FEDERATED INVESTMENT SERIES FUNDS, INC.

485BPOS 1 fisfi.htm FEDERATED INVESTMENT SERIES FUNDS, INC.

                                                      1933 Act File No. 33-48847
                                                     1940 Act File No. 811-07021

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933               X

   Pre-Effective Amendment No.

   Post-Effective Amendment No.  24  ..................               X

                                     and/or

       REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

   Amendment No.  25  .................................               X

                     FEDERATED INVESTMENT SERIES FUNDS, INC.

               (Exact Name of Registrant as Specified in Charter)
                            Federated Investors Funds
                              5800 Corporate Drive
                       Pittsburgh, Pennsylvania 15237-7000
                    (Address of Principal Executive Offices)


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

It is proposed that this filing will become effective:

      immediately upon filing pursuant to paragraph (b)
  X   on January 29, 2004 pursuant to paragraph (b)
      60 days after filing pursuant to paragraph (a) (i)
      on _________________  pursuant to paragraph (a) (i).
      75 days after filing pursuant to paragraph (a)(ii)
      on                   pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

                                Copies to:

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

Federated Investors
World-Class Investment Manager

Federated Bond Fund

A Portfolio of Federated Investment Series Funds, Inc.

PROSPECTUS

January 31, 2004

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

A mutual fund seeking to provide as high a level of current income as is consistent with the preservation of capital by investing primarily in a professionally managed, diversified portfolio of fixed income securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

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

What are the Specific Risks of Investing in the Fund? 9

What Do Shares Cost? 11

How is the Fund Sold? 14

How to Purchase Shares 15

How to Redeem and Exchange Shares 17

Account and Share Information 20

Who Manages the Fund? 21

Legal Proceedings 22

Financial Information 24

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests primarily in a diversified portfolio of investment grade fixed income securities. The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the security type that the Adviser expects to offer the best balance between current income and risk. The Fund may invest up to 35% of its assets in fixed income securities rated below investment grade. The Adviser may lengthen or shorten duration from time to time based on its interest rate outlook, but the Fund has no set duration parameters. Duration measures the price sensitivity of a fixed income security to changes in interest rates.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

Interest Rate Risks. Prices of fixed income securities generally fall when interest rates rise. Interest rate changes have a greater effect on the price of fixed income securities with longer durations.
Credit Risks. There is a possibility that issuers of securities in which the Fund may invest may default in the payment of interest or principal on the securities when due, which would cause the Fund to lose money.
Liquidity Risks. The fixed income securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
Risks Associated with Non-Investment Grade Securities. The Fund may invest a portion of its assets in securities rated below investment grade which may be subject to greater interest rate, credit and liquidity risks than investment grade securities.
Risks of Foreign Investing. Because the Fund invests 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 would otherwise be the case.

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

Risk/Return Bar Chart and Table

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

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

Within the period shown in the bar chart, the Fund's Class F Shares highest quarterly return was 6.98% (quarter ended March 31, 1993). Its lowest quarterly return was (3.29)% (quarter ended March 31, 1994).

Average Annual Total Return Table

The Average Annual Total Returns for the Fund's Class A, Class B, Class C and Class F Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for Class F 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 Lehman Brothers Credit Bond Index (LBCB), a broad-based market index, and the Lipper Corporate Debt Funds BBB Rated Average (LCDBBB), an average of funds with similar investment objectives. The LBCB is comprised of a large universe of bonds issued by industrial utility and financial companies which have a minimum ratings of Baa by Moody's Investors Service, Inc., BBB by Standard and Poor's Ratings Group or, in the case of bank bonds not rated by either of the previously mentioned services, BBB by Fitch IBCA, Inc. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index. The LCDBBB represents the average of total returns reported by all mutual funds designated by Lipper, Inc. as falling into the respective category.

(For the periods ended December 31, 2003)

	1 Year	5 Years	10 Years	Start of Performance¹
Class A Shares:
Return Before Taxes	7.94%	4.84%	--	6.27%
Class B Shares:
Return Before Taxes	6.54%	4.69%	--	6.07%
Class C Shares:
Return Before Taxes	10.01%	4.80%	--	5.91%
Class F Shares:
Return Before Taxes	10.72%	5.59%	6.53%	--
Return After Taxes on Distributions²	8.26%	2.69%	3.52%	--
Return After Taxes on Distributions and Sale of Fund Shares²	6.88%	2.90%	3.63%	--
LBCB	7.70%	7.11%	7.42%	--
LCDBBB	9.75%	6.15%	6.54%	--

1 The start of performance dates for Class A, Class B and Class C Shares was June 28, 1995.

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.

What are the Fund's Fees and Expenses?

FEDERATED BOND FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.75%	0.75%	0.75%	0.75%
Distribution (12b-1) Fee	0.25%³	0.75%	0.75%	None
Shareholder Services Fee	0.25%⁴	0.25%	0.25%	0.25%
Other Expenses	0.21%	0.21%	0.21%	0.21%
Total Annual Fund Operating Expenses	1.46%	1.96%⁵	1.96%	1.21%

1 Although not contractually obligated to do so, the Adviser, distributor and shareholder services provider waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended November 30, 2003.
Total Waivers of Fund Expenses	0.41%	0.11%	0.11%	0.13%
Total Actual Annual Fund Operating Expenses (after waivers)	1.05%	1.85%	1.85%	1.08%
2 The Adviser has voluntarily waived a portion of the management fee. The Adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.64% for the fiscal year ended November 30, 2003.
3 Class A Shares did not pay or accrue the distribution (12b-1) fee during the fiscal year ended November 30, 2003. Class A Shares have no present intention of paying or accruing the distribution (12b-1) fee for the fiscal year ended November 30, 2003.
4 A portion of the shareholder services fee for Class A and Class F Shares has been voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund's Class A Shares and Class F Shares (after the voluntary waiver) was 0.20% and 0.23% for the fiscal year ended November 30, 2003.
5 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.

EXAMPLE

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

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

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	$592	$ 891	$1,212	$2,118

Expenses assuming no redemption	$592	$ 891	$1,212	$2,118

Class B:
Expenses assuming redemption	$749	$1,015	$1,257	$2,156

Expenses assuming no redemption	$199	$ 615	$1,057	$2,156

Class C:
Expenses assuming redemption	$397	$ 709	$1,147	$2,362

Expenses assuming no redemption	$297	$ 709	$1,147	$2,362

Class F:
Expenses assuming redemption	$322	$ 580	$ 858	$1,651

Expenses assuming no redemption	$222	$ 480	$ 858	$1,651

What are the Fund's Investment Strategies?

Under normal market conditions, the Fund invests primarily in a diversified portfolio of domestic investment grade debt securities, including corporate debt securities and U.S. government obligations. Investment grade debt securities are rated in one of the four highest categories (BBB or higher) by a nationally recognized statistical rating organization (NRSRO), or if unrated, of comparable quality as determined by the Adviser. A description of the various types of securities in which the Fund principally invests, and their risks, immediately follows this strategy section.

The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the security type that the Adviser expects to offer the best balance between current income and risk and thus offers the greatest potential for return. 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 weighed against the spread the security can currently be purchased for, as well as the security's credit risk (in the case of corporate securities) in order to complete the analysis.

Corporate debt securities generally offer higher yields than U.S. government securities to compensate for credit risk. The Adviser invests the Fund's portfolio, seeking the higher relative returns of corporate debt securities, when available, while attempting to limit the associated credit risks. The Adviser attempts to manage the Fund's credit risk by selecting corporate debt securities that are less likely to default in the payment of principal and interest. 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.

The Adviser may invest a portion of the Fund's assets in corporate debt securities of companies based outside the United States, to diversify the Fund's holdings and to gain exposure to the foreign market. Securities of foreign companies may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than those of United States companies.

The Adviser may lengthen or shorten duration from time-to-time based on its interest rate outlook, but the Fund has no set duration parameters. If the Adviser expects interest rates to decline, it will generally lengthen the Fund's duration, and if the Adviser expects interest rates to increase, it will generally shorten the Fund's duration. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions by analyzing a variety of factors, such as:

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

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

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

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. 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.

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

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Treasury Securities

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

Agency Securities

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

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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.

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.

Substantially all of the Fund's foreign securities are denominated in U.S. dollars.

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.

The Fund may invest in mortgage backed and high yield securities primarily by investing in another investment company (which is not available for general investment by the public) that owns those securities and that is advised by an affiliate of the Adviser. This other investment company is managed independently of the Fund and may incur additional administrative 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 potential additional expenses. The Fund may also invest in such securities directly.

Investment Ratings

Investment grade securities include fixed income securities rated AAA, the highest rating category, through BBB by a NRSRO and may include, if unrated, those securities determined to be of equivalent quality by the Adviser. Non-investment grade fixed income securities are rated BB or below by a NRSRO or are unrated. When the Fund invests in fixed income securities some will be non- investment grade at the time of purchase. Unrated securities will be determined by the Adviser to be of like quality and may have greater risk but a higher yield than comparable rated securities.

Securities rated BBB or below by Standard and Poor's or Baa by Moody's Investors Service have speculative characteristics.

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

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.
Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.

CREDIT RISKS

Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.
Many fixed income securities receive credit ratings from services such as Standard & Poor's and Moody's Investor Service. These services assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher perceived credit risk and higher credit ratings correspond to lower perceived credit risk. Credit ratings do not provide assurance against default or other loss of money. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying interest at a higher rate. The difference between the yield of a security and the yield of a U.S. Treasury security with a comparable maturity (the spread) measures the additional interest paid for risk. Spreads may increase generally in response to adverse economic or market conditions. A security's spread may also increase if the security's rating is lowered, or the security is perceived to have an increased credit risk. An increase in the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategy.

LIQUIDITY RISKS

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

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.

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.

What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). If the Fund purchases foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.

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

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

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

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. Investment professionals may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. Orders for $250,000 or more will be invested in Class A Shares instead of Class B Shares to maximize your return and minimize the sales charges and marketing fees. Accounts held in the name of an investment professional may be treated differently. After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. This conversion is a non-taxable event.

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

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

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

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

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

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

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The sales charge at purchase of Class A Shares and Class F Shares only, may be reduced or eliminated by:

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purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
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- of the same share class of two or more Federated funds (other than money market funds);
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accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
signing a letter of intent to purchase a specific dollar amount of Shares within 13 months. (Call your investment professional or the Fund for more information.)

Class A Shares

The sales charge will be eliminated when you purchase Shares:

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

The sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
when the Fund's Distributor does not advance payment to the investment professional for your purchase;
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by exchanging shares from the same share class of another Federated fund;
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for trusts or pension or profit sharing plans where the third party administrator has an arrangement with the Fund's Distributor or its affiliates to purchase Shares without a sales charge; or
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through investment professionals that receive no portion of the sales charge.

SALES CHARGE WHEN YOU REDEEM

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

Class A Shares (Purchase amount of $1 million or greater):
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.

Class F Shares:
Purchase Amount	Shares Held	CDSC
Up to $2 million	4 years or less	1.00%
$2 - $5 million	2 years or less	0.50%
$5 million or more	1 year or less	0.25%

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

You will not be charged a CDSC when redeeming Shares:

purchased with reinvested dividends or capital gains;
purchased within 120 days of redeeming Shares of an equal or lesser amount;
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that you exchanged into the same share class of another Federated fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
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purchased through investment professionals who did not receive advanced sales payments;
if, after you purchase Shares, you become disabled as defined by the IRS;
if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
if your redemption is a required retirement plan distribution; or
upon the death of the last surviving shareholder of the account. The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder of the account.

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

Shares that are not subject to a CDSC; and
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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.)
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The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

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How is the Fund Sold?

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The Fund offers four Share classes: Class A, Class B, Class C and Class F Shares, each representing interests in a single portfolio of securities.

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

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

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Class A, Class B and Class C Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different sales charges and marketing fees.

How to Purchase Shares

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You may purchase Shares through an investment professional, directly from the Fund, or through an exchange from another Federated fund. The Fund reserves the right to reject any request to purchase or exchange Shares. Where the Fund offers more than one Share class and you do not specify the class choice on your New Account Form or form of payment (e.g., Federal Reserve wire or check) you automatically will receive Class A Shares.

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THROUGH AN INVESTMENT PROFESSIONAL

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

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

DIRECTLY FROM THE FUND

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

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

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

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

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

By Check

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

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

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

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

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

THROUGH AN EXCHANGE

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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.

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BY SYSTEMATIC INVESTMENT PROGRAM

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

BY AUTOMATED CLEARING HOUSE (ACH)

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

RETIREMENT INVESTMENTS

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

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

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

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone

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

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

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By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

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

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

Signatures must be guaranteed if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGE

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

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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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The Fund may modify or terminate the exchange privilege at any time. The Fund's management or Adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading that is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other Federated funds.

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SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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You may automatically redeem or exchange Shares in a minimum amount of $100 on a regular basis. Complete the appropriate section of the New Account Form or an Account Service Options Form or contact your investment professional or the Fund. Your account value must meet the minimum initial investment amount at the time the program is established. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income.

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

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Systematic Withdrawal Program (SWP) on Class B Shares

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

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

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

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

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

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

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

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

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

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ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, non-retirement accounts may be closed if redemptions or exchanges cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

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

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

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Who Manages the Fund?

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

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

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THE FUND'S PORTFOLIO MANAGERS ARE:

Joseph M. Balestrino

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

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Mark E. Durbiano

Mark E. Durbiano has been the Fund's Portfolio Manager since June 1992. Mr. Durbiano joined Federated in 1982 and has been a Senior Portfolio Manager and a Senior Vice President of the Fund's Adviser since 1996. From 1988 through 1995, Mr. Durbiano was a Portfolio Manager and a Vice President of the Fund's Adviser. Mr. Durbiano is a Chartered Financial Analyst and received his M.B.A. in Finance from the University of Pittsburgh.

Christopher J. Smith

Christopher J. Smith has been the Fund's Portfolio Manager since June 2000. 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 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.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

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Legal Proceedings

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Like many other mutual fund companies, in September 2003, Federated, the parent company of the Federated funds' Adviser and distributor, received detailed requests for information on shareholder trading activities in the Federated funds from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Federated immediately retained the law firm of Reed Smith LLP to conduct an internal investigation, which is ongoing. Additionally, attorneys from the law firm of Dickstein Shapiro Morin & Oshinsky LLP, independent counsel to the Federated funds, are participating in the investigation and are reporting to the independent directors of the Federated funds on their progress.

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The internal investigation is examining, among other things, circumstances in which it appears that a few Federated fund investors were granted exceptions to Federated's internal procedures for limiting frequent transactions, and that some of these investors made additional investments in other Federated funds. The investigation is also examining instances in which it appears that orders for Federated funds with variable NAVs were placed and accepted after the Federated funds' closing time at 4:00 p.m. Federated is taking steps to ensure that Federated fund shareholder trading policies are adhered to.

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On October 22, 2003, Federated issued a press release that discusses these matters and announces that Federated is committed to taking remedial actions when and as appropriate, including compensating the Federated funds for any detrimental impact these transactions may have had on them. Based upon the progress of the investigation to date, Federated does not have sufficient information regarding these transactions to make a reasonable estimate of the amount, if any, by which the Federated funds have been impacted. The press release is available in the "About Us" section of Federated's website www.federatedinvestors.com, and any future press releases on this subject will also be posted there.

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Shortly after the press release was issued, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Federated funds were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated 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. Federated and the Federated funds are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. Although we do not believe that these lawsuits will have a material adverse effect on the Federated funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated fund redemptions, reduced sales of Federated fund shares, or other adverse consequences for the Federated funds.

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

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Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,									Period Ended			Year Ended October 31,
	2003			2002			2001			11/30/2000	¹		2000			1999
Net Asset Value, Beginning of Period	$8.49			$8.72			$8.55			$8.65			$9.11			$9.82
Income From Investment Operations:
Net investment income	0.58			0.62	²		0.66			0.06			0.69			0.67
Net realized and unrealized gain (loss) on investments	0.55			(0.25	)²		0.19			(0.10	)		(0.44	)		(0.70	)

TOTAL FROM INVESTMENT OPERATIONS	1.13			0.37			0.85			(0.04	)		0.25			(0.03	)

Less Distributions:
Distributions from net investment income	(0.58	)		(0.60	)		(0.68	)		(0.06	)		(0.71	)		(0.68	)

Net Asset Value, End of Period	$9.04			$8.49			$8.72			$8.55			$8.65			$9.11

Total Return³	13.62	%		4.43	%		10.24	%		(0.46	)%		2.81	%		(0.35	)%


Ratios to Average Net Assets:

Expenses	1.05	%		1.06	%		1.06	%		1.05	%⁴		1.05	%		1.06	%

Net investment income	6.32	%		7.13	%²		7.51	%		8.38	%⁴		7.85	%		7.07	%

Expense waiver/reimbursement⁵	0.16	%		0.16	%		0.17	%		0.21	%⁴		0.18	%		0.16	%

Supplemental Data:

Net assets, end of period (000 omitted)	$377,436		$319,597			$232,594			$217,008			$216,101			$249,056

Portfolio turnover	28	%		27	%		31	%		2	%		27	%		30	%

1 The Fund changed its fiscal year-end from October 31 to November 30.

2 Effective December 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. The effect of this change for the fiscal year ended November 30, 2002, was to decrease net investment income per share by $0.01, increase net realized and unrealized gain (loss) per share by $0.01 and decrease the ratio of net investment income to average net assets from 7.26% to 7.13%. Per share, ratios and supplemental data for periods to November 30, 2002 have not been restated to reflect this change in presentation.

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

4 Computed on an annualized basis.

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,									Period Ended			Year Ended October 31,
	2003			2002			2001			11/30/2000	¹		2000			1999
Net Asset Value, Beginning of Period	$8.51			$8.74			$8.57			$8.66			$9.12			$9.83
Income From Investment Operations:
Net investment income	0.51			0.55	²		0.60			0.05			0.63			0.60
Net realized and unrealized gain (loss) on investments	0.55			(0.25	)²		0.18			(0.09	)		(0.45	)		(0.70	)

TOTAL FROM INVESTMENT OPERATIONS	1.06			0.30			0.78			(0.04	)		0.18			(0.10	)

Less Distributions:
Distributions from net investment income	(0.51	)		(0.53	)		(0.61	)		(0.05	)		(0.64	)		(0.61	)

Net Asset Value, End of Period	$9.06			$8.51			$8.74			$8.57			$8.66			$9.12

Total Return³	12.69	%		3.60	%		9.35	%		(0.42	)%		2.02	%		(1.11	)%


Ratios to Average Net Assets:

Expenses	1.85	%		1.86	%		1.86	%		1.85	%⁴		1.85	%		1.86	%

Net investment income	5.52	%		6.33	%²		6.70	%		7.56	%⁴		7.05	%		6.27	%

Expense waiver/reimbursement⁵	0.11	%		0.11	%		0.12	%		0.16	%⁴		0.13	%		0.11	%

Supplemental Data:

Net assets, end of period (000 omitted)	$480,042		$426,299			$380,016			$286,738			$288,505			$345,034

Portfolio turnover	28	%		27	%		31	%		2	%		27	%		30	%

1 The Fund changed its fiscal year-end from October 31 to November 30.

2 Effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. The effect of this change for the fiscal year ended November 30, 2002 was to decrease net investment income per share by $0.01, increase net realized and unrealized gain (loss) per share by $0.01, and decrease the ratio of net investment income to average net assets from 6.46% to 6.33%. Per share, ratios and supplemental data for periods prior to November 30, 2002 have not been restated to reflect this change in presentation.

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

4 Computed on an annualized basis.

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,								Period Ended			Year Ended October 31,
	2003			2002			2001		11/30/2000	¹		2000			1999
Net Asset Value, Beginning of Period	$8.52			$8.74			$8.57		$8.66			$9.12			$9.83
Income From Investment Operations:
Net investment income	0.51			0.54	²		0.60		0.05			0.63			0.60
Net realized and unrealized gain (loss) on investments	0.55			(0.23	)²		0.18		(0.09	)		(0.45	)		(0.70	)

TOTAL FROM INVESTMENT OPERATIONS	1.06			0.31			0.78		(0.04	)		0.18			(0.10	)

Less Distributions:
Distributions from net investment income	(0.51	)		(0.53	)		(0.61	)	(0.05	)		(0.64	)		(0.61	)

Net Asset Value, End of Period	$9.07			$8.52			$8.74		$8.57			$8.66			$9.12

Total Return³	12.68	%		3.70	%		9.33	%	(0.42	)%		2.02	%		(1.11	)%


Ratios to Average Net Assets:

Expenses	1.85	%		1.86	%		1.86	%	1.85	%⁴		1.85	%		1.86	%

Net investment income	5.52	%		6.33	%²		6.70	%	7.56	%⁴		7.04	%		6.27	%

Expense waiver/reimbursement⁵	0.11	%		0.11	%		0.12	%	0.16	%⁴		0.13	%		0.11	%

Supplemental Data:

Net assets, end of period (000 omitted)	$91,905		$77,272			$82,973			$74,250		$75,821			$92,875

Portfolio turnover	28	%		27	%		31	%	2	%		27	%		30	%

1 The Fund changed its fiscal year-end from October 31 to November 30.

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

4 Computed on an annualized basis.

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

Financial Highlights -- Class F Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,								Period Ended			Year Ended October 31,
	2003			2002			2001		11/30/2000	¹		2000			1999
Net Asset Value, Beginning of Period	$8.52			$8.75			$8.57		$8.67			$9.12			$9.83
Income From Investment Operations:
Net investment income	0.57			0.61	²		0.66		0.06			0.70			0.67
Net realized and unrealized gain (loss) on investments	0.55			(0.24	)²		0.20		(0.10	)		(0.44	)		(0.70	)

TOTAL FROM INVESTMENT OPERATIONS	1.12			0.37			0.86		(0.04	)		0.26			(0.03	)

Less Distributions:
Distributions from net investment income	(0.57	)		(0.60	)		(0.68	)	(0.06	)		(0.71	)		(0.68	)

Net Asset Value, End of Period	$9.07			$8.52			$8.75		$8.57			$8.67			$9.12

Total Return³	13.53	%		4.39	%		10.30	%	(0.46	)%		2.92	%		(0.35	)%


Ratios to Average Net Assets:

Expenses	1.08	%		1.09	%		1.09	%	1.08	%⁴		1.08	%		1.09	%

Net investment income	6.28	%		7.10	%²		7.48	%	8.33	%⁴		7.82	%		7.02	%

Expense waiver/reimbursement⁵	0.13	%		0.13	%		0.14	%	0.18	%⁴		0.15	%		0.13	%

Supplemental Data:

Net assets, end of period (000 omitted)	$246,014		$252,905			$301,788			$306,621		$313,811			$375,902

Portfolio turnover	28	%		27	%		31	%	2	%		27	%		30	%

1 The Fund changed its fiscal year-end from October 31 to November 30.

2 Effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. The effect of this change for the fiscal year ended November 30, 2002 was to decrease net investment income per share by $0.01, increase net realized and unrealized gain (loss) per share by $0.01, and decrease the ratio of net investment income to average net assets from 7.23% to 7.10%. Per share, ratios and supplemental data for periods prior to November 30, 2002 have not been restated to reflect this change in presentation.

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

4 Computed on an annualized basis.

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

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A Statement of Additional Information (SAI) dated January 31, 2004, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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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 Internet site at www.federatedinvestors.com.

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

Federated Investors
World-Class Investment Manager

Federated Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

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

Federated Securities Corp., Distributor

Investment Company Act File No. 811-07021

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

Cusip 31420F103
Cusip 31420F202
Cusip 31420F301
Cusip 31420F400

28141 (1/04)

FEDERATED BOND FUND
A Portfolio of Federated Investment Series Funds, Inc.
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Statement of Additional Information

January 31, 2004

Class A Shares
Class B Shares
Class C Shares
Class F Shares

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Bond Fund
(Fund), dated January 31, 2004. This SAI incorporates by reference the
Fund's Annual Report. Obtain the prospectus or the Annual Report without
charge by calling 1-800-341-7400.

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Contents
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to
the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
2041304B (1/04)

HOW IS THE FUND ORGANIZED?

The Fund is a diversified portfolio of Federated Investment Series Funds,
Inc. (Corporation). The Corporation is an open-end, management investment
company that was established under the laws of the State of Maryland on
May 19, 1992. The Corporation may offer separate series of shares
representing interests in separate portfolios of securities.

The Board of Directors (the Board) has established four classes of shares
of the Fund, known as Class A Shares, Class B Shares, Class C Shares and
Class F Shares (Shares). This SAI relates to all classes of Shares. The
Fund's investment adviser is Federated Investment Management Company
(Adviser).

SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease
depending upon whether it costs less (a discount) or more (a premium) than
the principal amount. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security
may change based upon the probability of an early redemption. Securities
with higher risks generally have higher yields.
The following describes the types of fixed income securities in which
the Fund invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of
the United States. Treasury securities are generally regarded as having
the lowest credit risks.

AGENCY SECURITIES

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

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it
does not reduce the market and prepayment risks of these mortgage backed
securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt securities. The Fund may also purchase
interests in bank loans to companies. The credit risks of corporate debt
securities vary widely among issuers.

In addition, the credit risk of an issuer's debt security may vary based
on its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on
subordinated securities while continuing to make payments on senior
securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of
subordinated securities. Some subordinated securities, such as trust
preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies
issue securities known as surplus notes that permit the insurance company
to defer any payment that would reduce its capital below regulatory
requirements.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and
use the proceeds (or bank loans) to repay maturing paper. If the issuer
cannot continue to obtain liquidity in this fashion, its commercial paper
may default. The short maturity of commercial paper reduces both the
market and credit risks as compared to other debt securities of the same
issuer.

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

MUNICIPAL SECURITIES
Municipal securities are issued by states, counties, cities and other
political subdivisions and authorities. Although many municipal securities
are exempt from federal income tax, the Fund may invest in taxable
municipal securities. As a matter of operating policy, the lowest rated
municipal debt obligations in which the Fund will invest will be rated BBB
or better by an NRSRO, or which are of comparable quality in the judgment
of the Fund's Adviser.

Mortgage Backed Securities
The Fund may invest in mortgage backed securities primarily by investing
in another investment company (which is not available for general
investment by the public) that owns those securities and that is advised
by an affiliate of the Adviser. This other investment company is managed
independently of the Fund and may incur additional administrative
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 potential additional
expenses. The Fund may also invest in such securities directly.

Mortgage backed securities represent interests in pools of mortgages.
The mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable
interest rates. Interests in pools of adjustable rate mortgages are known
as ARMs.
Mortgage backed securities come in a variety of forms. Many have
extremely complicated terms. The simplest form of mortgage backed
securities are pass-through certificates. An issuer of pass-through
certificates gathers monthly payments from an underlying pool of
mortgages. Then, the issuer deducts its fees and expenses and passes the
balance of the payments onto the certificate holders once a month. Holders
of pass-through certificates receive a pro rata share of all payments and
pre-payments from the underlying mortgages. As a result, the holders
assume all the prepayment risks of the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and interest rate
risks for each CMO class. All CMOs purchased by the Fund are investment
grade, as rated by an NRSRO.

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.

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. The total acceptances of any bank held
by the Fund cannot exceed 0.25% of such bank's total deposits according to
the bank's last published statement of condition preceding the date of
acceptance.

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

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

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. Generally, less than 10% of the value of the
Fund's total assets will be invested in equity securities. The Adviser may
choose to exceed this 10% limitation if unusual market conditions suggest
such investments represent a better opportunity to reach the Fund's
investment objective. 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 will treat such redeemable preferred stock as a fixed
income security.

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

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

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

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.
The Fund does not limit convertible securities by rating, and there is
no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing
and holding, without limit, convertible securities rated below investment
grade by an NRSRO.

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:

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

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

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

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

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

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

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

Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and
credit. Further, foreign government securities include mortgage-related
securities issued or guaranteed by national, state or provincial
governmental instrumentalities, including quasi-governmental agencies.
The Fund reserves the right to invest up to 25% of its total assets in
fixed income securities of foreign governmental units located within an
individual foreign nation.

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.

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

Many derivative contracts are traded on securities or commodities
exchanges. In this case, the exchange sets all the terms of the contract
except for the price. Investors make payments due under their contracts
through the exchange. Most exchanges require investors to maintain margin
accounts through their brokers to cover their potential obligations to the
exchange. Parties to the contract make (or collect) daily payments to the
margin accounts to reflect losses (or gains) in the value of their
contracts. This protects investors against potential defaults by the
counterparty. Trading contracts on an exchange also allows investors to
close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset
at a future date by entering into an offsetting contract to sell the same
asset on the same date. If the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. Exchanges may limit the amount of open contracts
permitted at any one time. Such limits may prevent the Fund from closing
out a position. If this happens, the Fund will be required to keep the
contract open (even if it is losing money on the contract), and to make
any payments required under the contract (even if it has to sell portfolio
securities at unfavorable prices to do so). Inability to close out a
contract could also harm the Fund by preventing it from disposing of or
trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty.
OTC contracts do not necessarily have standard terms, so they cannot be
directly offset with other OTC contracts. In addition, OTC contracts with
more specialized terms may be more difficult to price than exchange traded
contracts.
Depending upon how the Fund uses derivative contracts and the
relationships between the market value of a derivative contract and the
underlying asset, derivative contracts may increase or decrease the Fund's
exposure to interest rate and currency risks, and may also expose the Fund
to liquidity and leverage risks. OTC contracts also expose the Fund to
credit risks in the event that a counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts:

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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. 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.

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:

o 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

o 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:

o 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
o 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.

Swaps
Swaps are contracts in which two parties agree to pay each other (swap)
the returns derived from underlying assets with differing characteristics.
Most swaps do not involve the delivery of the underlying assets by either
party, and the parties might not own the assets underlying the swap. The
payments are usually made on a net basis so that, on any given day, the
Fund would receive (or pay) only the amount by which its payment under the
contract is less than (or exceeds) the amount of the other party's
payment. Swap agreements are sophisticated instruments that can take many
different forms, and are known by a variety of names including caps,
floors, and collars. Common swap agreements that the Fund may use include:
INTEREST RATE SWAPS
Interest rate swaps are contracts in which one party agrees to make
regular payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.

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.

Credit Default Swaps

Credit default swaps are agreements between two parties whereby one party
(the "Protection Buyer") agrees to make regular payments over the term of
the agreement to another party (the "Protection Seller"), provided that no
designated event of default on an underlying reference obligation has
occurred. If an event of default occurs, the Protection Seller must pay
the Protection Buyer the full notional value, or "par value," of the
reference obligation in exchange for the reference obligation. The Fund
may be either the Protection Buyer or the Protection Seller in a credit
default swap. If the Fund is a Protection Buyer and no event of default
occurs, the Fund will lose its entire investment in the swap agreement
(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 underlying reference obligation and receive a payment
equal to the full notional value of the reference asset, even though the
reference asset may have little or no value. If the Fund is the
Protection Seller and no default occurs, then the Fund will receive a
fixed rate of income throughout the term of the agreement. However, if an
event of default occurs, the Fund (as Protection Seller) will pay the
Protection Buyer the full notional value of the reference obligation and
receive the underlying reference obligation. Credit default swaps involve
greater risks than if the Fund invested directly in the reference
obligation.

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.

Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of
the interest or principal payable on a hybrid security is determined by
reference to changes in the price of an underlying asset or by reference
to another benchmark (such as interest rates, currency exchange rates or
indices). Hybrid instruments also include convertible securities with
conversion terms related to an underlying asset or benchmark. The risks of
investing in hybrid instruments reflect a combination of the risks of
investing in securities, options, futures and currencies, and depend upon
the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with
traditional fixed income or convertible securities. Hybrid instruments are
also potentially more volatile and carry greater interest rate risks than
traditional instruments. Moreover, depending on the structure of the
particular hybrid, it may expose the Fund to leverage risks or carry
liquidity risks.

Credit Linked Notes
A credit linked note ("CLN") is a type of hybrid instrument in which a
special purpose entity issues a structured note that is intended to
replicate a corporate bond or a portfolio of corporate bonds. The
purchaser of the CLN (the "Note Purchaser") invests a par amount and
receives a payment during the term of the note that equals a fixed or
floating rate of interest equivalent to a high rated funded asset (such
as a bank CD) plus an additional premium that relates to taking on the
credit risk of a reference obligation. Upon maturity, the Note Purchaser
will receive a payment equal to (i) the original par amount paid to the
Note Seller, if there is not event of default with respect to the
reference obligation or (ii) the value of the underlying reference asset,
if a designated event of default or restructuring of the reference
obligation has occurred. Depending upon the terms of the CLN, it is also
possible that the Note Purchaser may be required to take physical delivery
of any defaulted reference obligation.
</R>

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.

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

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the
borrower. The Fund will not have the right to vote on securities while
they are on loan, but it will terminate a loan in anticipation of any
important vote. The Fund may pay administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest
earned on the cash collateral to a securities lending agent or broker.
Securities lending activities are subject to interest rate risks and
credit risks.

Asset Coverage

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

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

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

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.

The Fund may invest in mortgage backed and high yield securities
primarily by investing in another investment company (which is not
available for general investment by the public) that owns those securities
and that is advised by an affiliate of the Adviser. This other investment
company is managed independently of the Fund and may incur additional
administrative 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 potential
additional expenses. The Fund may also invest in such securities directly.

Investment Ratings

Investment grade securities include fixed income securities rated AAA, the
highest rating category, through BBB by a Nationally Recognized Rating
Service (Rating Service) or, if unrated, those securities determined to be
of equivalent quality by the Adviser. Non-investment grade fixed income
securities are rated BB or below by a Rating Service or unrated. When the
Fund invests in fixed income securities some will be non-investment grade
at the time of purchase. Unrated securities will be determined by the
Adviser to be of like quality and may have greater risk but a higher yield
than comparable rated securities.

Securities rated BBB or below by Standard and Poor's or Baa by Moody's
Investor Service have speculative characteristics.

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

Fixed Income Securities Investment Risks

Interest Rate Risks
o 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.

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

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

o Many fixed income securities receive credit ratings from services
such as Standard & Poor's and Moody's Investor Service. These
services assign ratings to securities by assessing the likelihood of
issuer default. Lower credit ratings correspond to higher perceived
credit risk and higher credit ratings correspond to lower perceived
credit risk. Credit ratings do not provide assurance against default
or other loss of money. If a security has not received a rating, the
Fund must rely entirely upon the Adviser's credit assessment.

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

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

Call Risks
o 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.

o 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.

Liquidity Risks
o 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.

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

o Liquidity risk also refers to the possibility that the Fund may not
be able to sell a security or close out a derivative contract when
it wants to. If this happens, the Fund will be required to continue
to hold the security or keep the position open, and the Fund could
incur losses.

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

Risks Associated with Noninvestment Grade Securities
o 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.

Risks of Foreign Investing
o 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.

o 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.

o 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.

Equity Securities Investment Risks

Stock Market Risks
o 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.

o 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.

Sector Risks
o 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.

Liquidity Risks
o 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.

o Liquidity risk also refers to the possibility that the Fund may not
be able to sell a security or close out a derivative contract when
it wants to. If this happens, the Fund will be required to
continue to hold the security or keep the position open, and the
Fund could incur losses.

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

Risks of Foreign Investing
o 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.

o 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.

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

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

<R>

Risks of Investing in Derivatives 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 derivatives contracts may
be mispriced or improperly valued and, as a result, the Fund may need to
make increased cash payments to the counterparty. Finally, 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. Derivative contracts may also involve other risks
described in this prospectus, such as stock market, interest rate, credit,
liquidity and leverage risks.

</R>

Fundamental INVESTMENT Objective

The Fund's investment objective is to provide as high a level of current
income as is consistent with the preservation of capital. The investment
objective may not be changed by the Fund's Directors without shareholder
approval.

INVESTMENT LIMITATIONS

Diversification of Investments
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer (other
than cash, cash items, securities issued or guaranteed by the government
of the United States or its agencies or instrumentalities and repurchase
agreements collateralized by 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 would own more than 10% of the outstanding voting securities of
that issuer.

Issuing Senior Securities And Borrowing Money
The Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the Investment Act of
1940 (1940 Act).

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

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

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

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

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

The above limitations cannot be changed unless authorized by the Board 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.

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

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

Illiquid Securities
The Fund will not invest more than 15% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.

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

<R>

Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment
companies, including securities of affiliated money market funds, as an
efficient means of carrying out its investment policies and managing its
uninvested cash.

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

For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items" and
"bank instruments." Except with respect to borrowing money, if a
percentage limitations is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or
net assets will not result in a violation of such limitation.

</R>

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

o 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;

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

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

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

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

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.

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

Quantity Discounts (Class A Shares and Class F Shares)
Larger purchases of the same Share class reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same day
by you, your spouse and your children under age 21. In addition, purchases
made at one time by a trustee or fiduciary for a single trust estate or a
single fiduciary account can be combined.

Accumulated Purchases (Class A Shares and Class F Shares)

If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales
charge on the additional purchase.

Concurrent Purchases (Class A Shares and Class F Shares)

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

Letter of Intent (Class A Shares and Class F Shares)
You can sign a Letter of Intent committing to purchase a certain amount of
the same class of Shares within a 13-month period to combine such
purchases in calculating the sales charge. The Fund's custodian will hold
Shares in escrow equal to the maximum applicable sales charge. If you
complete the Letter of Intent, the Custodian will release the Shares in
escrow to your account. If you do not fulfill the Letter of Intent, the
Custodian will redeem the appropriate amount from the Shares held in
escrow to pay the sales charges that were not applied to your purchases.

Reinvestment Privilege
You may reinvest, within 120 days, your Share redemption proceeds at the
next determined NAV without any sales charge.

Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy
Shares at NAV without any sales charge because there are nominal sales
efforts associated with their purchases:

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

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

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

<R>

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

Reorganizations (Class A Shares)

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

</R>

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

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

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because: no sales commissions
have been advanced to the investment professional selling Shares; the
shareholder has already paid a Contingent Deferred Sales Charge (CDSC); or
nominal sales efforts are associated with the original purchase of Shares.

Upon notification to the Distributor or the Fund's transfer agent, no CDSC
will be imposed on redemptions:

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

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

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

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

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

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

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

Class F Shares Only
o representing a total or partial distribution from a qualified plan.
A total or partial distribution does not include an account transfer,
rollover or other redemption made for purposes of reinvestment. A
qualified plan does not include an Individual Retirement Account, Keogh
Plan, or a custodial account, following retirement.

<R>

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

o Shares that are not subject to a CDSC; and

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

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

</R>

HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

<R>

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 investment professionals
that are eligible to receive it (the "Dealer Reallowance") and retains any
remaining portion of the front-end sales charge.

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

Class A Shares

Dealer Reallowance
as a Percentage of
Purchase Amount Public Offering Price
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
Dealer Reallowance
as a Percentage of
Public Offering Price
All Purchase Amounts 1.00%

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

Class A Shares (for purchases over $1 million)
Advance Commission
as a Percentage of
Purchase Amount 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.

Class B Shares
Advance Commission
as a Percentage of
Public Offering
Price
All Purchase Amounts Up to 5.50%
Class C Shares
Advance Commission
as a Percentage of
Public Offering
Price
All Purchase Amounts 1.00%
Class F Shares
Purchase Amount Advance Commission
as a Percentage of
Public Offering Price
Less than $2 million 1.00%
$2million -but less than 0.50%
$5 million
$5 million or greater 0.25%

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

In addition, the Plan is integral to the multiple class structure of the
Fund, which promotes the sale of Shares by providing a range of options to
investors. The Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual
marketing expenses. In no event will the Fund pay for any expenses of the
Distributor that exceed the maximum Rule 12b-1 Plan fee.

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.

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

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

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

These supplemental payments may be based upon such factors as the number
or value of Shares the investment professional sells or may sell; the
value of client assets invested; and/or the type and nature of services,
sales support or marketing support furnished by the investment
professional. In addition to these supplemental payments, an investment
professional may also receive payments under the Rule 12b-1 Plan and/or
Service Fees.

</R>

EXCHANGING SECURITIES FOR SHARES

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

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

Because the Fund has elected to be governed by Rule 18f-1 under the 1940
Act, the Fund is obligated to pay Share redemptions to any one shareholder
in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

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

Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving the portfolio securities and selling
them before their maturity could receive less than the redemption value of
the securities and could incur certain transaction costs.

ACCOUNT AND SHARE INFORMATION

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

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

Directors may be removed by the Board or by shareholders at a special
meeting. A special meeting of shareholders will be called by the Board
upon the written request of shareholders who own at least 10% of the
Corporation's outstanding Shares of all series entitled to vote.

<R>

As of January 2, 2004, 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 7,965,573 shares
(18.89%); CPF Managed Portfolio IV, Pittsburgh, PA owned approximately
5,238,194 shares (12.42%); CPF Managed Portfolio III, Pittsburgh, PA owned
approximately 5,104,806 shares (12.11%), and MLPF&S, Jacksonville, FL
owned approximately 2,312,661 shares (5.48%).

As of January 2, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class B Shares:
Citigroup Global Markets, Inc., New York, NY owned approximately 3,222,369
shares (6.14%), and Edward Jones & Co., Maryland Heights, MO owned
approximately 3,147,377 shares (6.00%).

As of January 2, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding C Shares: MLPF&S,
Jacksonville, FL owned approximately 1,936,384 shares (19.24%), and Edward
Jones & Co., Maryland Heights, MO owned approximately 629,817 shares
(6.26%).

As of January 2, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class F Shares:
Nationwide QPVA, Columbus, OH owned approximately 9,637,304 shares
(35.94%); MLPF&S, Jacksonville, FL owned approximately 1,880,161
shares (7.01%), and Nationwide Trust Company, Columbus, OH owned
approximately 1,415,475 Shares (5.28%).

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

</R>

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these
requirements are not met, it will not receive special tax treatment and
will be subject to federal corporate income tax.

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

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

Distributions from a Fund may be based on estimates of book income for the
year. Book income generally consists solely of the 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.

<R>

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs
and for exercising all the Corporation's powers except those reserved for
the shareholders. The following tables give information about each Board
member and the senior officers of the Fund. Where required, the tables
separately list Board members who are "interested persons" of the Fund
(i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of each
person listed is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA. The Corporation comprises one portfolio and the Federated
Fund Complex consists of 44 investment companies (comprising 138
portfolios). Unless otherwise noted, each Officer is elected annually.
Unless otherwise noted, each Board member oversees all portfolios in the
Federated Fund Complex; serves for an indefinite term; and also serves as
a Board member of the following investment company complexes: Banknorth
Funds-four portfolios; Golden Oak(R) Family of Funds-seven portfolios and
WesMark Funds-five portfolios.

As of January 2, 2004, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Class A, B, C and F Shares.

INTERESTED DIRECTORS BACKGROUND AND COMPENSATION

Principal Occupation(s) for Past Five Aggregate Total Compensation
Name years, Other Directorships Held and Compensation From Corporation
Birth Date Previous Position(s) From Corporation and
Address (past fiscal year) Federated Fund
Positions Held with Complex
Corporation (past calendar
Date Service Began year)
Principal Occupations: Chairman and $0 $0
John F. Donahue* Director or Trustee of the Federated Fund
Birth Date: July 28, 1924 Complex; Chairman and Director, Federated
CHAIRMAN AND DIRECTOR Investors, Inc.
Began serving: May 1992 ------------------------------------------

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

Principal Occupations: Principal $0 $0
J. Christopher Donahue* Executive Officer and President of the
Birth Date: April 11, Federated Fund Complex; Director or
1949 Trustee of some of the Funds in the
PRESIDENT AND DIRECTOR Federated Fund Complex; President, Chief
Began serving: May 1992 Executive Officer and Director, Federated
Investors, Inc.; Chairman and Trustee,
Federated Equity Management Company of
Pennsylvania; Trustee, Federated
Investment Counseling; Chairman and
Director, Federated Global Investment
Management Corp.; Chairman, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.

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

Principal Occupations: Director or $1,683.78 $148,500
Lawrence D. Ellis, M.D.* Trustee of the Federated Fund Complex;
Birth Date: October 11, Professor of Medicine, University of
1932 Pittsburgh; Medical Director, University
3471 Fifth Avenue of Pittsburgh Medical Center Downtown;
Suite 1111 Hematologist, Oncologist and Internist,
Pittsburgh, PA University of Pittsburgh Medical Center.
DIRECTOR
Began serving: May 1992 Other Directorships Held: Member,
National Board of Trustees, Leukemia
Society of America.

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

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

INDEPENDENT directors BACKGROUND AND COMPENSATION

Principal Occupation: Director or Trustee $1,852.16 $163,350
Thomas G. Bigley of the Federated Fund Complex.
Birth Date: February 3,
1934 Other Directorships Held: Director, Member
15 Old Timber Trail of Executive Committee, Children's
Pittsburgh, PA Hospital of Pittsburgh; Director,
DIRECTOR University of Pittsburgh.
Began serving: October
1995 Previous Position: Senior Partner, Ernst
& Young LLP.

Principal Occupations: Director or Trustee $1,852.16 $163,350
John T. Conroy, Jr. of the Federated Fund Complex; Chairman of
Birth Date: June 23, 1937 the Board, Investment Properties
Grubb & Corporation; Partner or Trustee in private
Ellis/Investment real estate ventures in Southwest Florida.
Properties Corporation
3838 North Tamiami Trail Previous Positions: President, Investment
Suite 402 Properties Corporation; Senior Vice
Naples, FL President, John R. Wood and Associates,
DIRECTOR Inc., Realtors; President, Naples Property
Began serving: May 1992 Management, Inc. and Northgate Village
Development Corporation.

Principal Occupation: Director or Trustee $1,852.16 $163,350
Nicholas P. Constantakis of the Federated Fund Complex.
Birth Date: September 3,
1939 Other Directorships Held: Director and
175 Woodshire Drive Member of the Audit Committee, Michael
Pittsburgh, PA Baker Corporation (engineering and energy
DIRECTOR services worldwide).
Began serving: February
1998 Previous Position: Partner, Anderson
Worldwide SC.

Principal Occupation: Director or Trustee $1,683.78 $148,500
John F. Cunningham of the Federated Fund Complex.
Birth Date: March 5, 1943
353 El Brillo Way Other Directorships Held: Chairman,
Palm Beach, FL President and Chief Executive Officer,
DIRECTOR Cunningham & Co., Inc. (strategic
Began serving: January business consulting); Trustee Associate,
1999 Boston College.

Previous Positions: Director, Redgate
Communications and EMC Corporation
(computer storage systems); Chairman of
the Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo Computer,
Inc.

Principal Occupation: Director or Trustee $1,683.78 $148,500
Peter E. Madden of the Federated Fund Complex; Management
Birth Date: March 16, Consultant.
1942
One Royal Palm Way Other Directorships Held: Board of
100 Royal Palm Way Overseers, Babson College.
Palm Beach, FL
DIRECTOR Previous Positions: Representative,
Began serving: May 1992 Commonwealth of Massachusetts General
Court; President, State Street Bank and
Trust Company and State Street Corporation
(retired); Director, VISA USA and VISA
International; Chairman and Director,
Massachusetts Bankers Association;
Director, Depository Trust Corporation;
Director, The Boston Stock Exchange.

Principal Occupations: Director or Trustee $1,852.16 $163,350
Charles F. Mansfield, Jr. of the Federated Fund Complex; Management
Birth Date: April 10, Consultant; Executive Vice President, DVC
1945 Group, Inc. (marketing, communications and
80 South Road technology) (prior to 9/1/00).
Westhampton Beach, NY
DIRECTOR Previous Positions: Chief Executive
Began serving: January Officer, PBTC International Bank; Partner,
1999 Arthur Young & Company (now Ernst
& Young LLP); Chief Financial Officer
of Retail Banking Sector, Chase Manhattan
Bank; Senior Vice President, HSBC Bank USA
(formerly, Marine Midland Bank); Vice
President, Citibank; Assistant Professor
of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.

John E. Murray, Jr., Principal Occupations: Director or Trustee $2,020.53 $178,200
J.D., S.J.D. of the Federated Fund Complex; Chancellor
Birth Date: December 20, and Law Professor, Duquesne University;
1932 Partner, Murray, Hogue and Lannis.
Chancellor, Duquesne
University Other Directorships Held: Director,
Pittsburgh, PA Michael Baker Corp. (engineering,
DIRECTOR construction, operations and technical
Began serving: February services).
1995
Previous Positions: President, Duquesne
University; Dean and Professor of Law,
University of Pittsburgh School of Law;
Dean and Professor of Law, Villanova
University School of Law.

Principal Occupations: Director or $1,683.78 $148,500
Marjorie P. Smuts Trustee of the Federated Fund Complex;
Birth Date: June 21, 1935 Public Relations/Marketing
4905 Bayard Street Consultant/Conference Coordinator.
Pittsburgh, PA
DIRECTOR Previous Positions: National Spokesperson,
Began serving: May 1992 Aluminum Company of America; television
producer; President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director or $1,683.78 $148,500
John S. Walsh Trustee of the Federated Fund Complex;
Birth Date: November 28, President and Director, Heat Wagon, Inc.
1957 (manufacturer of construction temporary
2604 William Drive heaters); President and Director,
Valparaiso, IN Manufacturers Products, Inc. (distributor
DIRECTOR of portable construction heaters);
Began serving: January President, Portable Heater Parts, a
1999 division of Manufacturers Products, Inc.

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

OFFICERS**
---------------------------------------------------------------------------

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

Principal Occupations: Executive Vice President and Secretary
John W. McGonigle of the Federated Fund Complex; Executive Vice President,
Birth Date: October 26, 1938 Secretary and Director, Federated Investors, Inc.
EXECUTIVE VICE PRESIDENT AND SECRETARY
Began serving: May 1992 Previous Positions: Trustee, Federated Investment Management
Company and Federated Investment Counseling; Director,
Federated Global Investment Management Corp., Federated
Services Company and Federated Securities Corp.

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

Principal Occupations: Vice Chairman or Vice President of
Richard B. Fisher some of the Funds in the Federated Fund Complex; Vice
Birth Date: May 17, 1923 Chairman, Federated Investors, Inc.; Chairman, Federated
VICE PRESIDENT Securities Corp.
Began serving: May 1992
Previous Positions: President and Director or Trustee of some
of the Funds in the Federated Fund Complex; Executive Vice
President, Federated Investors, Inc. and Director and Chief
Executive Officer, Federated Securities Corp.

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

Previous Positions: Executive Vice President and Senior Vice
President, Federated Investment Counseling Institutional
Portfolio Management Services Division; Senior Vice
President, Federated Investment Management Company and
Passport Research, Ltd.

Joseph M. Balestrino has been the Fund's Portfolio Manager
Joseph M. Balestrino since September 1993. He is Vice President of the
Birth Date: November 3, 1954 Corporation. Mr. Balestrino joined Federated in 1986 and has
VICE PRESIDENT been a Senior Portfolio Manager and Senior Vice President of
Began serving: November 1998 the Fund's Adviser since 1998. He was a Portfolio Manager and
a Vice President of the Fund's Adviser from 1995 to 1998. Mr.
Balestrino served as a Portfolio Manager and an Assistant
Vice President of the Adviser from 1993 to 1995. Mr.
Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the
University of Pittsburgh.

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

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

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

Board ownership of shares in the fund and in the Federated family of
Investment companies AS OF DECEMBER 31, 2003
---------------------------------------------------------------------------
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund Investment Companies
John F. Donahue None Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. $1 - $10,000 Over $100,000

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

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

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions
for the Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Corporation or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of
any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.

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

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

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

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

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

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

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Services Agreement

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

</R>

Other Related Services
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of Fund Shares offered by the Distributor.

Code of Ethics Restrictions on Personal Trading

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

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Voting Proxies on Fund Portfolio Securities
The Board has delegated to the Adviser authority to vote proxies on the
securities held in the Fund's portfolio. The Board has also approved the
Adviser's policies and procedures for voting the proxies, which are
described below.

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

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

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

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

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

On matters relating to corporate transactions, the Adviser will vote
proxies relating to proposed mergers, capital reorganizations, and similar
transactions in accordance with the general policy, based upon its
analysis of the proposed transaction. The Adviser will vote proxies in
contested elections of directors in accordance with the general policy,
based upon its analysis of the opposing slates and their respective
proposed business strategies. Some transactions may also involve proposed
changes to the company's corporate governance, capital structure or
management compensation. The Adviser will vote on such changes based on
its evaluation of the proposed transaction or contested election. In
these circumstances, the Adviser may vote in a manner contrary to the
general practice for similar proposals made outside the context of such a
proposed transaction or change in the board. For example, if the Adviser
decides to vote against a proposed transaction, it may vote for
anti-takeover measures reasonably designed to prevent the transaction,
even though the Adviser typically votes against such measures in other
contexts.

The Adviser generally votes against proposals submitted by shareholders
without the favorable recommendation of a company's board. The Adviser
believes that a company's board should manage its business and policies,
and that shareholders who seek specific changes should strive to convince
the board of their merits or seek direct representation on the board.

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

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

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

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

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

</R>

BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. The Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. The Adviser
may select brokers and dealers based on whether they also offer research
services (as described below). In selecting among firms believed to meet
these criteria, the Adviser may give consideration to those firms which
have sold or are selling Shares of the Fund and other funds distributed by
the Distributor and its affiliates. The Adviser 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.

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.

<R>

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 rate of the average aggregate daily
net assets of all Federated funds as specified below:

Average Aggregate Daily
Maximum Net Assets of the
Administrative Fee Federated Funds
0.150 of 1% on the first $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.

</R>

CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Foreign instruments purchased by
the Fund are held by foreign banks participating in a network coordinated
by State Street Bank.

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

INDEPENDENT PUBLIC ACCOUNTANTs
The independent public accountant for the Fund, Deloitte and Touche LLP,
conducts its audits in accordance with auditing standards generally
accepted in the United States of America, which require it to plan and
perform its audits to provide reasonable assurance about whether the
Fund's financial statements and financial highlights are free of material
misstatement.

<R>

FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
November 30 2003 2002 2001
Advisory Fee Earned $8,847,541 $7,555,557 $7,184,335
Advisory Fee Reduction $1,246,172 $1,130,172 $1,166,200
Advisory Fee Reimbursement $5,494 $2,615 $488
Administrative Fee $888,098 $757,571 $721,225
12b-1 Fee:
Class A Shares -- -- --
Class B Shares $3,526,874 -- --
Class C Shares $648,303 -- --
Shareholder Services Fee:
Class A Shares $915,262 -- --
Class B Shares $1,175,625 -- --
Class C Shares $216,101 -- --
Class F Shares $642,193 -- --
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.
---------------------------------------------------------------------------

</R>

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.

<R>

Average Annual Total Returns and Yield
Total returns are given for the one-year, five-year and ten-year or Start
of Performance periods ended November 30, 2003.

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

Start of
Performance on
30-Day Period 1 Year 5 Years 6/28/1995
Class A:
Total Return
Before Taxes N/A 8.51% 4.56% 6.15%
After Taxes on
Distributions N/A 6.05% 1.66% 3.19%
After Taxes on
Distributions
and Sale of Shares N/A 5.43% 2.02% 3.34%
Yield 5.30% N/A N/A N/A
Start of
Performance on
30-Day Period 1 Year 5 Years 6/28/1995
Class B:
Total Return
Before Taxes N/A 7.19% 4.41% 5.94%
After Taxes on
Distributions N/A 4.95% 1.79% 3.29%
After Taxes on
Distributions
and Sale of Shares N/A 4.59% 2.08% 3.39%
Yield 4.75% N/A N/A N/A
Start of
Performance on
30-Day Period 1 Year 5 Years 6/28/1995
Class C:
Total Return
Before Taxes N/A 10.51% 4.53% 5.79%
After Taxes on
Distributions N/A 8.30% 1.94% 3.16%
After Taxes on
Distributions
and Sale of Shares N/A 6.75% 2.21% 3.26%
Yield 4.70% N/A N/A N/A

-------------------- 30-Day Period 1 Year 5 Years 10 Years
Class F:
Total Return
Before Taxes N/A 11.36% 5.33% 6.47%
After Taxes on
Distributions N/A 8.84% 2.43% 3.40%
After Taxes on
Distributions
and Sale of Shares N/A 7.28% 2.68% 3.54%
Yield 5.47% N/A N/A N/A

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

</R>

TOTAL RETURN
Total return represents the change (expressed as a percentage) in the
value of Shares over a specific period of time, and includes the
investment of income and capital gains distributions.

The average annual total return for Shares is the average compounded rate
of return for a given period that would equate a $10,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at
the end of the period by the NAV per Share at the end of the period. The
number of Shares owned at the end of the period is based on the number of
Shares purchased at the beginning of the period with $10,000, less any
applicable sales charge, adjusted over the period by any additional
Shares, assuming the annual reinvestment of all dividends and
distributions.

Total returns after taxes are calculated in a similar manner, but reflect
additional standard assumptions required by the SEC.

YIELD
The yield of Shares is calculated by dividing: (i) the net investment
income per Share earned by the Shares over a 30-day period; by (ii) the
maximum offering price per Share on the last day of the period. This
number is then annualized using semi-annual compounding. This means that
the amount of income generated during the 30-day period is assumed to be
generated each month over a 12-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by
Shares because of certain adjustments required by the SEC and, therefore,
may not correlate to the dividends or other distributions paid to
shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
Shares, the Share performance is lower for shareholders paying those fees.

<R>

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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

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

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

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

The Fund may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments,
including federally insured bank products such as bank savings accounts,
certificates of deposit and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more
complete view of Share performance. When comparing performance, you should
consider all relevant factors such as the composition of the index used,
prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising
may include:

Advertising and sales literature may include:

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

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

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

The Fund may quote information from reliable sources regarding
individual countries and regions, world stock exchanges, and economic and
demographic statistics.
You may use financial publications and/or indices to obtain a more
complete view of Share performance. When comparing performance, you should
consider all relevant factors such as the composition of the index used,
prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising
may include:

</R>

Lehman Brothers High Yield Index
Covers the universe of fixed rate, publicly issued, non-investment grade
debt registered with the SEC. All bonds included in the High Yield Index
must be dollar-denominated and nonconvertible and have at least one year
remaining to maturity and an outstanding par value of at least $100
million. Generally securities must be rated Ba1 or lower by Moody's
Investors Service, including defaulted issues. If no Moody's rating is
available, bonds must be rated BB+ or lower by S&P; and if no S&P
rating is available, bonds must be rated below investment grade by Fitch,
IBCA, Inc. A small number of unrated bonds is included in the index; to be
eligible they must have previously held a high yield rating or have been
associated with a high yield issuer, and must trade accordingly.

Lipper Analytical Services, Inc.
Ranks funds in various fund categories by making comparative calculations
using total return. Total return assumes the reinvestment of all capital
gains distributions and income dividends and takes into account any change
in net asset value over a specified period of time.

Lehman Brothers Government/Credit (Total) Index
Comprised of approximately 5,000 issues which include: non- convertible
bonds publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal corporations;
and publicly issued, fixed rate, non- convertible domestic bonds of
companies in industry, public utilities, and finance. The average maturity
of these bonds approximates nine years. Tracked by Lehman Brothers, Inc.,
the index calculates total returns for one-month, three-month, twelve-
month, and ten-year periods and year-to-date.

Salomon Brothers Aaa-Aa Corporate Index
Salomon Brothers Aaa-Aa Corporate Index calculates total returns of
approximately 775 issues which include long-term, high grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years or
more and companies in industry, public utilities, and finance.

Merrill Lynch Corporate & Government Master Index
Merrill Lynch Corporate & Government Master Index is an unmanaged
index comprised of approximately 4,821 issues which include corporate debt
obligations rated BBB or better and publicly issued, non-convertible
domestic debt of the U.S. government or any agency thereof. These quality
parameters are based on composites of ratings assigned by Standard and
Poor's Ratings Group and Moody's Investors Service. Only notes and bonds
with a minimum maturity of one year are included.

Merrill Lynch Corporate Master Index
An unmanaged index comprised of approximately 4,256 corporate debt
obligations rated BBB or better. These quality parameters are based on
composites of ratings assigned by Standard and Poor's Ratings Group and
Moody's Investors Service, Inc. Only bonds with minimum maturity of one
year are included.

Lehman Brothers Credit Bond Index
The Lehman Brothers Credit Bond Index is comprised of a large universe of
bonds issued by industrial, utility and financial companies which have a
minimum rating of Baa by Moody's Investors Service, BBB by Standard and
Poor's Ratings Group or, in the case of bank bonds not rated by either of
the previously mentioned services, BBB by Fitch, IBCA, Inc.

Morningstar, Inc.

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

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a
single portfolio manager. It is a fusion of individual talents and
state-of-the-art industry tools and resources. Federated's investment
process involves teams of portfolio managers and analysts, and investment
decisions are executed by traders who are dedicated to specific market
sectors and who handle trillions of dollars in annual trading volume.

<R>

Federated Funds overview

Municipal Funds
In the municipal sector, as of December 31, 2003, Federated managed 14
bond funds with approximately $3.8 billion in assets and 22 money market
funds with approximately $23.0 billion in total assets. In 1976, Federated
introduced one of the first municipal bond mutual funds in the industry
and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including
The Tax Foundation and the National Taxpayers Union regarding the tax
obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 32 years' experience. As of
December 31, 2003, Federated managed 36 equity funds totaling
approximately $25.6 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative
analysis and features a structured, computer-assisted composite modeling
system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 2003, Federated managed
11 money market funds and 4 bond funds with assets approximating $61.7
billion and $3.4 billion, respectively. Federated's corporate bond
decision making--based on intensive, diligent credit analysis--is backed
by over 30 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the
industry. In 1983, Federated was one of the first fund managers to
participate in the asset backed securities market, a market totaling more
than $209 billion.

Government Funds
In the government sector, as of December 31, 2003, Federated managed 7
mortgage backed, 3 multi-sector government funds, 4 government/agency and
19 government money market mutual funds, with assets approximating $4.9
billion, $0.9 billion, $2.9 billion and $56.2 billion, respectively.
Federated trades approximately $90.4 billion in U.S. government and
mortgage backed securities daily and places approximately $35 billion in
repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969.
Federated has been a major force in the short- and intermediate-term
government markets since 1982 and currently manages approximately $50
billion in government funds within these maturity ranges.

Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost
method of accounting for valuing shares of money market funds, a principal
means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market
fund. As of December 31, 2003, Federated managed $136.2 billion in assets
across 52 money market funds, including 19 government, 10 prime, 22
municipal and 1 euro-denominated with assets approximating $56.2 billion,
$59.4 billion, $20.6 billion and $173.9 million, respectively.

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

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

Federated Clients Overview
Federated distributes mutual funds through its subsidiaries for a variety
of investment purposes. Specific markets include:

Institutional Clients
Federated meets the needs of approximately 3,035 institutional clients
nationwide by managing and servicing separate accounts and mutual funds
for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisers.

Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients' portfolios.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--Federated has over 2,000 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement.

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended November
30, 2003 are incorporated herein by reference to the Annual Report to
Shareholders of Federated Bond Fund dated November 30, 2003.

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 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.

</R>
Addresses

Federated bond fund

Class A Shares
Class B Shares
Class C Shares
Class F Shares

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

Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

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

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

Independent Public Accountants
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116






PART C.     OTHER INFORMATION.

Item 23.
            (a)               Copy of Articles of Incorporation of the
                              Registrant; (1)
                  (i)         Conformed copy of Articles Supplementary, dated
                              July 1, 1993; (12)
                  (ii)        Conformed copy of Articles Supplementary, dated
                              May 20, 1994; (12)
                  (iii)       Conformed copy of Articles Supplementary, dated
                              May 18, 1995; (12)
                  (iv)        Conformed copy of Articles of Amendment, dated
                              March 29, 1996; (12)
                  (v)         Conformed copy of Articles Supplementary, dated
                              November 15, 1996; (12)
                  (vi)        Conformed copy of Certificate of Correction,
                              dated February 28, 1997; (12)
                  (vii)       Conformed copy of Certificate of Correction,
                              dated February 28, 1997; (12)
            (b)               Copy of By-Laws of the Registrant; (1)
                  (i)         Copy of Amendment No.1 to the By-Laws of
                              Registrant; (11)
                  (ii)        Copy of Amendment No.2 to the By-Laws of
                              Registrant; (11)
                  (iii)       Copy of Amendment No.3 to the By-Laws of
                              Registrant; (11)
                  (iv)        Copy of Amendment No. 4 to the By-Laws of
                              Registrant; (14)
                  (v)         Copy of Amendment No. 5 to the By-Laws of
                              Registrant; (15)
            (c)   (i)         Copies of Specimen Certificates for Shares of
                              Capital Stock of Federated Bond Fund; (5)
                  (ii)        Copy of Specimen Certificate for Shares of
                              Common Stock of Class F Shares of Federated Bond
                              Fund; (7)
            (d)               Conformed copy of Investment Advisory Contract
                              of the Registrant; (3)
                  (i)         Conformed copy of Limited Power of Attorney of
                              the Adviser; (14)
                  (ii)        Conformed copy of Amendment to Investment
                              Advisory Contract of the Registrant; (14)
            (e)   (i)         Copy of Distributor's Contract of Registrant; (2)
                  (ii)        Conformed copy of Exhibits C and D to
                              Distributor's Contract; (4)
                  (iii)       Conformed copy of Exhibits E, F, and G to
                              Distributor's Contract; (5)
                  (iv)        Conformed copy of Distributor's Contract (Class
                              B    Shares) including Exhibit 1 and Schedule A;
                              (10)
                  (v)         The Registrant hereby incorporates the conformed
                              copy of the specimen Mutual Funds Sales and
                              Service Agreement; Mutual Funds Service
                              Agreement; and Plan Trustee/Mutual Funds Service
                              Agreement from Item 24(b)(6) of the Cash Trust
                              Series II Registration Statement on Form N-1A,
                              filed with the Commission on July 24, 1995.
                              (File Nos. 33-38550 and 811-6269);
                  (vi)        Conformed copy of Amendment to Distributor's
                              Contract of Registrant; (14)
                  (vii)       Conformed copy of Amendment to Distributor's
                              Contract of Registrant; (15)
            (f)               Not applicable;
            (g)   (i)         Conformed copy of Custodian Agreement of the
                              Registrant;(3)
                  (ii)        Conformed copy of State Street Domestic Custody
                              Fee Schedule; (9)
            (h)   (i)         Conformed copy of Principal Shareholder
                              Servicer's Agreement (Class B Shares) including
                              Exhibit 1 and Schedule A; (10)
                  (ii)        Conformed copy of Shareholder Services Agreement
                              (Class B Shares) including Exhibit 1 and
                              Schedule A; (10)
                  (iii)       Amended and Restated Agreement for Fund
                              Accounting Services, Administrative Services,
                              Transfer Agency Services, and Custody Services
                              Procurement; (11)
                  (iv)        The Registrant hereby incorporates by reference
                              the conformed copy of the Shareholder Services
                              Sub-Contract between Fidelity and Federated
                              Shareholder Services from Item 24(b)(9)(iii) of
                              the Federated GNMA Trust Registration Statement
                              on Form N-1A, filed with the Commission on March
                              25, 1996 (File Nos. 2-75670 and 811-3375);
                  (v)         Conformed copy of Second Amended and Restated
                              Shareholder Services Agreement; (13)
(vi)  The responses described in Item 23(e)(iii) are hereby incorporated by reference;
(vii) The Registrant hereby incorporates by reference the conformed copy of the
                              Agreement for Administrative Services from Item
                              23 (h)(vix) of the Federated Index Trust
                              Registration Statement on Form N-1A, filed with
                              the Commission on December 30, 2003. (File Nos.
                              33-33852 and 811-6061).
            (i)               Copy of Opinion and Consent of Counsel as to
                              legality of shares being registered; (2)
            (j)               Conformed copy of Consent of Independent
                              Auditors; (+)
            (k)               Not applicable;
            (l)               Not applicable;
            (m)   (i)         Copy of Distribution Plan; (2)
                  (ii)        Conformed Copy of Exhibits B and C to
                              Distribution Plan; (4)
                  (iii)       Conformed Copy of Exhibits D, E, and F to
                              Distribution Plan; (5)
                  (iv)        Conformed copy of Exhibit 1 to the 12b-1
                              Distribution Plan (Class B Shares) of the
                              Registrant; (10)
                  (v)         The responses described in Item 23(e)(iii) are
                              hereby incorporated by reference;
            (n)               The Registrant hereby incorporates the conformed
                              copy of the Multiple Class Plan from Item (n) of
                              Federated Income Securities Trust Registration
                              Statement on Form N-1A, filed with the
                              Commission on June 30, 2003. (File Nos. 33-3164
                              and 811-4577);
            (o)   (i)         Conformed Copy of Power of Attorney; (12)
                  (ii)        Conformed Copy of Power of Attorney of Chief
                              Investment Officer of the Registrant (12)
                  (iii)       Conformed Copy of Power of Attorney of Trustee
                              John F. Cunningham; (12)
                  (iv)        Conformed Copy of Power of Attorney of Trustee
                              Charles F. Mansfield, Jr.; (12)
                  (v)         Conformed Copy of Power of Attorney of Trustee
                              John S. Walsh. (12)
            (p)               The Registrant hereby incorporates the conformed
                              copy of the Code of Ethics for Access Persons
                              from Item 23(p) of the Federated Institutional
                              Trust Registration Statement on Form N-1A filed
                              with the Commission on September 30, 2003. (File
                              Nos. 33-54445 and 811-7193).

________________________________________
+     All exhibits have been filed electronically via EDGAR.
(1)   Response is incorporated by reference to Registrant's Initial
      Registration Statement on Form N-1A filed August 21, 1992.  (File No.
      33-48847 and 811-07021)
(2)   Response is incorporated by reference to Registrant's Pre-Effective
      Amendment No. 1 on Form N-1A filed September 8, 1992. (File No. 33-48847
      and 811-07021)
(3)   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 4 on Form N-1A filed December 29, 1993.  (File No.
      33-48847 and 811-07021)
(4)   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 5 on Form N-1A filed December 23, 1994 (File No. 33-48847
      and 811-07021)
(5)   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 7 on Form N-1A filed July 27, 1995 (File No. 33-48847 and
      811-07021)
(7)   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 11 on Form N-1A filed February 18, 1997 (File No. 33-48847
      and 811-07021)
(9)   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 13 on Form N-1A filed October 24, 1997 (File No. 33-48847
      and 811-07021)
(10)  Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 15 on Form N-1A filed December 31, 1997 (File No. 33-48847
      and 811-07021)
(11)  Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 16 on Form N-1A filed October 30, 1998 (File No. 33-48847
      and 811-07021)
(12)  Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 18 on Form N-1A filed October 29, 1999 (File No.
      33-48847and 811-07021)
(13)  Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 21 on Form N-1A filed January 23, 2002 (File No. 33-48847
      and 811-07021)
(14)  Response is incorporated by reference to Registrant's Post-Effective Amendment
      No. 22 on form N-1A filed January 29, 2003. (File No. 33-48847 and
      811-07021)
(15)  Response is incorporated by reference to Registrant's Post-Effective Amendment
      No. 23 on Form N-1A filed November 26, 2003. (File No. 33-48847 and
      811-07021)

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

            None

Item 25.    Indemnification:  (1)

Item 26.    Business and Other Connections of Investment Adviser:

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

The remaining Officers of the investment adviser are:


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

Executive Vice Presidents:                      William D. Dawson, III

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

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

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


Secretary:                                      G. Andrew Bonnewell

Treasurer:                                      Thomas R. Donahue

Assistant Secretaries:                          Jay S. Neuman


Assistant Treasurer:                            Denis McAuley, III

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

Item 27.    Principal Underwriters:

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

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


         (b)

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

Chairman:                     Richard B. Fisher       Vice President

Director:                     Arthur L. Cherry

President-Institutional
Sales and Director:           John B. Fisher

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

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

Senior Vice Presidents:       Mark W. Bloss
                              Richard W. Boyd
                              Laura M. Deger
                              Peter W. Eisenbrandt
                              Theodore Fadool, Jr.
                              Christopher Fives
                              James S. Hamilton
                              James M. Heaton
                              H. Joseph Kennedy
                              Amy Michaliszyn
                              Keith Nixon
                              Solon A. Person, IV
                              Ronald M. Petnuch
                              Timothy C. Pillion
                              Thomas E. Territ
                              Robert F. Tousignant

Vice Presidents:              Irving Anderson
                              John B. Bohnet
                              Edward R. Bozek
                              Jane E. Broeren-Lambesis
                              Craig Burness
                              David J. Callahan
                              Mark Carroll
                              Dan Casey
                              Scott Charlton
                              Steven R. Cohen
                              Mary J. Combs
                              R. Edmond Connell, Jr.
                              Kevin J. Crenny
                              Daniel T. Culbertson
                              G. Michael Cullen
                              Marc C. Danile
                              Rick A. DiBernardo
                              Robert J. Deuberry
                              Ron Dorman
                              William C. Doyle
                              Donald C. Edwards
                              Lee England
                              Timothy Franklin
                              Peter J. Germain
                              Joseph D. Gibbons
                              G. Tad Gullickson
                              Scott Gundersen
                              Dayna C. Haferkamp
                              Raymond J. Hanley
                              Vincent L. Harper, Jr.
                              Bruce E. Hastings
                              Teresa M. Johnson
                              Christopher L. Johnston
                              Stephen Kittel
                              Michael W. Koenig
                              Ed Koontz
                              Christopher A. Layton
                              Michael H. Liss
                              Michael R. Manning
                              Martin J. McCaffrey
                              Mary A. McCaffrey
                              Mark J. Miehl
                              Richard C. Mihm
                              Vincent T. Morrow
                              Alec H. Neilly
                              Rebecca Nelson
                              James E. Ostrowski
                              Thomas A. Peter III
                              Raleigh Peters
                              Robert F. Phillips
                              Richard A. Recker
                              Christopher Renwick
                              Brian S. Ronayne
                              Thomas S. Schinabeck
                              Edward J. Segura
                              Peter Siconolfi
                              Edward L. Smith
                              David W. Spears
                              John A. Staley
                              Colin B. Starks
                              Jeffrey A. Stewart
                              Kevin Stutz
                              Timothy A. Rosewicz
                              Greg Spralding
                              William C. Tustin
                              Paul A. Uhlman
                              G. Walter Whalen
                              Stephen White
                              Patrick M. Wiethorn
                              Edward J. Wojnarowski
                              Michael P. Wolff


Assistant Vice Presidents:    Lisa A. Toma
                              Robert W. Bauman
                              Charles L. Davis, Jr.
                              Beth C. Dell
                              Jennifer Fetteroff
                              John T. Glickson
                              William Rose
                              Lynn Sherwood-Long

Treasurer:                    Denis McAuley, III

Secretary:                    Stephen A. Keen

Assistant Secretaries:        Thomas R. Donahue
                              Peter J. Germain

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

         (c)     Not applicable




Item 28.    Location of Accounts and Records:

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

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

(Notices should be sent to the Agent for Service at above address)
Federated Investors Funds
                                          5800 Corporate Drive
                                          Pittsburgh, PA 15237-7000

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

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

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

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

Item 29.    Management Services:  Not applicable.

Item 30.    Undertakings:

            Registrant hereby undertakes, if requested to do so by the holders
            of at least 10% of the registrant's outstanding shares, to call a
            meeting of shareholders for the purpose of voting upon the
            question of removal of a Director or Directors and to assist in
            communications with other shareholders as required by Section
            16(c).

                                   SIGNATURES

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

                    FEDERATED INVESTMENT SERIES FUNDS, INC.

            BY: /s/ Andrew P. Cross
            Andrew P. Cross, Assistant Secretary
            January 29, 2004


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

      NAME                         TITLE                    DATE

By:   /s/ Andrew P. Cross
Andrew P. Cross               Attorney In Fact        January 29, 2004
ASSISTANT SECRETARY           For the Persons
                              Listed Below

      NAME                         TITLE

John F. Donahue*                 Chairman and Director

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

Richard J. Thomas*               Treasurer
                                 (Principal Financial Officer)

William D. Dawson, III*          Chief Investment Officer

Thomas G. Bigley*                Director

John T. Conroy, Jr.*             Director

Nicholas P. Constantakis*        Director

John F. Cunningham*              Director

Lawrence D. Ellis, M.D.*         Director

Peter E. Madden*                 Director

Charles F. Mansfield, Jr.*       Director

John E. Murray, Jr.*             Director

Marjorie P. Smuts*               Director

John S. Walsh*                   Director

*  By Power of Attorney

Federated Bond Fund

PROSPECTUS

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

CONTENTS

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

Risk/Return Bar Chart and Table

Average Annual Total Return Table

(For the periods ended December 31, 2003)

What are the Fund's Fees and Expenses?

FEDERATED BOND FUND

FEES AND EXPENSES

EXAMPLE

What are the Fund's Investment Strategies?

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

Treasury Securities

Agency Securities

Corporate Debt Securities

FOREIGN SECURITIES

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

Investment Ratings

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

CREDIT RISKS

LIQUIDITY RISKS

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

RISKS OF FOREIGN INVESTING

What Do Shares Cost?

SALES CHARGE WHEN YOU PURCHASE

SALES CHARGE WHEN YOU REDEEM

How is the Fund Sold?

RULE 12B-1 PLAN

How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Wire

By Check

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

How to Redeem and Exchange Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

By Mail

Signature Guarantees

PAYMENT METHODS FOR REDEMPTIONS

Redemption in Kind

LIMITATIONS ON REDEMPTION PROCEEDS

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGE

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

Systematic Withdrawal Program (SWP) on Class B Shares

ADDITIONAL CONDITIONS

Telephone Transactions

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

Joseph M. Balestrino

Mark E. Durbiano

Christopher J. Smith

ADVISORY FEES

Legal Proceedings

Financial Information

FINANCIAL HIGHLIGHTS

Financial Highlights -- Class A Shares

Financial Highlights -- Class B Shares

Financial Highlights -- Class C Shares

Financial Highlights -- Class F Shares

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