard and Poor's Long-Term Debt Rating Definitions

<R>

AAA--Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

AA--Very high credit quality. 'AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

A--High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

BBB--Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

BB--Speculative. 'BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.

B--Highly speculative. 'B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favourable business and economic environment.

CCC, CC, C--High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favourable
business or economic developments. A 'CC' rating indicates that default of some
kind appears probable. 'C' ratings signal imminent default. Moody's Investors
Service Commercial Paper Ratings

Prime-1--Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of seniorshort-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries, high rates of return on
funds employed, conservative capitalization structure with moderate reliance on
debt and ample asset protection, broad margins in earning coverage of fixed
financial charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate liquidity.

Prime-2--Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

</R>

Standard and Poor's Commercial Paper Ratings

<R>

A-1-- A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

A-2-- A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

</R>

Fitch Ratings Commercial Paper Rating Definitions

<R>

F-1--Indicates the strongest capacity for timely payment of financial
commitments relative to other issuers or issues in the same country. Under their
national rating scale, this rating is assigned to the "best" credit risk
relative to all others in the same country and is normally assigned to all
financial commitments issued or guaranteed by the sovereign state. Where the
credit risk is particularly strong, a "+" is added to the assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial
commitments relative to other issuers or issues in the same country. However,
the margin of safety is not as great as in the case of the higher ratings.

</R>

Addresses

Federated Adjustable Rate Securities Fund

Institutional Shares
Institutional Service 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
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072






PART C.     OTHER INFORMATION.

Item 23.      Exhibits:
                     (a)      Conformed copy of Amended and Restated
                              Declaration of Trust of the Registrant; (22)
                     (b)  (i) Copy of Restated and Amended By-Laws of the
                              Registrant; (16)
                          (ii)Copy of Amendment No. 5 to the By-Laws of the
                              Registrant; (19)
                          (iii)Copy of Amendment No. 6 to the By-Laws of the
                              Registrant; (19)
                          (iv)Copy of Amendment No. 7 to the By-Laws of the
                              Registrant; (19)
                          (v) Copy of Amendment No. 8 to the By-Laws of the
                              Registrant; (19)
                          (vi)Copy of Amendment No. 9 to the By-Laws of the
                              Registrant +
                          (vii)Copy of Amendment No. 10 to the By-Laws of the
                              Registrant +
                     (c)      Copy of Specimen Certificate for Shares of
                              Beneficial Interest of the Registrant; (15)
                     (d)  (i) Conformed copy of Investment Advisory Contract
                              of the Registrant; (9)
                          (ii)Conformed copy of Amendment to the Investment
                              Advisory Contract of the Registrant; (22)
                     (e)  (i) Conformed copy of Distributor's Contract of the
                              Registrant; (14)
                          (ii)Conformed copy of Exhibit A to the Distributor's
                              Contract of the Registrant; (16)
                          (iii)Conformed copy of Exhibit B to the
                              Distributor's Contract of the Registrant; (20)
                          (iv)Conformed copy of Amendment to the Distributor's
                              Contract of the Registrant; +
                          (v) 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).
                     (f)      Not applicable;
                     (g)  (i) Conformed copy of Custodian Contract of the
                              Registrant; (16)
                              Conformed copy of Amendment to the Custodian
                              Contract of the Registrant; (22)
                              Copy of Exhibit 1 to the Custodian Contract of
                              the Registrant; (22)
                          (iv)Conformed copy of Custodian Fee Schedule; (19)
                     (h)  (i) Conformed copy of Amended and Restated Agreement
                              for Fund Accounting Services, Administrative
                              Services, Transfer Agency Services and Custody
                              Services Procurement of the Registrant; (22)
                          (ii)Conformed copy of Amendment to the Agreement for
                              Fund Accounting Services, Administrative
                              Services, Transfer Agency Services and Custody
                              Services Procurement of the Registrant; (22)
                         (iii)The responses described in Item 23(e)(v) are
                              hereby incorporated by reference.
                          (iv)Conformed copy of Amended and Restated
                              Shareholder Services Agreement of the
                              Registrant; (19)
                          (v) The Registrant hereby incorporates by reference
                              the conformed copy of the Shareholder Services
                              Sub-Contract between Fidelity and Federated
                              Shareholder Services from Item 24(b)(9)(iii) of
                              Federated GNMA Trust Registration Statement on
                              Form N-1A, filed with the Commission on March
                              25, 1996.
                              (File Nos. 2-75670 and 811-3375).
                          (i) Conformed copy of Opinion and Consent of Counsel
                              as to legality of shares being registered; (16)
                     (j)      Conformed copy of Consent of Independent
                              Auditors; (+)
                     (k)      Not applicable;
                     (l)      Conformed copy of Initial Capital Understanding;
                              (16)
                     (m)  (i) Conformed copy of Rule 12b-1 Distribution Plan
                              of the Registrant; (14)
                              Conformed copy of Exhibit A to Rule 12b-1
                              Distribution Plan of the Registrant; (22)
                         (iii)The responses described in Item 23(e)(v) are
                              hereby incorporated by reference.
                     (n)      The Registrant hereby incorporates the conformed
                              copy of the Multiple Class Plan from Item (n) of
                              the Federated American Leaders Fund, Inc.
                              Registration Statement on Form N-1A, filed with
                              the Commission on May 25, 2001. (File Nos.
                              2-29786 and 811-1704).
                     (o)  (i) Conformed copy of Power of Attorney of the
                              Registrant; (21)
                          (ii)Conformed copy of Power of Attorney of Chief
                     (p)      Investment Officer of the Registrant; (21)
                              The registrant hereby incorporates the conformed
                              copy of the Code of Ethics for Access Persons
                              from Item 23(p) of the Federated Institutional
                              Trust, Registration Statement on Form N-1A filed
                              with the Commission September 30, 2003. (File
                              Nos. 33-54445 and 811-7193).

________________________
+     All exhibits have been filed electronically.

9.    Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 8 on Form N-1A filed August 24, 1989. (File Nos. 2-98491
      and 811-4539).
12.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 11 on Form N-1A filed December 27, 1991.  (File Nos. 2-98491
      and 811-4539).
14.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 14 on Form N-1A filed October 22, 1992. (File Nos. 2-98491
      and 811-4539).
15.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 15 on Form N-1A filed October 25, 1993. (File Nos. 2-98491
      and 811-4539).
16.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 17 on Form N-1A filed October 26, 1994. (File Nos. 2-98491
      and 811-4539).
19.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 22 on Form N-1A filed October 29, 1998. (File Nos. 2-98491
      and 811-4539).
20.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 25 on Form N-1A filed October 29, 1999.  (File Nos.
      2-98491 and 811-4539).
21.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 26 on Form N-1A filed October 31, 2001. (File Nos. 2-98491
      and 811-4539).
22.   Response is incorporated by reference to Registrant's post-Effective
      Amendment No. 27 on Form N-1A filed December 26, 2001. (File Nos.
      2-98491 and 811-4539).

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

            None

Item 25.    Indemnification:  (12)

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:

Vice Chairman:                                  J. Thomas Madden

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

Executive Vice Presidents:                      Stephen F. Auth
                                                William D. Dawson, III

Senior Vice Presidents:                         Joseph M. Balestrino
                                                David A. Briggs
                                                Jonathan C. Conley
                                                Christopher F. Corapi
                                                Deborah A. Cunningham
                                                Linda A. Duessel
                                                Mark E. Durbiano
                                                James E. Grefenstette
                                                Robert M. Kowit
                                                Jeffrey A. Kozemchak
                                                Susan M. Nason
                                                Mary Jo Ochson
                                                Robert J. Ostrowski
                                                Frank Semack
                                                Richard Tito
                                                Peter Vutz

Vice Presidents:                                Todd A. Abraham
                                                J. Scott Albrecht
                                                Randall S. Bauer
                                                Nancy J.Belz
                                                G. Andrew Bonnewell
                                                David M. Bruns
                                                Regina Chi
                                                Ross M. Cohen
                                                David W. Cook
                                                Fred B. Crutchfield
                                                Lee R. Cunningham, II
                                                Alexandre de Bethmann
                                                Anthony Delserone, Jr.
                                                Donald T. Ellenberger
                                                Eamonn G. Folan
                                                John T. Gentry
                                                David P. Gilmore
                                                James P. Gordon, Jr.
                                                Curtis R. Gross
                                                Marc Halperin
                                                John W. Harris
                                                Patricia L. Heagy
                                                Susan R. Hill
                                                Nikola A. Ivanov
                                                William R. Jamison
                                                Constantine J. Kartsonas
                                                Nathan H. Kehm
                                                John C. Kerber
                                                J. Andrew Kirschler
                                                Steven Lehman
                                                Marian R. Marinack
                                                Natalie F. Metz
                                                Thomas J. Mitchell
                                                Joseph M. Natoli
                                                John L. Nichol
                                                Mary Kay Pavuk
                                                Jeffrey A. Petro
                                                David R. Powers
                                                Ihab L. Salib
                                                Roberto Sanchez-Dahl, Sr.
                                                Aash M. Shah
                                                John Sidawi
                                                Michael W. Sirianni, Jr.
                                                Christopher Smith
                                                Timothy G. Trebilcock
                                                Leonardo A. Vila
                                                Stephen J. Wagner
                                                Paige M. Wilhelm
                                                Richard M. Winkowski, Jr.
                                                Lori A. Wolff
                                                George B. Wright

Assistant Vice Presidents:                      Lori Andrews
                                                Catherine A. Arendas
                                                Nicholas P. Besh
                                                Hanan Callas
                                                James R. Crea, Jr.
                                                Karol M. Crummie
                                                David Dao
                                                Richard J. Gallo
                                                Kathyrn P. Glass
                                                Igor Golalic
                                                James Grant
                                                Anthony Han
                                                Carol B. Kayworth
                                                Angela A. Kohler
                                                Robert P. Kozlowski
                                                Ted T. Lietz, Sr.
                                                Monica Lugani
                                                Tracey L. Lusk
                                                Ann Manley
                                                Dana Meissner
                                                Theresa K. Miller
                                                Karl Mocharko
                                                Bob Nolte
                                                Daniel Peris
                                                Rae Ann Rice
                                                Jennifer G. Setzenfand
                                                Kyle D. Stewart
                                                Mary Ellen Tesla
                                                Nichlas S. Tripodes
                                                Michael R. Tucker
                                                Mark Weiss

Secretary:                                      G. Andrew Bonnewell

Treasurer:                                      Thomas R. Donahue

Assistant Secretaries:                          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; Edward Jones Money
               Market Fund;  Federated  American Leaders Fund,  Inc.;  Federated
               Adjustable Rate Securities Fund; 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 Short-Term  Municipal Trust;  Federated Premier
               Intermediate  Municipal Income Fund;  Federated Premier Municipal
               Income Fund; 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;  Money
               Market  Obligations  Trust;  MTB Group of Funds;  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 President

Director:                     Arthur L. Cherry

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
                              Timothy C. Pillion
                              Thomas E. Territ
                              Robert F. Tousignant

Vice Presidents:              Irving Anderson
                              John B. Bohnet
                              Edward R. Bozek
                              Jane E. Broeren-Lambesis
                              Craig Burness
                              David J. Callahan
                              Mark Carroll
                              Dan Casey
                              Scott Charlton
                              Steven R. Cohen
                              Mary J. Combs
                              R. Edmond Connell, Jr.
                              Kevin J. Crenny
                              Daniel T. Culbertson
                              G. Michael Cullen
                              Marc C. Danile
                              Rick A. DiBernardo
                              Robert J. Deuberry
                              Ron Dorman
                              William C. Doyle
                              Donald C. Edwards
                              Lee England
                              Timothy Franklin
                              Peter J. Germain
                              Joseph D. Gibbons
                              G. Tad Gullickson
                              Scott Gundersen
                              Dayna C. Haferkamp
                              Raymond J. Hanley
                              Vincent L. Harper, Jr.
                              Bruce E. Hastings
                              Teresa M. Johnson
                              Christopher L. Johnston
                              Stephen Kittel
                              Michael W. Koenig
                              Ed Koontz
                              Christopher A. Layton
                              Michael H. Liss
                              Michael R. Manning
                              Martin J. McCaffrey
                              Mary A. McCaffrey
                              Mark J. Miehl
                              Richard C. Mihm
                              Vincent T. Morrow
                              Alec H. Neilly
                              Rebecca Nelson
                              James E. Ostrowski
                              Thomas A. Peter III
                              Raleigh Peters
                              Robert F. Phillips
                              Richard A. Recker
                              Christopher Renwick
                              Brian S. Ronayne
                              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
                              Timothy A. Rosewicz
                              Greg Spralding
                              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.
                              Beth C. Dell
                              Jennifer Fetteroff
                              John T. Glickson
                              William Rose
                              Lynn Sherwood-Long

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.

         (c)     Not applicable


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 the Agent for service at
                              the above address)

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




Federated Shareholder Services Company                P.O. Box 8600
("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 Company               Federated Investors Tower
("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 removal of  Trustees  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  ADJUSTABLE  RATE
SECURITIES FUND (Formerly,  FEDERATED ARMs FUND), 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 28th day of October, 2003.

                   FEDERATED ADJUSTABLE RATE SECURITIES FUND
                        (Formerly, Federated ARMs Fund)

                        BY: /s/ Andrew P. Cross
                        Andrew P. Cross, Assistant Secretary
                        Attorney in Fact for John F. Donahue
                        October 28, 2003

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

         NAME                            TITLE                       DATE
By:      /s/ Andrew P. Cross
         Andrew P. Cross             Attorney In Fact          October 28, 2003
         ASSISTANT SECRETARY         For the Persons
                                     Listed Below

         NAME                            TITLE
John F. Donahue*                     Chairman and Trustee

William D. Dawson, III*              Chief Investment Officer

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

Richard J. Thomas*                   Treasurer
                                     (Principal Financial Officer)

Thomas G. Bigley*                    Trustee

John T. Conroy, Jr.*                 Trustee

Nicholas P. Constantakis*            Trustee

John F. Cunningham*                  Trustee

Lawrence D. Ellis, M.D.*             Trustee

Peter E. Madden*                     Trustee

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

Marjorie P. Smuts*                   Trustee

John S. Walsh                        Trustee



* By Power of Attorney

Federated Adjustable Rate Securities Fund

PROSPECTUS

INSTITUTIONAL SHARES

CONTENTS

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

Risk/Return Bar Chart and Table

Average Annual Total Return Table

(For the periods ended December 31, 2002)

What are the Fund's Fees and Expenses?

FEDERATED ADJUSTABLE RATE SECURITIES FUND

FEES AND EXPENSES

EXAMPLE

What are the Fund's Investment Strategies?

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

Treasury Securities

Agency Securities

Mortgage-Backed Securities

Adjustable Rate Mortgages

Collateralized Mortgage Obligations (CMOS)

Non-Government Mortgage-Backed Securities

Mortgage Related Asset-Backed Securities

Adjustable Rate Securities

Credit Enhancement

SPECIAL TRANSACTIONS

Repurchase Agreements

Delayed Delivery Transactions

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

Asset Coverage

Investment Ratings for Investment Grade Securities

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

PREPAYMENT RISKS

CREDIT RISKS

LIQUIDITY RISKS

What Do Shares Cost?

How is the Fund Sold?

How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Wire

By Check

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

By Mail

Signature Guarantees

PAYMENT METHODS FOR REDEMPTIONS

Redemption in Kind

LIMITATIONS ON REDEMPTION PROCEEDS

ADDITIONAL CONDITIONS

Telephone Transactions

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

ACCOUNT ACTIVITY

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

Todd A. Abraham

Robert E. Cauley

ADVISORY FEES

FINANCIAL HIGHLIGHTS

Financial Highlights

Federated Adjustable Rate Securities Fund

PROSPECTUS

INSTITUTIONAL SERVICE SHARES

CONTENTS

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?