FEDERATED ADJUSTABLE RATE SECURITIES FUND

485BPOS 1 form.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.   34   ..........................        X


                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940           X

    Amendment No.   33   .........................................        X

                   FEDERATED ADJUSTABLE RATE SECURITIES 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:

 X  immediately upon filing pursuant to paragraph (b)
    on _______________ pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a)(i)
    on _________________pursuant to paragraph (a)(i)
    75 days after filing pursuant to paragraph (a)(ii)
    on  ________________ pursuant to paragraph (a)(ii) of Rule 485

If appropriate, check the following box:

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

                                    Copy to:
                          Melanie C. Maloney, Esquire
                                      and
                             Jennifer Eck, Esquire
                             Dickstein Shapiro LLP
                              1825 Eye Street, NW
                             Washington, DC  20006

Federated
World-Class Investment Manager

Federated Adjustable Rate Securities Fund

PROSPECTUS

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October 31, 2007

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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

CONTENTS

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? 12

What Do Shares Cost? 15

How is the Fund Sold? 17

Payments to Financial Intermediaries 17

How to Purchase Shares 19

How to Redeem and Exchange Shares 22

Account and Share Information 26

Who Manages the Fund? 30

Legal Proceedings 31

Financial Information 32

Appendix A: Hypothetical Investment and Expense Information 34

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 is intended to provide investment income from securities paying interest at rates that increase or decrease in response to changes in market interest rates. The Fund's overall strategy is therefore to invest in a portfolio of adjustable rate securities, including adjustable rate mortgage-backed securities (ARMs) and floating rate collateralized mortgage obligations (CMOs) issued or guaranteed by U.S. government agencies and government sponsored entities (GSEs). The fund may also invest in ARMs and floating rate CMOs that are not issued or guaranteed by a GSE but that are rated by a nationally recognized statistical rating organization (NRSRO) in one of its two highest categories. Under normal circumstances, the Fund may also invest up to 20 percent of its assets in fixed-rate, mortgage-backed securities and other fixed-rate securities. The Fund's investment strategy will depend primarily on the types of ARMs and CMOs available in the market, as well as on other factors such as the Adviser's interest rate outlook.

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

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

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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 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 Institutional Shares are sold without a sales charge (load). The total returns shown in the bar chart above are based upon net asset value.

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The Fund's Institutional Shares total return for the nine-month period from January 1, 2007 to September 30, 2007 was 3.98%.

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Within the period shown in the bar chart, the Fund's Institutional Shares highest quarterly return was 2.21% (quarter ended December 31, 2000). Its lowest quarterly return was (0.42)% (quarter ended June 30, 2004).

Average Annual Total Return Table

Return Before Taxes is shown for the Fund's Institutional Shares. In addition, Return After Taxes is shown for the 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 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, 2006)

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	1 Year	5 Years	10 Years
Fund:
Return Before Taxes	<R>4.30%</R>	<R>2.54%</R>	<R>4.04%</R>
Return After Taxes on Distributions¹	<R>2.74%</R>	<R>1.53%</R>	<R>2.38%</R>
Return After Taxes on Distributions and Sale of Fund Shares¹	<R>2.77%</R>	<R>1.57%</R>	<R>2.41%</R>
ML1T	<R>4.32%</R>	<R>2.43%</R>	<R>4.24%</R>

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.

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 Institutional Shares of the Fund.

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, Reimbursement and Reduction)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.60%
Distribution (12b-1) Fee		None
Other Expenses³		0.68%
Total Annual Fund Operating Expenses⁴		1.28%

1 The percentages shown are based on expenses for the entire fiscal year ended August 31, 2007. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the Adviser and administrator waived and the shareholder services provider reimbursed certain amounts. In addition, the shareholder services provider did not charge a portion of its fee. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended August 31, 2007.
Total Waivers, Reimbursement and Reduction of Fund Expenses		0.66%
Total Actual Annual Fund Operating Expenses (after waivers, reimbursement and reduction)		0.62%
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 0.23% for the fiscal year ended August 31, 2007.
3 Includes a shareholder services fee/account administration fee which is used to compensate intermediaries for shareholder services or account administrative services. Also includes a recordkeeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments to Financial Intermediaries" herein. The administrator and shareholder services provider voluntarily waived and/or reimbursed a portion of their fees. The administrator and shareholder services provider can terminate this voluntary waiver and/or reimbursement at any time. In addition, the shareholder services provider did not charge, and therefore the Fund's Institutional Shares did not accrue, a portion of its fee. Total other expenses paid by the Fund's Institutional Shares (after the voluntary waiver, reimbursement and reduction) were 0.39% for the fiscal year ended August 31, 2007.
4 The Adviser and its affiliates have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses paid by the Fund's Institutional Shares (after the voluntary waivers and reimbursements) will not exceed 0.63% for the fiscal year ending August 31, 2008. Although these actions are voluntary, the Adviser and its affiliates have agreed not to terminate these waivers and/or reimbursements until after October 31, 2008.

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.

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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, reimbursement and reduction 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:

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1 Year		<R>$ 130</R>
3 Years		<R>$ 406</R>
5 Years		<R>$ 702</R>
10 Years		<R>$1,545</R>

What are the Fund's Investment Strategies?

The Fund is intended to provide investment income from securities paying interest at rates that increase or decrease in response to changes in market interest rates. The Fund also intends to qualify as a permissible investment for federal credit unions and savings associations, and as an appropriate direct investment for national banks, and will limit its investments accordingly. The Fund's overall strategy is therefore to invest in a portfolio of adjustable rate securities. Under the Fund's investment policies, at least 65 percent of the Fund's total assets will be invested in U.S. government securities consisting primarily of adjustable rate mortgage-backed securities issued or guaranteed by U.S. government agencies and government sponsored entities (GSEs). Any change to this policy would require the approval of the Fund's shareholders. The balance of the portfolio may be invested in securities that are not issued or guaranteed by a U.S. government agency or GSE, but that have been rated by a nationally recognized statistical rating organization (NRSRO) in one of its two highest rating categories. A description of the various types of securities in which the Fund invests, other investment techniques used by the Fund, and their risks, immediately follows this strategy section.

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Normally, adjustable rate mortgage-backed securities (ARMs) and floating rate collateralized mortgage obligations (CMOs) will constitute most of the Fund's portfolio. The Fund's investment strategy will depend primarily on the types of ARMs and CMOs available in the market, as well as on other factors such as the Adviser's interest rate outlook. The Fund will select securities based on the relative yield of available adjustable rate securities with comparable risks and other characteristics. Significant characteristics of adjustable rate securities include the frequency of interest rate adjustments and any limitations on the amount of adjustments. Although the Fund will invest primarily in ARMs and floating rate CMOs issued or guaranteed by GSEs, it will also invest in non-government ARMs, floating rate CMOs and other adjustable rate securities that offer attractive yields relative to their increased credit risks.

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Under normal circumstances, the Fund may also invest up to 20 percent of its assets in fixed-rate, mortgage-backed securities and other securities paying interest at fixed rates. The Fund uses these securities to increase the income provided by the portfolio and to manage the portfolio's sensitivity to changes in interest rates. Duration measures the price sensitivity of a fixed-income security to changes in interest rates. The amount and type of fixed-rate securities held in the Fund's portfolio will depend on, among other factors, the relative yields of fixed and adjustable rate securities and the Adviser's interest rate outlook.

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Decisions to purchase or sell particular securities are based on a fundamental analysis of their sensitivity to changes in interest rates, interest rate volatility, the yield curve and inflation, among other factors. The Adviser uses this fundamental analysis to compare the potential income and return from available securities with comparable durations, risks and other characteristics. However, there is no assurance that a security will perform as expected or that the fundamental analysis will incorporate all relevant information.

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The Fund invests in overnight repurchase agreements in order to maintain sufficient cash to pay for daily net redemptions and portfolio transactions.

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Because the Fund refers to adjustable rate investments in its name, it will notify shareholders at least 60 days in advance of any change in its investment policies that would enable the Fund to invest, under normal circumstances, less than 80 percent of its assets in adjustable rate securities. For purposes of this limitation, an adjustable rate security includes any fixed-income security that requires periodic changes in its interest rate based upon changes in a recognized index interest rate or another method of determining prevailing interest rates.

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TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

FIXED-INCOME SECURITIES

Fixed-income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed-income security must repay the principal amount of the security, normally within a specified time. Fixed-income securities provide more regular income than equity securities. However, the returns on fixed-income securities are limited, which 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 principal types of fixed-income securities in which the Fund invests:

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. The returns of any type of mortgage-backed security depend upon the performance of the underlying pool of mortgages, which will vary.

Mortgage-backed securities come in a variety of forms. The simplest forms of mortgage-backed securities are pass-through certificates. Holders of pass-through certificates receive a pro rata share of all net interest and principal payments and prepayments from the underlying mortgages. As a result, the holders assume all interest rate and prepayment risks of the underlying mortgages. Other mortgage-backed securities may have more complicated terms.

ARMS

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ARMs are pass-through certificates representing interests in an underlying pool of mortgages with adjustable interest rates. The frequency and amount of the interest rate adjustments depends on the terms of the underlying mortgages. ARMs typically provide for an initial fixed rate, followed by an initial adjustment to a rate based on a recognized index of mortgage rates. Thereafter, the interest rate is adjusted on a periodic basis to track changes in the index. Most ARMs limit the amount of any individual interest rate adjustment and may also limit the cumulative amount of the adjustments. For example, an ARM may provide for an initial rate of interest fixed for one, three or five years, followed by an initial adjustment that cannot exceed a limit that may range from two to five percent, with subsequent semi-annual or annual adjustments that cannot exceed two percent. The ARM may further limit the cumulative amount of all adjustments to not more than five percent over the initial fixed rate.

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Adjustments in the interest rate paid on ARMs tend to reduce their price volatility, particularly as compared to fixed-rate, mortgage-backed securities. However, for some ARMs, the initial fixed interest rate may continue for a number of years. Generally, the longer the initial rate period the more sensitive the ARM's price will be to changes in interest rates. Less frequent adjustments, and tighter limitations on the amount of adjustments, will also increase the price volatility of an ARM.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage-backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of risk depends upon the structure of the CMOs.

Floaters - Floating rate CMOs are part of a structure that allocates interest payments from a pool of fixed-rate mortgages between two classes of CMOs. One class (Floaters) receives a share of interest payments based upon a market index such as LIBOR. The other class (Inverse Floaters) receives any remaining interest payments from the underlying mortgages. Floater classes receive more interest (and Inverse Floater classes receive correspondingly less interest) as interest rates rise, up to the rate at which the Floater class receives all of the interest payments from the underlying pool of mortgages. Until this maximum interest rate is reached, the periodic interest rate adjustments shift prepayment and interest rate risks from the Floater to the Inverse Floater class, reducing the price volatility of the Floater class and increasing the price volatility of the Inverse Floater class.

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.

U.S. Government Agency Securities

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

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

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

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Investors regard agency securities as having low credit risks, but not as low as Treasury securities. A Fund treats mortgage-backed securities guaranteed by a GSE as agency securities.

Although such a guarantee protects against credit risks, it does not reduce market and prepayment risks.

Asset-Backed Securities

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Asset-backed securities are payable from pools of obligations other than mortgage-backed securities. 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. Asset-backed securities may be structured like CMO Floaters. Asset-backed securities are issued by private entities and, although these securities must be rated in one of the two highest rating categories by an NRSRO, they present credit risks.

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Credit Enhancement

Many mortgage and asset-backed securities issued by private entities are supported by credit enhancement. Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a security if the issuer defaults. 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.

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.

Investment Ratings

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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, a rating service, assigns ratings 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. Standard & Poor's two highest ratings for long-term debt are AAA and AA.

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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. Although the adjustable rate securities held by the Fund will tend to have lower durations than fixed-rate securities with the same maturity, this difference will be reduced by the extent of the initial fixed-rate period, and by limitations on the amount and frequency of the interest rate adjustments.

PREPAYMENT RISKS

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

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

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

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

Credit Risks

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

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

Fixed-income securities generally compensate for greater credit risk by paying interest at a higher rate. The spread between the yield of a security and the yield of a U.S. Treasury security with a comparable maturity 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 ARMs and 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), the Fund will 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.

What Do Shares Cost?

You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV). The Fund does not charge a front-end sales charge. NAV is determined as of the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

The Fund generally values fixed-income securities according to prices furnished by an independent pricing service, except that fixed-income securities with remaining maturities of less than 60 days at the time of purchase are valued at amortized cost. Prices furnished by an independent pricing service are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities, except that prices for corporate fixed-income and asset-backed securities traded in the United States are generally intended to be indicative of the mean between such bid prices and asked prices. For mortgage-backed securities, prices furnished by the independent pricing service are based on the aggregate investment value of the projected cash flows to be generated by the security.

If prices are not available from an independent pricing service, securities traded in the over-the-counter market are generally valued according to the mean between the last bid and the last asked price for the security as provided by an investment dealer or other financial institution that deals in the security.

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Where a last sale price or market quotation for a portfolio security is not readily available, and no independent pricing service furnishes a price, the value of the security used in computing NAV is its fair value as determined in good faith under procedures approved by the Fund's Board of Trustees (Board). The Fund may use the fair value of a security to calculate its NAV when, for example: (1) a portfolio security is not traded in a public market or the principal market in which the security trades is closed; (2) trading in a portfolio security is suspended and not resumed prior to the normal market close; (3) a portfolio security is not traded in significant volume for a substantial period; or (4) the Fund's Adviser determines that the quotation or price for a portfolio security provided by a dealer or independent pricing service is inaccurate.

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Fair valuation procedures are also used where a significant event affecting the value of a portfolio security is determined to have occurred between the time as of which the price of the portfolio security is determined and the NYSE closing time as of which the Fund's NAV is computed. An event is considered significant if there is both an affirmative expectation that the security's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Significant events include significant general securities market movements occurring between the time as of which the price of the portfolio security is determined and the close of trading on the NYSE. For domestic fixed-income securities, such events may occur where the cut-off time for the market information used by the independent pricing service is earlier than the end of regular trading on the NYSE. In such cases, use of fair valuation can reduce an investor's ability to seek to profit by estimating the Fund's NAV in advance of the time as of which NAV is calculated.

In some cases, events affecting the issuer of a portfolio security may be considered significant events. Announcements concerning earnings, acquisitions, new products, management changes, litigation developments, a strike or natural disaster affecting the company's operations or regulatory changes or market developments affecting the issuer's industry occurring between the time as of which the price of the portfolio security is determined and the close of trading on the NYSE are examples of potentially significant events.

There can be no assurance that the Fund could purchase or sell a portfolio security at the price used to calculate the Fund's NAV. In the case of fair valued portfolio securities, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a portfolio security's present value. Fair valuations generally remain unchanged until new information becomes available. Consequently, changes in the fair valuation of portfolio securities may be less frequent and of greater magnitude than changes in the price of portfolio securities valued at their last sale price, or based on market quotations.

How is the Fund Sold?

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 financial intermediary or call 1-800-341-7400 for more information concerning the other class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to financial intermediaries, public and private organizations or to individuals, directly or through financial intermediaries. Under the Distributor's Contract with the Fund, the Distributor offers Shares on a continuous, best-efforts basis. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

Payments to Financial Intermediaries

The Fund and its affiliated service providers may pay fees as described below to financial intermediaries (such as broker-dealers, banks, investment advisers or third-party administrators) whose customers are shareholders of the Fund.

SERVICE FEES

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The Fund may pay Service Fees of up to 0.25% of average net assets to financial intermediaries or to Federated Shareholder Services Company (FSSC), a subsidiary of Federated, for providing services to shareholders and maintaining shareholder accounts. Intermediaries that receive Service Fees may include a company affiliated with management of Federated. If a financial intermediary receives Service Fees on an account, it is not eligible to also receive Account Administration Fees on that same account.

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ACCOUNT ADMINISTRATION FEES

The Fund may pay Account Administration Fees of up to 0.25% of average net assets to banks that are not registered as broker-dealers or investment advisers for providing administrative services to the Funds and shareholders. If a financial intermediary receives Account Administration Fees on an account, it is not eligible to also receive Service Fees or Recordkeeping Fees on that same account.

RECORDKEEPING FEES

The Fund may pay Recordkeeping Fees on an average net assets basis or on a per account per year basis to financial intermediaries for providing recordkeeping services to the Funds and shareholders. If a financial intermediary receives Recordkeeping Fees on an account, it is not eligible to also receive Account Administration Fees or Networking Fees on that same account.

NETWORKING FEES

The Fund may reimburse Networking Fees on a per account per year basis to financial intermediaries for providing administrative services to the Funds and shareholders on certain non-omnibus accounts. If a financial intermediary receives Networking Fees on an account, it is not eligible to also receive Recordkeeping Fees on that same account.

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

The Distributor may pay out of its own resources amounts (including items of material value) to certain financial intermediaries that support the sale of Shares or provide services to Fund shareholders. The amounts of these payments could be significant, and may create an incentive for the financial intermediary or its employees or associated persons to recommend or sell Shares of the Fund to you. In some cases, such payments may be made by or funded from the resources of companies affiliated with the Distributor (including the Adviser). These payments are not reflected in the fees and expenses listed in the fee table section of the Fund's prospectus and described above because they are not paid by the Fund.

These payments are negotiated and may be based on such factors as the number or value of Shares that the financial intermediary sells or may sell; the value of client assets invested; or the type and nature of services or support furnished by the financial intermediary. These payments may be in addition to payments made by the Fund to the financial intermediary under a Service Fees arrangement. In connection with these payments, the financial intermediary may elevate the prominence or profile of the Fund and/or other Federated funds within the financial intermediary's organization by, for example, placement on a list of preferred or recommended funds, and/or granting the Distributor preferential or enhanced opportunities to promote the funds in various ways within the financial intermediary's organization. You can ask your financial intermediary for information about any payments it receives from the Distributor or the Fund and any services provided.

How to Purchase Shares

You may purchase Shares through a financial intermediary, directly from the Fund or through an exchange from another Federated fund. The Fund reserves the right to reject any request to purchase or exchange Shares.

The required minimum initial investment for Fund Shares is $25,000. There is no required minimum subsequent investment amount.

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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 financial intermediaries may be subject to a smaller minimum investment amount. Keep in mind that financial intermediaries may charge you fees for their services in connection with your Share transactions.

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THROUGH A FINANCIAL INTERMEDIARY

Establish an account with the financial intermediary; and
Submit your purchase order to the financial intermediary 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 financial intermediary 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.

Financial intermediaries 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 State Street Bank and Trust 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 send it to:

The Federated Funds
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, send it to:

The Federated Funds
30 Dan Road
Canton, MA 02021

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

THROUGH AN EXCHANGE

You may purchase Shares through an exchange from any Federated fund or share class that does not have a stated sales charge or contingent deferred sales charge, except Liberty U.S. Government Money Market Trust and Class K Shares. You must meet the minimum initial investment requirement for purchasing Shares and both accounts must have identical registrations.

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 and Exchange Shares

You should redeem or exchange Shares:

through a financial intermediary if you purchased Shares through a financial intermediary; or
directly from the Fund if you purchased Shares directly from the Fund.

Shares of the Fund may be redeemed for cash or exchanged for shares of the same class of other Federated funds on days on which the Fund computes its NAV. Redemption requests may be made by telephone or in writing.

THROUGH A FINANCIAL INTERMEDIARY

Submit your redemption or exchange request to your financial intermediary 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 financial intermediary.

DIRECTLY FROM THE FUND

By Telephone

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

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

By Mail

You may redeem or exchange Shares by sending 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:

The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

The Federated Funds
30 Dan Road
Canton, MA 02021

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your financial intermediary or the Fund if you need special instructions.

Signature Guarantees

Signatures must be guaranteed by a financial institution which is a participant in a Medallion signature guarantee program if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or

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exchanging (transferring) into another fund with a different shareholder registration.

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A Medallion signature guarantee is designed to protect your account from fraud. Obtain a Medallion 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 for up to seven days:

to allow your purchase to clear (as discussed below);
during periods of market volatility;
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets; or
during any period when the Federal Reserve wire or applicable Federal Reserve banks are closed, other than customary weekend and holiday closings.

If you request a redemption of Shares recently purchased by check (including a cashier's check or certified check), money order, bank draft or ACH, your redemption proceeds may not be made available up to seven calendar days to allow the Fund to collect payment on the instrument used to purchase such Shares. If the purchase instrument does not clear, your purchase order will be canceled and you will be responsible for any losses incurred by the Fund as a result of your canceled order.

In addition, the right of redemption may be suspended, or the payment of proceeds may be delayed, during any period:

when the NYSE is closed, other than customary weekend and holiday closings;
when trading on the NYSE is restricted, as determined by the SEC; or
in which an emergency exists, as determined by the SEC, so that disposal of the Fund's investments or determination of its NAV is not reasonably practicable.

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

EXCHANGE PRIVILEGE

You may exchange Shares of the Fund for shares of any Federated fund or share class that does not have a stated sales charge or contingent deferred sales charge, except Liberty U.S. Government Money Market Trust and Class K Shares. To do this, you must:

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

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

The Fund may modify or terminate the exchange privilege at any time. In addition, the Fund may terminate your exchange privilege if your exchange activity is found to be excessive under the Fund's frequent trading policies. See "Account and Share Information - Frequent Trading Policies."

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

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

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

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

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments. Dividends may also be reinvested without sales charges in shares of any class of any other Federated fund of which you are already a shareholder.

If you have elected to receive dividends and/or capital gain distributions in cash, and your check is returned by the postal or other delivery service as "undeliverable," or you do not respond to mailings from Federated with regard to uncashed distribution checks, your distribution option will automatically be converted to having all dividends and capital gains reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution checks.

If you purchase Shares just before the record date for 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 record date for a capital gain. Contact your financial intermediary 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 or exchanges cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

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

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

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FREQUENT TRADING POLICIES

Frequent or short-term trading into and out of the Fund can have adverse consequences for the Fund and shareholders who use the Fund as a long-term investment vehicle. Such trading in significant amounts can disrupt the Fund's investment strategies (e.g., by requiring it to sell investments at inopportune times or maintain excessive short-term or cash positions to support redemptions), increase brokerage and administrative costs and affect the timing and amount of taxable gains distributed by the Fund. Investors engaged in such trading may also seek to profit by anticipating changes in the Fund's NAV in advance of the time as of which NAV is calculated.

The Fund's Board has approved policies and procedures intended to discourage excessive frequent or short-term trading of the Fund's Shares. The Fund monitors trading in Fund Shares in an effort to identify disruptive trading activity. The Fund monitors trades into and out of the Fund within a period of 30 days or less. The size of Share transactions subject to monitoring varies. However, where it is determined that a shareholder has exceeded the detection amounts twice within a period of 12 months, the shareholder will be precluded from making further purchases or exchanges of Fund Shares. The Fund may also monitor trades into and out of the Fund over periods longer than 30 days, and if potentially disruptive trading activity is detected, the shareholder will be precluded from making further purchases or exchanges of Fund Shares. Whether or not the specific monitoring limits are exceeded, the Fund's management or the Adviser may determine from the amount, frequency or pattern of purchases and redemptions or exchanges that a shareholder is engaged in excessive trading that is or could be detrimental to the Fund and other shareholders and may preclude the shareholder from making further purchases or exchanges of Fund Shares. No matter how the Fund defines its limits on frequent trading of Fund Shares, other purchases and sales of Fund Shares may have adverse effects on the management of the Fund's portfolio and its performance.

The Fund's frequent trading restrictions do not apply to purchases and sales of Fund Shares by other Federated funds. These funds impose the same frequent trading restrictions as the Fund at their shareholder level. In addition, allocation changes of the investing Federated fund are monitored, and the managers of the recipient fund must determine that there is no disruption to their management activity. The intent of this exception is to allow investing fund managers to accommodate cash flows that result from non-abusive trading in the investing fund, without being stopped from such trading because the aggregate of such trades exceeds the monitoring limits. Nonetheless, as with any trading in Fund Shares, purchases and redemptions of Fund Shares by other Federated funds could adversely affect the management of the Fund's portfolio and its performance.

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The Fund's objective is that its restrictions on short-term trading should apply to all shareholders that are subject to the restrictions, regardless of the number or type of accounts in which Shares are held. However, the Fund anticipates that limitations on its ability to identify trading activity to specific shareholders, including where shares are held through intermediaries in multiple or omnibus accounts, will mean that these restrictions may not be able to be applied uniformly in all cases.

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PORTFOLIO HOLDINGS INFORMATION

Information concerning the Fund's portfolio holdings is available in the "Products" section of Federated's website at FederatedInvestors.com . A complete listing of the Fund's portfolio holdings as of the end of each calendar quarter is posted on the website 30 days (or the next business day) after the end of the quarter and remains posted until replaced by the information for the succeeding quarter. Summary portfolio composition information as of the close of each month is posted on the website 15 days (or the next business day) after month-end and remains until replaced by the information for the succeeding month. The summary portfolio composition information may include identification of the Fund's top ten holdings, recent purchase and sale transactions and a percentage breakdown of the portfolio by sector.

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To access this information from the "Products" section of the website, click on the "Portfolio Holdings" link under "Related Information" and select the appropriate link opposite the name of the Fund, or select the name of the Fund, and from the Fund's page click on the "Portfolio Holdings" or "Composition" link.

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You may also access portfolio information as of the end of the Fund's fiscal quarters from the "Products" section of the website. The Fund's annual and semi-annual reports, which contain complete listings of the Fund's portfolio holdings as of the end of the Fund's second and fourth fiscal quarters, may be accessed by selecting the "Prospectuses and Regulatory Reports" link under "Related Information" and selecting the link to the appropriate PDF. Complete listings of the Fund's portfolio holdings as of the end of the Fund's first and third fiscal quarters may be accessed by selecting "Portfolio Holdings" from the "Products" section and then selecting the appropriate link opposite the name of the Fund. Fiscal quarter information is made available on the website within 70 days after the end of the fiscal quarter. This information is also available in reports filed with the SEC at the SEC's website at www.sec.gov.

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Who Manages the Fund?

The Board governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 148 equity, fixed-income, and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $237 billion in assets as of December 31, 2006. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1,243 employees. Federated provides investment products to nearly 5,500 investment professionals and institutions.

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PORTFOLIO MANAGEMENT INFORMATION

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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The Fund's SAI provides additional information about the Portfolio Manager's compensation, management of other accounts and ownership of securities in the Fund.

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ADVISORY FEES

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The Fund's investment advisory contract provides for payment to the Adviser of 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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A discussion of the Board's review of the Fund's investment advisory contract is available in the Fund's Annual Report dated August 31, 2007.

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Legal Proceedings

Since October 2003, Federated and related entities (collectively, "Federated"), and various Federated funds ("Funds"), have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the SEC, the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. Specifically, the SEC and NYAG settled proceedings against three Federated subsidiaries involving undisclosed market timing arrangements and late trading. The SEC made findings: that Federated Investment Management Company ("FIMC"), an SEC-registered investment adviser to various Funds, and Federated Securities Corp., an SEC-registered broker-dealer and distributor for the Funds, violated provisions of the Investment Advisers Act and Investment Company Act by approving, but not disclosing, three market timing arrangements, or the associated conflict of interest between FIMC and the funds involved in the arrangements, either to other fund shareholders or to the funds' board; and that Federated Shareholder Services Company, formerly an SEC-registered transfer agent, failed to prevent a customer and a Federated employee from late trading in violation of provisions of the Investment Company Act. The NYAG found that such conduct violated provisions of New York State law. Federated entered into the settlements without admitting or denying the regulators' findings. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay disgorgement and a civil money penalty in the aggregate amount of an additional $72 million and, among other things, agreed that it would not serve as investment adviser to any registered investment company unless: (i) at least 75% of the fund's directors are independent of Federated; (ii) the chairman of each such fund is independent of Federated; (iii) no action may be taken by the fund's board or any committee thereof unless approved by a majority of the independent trustees of the fund or committee, respectively; and (iv) the fund appoints a "senior officer" who reports to the independent trustees and is responsible for monitoring compliance by the fund with applicable laws and fiduciary duties and for managing the process by which management fees charged to a fund are approved. The settlements are described in Federated's announcement which, along with previous press releases and related communications on those matters, is available in the "About Us" section of Federated's website at FederatedInvestors.com.

Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees.

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The board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees, and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

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Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per Share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.

This information has been audited by Ernst & Young LLP, an independent registered public accounting firm, 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	2007		2006		2005		2004		2003
Net Asset Value, Beginning of Period	$9.49		$9.52		$9.55		$9.59		$9.63
Income From Investment Operations:
Net investment income	0.47		0.36		0.24		0.16		0.21
Net realized and unrealized gain (loss) on investments	0.00	¹	(0.03	)	(0.04	)	(0.04	)	(0.04	)
TOTAL FROM INVESTMENT OPERATIONS	0.47		0.33		0.20		0.12		0.17
Less Distributions:
Distributions from net investment income	(0.47	)	(0.36	)	(0.23	)	(0.16	)	(0.21	)
Net Asset Value, End of Period	$9.49		$9.49		$9.52		$9.55		$9.59
Total Return²	5.01	%	3.53	%	2.15	%	1.31	%	1.76	%

Ratios to Average Net Assets:
Net expenses	0.62	%	0.61	%	0.61	%	0.61	%	0.61	%
Net investment income	4.87	%	3.73	%	2.43	%	1.74	%	2.18	%
Expense waiver/reimbursement³	0.42	%	0.45	%	0.45	%	0.41	%	0.39	%
Supplemental Data:
Net assets, end of period (000 omitted)	$85,445		$121,255		$174,238		$245,353		$362,518
Portfolio turnover	22	%	59	%	22	%	77	%	72	%

1 Represents less than $0.01.

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

3 This expense decrease is reflected in both the net 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, 2007, which can be obtained free of charge.

Appendix A: Hypothetical Investment and Expense Information

The following chart provides additional hypothetical information about the effect of the Fund's expenses, including investment advisory fees and other Fund costs, on the Fund's assumed returns over a 10-year period. The chart shows the estimated expenses that would be incurred in respect of a hypothetical investment of $10,000, assuming a 5% return each year, and no redemption of Shares. The chart also assumes that the Fund's annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used in the chart is the same as stated in the "Fees and Expenses" table of this prospectus (and thus may not reflect any fee waiver or expense reimbursement currently in effect). The maximum amount of any sales charge that might be imposed on the purchase of Shares (and deducted from the hypothetical initial investment of $10,000; the "Front-End Sales Charge") is reflected in the "Hypothetical Expenses" column. The hypothetical investment information does not reflect the effect of charges (if any) normally applicable to redemptions of Shares (e.g., deferred sales charges, redemption fees). Mutual fund returns, as well as fees and expenses, may fluctuate over time, and your actual investment returns and total expenses may be higher or lower than those shown below.

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FEDERATED ADJUSTABLE RATE SECURITIES FUND -
INSTITUTIONAL SHARES
ANNUAL EXPENSE RATIO: 1.28%
MAXIMUM FRONT-END SALES CHARGE: NONE

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<R>Year</R>	<R>Hypothetical Beginning Investment</R>	<R>Hypothetical Performance Earnings</R>	<R>Investment After Returns</R>	<R>Hypothetical Expenses </R>	<R>Hypothetical Ending Investment</R>
<R>1</R>	<R>$10,000.00</R>	<R>$500.00</R>	<R>$10,500.00</R>	<R>$130.38</R>	<R>$10,372.00</R>
<R>2</R>	<R>$10,372.00</R>	<R>$518.60</R>	<R>$10,890.60</R>	<R>$135.23</R>	<R>$10,757.84</R>
<R>3</R>	<R>$10,757.84</R>	<R>$537.89</R>	<R>$11,295.73</R>	<R>$140.26</R>	<R>$11,158.03</R>
<R>4</R>	<R>$11,158.03</R>	<R>$557.90</R>	<R>$11,715.93</R>	<R>$145.48</R>	<R>$11,573.11</R>
<R>5</R>	<R>$11,573.11</R>	<R>$578.66</R>	<R>$12,151.77</R>	<R>$150.89</R>	<R>$12,003.63</R>
<R>6</R>	<R>$12,003.63</R>	<R>$600.18</R>	<R>$12,603.81</R>	<R>$156.50</R>	<R>$12,450.17</R>
<R>7</R>	<R>$12,450.17</R>	<R>$622.51</R>	<R>$13,072.68</R>	<R>$162.33</R>	<R>$12,913.32</R>
<R>8</R>	<R>$12,913.32</R>	<R>$645.67</R>	<R>$13,558.99</R>	<R>$168.36</R>	<R>$13,393.70</R>
<R>9</R>	<R>$13,393.70</R>	<R>$669.69</R>	<R>$14,063.39</R>	<R>$174.63</R>	<R>$13,891.95</R>
<R>10</R>	<R>$13,891.95</R>	<R>$694.60</R>	<R>$14,586.55</R>	<R>$181.12</R>	<R>$14,408.73</R>
<R>Cumulative</R>		<R>$5,925.70</R>		<R>$1,545.18</R>

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A Statement of Additional Information (SAI) dated October 31, 2007, 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. The SAI contains a description of the Fund's policies and procedures with respect to the disclosure of its portfolio securities. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your financial intermediary or the Fund at 1-800-341-7400.

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

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 website at 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.

Investment Company Act File No. 811-4539

Federated
World-Class Investment Manager

Federated Adjustable Rate Securities Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Contact us at FederatedInvestors.com
or call 1-800-341-7400.

Federated Securities Corp., Distributor

Cusip 314082108

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8100309A-IS (10/07)

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Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Adjustable Rate Securities Fund

PROSPECTUS

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October 31, 2007

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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.

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Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

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? 12

What Do Shares Cost? 14

How is the Fund Sold? 16

Payments to Financial Intermediaries 16

How to Purchase Shares 18

How to Redeem and Exchange Shares 20

Account and Share Information 25

Who Manages the Fund? 29

Legal Proceedings 30

Financial Information 31

Appendix A: Hypothetical Investment and Expense Information 33

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.

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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.

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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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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 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.

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

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The Fund's Institutional Service Shares total return for the nine-month period from January 1, 2007 to September 30, 2007 was 3.83%.

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Within the period shown in the bar chart, the Fund's Institutional Service Shares highest quarterly return was 2.15% (quarter ended December 31, 2000). Its lowest quarterly return was (0.48)% (quarter ended June 30, 2004).

Average Annual Total Return Table

Return Before Taxes is shown for the Fund's Institutional Service Shares. In addition, Return After Taxes is shown for the 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 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, 2006)

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	1 Year	5 Years	10 Years
Fund:
Return Before Taxes	<R>4.08%</R>	<R>2.29%</R>	<R>3.79%</R>
Return After Taxes on Distributions¹	<R>2.59%</R>	<R>1.37%</R>	<R>2.22%</R>
Return After Taxes on Distributions and Sale of Fund Shares¹	<R>2.63%</R>	<R>1.41%</R>	<R>2.26%</R>
ML1T	<R>4.32%</R>	<R>2.43%</R>	<R>4.24%</R>

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.

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 Institutional Service Shares of the Fund.

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 and Reduction)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%
Other Expenses⁴		0.68%
Total Annual Fund Operating Expenses⁵		1.53%

1 The percentages shown are based on expenses for the entire fiscal year ended August 31, 2007. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the Adviser, distributor and administrator waived certain amounts and the shareholder services provider did not charge a portion of its fee. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended August 31, 2007.
Total Waivers and Reduction of Fund Expenses		0.71%
Total Actual Annual Fund Operating Expenses (after waivers and reduction)		0.82%
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 0.23% for the fiscal year ended August 31, 2007.
3 The distribution (12b-1) fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The distribution (12b-1) fee paid by the Fund's Institutional Service Shares (after the voluntary waiver) was 0.00% for the fiscal year ended August 31, 2007.
4 Includes a shareholder services fee/account administration fee which is used to compensate intermediaries for shareholder services or account administrative services. Also includes a recordkeeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments to Financial Intermediaries" herein. The administrator voluntarily waived a portion of its fee. The administrator can terminate this voluntary waiver at any time. In addition, the shareholder services provider did not charge and therefore the Fund did not accrue, a portion of its fee. Total other expenses paid by the Fund's Institutional Service Shares (after the voluntary waiver and reduction) were 0.59% for the fiscal year ended August 31, 2007.
5 The Adviser and its affiliates have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (including the distribution (12b-1) fee) paid by the Fund's Institutional Service Shares (after the voluntary waivers and reimbursements) will not exceed 0.88% for the fiscal year ending August 31, 2008. Although these actions are voluntary, the Adviser and its affiliates have agreed not to terminate these waivers and/or reimbursements until after October 31, 2008.

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 and reduction 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		$ 156
3 Years		$ 483
5 Years		$ 834
10 Years		$1,824

What are the Fund's Investment Strategies?

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The Fund invests in overnight repurchase agreements in order to maintain sufficient cash to pay for daily net redemptions and portfolio transactions.

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TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

FIXED-INCOME SECURITIES

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

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Mortgage-Backed Securities

Mortgage-backed securities come in a variety of forms. The simplest forms of mortgage-backed securities are pass-through certificates. Holders of pass- through certificates receive a pro rata share of all net interest and principal payments and prepayments from the underlying mortgages. As a result, the holders assume all interest rate and prepayment risks of the underlying mortgages. Other mortgage-backed securities may have more complicated terms.

ARMS

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COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

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Treasury Securities

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

U.S. Government Agency Securities

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

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

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Investors regard agency securities as having low credit risks, but not as low as Treasury securities. A Fund treats mortgage-backed securities guaranteed by a GSE as agency securities.

Although such a guarantee protects against credit risks, it does not reduce market and prepayment risks.

Asset-Backed Securities

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Credit Enhancement

Many mortgage and asset-backed securities issued by private entities are supported by credit enhancement. Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a security if the issuer defaults. 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.

SPECIAL TRANSACTIONS

Repurchase Agreements

Investment Ratings

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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

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. Although the adjustable rate securities held by the Fund will tend to have lower durations than fixed-rate securities with the same maturity, this difference will be reduced by the extent of the initial fixed-rate period, and by limitations on the amount and frequency of the interest rate adjustments.

PREPAYMENT RISKS

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

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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

REGULATORY COMPLIANCE

What Do Shares Cost?

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How is the Fund Sold?

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 financial intermediary or call 1-800-341-7400 for more information concerning the other class.

Payments to Financial Intermediaries

RULE 12B-1 FEES

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees of up to 0.25% of average net assets to the Distributor for the sale, distribution, administration and customer servicing of the Fund's Institutional Service Shares. When the Distributor receives Rule 12b-1 Fees, it may pay some or all of them to financial intermediaries whose customers purchase Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different marketing fees.

SERVICE FEES

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ACCOUNT ADMINISTRATION FEES

RECORDKEEPING FEES

NETWORKING FEES

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

These payments are negotiated and may be based on such factors as the number or value of Shares that the financial intermediary sells or may sell; the value of client assets invested; or the type and nature of services or support furnished by the financial intermediary. These payments may be in addition to payments made by the Fund to the financial intermediary under a Rule 12b-1 Plan and/or Service Fees arrangement. In connection with these payments, the financial intermediary may elevate the prominence or profile of the Fund and/or other Federated funds within the financial intermediary's organization by, for example, placement on a list of preferred or recommended funds, and/or granting the Distributor preferential or enhanced opportunities to promote the funds in various ways within the financial intermediary's organization. You can ask your financial intermediary for information about any payments it receives from the Distributor or the Fund and any services provided.

How to Purchase Shares

The required minimum initial investment for Fund Shares is $25,000. There is no required minimum subsequent investment amount.

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THROUGH A FINANCIAL INTERMEDIARY

Establish an account with the financial intermediary; and
Submit your purchase order to the financial intermediary 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 financial intermediary 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.

Financial intermediaries 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:

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 send it to:

The Federated Funds
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, send it to:

The Federated Funds
30 Dan Road
Canton, MA 02021

THROUGH AN EXCHANGE

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through a financial intermediary if you purchased Shares through a financial intermediary; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH A FINANCIAL INTERMEDIARY

DIRECTLY FROM THE FUND

By Telephone

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

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

By Mail

You may redeem or exchange Shares by sending 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:

The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

The Federated Funds
30 Dan Road
Canton, MA 02021

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your financial intermediary or the Fund if you need special instructions.

Signature Guarantees

Signatures must be guaranteed by a financial institution which is a participant in a Medallion signature guarantee program if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or

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exchanging (transferring) into another fund with a different shareholder registration.

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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 for up to seven days:

to allow your purchase to clear (as discussed below);
during periods of market volatility;
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets; or
during any period when the Federal Reserve wire or applicable Federal Reserve banks are closed, other than customary weekend and holiday closings.

In addition, the right of redemption may be suspended, or the payment of proceeds may be delayed, during any period:

when the NYSE is closed, other than customary weekend and holiday closings;
when trading on the NYSE is restricted, as determined by the SEC; or
in which an emergency exists, as determined by the SEC, so that disposal of the Fund's investments or determination of its NAV is not reasonably practicable.

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

EXCHANGE PRIVILEGE

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

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

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

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Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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

FREQUENT TRADING POLICIES

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PORTFOLIO HOLDINGS INFORMATION

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Information concerning the Fund's portfolio holdings is available in the "Products" section of Federated's website at FederatedInvestors.com. A complete listing of the Fund's portfolio holdings as of the end of each calendar quarter is posted on the website 30 days (or the next business day) after the end of the quarter and remains posted until replaced by the information for the succeeding quarter. Summary portfolio composition information as of the close of each month is posted on the website 15 days (or the next business day) after month-end and remains until replaced by the information for the succeeding month. The summary portfolio composition information may include identification of the Fund's top ten holdings, recent purchase and sale transactions and a percentage breakdown of the portfolio by sector.

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Who Manages the Fund?

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The Adviser and other subsidiaries of Federated advise approximately 148 equity, fixed-income and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $237 billion in assets as of December 31, 2006. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1,243 employees. Federated provides investment products to nearly 5,500 investment professionals and institutions.

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PORTFOLIO MANAGEMENT INFORMATION

Todd A. Abraham

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The Fund's SAI provides additional information about the Portfolio Manager's compensation, management of other accounts and ownership of securities in the Fund.

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ADVISORY FEES

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A discussion of the Board's review of the Fund's investment advisory contract is available in the Fund's Annual Report dated August 31, 2007.

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Legal Proceedings

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The Board of the Funds has retained the law firm of Dickstein Shapiro LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and intend to defend this litigation. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees, and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares or other adverse consequences for the Funds.

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Financial Information

FINANCIAL HIGHLIGHTS

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2007			2006			2005			2004			2003
Net Asset Value, Beginning of Period	$9.49			$9.52			$9.55			$9.59			$9.63
Income From Investment Operations:
Net investment income	0.45			0.33			0.21			0.14			0.19
Net realized and unrealized gain (loss) on investments	0.00	¹		(0.02	)		(0.03	)		(0.04	)		(0.05	)
TOTAL FROM INVESTMENT OPERATIONS	0.45			0.31			0.18			0.10			0.14
Less Distributions:
Distributions from net investment income	(0.45	)		(0.34	)		(0.21	)		(0.14	)		(0.18	)
Net Asset Value, End of Period	$9.49			$9.49			$9.52			$9.55			$9.59
Total Return²	4.81	%		3.29	%		1.90	%		1.05	%		1.51	%

Ratios to Average Net Assets:
Net expenses	0.82	%		0.85	%		0.86	%		0.86	%		0.86	%
Net investment income	4.69	%		3.45	%		2.16	%		1.47	%		1.93	%
Expense waiver/reimbursement³	0.65	%		0.52	%		0.45	%		0.41	%		0.39	%
Supplemental Data:
Net assets, end of period (000 omitted)	$6,846		$6,838			$12,954			$29,870			$80,248
Portfolio turnover	22	%		59	%		22	%		77	%		72	%

1 Represents less than $0.01.

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

3 This expense decrease is reflected in both the net 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, 2007, which can be obtained free of charge.

Appendix A: Hypothetical Investment and Expense Information

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FEDERATED ADJUSTABLE RATE SECURITIES FUND -
INSTITUTIONAL SERVICE SHARES
ANNUAL EXPENSE RATIO: 1.53%
MAXIMUM FRONT-END SALES CHARGE: NONE

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<R>Year</R>	<R>Hypothetical Beginning Investment</R>	<R>Hypothetical Performance Earnings</R>	<R>Investment After Returns</R>	<R>Hypothetical Expenses </R>	<R>Hypothetical Ending Investment</R>
<R>1</R>	<R>$10,000.00</R>	<R>$500.00</R>	<R>$10,500.00</R>	<R>$155.65</R>	<R>$10,347.00</R>
<R>2</R>	<R>$10,347.00</R>	<R>$517.35</R>	<R>$10,864.35</R>	<R>$161.06</R>	<R>$10,706.04</R>
<R>3</R>	<R>$10,706.04</R>	<R>$535.30</R>	<R>$11,241.34</R>	<R>$166.64</R>	<R>$11,077.54</R>
<R>4</R>	<R>$11,077.54</R>	<R>$553.88</R>	<R>$11,631.42</R>	<R>$172.43</R>	<R>$11,461.93</R>
<R>5</R>	<R>$11,461.93</R>	<R>$573.10</R>	<R>$12,035.03</R>	<R>$178.41</R>	<R>$11,859.66</R>
<R>6</R>	<R>$11,859.66</R>	<R>$592.98</R>	<R>$12,452.64</R>	<R>$184.60</R>	<R>$12,271.19</R>
<R>7</R>	<R>$12,271.19</R>	<R>$613.56</R>	<R>$12,884.75</R>	<R>$191.01</R>	<R>$12,697.00</R>
<R>8</R>	<R>$12,697.00</R>	<R>$634.85</R>	<R>$13,331.85</R>	<R>$197.63</R>	<R>$13,137.59</R>
<R>9</R>	<R>$13,137.59</R>	<R>$656.88</R>	<R>$13,794.47</R>	<R>$204.49</R>	<R>$13,593.46</R>
<R>10</R>	<R>$13,593.46</R>	<R>$679.67</R>	<R>$14,273.13</R>	<R>$211.59</R>	<R>$14,065.15</R>
<R>Cumulative</R>		<R>$5,857.57</R>		<R>$1,823.51</R>

<R>

</R>

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

Investment Company Act File No. 811-4539

Federated
World-Class Investment Manager

Federated Adjustable Rate Securities Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Contact us at FederatedInvestors.com
or call 1-800-341-7400.

Federated Securities Corp., Distributor

Cusip 314082207

<R>

8100309A-SS (10/07)

</R>

Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.

FEDERATED ADJUSTABLE RATE SECURITIES FUND

STATEMENT OF ADDITIONAL INFORMATION

OCTOBER 31, 2007

INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Adjustable Rate
Securities Fund (Fund), dated October 31, 2007.

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?.............
Description of the Fund and its
Investments and Risks.................1
What Do Shares Cost?...................
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..............................
Appendix...............................

Federated Adjustable Rate Securities Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Contact us at FEDERATEDINVESTORS.COM
or call 1-800-341-7400.
Federated Securities Corp., Distributor

8100309B (10/07)

Federated is a registered mark
of Federated Investors, Inc.
2007 {copyright}Federated Investors, Inc.

-0-

HOW IS THE FUND ORGANIZED?

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.

The Board of Trustees (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).

DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS

INVESTMENT OBJECTIVE

The Fund's investment objective is to provide current income consistent with
minimal volatility of principal. The investment objective may not be changed by
the Fund's Board without shareholder approval. 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 SAI.

INVESTMENT STRATEGIES

The Fund is intended to provide investment income from securities paying
interest at rates that increase or decrease in response to changes in market
interest rates. The Fund also intends to qualify as a permissible investment for
federal credit unions and savings associations, and as an appropriate direct
investment for national banks, and will limit its investments accordingly. The
Fund's overall strategy is therefore to invest in a portfolio of adjustable rate
securities. Under the Fund's investment policies, at least 65 percent of the
Fund's total assets will be invested in U.S. government securities consisting
primarily of adjustable rate mortgage-backed securities (ARMs) issued or
guaranteed by U.S. government agencies and government sponsored entities (GSEs).
Any change to this policy would require the approval of the Fund's shareholders.
The balance of the portfolio may be invested in securities that are not issued
or guaranteed by a U.S. government agency or GSE, but that have been rated by a
nationally recognized statistical rating organization (NRSRO) in one of its two
highest rating categories. A description of the various types of securities in
which the Fund invests, (including ARMs, pass-through certificates,
collateralized mortgage obligations (CMOs), CMO Floaters, sequential CMOs, PACs
and TACs), other investment techniques used by the Fund, and their risks,
immediately follows this strategy section.

Normally, ARMs and CMO Floaters will comprise most of the Fund's portfolio. The
Fund's investment strategy will depend primarily on the types of ARMs and CMO
Floaters available in the market, as well as on other factors such as the
Adviser's interest rate outlook. Floating-rate CMOs may also be sequential CMOs,
PACs or TACs. The Fund will select from securities based on the relative yield
of available adjustable rate securities with comparable risks and other
characteristics. For adjustable rate mortgage-backed securities, relevant risks
include sensitivity to changes in interest rates, interest rate volatility and
prepayment rates. Relevant characteristics include the frequency of interest
rate adjustments, limitations on the amount of adjustments, maturity and other
terms of the security or the underlying mortgages, and the share of mortgage
payments to which the security is entitled. Although the Fund will invest
primarily in ARMs and floating rate CMOs issued or guaranteed by GSEs, it will
also invest in non-government ARMs, floating rate CMOs and other adjustable rate
securities that offer attractive yields relative to their increased credit
risks.

Under normal circumstances, the Fund may also invest up to 20 percent of its
assets in fixed rate mortgage-backed securities (including pass-through
certificates and CMOs) and other securities that pay interest at fixed rates.
The Fund uses these securities to increase the income provided by the portfolio
and to manage the portfolio's sensitivity to changes in interest rates. Duration
measures the price sensitivity of a fixed-income security to changes in interest
rates. The amount and type of fixed rate securities held in the Fund's portfolio
will depend on, among other factors, the relative yields of fixed and adjustable
rate securities and the Adviser's interest rate outlook.

Decisions to purchase or sell particular securities are based on a fundamental
analysis of their sensitivity to changes in interest rates, interest rate
volatility, the yield curve and inflation, among other factors. This analysis
relies on information from a variety of sources (such as U.S. government
securities dealers and electronic data services), and employs quantitative
models and analytic tools provided by third parties or developed by the Adviser.
The analysis also draws on the experience of the Adviser's staff of investment
analysts, portfolio managers and traders. However, there is no assurance that a
security will perform as modeled or that the fundamental analysis will
incorporate all relevant information.

The Adviser's interest rate outlook is based on an analysis of historical and
expected changes in:

{circle}the overall level of interest rates;

{circle}the volatility of interest rates;

{circle}the relative interest rates of securities with longer and shorter
durations (known as a yield curve); and

{circle}the relative interest rates of different types of securities (such as
U.S. Treasury, agency and mortgage-backed securities).

In shareholder reports and other description of the Fund's investment strategy
and performance, the Adviser may refer to general types of securities (such as
U.S. Treasury or mortgage-backed securities) as "sectors" of the fixed-income
market.

Teams of investment professionals formulate the Adviser's interest rate outlook
and otherwise attempt to anticipate changes in market conditions. They base
their analysis on a number of factors, which may include:

{circle}current and expected U.S. economic growth;

{circle}current and expected changes in the rate of inflation;

{circle}the level of interest rates in other countries as compared to
U.S. interest rates;

{circle}the Federal Reserve Board's monetary policy; and

{circle}technical factors affecting the supply or demand for specific
securities or types of securities.

These teams also recommend how the portfolio should be structured in response to
their interest rate outlook. There is no assurance that these efforts to
forecast market conditions and interest rates, or to assess the impact of
changes in interest rates, will be successful.

The Fund may also seek to increase its income by lending its portfolio
securities or engaging in dollar roll transactions.

The Fund invests in overnight repurchase agreements in order to maintain
sufficient cash to pay for daily net redemptions and portfolio transactions. In
the event that the Fund does not have sufficient cash for these purposes, it
could incur overdrafts, enter into reverse repurchase agreements or otherwise
borrow money in accordance with its investment limitations. The Fund also
reserves the right to redeem Shares in kind with portfolio securities. See
PAYMENT METHOD FOR REDEMPTIONS-Redemptions In Kind.

The Fund may also enter into repurchase agreements with longer terms (up to
twelve months) if they offer higher returns than those expected from
U.S. Treasury or agency securities having the same maturity.

Mortgage-backed pass-through certificates are typically offered or traded on a
to-be-announced or other delayed delivery basis. Other U.S. government
securities may also be offered on a delayed delivery basis. The Fund will enter
into trades on this basis in order to participate in these offerings or trade
these securities.

Because the Fund refers to adjustable rate investments in its name, it will
notify shareholders at least 60 days in advance of any change in its investment
policies that would enable the Fund to invest, under normal circumstances, less
than 80 percent of its assets in adjustable rate securities. For purposes of
this limitation, an adjustable rate security includes any fixed-income security
that requires periodic changes in its interest rate based upon changes in a
recognized index interest rate or another method of determining prevailing
interest rates.

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

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, which 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.

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

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

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

Investors regard agency securities as having low credit risks, but not as low as
Treasury securities. A Fund treats mortgage-backed securities guaranteed by a
GSE as agency securities.

Although such a guarantee protects against credit risks, it does not reduce
market and prepayment risks.

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. The
returns of any type of mortgage-backed security depend upon the performance of
the underlying pool of mortgages, which will vary among pools.

Mortgage-backed securities come in a variety of forms. The simplest forms of
mortgage-backed securities are pass-through certificates. Holders of pass-
through certificates receive a pro rata share of all net interest and principal
payments and prepayments from the underlying mortgages. As a result, the holders
assume all interest rate and prepayment risks of the underlying mortgages. Other
mortgage-backed securities may have more complicated terms.

ARMS
ARMs are pass-through certificates representing interests in an underlying pool
of mortgages with adjustable interest rates. The frequency and amount of the
interest rate adjustments depends on the terms of the underlying mortgages. ARMs
typically provide for an initial fixed rate, followed by an initial adjustment
to a rate based on a recognized index of mortgage rates. Thereafter, the
interest rate is adjusted on a periodic basis to track changes in the index.
Most ARMs limit the amount of any individual interest rate adjustment and may
also limit the cumulative amount of the adjustments. For example, an ARM may
provide for an initial rate of interest fixed for one, three or five years,
followed by an initial adjustment that cannot exceed a limit that may range from
two to five percent, with subsequent semi-annual or annual adjustments that
cannot exceed two-percent. The ARM may further limit the cumulative amount of
all adjustments to not more than five percent over the initial fixed rate.

Adjustments in the interest rate paid on ARMs tend to reduce their price
volatility, particularly as compared to fixed rate mortgage-backed securities.
However, for some ARMs, the initial fixed interest rate may continue for a
number of years. Generally, the longer the initial rate period the more
sensitive the ARM's price will be to changes in interest rates. Less frequent
adjustments, and tighter limitations on the amount of adjustments, will also
increase the price volatility of an ARM.

COLLATERALIZED MORTGAGE OBLIGATIONS
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.

FLOATERS
Floating rate CMOs are part of a structure that allocates interest payments from
a pool of fixed rate mortgages between two classes of CMOs. One class (Floaters)
receives a share of interest payments based upon a market index such as LIBOR.
The other class (Inverse Floaters) receives any remaining interest payments from
the underlying mortgages. Floater classes receive more interest (and Inverse
Floater classes receive correspondingly less interest) as interest rates rise,
up to the rate at which the Floater class receives all of the interest payments
from the underlying pool of mortgages. Until this maximum interest rate is
reached, the periodic interest rate adjustments shift prepayment and interest
rate risks from the Floater to the Inverse Floater class, reducing the price
volatility of the Floater class and increasing the price volatility of the
Inverse Floater class.

SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the
first class is paid off. This process repeats for each sequential class of CMO.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes.

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

ASSET-BACKED SECURITIES
Asset-backed securities are payable from pools of obligations other than
mortgage-backed securities. 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. Asset- backed securities may be structured
like CMO Floaters. Asset-backed securities are issued by private entities and,
although these securities must be rated in one of the two highest rating
categories by an NRSRO, they present credit risks.

CREDIT ENHANCEMENT
Many mortgage and asset-backed securities issued by private entities are
supported by credit enhancement. Credit enhancement consists of an arrangement
in which a company agrees to pay amounts due on a security if the issuer
defaults. 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.

SPECIAL TRANSACTIONS

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

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

Repurchase agreements are subject to credit risks.

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

DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create 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
market risks because the underlying mortgages may be less favorable than
anticipated by the Fund.

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash. These
other investment companies are managed independently of the Fund and incur
additional expenses. Therefore, any such investment by the Fund may be subject
to duplicate expenses. However, the Adviser believes that the benefits and
efficiencies of this approach should outweigh the additional expenses.

SECURITIES LENDING

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

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

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan.
However, the Fund will attempt to terminate a loan in an effort to reacquire the
securities in time to vote on matters that are deemed to be material by the
Adviser. There can be no assurance that the Fund will have sufficient notice of
such matters to be able to terminate the loan in time to vote thereon. 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.

-1-

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

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

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.

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

Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The spread between the yield of a security and the
yield of a U.S. Treasury security with a comparable maturity 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.

-2-

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

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

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

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

LIQUIDITY RISKS
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.

RISKS ASSOCIATED WITH THE INVESTMENT ACTIVITIES OF OTHER ACCOUNTS
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser and accounts managed by affiliates of the
Adviser. Therefore, it is possible that investment-related actions taken by
such other accounts could adversely impact the Fund with respect to, for
example, the value of Fund portfolio holdings, and/or prices paid to or received
by the Fund on its portfolio transactions, and/or the Fund's ability to obtain
or dispose of portfolio securities. Related considerations are discussed
elsewhere in this SAI under "Brokerage Transactions and Investment Allocation.

FUNDAMENTAL INVESTMENT POLICY
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 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 that the
fund cannot dispose of within 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
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses. At the present time, the Fund expects
that its investments in other investment companies may include shares of money
market funds, including funds affiliated with the Fund's investment adviser.

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.

-3-

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" and "bank instruments." 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.

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

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

{circle}for mortgage-backed securities, based on the aggregate investment value
of the projected cash flows to be generated by the security, as furnished by
an independent pricing service;

{circle}for other fixed-income securities, according to 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 are
valued at amortized cost;

{circle}for investments in other open-end registered investment companies,
based on net asset value (NAV); and

{circle}for all other securities at fair value as determined in accordance with
procedures established by and under the general supervision of the Board.

Prices for fixed-income securities furnished by a pricing service may be based
on a valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. Such prices (other than prices of
mortgage-backed securities) are generally intended to be indicative of the bid
prices currently offered to institutional investors for the securities, except
that prices for corporate fixed-income and asset-backed securities traded in
the United States are generally intended to be indicative of the mean between
such bid prices and asked prices. The Board has approved the use of such
pricing services. A number of pricing services are available, and the Fund may
use various pricing services or discontinue the use of any pricing service.

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 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)
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
intermediaries) and providing incentives to financial intermediaries to sell
Shares. The Plan is also designed to cover the cost of administrative services
performed in conjunction with the sale of Shares, including, but not limited to,
shareholder services, recordkeeping services and educational services, as well
as the costs of implementing and operating the Plan. The Rule 12b-1 Plan allows
the Distributor to contract with financial intermediaries to perform activities
covered by the Plan. The Rule 12b-1 Plan is expected to benefit the Fund in a
number of ways. For example, it is anticipated that the Plan will help the Fund
attract and retain assets, thus providing cash for orderly portfolio management
and Share redemptions and possibly helping to stabilize or reduce other
operating expenses. In addition, the Plan is integral to the multiple class
structure of the Fund, which promotes the sale of Shares by providing a range of
options to investors. The Fund's service providers that receive asset-based fees
also benefit from stable or increasing Fund assets. The Fund may compensate the
Distributor more or less than its actual marketing expenses. In no event will
the Fund pay for any expenses of the Distributor that exceed the maximum Rule
12b-1 Plan fee.

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.

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

The Distributor may pay out of its own resources amounts (including items of
material value) to certain financial intermediaries. In some cases, such
payments may be made by, or funded from the resources of, companies affiliated
with the Distributor (including the Adviser). While Financial Industry
Regulatory Authority (FINRA) regulations limit the sales charges that you may
bear, there are no limits with regard to the amounts that the Distributor may
pay out of its own resources. In addition to the payments which are generally
described herein and in the prospectus, the financial intermediary also may
receive payments under the Rule 12b-1 Plan and/or Service Fees. In connection
with these payments, the financial intermediary may elevate the prominence or
profile of the Fund and/or other Federated funds within the financial
intermediary's organization by, for example, placement on a list of preferred or
recommended funds, and/or granting the Distributor preferential or enhanced
opportunities to promote the funds in various ways within the financial
intermediary's organization. You can ask your financial intermediary for
information about any payments it receives from the Distributor or the Federated
funds and any services provided.

The following examples illustrate the types of instances in which the
Distributor may make additional payments to financial intermediaries.

SUPPLEMENTAL PAYMENTS
The Distributor may make supplemental payments to certain financial
intermediaries that are holders or dealers of record for accounts in one or more
of the Federated funds. These payments may be based on such factors as the
number or value of Shares the financial intermediary sells or may sell; the
value of client assets invested; or the type and nature of services or support
furnished by the financial intermediary.

PROCESSING SUPPORT PAYMENTS
The Distributor may make payments to financial intermediaries that sell
Federated fund shares to help offset their costs associated with client account
maintenance support, statement processing and transaction processing. The types
of payments that the Distributor may make under this category include payment of
ticket charges on a per transaction basis; payment of networking fees; and
payment for ancillary services such as setting up funds on the financial
intermediary's mutual fund trading system.

RETIREMENT PLAN PROGRAM SERVICING PAYMENTS
The Distributor may make payments to certain financial intermediaries who sell
Federated fund shares through retirement plan programs. A financial
intermediary may perform retirement plan program services itself or may arrange
with a third party to perform retirement plan program services. In addition to
participant recordkeeping, reporting, or transaction processing, retirement plan
program services may include services rendered to a plan in connection with
fund/investment selection and monitoring; employee enrollment and education;
plan balance rollover or separation, or other similar services.

OTHER BENEFITS TO FINANCIAL INTERMEDIARIES
From time to time, the Distributor, at its expense, may provide additional
compensation to financial intermediaries that sell or arrange for the sale of
Shares. Such compensation may include financial assistance to financial
intermediaries that enable the Distributor to participate in or present at
conferences or seminars, sales or training programs for invited employees,
client and investor events and other financial intermediary-sponsored events.

The Distributor also may hold or sponsor, at its expense, sales events,
conferences and programs for employees or associated persons of financial
intermediaries and may pay the travel and lodging expenses of attendees. The
Distributor also may provide, at its expense, meals and entertainment in
conjunction with meetings with financial intermediaries. Other compensation may
be offered to the extent not prohibited by applicable laws, regulations or the
rules of any self-regulatory agency, such as the NASD.

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 financial intermediaries 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. Financial intermediaries 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 financial intermediary 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 Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

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

All Shares of the Fund have equal voting rights, except that in matters
affecting only a particular class, only Shares of that class are entitled to
vote.

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 of
all series entitled to vote.

As of October 1, 2007, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Institutional Service Shares: Mainsource
Bank, Greensburg, IN, owned approximately 38,999 Shares (5.29%), Republic Bank
Inc., Duluth, MN, owned approximately 49,814 Shares (6.76%), Hebron Savings
Bank, Hebron, MD, owned approximately 53,701 Shares (7.29%), Stafe Co.,
Waterville, OH, owned approximately 94,890 Shares (12.89%) and Simmons First
National Bank, Pine Bluff, AR, owned approximately 100,502 Shares (13.65%).

As of October 1, 2007, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Institutional Shares: Charles Schwab & CO.
Inc., San Francisco, CA, owned approximately 815,669 Shares (9.13%), Clearview
Federal Credit Union, Coraopolis, PA, owned approximately 1,033,009 Shares
(11.23%), LaSalle Bank, Chicago, IL, owned approximately 1,176,461 Shares
(13.17%) and Bank Mutual, Green Bay, WI, owned approximately 1,810,674 Shares
(20.27%).

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

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code (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.

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

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. As of December 31, 2006, the Fund comprised one
portfolio, and the Federated Fund Complex consisted of 45 investment companies
(comprising 148 portfolios). Unless otherwise noted, each Officer is elected
annually. Unless otherwise noted, each Board member oversees all portfolios in
the Federated Fund Complex and serves for an indefinite term.

As of October 1, 2007, the Fund's Board and Officers as a group owned less than
1% of each Class of the Fund's outstanding Shares.

-4-

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION
AGGREGATE
COMPENSATION
FROM FUND
(PAST FISCAL TOTAL
NAME YEAR) COMPENSATION
BIRTH DATE FROM FUND
ADDRESS AND
POSITIONS FEDERATED
HELD WITH PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS, FUND COMPLEX
FUND OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S) (PAST
DATE SERVICE CALENDAR
BEGAN YEAR)
JOHN F. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $0
DONAHUE* Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund
Birth Date: Complex's Executive Committee.
July 28,
1924 PREVIOUS POSITIONS: Chairman of the Federated Fund Complex; Trustee, Federated
TRUSTEE Investment Management Company and Chairman and Director, Federated Investment
Began Counseling.
serving: May
1985

J. PRINCIPAL OCCUPATIONS: Principal Executive Officer and President of the Federated $0 $0
CHRISTOPHER Fund Complex; Director or Trustee of some of the Funds in the Federated Fund
DONAHUE* Complex; President, Chief Executive Officer and Director, Federated Investors,
Birth Date: Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee,
April 11, Federated Investment Counseling; Chairman and Director, Federated Global
1949 Investment Management Corp.; Chairman, Federated Equity Management Company of
PRESIDENT Pennsylvania and Passport Research, Ltd. (Investment advisory subsidiary of
AND TRUSTEE Federated); Trustee, Federated Shareholder Services Company; Director, Federated
Began Services Company.
serving:
July 1999 PREVIOUS POSITIONS: President, Federated Investment Counseling; President and
Chief Executive Officer, Federated Investment Management Company, Federated
Global Investment Management Corp. and Passport Research, Ltd.

LAWRENCE D. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $1,059.35 $180,000
ELLIS, M.D.* Professor of Medicine, University of Pittsburgh; Medical Director, University of
Birth Date: Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist,
October 11, University of Pittsburgh Medical Center.
1932
3471 Fifth OTHER DIRECTORSHIPS HELD: Member, National Board of Trustees, Leukemia Society of
Avenue America.
Suite 1111
Pittsburgh, PREVIOUS POSITIONS: Trustee, University of Pittsburgh; Director, University of
PA Pittsburgh Medical Center.
TRUSTEE
Began
serving:
August 1987

* 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.

-5-

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

AGGREGATE
COMPENSATION
FROM FUND
(PAST FISCAL TOTAL
NAME YEAR) COMPENSATION
BIRTH DATE FROM FUND
ADDRESS AND
POSITIONS FEDERATED
HELD WITH PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS, FUND COMPLEX
FUND OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S) (PAST
DATE SERVICE CALENDAR
BEGAN YEAR)
THOMAS G. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $1,165.26 $198,000
BIGLEY
Birth Date: OTHER DIRECTORSHIPS HELD: Director, Member of Executive Committee, Children's
February 3, Hospital of Pittsburgh; Director, University of Pittsburgh.
1934
15 Old PREVIOUS POSITION: Senior Partner, Ernst & Young LLP.
Timber Trail
Pittsburgh,
PA
TRUSTEE
Began
serving:
October 1995

JOHN T. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $1,165.26 $198,000
CONROY, JR. Chairman of the Board, Investment Properties Corporation; Partner or Trustee in
Birth Date: private real estate ventures in Southwest Florida.
June 23,
1937 PREVIOUS POSITIONS: President, Investment Properties Corporation; Senior Vice
Investment President, John R. Wood and Associates, Inc., Realtors; President, Naples
Properties Property Management, Inc. and Northgate Village Development Corporation.
Corporation
3838 North
Tamiami
Trail
Suite 402
Naples, FL
TRUSTEE
Began
serving:
August 1991

NICHOLAS P. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $1,165.26 $198,000
CONSTANTAKIS
Birth Date: OTHER DIRECTORSHIPS HELD: Director and Member of the Audit Committee, Michael
September 3, Baker Corporation (engineering and energy services worldwide).
1939
175 PREVIOUS POSITION: Partner, Andersen Worldwide SC.
Woodshire
Drive
Pittsburgh,
PA
TRUSTEE
Began
serving:
February
1998

JOHN F. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex; $1,059.35 $180,000
CUNNINGHAM Director, QSGI, Inc. (technology services company).
Birth Date:
March 5, OTHER DIRECTORSHIPS HELD: Chairman, President and Chief Executive Officer,
1943 Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston
353 El College.
Brillo Way
Palm Beach, PREVIOUS POSITIONS: Director, Redgate Communications and EMC Corporation
FL (computer storage systems); Chairman of the Board and Chief Executive Officer,
TRUSTEE Computer Consoles, Inc.; President and Chief Operating Officer, Wang
Began Laboratories; Director, First National Bank of Boston; Director, Apollo Computer,
serving: Inc.
January 1999

PETER E. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $1,059.35 $180,000
MADDEN
Birth Date: OTHER DIRECTORSHIPS HELD: Board of Overseers, Babson College.
March 16,
1942 PREVIOUS POSITIONS: Representative, Commonwealth of Massachusetts General Court;
One Royal President, State Street Bank and Trust Company and State Street Corporation
Palm Way (retired); Director, VISA USA and VISA International; Chairman and Director,
100 Royal Massachusetts Bankers Association; Director, Depository Trust Corporation;
Palm Way Director, The Boston Stock Exchange.
Palm Beach,
FL
TRUSTEE
Began
serving:
August 1991

CHARLES F. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $1,165.26 $198,000
MANSFIELD, Management Consultant.
JR.
Birth Date: PREVIOUS POSITIONS: Chief Executive Officer, PBTC International Bank; Partner,
April 10, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail
1945 Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA
80 South (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of
Road Banking and Finance, Frank G. Zarb School of Business, Hofstra University;
Westhampton Executive Vice President DVC Group, Inc. (marketing, communications and
Beach, NY technology).
TRUSTEE
Began
serving:
July 1999

JOHN E. PRINCIPAL OCCUPATIONS: Director or Trustee, and Chairman of the Board of $1,412.46 $234,000
MURRAY, JR., Directors or Trustees, of the Federated Fund Complex; Chancellor and Law
J.D., S.J.D. Professor, Duquesne University; Partner, Murray, Hogue & Lannis.
Birth Date:
December 20, OTHER DIRECTORSHIPS HELD: Director, Michael Baker Corp. (engineering,
1932 construction, operations and technical services).
Chancellor,
Duquesne PREVIOUS POSITIONS: President, Duquesne University; Dean and Professor of Law,
University University of Pittsburgh School of Law; Dean and Professor of Law, Villanova
Pittsburgh, University School of Law.
PA
TRUSTEE
Began
serving:
February
1995

THOMAS M. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $1,059.35 $45,000
O'NEILL Managing Director and Partner, Navigator Management Company, L.P. (investment and
Birth Date: strategic consulting).
June 14,
1951 OTHER DIRECTORSHIPS HELD: Director, Midway Pacific (lumber); Board of Overseers,
95 Standish Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College.
Street
P.O. Box PREVIOUS POSITIONS: Chief Executive Officer and President, Managing Director and
2779 Chief Investment Officer, Fleet Investment Advisors; President and Chief
Duxbury, MA Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman,
TRUSTEE Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam
Began Companies, Boston, MA; and Credit Analyst and Lending Officer, Fleet Bank.
serving:
October 2006
MARJORIE P. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex. $1,059.35 $180,000
SMUTS
Birth Date: PREVIOUS POSITIONS: Public Relations/Marketing Consultant/Conference Coordinator;
June 21, National Spokesperson, Aluminum Company of America; television producer;
1935 President, Marj Palmer Assoc.; Owner, Scandia Bord.
4905 Bayard
Street
Pittsburgh,
PA
TRUSTEE
Began
serving: May
1985

JOHN S. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $1,059.35 $180,000
WALSH President and Director, Heat Wagon, Inc. (manufacturer of construction temporary
Birth Date: heaters); President and Director, Manufacturers Products, Inc. (distributor of
November 28, portable construction heaters); President, Portable Heater Parts, a division of
1957 Manufacturers Products, Inc.
2604 William
Drive PREVIOUS POSITION: Vice President, Walsh & Kelly, Inc.
Valparaiso,
IN
TRUSTEE
Began
serving:
July 1999
JAMES F. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; Prior $1,059.35 $134,416
WILL to June 2006, Vice Chancellor and President, Saint Vincent College.
Birth Date:
October 12, OTHER DIRECTORSHIPS HELD: Trustee, Saint Vincent College; Alleghany Corporation.
1938
721 E. PREVIOUS POSITIONS: Chairman, President and Chief Executive Officer, Armco, Inc.;
McMurray President and Chief Executive Officer, Cyclops Industries; President and Chief
Road Operating Officer, Kaiser Steel Corporation.
McMurray PA
TRUSTEE
Began
serving:
April 2006

OFFICERS**

NAME
BIRTH DATE
ADDRESS
POSITIONS
HELD WITH PRINCIPAL OCCUPATION(S) AND PREVIOUS POSITION(S)
FUND
DATE
SERVICE
BEGAN
JOHN W. PRINCIPAL OCCUPATIONS: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive
MCGONIGLE Vice President, Secretary and Director, Federated Investors, Inc.
Birth Date:
October 26, PREVIOUS POSITIONS: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director,
1938 Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp.
EXECUTIVE
VICE
PRESIDENT
AND
SECRETARY
Began
serving:
May 1985

RICHARD A. PRINCIPAL OCCUPATIONS: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President,
NOVAK Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services,
Birth Date: Inc. and Southpointe Distribution Services, Inc.
December
25, 1963 PREVIOUS POSITIONS: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held
TREASURER various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co.
Began
serving:
January
2006

RICHARD B. PRINCIPAL OCCUPATIONS: Vice Chairman or Vice President of some of the Funds in the Federated Fund Complex; Vice
FISHER Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.
Birth Date:
May 17, PREVIOUS POSITIONS: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice
1923 President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp.
VICE
PRESIDENT
Began
serving:
May 1985

BRIAN P. PRINCIPAL OCCUPATIONS: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President
BOUDA and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its subsidiaries. Mr. Bouda
Birth Date: joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin.
February
28, 1947
CHIEF
COMPLIANCE
OFFICER AND
SENIOR VICE
PRESIDENT
Began
serving:
August 2004

ROBERT J. PRINCIPAL OCCUPATIONS: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio
OSTROWSKI Manager in 1990. He was named Chief Investment Officer of taxable fixed-income products in 2004 and also serves as a
Birth Date: Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a
April 26, Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.
1963
CHIEF
INVESTMENT
OFFICER
Began
serving:
May 2004

TODD A. PRINCIPAL OCCUPATIONS: Todd A. Abraham has been the Fund's Portfolio Manager since August 1995. He is Vice President of
ABRAHAM the Fund. Mr. Abraham has been a Portfolio Manager since 1995, a Vice President of the Fund's Adviser since 1997 and a
Birth Date: Senior Vice President of the Fund's Adviser beginning 2007. Mr. Abraham joined Federated in 1993 as an Investment
February Analyst and served as Assistant Vice President of the Fund's Adviser from 1995 to 1997. Mr. Abraham served as a
10, 1966 Portfolio Analyst at Ryland Mortgage Co. from 1992-1993. Mr. Abraham is a Chartered Financial Analyst and received his
VICE M.B.A. in Finance from Loyola College.
PRESIDENT
Began
serving:
November
1998

**Officers do not receive any compensation from the Fund.
In addition, the Fund has appointed an Anti-Money Laundering Compliance Officer.

COMMITTEES OF THE BOARD

MEETINGS
BOARD COMMITTEE HELD
COMMITTEE MEMBERS COMMITTEE FUNCTIONS DURING
LAST
FISCAL
YEAR

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

AUDIT Thomas G. The purposes of the Audit Committee are to oversee the accounting and financial Seven
Bigley reporting process of the Fund, the Fund`s internal control over financial reporting,
John T. and the quality, integrity and independent audit of the Fund's financial statements.
Conroy, Jr. The Committee also oversees or assists the Board with the oversight of compliance with
Nicholas P. legal requirements relating to those matters, approves the engagement and reviews the
Constantakis qualifications, independence and performance of the Fund`s independent registered
Charles F. public accounting firm, acts as a liaison between the independent registered public
Mansfield, accounting firm and the Board and reviews the Fund`s internal audit function.
Jr.

NOMINATING Thomas G. The Nominating Committee, whose members consist of all Independent Trustees, selects None
Bigley and nominates persons for election to the Fund`s Board when vacancies occur. The
John T. Committee will consider candidates recommended by shareholders, Independent Trustees,
Conroy, Jr. officers or employees of any of the Fund`s agents or service providers and counsel to
Nicholas P. the Fund. Any shareholder who desires to have an individual considered for nomination
Constantakis by the Committee must submit a recommendation in writing to the Secretary of the Fund,
John F. at the Fund's address appearing on the back cover of this Statement of Additional
Cunningham Information. The recommendation should include the name and address of both the
Peter E. shareholder and the candidate and detailed information concerning the candidate's
Madden qualifications and experience. In identifying and evaluating candidates for
Charles F. consideration, the Committee shall consider such factors as it deems appropriate.
Mansfield, Those factors will ordinarily include: integrity, intelligence, collegiality,
Jr. judgment, diversity, skill, business and other experience, qualification as an
John E. "Independent Trustee," the existence of material relationships which may create the
Murray, Jr. appearance of a lack of independence, financial or accounting knowledge and
Thomas M. experience, and dedication and willingness to devote the time and attention necessary
O'Neill to fulfill Board responsibilities.
Marjorie P.
Smuts
John S.
Walsh
James F.
Will

-6-

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF INVESTMENT
COMPANIES AS OF DECEMBER 31, 2006

AGGREGATE
DOLLAR RANGE OF
DOLLAR RANGE OF SHARES OWNED IN
INTERESTED SHARES OWNED FEDERATED FAMILY OF
BOARD MEMBER NAME IN FEDERATED ADJUSTABLE RATE SECURITIES FUND INVESTMENT 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 Over $100,000
John E. Murray, Jr., J.D., S.J.D. None Over $100,000
Thomas M. O'Neill None Over $100,000
Marjorie P. Smuts None Over $100,000
John S. Walsh None Over $100,000
James F. Will None None

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.

PORTFOLIO MANAGER INFORMATION

The following information about the Fund's Portfolio Manager is provided as of
the end of the Fund's most recently completed fiscal year.

ADDITIONAL ACCOUNTS MANAGED BY TODD ABRAHAM TOTAL NUMBER OF ADDITIONAL ACCOUNTS MANAGED / TOTAL ASSETS*

REGISTERED INVESTMENT COMPANIES 8 FUNDS /$5,184.237 MILLION
OTHER POOLED INVESTMENT VEHICLES 0
OTHER ACCOUNTS 0

*None of the Accounts has an advisory fee that is based on the performance of
the account.

Dollar value range of shares owned in the Fund: none.

Todd Abraham is paid a fixed base salary and a variable annual incentive. Base
salary is determined within a market competitive position-specific salary range,
based on the portfolio manager's experience and performance. The annual
incentive amount is determined based primarily on Investment Product Performance
(IPP) and, to a lesser extent, Financial Success, and may be paid entirely in
cash, or in a combination of cash and restricted stock of Federated Investors,
Inc. (Federated). The total combined annual incentive opportunity is intended
to be competitive in the market for this portfolio manager role.

IPP is measured on a rolling 1, 3, and 5 calendar year pre-tax gross total
return basis vs. the Fund's benchmark (i.e., Merrill Lynch 1-Year U.S. Treasury
Index), and vs. the Fund's designated peer group of comparable accounts.
Performance periods are adjusted if a portfolio manager has been managing an
account for less than five years; accounts with less than one-year of
performance history under a portfolio manager may be excluded. As noted above,
Mr. Abraham is also the portfolio manager for other accounts in addition to the
Fund. Such other accounts may have different benchmarks. The performance of
certain of these accounts is excluded when calculating IPP. Within each
performance measurement period, IPP is calculated with an equal weighting of
each included account managed by the portfolio manager. In his role as co-head
of the Government Bond team, Mr. Abraham has oversight responsibility for other
portfolios that he does not personally manage. A portion of the IPP score is
determined by the investment performance of these other portfolios vs. product
specific benchmarks. In addition, Mr. Abraham serves on one or more Investment
Teams that establish guidelines on various performance drivers (e.g., currency,
duration, sector, volatility, and/or yield curve) for taxable fixed income
funds. A portion of the IPP score is based on Federated's senior management's
assessment of team contributions. A portion of the bonus tied to the IPP score
may be adjusted based on management's assessment of overall contributions to
fund performance and any other factors as deemed relevant.

The Financial Success category is designed to tie the portfolio manager's bonus,
in part, to Federated's overall financial results. Funding for the Financial
Success category may be determined on a product or asset class basis, as well as
on corporate financial results. Senior Management determines individual
Financial Success bonuses on a discretionary basis, considering overall
contributions and any other factors deemed relevant.

As a general matter, certain conflicts of interest may arise in connection with
a portfolio manager's management of a fund's investments, on the one hand, and
the investments of other accounts for which the portfolio manager is
responsible, on the other. For example, it is possible that the various
accounts managed could have different investment strategies that, at times,
might conflict with one another to the possible detriment of the Fund.
Alternatively, to the extent that the same investment opportunities might be
desirable for more than one account, possible conflicts could arise in
determining how to allocate them. Other potential conflicts might include
conflicts created by specific portfolio manager compensation arrangements, and
conflicts relating to selection of brokers or dealers to execute fund portfolio
trades and/or specific uses of commissions from Fund portfolio trades (for
example, research, or "soft dollars"). The Adviser has adopted policies and
procedures and has structured the portfolio managers' compensation in a manner
reasonably designed to safeguard the Fund from being negatively affected as a
result of any such potential conflicts.

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

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, as well as Shares of the Fund, 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.

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 Institutional Shareholder
Services (ISS) to obtain, vote, and record proxies in accordance with the Proxy
Committee's directions. The Proxy Committee directs ISS by means of Proxy
Voting Guidelines, and ISS 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, ISS
will provide the Proxy Committee with all information that it has obtained
regarding the proposal and the Proxy Committee will provide specific direction
to ISS. 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.

PROXY VOTING REPORT

A report on "Form N-PX" of how the Fund voted any proxies during the most recent
12-month period ended June 30 is available from Federated's website at
FederatedInvestors.com. To access this information from the "Products" section
of the website, click on the "Prospectuses and Regulatory Reports" link under
"Related Information", then select the appropriate link opposite the name of the
Fund; or select the name of the Fund and, from the Fund's page, click on the
"Prospectuses and Regulatory Reports" link. Form N-PX filings are also available
at the SEC's website at www.sec.gov.

PORTFOLIO HOLDINGS INFORMATION
Information concerning the Fund's portfolio holdings is available in the
"Products" section of Federated's website at FederatedInvestors.com. A complete
listing of the Fund's portfolio holdings as of the end of each calendar quarter
is posted on the website 30 days (or the next business day) after the end of the
quarter and remains posted until replaced by the information for the succeeding
quarter. Summary portfolio composition information as of the close of each month
is posted on the website 15 days (or the next business day) after month-end and
remains until replaced by the information for the succeeding month. The summary
portfolio composition information may include identification of the Fund's top
ten holdings, recent purchase and sale transactions and a percentage breakdown
of the portfolio by sector.

To access this information from the "Products" section of the website, click on
the "Portfolio Holdings" link under "Related Information" and select the
appropriate link opposite the name of the Fund, or select the name of the Fund,
and from the Fund's page click on the "Portfolio Holdings" or "Composition"
link.

You may also access portfolio information as of the end of the Fund's fiscal
quarters from the "Products" section of the website. The Fund's annual and
semiannual reports, which contain complete listings of the Fund's portfolio
holdings as of the end of the Fund's second and fourth fiscal quarters, may be
accessed by selecting the "Prospectuses and Regulatory Reports" link under
"Related Information" and selecting the link to the appropriate PDF. Complete
listings of the Fund's portfolio holdings as of the end of the Fund's first and
third fiscal quarters may be accessed by selecting "Portfolio Holdings" from the
"Products" section and then selecting the appropriate link opposite the name of
the Fund. Fiscal quarter information is made available on the website within 70
days after the end of the fiscal quarter. This information is also available in
reports filed with the SEC at the SEC's website at www.sec.gov.

The disclosure policy of the Fund and the Adviser prohibits the disclosure of
portfolio holdings information to any investor or intermediary before the same
information is made available to other investors. Employees of the Adviser or
its affiliates who have access to nonpublic information concerning the Fund's
portfolio holdings are prohibited from trading securities on the basis of this
information. Such persons must report all personal securities trades and obtain
pre-clearance for all personal securities trades other than mutual fund shares.

Firms that provide administrative, custody, financial, accounting, legal or
other services to the Fund may receive nonpublic information about Fund
portfolio holdings for purposes relating to their services. The Fund may also
provide portfolio holdings information to publications that rate, rank or
otherwise categorize investment companies. Traders or portfolio managers may
provide "interest" lists to facilitate portfolio trading if the list reflects
only that subset of the portfolio for which the trader or portfolio manager is
seeking market interest. A list of service providers, publications and other
third parties who may receive nonpublic portfolio holdings information appears
in the Appendix to this SAI.

The furnishing of nonpublic portfolio holdings information to any third party
(other than authorized governmental or regulatory personnel) requires the prior
approval of the President of the Adviser and of the Chief Compliance Officer of
the Fund. The President of the Adviser and the Chief Compliance Officer will
approve the furnishing of nonpublic portfolio holdings information to a third
party only if they consider the furnishing of such information to be in the best
interests of the Fund and its shareholders. In that regard, and to address
possible conflicts between the interests of Fund shareholders and those of the
Adviser and its affiliates, the following procedures apply. No consideration
may be received by the Fund, the Adviser, any affiliate of the Adviser or any of
their employees in connection with the disclosure of portfolio holdings
information. Before information is furnished, the third party must sign a
written agreement that it will safeguard the confidentiality of the information,
will use it only for the purposes for which it is furnished and will not use it
in connection with the trading of any security. Persons approved to receive
nonpublic portfolio holdings information will receive it as often as necessary
for the purpose for which it is provided. Such information may be furnished as
frequently as daily and often with no time lag between the date of the
information and the date it is furnished. The Board receives and reviews
annually a list of the persons who receive nonpublic portfolio holdings
information and the purposes for which it is furnished.

BROKERAGE TRANSACTIONS AND INVESTMENT ALLOCATION
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser 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 and accounts managed by affiliates of 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.

-7-

ADMINISTRATOR
Federated Administrative Services (FAS), a subsidiary of Federated, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. FAS provides these at the
following annual rates, based on the average aggregate daily net assets of the
Fund and most of the other Federated funds:

AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
0.150 of 1% on the first $5 billion
0.125 of 1% on the next $5 billion
0.100 of 1% on the next $10 billion
0.075 of 1% on assets over $20 billion
The administrative fee received during any fiscal year shall be at least
$150,000 per portfolio and $40,000 per each additional class of Shares. FAS may
voluntarily waive a portion of its fee and may reimburse the Fund for expenses.

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

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
State Street Bank and Trust Company, the Fund's registered transfer agent,
maintains all necessary shareholder records.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm for the Fund, Ernst & Young
LLP, conducts its audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require it to plan and perform
its audits to provide reasonable assurance about whether the Fund's financial
statements and financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED AUGUST 31 2007 2006 2005
Advisory Fee Earned $639,091 $946,041 $1,481,313
Advisory Fee Reduction $393,270 397,505 474,655
Advisory Fee Reimbursement - -
Administrative Fee $156,065 156,577 188,127
12B-1 FEE:
Institutional Service Shares -- - -
SHAREHOLDER SERVICES FEE:
Institutional Shares -- - -
Institutional Service Shares $12,589 --
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.

-8-

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns are given for the one-year, five-year and ten-year ended
August 31, 2007.

Yield is given for the 30-day period ended August 31, 2007.

30-DAY PERIOD 1 YEAR 5 YEARS 10 YEARS

INSTITUTIONAL SHARES:
Total Return
Before Taxes N/A 5.01% 2.74% 3.95%
After Taxes on Distributions N/A 3.23% 1.67% 2.34
After Taxes on Distributions and Sale of Shares N/A 3.23% 1.71% 2.37%
Yield 4.95 N/A N/A N/A

30-DAY PERIOD 1 YEAR 5 YEARS 10 YEARS
INSTITUTIONAL SERVICE SHARES:
Total Return
Before Taxes N/A 4.81% 2.50% 3.70%
After Taxes on Distributions N/A 3.11% 1.51% 2.18%
After Taxes on Distributions and Sale of Shares N/A 3.11% 1.55% 2.22%
Yield 4.77% N/A N/A N/A

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 financial intermediaries charge fees in connection with services
provided in conjunction with an investment in Shares, the Share performance is
lower for shareholders paying those fees.

WHO IS FEDERATED INVESTORS, INC.?

Federated and its subsidiaries are dedicated to providing you with world-class
investment management. With offices in Pittsburgh, New York City and Frankfurt,
Federated is a firm with independent research, product breadth and industry
standing.

Federated seeks to achieve superior and sustainable investment performance for a
broad array of global clients through a disciplined investment process and an
information advantage created by proprietary fundamental research. Federated is
distinctive in our disciplined process that integrates proprietary research with
trading and portfolio management.

FEDERATED FUNDS OVERVIEW

EQUITIES
As of December 31, 2006, Federated managed 48 equity funds totaling
approximately $28.7 billion in assets across growth, value, equity income,
international, index and sector allocation styles.

TAXABLE FIXED-INCOME
As of December 31, 2006, Federated managed 35 taxable bond funds including:
high-yield, multi-sector, mortgage-backed, U.S. government, U.S. corporate and
international, with assets approximating $15.2 billion.

TAX FREE FIXED-INCOME
As of December 31, 2006, Federated managed 14 municipal bond funds with
approximately $2.9 billion in assets and 22 municipal money market funds with
approximately $27.6 billion in total assets.

MONEY MARKET FUNDS
As of December 31, 2006, Federated managed $155.2 billion in assets across 51
money market funds, including 17 government, 11 prime, 22 municipal and 1 euro-
denominated with assets approximating $63.5 billion, $64.0 billion, $27.6
billion and $82.9 million.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: Stephen F. Auth, CFA, for Global
Equity; Robert J. Ostrowski, CFA, for Taxable Fixed-Income; Mary Jo Ochson, CFA,
for Tax Free Fixed-Income; and Deborah A. Cunningham, CFA, for Money Market
Funds.

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended August 31, 2007
are incorporated herein by reference to the Annual Report to Shareholders of
Federated Adjustable Rate Securities Fund dated August 31, 2007.

INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
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, favorable 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, favorable
business or economic developments. A 'CC' rating indicates that default of some
kind appears probable. 'C' ratings signal imminent default.

D--In payment default. The 'D' rating category is used when payments on a
financial commitment are not made on the date due even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
a financial commitment are jeopardized.

MOODY'S INVESTORS SERVICE LONG-TERM DEBT RATINGS
AAA-- Bonds and preferred stock which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

AA-- Bonds and preferred stock which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the Aaa securities.

A-- Bonds and preferred stock which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment some time in the future.

BAA-Bonds and preferred stock which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

BA-Bonds and preferred stock which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.

B-Bonds and preferred stock which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

CAA-Bonds and preferred stock which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.

CA-Bonds and preferred stock which are rated Ca are highly speculative and are
likely in, or very near, default, with some prospect of recovery of principal
and interest.

C-Bonds and preferred stock which are rated C are the lowest rated class of
bonds and are typically in default, with little prospect for recovery of
principal or interest.

NR--Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.

NR(1)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.

NR(2)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.

NR(3)--The underlying issuer/obligor/guarantor has other outstanding debt rated
A by S&P or Moody's.

FITCH RATINGS LONG-TERM DEBT RATING DEFINITIONS
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, favorable business and economic environment.

MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-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.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
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.

FITCH RATINGS COMMERCIAL PAPER RATING DEFINITIONS
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.

A.M. BEST LONG-TERM DEBT RATINGS
An A.M. Best Long-Term Debt Rating (issue credit rating) is an opinion as to the
issuer's ability to meet its financial obligations to security holders when due.
These ratings are assigned to debt and preferred stock issues.

AAA-EXCEPTIONAL. Assigned to issues where the issuer has, in A.M. Best's
opinion, an exceptional ability to meet the terms of the obligation.

AA-VERY STRONG. Assigned to issues where the issuer has, in A.M. Best's
opinion, a very strong ability to meet the terms of the obligation.

A-STRONG. Assigned to issues where the issuer has, in A.M. Best's opinion, a
strong ability to meet the terms of the obligation.

BBB-ADEQUATE. Assigned to issues where the issuer has, in A.M. Best's opinion,
an adequate ability to meet the terms of the obligation; however, is more
susceptible to changes in economic or other conditions.

BB-SPECULATIVE. Assigned to issues where the issuer has, in A.M. Best's
opinion, speculative credit characteristics, generally due to a moderate margin
of principal and interest payment protection and vulnerability to economic
changes. .

B-VERY SPECULATIVE. Assigned to issues where the issuer has, in A.M. Best's
opinion, very speculative credit characteristics, generally due to a modest
margin of principal and interest payment protection and extreme vulnerability to
economic changes. .

CCC, CC, C-EXTREMELY SPECULATIVE. Assigned to issues where the issuer has, in
A.M. Best's opinion, extremely speculative credit characteristics, generally due
to a minimal margin of principal and interest payment protection and/or limited
ability to withstand adverse changes in economic or other conditions.

D-IN DEFAULT. In default on payment of principal, interest or other terms and
conditions. The rating also is utilized when a bankruptcy petition, or similar
action, has been filed.

Ratings from "aa" to "ccc" may be enhanced with a "+" (plus) or "-" (minus) to
indicate whether credit quality is near the top or bottom of a category. A
company's Long-Term Credit Rating also may be assigned an Under Review modifier
("u") that generally is event-driven (positive, negative or developing) and
indicates that the company's A.M. Best Rating opinion is under review and may be
subject to near-term change. Ratings prefixed with an ("i") denote indicative
ratings. Ratings may also be assigned a Public Data modifier ("pd") which
indicates that a company does not subscribe to A.M. Best's interactive rating
process.

A.M. BEST SHORT-TERM DEBT RATINGS
An A.M. Best Short-Term Debt Rating (issue credit rating) is an opinion as to
the issuer's ability to meet its obligations having maturities generally less
than one year, such as commercial paper.

AMB-1+ -STRONGEST. Assigned to issues where the issuer has, in A.M. Best's
opinion, the strongest ability to repay short-term debt obligations.

AMB-1 -OUTSTANDING. Assigned to issues where the issuer has, in A.M. Best's
opinion, an outstanding ability to repay short-term debt obligations.

AMB-2 -SATISFACTORY. Assigned to issues where the issuer has, in A.M. Best's
opinion, a satisfactory ability to repay short-term debt obligations.

AMB-3 -ADEQUATE. Assigned to issues where the issuer has, in A.M. Best's
opinion, an adequate ability to repay short-term debt obligations; however,
adverse economic conditions will likely lead to a reduced capacity to meet its
financial commitments on short-term debt obligations.

AMB-4 -SPECULATIVE. Assigned to issues where the issuer has, in A.M. Best's
opinion, speculative credit characteristics and is vulnerable to economic or
other external changes, which could have a marked impact on the company's
ability to meet its commitments on short-term debt obligations.

D-IN DEFAULT. In default on payment of principal, interest or other terms and
conditions. The rating also is utilized when a bankruptcy petition, or similar
action, has been filed.

A company's Short-Term Credit Rating also may be assigned an Under Review
modifier ("u") that generally is event-driven (positive, negative or developing)
and indicates that the company's A.M. Best Rating opinion is under review and
may be subject to near-term change. Ratings prefixed with an ("i") denote
indicative ratings.

A.M. BEST RATING OUTLOOK
A.M. Best Credit Ratings (aaa to c) are assigned a Rating Outlook that indicates
the potential direction of a company's rating for an intermediate period,
generally defined as the next 12 to 36 months. Public Data Ratings are not
assigned an Outlook. Ratings Outlooks are as follows:

POSITIVE-Indicates a company's financial/market trends are favorable, relative
to its current rating level, and if continued, the company has a good
possibility of having its rating upgraded.

NEGATIVE-Indicates a company is experiencing unfavorable financial/market
trends, relative to its current rating level, and if continued, the company has
a good possibility of having its rating downgraded.

STABLE-Indicates a company is experiencing stable financial/market trends and
that there is a low likelihood that its rating will change in the near term.

-9-

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, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company

P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP

200 Clarendon Street

Boston, MA 02116-5072

-10-

APPENDIX

The following is a list of persons other than the Adviser and its affiliates
that may receive nonpublic portfolio holdings information concerning the Fund:

CUSTODIAN
State Street Bank and Trust Company

SECURITIES LENDING AGENT
Citigroup

Metropolitan West Securities LLC

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP

LEGAL COUNSEL
Dickstein Shapiro LLP

Reed Smith LLP

SERVICE PROVIDERS
Bloomberg

Factset

Fidelity-Strategic Advisors

Institutional Shareholder Services

Wilshire Associates, Inc.

SECURITY PRICING SERVICES
Reuters

Standard & Poor's

FT Interactive Data

Bear Stearns

RATINGS AGENCIES
Standard & Poor's

PERFORMANCE REPORTING/PUBLICATIONS
Lipper

Morningstar

NASDAQ

Value Line

Wiesenberger/Thompson Financial

OTHER
Investment Company Institute

Astec Consulting Group, Inc.

-11-

PART C. OTHER INFORMATION.

Item 23. Exhibits:
(a) (i) Conformed copy of Restatement and Amendment
No. 11 to Declaration of Trust of the
Registrant; (22)
(ii)Conformed copy of Amendment No. 12 of the
Restatement Declaration of Trust of the
Registrant (24)
(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 (23)
(vii)Copy of Amendment No. 10 to the By-Laws of
the Registrant (23)
(viii) Copy of Amendment No. 11 to the By-Laws
of the Registrant; (25)
(ix) Copy of Amendment No. 12 to the By-Laws of
the Registrant; (25)
(x) Copy of Amendment No. 13 to the By-Laws of
the Registrant; (26)
(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 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
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 dated June 1,
2001 to Distributor's Contract of the
Registrant; (22)
(v) Conformed copy of Amendment dated October
1, 2003 to Distributor's Contract of the
Registrant. (23)
(vi)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)(ii)-(iv) 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 Agreement of
the Registrant; (16)
(ii)Conformed copy of Amendment to Custodian
Agreement of the Registrant; (22)
(iii) Conformed Copy of Exhibit 1 to Custodian
Agreement 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)The responses described in Item 22(e) (vi)
are hereby incorporated by reference.
(iii)The Registrant hereby incorporates the
conformed copy of Amendment No. 2 to the
Amended and Restated Agreement for Fund
Accounting Services, Administrative
Services, Transfer Agency Services and
Custody Services Procurement from Item 23
(h) (v) of the Federated U.S. Government
Securities: 2-5 Years Registration
Statement on Form N-1A, filed with the
Commission on March 30, 2004 (file Nos. 2-
75769 and 811-3387);
(iv)The Registrant hereby incorporates the
conformed copy of Amendment No. 3 to the
Amended and Restated Agreement for Fund
Accounting Services, Administrative
Services, Transfer Agency Services and
Custody Services Procurement from Item 23
(h) (v) of the Federated U.S. Government
Securities: 2-5 Years Registration
Statement on Form N-1A, filed with the
Commission on March 30, 2004. (File Nos. 2-
75769 and 811-3387);
(v)The Registrant hereby incorporates the
conformed copy of the Second Amended and
Restated Services Agreement, with attached
Schedule 1 revised June 30, 2004, from Item
(h) (vii) of the Cash Trust Series, Inc.
Registration Statement on Form N-1A, filed
with the Commission on July 29, 2004. (File
Nos. 33-29838 and 811-5843);
(vi) The Registrant hereby incorporates the
conformed copy of the Financial
Administration and Accounting Services,
with attached Exhibit A revised June 30,
2004, from Item (h) (viii) of the Cash
Trust Series, Inc. Registration Statement
on Form N-1A, filed with the Commission on
July 29, 2004. (File Nos. 33-29838 and 811-
5843.
(vii) The Registrant hereby incorporates by
reference the conformed copy of the
Agreement for Administrative Services, with
Exhibit 1 and Amendments 1 and 2 attached,
between Federated Administrative Services
and the Registrant from Item 23(h)(iv)of
the Federated Total Return Series, Inc.
Registration Statement on Form N-1A, filed
with the Commission on November 29, 2004.
(File Nos. 33-50773 and 811-7115);
(viii) The Registrant hereby incorporates the
conformed copy of Transfer Agency and
Service Agreement between the Federated
Funds and State Street Bank and Trust
Company from Item 23(h)(ix)of the Federated
Total Return Government Bond Fund
Registration Statement on Form N-1A, filed
with the Commission on April 28, 2005.
(File Nos. 33-60411 and 811-07309);
(ix) The Registrant hereby incorporates by
reference the conformed copy of Amendment
No. 3 to the Agreement for Administrative
Services between Federated Administrative
Services Company and the Registrant dated
June 1, 2005, from Item 23 (h) (ii) of the
Cash Trust Series, Inc. Registration
Statement on Form N-1A, filed with the
Commission on July 27, 2005. (File Nos. 33-
29838 and 811-5843);
(x) The Registrant hereby incorporates the
conformed copy of Transfer Agency and
Service Agreement between the Federated
Funds and State Street Bank and Trust
Company from Item 23(h)(viii)of the
Federated Total Return Government
Bond Fund Registration Statement on
Form N-1A, filed with the Commission
on April 28, 2006 (File Nos. 33-60411
and 811-07309);(26)
(xi) The Registrant hereby incorporates by
reference the conformed copy of Amendment
No. 3 to the Agreement for Administrative
Services between Federated Administrative
Services Company and the Registrant
dated June 1, 2005, from Item 23 (h)
(ii) of the Cash Trust Series, Inc.
Registration Statement on Form N-1A,
filed with the Commission on July 27,
2005. (File Nos. 33-29838
and 811-5843); (26)
(i) Conformed copy of Opinion and Consent of
Counsel as to legality of shares being
registered; (16)
(j) Conformed copy of Consent of Independent
Registered Public Accounting Firm; (+)
(k) Not applicable;
(l) Conformed copy of Initial Capital
Understanding; (16)
(m) (i) Conformed copy of Distribution Plan
including Exhibit A of the Registrant; (24)
(ii) The responses described in Item 22(e) (vi)
are hereby incorporated by reference.
(n) The Registrant hereby incorporates the Copy
of the Multiple Class Plan and attached
Exhibits from Item (n) of the Federated
Short-Term Municipal Trust Registration
Statement on Form N-1A, filed with the
Commission on August 28, 2006. (File Nos.
2-72277 and 811-3181).
(o) (i) Conformed copy of Power of Attorney of the
Registrant; (21)
(ii) Conformed copy of Power of Attorney of
Chief Investment Officer of the Registrant;
(21)
(iii) Conformed copy of Power of Attorney of
James F. Will, Trustee of the
Registrant;(26)
(iv) Conformed copy of Power of Attorney of
Thomas M. O'Neill, Trustee of the
Registrant; (26)
(v) Conformed copy of Power of Attorney of
Richard A. Novak, Treasurer of the
Registrant; (26)
(vi) Conformed copy of Power of Attorney of
John F. Donahue, Trustee of the Registrant;
(26)
(p) (i) The registrant hereby incorporates the
conformed copy of the Code of Ethics for
Access Persons from Item 23(p) of the Money
Market Obligations Trust, Registration
Statement on Form N-1A filed with the
Commission February 26, 2004. (File Nos.
33-31602 and 811-5950).
(ii)The Registrant hereby incorporates the
conformed copy of the Federated Investors,
Inc. Code of Ethics for Access Persons,
effective 1/1/2005, from Item 23(p) of the
Money Market Obligations Trust Registration
Statement on Form N-1A, filed with the
Commission on February 25, 2005. (File
Nos. 33-31602 and 811-5950).

________________________
+ 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).
23. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 30 on From N-1A, filed with the Commission
on October 29, 2003. (File Nos. 2-98491 and 811-4539).
24. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 30 on From N-1A, filed with the Commission
on October 29, 2004. (File Nos. 2-98491 and 811-4539).
25. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 30 on From N-1A, filed with the Commission
on October 28, 2005. (File Nos. 2-98491 and 811-4539).
26. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 33 on From N-1A, filed with the Commission
on October 27, 2006. (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 two of the Trustees and two of
the Officers of the investment adviser are included in Part B of
this Registration Statement under "Who Manages and Provides Services
to the Fund?" The remaining Trustees of the investment adviser and,
in parentheses, their principal occupations are: Thomas R. Donahue,
(Chief Financial Officer, Federated Investors, Inc.), 1001 Liberty
Avenue, Pittsburgh, PA, 15222-3779 and Mark D. Olson (a principal of
the firm, Mark D. Olson & Company, L.L.C. and Partner, Wilson,
Halbrook & Bayard, P.A.), 800 Delaware Avenue, P.O. Box 2305,
Wilmington, DE 19899-2305.

The remaining Officers of the investment adviser are:

President/ Chief Executive Officer
and Trustee: John B. Fisher

Vice Chairman: William D. Dawson, III

Senior Vice Presidents: Todd Abraham
J. Scott Albrecht
Joseph M. Balestrino
Randall Bauer
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Donald T. Ellenberger
Susan R. Hill
Robert M. Kowit
Jeffrey A. Kozemchak
Mary Jo Ochson
Robert J. Ostrowski
Ihab Salib
Paige Wilhelm

Vice Presidents: Nancy J.Belz
G. Andrew Bonnewell
Hanan Callas
Jerome Conner
James R. Crea, Jr.
Karol Crummie
Lee R. Cunningham, II
B. Anthony Delserone,Jr.
William Ehling
Eamonn G. Folan
Richard J. Gallo
John T. Gentry
Kathyrn P. Glass
Patricia L. Heagy
William R. Jamison
Nathan H. Kehm
John C. Kerber
J. Andrew Kirschler
Vice Presidents: Marian R. Marinack
Kevin McCloskey
John W. McGonigle
Natalie F. Metz
Thomas J. Mitchell
Joseph M. Natoli
Bob Nolte
Mary Kay Pavuk
Jeffrey A. Petro
John Polinski
Rae Ann Rice
Brian Ruffner
Roberto Sanchez-Dahl,Sr.
John Sidawi
Michael W. Sirianni, Jr.
Christopher Smith
Kyle Stewart
Mary Ellen Tesla
Timothy G. Trebilcock
Paolo H. Valle
Stephen J. Wagner
Mark Weiss
George B. Wright

Assistant Vice Presidents: Jason DeVito
Bryan Dingle
Timothy Gannon
James Grant
Tracey L. Lusk
Ann Manley
Karl Mocharko
Joseph Mycka
Nick Navari
Gene Neavin
Liam O'Connell
Nichlas S. Tripodes

Secretary: G. Andrew Bonnewell

Treasurer: Thomas R. Donahue

Assistant Treasurer: Denis McAuley, III

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

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

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

(b)

(1) (2) (3)
Positions and Offices Positions and Offices
With Distributor Name With Registrant
_____________________ _________________ ______________________

Chairman: Richard B. Fisher Vice President

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

President and Director: Thomas E. Territ

Director: Peter J. Germain

Treasurer and Director: Denis McAuley III

Senior Vice Presidents: Michael Bappert
Michael Benacci
Richard W. Boyd
Charles L. Davis, Jr.
Laura M. Deger
Peter W. Eisenbrandt
Theodore Fadool, Jr.
James M. Heaton
Harry J. Kennedy
Michael W. Koenig
Anne H. Kruczek
Amy Michaliszyn
Senior Vice Presidents: Richard C. Mihm
Keith Nixon
Rich Paulson
Solon A. Person, IV
Chris Prado
Brian S. Ronayne
Colin B. Starks
Robert F. Tousignant
William C. Tustin
Paul Uhlman

Vice Presidents: Irving Anderson
Dan Berry
John B. Bohnet
Edward R. Bozek
Jane E. Broeren-Lambesis
Daniel Brown
Bryan Burke
Mark Carroll
Dan Casey
Scott Charlton
Steven R. Cohen
James Conely
Kevin J. Crenny
G. Michael Cullen
Beth C. Dell
Ron Dorman
Donald C. Edwards
Lee England
Timothy Franklin
Peter Germain
Jamie Getz
Scott Gundersen
Peter Gustini
Dayna C. Haferkamp
Raymond J. Hanley
Vincent L. Harper, Jr.
Bruce E. Hastings
Jeffrey S. Jones
Ed Koontz
Christopher A. Layton
Michael H. Liss
Michael R. Manning
Michael Marcin
Martin J. McCaffrey
Mary A. McCaffrey
Joseph McGinley
Vincent T. Morrow
Doris T. Muller
Alec H. Neilly
Rebecca Nelson
John A. O'Neill
James E. Ostrowski
Stephen Otto
Brian Paluso
Mark Patsy
Robert F. Phillips
Josh Rasmussen
Richard A. Recker
Ronald Reich
Christopher Renwick
Diane M. Robinson
Timothy A. Rosewicz
Thomas S. Schinabeck
Vice Presidents: Edward J. Segura
Peter Siconolfi
Edward L. Smith
John A. Staley
Jack L. Streich
Mark Strubel
Michael Vahl
David Wasik
G. Walter Whalen
Stephen White
Lewis Williams
Edward J. Wojnarowski
Michael P. Wolff
Erik Zettlemayer
Paul Zuber

Assistant Vice Presidents: Robert W. Bauman
William Rose

Secretary: C. Todd Gibson

Assistant Treasurer: Lori A. Hensler
Richard A. Novak

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

State Street Bank and Trust Company P.O. Box 8600
("Custodian, 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

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, CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS AMENDMENT TO ITS
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES
ACT OF 1933 AND has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 29th day of October, 2007.

FEDERATED ADJUSTABLE RATE SECURITIES FUND

BY: /s/ Travis E. Williams
Travis E. Williams, Assistant Secretary

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/ Travis E. Williams Attorney in Fact October 29, 2007
Travis E. Williams For the Persons
ASSISTANT SECRETARY Listed Below

NAME TITLE

John F. Donahue* Trustee

J. Christopher Donahue* President and Trustee
(Principal Executive Officer)
Richard B. Fisher* Vice Chairman

Richard A. Novak* 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

Thomas M. O'Neill* Trustee

Marjorie P. Smuts* Trustee

John S. Walsh* Trustee

James F. Will* Trustee

* By Power of Attorney

Federated World-Class Investment Manager

Federated Adjustable Rate Securities Fund

PROSPECTUS

INSTITUTIONAL SHARES

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, 2006)

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

Mortgage-Backed Securities

ARMS

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

Treasury Securities

U.S. Government Agency Securities

Asset-Backed Securities

Credit Enhancement

SPECIAL TRANSACTIONS

Repurchase Agreements

Investment Ratings

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

PREPAYMENT RISKS

Credit Risks

Liquidity Risks

REGULATORY COMPLIANCE

What Do Shares Cost?

How is the Fund Sold?

Payments to Financial Intermediaries

SERVICE FEES

ACCOUNT ADMINISTRATION FEES

RECORDKEEPING FEES

NETWORKING FEES

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

How to Purchase Shares

THROUGH A FINANCIAL INTERMEDIARY

DIRECTLY FROM THE FUND

By Wire

By Check

THROUGH AN EXCHANGE

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem and Exchange Shares

THROUGH A FINANCIAL INTERMEDIARY

DIRECTLY FROM THE FUND

By Telephone

By Mail

Signature Guarantees

PAYMENT METHODS FOR REDEMPTIONS

Redemption in Kind

LIMITATIONS ON REDEMPTION PROCEEDS

EXCHANGE PRIVILEGE

ADDITIONAL CONDITIONS

Telephone Transactions

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

FREQUENT TRADING POLICIES

PORTFOLIO HOLDINGS INFORMATION

Who Manages the Fund?

PORTFOLIO MANAGEMENT INFORMATION

Todd A. Abraham

ADVISORY FEES

Legal Proceedings

Financial Information

FINANCIAL HIGHLIGHTS

Financial Highlights

Appendix A: Hypothetical Investment and Expense Information

FEDERATED ADJUSTABLE RATE SECURITIES FUND -INSTITUTIONAL SHARES ANNUAL EXPENSE RATIO: 1.28%MAXIMUM FRONT-END SALES CHARGE: NONE

Federated
World-Class Investment Manager

FEDERATED ADJUSTABLE RATE SECURITIES FUND -
INSTITUTIONAL SHARES
ANNUAL EXPENSE RATIO: 1.28%
MAXIMUM FRONT-END SALES CHARGE: NONE

Federated
World-Class Investment Manager

Federated
World-Class Investment Manager