Federated MDT Series

485BPOS 1 formtwo.htm Federated MDT Series

                                                   1933 Act File No. 333-134468
                                                   1940 Act File No. 811-21904


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933...........        X

Pre-Effective Amendment No.   ....................................      __3__

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940           X

Amendment No.    .................................................      __3__

                              FEDERATED MDT SERIES

               (Exact name of Registrant as Specified in Charter)

                           Federated Investors Funds
                              5800 Corporate Drive
                      Pittsburgh, Pennsylvania 15222-7000
                    (Address of Principal Executive Offices)

                                 (412) 288-1900
                        (Registrant's Telephone Number)

                           John W. McGonigle, Esquire
                           Federated Investors Tower
                              1001 Liberty Avenue
                           Federated Investors Tower
                      Pittsburgh, Pennsylvania 15222-3779
                    (Name and Address of Agent for Service)
                (Notice should be sent to the Agent for Service)

It is proposed that this filing will become effective:

 X    immediately upon filing pursuant to paragraph (b)
___ on __________________pursuant to paragraph (b)
     60 days after filing pursuant to paragraph (a) (i)
 _  on ___________________pursuant to paragraph (a) (i)
     75 days after filing pursuant to paragraph (a)(ii)
     on pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
     This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.


                                   Copies to:
                           Matthew G. Maloney, Esquire
                              Dickstein Shapiro, LLP
                                 1825 Eye Street
                              Washington, D.C. 20006

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated MDT All Cap Core Fund

A Portfolio of Federated MDT Series

PROSPECTUS

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December 11, 2006

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CLASS A SHARES
CLASS C SHARES

A mutual fund seeking long-term capital appreciation by investing primarily in the common stock of U.S. companies.

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? 6

What are the Fund's Investment Strategies? 7

What are the Principal Securities in Which the Fund Invests? 9

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

What Do Shares Cost? 17

How is the Fund Sold? 24

Payments to Financial Intermediaries 25

How to Purchase Shares 28

How to Redeem and Exchange Shares 30

Account and Share Information 34

Who Manages the Fund? 37

Legal Proceedings 39

Financial Information 40

Appendix A: Hypothetical Investment and Expense Information 43

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is long-term capital appreciation. 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 seeks to achieve its objective by investing primarily in the common stock of U.S. companies. The Fund's investment adviser (Adviser) uses a disciplined, quantitative process in its stock selection. This strategy seeks to maximize compound annual return while controlling risk. The Adviser's investment strategy utilizes a whole market, all-cap/all-style approach by selecting most of its investments from companies listed in the Russell 3000 Index, an index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. As of September 30, 2006, companies in the Russell 3000 Index ranged in market capitalization from $ 40 million to $ 406 billion.

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Individual stocks are selected for inclusion in the Fund based upon the quantitative model's stock selection process. The model seeks to screen its universe of stocks for stocks that meet certain valuation (i.e., price-to-book ratio, price-to-earnings ratio) and performance metrics (i.e., earnings momentum or earnings growth) that the Adviser believes might be indicative of an attractive investment opportunity. The selection process also factors in trading costs (particularly market impact) by biasing the Fund towards those stocks which have less trading costs. The Adviser's process also utilizes diversification constraints which keep the portfolio diversified by business, industry and sector.

The Fund may invest in derivatives, such as options or futures, for any purpose consistent with its investment strategy. As more fully described in this prospectus, the Fund's investments may include, but are not limited to, the following: equity securities of domestic and foreign issuers (including American Depository Receipts), exchanged traded funds (ETFs) and derivative instruments, such as futures and options.

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:

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
Small, Medium and Large Sized Companies Risks. The Fund may invest in any size company including small and mid-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. You should expect that the value of the Fund's shares will be more volatile than a fund that invests exclusively in large-capitalization companies.
Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Additionally, growth stocks may not pay dividends or may pay lower dividends than value stocks.
Risks Related to Investing for Value. Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. Additionally, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
Risks of Foreign Investing. Because the Fund may invest in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of the Shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.
Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers. Because the Fund may invest in American Depositary Receipts (ADRs) and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.

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Risks of Investing in Derivative Contracts and Hybrid Instruments. The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as stock market, interest rate, credit, liquidity and leverage risks .

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Credit Risks. Credit risk includes the possibility that a party to a transaction (such as a derivative 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. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.
Leverage Risks. Leverage risk is created when an investment (such as a derivative transaction) exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.
Exchange-Traded Funds Risks. An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded). As with traditional mutual funds, ETFs charge asset-based fees. The Funds will indirectly pay a proportional share of the asset-based fees of the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate with the changes in the value of the ETFs in which the Funds invest. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.

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

Risk/Return Bar Chart and Table

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The Fund's Class A Shares commenced operations on February 12, 2003. For the period prior to the commencement of operations of Class A Shares, the performance information shown in the bar chart below is for the Fund's Institutional Shares, adjusted to reflect the expenses of Class A Shares.

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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 Class A 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 total returns shown in the bar chart do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.

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The Fund's Class A Shares total return for the six-month period from January 1, 2006 to September 30, 2006 was 4.98%.

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Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 12.25% (quarter ended December 31, 2003). Its lowest quarterly return was (0.43)% (quarter ended September 30, 2004).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class A and Class C Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for the Fund's Class A Shares to illustrate the effect of federal taxes on the Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Russell 3000 Index (Russell 3000), a broad-based market index, and the Lipper Multi-Cap Core Funds Average (LMCCFA), an average of funds with similar objectives. Index returns do not reflect taxes, sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. Indexes and averages are unmanaged and it is not possible to invest directly in an index or average.

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(For the Periods Ended December 31, 2005)

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	<R>1 Year</R>	<R>Start of Performance^1</R>
<R>Class A Shares:^2,3</R>
<R>Return Before Taxes</R>	<R>5.50%</R>	<R>16.28%</R>
<R>Return After Taxes on Distributions^4</R>	<R>3.98%</R>	<R>14.91%</R>
<R>Return After Taxes on Distributions and Sale of Fund Shares^4</R>	<R>4.11%</R>	<R>13.53%</R>
<R>Class C Shares^2</R>	<R>10.18%</R>	<R>17.56%</R>
<R>Russell 3000^5</R>	<R>6.12%</R>	<R>17.34%</R>
<R>LMCCFA6</R>	<R>8.22%</R>	<R>17.68%</R>

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1 The Fund's Institutional Shares commenced operations on October 1, 2002. Class A Shares and Class C Shares commenced operations on February 12, 2003 and September 15, 2005, respectively. The returns for the two indexes have been calculated since the inception of the Fund's Institutional Shares.

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2 The Fund's Class A Shares and Class C Shares total returns for such periods are those of the Fund's Institutional Shares, but adjusted to reflect the sales charges or contingent deferred sales charge (CDSC) and expenses applicable to that Class.

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3 The returns for Class A Shares have been restated to reflect the imposition of a front-end sales charge on purchases as of November 28, 2005.

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

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5 The Russell 3000 Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. The performance of the index assumes the reinvestment of dividends or other distributions but does not reflect deductions for fees, expenses or taxes.

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6 The Lipper Multi-Cap Core Funds Index is the average of the 30 largest funds in the Lipper Multi-Cap Core Funds category. These funds, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-cap funds typically have between 25% to 75% of their assets invested in companies with market capitalizations (on a three-year weighted average basis) above 300% of the dollar weighted median market capitalization of the middle 1,000 securities of the S&P Super Composite 1500 Index. Multi-cap core funds have more latitude in the companies in which they invest. These funds typically have an average price-to-book ratio and three-year-sales-per-growth value, compared to the S&P Super Composite 1500 Index. The return of the index assumes the reinvestment of any dividends or other distributions.

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What are the Fund's Fees and Expenses?

FEDERATED MDT ALL CAP CORE FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.75%	0.75%
Distribution (12b-1) Fee	0.25%³	0.75%
Other Expenses⁴	0.53%	0.53%
Total Annual Fund Operating Expenses	1.53%	2.03%
Fee Waiver and/or Expense Reimbursement (contractual)	0.03%	0.00%
Net Annual Fund Operating Expenses (after contractual waiver/reimbursement)²	1.50%	2.03%

1 The percentages shown are annualized based on anticipated expenses for the fiscal period ending July 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 (except as discussed in note 2), the distributor expects to waive certain amounts. This is shown below along with the net expenses the Fund expects to pay for the fiscal period ending July 31, 2007.
Additional Waivers of Fund Expenses (voluntary)	0.22%	0.00%
Total Anticipated Annual Fund Operating Expenses (after waivers/reimbursement)	1.28%	2.03%
2 Under the investment advisory contract, the Adviser is obligated to waive all or a portion of its investment advisory fee which it is otherwise entitled to receive, and/or reimburse other operating expenses (excluding interest, taxes and brokerage commissions), in order to limit the aggregate annual operating expenses for the Fund's Class A Shares and Class C Shares to not more than 1.50% and 2.25%, respectively, of its daily net assets. Any waiver by the distributor that reduces such expenses (as discussed elsewhere in these notes) may have the effect of reducing the amount to be waived or reimbursed by the Adviser pursuant to its contractual commitment. It is anticipated that this commitment will expire in November 2008.
3 Although not contractually obligated to do so, the Fund expects to voluntarily elect not to accrue or charge the distribution (12b-1) fee for Class A Shares during the fiscal period ending July 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.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class A and Class C 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 Class A and Class C Shares operating expenses are before waivers/reimbursement as shown in the Table and remain the same. For Class A Shares, the 1 Year dollar amount and the dollar amounts for the first and second year of the 3, 5 and 10 Years column reflect the contractually imposed expense limitation of 1.50%. The third year of the 3, 5 and 10 Years column reflects the contractually imposed expense limitation of 1.50% for four months and the "Total Annual Fund Operating Expenses" of Class A Shares of the Fund without any waivers for the remainder of the year. The fourth and later years within the 5 and 10 Years column reflect the "Total Annual Fund Operating Expenses" of the Fund's Class A Shares without any waivers. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

	1 Year	3 Years	5 Years	10 Years
Class A Shares:
Expenses assuming redemption	$694	$1,000	$1,332	$2,267
Expenses assuming no redemption	$694	$1,000	$1,332	$2,267
Class C Shares:
Expenses assuming redemption	<R>$ 404</R>	<R>$ 730</R>	$1,182	$2,435
Expenses assuming no redemption	<R>$ 304</R>	<R>$ 730</R>	$1,182	$2,435

What are the Fund's Investment Strategies?

The Fund seeks to achieve its objective by investing primarily in the common stock of U.S. companies. The Fund utilizes a whole market, all-cap/all-style strategy. The Adviser selects most of its investments from companies listed in the Russell 3000 Index, an index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. The Adviser believes that the whole market approach provides two main advantages. First, it allows an investor to participate in all major areas of the U.S. equity market (companies of all sizes with both growth and value characteristics) in a single fund. Second, through bottom-up stock selection and subject to risk controls, it provides the ability to overweight or underweight segments of the market represented by those stocks which the Adviser's quantitative model (referred to as the Optimum Q Process) views as opportunities. The Federated MDT All Cap Core Fund's strategy was developed using a proprietary Optimum Q Process.

Individual stocks are selected for inclusion in the Fund based upon the Optimum Q's stock selection process. The model seeks to screen its universe of stocks for stocks that meet certain valuation (i.e., price-to-book ratio, price-to-earnings ratio) and performance metrics (i.e., earnings momentum or earnings growth) that the Adviser believes might be indicative of an attractive investment opportunity. The selection process also factors in trading costs (particularly market impact) by biasing the Fund towards those stocks which have less trading costs. The Adviser's process also utilizes diversification constraints which keep the portfolio diversified by business, industry and sector.

The Adviser believes that by using a disciplined, quantitative process, its universe of stocks can be analyzed daily and more objectively than by following a more traditional, labor intensive approach. The strategy seeks to maximize compound annual return while controlling risk. The portfolio is constructed from the bottom up--considering profit trends, earnings risk, and company valuation--in much the same way as a fundamental analyst would. The process takes into account trading costs to ensure that trades are generated only to the extent they are expected to be profitable on an after trading cost basis. Risk is controlled through diversification constraints. These constraints limit both the size of an investment in any one company and the extent to which the portfolio's exposure to any one business, industry or sector differs from that of the strategy's universe of possible investments. As mentioned above, the strategy's "universe" of possible investments approximates that of the Russell 3000 Index.

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Because the Fund invests in companies that are defined largely by reference to the Russell 3000 Index, the market capitalization of companies in which the Fund may invest will vary with market conditions. The Russell Index is reconstituted on an annual basis. As of September 30, 2006, companies in the Russell 3000 Index ranged in market capitalization from $ 40 million to $ 406 billion.

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The Fund may use derivative contracts and/or hybrid instruments to implement elements of its investment strategy. For example, the Fund may use derivative contracts and/or hybrid instruments to increase or decrease the allocation of the portfolio to securities, currencies or types of securities in which the Fund may invest directly. The Fund may also, for example, use derivative contracts to:

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obtain premiums from the sale of derivative contracts;

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realize gains from trading a derivative contract; or

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hedge against potential losses.

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There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

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The Fund may use other techniques in seeking to achieve the investment objective, such as, buying and selling futures contracts, swaps, options, when-issued securities and exchange traded funds, to increase or decrease the Fund's exposure to changing security prices or other factors that affect security values.

PORTFOLIO TURNOVER

The Fund actively trades its portfolio securities in an attempt to achieve its investment objective. Active trading will cause the Fund to have an increased portfolio turnover rate, which is likely to generate shorter-term gains (losses) for its shareholders, which are taxed at a higher rate than longer-term gains (losses). Actively trading portfolio securities increases the Fund's trading costs and may have an adverse impact on the Fund's performance.

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?

EQUITY SECURITIES

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

Common Stocks

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

Preferred Stocks

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

FOREIGN SECURITIES

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

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

ADRs and Domestically Traded Securities of Foreign Issuers

American Depositary Receipts, which are traded in U.S. markets, represent interests in underlying securities issued by a foreign company and not traded in the United States. ADRs provide a way to buy shares of foreign based companies in the United States rather than in overseas markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange transactions. The Fund may also invest in securities issued directly by foreign companies and traded in U.S. dollars in U.S. markets.

Derivative Contracts

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

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

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

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

Futures Contracts

Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date, and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts. The Fund can buy or sell financial futures, index futures and foreign currency forward contracts.

Options

Options are rights to buy or sell an underlying asset or instrument for a specified price (the exercise price) during, or at the end of, a specified period. The seller (or writer) of the option receives a payment, or premium, from the buyer, which the writer keeps regardless of whether the buyer uses (or exercises) the option. A call option gives the holder (buyer) the right to buy the underlying asset from the seller (writer) of the option. A put option gives the holder the right to sell the underlying asset to the writer of the option. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of underlying assets or instruments, including financial indices, individual securities, and other derivative instruments, such as futures contracts.

Swaps

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

Delayed Delivery Transactions

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

Securities Lending

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

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

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

Securities lending activities are subject to interest rate risks and credit risks.

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.

Additionally, the Fund may invest in ETFs. As with traditional mutual funds, ETFs charge asset-based fees, although these fees tend to be relatively low. ETFs do not charge initial sales charges or redemption fees and investors pay only customary brokerage fees to buy and sell ETF shares.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

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

Small, Medium and Large Sized Companies Risks

The Fund may invest in any size company including small and mid-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. Larger, more established companies may be unable to respond quickly to new competitive challenges like changes in consumer tastes or innovative smaller competitors. Small and mid-capitalization companies often have narrower markets and limited managerial and financial resources compared to larger, more established companies. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of the Fund's portfolio. You should expect that the value of the Fund's shares will be more volatile than a fund that invests exclusively in large-capitalization companies.

Risks Related to Investing for Growth

Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. For instance, the price of a growth stock may experience a larger decline on a forecast of lower earnings, a negative fundamental development, or an adverse market development. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. This means they depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks that pay higher dividends.

Risks Related to Investing for Value

Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. For instance, the price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Further, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.

Sector Risks

Companies with similar characteristics may be grouped together in broad categories called sectors. Sector risk is the possibility that a certain sector may underperform other sectors or the market as a whole. As the Adviser allocates more of the Fund's portfolio holdings to a particular sector, the Fund's performance will be more susceptible to any economic, business or other developments which generally affect that sector.

Risks of Foreign Investing

Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than U.S. companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.

Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.

Currency Risks

The Adviser attempts to manage currency risk by limiting the amount the Fund invests in securities denominated in a particular currency. However, diversification will not protect the Fund against a general increase in the value of the U.S. dollar relative to other currencies.

Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers

Because the Fund may invest in ADRs and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.

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Risks of Investing in Derivative Contracts and Hybrid Instruments

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The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying Reference or Valuation Instruments or, if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts and hybrid instruments may be erroneously priced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Fourth, derivative contracts and hybrid instruments may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Fifth, a common provision in over-the-counter (OTC) derivative contracts permits the counterparty to terminate any such contract between it and the Fund, if the value of the Fund's total net assets declines below a specified level over a given time period. Factors that may contribute to such a decline (which usually must be substantial) include significant shareholder redemptions and/or a marked decrease in the market value of the Fund's investments. Any such termination of the Fund's OTC derivative contracts may adversely affect the Fund (for example, by increasing losses and/or costs, and/or preventing the Fund from fully implementing its investment strategies). Finally, derivative contracts and hybrid instruments may also involve other risks described herein, such as stock market, interest rate, creditcurrency, liquidity and leverage risks.

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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.

Credit risk includes the possibility that a party to a transaction (such as a derivative 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 equity securities that are not widely held. This may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell a security, sell other securities to raise cash or give up an investment opportunity, any of which could have a negative effect on the Fund's performance. Infrequent trading of securities may also lead to an increase in their price volatility.

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

Leverage Risks

Leverage risk is created when an investment (such as a derivative transaction) exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain. Investments can have these same results if their returns are based on a multiple of a specified index, security or other benchmark.

Exchange-Traded Funds Risks

An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange traded). In addition, ETFs may be subject to the following risks that do not apply to conventional funds: (i) the market price of an ETF's shares may trade above or below their net asset value; (ii) an active trading market for an ETF's shares may not develop or be maintained; (iii) trading of an ETF's shares may be halted if the listing exchange's officials deem such action appropriate; and (iv) an ETF may not fulfill its objective of tracking the performance of the index it seeks to track. As with traditional mutual funds, ETFs charge asset-based fees. The Funds will indirectly pay a proportional share of the asset-based fees of the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate with the changes in the value of the ETFs in which the Funds invest. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.

What Do Shares Cost?

When the Fund holds foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares.

NAV is determined 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."

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Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

If prices are not available from an independent pricing service, securities and derivatives contracts 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 or contract as provided by an investment dealer or other financial institution that deals in the security or contract.

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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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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. For securities of foreign issuers, such events could also include political or other developments affecting the economy or markets in which the issuer conducts its operations or its securities are traded.

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.

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

Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charges
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	5.50%	0.00%
Class C	$1,500/$100	1.00%	1.00%

1 The minimum subsequent investment amounts for Systematic Investment Programs (SIP) is $50. Financial intermediaries may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. To maximize your return and minimize the sales charges and marketing fees, purchases of Class C Shares are generally limited to $1,000,000. Purchases in excess of these limits may be made in Class A Shares. If your Shares are held on the books of the Fund in the name of a financial intermediary, you may be subject to rules of your financial intermediary that differ from those of the Fund. See "Purchase Limits on Class C Shares" below.

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

3 See "Sales Charge When You Redeem."

As shown in the table above, each class of Shares has a different sales charge structure. In addition, the ongoing annual operating expenses ("expense ratios"), as well as the compensation payable to financial intermediaries, also vary among the classes. Before you decide which class to purchase, you should review the different charges and expenses of each class carefully, in light of your personal circumstances, and consult with your financial intermediary.

Among the important factors to consider are the amount you plan to invest and the length of time you expect to hold your investment. You should consider, for example, that it may be possible to reduce the front-end sales charges imposed on purchases of Class A Shares. Among other ways, Class A Shares have a series of "breakpoints," which means that the front-end sales charges decrease (and can be eliminated entirely) as the amount invested increases. (The breakpoint schedule is set out below under "Sales Charge When You Purchase.") Class C Shares bear a relatively low front-end sales charge and a contingent deferred sales charge only if redeemed within one year after purchase; however, the asset-based 12b-1 fees charged to Class C Shares are greater than those charged to Class A Shares.

You should also consider that the expense ratio for Class A Shares will be lower than that for Class C Shares. Thus, the fact that a relatively low front-end charge is imposed on purchases of Class C Shares does not always make them preferable to Class A Shares.

SALES CHARGE WHEN YOU PURCHASE

The following tables list the sales charges which will be applied to your Share purchase, subject to the breakpoint discounts indicated in the tables and described below.

Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $50,000	5.50%	5.82%
$50,000 but less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%

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

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

REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

Your investment may qualify for a reduction or elimination of the sales charge, also known as a breakpoint discount. The breakpoint discounts offered by the Fund are indicated in the tables above. You or your financial intermediary must notify the Fund's Transfer Agent of eligibility for any applicable breakpoint discount at the time of purchase.

In order to receive the applicable breakpoint discount, it may be necessary at the time of purchase for you to inform your financial intermediary or the Transfer Agent of the existence of other accounts in which there are holdings eligible to be aggregated to meet a sales charge breakpoint ("Qualifying Accounts"). Qualifying Accounts mean those Share accounts in the Federated funds held directly or through a financial intermediary or a through a single-participant retirement account by you, your spouse, your parents (if you are under age 21) and/or your children under age 21, which can be linked using tax identification numbers (TINs), social security numbers (SSNs) or broker identification numbers (BINs). Accounts held through 401(k) plans and similar multi-participant retirement plans, or through "Section 529" college savings plans or those accounts which cannot be linked using TINs, SSNs or BINs, are not Qualifying Accounts.

In order to verify your eligibility for a breakpoint discount, you will be required to provide to your financial intermediary or the Transfer Agent certain information on your New Account Form and may be required to provide account statements regarding Qualifying Accounts. If you purchase through a financial intermediary, you may be asked to provide additional information and records as required by the financial intermediary. Failure to provide proper notification or verification of eligibility for a breakpoint discount may result in your not receiving a breakpoint discount to which you are otherwise entitled. Breakpoint discounts apply only to your current purchase and do not apply retroactively to previous purchases. The sales charges applicable to the Shares offered in this prospectus, and the breakpoint discounts offered with respect to such Shares, are described in full in this prospectus. Because the prospectus is available on Federated's website free of charge, Federated does not disclose this information separately on the website.

Contingent upon notification to the Transfer Agent, the sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

Larger Purchases

purchasing Class A Shares in greater quantities to reduce the applicable sales charge;

Concurrent and Accumulated Purchases

combining concurrent purchases of and/or current investments in Class A, Class B, Class C, Class F and Class K Shares of any Federated fund made or held by Qualifying Accounts; the purchase amount used in determining the sales charge on your additional Share purchase will be calculated by multiplying the maximum public offering price times the number of Class A, Class B, Class C, Class F and Class K Shares of any Federated fund currently held in Qualifying Accounts and adding the dollar amount of your current purchase; or

Letter of Intent (Class A Shares only)

signing a letter of intent to purchase a qualifying amount of Class A Shares within 13 months. (Call your financial intermediary or the Fund for more information.) The Fund's custodian will hold Shares in escrow equal to the maximum applicable sales charge. If you complete the Letter of Intent, the Custodian will release the Shares in escrow to your account. If you do not fulfill the Letter of Intent, the Custodian will redeem the appropriate amount from the Shares held in escrow to pay the sales charges that were not applied to your purchases.

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PURCHASE LIMITS ON CLASS C SHARES

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In order to maximize shareholder returns and minimize sales charges and marketing fees, an investor's purchases of Class C Shares are generally limited to $1,000,000. In applying the limit, the dollar amount of the current purchase is added to the product obtained by multiplying the maximum public offering price times the number of Class A, Class B, Class C, Class F and Class K shares of any Federated fund currently held in linked Qualifying Accounts. If the sum of these two amounts would equal or exceed the limit, then the current purchase order will not be processed. Instead, the Distributor will attempt to contact the investor or the investor's financial intermediary to offer the opportunity to convert the order to Class A Shares. If your Shares are held on the books of the Fund in the name of a financial intermediary, you may be subject to rules of your financial intermediary that differ from those of the Fund.

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ELIMINATING THE SALES CHARGE

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Contingent upon notification to the Transfer Agent, the sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
through a financial intermediary that did not receive a dealer reallowance on the purchase;
with reinvested dividends or capital gains;
as a shareholder that originally became a shareholder of a Federated fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;
as a Federated Life Member (Federated shareholders who originally were issued shares through the "Liberty Account," which was an account for the Liberty Family of Funds on February 28, 1987, or who invested through an affinity group prior to August 1, 1987, into the Liberty Account) (Class A Shares only);
as a Trustee, employee or former employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any financial intermediary that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals or a trust, pension or profit-sharing plan for these individuals; or
pursuant to the exchange privilege.

The sales charge will not be eliminated if you purchase Shares of the Fund through an exchange of shares of Liberty U.S. Government Money Market Trust unless your Liberty shares were acquired through an exchange of shares on which the sales charge had previously been paid.

SALES CHARGE WHEN YOU REDEEM

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

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

Shares that are not subject to a CDSC; and
Shares held the longest. (To determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund.)

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

Class A Shares:

If you make a purchase of Class A Shares in the amount of $1 million or more and your financial intermediary received an advance commission on the sale, you will pay a 0.75% CDSC on any such shares redeemed within 24 months of the purchase.

Class C Shares:

You will pay a 1% CDSC if you redeem Shares within 12 months of the purchase date.

If your investment qualifies for a reduction or elimination of the CDSC, you or your financial intermediary must notify the Transfer Agent at the time of redemption. If the Transfer Agent is not notified, the CDSC will apply.

Contingent upon notification to the Transfer Agent, you will not be charged a CDSC when redeeming Shares:

following the death of the last surviving shareholder on the account or your post-purchase disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986 (the beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder on the account);
representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 70-1/2;
purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;
purchased by Trustees, employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of a financial intermediary that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;
purchased through a financial intermediary that did not receive an advance commission on the purchase;
purchased with reinvested dividends or capital gains;
redeemed by the Fund when it closes an account for not meeting the minimum balance requirements; or
purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period. (The holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange.)

How is the Fund Sold?

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The Fund offers four Share classes: Class A Shares, Class C Shares, Class K Shares and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class A Shares and Class C Shares. All Share classes have different sales charges and other expenses which affect their performance. The Fund also offers by separate prospectus an additional class of Shares that may be preferable for shareholders purchasing $25,000 or more. Contact your financial intermediary or call 1-800-341-7400 for more information concerning the other class.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to institutions on behalf of their customers 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.

FRONT-END SALES CHARGE REALLOWANCES

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

When a financial intermediary's customer purchases Shares, the financial intermediary may receive a Dealer Reallowance as follows:

Class A Shares:
Purchase Amount		Dealer Reallowance as a percentage of Public Offering Price
Less than $50,000		5.00%
$50,000 but less than $100,000		4.00%
$100,000 but less than $250,000		3.25%
$250,000 but less than $500,000		2.25%
$500,000 but less than $1 million		1.80%
$1 million or greater		0.00%
Class C Shares:
All Purchase Amounts		1.00%

ADVANCE COMMISSIONS

When a financial intermediary's customer purchases Shares, the financial intermediary may receive an advance commission as follows:

Class A Shares (for purchases over $1 million)
Purchase Amount		Advance Commission as a Percentage of Public Offering Price
First $1 million - $5 million		0.75%
Next $5 million - $20 million		0.50%
Over $20 million		0.25%

Advance commissions are calculated on a year by year basis based on amounts invested during that year. Accordingly, with respect to additional purchase amounts, the advance commission breakpoint resets annually to the first breakpoint on the anniversary of the first purchase.

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

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		Advance Commission as a Percentage of Public Offering Price
All Purchase Amounts		1.00%

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% for Class A Shares and 0.75% for Class C Shares of average net assets to the Distributor for the sale, distribution, administration and customer servicing of the Fund's Class A Shares and Class C 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 sales charges and marketing fees.

SERVICE FEES

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. Under certain agreements, rather than paying financial intermediaries directly, the Fund may pay Service Fees to FSSC and FSSC will use the fees to compensate financial intermediaries. If a financial intermediary receives Service Fees on an account, it is not eligible to also receive Account Administration Fees on that same account.

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 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

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

THROUGH 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 three business days. 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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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

THROUGH AN EXCHANGE

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

BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the SIP section of the New Account Form or by contacting the Fund or your financial intermediary.

BY AUTOMATED CLEARING HOUSE (ACH)

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

RETIREMENT INVESTMENTS

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

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through 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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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

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.

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.

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGE

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

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

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

The Fund may modify or terminate the exchange privilege at any time. 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."

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

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

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments. 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 dividend or capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the record date for a dividend or capital gain. Contact your 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, non-retirement accounts may be closed if redemptions or exchanges cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in completing your federal, state, and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable 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.

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

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 also 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.

The Fund's objective is that its restrictions on short-term trading should apply to all shareholders, 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.

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 (except for recent purchase and sale transaction information, which is updated quarterly) 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 "Portfolio Holdings" and select the appropriate link opposite the name of the Fund, or select the name of the Fund from the menus on the "Products" section, and from the Fund's page click on the "Portfolio Holdings" or "Composition" link. A user is required to register on the website the first time the user accesses this information.

You may also access from the "Products" section of the website portfolio information as of the end of the Fund's fiscal quarters. 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 name of the Fund, clicking on "Prospectuses and Regulatory Reports" 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.

Who Manages the Fund?

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The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated MDTA LLC, which is registered as an investment adviser with the SEC. Federated MDTA LLC is responsible for the day-to-day management of the Fund in accordance with the Fund's investment objectives and policies (subject to the general supervision of the Fund's Board). This includes making investment decisions, and buying and selling securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transactions settlement and 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 is 125 Cambridge Park Drive, Cambridge, Massachusetts, 02140. The address of FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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Federated MDTA LLC is the Adviser to approximately $6.8 billion in total assets including, $6.3 billion in separately managed account portfolios, $197 million in institutional accounts and approximately $311 million in mutual funds as of July 25, 2006, that use Federated MDTA's proprietary quantitative investment process.

Other subsidiaries of Federated advise approximately 136 equity, fixed-income, and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $213 billion in assets as of December 31, 2005. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1,305 employees. Federated provides investment products to more than 5,500 investment professionals and institutions.

PORTFOLIO MANAGEMENT INFORMATION

The Fund is managed by the Quantitative Equity Strategies Group, headed by Dr. David M. Goldsmith, who is primarily responsible for the day-to-day management of the Fund.

David M. Goldsmith, Ph.D., Chief Investment Officer, joined MDT Advisers in 1990. He has been responsible for the development of the Optimum Q Process and for the past five years he has been in charge of the Quantitative Equity Strategies Group. Dr. Goldsmith supervises the Quantitative Equity Strategies Group which assists in the development, maintenance and operation of the Optimum Q Process. Dr. Goldsmith has over 23 years' experience in the development and application of financial and statistical modeling techniques. He received an A.B., Summa Cum Laude, in Economics from Princeton University, where he won the Wolf Balleison Memorial Prize for the outstanding senior thesis in economics. Dr. Goldsmith also received a Ph.D., Economics, with a concentration in Finance from Harvard University.

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. Under the investment advisory contract, which is subject to annual renewal by the Fund's Board of Trustees, the Adviser will waive the amount, limited to the amount of the advisory fee, by which the Fund's aggregate annual operating expenses, including the investment advisory fee but excluding interest, taxes, brokerage commissions, expenses of registering or qualifying the Fund and its shares under federal and state laws and regulations, expenses of withholding taxes, and extraordinary expenses exceed 1.50% for Class A Shares and 2.25% for Class C Shares of its average daily net assets.

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.

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.

Financial Information

FINANCIAL HIGHLIGHTS

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

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The information for the fiscal year ended July 31, 2006 and July 31, 2003 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. As discussed in the Annual Report, the information for fiscal years ended July 31, 2005 and 2004 was audited by another independent registered public accounting firm.

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MDT All Cap Core Fund (Predecessor Fund) was reorganized into Federated MDT All Cap Core Fund (Fund), a portfolio of Federated MDT Series, as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The information presented incorporates the operations of the Predecessor Fund which, as a result of the reorganization, are the Fund's operations.

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Financial Highlights - Class A Shares

(For a Share Outstanding Throughout Each Period)

For the Year Ended July 31	2006	¹	2005		2004		2003	^1,2
Net Asset Value, Beginning of Period	$15.26		$13.52		$11.75		$10.17
Income from Investment Operations:
Net investment income (loss)	0.00	^3,4	(0.00	)^3,4	0.01		0.00	⁴
Net realized and unrealized gain on investments	0.70		2.85		2.05		1.58
TOTAL FROM INVESTMENT OPERATIONS	0.70		2.85		2.06		1.58
Less Distributions:
Distributions from net investment income	(0.00	)⁴	(0.03	)	(0.02	)	--
Distributions from net realized gain on investments	(0.88	)	(1.08	)	(0.27	)	--
TOTAL DISTRIBUTIONS	(0.88	)	(1.11	)	(0.29	)	--
Net Asset Value, End of Period	$15.08		$15.26		$13.52		$11.75
Total Return⁵	4.59	%	21.79	%	17.53	%	15.54	%

Ratios to Average Net Assets:
Net expenses	1.50	%	1.50	%	1.50	%	1.50	%⁶
Net investment income (loss)	0.03	%	(0.02	)%	0.05	%	0.21	%⁶
Expense waiver/reimbursement⁷	0.05	%	0.04	%	0.15	%	0.84	%⁶
Supplemental Data:
Net assets, end of period (000 omitted)	$101,723		$30,336		$9,628		$1,585
Portfolio turnover	212	%	204	%	96	%	172	%⁸

1 The year ended July 31, 2006 and the period ended July 31, 2003 were audited by Ernst & Young LLP. The years ended July 31, 2004 and 2005 were audited by another independent registered public accounting firm.

2 Reflects operations for the period from February 12, 2003 (date of initial public investment) to July 31, 2003.

3 Based on average shares outstanding.

4 Represents less than $0.01.

5 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year, if any, are not annualized.

6 Computed on an annualized basis.

7 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.

8 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended July 31, 2003.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, which can be obtained free of charge.

Financial Highlights - Class C Shares

(For a Share Outstanding Throughout the Period)

For the Period Ended July 31	2006
Net Asset Value, Beginning of Period	$15.25
Income from Investment Operations:
Net investment income (loss)	(0.10	)²
Net realized and unrealized gain on investments	0.72
TOTAL FROM INVESTMENT OPERATIONS	0.62
Less Distributions:
Distributions from net realized gain on investments	(0.88	)
Net Asset Value, End of Period	$14.99
Total Return³	4.01	%

Ratios to Average Net Assets:
Net expenses	2.25	%⁴
Net investment income (loss)	(0.72	)%⁴
Expense waiver/reimbursement⁵	0.05	%⁴
Supplemental Data:
Net assets, end of period (000 omitted)	$48,189
Portfolio turnover⁶	212	%

1 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.

2 Based on average shares outstanding.

3 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year, if any, are not annualized.

4 Computed on an annualized basis.

5 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.

6 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended July 31, 2006.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, which can be obtained free of charge.

Appendix A: Hypothetical Investment and Expense Information

The following charts provide 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. Each 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. Each chart also assumes that the Fund's annual expense ratio stays the same throughout the 10-year period (except for the impact of changes in contractual expense limitation commitments) and that all dividends and distributions are reinvested. The annual expense ratio used in each chart is the same as stated in the "Fees and Expenses" table of this prospectus (and thus may not reflect any voluntary fee waiver or expense reimbursement currently in effect). However, the annual expense ratio is reflective of any contractual fee waiver or expense reimbursement for the period of the contractual commitment. It is anticipated that this commitment will expire in November, 2008. 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.

FEDERATED MDT ALL CAP CORE FUND - CLASS A SHARES
ANNUAL EXPENSE RATIO: 1.50%
MAXIMUM FRONT-END SALES CHARGE: 5.50%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$472.50	$9,922.50	$694.23	$9,780.75
2	$9,780.75	$489.04	$10,269.79	$149.28	$10,123.08
Contractual/Gross				Annual Expense Ratio: 1.52%
3	$10,123.08	$506.15	$10,629.23	$156.55	$10,475.36
Gross				Annual Expense Ratio: 1.53%
4	$10,475.36	$523.77	$10,999.13	$163.05	$10,838.85
5	$10,838.85	$541.94	$11,380.79	$168.71	$11,214.96
6	$11,214.96	$560.75	$11,775.71	$174.57	$11,604.12
7	$11,604.12	$580.21	$12,184.33	$180.62	$12,006.78
8	$12,006.78	$600.34	$12,607.12	$186.89	$12,423.42
9	$12,423.42	$621.17	$13,044.59	$193.38	$12,854.51
10	$12,854.51	$642.73	$13,497.24	$200.09	$13,300.56
Cumulative		$5,538.60		$2,267.37

FEDERATED MDT ALL CAP CORE FUND - CLASS C SHARES
ANNUAL EXPENSE RATIO: 2.03%
MAXIMUM FRONT-END SALES CHARGE: 1.00%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$495.00	$10,395.00	$303.95	$10,194.03
2	$10,194.03	$509.70	$10,703.73	$210.01	$10,496.79
3	$10,496.79	$524.84	$11,021.63	$216.25	$10,808.54
4	$10,808.54	$540.43	$11,348.97	$222.67	$11,129.55
5	$11,129.55	$556.48	$11,686.03	$229.28	$11,460.10
6	$11,460.10	$573.01	$12,033.11	$236.09	$11,800.46
7	$11,800.46	$590.02	$12,390.48	$243.11	$12,150.93
8	$12,150.93	$607.55	$12,758.48	$250.33	$12,511.81
9	$12,511.81	$625.59	$13,137.40	$257.76	$12,883.41
10	$12,883.41	$644.17	$13,527.58	$265.42	$13,266.05
Cumulative		$5,666.79		$2,434.87

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An SAI dated December 11, 2006, includes additional information about the Fund and is incorporated by reference into this prospectus. 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 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. 811-21904

Federated
World-Class Investment Manager

Federated MDT All Cap Core 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 31421R106
Cusip 31421R205

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35350 ( 12/06)

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Federated is a registered mark of Federated Investors, Inc. 2006 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated MDT All Cap Core Fund

A Portfolio of Federated MDT Series

PROSPECTUS

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December 11, 2006

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INSTITUTIONAL SHARES

A mutual fund seeking long-term capital appreciation by investing primarily in the common stock of U.S. companies.

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 6

What are the Fund's Investment Strategies? 7

What are the Principal Securities in Which the Fund Invests? 9

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

What Do Shares Cost? 17

How is the Fund Sold? 18

Payments to Financial Intermediaries 19

How to Purchase Shares 20

How to Redeem and Exchange Shares 22

Account and Share Information 25

Who Manages the Fund? 29

Legal Proceedings 30

Financial Information 32

Appendix A: Hypothetical Investment and Expense Information 34

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:

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
Small, Medium and Large Sized Companies Risks. The Fund may invest in any size company including small and mid-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. You should expect that the value of the Fund's shares will be more volatile than a fund that invests exclusively in large-capitalization companies.
Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Additionally, growth stocks may not pay dividends or may pay lower dividends than value stocks.
Risks Related to Investing for Value. Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. Additionally, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
Risks of Foreign Investing. Because the Fund may invest in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of the Shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.
Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers. Because the Fund may invest in American Depositary Receipts (ADRs) and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.

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Risks of Investing in Derivative Contracts and Hybrid Instruments. The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as stock market, interest rate, credit, liquidity and leverage risks.

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Credit Risks. Credit risk includes the possibility that a party to a transaction (such as a derivative 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. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.
Leverage Risks. Leverage risk is created when an investment (such as a derivative transaction) exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.
Exchange-Traded Funds Risks. An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded). As with traditional mutual funds, ETFs charge asset-based fees. The Funds will indirectly pay a proportional share of the asset-based fees of the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate with the changes in the value of the ETFs in which the Funds invest. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.

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 total return for the six-month period from January 1, 2006 to September 30, 2006 was 5.09%.

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Within the period shown in the bar chart, the Fund's Institutional Shares highest quarterly return was 12.41% (quarter ended December 31, 2003). Its lowest quarterly return was (0.29)% (quarter ended September 30, 2004).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Institutional Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for the Fund's Institutional Shares to illustrate the effect of federal taxes on the Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Russell 3000 Index (Russell 3000), a broad-based market index, and the Lipper Multi-Cap Core Funds Average (LMCCFA), an average of funds with similar objectives. Index returns do not reflect taxes, sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. Indexes and averages are unmanaged and it is not possible to invest directly in an index or average.

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(For the Periods Ended December 31, 2005)

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	<R>1 Year</R>	<R>Start of Performance^1</R>
<R>Fund:</R>
<R>Return Before Taxes</R>	<R>12.29%</R>	<R>18.71%</R>
<R>Return After Taxes on Distributions^2</R>	<R>10.64%</R>	<R>17.36%</R>
<R>Return After Taxes on Distributions and Sale of Fund Shares^2</R>	<R>8.55%</R>	<R>15.73%</R>
<R>Russell 3000^3</R>	<R>6.12%</R>	<R>19.42%</R>
<R>LMCCFA^4</R>	<R>8.22%</R>	<R>17.68%</R>

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1 The Fund's Institutional Class start of performance date was October 1, 2002.

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

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3 The Russell 3000 Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. The performance of the index assumes the reinvestment of dividends or other distributions but does not reflect deductions for fees, expenses or taxes.

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4 The Lipper Multi-Cap Core Funds Index is the average of the 30 largest funds in the Lipper Multi-Cap Core Funds category. These funds, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-cap funds typically have between 25% to 75% of their assets invested in companies with market capitalizations (on a three-year weighted average basis) above 300% of the dollar-weighted median market capitalization of the middle 1,000 securities of the S&P Super Composite 1500 Index. Multi-cap core funds have more latitude in the companies in which they invest. These funds typically have an average price-to-book ratio and three-year-sales-per-growth value, compared to the S&P Super Composite 1500 Index. The return of the index assumes the reinvestment of any dividends or other distributions.

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What are the Fund's Fees and Expenses?

FEDERATED MDT ALL CAP CORE FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.75%
Distribution (12b-1) Fee		None
Other Expenses³		0.28%
Total Annual Fund Operating Expenses		1.03%

1 The percentages shown are annualized based on anticipated expenses for the fiscal period ending July 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.
2 Under the investment advisory contract, the Adviser is obligated to waive all or a portion of its investment advisory fee which it is otherwise entitled to receive, and/or reimburse other operating expenses (excluding interest, taxes and brokerage commissions), in order to limit the aggregate annual operating expenses for the Institutional Shares of the Fund to not more than 1.25% of its daily net assets. It is anticipated that this commitment will expire in November 2008.
3 Includes a recordkeeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments to Financial Intermediaries" herein.

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.

1 Year	$	105
3 Years	$	328
5 Years	$	569
10 Years	$	1,259

What are the Fund's Investment Strategies?

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Obtain premiums from the sale of derivative contracts;

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Realize gains from trading a derivative contract; or

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Hedge against potential losses

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There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

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PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

Preferred Stocks

Foreign Securities

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN ISSUERS

American Depositary Receipts, which are traded in United States markets, represent interests in underlying securities issued by a foreign company and not traded in the United States. ADRs provide a way to buy shares of foreign based companies in the United States rather than in overseas markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange transactions. The Fund may also invest in securities issued directly by foreign companies and traded in U.S. dollars in U.S. markets.

Derivative Contracts

FUTURES CONTRACTS

OPTIONS

SWAPS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

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.

Securities lending activities are subject to interest rate risks and credit risks.

Investing in Securities of Other Investment Companies

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

Small, Medium and Large Sized Companies Risks

Risks Related to Investing for Growth

Risks Related to Investing for Value

Sector Risks

Risks of Foreign Investing

Currency Risks

Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers

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Risks of Investing in Derivative Contracts and Hybrid Instruments

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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

Leverage Risks

Exchange-Traded Funds Risks

What Do Shares Cost?

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The Fund generally values equity securities according to the last sale price or official closing price reported by the market in which they are primarily traded (either a national securities exchange or the over-the-counter market).

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Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

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How is the Fund Sold?

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The Fund offers four Share classes: Class A Shares, Class C Shares, Class K Shares, and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Shares. All Share classes have different sales charges and other expenses which affect their performance. Contact your financial intermediary or call 1-800-341-7400 for more information concerning the other classes.

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Payments to Financial Intermediaries

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. 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

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The required minimum initial investment for Fund Shares is $25,000. For Trustees and Officers of the Federated MDT Funds or of the former MDT Funds shareholders of any MDT Fund as of August 26, 2005 , employees of the Adviser and its affiliates, their families, employee benefit plans sponsored by the Adviser, and former members of the Memorial Drive Trust, the required minimum initial investment of Fund Shares is $1,000. Shareholders eligible to purchase Institutional Shares of the Fund under these categories may be asked to include a written statement with their initial purchase verifying their qualification. 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.

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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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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)

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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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

PAYMENT METHODS FOR REDEMPTIONS

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

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.

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SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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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 does not issue share certificates.

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

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

FREQUENT TRADING POLICIES

PORTFOLIO HOLDINGS INFORMATION

Who Manages the Fund?

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The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated MDTA LLC, which is registered as an investment adviser with the SEC. Federated MDTA LLC is responsible for the day-to-day management of the Fund in accordance with the Fund's investment objectives and policies (subject to the general supervision of the Fund's Board). This includes making investment decisions, and buying and selling securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement, and 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 is 125 Cambridge Park Drive, Cambridge, Massachusetts, 02140. The address of FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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PORTFOLIO MANAGEMENT INFORMATION

The Fund is managed by the Quantitative Equity Strategies Group, headed by Dr. David M. Goldsmith, who is primarily responsible for the day-to-day management of the Fund.

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. Under the investment advisory contract, which is subject to annual renewal by the Fund's Board of Trustees, the Adviser will waive the amount, limited to the amount of the advisory fee, by which the Fund's aggregate annual operating expenses, including the investment advisory fee but excluding interest, taxes, brokerage commissions, expenses of registering or qualifying the Fund and its shares under federal and state laws and regulations, expenses of withholding taxes, and extraordinary expenses exceed 1.25% for Institutional Shares of its average daily net assets.

Legal Proceedings

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Financial Information

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FINANCIAL HIGHLIGHTS

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The information for the fiscal year ended July 31, 2006, and July 31, 2003, 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. As discussed in the Annual Report, the information for fiscal years ended July 31, 2005 and 2004, was audited by another independent registered public accounting firm.

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Financial Highlights

(For a Share Outstanding Throughout Each Period)

For the Year Ended July 31	2006	¹	2005		2004		2003	^1,2
Net Asset Value, Beginning of Period	$15.32		$13.55		$11.76		$10.00
Income From Investment Operations:
Net investment income	0.05	³	0.03	³	0.04		0.03
Net realized and unrealized gain on investments	0.70		2.87		2.05		1.75
TOTAL FROM INVESTMENT OPERATIONS	0.75		2.90		2.09		1.78
Less Distributions:
Distributions from net investment income	(0.02	)	(0.05	)	(0.03	)	(0.01	)
Distributions from net realized gain on investments	(0.88	)	(1.08	)	(0.27	)	(0.01	)
TOTAL DISTRIBUTIONS	(0.90	)	(1.13	)	(0.30	)	(0.02	)
Net Asset Value, End of Period	$15.17		$15.32		$13.55		$11.76
Total Return⁴	4.85	%	22.14	%	17.78	%	17.75	%

Ratios to Average Net Assets:
Net expenses	1.25	%	1.25	%	1.25	%	1.33	%⁵
Net investment income	0.28	%	0.23	%	0.30%		0.37	%⁵
Expense waiver/reimbursement⁶	0.05	%	0.04	%	0.15%		0.85	%⁵
Supplemental Data:
Net assets, end of period (000 omitted)	$42,656		$43,782		$31,532		$23,455
Portfolio turnover	212	%	204	%	96%		172	%⁷

2 Reflects operations for the period from October 1, 2002 (date of initial public investment) to July 31, 2003.

3 Based on average shares outstanding.

4 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year, if any, are not annualized.

5 Computed on an annualized basis.

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

7 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended July 31, 2003.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, 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 (except for the impact of changes in contractual expense limitation commitments) 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 voluntary fee waiver or expense reimbursement currently in effect). However, the annual expense ratio is reflective of any contractual fee waiver or expense reimbursement for the period of the contractual commitment. It is anticipated that this commitment will expire in November, 2008. 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.

FEDERATED MDT ALL CAP CORE FUND - INSTITUTIONAL SHARES
ANNUAL EXPENSE RATIO: 1.03%
MAXIMUM FRONT-END SALES CHARGE: 0.00%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$500.00	$10,500.00	$105.04	$10,397.00
2	$10,397.00	$519.85	$10,916.85	$109.21	$10,809.76
3	$10,809.76	$540.49	$11,350.25	$113.55	$11,238.91
4	$11,238.91	$561.95	$11,800.86	$118.06	$11,685.09
5	$11,685.09	$584.25	$12,269.34	$122.75	$12,148.99
6	$12,148.99	$607.45	$12,756.44	$127.62	$12,631.30
7	$12,631.30	$631.57	$13,262.87	$132.68	$13,132.76
8	$13,132.76	$656.64	$13,789.40	$137.95	$13,654.13
9	$13,654.13	$682.71	$14,336.84	$143.43	$14,196.20
10	$14,196.20	$709.81	$14,906.01	$149.12	$14,759.79
Cumulative		$5,994.72		$1,259.41

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A SAI dated December 11, 2006, includes additional information about the Fund and is incorporated by reference into this prospectus. 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 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.

Investment Company Act File No. 811-21904

Federated
World-Class Investment Manager

Federated MDT All Cap Core 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 31421R304

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35355 ( 12/06)

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Federated is a registered mark of Federated Investors, Inc. 2006 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated MDT All Cap Core Fund

A Portfolio of Federated MDT Series

PROSPECTUS

December 11, 2006

CLASS K SHARES

A mutual fund seeking long-term capital appreciation by investing primarily in the common stock of U.S. companies.

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

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

What are the Specific Risks of Investing in the Fund? 11

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 21

Account and Share Information 24

Who Manages the Fund? 28

Legal Proceedings 29

Financial Information 30

Appendix A: Hypothetical Investment and Expense Information 31

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
Small, Medium and Large Sized Companies Risks. The Fund may invest in any size company including small and mid-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. You should expect that the value of the Fund's shares will be more volatile than a fund that invests exclusively in large-capitalization companies.
Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Additionally, growth stocks may not pay dividends or may pay lower dividends than value stocks.
Risks Related to Investing for Value. Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. Additionally, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
Risks of Foreign Investing. Because the Fund may invest in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of the Shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.
Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers . Because the Fund may invest in American Depositary Receipts (ADRs) and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.
Risks of Investing in Derivatives Contracts and Hybrid Instruments. The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as stock market, interest rate, credit, liquidity, and leverage risks.
Credit Risks. Credit risk includes the possibility that a party to a transaction (such as a derivative 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. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.
Leverage Risks. Leverage risk is created when an investment (such as a derivative transaction) exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.
Exchange-Traded Funds Risks. An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded). As with traditional mutual funds, ETFs charge asset-based fees. The Funds will indirectly pay a proportional share of the asset-based fees of the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate with the changes in the value of the ETFs in which the Funds invest. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.

Risk/Return Bar Chart and Table

A performance bar chart and total return information for the Fund will be provided after the Fund has been in operation for a full calendar year.

What are the Fund's Fees and Expenses?

FEDERATED MDT ALL CAP CORE FUND

FEES AND EXPENSES

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

Shareholder Fees		Class K
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable)
Exchange Fee

Annual Fund Operating Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²
Distribution (12b-1) Fee
Other Expenses⁴
Total Annual Fund Operating Expenses
Fee Waiver and/or Expense Reimbursement (contractual)
Net Annual Fund Operating Expenses (after contractual waiver/reimbursement)²

1 The percentages shown are annualized based on anticipated expenses for the fiscal period ending July 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 (except as discussed in Note 2), the distributor expects to waive certain amounts. This is shown below along with the net expenses the Fund expects to pay for the fiscal period ending July 31, 2007.
Additional Waivers of Fund Expenses (voluntary)
Total Anticipated Annual Fund Operating Expenses (after waivers/reimbursement)
2 Under the investment advisory contract, the Adviser is obligated to waive all or a portion of its investment advisory fee which it is otherwise entitled to receive, and/or reimburse other operating expenses (excluding interest, taxes and brokerage commissions), in order to limit the aggregate annual operating expenses for the Fund's Class A Shares and Class C Shares to not more than xxx% and xxx%, respectively, of its daily net assets. Any waivers by the distributor that reduce such expenses (as discussed elsewhere in these notes) may have the effect of reducing the amount to be waived or reimbursed by the Adviser pursuant to its contractual commitment. It is anticipated that this commitment will expire in November 2008.
3 Although not contractually obligated to do so, the Fund expects to voluntarily elect not to accrue or charge the distribution (12b-1) fee for Class A Shares during the fiscal period ending July 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.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class K 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 Class K Shares operating expenses are before waivers/reimbursement as shown in the Table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

Share Class		1 Year		3 Years
Class K Shares		$		$

What are the Fund's Investment Strategies?

Obtain premiums from the sale of derivative contracts;
Realize gains from trading a derivative contract; or
Hedge against potential losses

There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

PORTFOLIO TURNOVER

Temporary Defensive Investments

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

PREFERRED STOCKS

Foreign Securities

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN ISSUERS

Derivative Contracts

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts. The Fund can buy or sell financial futures, index futures and foreign currency forward contracts.

OPTIONS

SWAPS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

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.

Securities lending activities are subject to interest rate risks and credit risks.

Investing in Securities of Other Investment Companies

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

Small, Medium and Large Sized Companies Risks

Risks Related to Investing for Growth

Risks Related to Investing for Value

Sector Risks

Risks of Foreign Investing

Currency Risks

Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers

Risks of Investing in Derivative Contracts and Hybrid Instruments

The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying Reference or Valuation Instruments or, if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts and hybrid instruments may be erroneously priced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Fourth, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Fifth, a common provision in over-the-counter (OTC) derivative contracts permits the counterparty to terminate any such contract between it and the Fund, if the value of the Fund's total net assets declines below a specified level over a given time period. Factors that may contribute to such a decline (which usually must be substantial) include significant shareholder redemptions and/or a marked decrease in the market value of the Fund's investments. Any such termination of the Fund's OTC derivative contracts may adversely affect the Fund (for example, by increasing losses and/or costs, and/or preventing the Fund from fully implementing its investment strategies). Finally, derivative contracts and hybrid instruments may also involve other risks described herein, such as stock market, interest rate, credit, currency, liquidity and leverage risks.

Credit Risks

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

Liquidity Risks

Leverage Risks

Exchange-Traded Funds Risks

What Do Shares Cost?

Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

How is the Fund Sold?

The Fund offers four Share classes: Class A Shares, Class C Shares, Class K Shares and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class K Shares. All Share classes have different sales charges and other expenses which affect their performance. The Fund also offers by separate prospectus additional classes of Shares that may be preferable for shareholders purchasing $25,000 or more. 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 generally to 401 (k) plans, 457 plans, employer sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, non-qualified deferred compensation plans and IRA Rollovers from such plans, directly or through financial professionals. Class K Shares are generally available only to retirement plans where plan level omnibus accounts are held on the books of the Fund. 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

RULE 12B-1 FEES

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees of up to 0.50% of average net assets to the Distributor for the sale, distribution, administration and customer servicing of the Fund's Class K 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 sales charges and marketing fees.

RECORDKEEPING FEES

NETWORKING FEES

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

How to Purchase Shares

The required minimum initial investment for Fund Shares is $250. The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively.

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.

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 SYSTEMATIC INVESTMENT PROGRAM

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

PAYMENT METHODS FOR REDEMPTIONS

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

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

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

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

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.

FREQUENT TRADING POLICIES

PORTFOLIO HOLDINGS INFORMATION

Who Manages the Fund?

The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated MDTA LLC, which is registered as an investment adviser with the SEC. Federated MDTA LLC is responsible for the day-to-day management of the Fund in accordance with the Fund's investment objectives and policies (subject to the general supervision of the Fund's Board). This includes making investment decisions, and buying and selling securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitate analysis, equity trading and transaction settlement and 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 is 125 Cambridge Park Drive, Cambridge, Massachusetts, 02140. The address of FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

Other subsidiaries of Federated advise approximately 136 equity, fixed-income and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $213 billion in assets as of December 31, 2005. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1,305 employees. Federated provides investment products to more than 5,500 investment professionals and institutions.

PORTFOLIO MANAGEMENT INFORMATION

The Fund is managed by the Quantitative Equity Strategies Group, headed by Dr. David M Goldsmith, who is primarily responsible for the day-to-day management of the Fund.

David M. Goldsmith, Ph.D., Chief Investment Officer, joined MDT Advisers in 1990. He has been responsible for the development of the Optimum Q Process and for the past five years he has been in charge of the Quantitative Equity Strategies Group. Dr. Goldsmith supervises the Quantitative Equity Strategies Group which assists in the development, maintenance and operation of the Optimum Q Process. Dr. Goldsmith has over 23 years experience in the development and application of financial and statistical modeling techniques. He received an A.B., Summa Cum Laude, in Economics from Princeton University, where he won the Wolf Balleison Memorial Prize for the outstanding senior thesis in economics. Dr. Goldsmith also received a Ph.D., Economics, with a concentration in Finance from Harvard University.

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

ADVISORY FEES

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 .

Financial Information

FINANCIAL HIGHLIGHTS

The Fund's fiscal year end is July 31. As this is the Class's first fiscal year, financial information is not yet available.

Appendix A: Hypothetical Investment and Expense Information

FEDERATED MDT ALL CAP CORE FUND - CLASS K SHARES
ANNUAL EXPENSE RATIO:
MAXIMUM FRONT-END SALES CHARGE:

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1
2
Contractual/Gross
3
Gross
4
5
6
7
8
9
10
Cumulative

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. 811-21904

Federated
World-Class Investment Manager

Federated MDT All Cap Core 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 31421R718

35808 (12/06)

Federated is a registered mark of Federated Investors, Inc. 2006 (c)Federated Investors, Inc.

FEDERATED MDT ALL CAP CORE FUND

A PORTFOLIO OF FEDERATED MDT SERIES

STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 11, 2006

CLASS A SHARES
CLASS C SHARES
CLASS K SHARES
INSTITUTIONAL SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses for Class A Shares, Class C
Shares, Class K Shares and Institutional Shares of Federated MDT All Cap Core
Fund (Fund), dated December 11, 2006.

Obtain the prospectuses without charge by calling 1-800-341-7400.

CONTENTS

How is the Fund Organized?..........................

Securities in Which the Fund Invests................

What Do Shares Cost?................................

How is the Fund Sold?...............................

Exchanging Securities for Shares....................

Subaccounting Services..............................

Redemption in Kind..................................

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............................................

- 1 -

HOW IS THE FUND ORGANIZED?

The Fund is a diversified portfolio of Federated MDT Series (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on May 18, 2006. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.

The Board of Trustees ("Board") has established four classes of shares of
the Fund, known as Class A Shares, Class C Shares, Class K Shares and
Institutional Shares (Shares). This SAI relates to all classes of Shares.
The Fund's investment adviser is Federated MDTA LLC (Adviser).

MDT All Cap Core Fund (Predecessor Fund) was reorganized in the Fund as of
the close of business on December 8, 2006. Prior to the reorganization, the Fund
had no investment operations. The Fund is the successor to the Predecessor Fund.
The performance information and financial information presented incorporates the
operations of the Predecessor Fund, which, as a result of the reorganization,
are the Fund's performance and operations.

SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

The following describes the types of equity securities in which the Fund
invests:

COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer

pays its creditors and any preferred stockholders. As a result, changes in an
issuer's earnings directly influence the value of its common stock.

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

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

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

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

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

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

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

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

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

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

Investors regard agency securities as having low credit risks, but not as low as
Treasury securities.

A Fund treats mortgage-backed securities guaranteed by a GSE as if issued or
guaranteed by a federal agency.

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

CORPORATE DEBT SECURITIES
Corporate debt securities are fixed-income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.

In addition, the credit risk of an issuer's debt security may vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.

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

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

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

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

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

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

STRIPPED SECURITIES
As a non-principal strategy, the Fund may have the ability to purchase
participations in trusts that hold U.S. Treasury and agency securities (such as
TIGRs and CATs) and also may purchase Treasury receipts and other "stripped"
securities that evidence ownership in either the future interest payments or the
future principal payments of U.S. government obligations. These participations
are issued at a discount to their "face value," and may (particularly in the
case of stripped mortgage-backed securities) exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors.

ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed
income assets (including other fixed income securities) may be used to create an
asset backed security. Asset backed securities may take the form of commercial
paper, notes, or pass through certificates. Asset backed securities have
prepayment risks. Like CMOs, asset backed securities may be structured like
Floaters, Inverse Floaters, IOs and POs.

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

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

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

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

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

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

{circle}the principal trading market for its securities is in another
country; or

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

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

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

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

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

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

EMERGING MARKET SECURITIES
Although there is no current intention to do so, as a non-principal strategy,
the Fund may also invest in emerging market countries or developing countries.
Developing countries may impose restrictions on the Fund's ability to repatriate
investment income or capital. Even where there is no outright restriction on
repatriation of investment income or capital, the mechanics of repatriation may
affect certain aspects of the operations of the Fund. For example, the Fund may
be withdrawn from the People's Republic of China only in U.S. or Hong Kong
dollars and only at an exchange rate established by the government once each
week. Furthermore, some of the currencies in emerging markets have experienced
de-valuations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain developing countries face
serious exchange constraints.

Governments of some developing countries exercise substantial influence over
many aspects of the private sector. In some countries, the government owns or
controls many companies, including the largest in the country. As such,
government actions in the future could have a significant effect on economic
conditions in developing countries in these regions, which could affect private
sector companies, a portfolio and the value of its securities. Furthermore,
certain developing countries are among the largest debtors to commercial banks
and foreign governments. Trading in debt obligations issued or guaranteed by
such governments or their agencies and instrumentalities involve a high degree
of risk.

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

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

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

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

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

The Fund may trade in the following types of derivatives contracts:

FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. The Fund has claimed an exclusion from
the definition of the term "commodity pool operator" under the Commodity
Exchange Act and, therefore, is not subject to registration or regulation as a
commodity pool operator under that Act. Futures contracts traded OTC are
frequently referred to as forward contracts. The Fund can buy or sell financial
futures and index futures.

OPTIONS
Options are rights to buy or sell an underlying asset or instrument for a
specified price (the exercise price) during, or at the end of, a specified
period. The seller (or writer) of the option receives a payment, or premium,
from the buyer, which the writer keeps regardless of whether the buyer uses (or
exercises) the option. Options can trade on exchanges or in the OTC market and
may be bought or sold on a wide variety of underlying assets or instruments,
including financial indices, individual securities, and other derivative
instruments, such as futures contracts. Options that are written on futures
contracts will be subject to margin requirements similar to those applied to
futures contracts.

The Fund may buy/sell the following types of options:

CALL OPTIONS
A call option gives the holder (buyer) the right to buy the underlying asset
from the seller (writer) of the option. The Fund may use call options in the
following ways:

Buy call options on currencies (both foreign and U.S. dollar) in anticipation of
an increase in the value of the underlying asset or instrument; and

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

PUT OPTIONS
A put option gives the holder the right to sell the underlying asset to the
writer of the option. The Fund may buy put options on individual securities,
index futures, currencies (both foreign and U.S. dollar) and financial futures
in anticipation of a decrease in the value of the underlying asset.

The Fund may also buy or write options, as needed, to close out existing option
positions.

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

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

CREDIT DEFAULT SWAPS
A credit default swap ("CDS") is an agreement between two parties (the
"Counterparties") whereby one party (the "Protection Buyer") agrees to make
payments over the term of the CDS to another party (the "Protection Seller"),
provided that no designated event of default (an "Event of Default") occurs on a
particular bond or with respect to the unsecured credit of an issuer, in general
(the "Reference Instrument"). If an Event of Default occurs, the Protection
Seller must pay the Protection Buyer the full notional value, or "par value," of
the Reference Instrument in exchange for the Reference Instrument or another
similar bond issued by the issuer of the Reference Instrument (the "Deliverable
Bond"). The Counterparties agree to the characteristics of the Deliverable Bond
at the time that they enter into the CDS. The Fund may be either the Protection
Buyer or the Protection Seller in a CDS. Under normal circumstances, the Fund
will enter into a CDS for hedging purposes (as Protection Buyer) or to generate
additional income (as Protection Seller). If the Fund is a Protection Buyer and
no Event of Default occurs, the Fund will lose its entire investment in the CDS
(i.e., an amount equal to the payments made to the Protection Seller). However,
if an Event of Default occurs, the Fund (as Protection Buyer) will deliver the
Deliverable Bond and receive a payment equal to the full notional value of the
Reference Instrument, even though the Reference Instrument may have little or no
value. If the Fund is the Protection Seller and no Event of Default occurs, the
Fund will receive a fixed rate of income throughout the term of the CDS.
However, if an Event of Default occurs, the Fund (as Protection Seller) will pay
the Protection Buyer the full notional value of the Reference Instrument and
receive the Deliverable Bond from the Protection Buyer. A CDS may involve
greater risks than if the Fund invested directly in the Reference Instrument.
For example, a CDS may increase credit risk since the Fund has exposure to both
the issuer of the Reference Instrument and the Counterparty to the CDS.

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

CURRENCY SWAPS
Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.

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

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

SPECIAL TRANSACTIONS

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

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

Repurchase agreements are subject to credit risks.

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

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

RESTRICTED AND ILLIQUID SECURITIES
As a non-principal strategy, the Funds may invest up to 15% of their net assets
in securities that are illiquid at the time of purchase, which means that there
may be legal or contractual restrictions on their disposition, or that there are
no readily available market quotations for such a security. Illiquid securities
present the risks that a Fund may have difficulty valuing these holdings and/or
may be unable to sell these holdings at the time or price desired. There are
generally no restrictions on a Fund's ability to invest in restricted securities
(that is, securities that are not registered pursuant to the Securities Act of
1933), except to the extent such securities may be considered illiquid.
Securities issued pursuant to Rule 144A of the Securities Act of 1933 will be
considered liquid if determined to be so under procedures adopted by the Board
of Trustees. The Adviser is responsible for making the determination as to the
liquidity of restricted securities (pursuant to the procedures adopted by the
Board of Trustees). If a restricted security is determined to be liquid, it will
not be included within the category of illiquid securities, which may not exceed
15% of a Fund's net assets. Investing in Rule 144A securities could have the
effect of increasing the level of a Fund's illiquidity to the extent that a
Fund, at a particular point in time may be unable to find qualified
institutional buyers interested in purchasing securities. A Fund is permitted to
sell restricted securities to qualified institutional buyers.

SHORT SALES
As a non-principal strategy, the Fund has the ability to make short sales. Short
sales are transactions where the Fund sells securities it does not own in
anticipation of a decline in the market value of the securities. The Fund must
borrow the security to deliver it to the buyer. The Fund is then obligated to
replace the security borrowed at the market price at the time of replacement.
Until the security is replaced, the Fund is required to pay the lender any
dividends or interest which accrues on the security during the loan period. To
borrow the security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. To the extent necessary to meet margin
requirements, the broker will retain proceeds of the short sale until the short
position is closed out. The Adviser anticipates that the frequency of short
sales will vary substantially under different market conditions and the Fund
does not intend that any significant amount of its assets, as a matter of
practice, will be in short sales, if any.

In addition to the short sales discussed above, the Fund also has the ability to
make short sales "against the box," a transaction in which the Fund enters into
a short sale of a security owned by such Fund. A broker holds the proceeds of
the short sale until the settlement date, at which time the Fund delivers the
security to close the short position. The Fund receives the net proceeds from
the short sale.

When the Fund's portfolio manager anticipates that the price of a security will
decline, the portfolio manager may sell the security short and borrow the same
security from a broker or other institution to complete the sale. The Fund may
make a profit or incur a loss depending upon whether the market price of the
security decreases or increases between the date of the short sale and the date
on which the Fund must replace the borrowed security. An increase in the value
of a security sold short by the Fund over the price at which it was sold short
will result in a loss to the Fund, and there can be no assurance that the Fund
will be able to close out the position at any particular time or at an
acceptable price. Use of short sales by the Fund may have the effect of
providing the Fund with investment leverage.

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

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

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

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

ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivatives contracts or special
transactions.

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.

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. The Fund
is prohibited from investing in other registered investment companies in
reliance on Section 12(d)(1)(F) or (G) of the Investment Company Act of 1940
(1940 Act).

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

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.

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

SMALL, MEDIUM AND LARGE SIZED COMPANIES RISKS
The Fund may invest in any size company including small and mid-size companies.
Although diminished in larger cap companies, the risks of investing in all
companies include business failure and reliance on erroneous reports. Larger,
more established companies may be unable to respond quickly to new competitive
challenges like changes in consumer tastes or innovative smaller competitors.
Small and mid-capitalization companies often have narrower markets and limited
managerial and financial resources compared to larger, more established
companies. As a result, their performance can be more volatile and they face
greater risk of business failure, which could increase the volatility of the
Fund's portfolio. You should expect that the value of the Fund's shares will be
more volatile than a fund that invests exclusively in large-capitalization
companies.

RISKS RELATED TO INVESTING FOR GROWTH
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.

RISKS RELATED TO INVESTING FOR VALUE
Due to their relatively low valuations, value stocks are typically less volatile
than growth stocks. For instance, the price of a value stock may experience a
smaller increase on a forecast of higher earnings, a positive fundamental
development, or positive market development. Further, value stocks tend to have
higher dividends than growth stocks. This means they depend less on price
changes for returns and may lag behind growth stocks in an up market.

SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.

Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may
lack uniform accounting, auditing and financial reporting standards or
regulatory requirements comparable to those applicable to U.S. companies. These
factors may prevent the Fund and its Adviser from obtaining information
concerning foreign companies that is as frequent, extensive and reliable as the
information available concerning companies in the United States.

Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES
Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their
prices may be significantly more volatile than prices in developed countries.
Emerging market economies may also experience more severe downturns (with
corresponding currency devaluations) than developed economies.

Emerging market countries may have relatively unstable governments and may
present the risk of nationalization of businesses, expropriation, confiscatory
taxation or, in certain instances, reversion to closed market, centrally planned
economies.

The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.

RISKS OF INVESTING IN ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN
ISSUERS.
Because the Fund may invest in ADRs and other domestically traded securities of
foreign companies, the Fund's Share price may be more affected by foreign
economic and political conditions, taxation policies and accounting and auditing
standards than would otherwise be the case.

RISKS OF INVESTING IN DERIVATIVE CONTRACTS AND HYBRID INSTRUMENTS
The Fund's use of derivative contracts and hybrid instruments involves risks
different from, or possibly greater than, the risks associated with investing
directly in securities and other traditional investments. First, changes in the
value of the derivative contracts and hybrid instruments in which the Fund
invests may not be correlated with changes in the value of the underlying
Reference or Valuation Instruments or, if they are correlated, may move in the
opposite direction than originally anticipated. Second, while some strategies
involving derivatives may reduce the risk of loss, they may also reduce
potential gains or, in some cases, result in losses by offsetting favorable
price movements in portfolio holdings. Third, there is a risk that derivative
contracts and hybrid instruments may be erroneously priced or improperly valued
and, as a result, the Fund may need to make increased cash payments to the
counterparty. Fourth, derivative contracts and hybrid instruments may cause the
Fund to realize increased ordinary income or short-term capital gains (which are
treated as ordinary income for Federal income tax purposes) and, as a result,
may increase taxable distributions to shareholders. Fifth, a common provision in
over-the-counter (OTC) derivative contracts permits the counterparty to
terminate any such contract between it and the Fund, if the value of the Fund's
total net assets declines below a specified level over a given time period.
Factors that may contribute to such a decline (which usually must be
substantial) include significant shareholder redemptions and/or a marked
decrease in the market value of the Fund's investments. Any such termination of
the Fund's OTC derivative contracts may adversely affect the Fund (for example,
by increasing losses and/or costs, and/or preventing the Fund from fully
implementing its investment strategies). Finally, derivative contracts and
hybrid instruments may also involve other risks described herein, such as stock
market, interest rate, credit, currency, liquidity and leverage risks.

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

Credit risk includes the possibility that a party to a transaction (such as a
derivative 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 equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.

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

LEVERAGE RISKS
Leverage risk is created when an investment (such as a derivative contract)
exposes the Fund to a level of risk that exceeds the amount invested. Changes in
the value of such an investment magnify the Fund's risk of loss and potential
for gain. Investments can have these same results if their returns are based on
a multiple of a specified index, security or other benchmark.

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

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

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

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

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

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

EXCHANGE-TRADED FUNDS RISKS
An investment in an ETF generally presents the same primary risks as an
investment in a conventional fund (i.e., one that is not exchange traded). In
addition, ETFs may be subject to the following risks that do not apply to
conventional funds: (i) the market price of an ETF's shares may trade above or
below their net asset value; (ii) an active trading market for an ETF's shares
may not develop or be maintained; (iii) trading of an ETF's shares may be halted
if the listing exchange's officials deem such action appropriate; and (iv) an
ETF may not fulfill its objective of tracking the performance of the index it
seeks to track. As with traditional mutual funds, ETFs charge asset-based fees.
The Funds will indirectly pay a proportional share of the asset-based fees of
the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate
with the changes in the value of the ETFs in which the Funds invest. The change
in value of the ETFs are due to the change in price of the securities in which
the ETFs invest. Therefore, the Funds net asset value will be indirectly
effected by the change in value of the securities in which the ETF invests.

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

FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation. The
investment objective may not be changed by the Fund's Trustees 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 the 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 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.

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 if, as a result, more than 33 1/3% of the Fund's
total assets would be loaned to other parties, except that the Fund may (i)
purchase or hold debt instruments in accordance with its investment objective
and policies; (ii) enter into repurchase agreements; (iii) lend its securities;
and (iv) it may make loans to affiliated investment companies in accordance with
SEC exemptive relief.

COMMODITIES
The Fund may invest in commodities to the maximum extent permitted under the
1940 Act.

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.

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, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.

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

For purposes of the concentration limitation: (a) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric and telephone will be considered a separate industry); (b) financial
service companies will be classified according to the end users of their
services (for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry); and (c) asset-backed securities
will be classified according to the underlying assets securing such securities.
To conform to the current view of the SEC 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 limits as long as the policy of the SEC remains in
effect. In addition, investments in bank instruments, and investments in certain
industrial development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for temporary
defensive purposes. The investment of more than 25% of the value of the Fund's
total assets in any one industry will constitute "concentration."

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 the value or net assets will not result in a violation of
such limitation.

PORTFOLIO TURNOVER
The Fund will engage in active trading of its portfolio securities to achieve
its investment goals. This practice could result in the Fund experiencing a
relatively high portfolio turnover rate (e.g. over 100%). High portfolio
turnover rates lead to increased costs, could cause you to pay higher taxes and
could negatively affect the Fund's performance. For the fiscal years ended July
30, 2005 and 2004, the portfolio turnover rates were __% and __%, respectively.

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

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

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

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

{circle}for fixed income securities, according to the 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; 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 are generally intended to
be indicative of the bid prices currently offered to institutional investors for
the 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.

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

WHAT DO SHARES COST?

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

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

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 (CLASS A SHARES, CLASS C SHARES AND CLASS K SHARES ONLY)

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.

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

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 National Association of
Securities Dealers (NASD) 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 Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.

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 Trust's outstanding Shares
of all series entitled to vote.

As of November 10, 2006, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: Edward Jones &
Co., Maryland Heights, MO owned approximately 708,095 Shares (7.75%).

As of November 10, 2006, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: Merrill Lynch
Pierce Fenner & Smith, Jacksonville, FL, owned approximately 694,054 Shares
(16.35%).

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 will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.

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.

FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the income generated by the securities
in the portfolio, whereas tax-basis income includes, in addition, gains or
losses attributable to currency fluctuation. Due to differences in the book and
tax treatment of fixed-income securities denominated in foreign currencies, it
is difficult to project currency effects on an interim basis. Therefore, to the
extent that currency fluctuations cannot be anticipated, a portion of
distributions to shareholders could later be designated as a return of capital,
rather than income, for income tax purposes, which may be of particular concern
to simple trusts.

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

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

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust'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 11, 2006, the Trust comprised 8
portfolios, and the Federated Fund Complex consisted of 43 investment companies
(comprising 136 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.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

NAME
BIRTH DATE AGGREGATE TOTAL
ADDRESS COMPENSATION COMPENSATION
POSITIONS PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS, FROM FUND FROM TRUST
HELD WITH OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S) (PAST FISCAL AND
TRUST YEAR)+ FEDERATED
DATE SERVICE FUND COMPLEX
BEGAN (PAST
CALENDAR
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:
August 2006

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:
August 2006 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; $0 $148,500
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 2006

* 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.
+Because the Fund is a new portfolio of the Trust, Trustee compensation has not
yet been earned and will be reported following the Fund's next fiscal year.

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

NAME
BIRTH DATE AGGREGATE TOTAL
ADDRESS COMPENSATION COMPENSATION
POSITIONS PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS, FROM FUND FROM TRUST
HELD WITH OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S) (PAST FISCAL AND
TRUST YEAR)+ FEDERATED
DATE SERVICE FUND COMPLEX
BEGAN (PAST
CALENDAR
YEAR)
THOMAS G. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $0 $163,350
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:
August 2006

JOHN T. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $163,350
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 2006

NICHOLAS P. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $0 $163,350
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:
August 2006

JOHN F. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex; $0 $148,500
CUNNINGHAM Director, WinsorTech.
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.
August 2006

PETER E. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $0 $148,500
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 2006

CHARLES F. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $163,350
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.
Beach, NY
TRUSTEE
Began
serving:
August 2006

THOMAS PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $0
M. 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; Public $0 $148,500
SMUTS Relations/Marketing Consultant/Conference Coordinator.
Birth Date:
June 21, PREVIOUS POSITIONS: National Spokesperson, Aluminum Company of America;
1935 television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.
4905 Bayard
Street
Pittsburgh,
PA
TRUSTEE
Began
serving:
August 2006

JOHN S. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $148,500
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:
August 2006

JAMES F. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; Vice $0 $0
WILL Chancellor and President, Saint Vincent College.
Birth Date:
October 12, OTHER DIRECTORSHIPS HELD: Alleghany Corporation.
1938
Saint PREVIOUS POSITIONS: Chairman, President and Chief Executive Officer, Armco, Inc.;
Vincent President and Chief Executive Officer, Cyclops Industries; President and Chief
College Operating Officer, Kaiser Steel Corporation.
Latrobe, PA
TRUSTEE
Began
serving:
August 2006

+Because the Fund is a new portfolio of the Trust, Trustee compensation has not
yet been earned and will be reported following the Fund's next fiscal year.

OFFICERS**

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
Began
serving:
August
2006

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.; and Controller of Federated Investors, Inc.
December
25, 1963 PREVIOUS POSITIONS: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company;
TREASURER held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co.
Began
serving:
August
2006

**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 None
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
J.D., S.J.D. cannot elect or remove Board members, increase or decrease the number of Trustees,
John S. elect or remove any Officer, declare dividends, issue shares or recommend to
Walsh shareholders any action requiring shareholder approval.

AUDIT Thomas G. The purposes of the Audit Committee are to oversee the accounting and financial None
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 experience, and dedication and willingness to devote the time and attention necessary
M. O'Neill to fulfill Board responsibilities.

Marjorie P.
Smuts
John S.
Walsh
James F.
Will

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF INVESTMENT
COMPANIES AS OF DECEMBER 31, 2005
AGGREGATE
DOLLAR RANGE OF DOLLAR RANGE OF
SHARES OWNED SHARES OWNED IN
INTERESTED IN FEDERATED MDT ALL CAP CORE FUND FEDERATED FAMILY OF
BOARD MEMBER NAME 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 None
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 majority owned subsidiary of Federated.

The Adviser shall not be liable to the Trust 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 Trust.

The Adviser must waive the portion of its advisory fee that increases the Fund's
aggregate annual operating expenses above 1.50% for Class A Shares, 2.25% for
Class C Shares and 1.25% for Institutional Shares of its average daily net
assets. The Fund's operating expenses include the advisory fee but exclude
interest, taxes, brokerage commissions, expenses of registering the Fund and its
shares under federal and state laws, expenses of withholding taxes, and
extraordinary expenses. This contractual obligation will expire in November
2008.

- 4 -

PORTFOLIO MANAGER
DR. DAVID M GOLDSMITH

The following information about the Fund's portfolio manager is provided as of
October 15, 2006.

Other Accounts Managed Total Number of Other Accounts Managed / Total Assets
Registered Investment Companies 7 funds / $133.94 million
Other Pooled Investment Vehicles 0
Other Accounts 0

Dollar value range of shares owned in the Fund: $50,001-$100,000.

Dr. David Goldsmith 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. For
purposes of calculating the annual incentive amount, each mutual fund and
institutional account managed by the Adviser is categorized as reflecting one of
several designated Strategies. The annual incentive amount is based on current
calendar year asset-weighted composite investment performance of each Strategy,
which is measured on a total return basis gross of fees and expenses vs. the
Strategy's designated benchmark (i.e., with respect to the Fund's Strategy,
Russell 3000 Index). As noted above, Dr. Goldsmith is also the portfolio
manager for other accounts in addition to the Fund. Such other accounts may be
categorized as reflecting different Strategies, which may have different
benchmarks. Although the performance of each Strategy composite is considered
in calculating the annual incentive amount, their relative weightings differ.
The performance of the Strategy to which the Fund is assigned represents a
significant portion of the calculation. The remaining Strategies are divided
into two groups, with each Strategy within a group receiving equal weighting.
As a separate matter, pursuant to the terms of a business acquisition agreement,
Dr. Goldsmith may receive additional consideration based on the achievement of
specified revenue targets.

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 structured the portfolio
managers' compensation in a manner, and the Fund has adopted policies and
procedures, reasonably designed to safeguard the Fund from being negatively
affected as a result of any such potential conflicts.

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 through Federated's website. Go to
FederatedInvestors.com; select "Products;" select the Fund; then use the link to
"Prospectuses and Regulatory Reports" to access the link to Form N-PX. 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
(except for recent purchase and sale transaction information, which is updated
quarterly) 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
"Portfolio Holdings" and select the appropriate link opposite the name of the
Fund, or select the name of the Fund from the menus on the "Products" section,
and from the Fund's page click on the "Portfolio Holdings" or "Composition"
link. A user is required to register on the website the first time the user
accesses this information.

You may also access from the "Products" section of the website portfolio
information as of the end of the Fund's fiscal quarters. 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 name of the Fund, clicking on "Prospectuses and
Regulatory Reports" 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 may select brokers and dealers
based on whether they also offer research services (as described below). The
Adviser may also direct certain portfolio trades to a broker that, in turn, pays
a portion of the Fund's operating expenses. 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. Except as noted below, 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.
Investments for Federated Kaufmann Fund and other accounts managed by that
fund's portfolio managers in initial public offerings ("IPO") are made
independently from any other accounts, and much of their non-IPO trading may
also be conducted independently from other accounts.

On July 31, 2006, the Fund owned securities of the following regular
broker/dealers: Bear Stearns 1,688,253 (equity).

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

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
MAXIMUM 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. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
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 JULY 31, 2006 2005 2004
Advisory Fee Earned $880,635 $408,047 $264,886
Advisory Fee Reduction $55,328 $24,400 $53,361
Brokerage Commissions $681,579 $287,876 $96,652
Administrative Fee $132,440 $57,749 $52,738
12B-1 FEE:
Class A Shares $144,315 -- --
Class C Shares $171,064 -- --
SHAREHOLDER SERVICES FEE:
Class A Shares $-- -- --
Class C Shares $-- -- --
Institutional Shares $-- -- --

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

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the SEC's standard methods for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.

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

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

AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-year and Start of Performance periods ended
July 31, 2006.

Yield is given for the 30-day period ended July 31, 2006.

START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR SEPTEMBER 15, 2005
CLASS A SHARES:
Total Return
Before Taxes N/A (1.17)% 14.19%
After Taxes on Distributions N/A (2.59)% 13.05%
After Taxes on Distributions and Sale of Shares
N/A (0.28)% 11.83%
Yield 0.07% N/A N/A

START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR SEPTEMBER 15, 2005

CLASS C SHARES:
Total Return
Before Taxes N/A 2.87% 15.04%
After Taxes on Distributions N/A 1.37% 13.82%
After Taxes on Distributions and Sale of Shares
N/A 2.37% 12.52%
Yield 0.00% N/A N/A

START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR SEPTEMBER 15, 2005
INSTITUTIONAL SHARES:
Total Return
Before Taxes N/A 4.85% 16.17%
After Taxes on Distributions N/A 3.32% 15.05%
After Taxes on Distributions and Sale of Shares
N/A 3.66% 13.64%
Yield 0.32% 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, 2005, Federated managed 35 equity funds totaling
approximately $26.0 billion in assets across growth, value, equity income,
international, index and sector allocation styles.

TAXABLE FIXED INCOME
As of December 31, 2005, Federated managed 33 taxable bond funds including:
high-yield, multi-sector, mortgage-backed, U.S. government, U.S. corporate and
international, with assets approximating $16.0 billion.

TAX FREE FIXED INCOME
As of December 31, 2005, Federated managed 15 municipal bond funds with
approximately $3.1 billion in assets and 22 municipal money market funds with
approximately $27.6 billion in total assets.

MONEY MARKET FUNDS
As of December 31, 2005, Federated managed $145.3 billion in assets across 53
money market funds, including 18 government, 12 prime, 22 municipal and 1 euro-
denominated with assets approximating $54.9 billion, $62.6 billion, $27.6
billion and $113.8 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 July 31, 2006
are incorporated herein by reference to the Annual Report to Shareholders of the
Predecessor Fund dated July 31, 2006.

- 5 -

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, favourable 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.

- 6 -

ADDRESSES

FEDERATED MDT ALL CAP CORE FUND

Class A Shares
Class C Shares
Class K Shares
Institutional 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 MDTA LLC

125 CambridgePark Drive

Cambridge, MA 02140

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

- 7 -

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 & Trust Company

SECURITIES LENDING AGENT
Metropolitan West Securities LLC

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP

LEGAL COUNSEL
Dickstein Shapiro LLP
Reed Smith LLP

SERVICE PROVIDERS
Bloomberg

FactSet

Institutional Shareholder Services, Inc.

Investor Responsibility Research Center

Vestek

Wilshire Associates, Inc.

SECURITY PRICING SERVICES
Reuters
Standard & Poor's
FT Interactive Data
Bear Stearns

RATINGS AGENCIES
Standard & Poor's

PERFORMANCE REPORTING/PUBLICATIONS
Evaluation Associates

Fidelity-Strategic Advisors

Lipper, Inc.

Morningstar, Inc.

Morningstar Associates

NASDAQ

Thomson Financial

Value Line

Wiesenberger/Thomson Financial

OTHER
Investment Company Institute

Endnotes

Federated MDT All Cap Core Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Federated Securities Corp., Distributor

35351 (12/06)

Federated is a registered mark
of Federated Investors, Inc.
2006 {copyright}Federated Investors, Inc.

- 8 -

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated MDT Balanced Fund

A Portfolio of Federated MDT Series

PROSPECTUS

<R>

December 11, 2006

</R>

CLASS A SHARES
CLASS C SHARES

A mutual fund seeking the possibility of long-term growth of capital and income by investing in a combination of equity and fixed-income securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved of 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? 8

What are the Fund's Investment Strategies? 9

What are the Principal Securities in Which the Fund Invests? 14

What are the Specific Risks of Investing in the Fund? 24

What Do Shares Cost? 30

How is the Fund Sold? 38

Payments to Financial Intermediaries 39

How to Purchase Shares 42

How to Redeem and Exchange Shares 45

Account and Share Information 49

Who Manages the Fund? 53

Legal Proceedings 56

Financial Information 57

Appendix A: Hypothetical Investment and Expense Information 60

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is the possibility of long-term growth of capital and income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

<R>

In attempting to achieve its investment objective, the Fund may diversify its portfolio over many categories of assets available for investment--fixed-income and equity, domestic and foreign, growth and value. Under normal conditions, the Fund will invest between 60% and 80% of its assets in equity securities and between 20% and 40% in fixed-income securities. The Fund may invest up to 25% of its assets in foreign equity and foreign fixed-income securities. The Fund's asset mix will change based on existing and anticipated market conditions.

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The Fund utilizes a whole market, all-cap/all-style strategy by selecting most of its domestic equity investments from companies listed in the Russell 3000 Index, an index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. As of September 30, 2006, companies in the Russell 3000 Index ranged in market capitalization from $ 40 million to $ 406 billion. The Fund's investment adviser (Adviser) uses a disciplined, quantitative process in its security selection which seeks to maximize compound annual return while controlling risk.

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In managing the Fund's allocation to foreign equities, the Adviser attempts to diversify the portfolio across countries, in companies of all sizes with both growth and value characteristics.

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

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The Fund may invest a portion of its portfolio in noninvestment-grade, fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The noninvestment grade securities in which the Fund invest, which are rated BB+ or Ba1/BB+ or lower by a nationally recognized statistical rating organization (NRSRO), generally pay higher interest rates as compensation for the greater default risk attached to the securities. The Fund may also invest a portion of its portfolio in non-U.S.-dollar, and emerging market fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The adviser selects securities with longer or shorter durations based on its interest rate outlook, but does not target any specific duration for the fixed-income portion of the Fund.

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The Fund may invest in exchange-traded and over-the-counter derivatives, such as options or futures, for any purpose consistent with its investment strategy.

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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:

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.

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Liquidity Risks. The equity securities in which the Fund invests may trade infrequently and may be subject to greater fluctuation in price than other securities. 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. Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.

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Small, Medium and Large Sized Companies Risks. The Fund may invest in any size company including small and mid-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. You should expect that the value of the Fund's shares will be more volatile than a fund that invests exclusively in large-capitalization companies.
Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Additionally, growth stocks may not pay dividends or may pay lower dividends than value stocks.
Risks Related to Investing for Value. Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. Additionally, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
Risks of Foreign Investing. Because the Fund may invest in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers. Because the Fund may invest in American Depositary Receipts (ADRs) and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.
Emerging Markets Risks. Securities issued or traded in emerging markets generally entail greater risks than securities issued or traded in developed markets. Emerging market countries may have relatively unstable governments and may present the risk of nationalization of businesses, expropriation, confiscatory taxation or, in certain instances, reversion to closed market, centrally planned economies.
Currency Risks. Exchange rates for currencies fluctuate daily. The combination of currency risk and market risk tends to make securities traded in foreign markets more volatile than securities traded exclusively in the United States.

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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.

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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. Credit risk includes the possibility that a party to a transaction (such as a derivative 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.

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Call Risks . There is a possibility that an issuer of fixed-income securities in which the Fund may invest may redeem a security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.
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.
Risks Associated with Non-investment-Grade, Fixed-income Securities. Securities rated below investment grade may be subject to greater interest rate, credit and liquidity risks than investment-grade securities.

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Exchange-Traded Funds Risks. An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded). As with traditional mutual funds, ETFs charge asset-based fees. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.

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Risks of Investing in Derivative Contracts and Hybrid Instruments. The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as interest rate, credit, currency, liquidity and leverage risks .

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

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Risk/Return Bar Chart and Table

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The Fund is the successor to the MDT Balanced Fund pursuant to a reorganization that was completed on or about the close of business on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information and financial information provided in this prospectus for periods prior to December 11, 2006, is historical information for the MDT Balanced Fund. The MDT Balanced Fund was managed by MDT Advisors and had similar investment objectives and strategies as the Fund.

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The Fund's Class A Shares commenced operations on September 15, 2005. For the period prior to the commencement of operations of Class A Shares, the performance information shown in the bar chart below is for the Fund's Institutional Shares, adjusted to reflect the expenses of Class A Shares.

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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 Class A 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 Class A Shares total return for the nine-month period from January 1, 2006 to September 30, 2006 was 5.36%.

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Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 9.49% (quarter ended December 31, 2003). Its lowest quarterly return was (1.20)% (quarter ended June 30, 2004).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class A Shares and Class C Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for both classes. In addition, Return After Taxes is shown for the Fund's Class A Shares to illustrate the effect of federal taxes on the Fund's returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Standard & Poor's 500 Index (S&P 500), a broad-based market index, and the Lipper Balanced Funds Investment Objective Index (LBFIOI). Index returns do not reflect taxes, sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. Indexes are unmanaged and unlike the Fund are not affected by cash flows. It is not possible to invest directly in an index.

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(For the Periods Ended December 31, 2005)

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	<R>1 Year</R>	<R>Start of Perfomance^1</R>
<R>Class A Shares² :</R>
<R>Return Before Taxes</R>	<R>2.42%</R>	<R>12.77%</R>
<R>Return After Taxes on Distributions^3</R>	<R>0.45%</R>	<R>11.00%</R>
<R>Return After Taxes on Distributions and Sale of Fund Shares^3</R>	<R>2.42%</R>	<R>10.24%</R>
<R>Class C Shares² :</R>
<R>Return Before Taxes</R>	<R>6.81%</R>	<R>13.98%</R>
<R>S&P 500^4</R>	<R>4.92%</R>	<R>14.69%</R>
<R>LBFIOI^5</R>	<R>5.20%</R>	<R>12.12%</R>

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1 The Fund's Institutional Shares commenced operations on October 1, 2002. Class A Shares and Class C Shares commenced operations on September 15, 2005 and therefore do not have returns for a full calendar year. The returns for the two indexes have been calculated since the inception of the Fund's Institutional Shares.

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2 The Fund's Class A Shares and Class C Shares total returns for the period prior to their inception dates are those of the Fund's Institutional Shares, but adjusted to reflect the sales charges or contingent deferred sales charge (CDSC) and expenses applicable to each respective Class.

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

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4 The S&P 500 Index consists of 500 stocks chosen from market size, liquidity and industry group representation. It is a market-weighted index (stock price times number of shares outstanding), with each stock's weight in the index proportionate to its market value. The "500" is one of the most widely used benchmarks of U.S. equity performance. The performance of the index assumes the reinvestment of dividends or other distributions but does not reflect deductions for fees, expenses or taxes.

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5 The Lipper Balanced Funds Investment Objective Index is the average of the 30 largest funds in the Lipper Balanced Funds category. These funds, by portfolio practice, aim to conserve principal by maintaining at all times a balanced portfolio of at least 50% in equity securities and at least 25% in fixed-income securities. Typically the equity/bond ratio is approximately 60%/40%. The return of the index assumes the reinvestment of any dividends or other distributions.

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What are the Fund's Fees and Expenses?

FEDERATED MDT BALANCED FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.75%	0.75%
Distribution (12b-1) Fee	0.25%³	0.75%
Other Expenses⁴	0.65%	0.65%
Total Annual Fund Operating Expenses	1.65%	2.15%
Fee Waiver and/or Expense Reimbursement (contractual)	0.15%	0.00%
Net Annual Fund Operating Expenses (after contractual waiver/reimbursement)²	1.50%	2.15%

1 The percentages shown are annualized based on anticipated expenses for the fiscal period ending July 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 (except as discussed in note 2), the administrator and distributor expect to waive certain amounts. These are shown below along with the net expenses the Fund expects to pay for the fiscal period ending July 31, 2007.
Additional Waivers of Fund Expenses (voluntary)	0.12%	0.02%
Total Anticipated Annual Fund Operating Expenses (after waivers/reimbursement)	1.38%	2.13%
2 Under the investment advisory contract, the Adviser is obligated to waive all or a portion of its investment advisory fee which it is otherwise entitled to receive, and/or reimburse other operating expenses (excluding interest, taxes and brokerage commissions), in order to limit the aggregate annual operating expenses for the Fund's Class A Shares and Class C Shares to not more than 1.50% and 2.25%, respectively, of its daily net assets. Any waivers by the administrator and/or distributor that reduce such expenses (as discussed elsewhere in these notes) may have the effect of reducing the amount to be waived or reimbursed by the Adviser pursuant to its contractual commitment. It is anticipated that this commitment will expire in November 2008.
3 Although not contractually obligated to do so, the Fund expects to voluntarily elect not to accrue or charge the distribution (12b-1) fee for Class A Shares during the fiscal period ending July 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. Although not contractually obligated to do so, the administrator expects to voluntarily waive a portion of its fee. This voluntary waiver can be terminated at any time. Total Other Expenses paid by the Fund's Class A and Class C Shares (after the anticipated waivers) are expected to be 0.63% for the fiscal period ending July 31, 2007.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class A and Class C 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 Class A and Class C Shares operating expenses are before waivers as shown in the Table and remain the same. For Class A Shares, the 1 Year dollar amount and the dollar amounts for the first and second year of the 3, 5 and 10 Years column reflect the contractually imposed expense limitation of 1.50%. The third year of the 3, 5 and 10 Years column reflects the contractually imposed expense limitation of 1.50% for four months and the "Total Annual Fund Operating Expenses" of Class A Shares of the Fund without any waivers for the remainder of the year. The fourth and later years within the 5 and 10 Years column reflect the "Total Annual Fund Operating Expenses" of the Fund's Class A Shares without any waivers. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

	1 Year	3 Years	5 Years	10 Years
Class A Shares:
Expenses assuming redemption	$694	$1,008	$1,365	$2,368
Expenses assuming no redemption	$694	$1,008	$1,365	$2,368
Class C Shares:
Expenses assuming redemption	<R>$ 416</R>	$766	$1,243	$2,558
Expenses assuming no redemption	<R>$ 316</R>	$766	$1,243	$2,558

What are the Fund's Investment Strategies?

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The Fund's domestic equity portfolio will consist primarily of common stock managed in a style which utilizes a whole market, all cap/all style strategy, with most investments selected from companies listed in the Russell 3000 Index, an index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. As of September 30, 2006, companies in the Russell 3000 Index ranged in capitalization from $ 40 million to $ 406 billion. The Fund's strategy was developed using a quantitative model, (referred to as the Optimum Q Process). The Adviser believes that this whole market approach provides two main advantages. First, it allows an investor to participate in all major areas of the U.S. equity market (companies of all sizes with both growth and value characteristics) in a single fund. Second, through bottom-up stock selection and subject to risk controls, it provides the ability to overweight or underweight segments of the market represented by those stocks which the Optimum Q Process views as opportunities. The strategy used to construct the portfolio seeks to maximize compound annual return while controlling risk. The Fund will engage in active trading of its portfolio securities to achieve its investment goals.

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In managing the Fund's allocation to foreign equities, the Adviser attempts to diversify the portfolio across countries, in companies of all sizes with both growth and value characteristics. The Adviser may achieve exposure to foreign equities through investment in exchange-traded funds, shares of other investment companies, or American Depositary Receipts ("ADRs") .

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With respect to the fixed-income securities allocation, the Fund invests primarily in domestic investment-grade debt securities, including corporate debt securities, U.S. government obligations, and mortgage-backed securities. The Adviser seeks to enhance the performance of the Fund's fixed-income portfolio by allocating more assets to the security type that the Adviser expects to offer the best balance between total return and risk. The allocation process is based on the Adviser's continuing analysis of a variety of economic and market indicators in order to arrive at the projected yield "spread" of each security type. (The spread is the difference between the yield of a security versus the yield of a U.S. Treasury security with a comparable average life.) The security's projected spread is then weighed against the security's current spread, credit risk and risk of prepayment in order to complete the analysis. Mortgage-backed securities tend to amortize principal on a somewhat irregular schedule over time, since the borrower can usually prepay all or part of the loan without penalty. These securities generally offer higher yields versus U.S. Treasury securities and non-mortgage-backed agency securities to compensate for this prepayment risk as well as any credit risk which might also be present in the security. Similarly, corporate debt securities, which tend to pay off on a predetermined schedule, generally offer higher yields than U.S. government securities to compensate for credit risk.

The Adviser seeks the higher relative returns of mortgage-backed securities and corporate debt securities, when available, while attempting to limit the associated credit or prepayment risks. The Adviser attempts to manage prepayment risk to the Fund by selecting mortgage-backed securities with characteristics that make prepayment fluctuations less likely. Characteristics that the Adviser may consider in selecting securities include the average interest rates of the underlying mortgages and the federal agencies (if any) that support the mortgages. The Adviser attempts to assess the relative returns and risks for mortgage-backed securities by analyzing how the timing, amount, and division of cash flows might change in response to changing economic and market conditions.

The Adviser attempts to manage credit risk to the fund by selecting corporate debt securities that make default in the payment of principal and interest less likely. The Adviser looks at a variety of factors, including macroeconomic analysis and corporate earnings analysis, among others, to determine which business sectors and credit ratings are most advantageous for investment by the Fund. In selecting individual corporate fixed-income securities, the Adviser analyzes a company's business, competitive position, and general financial condition to assess whether the security's credit risk is commensurate with its potential return.

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The Fund may invest a portion of its portfolio in noninvestment-grade, fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The noninvestment-grade securities in which the Fund invests, which are rated BB+ or Ba1/BB+ or lower by a nationally recognized statistical rating organization (NRSRO), generally pay higher interest rates as compensation for the greater default risk attached to the securities. The Fund may invest a portion of its portfolio in non-U.S.-dollar, and emerging market fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The adviser selects securities with longer or shorter durations based on its interest rate outlook, but does not target any specific duration for the fixed-income portion of the Fund.

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When selecting the underlying investments, the Adviser can invest directly in individual securities or may invest in other funds advised by the Adviser or its affiliates. These funds may include funds which are not available for general investment by the public. The investment companies in which the Funds invest are managed independently of the Fund and incur additional expenses. Therefore, any investment by the Fund in other funds is subject to duplicate expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the additional expenses. The Fund may also invest in ETFs for purposes consistent with its investment strategy.

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increase or decrease the effective duration of the fund portfolio;

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obtain premiums from the sale of derivative contracts;

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realize gains from trading a derivative contract; or

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hedge against potential losses.

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There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

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HEDGING

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

PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

Preferred Stocks

Interests in Other Limited Liability Companies

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

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Real Estate Investment Trust (REITs)

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

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Warrants

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

FOREIGN SECURITIES

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

Foreign Exchange Contracts

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

Foreign Government Securities

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

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

ADRs and Domestically Traded Securities of Foreign Issuers

FIXED-INCOME SECURITIES

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

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

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

Treasury Securities

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

Agency Securities

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

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

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

Investors regard agency securities as having low credit risks, but not as low as Treasury securities.

A Fund treats mortgage-backed securities guaranteed by a GSE as if issued or guaranteed by a federal agency.

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

Corporate Debt Securities

Corporate debt securities are fixed-income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Fund may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.

In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.

Commercial Paper

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

Demand Instruments

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

Mortgage-backed Securities

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

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

Asset-Backed Securities

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

CONVERTIBLE SECURITIES

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

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

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

DERIVATIVE CONTRACTS

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Derivative contracts are financial instruments that require payments based upon changes in the values of designated securities, commodities, currencies, indices, or other assets or instruments including other derivative contracts, (each a "Reference Instrument" and collectively, "Reference Instruments"). Each party to a derivative contract is referred to as a counterparty. Some derivative contracts require payments relating to an actual, future trade involving the Reference Instrument. These types of derivatives are frequently referred to as "physically settled" derivatives. Other derivative contracts require payments relating to the income or returns from, or changes in the market value of, a Reference Instrument. These types of derivatives are known as "cash settled" derivatives, since they require cash payments in lieu of delivery of the Reference Instrument.

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

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Payment obligations arising in connection with derivative contracts are frequently required to be secured with collateral (in the case of OTC contracts) or margin (in the case of exchange-traded contracts, as previously noted).

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The Fund may not invest in a derivative contract if it is not permitted to own, invest in, or otherwise have economic exposure to the Reference Instrument (or, in the case of a Reference Instrument that is an index, the securities or derivatives that comprise the index). The Fund may trade in the following specific types and/or combinations of derivative contracts:

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The Fund may trade in the following types of derivative contracts, including combinations thereof:

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Futures Contracts

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Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a Reference Instrument at a specified price, date and time. Entering into a contract to buy a Reference Instrument is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell a Reference Instrument is commonly referred to as selling a contract or holding a short position in the Reference Instrument. Futures contracts are considered to be commodity contracts. The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts. The Fund can buy or sell financial futures (such as currency futures, index futures and security futures) as well as, currency forward contracts.

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Option Contracts

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Option contracts (also called "options") are rights to buy or sell a Reference Instrument for a specified price (the exercise price) during, or at the end of, a specified period. The seller (or writer) of the option receives a payment, or premium, from the buyer, which the writer keeps regardless of whether the buyer uses (or exercises) the option. A call option gives the holder (buyer) the right to buy the Reference Instrument from the seller (writer) of the option. A put option gives the holder the right to sell the Reference Instrument to the writer of the option. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of Reference Instruments. Options that are written on futures contracts will be subject to margin requirements similar to those applied to futures contracts. The Fund may buy or sell options on a Reference Instrument if it is permitted to own, invest, or otherwise have economic exposure to that instrument. The Fund is not required to own a Reference Instrument, in order to buy or sell an option on that Reference Instrument.

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Swap Contracts

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A swap contract (also known as a "swap") is a type of derivative contract in which two parties agree to pay each other (swap) the returns derived from Reference Instruments. Swaps do not always involve the delivery of the Reference Instruments by either party, and the parties might not own the Reference Instruments underlying the swap. The payments are usually made on a net basis so that, on any given day, the Fund would receive (or pay) only the amount by which its payment under the contract is less than (or exceeds) the amount of the other party's payment. Swap agreements are sophisticated instruments that can take many different forms and are known by a variety of names.

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Common types of swaps in which the Fund may invest include interest rate swaps, total return swaps, credit default swaps, currency swaps and caps and floors.

CREDIT ENHANCEMENT

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

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

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INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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SPECIAL TRANSACTIONS

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Asset Coverage

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In order to secure its obligations in connection with derivatives contracts or special transactions, the Fund will either own the underlying assets, enter into an offsetting transaction or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets used to secure such obligations without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on derivative contracts or special transactions.

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Delayed Delivery Transactions

Securities Lending

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.

Securities lending activities are subject to interest rate risks and credit risks.

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What are the Specific Risks of Investing in the Fund?

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STOCK MARKET RISKS

LIQUIDITY RISKS

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

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

RISKS RELATED TO COMPANY SIZE

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

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

RISKS RELATED TO INVESTING FOR GROWTH

RISKS RELATED TO INVESTING FOR VALUE

RISKS OF FOREIGN INVESTING

RISKS OF INVESTING IN ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN ISSUERS

CURRENCY RISKS

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RISKS OF INVESTING IN EMERGING MARKET COUNTRIES

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Securities issued or traded in emerging markets generally entail greater risks than securities issued or traded in developed markets. For example, their prices may be significantly more volatile than prices in developed countries. Emerging market economies may also experience more severe downturns (with corresponding currency devaluations) than developed economies.

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Emerging market countries may have relatively unstable governments and may present the risk of nationalization of businesses, expropriation, confiscatory taxation or, in certain instances, reversion to closed market, centrally planned economies.

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INTEREST RATE RISKS

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

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

CREDIT RISKS

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

CALL RISKS AND PREPAYMENT RISKS

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

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

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

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

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

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

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

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

EXCHANGE-TRADED FUNDS RISKS

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RISKS OF INVESTING IN DERIVATIVE CONTRACTS AND HYBRID INSTRUMENTS

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The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying Reference or Valuation Instruments or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts and hybrid instruments may be erroneously priced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Fourth, derivative contracts and hybrid instruments may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Fifth, a common provision in OTC derivative contracts permits the counterparty to terminate any such contract between it and the Fund, if the value of the Fund's total net assets declines below a specified level over a given time period. Factors that may contribute to such a decline (which usually must be substantial) include significant shareholder redemptions and/or a marked decrease in the market value of the Fund's investments. Any such termination of the Fund's OTC derivative contracts may adversely affect the Fund (for example, by increasing losses and/or costs, and/or preventing the Fund from fully implementing its investment strategies). Finally, derivative contracts and hybrid instruments may also involve other risks described in this Prospectus, such as stock market, interest rate, credit, currency, liquidity and leverage risks.

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LEVERAGE RISKS

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

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) plus any applicable front-end sales charge (public offering price). When the Fund holds foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. NAV is determined 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."

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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 assets-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 .

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Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

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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. For securities normally priced at their last sale price in a foreign market, such events can occur between the close of trading in the foreign market and the close of 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.

Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charges
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	5.50%	0.00%
Class C	$1,500/$100	1.00%	1.00%

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1 The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively. The minimum subsequent investment amount for Systematic Investment Programs (SIP) is $50. Financial intermediaries may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. To maximize your return and minimize the sales charges and marketing fees, purchases of Class C Shares are generally limited to $1,000,000. Purchases in excess of these limits may be made in Class A Shares. If your Shares are held on the books of the Fund in the name of a financial intermediary, you may be subject to rules of your financial intermediary that differ from those of the Fund. See "Purchase Limits on Class C Shares" below.

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

3 See "Sales Charge When You Redeem."

Among the important factors to consider are the amount you plan to invest and the length of time you expect to hold your investment. You should consider, for example, that it may be possible to reduce the front-end sales charges imposed on purchases of Class A Shares. Among other ways, Class A Shares have a series of "breakpoints," which means that the front-end sales charges decrease (and can be eliminated entirely) as the amount invested increases. (The breakpoint schedule is set out below under "Sales Charge When You Purchase.") Finally, Class C Shares bear a relatively low front-end sales charge and a contingent deferred sales charge only if redeemed within one year after purchase; however, the asset-based 12b-1 fees charged to Class C Shares are greater than those charged to Class A Shares.

SALES CHARGE WHEN YOU PURCHASE

The following tables list the sales charges which will be applied to your Share purchase, subject to the breakpoint discounts indicated in the tables and described below.

Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $50,000	5.50%	5.82%
$50,000 but less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%

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

REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

Contingent upon notification to the Transfer Agent, the sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

LARGER PURCHASES

purchasing Class A Shares in greater quantities to reduce the applicable sales charge;

CONCURRENT AND ACCUMULATED PURCHASES

combining concurrent purchases of and/or current investments in Class A, Class B, Class C, Class F and Class K Shares of any Federated fund made or held by Qualifying Accounts; the purchase amount used in determining the sales charge on your additional Share purchase will be calculated by multiplying the maximum public offering price times the number of Class A, Class B, Class C, Class F and Class K Shares of any Federated fund currently held in Qualifying Accounts and adding the dollar amount of your current purchase; or

LETTER OF INTENT (CLASS A SHARES ONLY)

signing a letter of intent to purchase a qualifying amount of Class A Shares within 13 months. (Call your financial intermediary or the Fund for more information.) The Fund's custodian will hold Shares in escrow equal to the maximum applicable sales charge. If you complete the Letter of Intent, the Custodian will release the Shares in escrow to your account. If you do not fulfill the Letter of Intent, the Custodian will redeem the appropriate amount from the Shares held in escrow to pay the sales charges that were not applied to your purchases.

PURCHASE LIMITS ON CLASS C SHARES

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ELIMINATING THE SALES CHARGE

Contingent upon notification to the Transfer Agent, the sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
through a financial intermediary that did not receive a dealer reallowance on the purchase;
with reinvested dividends or capital gains;

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as a shareholder that originally became a shareholder of a Federated fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;

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as a Federated Life Member (Federated shareholders who originally were issued shares through the "Liberty Account," which was an account for the Liberty Family of Funds on February 28, 1987, or who invested through an affinity group prior to August 1, 1987, into the Liberty Account) (Class A Shares only);
as a Trustee, employee or former employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any financial intermediary that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals or a trust, pension or profit-sharing plan for these individuals; or
pursuant to the exchange privilege.

SALES CHARGE WHEN YOU REDEEM

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

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

Shares that are not subject to a CDSC; and
Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).

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

Class A Shares:

Class C Shares:

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Contingent upon notification to the Transfer Agent, you will not be charged a CDSC when redeeming Shares:

following the death of the last surviving shareholder on the account or your post-purchase disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986 (the beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder on the account);
representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 70-1/2;
purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;
purchased by Trustees, employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of a financial intermediary that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;
purchased through a financial intermediary that did not receive an advance commission on the purchase;
purchased with reinvested dividends or capital gains;
redeemed by the Fund when it closes an account for not meeting the minimum balance requirements; or
purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period (the holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange).

How is the Fund Sold?

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The Fund offers four Share classes: Class A Shares, Class C Shares, Class K Shares and Institutional Shares, each representing interests in a single portfolio of Securities. This prospectus relates only to Class A Shares and Class C Shares. All Share classes have different sales charges and other expenses which affect their performance. The Fund also offers by separate prospectus an additional class of Shares that may be preferable for shareholders purchasing $25,000 or more. Contact your financial intermediary or call 1-800-341-7400 for more information concerning the other classes.

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Payments to Financial Intermediaries

FRONT-END SALES CHARGE REALLOWANCES

When a financial intermediary's customer purchases Shares, the financial intermediary may receive a Dealer Reallowance as follows:

Class A Shares:
Purchase Amount				Dealer Reallowance as a Percentage of Public Offering Price
Less than $50,000				5.00%
$50,000 but less than $100,000				4.00%
$100,000 but less than $250,000				3.25%
$250,000 but less than $500,000				2.25%
$500,000 but less than $1 million				1.80%
$1 million or greater				0.00%
Class C Shares:
All Purchase Amounts				1.00%

ADVANCE COMMISSIONS

When a financial intermediary's customer purchases Shares, the financial intermediary may receive an advance commission as follows:

Class A Shares (for purchases over $1 million)
Purchase Amount		Advance Commission as a Percentage of Public Offering Price
First $1 million - $5 million		0.75%
Next $5 million - $20 million		0.50%
Over $20 million		0.25%

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

RULE 12B-1 FEES

SERVICE FEES

ACCOUNT ADMINISTRATION FEES

RECORDKEEPING FEES

NETWORKING FEES

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

How to Purchase Shares

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 three business days. 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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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THROUGH AN EXCHANGE

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BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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

PAYMENT METHODS FOR REDEMPTIONS

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGE

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

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

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

Generally, it is not advisable to continue to purchase Class A Shares or Class C Shares subject to a sales charge while redeeming Shares using this program.

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

FREQUENT TRADING POLICIES

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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's fair valuation procedures are intended in part to discourage short-term trading strategies by reducing the potential for these strategies to succeed. See "What Do Shares Cost?" The Fund also 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.

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PORTFOLIO HOLDINGS INFORMATION

You may also access from the "Products" section of the website portfolio information as of the end of the Fund's fiscal quarters. 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 name of the Fund, clicking on "Prospectuses and Regulatory Reports" 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.

Who Manages the Fund?

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The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated MDTA LLC, which is registered as an investment adviser with the SEC. Federated MDTA LLC is responsible for the day-to-day management of the Fund in accordance with the Fund's investment objectives and policies (subject to the general supervision of the Fund's Board). This includes making investment decisions, and buying and selling securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement and 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 is: 125 Cambridge Park Drive, Cambridge, Massachusetts, 02140. The address of FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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Federated MDTA LLC is the Adviser to approximately $6.8 billion in total assets, including $6.3 billion in separately managed account portfolios, $197 million in institutional accounts and approximately $311 million in mutual funds as of July 25, 2006, that use Federated MDTA's proprietary quantitative investment process.

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The Adviser has delegated daily management of some Fund assets to the Sub-Adviser, Federated Investment Management Company, who is paid by the Adviser and not by the Fund. The Sub-Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The Sub-Adviser and other subsidiaries of Federated advise approximately 136 equity, fixed-income, and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $213 billion in assets as of December 31, 2005. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1,305 employees. Federated provides investment products to more than 5,500 investment professionals and institutions.

PORTFOLIO MANAGEMENT INFORMATION

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Dr . Goldsmith, John F. Sherman, Joseph M. Balestrino and Christopher J. Smith (the "Portfolio Managers") are jointly and primarily responsible for the day-to-day management of the Fund.

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Dr. David M. Goldsmith

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David M. Goldsmith, Ph.D., has been the Fund's Portfolio Manager for the equity portion of the Fund since August 2006. Dr. Goldsmith joined MDT Advisers (the predecessor to the Adviser) in 1990. He has been responsible for the development of the Optimum Q Process and for the past five years he has been in charge of the Quantitative Equity Strategies Group. Dr. Goldsmith supervises the Quantitative Equity Strategies Group which assists in the development, maintenance and operation of the Optimum Q Process. Dr. Goldsmith has over 23 years' experience in the development and application of financial and statistical modeling techniques. He received an A.B., Summa Cum Laude, in Economics from Princeton University, where he won the Wolf Balleison Memorial Prize for the outstanding senior thesis in economics. Dr. Goldsmith also received a Ph.D., Economics, with a concentration in Finance from Harvard University.

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John F. Sherman

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John. F. Sherman, C.F.A., has been the Fund's Portfolio Manager responsible for asset allocation (including the selection of any exchange-traded funds and derivatives used in the asset allocation process) and the selection of REIT securities for the Fund since November 2006. He was a portfolio manager of the predecessor MDT Balanced Fund from October 2002 through November 2006. Mr. Sherman joined MDT Advisers (the predecessor to the Adviser) in 2000. He has over 15 years of experience analyzing financial markets. Prior to joining the Adviser, Mr. Sherman served as a Vice President and Senior Analyst for Citizens Financial Group from 1999 to 2000 and as a Senior Analyst for the FDIC from 1991 - 1999. He is a member of the CFA Institute and the Boston Security Analysts Society. He holds a designation as a Chartered Financial Analyst. He received a B.S.B.A. from North Adams State College, and an M.B.A. from Boston University Graduate School of Management.

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Joseph M. Balestrino

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Joseph M. Balestrino has been the Fund's Portfolio Manager for the fixed-income portion of the Fund since November 2006. Mr. Balestrino joined Federated in 1986 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Sub-Adviser since 1998. He was a Portfolio Manager and a Vice President of the Fund's Sub-Adviser from 1995 to 1998. Mr. Balestrino served as a Portfolio Manager and an Assistant Vice President of the Sub-Adviser from 1993 to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his Master's Degree in Urban and Regional Planning from the University of Pittsburgh.

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Christopher J. Smith

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Christopher J. Smith has been the Fund's Portfolio Manager for the fixed-income portion of the Fund since November 2006. Mr. Smith joined Federated in 1995 as a Portfolio Manager and a Vice President of a Federated advisory subsidiary. He has been a Vice President since of the Fund's Sub-Adviser since 1997. He was an Assistant Vice President of Provident Life & Accident Insurance Company from 1987 through 1994. Mr. Smith is a Charterd Financial Analyst. He received his M.A in Economics and Finance from the University of Kentucky.

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

ADVISORY FEES

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The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. Under the investment advisory contract, which is subject to annual renewal by the Fund's Board of Trustees, the Adviser will waive the amount, limited to the amount of the advisory fee, by which the Fund's aggregate annual operating expenses, including the investment advisory fee but excluding interest, taxes, brokerage commissions, expenses of registering or qualifying the Fund and its shares under federal and state laws and regulations, expenses of withholding taxes, and extraordinary expenses exceed 1. 50% for Class A Shares and 2. 25% for Class C Shares of its average daily net assets.

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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 .

Financial Information

FINANCIAL HIGHLIGHTS

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The information for the fiscal year ended July 31, 2006 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.

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MDT Balanced Fund (Predecessor Fund) was reorganized into the Federated MDT Balanced Fund (Fund), a portfolio of Federated MDT Series, as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.

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Financial Highlights-Class A Shares

(For a Share Outstanding Throughout the Period)

Period Ended July 31	2006	¹
Net Asset Value, Beginning of Period	$13.67
Income From Investment Operations:
Net investment income	0.18	²
Net realized and unrealized gain on investments	0.46
TOTAL FROM INVESTMENT OPERATIONS	0.64
Less Distributions:
Distributions from net investment income	(0.17	)
Distributions from net realized gain on investments	(0.93	)
TOTAL DISTRIBUTIONS	(1.10	)
Net Asset Value, End of Period	$13.21
Total Return³	4.85	%

Ratios to Average Net Assets:
Net expenses	1.50	%⁴
Net investment income	1.60	%⁴
Expense waiver/reimbursement⁵	0.17	%⁴
Supplemental Data:
Net assets, end of period (000 omitted)	$1,962
Portfolio turnover⁶	139	%

1 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.

2 Based on average shares outstanding.

4 Computed on an annualized basis.

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

6 Portfolio turnover is calculated at the Fund level. Percentages indicated were calculated for the year ended July 31, 2006.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, which can be obtained free of charge.

Financial Highlights-Class C Shares

(For a Share Outstanding Throughout The Period)

Period Ended July 31	2006	¹
Net Asset Value, Beginning of Period	$13.67
Income From Investment Operations:
Net investment income	0.10	²
Net realized and unrealized gain on investments	0.44
TOTAL FROM INVESTMENT OPERATIONS	0.54
Less Distributions:
Distributions from net investment income	(0.15	)
Distributions from net realized gain on investments	(0.93	)
TOTAL DISTRIBUTIONS	(1.08	)
Net Asset Value, End of Period	$13.13
Total Return³	4.04	%

Ratios to Average Net Assets:
Net expenses	2.25	%⁴
Net investment income	0.85	%⁴
Expense waiver/reimbursement⁵	0.17	%⁴
Supplemental Data:
Net assets, end of period (000 omitted)	$3,910
Portfolio turnover⁶	139	%

1 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.

2 Based on average shares outstanding.

4 Computed on an annualized basis.

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

6 Portfolio turnover is calculated at the Fund level. Percentages indicated were calculated for the year ended July 31, 2006.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, which can be obtained free of charge.

Appendix A: Hypothetical Investment and Expense Information

FEDERATED MDT BALANCED FUND - CLASS A SHARES
ANNUAL EXPENSE RATIO: 1.50%
MAXIMUM FRONT-END SALES CHARGE: 5.50%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$472.50	$9,922.50	$694.23	$9,780.75
2	$9,780.75	$489.04	$10,269.79	$149.28	$10,123.08
Contractual/Gross				Annual Expense Ratio: 1.60%
3	$10,123.08	$506.15	$10,629.23	$164.72	$10,46.26
Gross				Annual Expense Ratio: 1.65%
4	$10,467.26	$523.36	$10,990.62	$175.60	$10,817.91
5	$10,817.91	$540.90	$11,358.81	$181.49	$11,180.31
6	$11,180.31	$559.02	$11,739.33	$187.57	$11,554.85
7	$11,554.85	$577.74	$12,132.59	$193.85	$11,941.94
8	$11,941.94	$597.10	$12,539.04	$200.34	$12,341.99
9	$12,341.99	$617.10	$12,959.09	$207.05	$12,755.45
10	$12,755.45	$637.77	$13,393.22	$213.99	$13,182.76
Cumulative		$5,520.68		$2,368.12

FEDERATED MDT BALANCED FUND - CLASS C SHARES
ANNUAL EXPENSE RATIO: 2.15%
MAXIMUM FRONT-END SALES CHARGE: 1.00%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$495.00	$10,395.00	$315.88	$10,182.15
2	$10,182.15	$509.11	$10,691.26	$222.04	$10,472.34
3	$10,472.34	$523.62	$10,995.96	$228.36	$10,770.80
4	$10,770.80	$538.54	$11,309.34	$234.87	$11,077.77
5	$11,077.77	$553.89	$11,631.66	$241.57	$11,393.49
6	$11,393.49	$569.67	$11,963.16	$248.45	$11,718.20
7	$11,718.20	$585.91	$12,304.11	$255.53	$12,052.17
8	$12,052.17	$602.61	$12,654.78	$262.81	$12,395.66
9	$12,395.66	$619.78	$13,015.44	$270.30	$12,748.94
10	$12,748.94	$637.45	$13,386.39	$278.01	$13,112.28
Cumulative		$5,635.58		$2,557.82

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A Statement of Additional Information (SAI) dated December 11, 2006, includes additional information about the Fund and is incorporated by reference into this prospectus. To obtain the SAI 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.

Investment Company Act File No. 811-21904

Federated
World-Class Investment Manager

Federated MDT Balanced 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 31421R841
Cusip 31421R833

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35360 ( 12/06)

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Federated is a registered mark of Federated Investors, Inc. 2006 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated MDT Balanced Fund

A Portfolio of Federated MDT Series

PROSPECTUS

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December 11, 2006

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INSTITUTIONAL SHARES

A mutual fund seeking the possibility of long-term growth of capital and income by investing in a combination of equity and fixed-income securities.

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 8

What are the Fund's Investment Strategies? 9

What are the Principal Securities in Which the Fund Invests? 13

What are the Specific Risks of Investing in the Fund? 22

What Do Shares Cost? 27

How is the Fund Sold? 30

Payments to Financial Intermediaries 30

How to Purchase Shares 31

How to Redeem and Exchange Shares 33

Account and Share Information 36

Who Manages the Fund? 40

Legal Proceedings 42

Financial Information 44

Appendix A: Hypothetical Investment and Expense Information 46

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is the possibility long-term growth of capital and income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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The Fund utilizes a whole market, all-cap/all-style strategy by selecting most of its domestic equity investments from companies listed in the Russell 3000 Index, an index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. As of September 30, 2006, companies in the Russell 3000 Index ranged in market capitalization from $40 million to $406 billion. The Fund's investment adviser (Adviser) uses a disciplined, quantitative process in its security selection which seeks to maximize compound annual return while controlling risk.

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In managing the Fund's allocation to foreign equities, the Adviser attempts to diversify the portfolio across countries, in companies of all sizes with both growth and value characteristics.

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With respect to the fixed-income securities allocation, the Fund invests primarily in domestic investment grade debt securities, including corporate debt securities, U.S. government obligations, and mortgage-backed securities. The Adviser selects fixed-income securities by using fundamental credit research to identify relative value in market. The Adviser seeks to enhance the performance of the Fund's fixed-income portfolio by allocating more assets to the security type that the Adviser expects to offer the best balance between total return and risk.

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

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The Fund may invest a portion of its portfolio in noninvestment-grade, fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The noninvestment-grade securities in which the Fund invest, which are rated BB+ or Ba1/BB+ or lower by a nationally recognized statistical rating organization (NRSRO), generally pay higher interest rates as compensation for the greater default risk attached to the securities. The Fund may also invest a portion of its portfolio in non-U.S.-dollar, and emerging market fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The adviser selects securities with longer or shorter durations based on its interest rate outlook, but does not target any specific duration for the fixed-income portion of the Fund.

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The Fund may invest in exchange-traded and over-the-counter derivatives, such as options or futures, for any purpose consistent with its investment strategy. The Adviser may attempt to reach its goals by investing in exchange-traded funds and shares of other investment companies.

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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:

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.

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Liquidity Risks. The equity securities in which the Fund invests may trade infrequently and may be subject to greater fluctuation in price than other securities. 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. Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.

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Small, Medium and Large Sized Companies Risks. The Fund may invest in any size company including small and mid-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. You should expect that the value of the Fund's shares will be more volatile than a fund that invests exclusively in large-capitalization companies.
Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Additionally, growth stocks may not pay dividends or may pay lower dividends than value stocks.
Risks Related to Investing for Value. Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. Additionally, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
Risks of Foreign Investing. Because the Fund may invest in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers. Because the Fund may invest in American Depositary Receipts (ADRs) and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.
Emerging Markets Risks. Securities issued or traded in emerging markets generally entail greater risks than securities issued or traded in developed markets. Emerging market countries may have relatively unstable governments and may present the risk of nationalization of businesses, expropriation, confiscatory taxation or, in certain instances, reversion to closed market, centrally planned economies.
Currency Risks. Exchange rates for currencies fluctuate daily. The combination of currency risk and market risk tends to make securities traded in foreign markets more volatile than securities traded exclusively in the United States.

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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.

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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. Credit risk includes the possibility that a party to a transaction (such as a derivative 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.

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Call Risks . There is a possibility that an issuer of fixed-income securities in which the Fund may invest may redeem a security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.
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.
Risks Associated with Noninvestment-Grade, Fixed-Income Securities. Securities rated below investment grade may be subject to greater interest rate, credit and liquidity risks than investment-grade securities.

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Exchange-Traded Funds Risks. An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded). As with traditional mutual funds, ETFs charge asset-based fees. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.

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Risks of Investing in Derivative Contracts and Hybrid Instruments. The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as interest rate, credit, currency, liquidity and leverage risks .

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

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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 total return for the nine-month period from January 1, 2006 to September 30, 2006 was 5.59%.

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Within the period shown in the bar chart, the Fund's Institutional Shares highest quarterly return was 9.56% (quarter ended December 31, 2003). Its lowest quarterly return was (1.14)% (quarter ended June 30, 2004).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Institutional Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for Institutional Shares. In addition, Return After Taxes is shown for the Fund's Institutional Shares to illustrate the effect of federal taxes on the Fund's returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Standard & Poor's 500 Index (S&P 500), a broad-based market index, and the Lipper Balanced Funds Investment Objective Index (LBFIOI). Index returns do not reflect taxes, sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. Indexes are unmanaged and unlike the Fund are not affected by cashflows. It is not possible to invest directly in an index.

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(For the Periods Ended December 31, 2005)

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	1 Year	Start of Performance¹
Fund:
Return Before Taxes	8.91%	15.13%
Return After Taxes on Distributions²	6.79%	13.40%
Return After Taxes on Distributions and Sale of Fund Shares²	6.70%	12.39%
S&P 500³	4.92%	14.69%
LBFIOI⁴	5.20%	12.12%

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1 The Fund's Institutional Shares start of performance date was October 1, 2002.

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

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3 The S&P 500 Index consists of 500 stocks chosen from market size, liquidity and industry group representation. It is a market-weighted index (stock price times number of shares outstanding), with each stock's weight in the index proportionate to its market value. The "500" is one of the most widely used benchmarks of U.S. equity performance. The performance of the index assumes the reinvestment of dividends or other distributions but does not reflect deductions for fees, expenses or taxes.

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4 The Lipper Balanced Funds Investment Objective Index is the average of the 30 largest funds in the Lipper Balanced Funds category. These funds, by portfolio practice, aim to conserve principal by maintaining at all times a balanced portfolio of at least 50% in equity securities and at least 25% in fixed-income securities. Typically the equity/bond ratio is approximately 60%/40%. The return of the index assumes the reinvestment of any dividends or other distributions.

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What are the Fund's Fees and Expenses?

FEDERATED MDT BALANCED FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.75%
Distribution (12b-1) Fee		None
Other Expenses³		0.40%
Total Annual Fund Operating Expenses		1.15%

1 The percentages shown are annualized based on anticipated expenses for the fiscal period ending July 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 administrator expects to waive certain amounts. This is shown below along with the net expenses the Fund expects to pay for the fiscal period ending July 31, 2007.
Total Waivers of Fund Expenses		0.02%
Total Anticipated Annual Fund Operating Expenses (after waivers)		1.13%
2 Under the investment advisory contract, the Adviser is obligated to waive all or a portion of its investment advisory fee which it is otherwise entitled to receive, and/or reimburse other operating expenses (excluding interest, taxes and brokerage commissions), in order to limit the aggregate annual operating expenses for the Institutional Shares of the Fund to not more than 1.25% of its daily net assets. Any waiver by the administrator that reduces such expenses (as discussed elsewhere in these notes) may have the effect of reducing the amount to be waived or reimbursed by the Adviser pursuant to its contractual commitment. It is anticipated that this commitment will expire in November 2008.
3 Includes a recordkeeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments to Financial Intermediaries" herein. Although not contractually obligated to do so, the administrator expects to voluntarily waive a portion of its fee. This voluntary waiver can be terminated at any time. Total Other Expenses paid by the Fund's Institutional Shares (after the anticipated waiver) are expected to be 0.38% for the fiscal period ending July 31, 2007.

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.

1 Year	$	117
3 Years	$	365
5 Years	$	633
10 Years	$	1,398

What are the Fund's Investment Strategies?

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The Fund's domestic equity portfolio will consist primarily of common stock managed in a style which utilizes a whole market, all cap/all style strategy, with most investments selected from companies listed in the Russell 3000 Index, an index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. As of September 30, 2006, companies in the Russell 3000 Index ranged in capitalization from $ 40 million to $ 406 billion. The Fund's strategy was developed using a quantitative model, (referred to as the Optimum Q Process). The Adviser believes that this whole market approach provides two main advantages. First, it allows an investor to participate in all major areas of the U.S. equity market (companies of all sizes with both growth and value characteristics) in a single fund. Second, through bottom-up stock selection and subject to risk controls , it provides the ability to overweight or underweight segments of the market represented by those stocks which the Optimum Q Process views as opportunities. The strategy used to construct the portfolio seeks to maximize compound annual return while controlling risk. The Fund will engage in active trading of its portfolio securities to achieve its investment goals.

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Individual stocks are selected for inclusion in the Fund based upon the Optimum Q's stock selection process. The model seeks to screen its universe of stocks for stocks that meet certain valuation and performance metrics that the Adviser believes might be indicative of an attractive investment opportunity. The selection process also factors in trading costs (particularly market impact) by biasing the Fund towards those stocks which have less trading costs. The Adviser's process also utilizes diversification constraints which keep the portfolio diversified by business, industry and sector.

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The Fund may invest a portion of its portfolio in noninvestment-grade, fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The noninvestment-grade securities in which the Fund invests, which are rated BB+ or Ba1/BB+ or lower by a nationally recognized statistical rating organization (NRSRO), generally pay higher interest rates as compensation for the greater default risk attached to the securities. The Fund may invest a portion of its portfolio in non-U.S.-dollar, and emerging market fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The adviser selects securities with longer or shorter durations based on its interest rate outlook, but does not target any specific duration for the fixed-income portion of the Fund.

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increase or decrease the effective duration of the Fund portfolio;

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obtain premiums from the sale of derivative contracts;

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realize gains from trading a derivative contract; or

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hedge against potential losses.

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There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

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HEDGING

PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

Preferred Stocks

Interests in Other Limited Liability Companies

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

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Real Estate Investment Trusts (REITs)

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Warrants

FOREIGN SECURITIES

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

Foreign Exchange Contracts

Foreign Government Securities

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

ADRs and Domestically Traded Securities of Foreign Issuers

FIXED-INCOME SECURITIES

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

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

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

Treasury Securities

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

Agency Securities

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

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

Investors regard agency securities as having low credit risks, but not as low as Treasury securities.

A Fund treats mortgage-backed securities guaranteed by a GSE as if issued or guaranteed by a federal agency.

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

Corporate Debt Securities

In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.

Commercial Paper

Demand Instruments

Mortgage-Backed Securities

Asset-Backed Securities

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

Convertible Securities

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

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

Derivative Contracts

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Payment obligations arising in connection with derivative contracts are frequently required to be secured with collateral (in the case of OTC contracts) or margin ( in the case of exchange-traded contracts, as previously noted).

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The Fund may trade in the following types of derivative contracts, including combinations thereof:

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FUTURES CONTRACTS

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OPTION CONTRACTS

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SWAP CONTRACTS

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Common types of swaps in which the Fund may invest include interest rate swaps, total return swaps, credit default swaps, currency swaps and caps and floors.

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CREDIT ENHANCEMENT

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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SPECIAL TRANSACTIONS

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Asset Coverage

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Delayed Delivery Transactions

Securities Lending

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.

Securities lending activities are subject to interest rate risks and credit risks.

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What are the Specific Risks of Investing in the Fund?

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STOCK MARKET RISKS

LIQUIDITY RISKS

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

RISKS RELATED TO COMPANY SIZE

RISKS RELATED TO INVESTING FOR GROWTH

RISKS RELATED TO INVESTING FOR VALUE

RISKS OF FOREIGN INVESTING

RISKS OF INVESTING IN ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN ISSUERS

CURRENCY RISKS

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RISKS OF INVESTING IN EMERGING MARKET COUNTRIES

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Emerging market countries may have relatively unstable governments and may present the risk of nationalization of businesses, expropriation, confiscatory taxation or, in certain instances, reversion to closed market, centrally planned economies.

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INTEREST RATE RISKS

CREDIT RISKS

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

CALL RISKS AND PREPAYMENT RISKS

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

EXCHANGE-TRADED FUNDS RISKS

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RISKS OF INVESTING IN DERIVATIVE CONTRACTS AND HYBRID INSTRUMENTS

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The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying Reference or Valuation Instruments or, if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts and hybrid instruments may be erroneously priced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Fourth, derivative contracts and hybrid instruments may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Fifth, a common provision in OTC derivative contracts permits the counterparty to terminate any such contract between it and the Fund, if the value of the Fund's total net assets declines below a specified level over a given time period. Factors that may contribute to such a decline (which usually must be substantial) include significant shareholder redemptions and/or a marked decrease in the market value of the Fund's investments. Any such termination of the Fund's OTC derivative contracts may adversely affect the Fund (for example, by increasing losses and/or costs, and/or preventing the Fund from fully implementing its investment strategies). Finally, derivative contracts and hybrid instruments may also involve other risks described in this Prospectus, such as stock market, interest rate, credit, currency, liquidity and leverage risks.

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LEVERAGE RISKS

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

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). When the Fund holds foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. 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."

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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 .

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Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

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How is the Fund Sold?

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The Fund offers four Share classes: Class A Shares, Class C Shares, Class K Shares and Institutional Shares, each representing interests in a single portfolio of Securities. This prospectus relates only to Institutional Shares. All Share classes have different sales charges and other expenses which affect their performance. Contact your financial intermediary or call 1-800-341-7400 for more information concerning the other classes.

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Payments to Financial Intermediaries

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. 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

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The required minimum initial investment for Fund Shares is $25,000. For Trustees and Officers of the Federated MDT Funds or of the former MDT Funds, shareholders of any MDT Fund as of August 26, 2005 , employees of the Adviser and its affiliates, their families, employee benefit plans sponsored by the Adviser, and former members of the Memorial Drive Trust, the required minimum initial investment of Fund Shares is $1,000. Shareholders eligible to purchase Institutional Shares of the Fund under these categories may be asked to include a written statement with their initial purchase verifying their qualification. 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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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THROUGH AN EXCHANGE

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BY SYSTEMATIC INVESTMENT PROGRAM (SIP)

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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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

PAYMENT METHODS FOR REDEMPTIONS

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

FREQUENT TRADING POLICIES

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PORTFOLIO HOLDINGS INFORMATION

Who Manages the Fund?

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The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated MDTA LLC, which is registered as an investment adviser with the SEC. Federated MDTA LLC is responsible for the day-to-day management of the Fund in accordance with the Fund's investment objectives and policies (subject to the general supervision of the Fund's Board). This includes making investment decisions, and buying and selling securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement and 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 is: 125 Cambridge Park Drive, Cambridge, Massachusetts, 02140. The address of FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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PORTFOLIO MANAGEMENT INFORMATION

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Dr . Goldsmith, John F. Sherman, Joseph M. Balestrino and Christopher J. Smith (the "Portfolio Managers") are jointly and primarily responsible for the day-to-day management of the Fund.

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Dr. David M. Goldsmith

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John F. Sherman

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John F. Sherman, C.F.A., has been the Fund's Portfolio Manager responsible for asset allocation (including the selection of any exchange-traded funds and derivatives used in the asset allocation process) and the selection of REIT securities for the Fund since November 2006. He was a portfolio manager of the predecessor MDT Balanced Fund from October 2002 through November 2006. Mr. Sherman joined MDT Advisers (the predecessor to the Adviser) in 2000. He has over 15 years of experience analyzing financial markets. Prior to joining the Adviser, Mr. Sherman served as a Vice President and Senior Analyst for Citizens Financial Group from 1999 to 2000 and as a Senior Analyst for the FDIC from 1991 - 1999. He is a member of the CFA Institute and the Boston Security Analysts Society. He holds a designation as a Chartered Financial Analyst. He received a B.S.B.A. from North Adams State College, and an M.B.A. from the Boston University Graduate School of Management.

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Joseph M. Balestrino

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Christopher J. Smith

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Christopher J. Smith has been the Fund's Portfolio Manager for the fixed-income portion of the Fund since November 2006. Mr. Smith joined Federated in 1995 as a Portfolio Manager and a Vice President of a Federated advisory subsidiary. He has been a Vice President of the Fund's Sub-adviser since 1997. He was an Assistant Vice President of Provident Life & Accident Insurance Company from 1987 through 1994. Mr. Smith is a Chartered Financial Analyst. He received his M.A. in Economics and Finance from the University of Kentucky.

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

ADVISORY FEES

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The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. Under the investment advisory contract, which is subject to annual renewal by the Fund's Board of Trustees, the Adviser will waive the amount, limited to the amount of the advisory fee, by which the Fund's aggregate annual operating expenses, including the investment advisory fee but excluding interest, taxes, brokerage commissions, expenses of registering or qualifying the Fund and its shares under federal and state laws and regulations, expenses of withholding taxes, and extraordinary expenses exceed 1. 25% for Institutional Shares of its average daily net assets.

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Legal Proceedings

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Financial Information

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FINANCIAL HIGHLIGHTS

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The information for the fiscal year ended July 31, 2006 and July 31, 2003 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. As discussed in the Annual Report, the information for fiscal years ended July 31, 2005 and 2004, was audited by another independent registered public accounting firm.

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Financial Highlights

(For a Share Outstanding Throughout Each Period)

For the Year Ended July 31	2006	¹	2005		2004		2003	^1,2
Net Asset Value, Beginning of Period	$13.60		$12.82		$11.36		$10.00
Income From Investment Operations:
Net investment income	0.24	³	0.20		0.13		0.13
Net realized and unrealized gain on investments	0.50		1.87		1.61		1.28
TOTAL FROM INVESTMENT OPERATIONS	0.74		2.07		1.74		1.41
Less Distributions:
Distributions from net investment income	(0.18	)	(0.15	)	(0.15	)	(0.05	)
Distributions from net realized gain on investments	(0.93	)	(1.14	)	(0.13	)	(0.00	)⁴
TOTAL DISTRIBUTIONS	(1.11	)	(1.29	)	(0.28	)	(0.05	)
Net Asset Value, End of Period	$13.23		$13.60		$12.82		$11.36
Total Return⁵	5.62	%	16.81	%	15.37	%	14.18	%

Ratios to Average Net Assets:
Net expenses	1.25	%	1.19	%	1.17	%	1.47	%⁶
Net investment income	1.82	%	1.54	%	1.03	%	1.50	%⁶
Expense waiver/reimbursement⁷	0.14	%	--		--
Supplemental Data:
Net assets, end of period (000 omitted)	$73,747		$69,320		$53,815		$41,474
Portfolio turnover	139	%	127	%	78	%	124	%⁸

2 Reflects operations for the period from October 1, 2002 (date of initial public investment) to July 31, 2003.

3 Based on average shares outstanding.

4 Represents less than $0.01.

6 Computed on an annualized basis.

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

8 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended July 31, 2003.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, which can be obtained free of charge.

Appendix A: Hypothetical Investment and Expense Information

FEDERATED MDT BALANCED FUND - INSTITUTIONAL SHARES
ANNUAL EXPENSE RATIO: 1.15%
MAXIMUM FRONT-END SALES CHARGE: 0.00%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$500.00	$10,500.00	$117.21	$10,385.00
2	$10,385.00	$519.25	$10,904.25	$121.73	$10,784.82
3	$10,784.82	$539.24	$11,324.06	$126.41	$11,200.04
4	$11,200.04	$560.00	$11,760.04	$131.28	$11,631.24
5	$11,631.24	$581.56	$12,212.80	$136.33	$12,079.04
6	$12,079.04	$603.95	$12,682.99	$141.58	$12,544.08
7	$12,544.08	$627.20	$13,171.28	$147.03	$13,027.03
8	$13,027.03	$651.35	$13,678.38	$152.69	$13,528.57
9	$13,528.57	$676.43	$14,205.00	$158.57	$14,049.42
10	$14,049.42	$702.47	$14,751.89	$164.68	$14,590.32
Cumulative		$5,961.45		$1,397.51

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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.

Investment Company Act File No. 811-21904

Federated
World-Class Investment Manager

Federated MDT Balanced 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 31421R825

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35366 ( 12/06)

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Federated is a registered mark of Federated Investors, Inc. 2006 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated MDT Balanced Fund

Federated Investors 50 Years of Growth & Innovation

A Portfolio of Federated MDT Series

PROSPECTUS

December 11, 2006

CLASS K SHARES

A mutual fund seeking the possibility of long-term growth of capital and income by investing in a combination of equity and fixed-income securities.

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 8

What are the Fund's Investment Strategies? 9

What are the Principal Securities in Which the Fund Invests? 13

What are the Specific Risks of Investing in the Fund? 23

What Do Shares Cost? 30

How is the Fund Sold? 32

Payments to Financial Intermediaries 33

How to Purchase Shares 34

How to Redeem and Exchange Shares 37

Account and Share Information 41

Who Manages the Fund? 45

Legal Proceedings 48

Financial Information 49

Appendix A: Hypothetical Investment and Expense Information 50

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

In attempting to achieve its investment objectives, the Fund may diversify its portfolio over many categories of assets available for investment--fixed-income and equity, domestic and foreign, growth and value. Under normal conditions, the Fund will invest between 60% and 80% of its assets in equity securities and between 20% and 40% in fixed-income securities. The Fund may invest up to 25% of its assets in foreign equity and foreign fixed-income securities. The Fund's asset mix will change based on existing and anticipated market conditions.

The Fund utilizes a whole market, all-cap/all-style strategy by selecting most of its domestic equity investments from companies listed in the Russell 3000 Index, an index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. As of September 30, 2006, companies in the Russell 3000 Index ranged in market capitalization from $40 million to $406 billion. The Fund's investment adviser (Adviser) uses a disciplined, quantitative process in its security selection which seeks to maximize compound annual return while controlling risk.

In managing the Fund's allocation to foreign equities, the Adviser attempts to diversify the portfolio across countries, in companies of all sizes with both growth and value characteristics.

The Fund may invest a portion of its portfolio in noninvestment-grade, fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The noninvestment grade securities in which the Fund invests, which are rated BB+ or Ba1/BB+ or lower by a nationally recognized statistical rating organization (NRSRO), generally pay higher interest rates as compensation for the greater default risk attached to the securities. The Fund may also invest a portion of its portfolio in non-U.S.-dollar, and emerging market fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The adviser selects securities with longer or shorter durations based on its interest rate outlook, but does not target any specific duration for the fixed-income portion of the Fund.

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:

Stock Market Risks . The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
Liquidity Risks . The equity securities in which the Fund invests may trade infrequently and may be subject to greater fluctuations in price than other securities. 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. Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.
Small, Medium and Large Sized Companies Risks . The Fund may invest in any size company including small and mid-sized companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. You should expect that the value of the Fund's shares will be more volatile than a fund that invests exclusively in large-capitalization companies.
Risks Related to Investing for Growth . Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Additionally, growth stocks may not pay dividends or may pay lower dividends than value stocks.
Risks Related to Investing for Value . Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. Additionally, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
Risks of Foreign Investing . Because the Fund may invest in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers . Because the Fund may invest in ADRs and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.
Emerging Market Risks . Securities issued or traded in emerging markets generally entail greater risks than securities issued or traded in developed markets. Emerging market countries may have relatively unstable governments and may present the risk of nationalization of businesses, expropriation, confiscatory taxation or, in certain instances, reversion to closed market, centrally planned economies.
Currency Risks . Exchange rates for currencies fluctuate daily. The combination of currency risk and market risk tends to make securities traded in foreign markets more volatile than securities traded exclusively in the United States.
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.
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. Credit risk includes the possibility that a party to a transaction (such as a derivative 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 ratings.
Call Risks . There is a possibility that an issuer of fixed-income securities in which the Fund may invest may redeem a security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.
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.
Risks Associated with Noninvestment-Grade, Fixed-Income Securities . Securities rated below investment grade may be subject to greater interest rate, credit and liquidity risks than investment-grade securities.
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. Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.
Exchange-Traded Funds Risks . An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded). As with traditional mutual funds, ETFs charge asset-based fees. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.
Risks of Investing in Derivative Contracts and Hybrid Instruments . The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as interest rate, credit, currency, liquidity and leverage risks.
Leverage Risks . Leverage risk is created when an investment, (such as a derivative transaction), exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.

Risk/Return Bar Chart and Table

The Fund's Class K Shares commenced operations on December 14, 2006. For the period prior to the commencement of operations of Class K Shares, the performance information shown in the bar chart below is for the Fund's Institutional Class, adjusted to reflect the expenses of Class K Shares.

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.

The Fund's Class K Shares total return for the nine-month period from January 1, 2006 to September 30, 2006 was 5.01%.

Within the period shown in the bar chart, the Fund's Class K Shares highest quarterly return was 9.36% (quarter ended December 31, 2003). Its lowest quarterly return was (1.32)% (quarter ended June 30, 2004).

Average Annual Total Return Table

The Average Annual Total Returns for the Fund's Class K Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for the Fund's Institutional Shares to illustrate the effect of federal taxes on the Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Standard & Poor's 500 Index (S&P 500), a broad-based market index, and the Lipper Balanced Funds Investment Objective Index (LBFIOI). Index returns do not reflect taxes, sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. Indexes are unmanaged and it is not possible to invest directly in an index.

(For the Periods Ended December 31, 2005)

	1 Year	Start of Performance¹
Class K Shares² :
Return Before Taxes	8.10%	14.28%
S&P 500³	4.92%	14.69%
LBFIOI⁴	5.20%	12.12%

1 The Fund's Institutional Class commenced operations on October 1, 2002. Class K Shares commenced operations on December 14, 2006 and therefore do not have returns for a full calendar year. The returns for the two indexes have been calculated since the inception of the Fund's Institutional Class.

2 The Fund's Class K Shares total returns for such periods are those of the Fund's Institutional Class, but adjusted to reflect the sales charges or contingent deferred sales charge (CDSC) and expenses applicable to that Class.

What are the Fund's Fees and Expenses?

FEDERATED MDT BALANCED FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee		0.75%
Distribution (12b-1) Fee		0.50%
Other Expenses²		0.65%
Total Annual Fund Operating Expenses		1.90%

1 The percentages shown are annualized based on anticipated expenses for the fiscal period ending July 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 (except as discussed in Note 2), the administrator expects to waive certain amounts. This is shown below along with the net expenses the Fund expects to pay for the fiscal period ending July 31, 2007.
Total Waivers of Fund Expenses		0.02%
Total Anticipated Annual Fund Operating Expenses (after waivers)		1.88%
2 Includes a recordkeeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments to Financial Intermediaries" herein. Although not contractually obligated to do so (except as discussed in Note 2), the administrator expects to voluntarily waive a portion of its fee. This voluntary waiver can be terminated at any time. Total Other Expenses paid by the Fund's Class K Shares (after the anticipated waiver) are expected to be 0.63% for the fiscal period ending July 31, 2007.

Example

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

The Example assumes that you invest $10,000 in the Fund's Class K 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 Class K Shares operating expenses are before waivers as shown in the Table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

1 Year		$ 193
3 Years		$ 597
5 Years		$1,026
10 Years		$2,222

What are the Fund's Investment Strategies?

The Fund's domestic equity portfolio will consist primarily of common stock managed in a style which utilizes a whole market, all cap/all style strategy, with most investments selected from companies listed in the Russell 3000 Index, an index that measures the performance of the 3,000 largest U.S. companies by market capitalization representing approximately 98% of the investable domestic equity market. As of September 30, 2006, companies in the Russell 3000 Index ranged in capitalization from $40 million to $406 billion. The Fund's strategy was developed using a quantitative model, (referred to as the Optimum Q Process). The Adviser believes that this whole market approach provides two main advantages. First, it allows an investor to participate in all major areas of the U.S. equity market (companies of all sizes with both growth and value characteristics) in a single fund. Second, through bottom-up stock selection and subject to risk controls, it provides the ability to overweight or underweight segments of the market represented by those stocks which the Optimum Q Process views as opportunities. The strategy used to construct the portfolio seeks to maximize compound annual return while controlling risk. The Fund will engage in active trading of its portfolio securities to achieve its investment goals.

The Fund may invest a portion of its portfolio in noninvestment-grade, fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The noninvestment-grade securities in which the Fund invests, which are rated BB+ or Ba1/BB+ or lower by an NRSRO, generally pay higher interest rates as compensation for the greater default risk attached to the securities. The Fund may invest a portion of its portfolio in non-U.S.-dollar, and emerging market fixed-income securities when the Adviser considers the risk return prospects of those sectors to be attractive. The Adviser selects securities with longer or shorter durations based on its interest rate outlook, but does not target any specific duration for the fixed-income portion of the Fund.

When selecting the underlying investments, the Adviser can invest directly in individual securities or may invest in other funds advised by the Adviser or its affiliates. These funds may include funds advised by the Adviser or its affiliates. These funds may include funds which are not available for general investment by the public. The investment companies in which the Funds invest are managed independently of the Fund and incur additional expenses. Therefore, any investment by the Fund in other funds is subject to duplicate expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the additional expenses. The Fund may also invest in ETFs for purposes consistent with its investment strategy.

increase or decrease the effective duration of the fund portfolio;
obtain premiums from the sale of derivative contracts;
realize gains from trading a derivative contract; or
hedge against potential losses.

There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

HEDGING

Portfolio Turnover

Temporary Defensive Investments

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

Preferred Stocks

Interests in Other Limited Liability Companies

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

Real Estate Investment Trusts (REITs)

Warrants

FOREIGN SECURITIES

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

Foreign Exchange Contracts

Foreign Government Securities

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

ADRs and Domestically Traded Securities of Foreign Issuers

FIXED-INCOME SECURITIES

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

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

Treasury Securities

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

Agency Securities

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

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

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

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

Corporate Debt Securities

In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.

Commercial Paper

Demand Instruments

Mortgage-Backed Securities

Asset-Backed Securities

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

Convertible Securities

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

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

DERIVATIVE CONTRACTS

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

The Fund may trade in the following types of derivative contracts, including combinations thereof:

Futures Contracts

Option Contracts

Swap Contracts

Common types of swaps in which the Fund may invest include interest rate swaps, total return swaps, credit default swaps, currency swaps and caps and floors.

Credit Enhancement

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

SPECIAL TRANSACTIONS

Asset Coverage

Delayed Delivery Transactions

Securities Lending

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

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

Securities lending activities are subject to interest rate risks and credit risks.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

LIQUIDITY RISKS

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

RISKS RELATED TO COMPANY SIZE

RISKS RELATED TO INVESTING FOR GROWTH

RISKS RELATED TO INVESTING FOR VALUE

RISKS OF FOREIGN INVESTING

RISKS OF INVESTING IN ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN ISSUERS

CURRENCY RISKS

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES

Emerging market countries may have relatively unstable governments and may present the risk of nationalization of businesses, expropriation, confiscatory taxation or, in certain instances, reversion to closed market, centrally planned economies.

INTEREST RATE RISKS

CREDIT RISKS

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

CALL RISKS AND 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.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

EXCHANGE-TRADED FUNDS RISKS

An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange traded). In addition, ETFs may be subject to the following risks that do not apply to conventional funds: (i) the market price of an ETF's shares may trade above or below their net asset value; (ii) an active trading market for an ETF's shares may not develop or be maintained; (iii) trading of an ETF's shares may be halted if the listing exchange's officials deem such action appropriate; and (iv) an ETF may not fulfill its objective of tracking the performance of the index it seeks to track. As with traditional mutual funds, ETFs charge asset-based fees. The Funds will indirectly pay a proportional share of the asset-based fees of the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate with the changes in the value of the ETFs in which the Funds invest. The change in value of the ETFs is due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly affected by the change in value of the securities in which the ETF invests.

RISKS OF INVESTING IN DERIVATIVE CONTRACTS AND HYBRID INSTRUMENTS

The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying Reference or Valuation Instruments or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts and hybrid instruments may be erroneously priced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Fourth, derivative contracts and hybrid instruments may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Fifth, a common provision in OTC derivative contracts permits the counterparty to terminate any such contract between it and the Fund, if the value of the Fund's total net assets declines below a specified level over a given time period. Factors that may contribute to such a decline (which usually must be substantial) include significant shareholder redemptions and/or a marked decrease in the market value of the Fund's investments. Any such termination of the Fund's OTC derivative contracts may adversely affect the Fund (for example, by increasing losses and/or costs, and/or preventing the Fund from fully implementing its investment strategies). Finally, derivative contracts and hybrid instruments may also involve other risks described in this Prospectus, such as stock market, interest rate, credit, currency, liquidity and leverage risks.

LEVERAGE RISKS

What Do Shares Cost?

The Fund's Class K Shares do 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.

Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

How is the Fund Sold?

The Fund offers four Share classes: Class A Shares, Class C Shares, Class K Shares and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class K Shares. All Share classes have different sales charges and other expenses which affect their performance. The additional classes of Shares, which are offered by separate prospectus, may be preferable for shareholders purchasing $1,500 or more. Contact your financial intermediary or call 1-800-341-7400 for more information concerning the other classes.

The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to 401(k) plans, 457 plans, employer sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans and IRA Rollovers from such plans, directly or through financial professionals. 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

RULE 12B-1 FEES

RECORDKEEPING FEES

NETWORKING FEES

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

How to Purchase Shares

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

The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively.

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

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

BY SYSTEMATIC INVESTMENT PROGRAM

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

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

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

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue 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?

The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated MDTA LLC, which is registered as an investment adviser with the SEC. Federated MDTA LLC is responsible for the day-to-day management of the Fund in accordance with the Fund's investment objectives and policies (subject to the general supervision of the Fund's Board). This includes making investment decisions, and buying and selling securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement and 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 is: 125 Cambridge Park Drive, Cambridge, Massachusetts, 02140. The address of FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

PORTFOLIO MANAGEMENT INFORMATION

Dr. Goldsmith, John F. Sherman, Joseph M. Balestrino and Christopher J. Smith (Portfolio Managers) are jointly and primarily responsible for the day-to-day management of the Fund.

David M. Goldsmith

David M. Goldsmith, Ph.D., has been the Fund's Portfolio Manger for the equity portion of the Fund since August 2006. Dr. Goldsmith joined MDT Advisers (the predecessor to the Adviser) in 1990. He has been responsible for the development of the Optimum Q Process and for the past five years he has been in charge of the Quantitative Equity Strategies Group. Dr. Goldsmith supervises the Quantitative Equity Strategies Group which assists in the development, maintenance and operation of the Optimum Q Process. Dr. Goldsmith has over 23 years experience in the development and application of financial and statistical modeling techniques. He received an A.B., Summa Cum Laude, in Economics from Princeton University, where he won the Wolf Balleison Memorial Prize for the outstanding senior thesis in economics. Dr. Goldsmith also received a Ph.D., Economics, with a concentration in Finance from Harvard University.

John F. Sherman

Joseph M. Balestrino

Joseph M. Balestrino has been the Fund's Portfolio Manager for the fixed-income portion of the Fund since November 2006. Mr. Balestrino joined Federated in 1986 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Sub-adviser since 1998. He was a Portfolio Manager and a Vice President of the Fund's Sub-adviser from 1995 to 1998. Mr. Balestrino served as a Portfolio Manager and an Assistant Vice President of the Sub-adviser from 1993 to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his Master's Degree in Urban and Regional Planning from the University of Pittsburgh.

Christopher J. Smith

Christopher J. Smith has been the Fund's Portfolio Manager for the fixed-income portion of the Fund since November 2006. Mr. Smith joined Federated in 1995 as a Portfolio Manager and a Vice President of a Federated advisory subsidiary. He has been a Vice President of the Fund's Sub-adviser since 1997. He was an Assistant Vice President of Provident Life & Accident Insurance Company from 1987 through 1994. Mr. Smith is a Chartered Financial Analyst. He received his M.A. in Economics and Finance from the University of Kentucky.

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

Legal Proceedings

Financial Information

FINANCIAL HIGHLIGHTS

The Fund's fiscal year end is July 31. As this is the Class's first fiscal year, financial information is not yet available.

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 (except for the impact of changes in contractual expense limitation commitments) 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 voluntary fee waiver or expense reimbursement currently in effect). However, the annual expense ratio is reflective of any contractual fee waiver or expense reimbursement for the period of the contractual commitment. It is anticipated that this commitment will expire in November 2008. 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.

FEDERATED MDT BALANCED FUND - CLASS K SHARES
ANNUAL EXPENSE RATIO: 1.90%
MAXIMUM FRONT-END SALES CHARGE: 0.00%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$500.00	$10,500.00	$192.95	$10,310.00
2	$10,310.00	$515.50	$10,825.50	$198.93	$10,629.61
3	$10,629.61	$531.48	$11,161.09	$205.09	$10,959.13
4	$10,959.13	$547.96	$11,507.09	$211.45	$11,298.86
5	$11,298.86	$564.94	$11,863.80	$218.01	$11,649.12
6	$11,649.12	$582.46	$12,231.58	$224.76	$12,010.24
7	$12,010.24	$600.51	$12,610.75	$231.73	$12,382.56
8	$12,382.56	$619.13	$13,001.69	$238.92	$12,766.42
9	$12,766.42	$638.32	$13,404.74	$246.32	$13,162.18
10	$13,162.18	$658.11	$13,820.29	$253.96	$13,570.21
Cumulative		$5,758.41		$2,222.12

A Statement of Additional Information (SAI) dated December 11, 2006, includes additional information about the Fund and is incorporated by reference into this prospectus. 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 and other information without charge, and to make inquiries, call your financial intermediary or the Fund at 1-800-341-7400.

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. 811-21904

Federated
World-Class Investment Manager

Federated MDT Balanced 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 31421R692

35835 (12/06)

Federated is a registered mark of Federated Investors, Inc. 2006 (c)Federated Investors, Inc.

FEDERATED MDT BALANCED FUND

A PORTFOLIO OF FEDERATED MDT SERIES
STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 11, 2006

CLASS A SHARES
CLASS C SHARES
CLASS K SHARES
INSTITUTIONAL SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Class A Shares, Class C Shares,
Class K Shares and Institutional Shares of Federated MDT Balanced Fund (Fund),
dated December 11, 2006.

Obtain the prospectuses without charge by calling 1-800-341-7400.

CONTENTS
How is the Fund Organized?.............
Securities in Which the Fund Invests...
What Do Shares Cost?...................
How is the Fund Sold?..................
Exchanging Securities for Shares.......
Subaccounting Services.................
Redemption in Kind.....................
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...............................

HOW IS THE FUND ORGANIZED?

The Board of Trustees (the "Board") has established four classes of shares of
the Fund, known as Class A Shares, Class C Shares, Class K Shares and
Institutional Shares (Shares). This SAI relates to all classes of Shares. The
Fund's investment adviser is Federated MDTA LLC (Adviser).

MDT Balanced Fund (Predecessor Fund) was reorganized into the Fund as of the
close of business on December 8, 2006. Prior to the reorganization, the Fund had
no investment operations. The Fund is the successor to the Predecessor Fund. The
performance information and financial information presented incorporates the
operations of the Predecessor Fund, which, as a result of the reorganization,
are the Fund's performance and operations.

SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

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

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

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

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

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

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

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

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

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

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

BRADY BONDS
Brady Bonds are U.S. dollar denominated debt obligations that foreign
governments issue in exchange for commercial bank loans. The International
Monetary Fund (IMF) typically negotiates the exchange to cure or avoid a default
by restructuring the terms of the bank loans. The principal amount of some Brady
Bonds is collateralized by zero coupon U.S. Treasury securities which have the
same maturity as the Brady Bonds. However, neither the U.S. government nor the
IMF has guaranteed the repayment of any Brady Bond.

ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN ISSUERS
American Depositary Receipts, which are traded in United States markets,
represent interests in underlying securities issued by a foreign company and not
traded in the United States. ADRs provide a way to buy shares of foreign based
companies in the United States rather than in overseas markets. ADRs are also
traded in U.S. dollars, eliminating the need for foreign exchange transactions.
The Fund may also invest in securities issued directly by foreign companies and
traded in U.S. Dollars in United States markets.

EMERGING MARKET SECURITIES
Developing countries may impose restrictions on the Fund's ability to repatriate
investment income or capital. Even where there is no outright restriction on
repatriation of investment income or capital, the mechanics of repatriation may
affect certain aspects of the operations of the Fund. For example, the Fund may
be withdrawn from the People's Republic of China only in U.S. or Hong Kong
dollars and only at an exchange rate established by the government once each
week. Furthermore, some of the currencies in emerging markets have experienced
de-valuations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain developing countries face
serious exchange constraints.

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

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.

Investors regard agency securities as having low credit risks, but not as low as
Treasury securities.

A Fund treats mortgage-backed securities guaranteed by a GSE as if issued or
guaranteed by a federal agency.

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

STRIPPED SECURITIES
The Fund may have the ability to purchase participations in trusts that hold
U.S. Treasury and agency securities (such as TIGRs and CATs) and also may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments of U.S. government obligations. These participations are issued at a
discount to their "face value," and may (particularly in the case of stripped
mortgage-backed securities) exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.

CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.

COMMERCIAL PAPER

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

DEMAND INSTRUMENTS

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

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

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

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

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

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

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

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

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

ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.

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

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

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

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

DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated securities, commodities, currencies,
indices, or other assets or instruments including other derivative contracts,
(each a "Reference Instrument" and collectively, "Reference Instruments"). Each
party to a derivative contract is referred to as a counterparty. Some
derivative contracts require payments relating to an actual, future trade
involving the Reference Instrument. These types of derivatives are frequently
referred to as "physically settled" derivatives. Other derivative contracts
require payments relating to the income or returns from, or changes in the
market value of, a Reference Instrument. These types of derivatives are known
as "cash settled" derivatives, since they require cash payments in lieu of
delivery of the Reference Instrument.

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

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

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

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

The Fund may trade in the following types of derivative contracts, including
combinations thereof:

FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a Reference Instrument at a specified
price, date and time. Entering into a contract to buy a Reference Instrument is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell a Reference Instrument is commonly
referred to as selling a contract or holding a short position in the Reference
Instrument Futures contracts are considered to be commodity contracts. The Fund
has claimed an exclusion from the definition of the term "commodity pool
operator" under the Commodity Exchange Act and, therefore, is not subject to
registration or regulation as a commodity pool operator under that Act. Futures
contracts traded OTC are frequently referred to as forward contracts. The Fund
can buy or sell financial futures (such as currency futures, index futures and
security futures) as well as, currency forward contracts.

CURRENCY FORWARD CONTRACT

A currency forward contract is an obligation to purchase or sell a specific
currency at a future date, at a price set at the time of the contract and for a
period agreed upon by the parties which may be either a window of time or a
fixed number of days from the date of the contract. Forward currency contracts
are highly volatile, with a relatively small price movement potentially
resulting in substantial gains or losses to the Fund. Additionally, the Fund may
lose money on forward currency transactions if changes in currency rates do not
occur as anticipated or if the Fund's counterparty to the contract were to
default. Currency forward contracts are OTC derivatives.

OPTION CONTRACTS

Option contracts (also called "options") are rights to buy or sell a Reference
Instrument for a specified price (the exercise price) during, or at the end of,
a specified period. The seller (or writer) of the option receives a payment, or
premium, from the buyer, which the writer keeps regardless of whether the buyer
uses (or exercises) the option. Options can trade on exchanges or in the OTC
market and may be bought or sold on a wide variety of Reference Instruments.
Options that are written on futures contracts will be subject to margin
requirements similar to those applied to futures contracts. The Fund may buy or
sell options on a Reference Instrument if it is permitted to own, invest, or
otherwise have economic exposure to that instrument. The Fund is not required
to own a Reference Instrument, in order to buy or write an option on that
Reference Instrument.

The Fund may buy and/or sell the following types of options:

CALL OPTIONS
A call option gives the holder (buyer) the right to buy the Reference Instrument
from the seller (writer) of the option. The Fund may use call options in the
following ways:

{circle}Buy call options on a Reference Instrument in anticipation of an
increase in the value of the Reference Instrument; and

{circle}Write call options on a Reference Instrument to generate income from
premiums, and in anticipation of a decrease or only limited increase in the
value of the Reference Instrument. If the Fund writes a call option on a
Reference Instrument that it owns and that call option is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
Reference Instrument over the exercise price plus the premium received.

PUT OPTIONS
A put option gives the holder the right to sell the Reference Instrument to the
writer of the option. The Fund may use put options in the following ways:

{circle}Buy put options on a Reference Instrument in anticipation of a decrease
in the value of the Reference Instrument; and

{circle}Write put options on a Reference Instrument to generate income from
premiums, and in anticipation of an increase or only limited decrease in the
value of the Reference Instrument. In writing puts, there is a risk that the
Fund may be required to take delivery of the Reference Instrument when its
current market price is lower than the exercise price.

The Fund may also buy or write options, as needed, to close out existing option
positions.

Finally, the Fund may enter into combinations of options contracts in an attempt
to benefit from changes in the prices of those options contracts (without regard
to changes in the value of the Reference Instrument).

SWAP CONTRACTS

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

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

TOTAL RETURN SWAPS

A total return swap is an agreement between two parties whereby one party agrees
to make payments of the total return from a Reference Instrument (or a basket of
such instruments) during the specified period, in return for payments equal to a
fixed or floating rate of interest or the total return from another Reference
Instrument. Alternately, a total return swap can be structured so that one
party will make payments to the other party if the value of a Reference
Instrument increases, but receive payments from the other party if the value of
that instrument decreases.

CREDIT DEFAULT SWAPS
A credit default swap (CDS) is an agreement between two parties whereby one
party (the "Protection Buyer") agrees to make payments over the term of the CDS
to the other party (the "Protection Seller"), provided that no designated event
of default, restructuring or other credit related event (each a "Credit Event")
occurs with respect to Reference Instrument that is usually a particular bond or
the unsecured credit of an issuer, in general (the "Reference Obligation"). Many
CDS are physically settled, which means that if a Credit Event occurs, the
Protection Seller must pay the Protection Buyer the full notional value, or "par
value," of the Reference Obligation in exchange for delivery by the Protection
Buyer of the Reference Obligation or another similar obligation issued by the
issuer of the Reference Obligation (the "Deliverable Obligation"). The
Counterparties agree to the characteristics of the Deliverable Obligation at the
time that they enter into the CDS. Alternately, a CDS can be "cash settled,"
which means that upon the occurrence of a Credit Event, the Protection Buyer
will receive a payment from the Protection Seller equal to the difference
between the par amount of the Reference Obligation and its market value at the
time of the Credit Event. The Fund may be either the Protection Buyer or the
Protection Seller in a CDS. If the Fund is a Protection Buyer and no Credit
Event occurs, the Fund will lose its entire investment in the CDS (i.e., an
amount equal to the payments made to the Protection Seller over the term of the
CDS). However, if a Credit Event occurs, the Fund (as Protection Buyer) will
deliver the Deliverable Obligation and receive a payment equal to the full
notional value of the Reference Obligation, even though the Reference Obligation
may have little or no value. If the Fund is the Protection Seller and no Credit
Event occurs, the Fund will receive a fixed rate of income throughout the term
of the CDS. However, if a Credit Event occurs, the Fund (as Protection Seller)
will pay the Protection Buyer the full notional value of the Reference
Obligation and receive the Deliverable Obligation from the Protection Buyer. A
CDS may involve greater risks than if the Fund invested directly in the
Reference Obligation. For example, a CDS may increase credit risk since the Fund
has exposure to both the issuer of the Reference Obligation and the Counterparty
to the CDS.

CURRENCY SWAPS

Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amounts
of the currencies as well (commonly called a "foreign exchange swap") as well.

CAPS AND FLOORS

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

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

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.

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.

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 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.

Additionally, the Fund may invest in exchange traded funds (ETFs). As with
traditional mutual funds, ETFs charge asset-based fees, although these fees tend
to be relatively low. ETFs do not charge initial sales charges or redemption
fees and investors pay only customary brokerage fees to buy and sell ETF shares.

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

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

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

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

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.

STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.

LIQUIDITY RISKS
Trading opportunities are more limited for securities that are not widely held.
This may make it more difficult to sell or buy a security at a favorable price
or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep
the position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than exchange-
traded contracts.

RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of
its outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital.
These factors also increase risks and make these companies more likely to fail
than companies with larger market capitalizations.

RISKS RELATED TO INVESTING FOR GROWTH
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks.
This means they depend more on price changes for returns and may be more
adversely affected in a down market compared to value stocks that pay higher
dividends.

RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities
in foreign markets may also be subject to taxation policies that reduce
returns for U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies
by market analysts and the financial press. In addition, foreign countries may
lack uniform accounting, auditing and financial reporting standards or
regulatory requirements comparable to those applicable to U.S. companies.
These factors may prevent the Fund and its Adviser from obtaining information
concerning foreign companies that is as frequent, extensive and reliable as
the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.

RISKS OF INVESTING IN ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN
ISSUERS.
Because the Fund may invest in ADRs and other domestically traded securities of
foreign companies, the Fund's Share price may be more affected by foreign
economic and political conditions, taxation policies and accounting and
auditing standards than would otherwise be the case.

CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.

EURO RISKS
The Fund may make significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES
Developing countries may impose restrictions on the Fund's ability to repatriate
investment income or capital. Even where there is no outright restriction on
repatriation of investment income or capital, the mechanics of repatriation may
affect certain aspects of the operations of the Fund. For example, the Fund may
be withdrawn from the People's Republic of China only in U.S. or Hong Kong
dollars and only at an exchange rate established by the government once each
week. Furthermore, some of the currencies in emerging markets have experienced
de-valuations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain developing countries face
serious exchange constraints.

INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

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

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

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

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.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

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

EXCHANGE-TRADED FUNDS RISKS

An investment in an ETF generally presents the same primary risks as an
investment in a conventional fund (i.e., one that is not exchange traded). In
addition, ETFs may be subject to the following risks that do not apply to
conventional funds: (i) the market price of an ETF's shares may trade above or
below their net asset value; (ii) an active trading market for an ETF's shares
may not develop or be maintained; (iii) trading of an ETF's shares may be halted
if the listing exchange's officials deem such action appropriate; and (iv) an
ETF may not fulfill its objective of tracking the performance of the index it
seeks to track. As with traditional mutual funds, ETFs charge asset-based fees.
The Funds will indirectly pay a proportional share of the asset-based fees of
the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate
with the changes in the value of the ETFs in which the Funds invest. The change
in value of the ETFs are due to the change in price of the securities in which
the ETFs invest. Therefore, the Funds net asset value will be indirectly
effected by the change in value of the securities in which the ETF invests.

RISKS OF INVESTING IN DERIVATIVE CONTRACTS
The Fund's use of derivative contracts involves risks different from, or
possibly greater than, the risks associated with investing directly in
securities and other traditional investments. First, changes in the value of
the derivative contracts in which the Fund invests may not be correlated with
changes in the value of the underlying asset or if they are correlated, may
move in the opposite direction than originally anticipated. Second, while some
strategies involving derivatives may reduce the risk of loss, they may also
reduce potential gains or, in some cases, result in losses by offsetting
favorable price movements in portfolio holdings. Third, there is a risk that
derivative contracts may be mispriced or improperly valued and, as a result,
the Fund may need to make increased cash payments to the counterparty. Fourth,
derivative contracts may cause the Fund to realize increased ordinary income
or short-term capital gains (which are treated as ordinary income for Federal
income tax purposes) and, as a result, may increase taxable distributions to
shareholders. Fifth, a common provision in OTC derivative contracts permits
the counterparty to terminate any such contract between it and the Fund, if
the value of the Fund's total net assets declines below a specified level over
a given time period. Factors that may contribute to such a decline (which
usually must be substantial) include significant shareholder redemptions
and/or a marked decrease in the market value of the Fund's investments. Any
such termination of the Fund's OTC derivative contracts may adversely affect
the Fund (for example, by increasing losses and/or costs, and/or preventing
the Fund from fully implementing its investment strategies). Finally,
derivative contracts may also involve other risks described in this
Prospectus, such as stock market, interest rate, credit, currency, liquidity
and leverage risks.

LEVERAGE RISKS
Leverage risk is created when an investment, (such as a derivative contract),
exposes the Fund to a level of risk that exceeds the amount invested. Changes
in the value of such an investment magnify the Fund's risk of loss and
potential for gain.

FUNDAMENTAL INVESTMENT OBJECTIVE

The Fund's investment objective is the possibility of long-term growth of
capital and income. The investment objective may not be changed by the Fund's
Trustees without shareholder approval.

FUNDAMENTAL LIMITATIONS

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).

COMMODITIES
The Fund may invest in commodities to the maximum extent permitted under the
1940 Act.

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

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

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

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

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

{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.

TRADING IN FOREIGN SECURITIES

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

WHAT DO SHARES COST?

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

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 (CLASS A SHARES, CLASS C SHARES AND CLASS K SHARES ONLY)
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.

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

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.

EXCHANGING SECURITIES FOR SHARES

SUBACCOUNTING SERVICES

REDEMPTION IN KIND

MASSACHUSETTS PARTNERSHIP LAW

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

As of November 10, 2006, the following shareholder owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: Edward Jones &
Co., Maryland Heights, MO (18.73%).

As of November 10, 2006, the following shareholder owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: Merrill Lynch
Pierce Fenner & Smith, Jacksonville, FL (15.78%).

As of November 10, 2006, the following shareholder owned of record,
beneficially, or both, 5% or more of outstanding Institutional Shares: State
Street Bank and Trust Company, Wellesley Hills, MA (7.04%).

TAX INFORMATION

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 Trust's business affairs and for
exercising all the Trust'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 11, 2006, the Trust comprised 8
portfolios, and the Federated Fund Complex consisted of 43 investment companies
(comprising 136 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 November 10, 2006, the Fund's Board and Officers as a group owned less
than 1% of each Class of the Fund's outstanding Shares.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

NAME PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS, TOTAL
BIRTH DATE OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S) AGGREGATE COMPENSATION
ADDRESS COMPENSATION FROM TRUST
POSITIONS HELD FROM FUND AND
WITH TRUST (PAST FISCAL FEDERATED
DATE SERVICE YEAR)+ FUND COMPLEX
BEGAN (PAST
CALENDAR
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
Birth Date: Fund Complex's Executive Committee.
July 28, 1924
TRUSTEE PREVIOUS POSITIONS: Chairman of the Federated Fund Complex; Trustee, Federated
Began serving: Investment Management Company and Chairman and Director, Federated Investment
August 2006 Counseling.

J. CHRISTOPHER PRINCIPAL OCCUPATIONS: Principal Executive Officer and President of the $0 $0
DONAHUE* Federated Fund Complex; Director or Trustee of some of the Funds in the
Birth Date: Federated Fund Complex; President, Chief Executive Officer and Director,
April 11, 1949 Federated Investors, Inc.; Chairman and Trustee, Federated Investment
PRESIDENT AND Management Company; Trustee, Federated Investment Counseling; Chairman and
TRUSTEE Director, Federated Global Investment Management Corp.; Chairman, Federated
Began serving: Equity Management Company of Pennsylvania and Passport Research, Ltd.
August 2006 (Investment advisory subsidiary of Federated); Trustee, Federated Shareholder
Services Company; Director, Federated Services Company.

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

LAWRENCE D. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $148,500
ELLIS, M.D.* Professor of Medicine, University of Pittsburgh; Medical Director, University
Birth Date: of 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
Avenue of America.
Suite 1111
Pittsburgh, PA PREVIOUS POSITIONS: Trustee, University of Pittsburgh; Director, University of
TRUSTEE Pittsburgh Medical Center.
Began serving:
August 2006

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

NAME PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS, TOTAL
BIRTH DATE OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S) AGGREGATE COMPENSATION
ADDRESS COMPENSATION FROM TRUST
POSITIONS FROM FUND AND
HELD WITH (PAST FISCAL FEDERATED
TRUST YEAR)+ FUND COMPLEX
DATE SERVICE (PAST
BEGAN CALENDAR
YEAR)
THOMAS G. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $0 $163,350
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 Timber PREVIOUS POSITION: Senior Partner, Ernst & Young LLP.
Trail
Pittsburgh,
PA
TRUSTEE
Began
serving:
August 2006

JOHN T. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $163,350
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
Investment PREVIOUS POSITIONS: President, Investment Properties Corporation; Senior Vice
Properties President, John R. Wood and Associates, Inc., Realtors; President, Naples
Corporation Property Management, Inc. and Northgate Village Development Corporation.
3838 North
Tamiami Trail
Suite 402
Naples, FL
TRUSTEE
Began
serving:
August 2006

NICHOLAS P. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $0 $163,350
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 Woodshire PREVIOUS POSITION: Partner, Andersen Worldwide SC.
Drive
Pittsburgh,
PA
TRUSTEE
Began
serving:
August 2006

JOHN F. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex; $0 $148,500
CUNNINGHAM Director, WinsorTech.
Birth Date:
March 5, 1943 OTHER DIRECTORSHIPS HELD: Chairman, President and Chief Executive Officer,
353 El Brillo Cunningham & Co., Inc. (strategic business consulting); Trustee Associate,
Way Boston College.
Palm Beach,
FL PREVIOUS POSITIONS: Director, Redgate Communications and EMC Corporation
TRUSTEE (computer storage systems); Chairman of the Board and Chief Executive Officer,
Began Computer Consoles, Inc.; President and Chief Operating Officer, Wang
serving: Laboratories; Director, First National Bank of Boston; Director, Apollo
August 2006 Computer, Inc.

PETER E. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $0 $148,500
MADDEN
Birth Date: OTHER DIRECTORSHIPS HELD: Board of Overseers, Babson College.
March 16,
1942 PREVIOUS POSITIONS: Representative, Commonwealth of Massachusetts General
One Royal Court; President, State Street Bank and Trust Company and State Street
Palm Way Corporation (retired); Director, VISA USA and VISA International; Chairman and
100 Royal Director, Massachusetts Bankers Association; Director, Depository Trust
Palm Way Corporation; Director, The Boston Stock Exchange.
Palm Beach,
FL
TRUSTEE
Began
serving:
August 2006

CHARLES F. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $163,350
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
1945 Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank
80 South Road USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant
Westhampton Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra
Beach, NY University; Executive Vice President DVC Group, Inc. (marketing, communications
TRUSTEE and technology).
Began
serving:
August 2006

THOMAS M. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $0
O'NEILL Managing Director and Partner, Navigator Management Company, L.P. (investment
Birth Date: and strategic consulting).
June 14, 1951
95 Standish OTHER DIRECTORSHIPS HELD: Director, Midway Pacific (lumber); Board of
Street Overseers, Children's Hospital of Boston; Visiting Committee on Athletics,
P.O. Box 2779 Harvard College.
Duxbury, MA
Trustee PREVIOUS POSITIONS: Chief Executive Officer and President, Managing Director
Began and Chief Investment Officer, Fleet Investment Advisors; President and Chief
serving: Executive Officer, Aeltus Investment Management, Inc.; General Partner,
October 2006 Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The
Putnam Companies, Boston, MA; and Credit Analyst and Lending Officer, Fleet
Bank.

MARJORIE P. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $148,500
SMUTS Public Relations/Marketing Consultant/Conference Coordinator.
Birth Date:
June 21, 1935 PREVIOUS POSITIONS: National Spokesperson, Aluminum Company of America;
4905 Bayard television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.
Street
Pittsburgh,
PA
TRUSTEE
Began
serving:
August 2006

JOHN S. WALSH PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; $0 $148,500
Birth Date: President and Director, Heat Wagon, Inc. (manufacturer of construction
November 28, temporary heaters); President and Director, Manufacturers Products, Inc.
1957 (distributor of portable construction heaters); President, Portable Heater
2604 William Parts, a division of Manufacturers Products, Inc.
Drive
Valparaiso, PREVIOUS POSITION: Vice President, Walsh & Kelly, Inc.
IN
TRUSTEE
Began
serving:
August 2006

JAMES F. WILL PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; Vice $0 $0
Birth Date: Chancellor and President, Saint Vincent College.
October 12,
1938 OTHER DIRECTORSHIPS HELD: Alleghany Corporation.
Saint Vincent
College PREVIOUS POSITIONS: Chairman, President and Chief Executive Officer, Armco,
Latrobe, PA Inc.; President and Chief Executive Officer, Cyclops Industries; President and
TRUSTEE Chief Operating Officer, Kaiser Steel Corporation.
Began
serving:
August 2006

+Because the Fund is a new portfolio of the Trust, Trustee compensation has not
yet been earned and will be reported following the Fund's next fiscal year.

OFFICERS**

NAME PRINCIPAL OCCUPATION(S) AND PREVIOUS POSITION(S)
BIRTH DATE
ADDRESS
POSITIONS
HELD WITH
TRUST
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:
August 2006

BRIAN P. PRINCIPAL OCCUPATIONS: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice
BOUDA President and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its
Birth Date: subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar
February 28, Association of Wisconsin.
1947
CHIEF
COMPLIANCE
OFFICER
Began
serving:
August 2006

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

**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

BOARD COMMITTEE COMMITTEE COMMITTEE FUNCTIONS MEETINGS HELD
MEMBERS DURING LAST
FISCAL YEAR
EXECUTIVE John F. In between meetings of the full Board, the Executive Committee generally may None
Donahue exercise all the powers of the full Board in the management and direction of
John E. the business and conduct of the affairs of the Trust in such manner as the
Murray, Jr., Executive Committee shall deem to be in the best interests of the Trust.
J.D., However, the Executive Committee cannot elect or remove Board members,
S.J.D.John increase or decrease the number of Trustees, elect or remove any Officer,
S. Walsh declare dividends, issue shares or recommend to shareholders any action
requiring shareholder approval.

AUDIT Thomas G. The purposes of the Audit Committee are to oversee the accounting and None
Bigley financial reporting process of the Fund, the Fund's internal control over
John T. financial reporting, and the quality, integrity and independent audit of the
Conroy, Jr. Fund's financial statements. The Committee also oversees or assists the Board
Nicholas P. with the oversight of compliance with legal requirements relating to those
Constantakis matters, approves the engagement and reviews the qualifications, independence
Charles F. and performance of the Fund's independent registered public accounting firm,
Mansfield, acts as a liaison between the independent registered public accounting firm
Jr. and the Board and reviews the Fund's internal audit function.

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

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED
FAMILY OF INVESTMENT COMPANIES AS OF DECEMBER 31, 2005

INTERESTED AGGREGATE
BOARD MEMBER NAME DOLLAR RANGE OF DOLLAR RANGE OF
SHARES OWNED SHARES OWNED IN
IN FEDERATED MDT BALANCED FUND FEDERATED FAMILY OF
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

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

The Adviser is a majority owned subsidiary of Federated.

The Adviser must waive the portion of its advisory fee that increases the Fund's
aggregate annual operating expenses above 1.44% for Class A Shares, 2.19% for
Class C Shares and 1.19% for Institutional Shares of its average daily net
assets. The Fund's operating expenses include the advisory fee but exclude
interest, taxes, brokerage commissions, expenses of registering the Fund and its
shares under federal and state laws, expenses of withholding taxes, and
extraordinary expenses. This contractual obligation will expire in
November 2008.

PORTFOLIO MANAGER INFORMATION
Dr. David M. Goldsmith, John F. Sherman, Joseph M. Balestrino and Christopher J.
Smith are the Portfolio Managers for the Fund. The following information about
the Fund's portfolio managers is provided as of July 14, 2006 [to be
updated] .

OTHER ACCOUNTS MANAGED TOTAL NUMBER OF OTHER ACCOUNTS
DAVID M. GOLDSMITH MANAGED / TOTAL ASSETS
Registered Investment Companies 7 funds / $189.70 million
Other Pooled Investment Vehicles 0
Other Accounts 0
Dollar value range of shares owned in the Fund: none.

Dr. David Goldsmith 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 on investment performance, which is
measured on a rolling 1, 3, and 5 calendar year pre-tax total return basis vs.
the Fund's designated benchmark (i.e., Russell 3000 Index). 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, Dr. Goldsmith is also the
portfolio manager for other accounts in addition to the Fund. Such other
accounts may have different benchmarks. Although the performance of each account
is considered in calculating the annual incentive amount, their relative
weightings differ. The performance of one of the other accounts represents a
significant portion of the calculation. The remaining accounts are divided into
two groups, with each account within a group receiving equal weighting. The Fund
and the other accounts in the same group receive lower weighting than accounts
in the other group. As a separate matter, pursuant to the terms of a business
acquisition agreement, Dr. Goldsmith may receive additional consideration based
on the achievement of specified revenue targets.

OTHER ACCOUNTS MANAGED TOTAL NUMBER OF OTHER ACCOUNTS
JOSEPH M. BALESTRINO MANAGED / TOTAL ASSETS
Registered Investment Companies 13 funds/ $5,303.18 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.

[add John F. Sherman and Christopher J. Smith PM information]

Joseph Balestrino 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 on multiple performance criteria using a
Balanced Scorecard methodology, and may be paid entirely in cash, or in a
combination of cash and restricted stock of Federated Investors, Inc.
(Federated). There are four weighted performance categories in the Balanced
Scorecard. Investment Product Performance (IPP) is the predominant factor. Of
lesser importance are: Leadership/Teamwork/Communication, Client Satisfaction
and Service, and Financial Success. The total Balanced Scorecard "score" is
applied against an annual incentive opportunity that is competitive in the
market for this portfolio manager role to determine the annual incentive
payment.

IPP is calculated with an equal weighting of certain other accounts managed by
the portfolio manager. IPP is measured on a rolling 1, 3, and 5 calendar year
pre-tax total return basis vs. fund benchmarks, and on a rolling 3 and 5
calendar year pre-tax total return basis vs. designated peer groups of
comparable funds. 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. Balestrino is also the portfolio manager for other accounts in
addition to the Fund. Such other accounts may have different benchmarks. In his
role as Head of the U.S. Investment Grade Bond Group, Mr. Balestrino 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 and peer groups. In
addition, Mr. Balestrino 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 products. A portion of
the IPP score is based on Federated's senior management's assessment of team
contributions.

Leadership/Teamwork/Communication is assessed by the Chief Investment Officer in
charge of the portfolio manager's group, with input from the portfolio manager's
co-workers.

Client Satisfaction and Service is assessed by Federated's senior management
based on the quality, amount and effectiveness of client support, with input
from sales management.

The Financial Success category is designed to tie the portfolio manager's bonus,
in part, to Federated's overall financial health, and any awards are predicated
on Federated's attainment of specified financial targets. Senior management
determines individual Financial Success scores on a discretionary basis,
considering overall contributions, including factors not fully reflected in the
other Balanced Scorecard categories.

In addition, Mr. Balestrino was awarded a grant of restricted Federated stock.
Awards of restricted stock are discretionary and are made in variable amounts
based on the subjective judgment of Federated's senior management.

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 structured the portfolio managers' compensation in a
manner, and the Fund has adopted.

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

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

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.

To access this information from the "Products" section of the website, click
on "Portfolio Holdings" and select the appropriate link opposite the name of the
Fund, or select the name of the Fund from the menus on the "Products" section,
and from the Fund's page click on the "Portfolio Holdings" or "Composition"
link. A user is required to register on the website the first time the user
accesses this information.

You may also access from the "Products" section of the website portfolio
information as of the end of the Fund's fiscal quarters. 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 name of the Fund, clicking on "Prospectuses and
Regulatory Reports" 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.

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 and to commodities exchange clearing
corporations in connection with qualifying the Fund's Shares for use as margin
collateral. 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.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. Except as noted below, 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. Investments
for Federated Kaufmann Fund and other accounts managed by that fund's portfolio
managers in initial public offerings ("IPO") are made independently from any
other accounts, and much of their non-IPO trading may also be conducted
independently from other accounts.

On July 31, 2006, the Fund owned securities of the following regular
broker/dealer: Merrill Lynch - $240,306 (equity) and $399,480 (debt).

MAXIMUM ADMINISTRATIVE FEE AVERAGE AGGREGATE DAILY
NET ASSETS OF THE FEDERATED FUNDS
0.150 of 1% on the first $5 billion
0.125 of 1% on the next $5 billion
0.100 of 1% on the next $10 billion
0.075 of 1% on assets 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.

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

FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED JULY 31
2006 2005 2004
Advisory Fee Earned $562,720 $449,282 $385,714
Advisory Fee Reimbursement $102,760 $-- $--
Brokerage Commissions $207,681 $158,644 $84,040
Administrative Fee $91,397 $54,674 $48,083
12B-1 FEE:
Class A Shares $934 -- --
Class C Shares $9,950 -- --
SHAREHOLDER SERVICES FEE:
Class A Shares NA -- --
Class C Shares NA -- --

If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.

HOW DOES THE FUND MEASURE PERFORMANCE?

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns are given for the one-year and Start of Performance periods ended
July 31, 2006.

Yield is given for the 30-day period ended July 31, 2006.

START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR OCTOBER 1, 2002
CLASS A SHARES*:
Total Return
Before Taxes NA (0.43)% 11.57%
After Taxes on Distributions NA (2.35)% 10.08%
After Taxes on Distributions and Sale of Shares NA 0.50% 9.34%
Yield 0.99% NA NA

*The Fund's Class A Shares commenced operations on September 15, 2005. For the
period prior to the commencement of operations of Class A Shares, the
performance information shown is for the Fund's Institutional Shares, adjusted
to reflect the expenses of Class A Shares.

START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR OCTOBER 1, 2002
CLASS C SHARES*:
Total Return
Before Taxes NA 3.48% 12.35%
After Taxes on Distributions NA 1.53% 10.87%
After Taxes on Distributions and Sale of Shares NA 3.09% 10.04%
Yield -- NA NA

*The Fund's Class C Shares commenced operations on September 15, 2005. For the
period prior to the commencement of operations of Class C Shares, the
performance information shown is for the Fund's Institutional Shares, adjusted
to reflect the expenses of Class C Shares.

START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR OCTOBER 1, 2002
INSTITUTIONAL SHARES:
Total Return
Before Taxes NA 5.62% 13.51%
After Taxes on Distributions NA 3.56% 12.07%
After Taxes on Distributions and Sale of Shares NA 4.47% 11.11%
Yield 1.93% NA NA

When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.

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 FUNDS OVERVIEW

FINANCIAL INFORMATION

MDT Balanced Fund (Predecessor Fund) was reorganized into Federated MDT Balanced
Fund (Fund), a portfolio of Federated MDT Series, as of the close of business on
December 8, 2006. Prior to the reorganization, the Fund had no investment
operations. The Fund is the successor to the Predecessor Fund.

The Financial Statements for the Fund for the fiscal year ended July 31, 2006
are incorporated by reference to the Annual Report to Shareholders of the
Predecessor Fund dated July 31, 2006.

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, favourable business and economic environment.

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

MOODY'S INVESTORS SERVICE 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.

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, favourable 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.

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.

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.

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.

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.

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.

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.

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.

ADDRESSES

FEDERATED MDT BALANCED FUND

Class A Shares

Class C Shares

Institutional 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 MDTA LLC

125 Cambridge Park Drive

Cambridge, MA 02140

INVESTMENT SUB-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

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 & Trust Company

SECURITIES LENDING AGENT
Metropolitan West Securities, LLC

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP

LEGAL COUNSEL
Dickstein Shapiro LLP
Reed Smith LLP

SERVICE PROVIDERS
Bloomberg

FactSet

Institutional Shareholder Services, Inc.

Investor Responsibility Research Center

Vestek

Wilshire Associates, Inc.

SECURITY PRICING SERVICES
FT Interactive Data

Reuters

RATINGS AGENCIES
Standard & Poor's

PERFORMANCE REPORTING/PUBLICATIONS
Evaluation Associates

Fidelity-Strategic Advisors

Lipper, Inc.

Morningstar, Inc.

Morningstar Associates

NASDAQ

Thomson Financial

Value Line

Wiesenberger/Thomson Financial

OTHER
Investment Company Institute
Astec Consulting Group, Inc.

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated MDT Large Cap Growth Fund

A Portfolio of Federated MDT Series

PROSPECTUS

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December 11, 2006

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CLASS A SHARES
CLASS C SHARES

A mutual fund seeking long-term capital appreciation by investing primarily in common stocks of large-sized U.S. companies.

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

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

What are the Specific Risks of Investing in the Fund? 11

What Do Shares Cost? 15

How is the Fund Sold? 23

Payments to Financial Intermediaries 23

How to Purchase Shares 27

How to Redeem and Exchange Shares 29

Account and Share Information 33

Who Manages the Fund? 37

Legal Proceedings 38

Financial Information 40

Appendix A: Hypothetical Investment and Expense Information 43

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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The Fund pursues its investment objective by investing primarily in the common stocks of U.S. companies. The Fund utilizes a large-cap growth strategy. The Fund normally invests 80% of its assets in stocks of large-cap companies. The Fund considers large-cap companies to be those of a size similar to companies listed in the Russell 1000 Growth Index. The Adviser uses a disciplined, quantitative process in its security selection which seeks to maximize compound annual return while controlling risk. As of September 30, 2006, companies in the Russell 1000 Growth Index ranged in market capitalization from $1. 2 billion to $ 406 billion.

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The Fund may invest in derivatives, such as options or futures, for any purpose consistent with its investment strategy. As more fully described in this prospectus, the Fund's investments may include, but are not limited to, the following: equity securities of domestic and foreign issuers (including American Depositary Receipts), exchanged traded funds (ETFs) and derivative instruments, such as futures and options.

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:

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's share price may decline suddenly or over a sustained period of time.
Large Sized Companies Risks. The Fund will principally invest in large-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. Larger, more established companies may be unable to respond quickly to new competitive challenges like changes in consumer tastes or innovative smaller competitors.
Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Additionally, growth stocks may not pay dividends or may pay lower dividends than value stocks.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
Risks of Foreign Investing. Because the Fund may invest in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of the Shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.
Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers. Because the Fund may invest in American Depositary Receipts (ADRs) and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.

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Risks of Investing in Derivative Contracts and Hybrid Instruments. The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as stock market, interest rate, credit, liquidity and leverage risks.

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Credit Risks. Credit risk includes the possibility that a party to a transaction (such as a derivative 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. Liquidity risk refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.
Leverage Risks. Leverage risk is created when an investment (such as a derivative transaction) exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.
Exchange-Traded Funds. An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded). As with traditional mutual funds, ETFs charge asset-based fees. The Funds will indirectly pay a proportional share of the asset-based fees of the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate with the changes in the value of the ETFs in which the Funds invest. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.

Risk/Return Bar Chart and Table

A performance bar chart and total return information for the Fund will be provided after the Fund has been in operation for a full calendar year.

What are the Fund's Fees and Expenses?

FEDERATED MDT LARGE CAP GROWTH FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.75%	0.75%
Distribution (12b-1) Fee	0.25%³	0.75%
Other Expenses⁴	2.24%	2.24%
Total Annual Fund Operating Expenses	3.24%	3.74%
Fee Waiver and/or Expense Reimbursement (contractual)	1.19%	0.94%
Net Annual Fund Operating Expenses (after contractual waivers/reimbursement)²	2.05%	2.80%

1 The percentages shown are annualized based on anticipated expenses for the fiscal period ending July 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 (except as discussed in note 2), the Adviser, administrator and distributor expect to waive and/or reimburse certain amounts. These are shown below along with the net expenses the Fund expects to pay for the fiscal period ending July 31, 2007.
Additional Waivers/Reimbursement of Fund Expenses (voluntary)	0.55%	0.55%
Total Anticipated Annual Fund Operating Expenses (after waiver/reimbursement)	1.50%	2.25%
2 Under the investment advisory contract, the Adviser is obligated to waive all or a portion of its investment advisory fee which it is otherwise entitled to receive, and/or reimburse other operating expenses (excluding interest, taxes and brokerage commissions), in order to limit the aggregate annual operating expenses for the Fund's Class A Shares and Class C Shares to not more than 2.05% and 2.80%, respectively, of its daily net assets. Any waivers by the administrator and/or distributor that reduce such expenses (as discussed elsewhere in these notes) may have the effect of reducing the amount to be waived or reimbursed by the Adviser pursuant to its contractual commitment. It is anticipated that this commitment will expire in November 2008. Pursuant to this contractual commitment, the Adviser expects to waive its management fee for the fiscal period ending July 31, 2007. The management fee paid by the Fund (after the contractual waiver) is expected to be 0.00% for the fiscal period ending July 31, 2007.
3 Although not contractually obligated to do so, the Fund expects to voluntarily elect not to accrue or charge the distribution (12b-1) fee for Class A Shares during the fiscal period ending July 31, 2007.
4 Includes an account administration fee which is used to compensate intermediaries for account administrative services. Also includes a recordkeeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments to Financial Intermediaries" herein. Pursuant to this contractual commitment, the Adviser expects to also reimburse 0.01% of certain operating expenses of the Fund. Although not contractually obligated to do so (except as discussed in note 2), the administrator expects to voluntarily waive a portion of its fee and the Adviser expects to voluntarily reimburse certain operating expenses of the Fund. These voluntary waivers/reimbursement can be terminated at any time. Total Other Expenses paid by the Fund's Class A and Class C Shares (after the anticipated waivers/reimbursement) are expected to be 1.50% for the fiscal period ending July 31, 2007.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class A and Class C 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 Class A and Class C Shares operating expenses are before waivers as shown in the Table and remain the same. The 1 Year dollar amount and the dollar amounts for the first and second year of the 3, 5 and 10 Years columns reflect the contractually imposed expense limitation of 2.05% and 2.80%, respectively for Class A Shares and Class C Shares. The third year of the 3, 5 and 10 Years columns reflects the contractually imposed expense limitation of 2.05% and 2.80%, respectively for four months and the "Total Annual Fund Operating Expenses" of Class A Shares and Class C Shares of the Fund without any waivers for the remainder of the year. The fourth and later years within the 5 and 10 Years columns reflect the "Total Annual Fund Operating Expenses" of the Fund's Class A Shares and Class C Shares without any waivers. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

Share Class	1 Year	3 Years	5 Years	10 Years
Class A Shares:
Expenses assuming redemption	$747	$1,236	$1,911	$3,705
Expenses assuming no redemption	$747	$1,236	$1,911	$3,705
Class C Shares:
Expenses assuming redemption	<R>$ 480</R>	$1,024	$1,820	$3,898
Expenses assuming no redemption	<R>$ 380</R>	$1,024	$1,820	$3,898

What are the Fund's Investment Strategies?

The Fund seeks to achieve its objective by investing primarily in the common stocks of large sized U.S. companies. The Fund considers large-cap companies are those of a size similar to companies listed in the Russell 1000 Growth Index, and the Adviser selects most of the Fund's investments from companies listed in the Russell 1000 Growth Index. The index measures the performance of those companies with higher price-to-book ratios and higher forecasted growth values within the large-cap segment of the U.S. equity universe, which includes the 1,000 largest U.S. companies by market capitalization. The Federated MDT Large Cap Growth Fund's strategy was developed using a proprietary quantitative model (referred to as the Optimum Q Process).

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obtain premiums from the sale of derivative contracts;

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realize gains from trading a derivative contract; or

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hedge against potential losses.

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There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

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The Fund may use other techniques in seeking to achieve its investment objective, such as, buying and selling futures contracts, swaps, options, when-issued securities and exchange traded funds, to increase or decrease the Fund's exposure to changing security prices or other factors that affect security values.

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Because the Fund refers to large-capitalization investments in its name, it will notify shareholders in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its net assets in large-capitalization investments. For purposes of this policy the Fund considers large- capitalization companies to be those with a market capitalization similar to those companies included in the Russell 1000 Growth Index. As of September 30, 2006, companies in the Russell 1000 Growth Index ranged in capitalization from $1. 2 billion to $ 406 billion.

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PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

Preferred Stocks

FOREIGN SECURITIES

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

ADRs and Domestically Traded Securities of Foreign Issuers

DERIVATIVE CONTRACTS

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

The Fund may trade in the following types of derivative contracts, including combinations thereof:

Futures Contracts

OPTIONS

SWAPS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

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.

Securities lending activities are subject to interest rate risks and credit risks.

Investing in Securities of Other Investment Companies

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

The value of equity securities in the Fund's portfolio will rise and fall. These fluctuations could be a sustained trend or a drastic movement. The Fund's portfolio will reflect changes in prices of individual portfolio stocks or general changes in stock valuations. Consequently, the Fund's share price may decline. The Adviser attempts to manage market risk by limiting the amount the Fund invests in each company's equity securities. However, diversification will not protect the Fund against widespread or prolonged declines in the stock market.

LARGE SIZED COMPANIES RISKS

The Fund will principally invest in large-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. Larger, more established companies may be unable to respond quickly to new competitive challenges like changes in consumer tastes or innovative smaller competitors.

RISKS RELATED TO INVESTING FOR GROWTH

SECTOR RISKS

RISKS OF FOREIGN INVESTING

Foreign securities pose additional risks because foreign economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also be subject to taxation policies that reduce returns for U.S. investors. Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than U.S. companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States. Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.

CURRENCY RISKS

Exchange rates for currencies fluctuate daily. The combination of currency risk and market risk tends to make securities traded in foreign markets more volatile than securities traded exclusively in the U.S. The Adviser attempts to manage currency risk by limiting the amount the Fund invests in securities denominated in a particular currency. However, diversification will not protect the Fund against a general increase in the value of the U.S. dollar relative to other currencies.

RISKS OF INVESTING IN ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN ISSUERS

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Risks of Investing in Derivative Contracts and Hybrid Instruments

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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

Liquidity risk refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to. If this happens, the Fund will be required to continue to hold the security or keep the position open, and the Fund could incur losses. OTC derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

Leverage Risks

Exchange-Traded Funds Risks

What Do Shares Cost?

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

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Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

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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 securities normally priced at their last sale price in a foreign market, such events can occur between the close of trading in the foreign market and the close of 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.

	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charges
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	5.50%	0.00%
Class C	$1,500/$100	1.00%	1.00%

1 The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively. The minimum subsequent investment amounts for Systematic Investment Programs (SIP) is $50. Financial intermediaries may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. To maximize your return and minimize the sales charges and marketing fees, purchases of Class C Shares are generally limited to $1,000,000. Purchases in excess of these limits may be made in Class A Shares. If your Shares are held on the books of the Fund in the name of a financial intermediary, you may be subject to the rules of your financial intermediary that differ from those of the Fund. See "Purchase Limits on Class C Shares" below.

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

3 See "Sales Charge When You Redeem."

Among the important factors to consider are the amount you plan to invest and the length of time you expect to hold your investment. You should consider, for example, that it may be possible to reduce the front-end sales charges imposed on purchases of Class A Shares. Among other ways, Class A Shares have a series of "breakpoints," which means that the front-end sales charges decrease (and can be eliminated entirely) as the amount invested increases. (The breakpoint schedule is set out below under "Sales Charge When You Purchase.") On the other hand, Class C Shares bear a relatively low front-end sales charge and a contingent deferred sales charge only if redeemed within one year after purchase; however, the asset-based 12b-1 fees charged to Class C Shares are greater than those charged to Class A Shares.

SALES CHARGE WHEN YOU PURCHASE

The following tables list the sales charges which will be applied to your Share purchase, subject to the breakpoint discounts indicated in the tables and described below.

Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $50,000	5.50%	5.82%
$50,000 but less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%

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

REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

Contingent upon notification to the Transfer Agent, the sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

Larger Purchases

purchasing Class A Shares in greater quantities to reduce the applicable sales charge;

Concurrent and Accumulated Purchases

combining concurrent purchases of and/or current investments in Class A, Class B, Class C, Class F and Class K Shares of any Federated fund made or held by Qualifying Accounts; the purchase amount used in determining the sales charge on your additional Share purchase will be calculated by multiplying the maximum public offering price times the number of Class A, Class B, Class C, Class F and Class K Shares of any Federated fund currently held in Qualifying Accounts and adding the dollar amount of your current purchase; or

Letter of Intent

signing a letter of intent to purchase a qualifying amount of Class A Shares within 13 months. (Call your financial intermediary or the Fund for more information.) The Fund's custodian will hold Shares in escrow equal to the maximum applicable sales charge. If you complete the Letter of Intent, the Custodian will release the Shares in escrow to your account. If you do not fulfill the Letter of Intent, the Custodian will redeem the appropriate amount from the Shares held in escrow to pay the sales charges that were not applied to your purchases.

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PURCHASE LIMITS ON CLASS C SHARES

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In order to maximize shareholder returns and minimize sales charges and marketing fees, an investor's purchases of Class C Shares are generally limited to $1,000,000. In applying the limit, the dollar amount of the current purchase is added to the product obtained by multiplying the maximum public offering price times the number of Class A, Class B, Class C, Class F and Class K shares of any Federated fund currently held in linked Qualifying Accounts. If the sum of these two amounts would equal or exceed the limit, then the current purchase order will not be processed. Instead, the Distributor will attempt to contact the investor or the investor's financial intermediary to offer the opportunity to convert the order to Class A Shares. If your Shares are held on the books of the Fund in the name of a financial intermediary, you may be subject to the rules of your financial intermediary that differ from those of the Fund.

ELIMINATING THE SALES CHARGE

Contingent upon notification to the Transfer Agent, the sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
through a financial intermediary that did not receive a dealer reallowance on the purchase;
with reinvested dividends or capital gains;

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as a shareholder that originally became a shareholder of a Federated fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;

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as a Federated Life Member (Federated shareholders who originally were issued shares through the "Liberty Account," which was an account for the Liberty Family of Funds on February 28, 1987, or who invested through an affinity group prior to August 1, 1987, into the Liberty Account) (Class A Shares only);
as a Trustee, employee or former employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any financial intermediary that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals or a trust, pension or profit-sharing plan for these individuals; or
pursuant to the exchange privilege.

SALES CHARGE WHEN YOU REDEEM

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

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

Shares that are not subject to a CDSC; and
Shares held the longest. (To determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund.)

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

Class A Shares:

Class C Shares:

You will pay a 1% CDSC if you redeem Shares within 12 months of the purchase date.

Contingent upon notification to the Transfer Agent, you will not be charged a CDSC when redeeming Shares:

following the death of the last surviving shareholder on the account or your post-purchase disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986 (the beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder on the account);
representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 70-1/2;
purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;
purchased by Trustees, employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of a financial intermediary that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;
purchased through a financial intermediary that did not receive an advance commission on the purchase;
purchased with reinvested dividends or capital gains;
redeemed by the Fund when it closes an account for not meeting the minimum balance requirements; or
purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period (the holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange).

How is the Fund Sold?

The Fund offers three Share classes: Class A Shares, Class C Shares and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class A Shares and Class C Shares. All Share classes have different sales charges and other expenses which affect their performance. The Fund also offers by separate prospectus an additional class of Shares which may be preferable for investors purchasing $25,000 or more. 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 institutions 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

FRONT-END SALES CHARGE REALLOWANCES

When a financial intermediary's customer purchases Shares, the financial intermediary may receive a Dealer Reallowance as follows:

Class A Shares:
Purchase Amount		Dealer Reallowance as a percentage of Public Offering Price
Less than $50,000		5.00%
$50,000 but less than $100,000		4.00%
$100,000 but less than $250,000		3.25%
$250,000 but less than $500,000		2.25%
$500,000 but less than $1 million		1.80%
$1 million or greater		0.00%
Class C Shares:		<R></R>
All Purchase Amounts		1.00%

ADVANCE COMMISSIONS

When a financial intermediary's customer purchases Shares, the financial intermediary may receive an advance commission as follows:

Class A Shares (for purchases over $1 million):
Purchase Amount		Advance Commission as a Percentage of Public Offering Price
First $1 million - $5 million		0.75%
Next $5 million - $20 million		0.50%
Over $20 million		0.25%

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

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 for Class A Shares and up to 0.75% for Class C Shares to the Distributor for the sale, distribution, administration and customer servicing of the Fund's 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 sales charges and marketing fees.

SERVICE FEES

ACCOUNT ADMINISTRATION FEES

RECORDKEEPING FEES

NETWORKING FEES

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

How to Purchase Shares

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 three business days. 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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM (SIP)

BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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

PAYMENT METHODS FOR REDEMPTIONS

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGE

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

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

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

Generally, it is not advisable to continue to purchase Class A Shares or Class C Shares subject to a sales charge while redeeming Shares using this program.

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue 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?

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The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated MDTA LLC. The Adviser manages the Fund's assets, including buying and selling portfolio securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement and 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 is 125 Cambridge Park Drive, Cambridge, Massachusetts, 02140. The address of FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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PORTFOLIO MANAGEMENT INFORMATION

The Fund is managed by the Quantitative Equity Strategies Group, headed by Dr. David M. Goldsmith, who is primarily responsible for the day-to-day management of the Fund.

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. Under the investment advisory contract, which is subject to annual renewal by the Fund's Board of Trustees, the Adviser will waive the amount, limited to the amount of the advisory fee, by which the Fund's aggregate annual operating expenses, including the investment advisory fee but excluding interest, taxes, brokerage commissions, expenses of registering or qualifying the Fund and its shares under federal and state laws and regulations, expenses of withholding taxes, and extraordinary expenses exceed 2.05% for Class A Shares and 2.80% for Class C Shares of its average daily net assets.

Legal Proceedings

Financial Information

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FINANCIAL HIGHLIGHTS

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MDT Large Cap Growth Fund (Predecessor Fund) was reorganized into Federated MDT Large Cap Growth Fund (Fund), a portfolio of Federated MDT Series, as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.

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Financial Highlights - Class A Shares

(For a Share Outstanding Throughout the Period)

Period Ended July 31	2006	¹
Net Asset Value, Beginning of Period	$10.00
Income From Investment Operations:
Net investment income (loss)	(0.10	)²
Net realized and unrealized gain on investments	0.27
TOTAL FROM INVESTMENT OPERATIONS	0.17
Net Asset Value, End of Period	$10.17
Total Return³	1.70	%

Ratios to Average Net Assets:
Net expenses	2.01	%⁴
Net investment income (loss)	(0.93	)%⁴
Expense waiver/reimbursement⁵	20.55	%⁴
Supplemental Data:
Net assets, end of period (000 omitted)	$183
Portfolio turnover⁶	237	%

1 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.

2 Based on average shares outstanding.

4 Computed on an annualized basis.

5 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.

6 Portfolio turnover is calculated at the Fund level. Percentages indicated were calculated for the year ended July 31, 2006.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, which can be obtained free of charge.

Financial Highlights - Class C Shares

(For a Share Outstanding Throughout the Period)

Period Ended July 31	2006	¹
Net Asset Value, Beginning of Period	$10.00
Income From Investment Operations:
Net investment income (loss)	(0.19	)²
Net realized and unrealized gain on investments	0.29
TOTAL FROM INVESTMENT OPERATIONS	0.10
Net Asset Value, End of Period	$10.10
Total Return³	1.00	%

Ratios to Average Net Assets:
Net expenses	2.76	%⁴
Net investment income (loss)	(1.68	)%⁴
Expense waiver/reimbursement⁵	20.55	%⁴
Supplemental Data:
Net assets, end of period (000 omitted)	$147
Portfolio turnover⁶	237	%

1 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.

2 Based on average shares outstanding.

4 Computed on an annualized basis.

5 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.

6 Portfolio turnover is calculated at the Fund level. Percentages indicated were calculated for the year ended July 31, 2006.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, which can be obtained free of charge.

Appendix A: Hypothetical Investment and Expense Information

FEDERATED MDT LARGE CAP GROWTH FUND - CLASS A SHARES
ANNUAL EXPENSE RATIO: 2.05%
MAXIMUM FRONT-END SALES CHARGE: 5.50%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$472.50	$9,922.50	$746.58	$9,728.78
2	$9,728.78	$486.44	$10,215.22	$202.38	$10,015.78
Contractual/Gross				Annual Expense Ratio: 2.84%
3	$10,015.78	$500.79	$10,516.57	$287.52	$10,232.12
Gross				Annual Expense Ratio: 3.24%
4	$10,232.12	$511.61	$10,743.73	$334.44	$10,412.21
5	$10,412.21	$520.61	$10,932.82	$340.32	$10,595.46
6	$10,595.46	$529.77	$11,125.23	$346.31	$10,781.94
7	$10,781.94	$539.10	$11,321.04	$352.41	$10,971.70
8	$10,971.70	$548.59	$11,520.29	$358.61	$11,164.80
9	$11,164.80	$558.24	$11,723.04	$364.92	$11,361.30
10	$11,361.30	$568.07	$11,929.37	$371.35	$11,561.26
Cumulative		$5,235.72		$3,704.84

FEDERATED MDT LARGE CAP GROWTH FUND - CLASS C SHARES
ANNUAL EXPENSE RATIO: 2.80%
MAXIMUM FRONT-END SALES CHARGE: 1.00%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$495.00	$10,395.00	$380.25	$10,117.80
2	$10,117.80	$505.89	$10,623.69	$286.41	$10,340.39
Contractual/Gross				Annual Expense Ratio: 3.43%
3	$10,340.39	$517.02	$10,857.41	$357.46	$10,502.73
Gross				Annual Expense Ratio: 3.74%
4	$10,502.73	$525.14	$11,027.87	$395.28	$10,635.06
5	$10,635.06	$531.75	$11,166.81	$400.26	$10,769.06
6	$10,769.06	$538.45	$11,307.51	$405.30	$10,904.75
7	$10,904.75	$545.24	$11,449.99	$410.41	$11,042.15
8	$11,042.15	$552.11	$11,594.26	$415.58	$11,181.28
9	$11,181.28	$559.06	$11,740.34	$420.81	$11,322.16
10	$11,322.16	$566.11	$11,888.27	$426.12	$11,464.82
Cumulative		$5,335.77		$3,897.88

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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.

Investment Company Act File No. 811-21904

Federated
World-Class Investment Manager

Federated MDT Large Cap Growth 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 31421R700
Cusip 31421R809

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35346 ( 12/06)

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Federated is a registered mark of Federated Investors, Inc. 2006 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated MDT Large Cap Growth Fund

A Portfolio of Federated MDT Series

PROSPECTUS

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December 11, 2006

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INSTITUTIONAL SHARES

A mutual fund seeking long-term capital appreciation by investing primarily in common stocks of large-sized U.S. companies.

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

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

What are the Specific Risks of Investing in the Fund? 11

What Do Shares Cost? 14

How is the Fund Sold? 15

Payments to Financial Intermediaries 16

How to Purchase Shares 17

How to Redeem and Exchange Shares 19

Account and Share Information 22

Who Manages the Fund? 26

Legal Proceedings 27

Financial Information 29

Appendix A: Hypothetical Investment and Expense Information 31

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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The Fund pursues its investment objective by investing primarily in the common stocks of U.S. companies. The Fund utilizes a large-cap growth strategy. The Fund normally invests 80% if its assets in stocks of large-cap companies. The Fund considers large-cap companies to be those of a size similar to companies listed in the Russell 1000 Growth Index. The Adviser uses a disciplined, quantitative process in its security selection which seeks to maximize compound annual return while controlling risk. As of September 30, 2006, companies in the Russell 1000 Growth Index ranged in capitalization from $1. 2 billion to $ 406 billion.

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The Fund may invest in derivatives, such as options or futures, for any purpose consistent with its investment strategy. As more fully described in this prospectus, the Fund's investments may include, but are not limited to, the following: equity securities of domestic and foreign issuers (including American Depositary Receipts), exchanged traded funds (ETFs) and derivative instruments, such as futures and options.

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:

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's share price may decline suddenly or over a sustained period of time.
Large Sized Companies Risks. The Fund will principally invest in large-size companies. Although diminished in larger cap companies, the risks of investing in all companies include business failure and reliance on erroneous reports. Larger, more established companies may be unable to respond quickly to new competitive challenges like changes in consumer tastes or innovative smaller competitors.
Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Additionally, growth stocks may not pay dividends or may pay lower dividends than value stocks.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
Risks of Foreign Investing. Because the Fund may invest in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of the Shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.
Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers. Because the Fund may invest in American Depositary Receipts (ADRs) and other domestically traded securities of foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.

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Risks of Investing in Derivative Contracts and Hybrid Instruments. The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as stock market, interest rate, credit, liquidity and leverage risks.

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Credit Risks. Credit risk includes the possibility that a party to a transaction (such as a derivative 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. Liquidity risk refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to.
Leverage Risks. Leverage risk is created when an investment (such as a derivative transaction) exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.
Exchange-Traded Funds. An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded). As with traditional mutual funds, ETFs charge asset-based fees. The Funds will indirectly pay a proportional share of the asset-based fees of the ETFs in which the Funds invest. The net asset value of a Fund will fluctuate with the changes in the value of the ETFs in which the Funds invest. The change in value of the ETFs are due to the change in price of the securities in which the ETFs invest. Therefore, the Funds net asset value will be indirectly effected by the change in value of the securities in which the ETF invests.

Risk/Return Bar Chart and Table

A performance bar chart and total return information for the Fund will be provided after the Fund has been in operation for a full calendar year.

What are the Fund's Fees and Expenses?

FEDERATED MDT LARGE CAP GROWTH 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 Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.75%
Distribution (12b-1) Fee		None
Other Expenses³		1.99%
Total Annual Fund Operating Expenses		2.74%
Fee Waiver and/or Expense Reimbursement (contractual)		0.94%
Net Annual Fund Operating Expenses (after contractual waiver/reimbursement)²		1.80%

1 The percentages shown are annualized based on anticipated expenses for the fiscal period ending July 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 (except as discussed in note 2), the Adviser and administrator expect to waive and/or reimburse certain amounts. These are shown below along with the net expenses the Fund expects to pay for the fiscal period ending July 31, 2007.
Additional Waivers/Reimbursement of Fund Expenses (voluntary)		0.55%
Total Anticipated Annual Fund Operating Expenses (after waivers/reimbursement)		1.25%
2 Under the investment advisory contract, the Adviser is obligated to waive all or a portion of its investment advisory fee which it is otherwise entitled to receive, and/or reimburse other operating expenses (excluding interest, taxes and brokerage commissions), in order to limit the aggregate annual operating expenses for the Institutional Shares of the Fund to not more than 1.80% of its daily net assets. Any waiver by the administrator that reduces such expenses (as discussed elsewhere in these notes) may have the effect of reducing the amount to be waived or reimbursed by the Adviser pursuant to its contractual commitment. It is anticipated that this commitment will expire in November 2008. Pursuant to this contractual commitment, the Adviser expects to waive its management fee for the fiscal period ending July 31, 2007. The management fee paid by the Fund (after the contractual waiver) is expected to be 0.00% for the fiscal period ending July 31, 2007.
3 Includes a recordkeeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments to Financial Intermediaries" herein. Pursuant to the contractual commitment, the Adviser expects to also reimburse 0.01% of certain operating expenses of the Fund. Although not contractually obligated to do so (except as discussed in note 2), the administrator expects to voluntarily waive a portion of its fee and the Adviser expects to voluntarily reimburse certain operating expenses of the Fund. These voluntary waivers/reimbursement can be terminated at any time. Total Other Expenses paid by the Fund's Institutional Shares (after the anticipated waivers/reimbursement) are expected to be 1.25% for the fiscal period ending July 31, 2007.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Institutional Shares for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Shares operating expenses are before waivers as shown in the Table and remain the same. The 1 Year dollar amount and the dollar amounts for the first and second year of the 3, 5, and 10 Years column reflect the contractually imposed expense limitation of 1.80%. The third year of the 3, 5, and 10 Years column reflects the contractually imposed expense limitation of 1.80% for four months and the "Total Annual Fund Operating Expenses" of the Fund's Institutional Shares without any waivers for the remainder of the year. The fourth and later years within the 5 and 10 Years column reflect the "Total Annual Fund Operating Expenses" of the Fund's Institutional Shares without any waivers. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

1 Year	$	183
3 Years	$	634
5 Years	$	1,247
10 Years	$	2,902

What are the Fund's Investment Strategies?

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obtain premiums from the sale of derivative contracts;

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realize gains from trading a derivative contract; or

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hedge against potential losses.

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There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

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Because the Fund refers to large-capitalization investments in its name, it will notify shareholders in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its net assets in large-capitalization investments. For purposes of this policy the Fund considers large-capitalization companies to be those with a market capitalization similar to those companies included in the Russell 1000 Growth Index. As of September 30, 2006, companies in the Russell 1000 Growth Index ranged in capitalization from $1. 2 billion to $ 406 billion.

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PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

Preferred Stocks

FOREIGN SECURITIES

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

ADRs and Domestically Traded Securities of Foreign Issuers

DERIVATIVE CONTRACTS

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

The Fund may trade in the following types of derivative contracts, including combinations thereof:

Futures Contracts

Options

Swaps

Delayed Delivery Transactions

Securities Lending

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.

Securities lending activities are subject to interest rate risks and credit risks.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

LARGE SIZED COMPANIES RISKS

RISKS RELATED TO INVESTING FOR GROWTH

Sector Risks

Risks of Foreign Investing

Currency Risks

Exchange rates for currencies fluctuate daily. The combination of currency risk and market risk tends to make securities traded in foreign markets more volatile than securities traded exclusively in the United States. The Adviser attempts to manage currency risk by limiting the amount the Fund invests in securities denominated in a particular currency. However, diversification will not protect the Fund against a general increase in the value of the U.S. dollar relative to other currencies.

Risks of Investing in ADRs and Domestically Traded Securities of Foreign Issuers

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Risks of Investing in Derivative Contracts and Hybrid Instruments

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The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying Reference and Valuation Instruments or, if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts and hybrid instruments may be erroneously priced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Fourth, derivative contracts and hybrid instruments may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Fifth, a common provision in over-the-counter (OTC) derivative contracts permits the counterparty to terminate any such contract between it and the Fund, if the value of the Fund's total net assets declines below a specified level over a given time period. Factors that may contribute to such a decline (which usually must be substantial) include significant shareholder redemptions and/or a marked decrease in the market value of the Fund's investments. Any such termination of the Fund's OTC derivative contracts may adversely affect the Fund (for example, by increasing losses and/or costs, and/or preventing the Fund from fully implementing its investment strategies). Finally, derivative contracts and hybrid instruments may also involve other risks described herein, such as stock market and currency risks.

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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

Leverage Risks

Exchange-Traded Funds Risks

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). When the Fund holds foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. 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."

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Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

If prices are not available from an independent pricing service, securities and derivative contracts 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 or contract as provided by an investment dealer or other financial institution that deals in the security or contract.

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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 securities normally priced at their last sale price in a foreign market, such events can occur between the close of trading in the foreign market and the close of 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.

How is the Fund Sold?

The Fund offers three Share classes: Class A Shares, Class C Shares, and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Shares. All Share classes have different sales charges and other 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

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. 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

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The required minimum initial investment for Fund Shares is $25,000. For Trustees and Officers of the Federated MDT Funds or of the former MDT Funds, shareholders of any MDT Fund as of August 26, 2006 , employees of the Adviser and its affiliates, their families, employee benefit plans sponsored by the Adviser, and former members of the Memorial Drive Trust, the required minimum initial investment of Fund Shares is $1,000. Shareholders eligible to purchase Institutional Shares of the Fund under these categories may be asked to include a written statement with their initial purchase verifying their qualification. 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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM (SIP)

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:

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The Federated Funds
30 Dan Road
Canton, MA 02021

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

PAYMENT METHODS FOR REDEMPTIONS

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

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 of any class of any other Federated fund of which you are already a shareholder.

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

FREQUENT TRADING POLICIES

PORTFOLIO HOLDINGS INFORMATION

Who Manages the Fund?

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PORTFOLIO MANAGEMENT INFORMATION

The Fund is managed by the Quantitative Equity Strategies Group, headed by Dr. David M. Goldsmith, who is primarily responsible for the day-to-day management of the Fund.

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. Under the investment advisory contract, which is subject to annual renewal by the Fund's Board of Trustees, the Adviser will waive the amount, limited to the amount of the advisory fee, by which the Fund's aggregate annual operating expenses, including the investment advisory fee but excluding interest, taxes, brokerage commissions, expenses of registering or qualifying the Fund and its shares under federal and state laws and regulations, expenses of withholding taxes, and extraordinary expenses exceed 1.80% for Institutional Shares of its average daily net assets.

Legal Proceedings

Financial Information

FINANCIAL HIGHLIGHTS

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MDT Large Cap Growth Fund (Predecessor Fund) was reorganized into Federated MDT Large Cap Growth Fund (Fund), a portfolio of Federated MDT Series, as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The information presented incorporates the operations of the Predecessor Fund which, as a result of the reorganization, are the Fund's performance operations.

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Financial Highlights

(For a Share Outstanding Throughout the Period)

Period Ended July 31	2006	¹
Net Asset Value, Beginning of Period	$10.00
Income from Investment Operations:
Net investment income (loss)	(0.07	)²
Net realized and unrealized gain on investments	0.27
TOTAL FROM INVESTMENT OPERATIONS	0.20
Net Asset Value, End of Period	$10.20
Total Return³	2.00	%

Ratios to Average Net Assets:
Net expenses	1.76	%⁴
Net investment income (loss)	(0.68	)%⁴
Expense waiver/reimbursement⁵	20.55	%⁴
Supplemental Data:
Net assets, end of period (000 omitted)	$305
Portfolio turnover⁶	237	%

1 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.

2 Based on average shares outstanding.

4 Computed on an annualized basis.

5 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.

6 Portfolio turnover is calculated at the Fund level. Percentages indicated were calculated for the year ended July 31, 2006.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated July 31, 2006, which can be obtained free of charge.

Appendix A: Hypothetical Investment and Expense Information

FEDERATED MDT LARGE CAP GROWTH FUND - INSTITUTIONAL SHARES
ANNUAL EXPENSE RATIO: 1.80%
MAXIMUM FRONT-END SALES CHARGE: 0.00%

Year	Hypothetical Beginning Investment	Hypothetical Performance Earnings	Investment After Returns	Hypothetical Expenses	Hypothetical Ending Investment
1	$10,000.00	$500.00	$10,500.00	$182.88	$10,320.00
2	$10,320.00	$516.00	$10,836.00	$188.73	$10,650.24
Contractual/Gross				Annual Expense Ratio: 2.43%
3	$10,650.24	$532.51	$11,182.75	$262.13	$10,923.95
Gross				Annual Expense Ratio: 2.74%
4	$10,923.95	$546.20	$11,470.15	$302.70	$11,170.83
5	$11,170.83	$558.54	$11,729.37	$309.54	$11,423.29
6	$11,423.29	$571.16	$11,994.45	$316.54	$11,681.46
7	$11,681.46	$584.07	$12,265.53	$323.69	$11,945.46
8	$11,945.46	$597.27	$12,542.73	$331.00	$12,215.43
9	$12,215.43	$610.77	$12,826.20	$338.48	$12,491.50
10	$12,491.50	$624.58	$13,116.08	$346.13	$12,773.81
Cumulative		$5,641.10		$2,901.82

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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.

Investment Company Act File No. 811-21904

Federated
World-Class Investment Manager

Federated MDT Large Cap Growth 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 31421R882

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35352 ( 12/06)

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Federated is a registered mark of Federated Investors, Inc. 2006 (c)Federated Investors, Inc.

FEDERATED MDT LARGE CAP GROWTH FUND

A PORTFOLIO OF FEDERATED MDT SERIES

STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 11, 2006

CLASS A SHARES
CLASS C SHARES
INSTITUTIONAL SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses for Federated MDT Large Cap Growth
Fund (Fund), dated December 11, 2006.

Obtain the prospectuses without charge by calling 1-800-341-7400.

CONTENTS

How is the Fund Organized?....................1
Securities in Which the Fund Invests..........1
What Do Shares Cost?.........................14
How is the Fund Sold?........................14
Exchanging Securities for Shares.............15
Subaccounting Services.......................16
Redemption in Kind...........................16
Massachusetts Partnership Law................16
Account and Share Information................16
Tax Information..............................17
Who Manages and Provides Services to the
Fund?17........................................
How Does the Fund Measure Performance?.......27
Who is Federated Investors, Inc.?............29
Investment Ratings...........................30
Addresses....................................33
Appendix.....................................34

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HOW IS THE FUND ORGANIZED?

The Board of Trustees (the "Board") has established three classes of shares of
the Fund, known as Class A Shares, Class C Shares and Institutional Shares
(Shares). This SAI relates to all classes of Shares. The Fund's investment
adviser is Federated MDTA LLC (Adviser).

MDT Large Cap Growth Fund (Predecessor Fund) was reorganized into the Fund
as of the close of business on December 8, 2006. Prior to the reorganization,
the Fund had no investment operations. The Fund is the successor to the
Predecessor Fund, which, as a result of the reorganization, are the Fund's
performance and operations.

SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

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

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

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

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

Investors regard agency securities as having low credit risks, but not as low as
Treasury securities.

A Fund treats mortgage-backed securities guaranteed by a GSE as if issued or
guaranteed by a federal agency.

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

-1-

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

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

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

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

{circle}the principal trading market for its securities is in another
country; or

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

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

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

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

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

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

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

FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. The Fund has claimed an exclusion from
the definition of the term "commodity pool operator" under the Commodity
Exchange Act and, therefore, is not subject to registration or regulation as a
commodity pool operator under that Act. Futures contracts traded OTC are
frequently referred to as forward contracts. The Fund can buy or sell financial
futures, index futures and foreign currency forward contracts.

-2-

The Fund may buy/sell the following types of options:

CALL OPTIONS
A call option gives the holder (buyer) the right to buy the underlying asset
from the seller (writer) of the option. The Fund may use call options in the
following ways:

{circle}Buy call options on indices, individual securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures in
anticipation of an increase in the value of the underlying asset or
instrument; and

{circle}Write call options on indices, portfolio securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures to
generate income from premiums, and in anticipation of a decrease or only
limited increase in the value of the underlying asset. If a call written
by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise
price plus the premium received.

PUT OPTIONS
A put option gives the holder the right to sell the underlying asset to the
writer of the option. The Fund may use put options in the following ways:

{circle}Buy put options on indices, individual securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures in
anticipation of a decrease in the value of the underlying asset; and

{circle}Write put options on indices, portfolio securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures to
generate income from premiums, and in anticipation of an increase or only
limited decrease in the value of the underlying asset. In writing puts,
there is a risk that the Fund may be required to take delivery of the
underlying asset when its current market price is lower than the exercise
price.

The Fund may also buy or write options, as needed, to close out existing option
positions.

CURRENCY SWAPS
Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.

SPECIAL TRANSACTIONS

Repurchase agreements are subject to credit risks.

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

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

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

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

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

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.

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. The
Fund is prohibited from investing in other registered investment companies in
reliance on Section 12(d)(1)(F) or (G) of the Investment Company Act of 1940
(1940 Act).

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.

STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline. The Adviser attempts to manage market risk by limiting the amount the
Fund invests in each company's equity securities. However, diversification
will not protect the Fund against widespread or prolonged declines in the
stock market.

-3-

LARGE SIZED COMPANIES RISKS
The Fund will principally invest in large-size companies. Although diminished in
larger cap companies, the risks of investing in all companies include business
failure and reliance on erroneous reports. Larger, more established companies
may be unable to respond quickly to new competitive challenges like changes in
consumer tastes or innovative smaller competitors.

SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may under perform other sectors or the market as a whole. As the
Adviser allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.

Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies
by market analysts and the financial press. In addition, foreign countries
may lack uniform accounting, auditing and financial reporting standards or
regulatory requirements comparable to those applicable to U.S. companies.
These factors may prevent the Fund and its Adviser from obtaining information
concerning foreign companies that is as frequent, extensive and reliable as
the information available concerning companies in the United States.

Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.

The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.

RISKS OF INVESTING IN ADRS AND DOMESTICALLY TRADED SECURITIES OF FOREIGN ISSUERS
Because the Fund may invest in ADRs and other domestically traded securities of
foreign companies, the Fund's Share price may be more affected by foreign
economic and political conditions, taxation policies and accounting and auditing
standards than would otherwise be the case.

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.

Credit risk includes the possibility that a party to a transaction (such as a
derivative 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 equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell
a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.

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

LEVERAGE RISKS
Leverage risk is created when an investment (such as a derivative transaction)
exposes the Fund to a level of risk that exceeds the amount invested. Changes in
the value of such an investment magnify the Fund's risk of loss and potential
for gain. Investments can have these same results if their returns are based on
a multiple of a specified index, security or other benchmark.

FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation. The
investment objective may not be changed by the Fund's Trustees without
shareholder approval.

INVESTMENT LIMITATIONS

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 1940 Act, any rule or order
thereunder, or any SEC staff interpretation thereof.

INVESTING IN COMMODITIES
The Fund may invest in commodities to the maximum extent permitted under the
1940 Act.

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, and municipal securities will not be deemed to constitute
an industry.

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.

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

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

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

{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 are generally intended
to be indicative of the bid prices currently offered to institutional
investors for the securities. 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.

TRADING IN FOREIGN SECURITIES

WHAT DO SHARES COST?

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

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 (CLASS A SHARES AND CLASS C SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor for activities principally intended to result in the sale of Shares
such as advertising and marketing of Shares (including printing and distributing
prospectuses and sales literature to prospective shareholders and financial
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.

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

EXCHANGING SECURITIES FOR SHARES

SUBACCOUNTING SERVICES

REDEMPTION IN KIND

MASSACHUSETTS PARTNERSHIP LAW

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

As of November 10, 2006, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: Edward Jones &
Co., Maryland Heights, MO, owned approximately 34,126 Shares (63.16%) and
Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL, owned approximately
18,806 Shares (34.81%).

As of November 10, 2006, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: Edward Jones &
Co., Maryland Heights, MO, owned approximately 3,163 Shares (18.68%) and Merrill
Lynch Pierce Fenner & Smith, Jacksonville, FL, owned approximately 12,158 Shares
(71.80%).

As of November 10, 2006, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Shares: Merrill
Lynch Pierce Fenner & Smith, Jacksonville, FL, owned approximately 1,695 Shares
(5.36%), Gerald P. Thomas, Park City UT owned approximately 3,087 Shares (9.76%)
and State Street Bank and Trust Company, Bedford, MA, owned approximately 23,868
Shares (75.48%).

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.

Edward Jones & Co. is organized in the state of Missouri and is a subsidiary of
Jones Financial Companies; organized in the state of Missouri.

Merrill Lynch Pierce Fenner & Smith is organized in the state of Delaware and is
a subsidiary of Merrill Lynch & Co., Inc.; organized in the state of Delaware.

State Street Bank and Trust Company is organized in the state of Massachusetts
and is a subsidiary of State Street Corporation; organized in the state of
Massachusetts.

TAX INFORMATION

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust'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 11, 2006, the Trust comprised 8
portfolios, and the Federated Fund Complex consisted of 43 investment companies
(comprising 136 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.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

-4-

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS COMPENSATION FROM TRUST
POSITIONS PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS, FROM FUND AND
HELD WITH OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S) (PAST FISCAL FEDERATED
TRUST YEAR)+ FUND COMPLEX
DATE SERVICE (PAST
BEGAN CALENDAR
YEAR)
THOMAS G. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $0 $163,350
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:
August 2006

JOHN F. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex. $0 $148,500
CUNNINGHAM
Birth Date: OTHER DIRECTORSHIPS HELD: Chairman, President and Chief Executive Officer,
March 5, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston
1943 College.
353 El
Brillo Way PREVIOUS POSITIONS: Director, Redgate Communications and EMC Corporation
Palm Beach, (computer storage systems); Chairman of the Board and Chief Executive Officer,
FL Computer Consoles, Inc.; President and Chief Operating Officer, Wang
TRUSTEE Laboratories; Director, First National Bank of Boston; Director, Apollo Computer,
Began Inc.
serving:
August 2006

+Because the Fund is a new portfolio of the Trust, Trustee compensation has not
yet been earned and will be reported following the Fund's next fiscal year.

-5-

OFFICERS**

NAME
BIRTH DATE
POSITIONS
HELD WITH PRINCIPAL OCCUPATION(S) AND PREVIOUS POSITION(S)
TRUST
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:
August 2006
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
Began
serving:
August 2006
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;
TREASURER held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co.
Began
serving:
August 2006

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

-6-

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 None
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
J.D., S.J.D. cannot elect or remove Board members, increase or decrease the number of Trustees,
John S. elect or remove any Officer, declare dividends, issue shares or recommend to
Walsh shareholders any action requiring shareholder approval.

Marjorie P.
Smuts
John S.
Walsh
James F.
Will

-7-

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF
INVESTMENT COMPANIES AS OF DECEMBER 31, 2005

AGGREGATE
DOLLAR RANGE OF DOLLAR RANGE OF
SHARES OWNED SHARES OWNED IN
INTERESTED IN FEDERATED MDT LARGE CAP GROWTH FUND FEDERATED FAMILY OF
BOARD MEMBER NAME 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

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

The Adviser is a majority owned subsidiary of Federated.

The Adviser must waive the portion of its advisory fee that increases the Fund's
aggregate annual operating expenses above 2.05% for Class A Shares, 2.80% for
Class C Shares and 1.80% for Institutional Shares of its average daily net
assets. The Fund's operating expenses include the advisory fee but exclude
interest, taxes, brokerage commissions, expenses of registering the Fund and its
shares under federal and state laws, expenses of withholding taxes, and
extraordinary expenses. The contractual obligation will expire in November 2008.

PORTFOLIO MANAGER
DR. DAVID M GOLDSMITH

The following information about the Fund's portfolio manager is provided as of
October 15, 2006.

Other Accounts Managed Dr. David M. Goldsmith Total Number of Other Accounts Managed / Total Assets

Registered Investment Companies 7 funds / $375.70 million
Other Pooled Investment Vehicles 0
Other Accounts 0

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

Dr. David Goldsmith 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. For
purposes of calculating the annual incentive amount, each mutual fund and
institutional account managed by the Adviser is categorized as reflecting one of
several designated Strategies. The annual incentive amount is based on current
calendar year asset-weighted composite investment performance of each Strategy,
which is measured on a total return basis gross of fees and expenses vs. the
Strategy's designated benchmark (i.e., with respect to the Fund's Strategy,
Russell 1000 Growth Index). As noted above, Dr. Goldsmith is also the portfolio
manager for other accounts in addition to the Fund. Such other accounts may be
categorized as reflecting different Strategies, which may have different
benchmarks. Although the performance of each Strategy composite is considered
in calculating the annual incentive amount, their relative weightings differ.
The performance of one of the other Strategies (which does not include the Fund
in its composite performance) represents a significant portion of the
calculation. The remaining Strategies are divided into two groups, with each
Strategy within a group receiving equal weighting. The Strategy to which the
Fund is assigned and the other Strategies in the same group receive lower
weighting than Strategies in the other group. As a separate matter, pursuant to
the terms of a business acquisition agreement, Dr. Goldsmith may receive
additional consideration based on the achievement of specified revenue targets.

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

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
"Portfolio Holdings" and select the appropriate link opposite the name of the
Fund, or select the name of the Fund from the menus on the "Products" section,
and from the Fund's page click on the "Portfolio Holdings" or "Composition"
link. A user is required to register on the website the first time the user
accesses this information.

On July 31, 2006, the Fund owned securities of the following regular
broker/dealers: Goldman Sachs Group, Inc. 2,291 (equity).

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. Foreign instruments purchased by the Fund
are held by foreign banks participating in a network coordinated by State Street
Bank.

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

-8-

FEES PAID BY THE FUND FOR SERVICES

FOR THE PERIOD ENDED JULY 31, 2006
Advisory Fee Earned $2,936
Advisory Fee Reduction $2,936
Advisory Fee Reimbursement $--
Brokerage Commissions $113,381
Administrative Fee $451
12B-1 FEE:
Class A Shares $128
Class C Shares $206
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?

AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the Start of Performance periods ended July 31,
2006.

Yield is given for the 30-day period ended July 31, 2006.

START OF
PERFORMANCE ON
30-DAY PERIOD 9/15/2005
CLASS A SHARES:
Total Return
Before Taxes N/A (3.78)%
After Taxes on Distributions N/A (3.78)%
After Taxes on Distributions and Sale of Shares
N/A (2.46)%
Yield 0.00% N/A

START OF
PERFORMANCE ON
30-DAY PERIOD 9/15/2005

CLASS C SHARES:
Total Return
Before Taxes N/A 0.10%
After Taxes on Distributions N/A 0.10%
After Taxes on Distributions and Sale of Shares
N/A 0.07%
Yield 0.00% N/A

START OF
PERFORMANCE ON
30-DAY PERIOD 9/15/2005

INSTITUTIONAL SHARES:
Total Return
Before Taxes N/A 2.10%
After Taxes on Distributions N/A 2.10%
After Taxes on Distributions and Sale of Shares
N/A 1.37%
Yield 0.00% N/A

When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.

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.

-9-

WHO IS FEDERATED INVESTORS, INC.?

FEDERATED FUNDS OVERVIEW

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended July 31, 2006
are incorporated herein by reference to the Annual Report to Shareholders of the
Predecessor Fund dated July 31, 2006.

-10-

INVESTMENT RATINGS

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.