Federated Inst. Trust

485BPOS 1 form.htm Federated Inst. Trust

                                          1933 Act File No. 33-54445
                                          1940 Act File No. 811-7193


                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                  Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933              X
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    Pre-Effective Amendment No.        .....................
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    Post-Effective Amendment No.  26 .......................         X
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                                    and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940      X
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    Amendment No.  27 ......................................         X
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                        FEDERATED INSTITUTIONAL TRUST
              (Exact Name of Registrant as Specified in Charter)
                          Federated Investors Funds
                             5800 Corporate Drive
                     Pittsburgh, Pennsylvania 15237-7000
                   (Address of Principal Executive Offices)

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

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

It is proposed that this filing will become effective:

 X  immediately upon filing pursuant to paragraph (b)
_  on ___________________pursuant to paragraph (b)
 __ 60 days after filing pursuant to paragraph (a) (i)
    on _________________ pursuant to paragraph (a) (i)
    75 days after filing pursuant to paragraph (a)(ii)
   on ___________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, NW
Washington, DC 20037

Federated Investors
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated Institutional High Yield Bond Fund

A Portfolio of Federated Institutional Trust

PROSPECTUS

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December 31, 2005

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A mutual fund seeking high current income by investing primarily in lower-rated corporate fixed income securities, including debt securities issued by U.S. or foreign businesses.

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.

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Risk/Return Summary		1
What are the Fund’s Fees and Expenses?		5
What are the Fund’s Investment Strategies?		6
What are the Principal Securities in Which the Fund Invests?		8
What are the Specific Risks of Investing in the Fund?		14
What Do Shares Cost?		17
How is the Fund Sold?		21
Payments to Financial Intermediaries		21
How to Purchase Shares		22
How to Redeem and Exchange Shares		24
Account and Share Information		27
Who Manages the Fund?		30
Legal Proceedings		32
Financial Information		33

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Risk/Return Summary

WHAT IS THE FUND’S INVESTMENT OBJECTIVE?

The Fund’s investment objective is to seek high current income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND’S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in a diversified portfolio of high yield corporate bonds (also known as “junk bonds”). The Fund’s investment adviser (“Adviser”) selects securities seeking high yields, low relative credit risk as compared with other high yield bonds and high portfolio diversification. The Adviser’s securities selection process includes an analysis of the issuer’s financial condition, business and product strength, competitive position and management expertise. The Adviser does not limit the Fund’s investments to securities of a particular maturity range.

The Fund may invest in derivative contracts to implement its investment strategies as more fully described below.

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:

Credit Risks. The corporate bonds in which the Fund invests have a higher default risk than investment grade securities. Low-grade bonds are almost always uncollateralized and subordinated to other debt that a firm has outstanding.
Liquidity Risks. Liquidity of individual corporate bonds varies considerably. Low-grade corporate bonds have less liquidity than investment grade securities, which means that it may be more difficult to sell or buy a security at a favorable price or time.
Risks Associated with Non-Investment Grade Securities. Securities rated below investment grade may be subject to greater interest rate, credit and liquidity risks than investment grade securities.
Risks Related to the Economy. Low-grade corporate bond returns are sensitive to changes in the economy. The value of the Fund’s portfolio may decline in tandem with a drop in the overall value of the stock market based on negative developments in the U.S. and global economies.
Interest Rate Risks. Prices of fixed income securities generally fall when interest rates rise. Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.
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 could otherwise be the case.
Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund’s foreign investments and the value of the shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.
Leverage Risks. Leverage risk is created when an investment exposes the Fund to a level of risk that exceeds the amount invested.
Risks of Investing in Derivative Contracts and Hybrid Instruments. Changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus, such as interest rate, credit, liquidity and leverage risks.

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

Risk/Return Bar Chart and Table

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The 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 total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund’s performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

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

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The Fund’s total return for the nine-month period from January 1, 2005 to September 30, 2005 was 1.87%.

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Within the period shown in the bar chart, the Fund’s highest quarterly return was 7.51% (quarter ended June 30, 2003). Its lowest quarterly return was 0.38% (quarter ended June 30, 2004).

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Average Annual Total Return Table

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Return Before Taxes is shown. In addition Return After Taxes is shown for the Fund 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 High Yield Composite Bond Index (LBHYCB), a broad based market index, the Lehman Brothers High Yield Single B Rated Index (LBSBI), the Lehman Brothers High Yield 2% issuer Constrained Index (LHY2%ICI) and the Lipper High Current Yield Funds Index (LHCYFA). On June 1, 2005, the Fund’s Adviser elected to change the benchmark index from the LBHYCB to the LHY2%ICI because the LHY2%ICI is more reflective of the securities in which the Fund invests. Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling into the respective category. Index returns do not reflect taxes, sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund’s performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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(For the periods ended December 31, 2004)

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	1 Year	Start of Performance¹

Fund:

Return Before Taxes	11.22%	18.71%

Return After Taxes on Distributions²	6.64%	14.54%

Return After Taxes on Distributions and Sale of Fund Shares²	8.21%	13.79%

LBHYCB	11.13%	22.15%

LBSBI	10.36%	21.10%

LHY2%ICI	11.14%	22.01%

LHCYFA	10.34%	20.04%

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1 The Fund’s start of performance date was November 1, 2002.

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

What are the Fund’s Fees and Expenses?

FEDERATED INSTITUTIONAL HIGH YIELD 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.

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Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)		None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)		None
Redemption Fee (as a percentage of amount redeemed, if applicable)¹		2.00%
Exchange Fee		None

Annual Fund Operating Expenses (Before Waivers and Reimbursement)²
*Expenses That are Deducted From Fund Assets (as a percentage of average net assets)*
Management Fee³		0.40%
Distribution (12b-1) Fee		None
Other Expenses⁴		1.14%
Total Annual Fund Operating Expenses		1.54%


1 The redemption fee is imposed upon the redemptions of shares within 90 days of purchase.
2 The percentages shown are based on expenses for the entire fiscal year ended October 31, 2005. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the Adviser and administrator waived/reimbursed certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 2005.
Total Waivers and Reimbursement of Fund Expenses		1.03%
Total Actual Annual Fund Operating Expenses (after waivers and reimbursement)		0.51%
3 The Adviser voluntarily waived 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 0.00% for the fiscal year ended October 31, 2005.
4 The administrator voluntarily waived a portion of its fee and the Adviser voluntarily reimbursed certain operating expenses of the Fund. The Adviser and administrator can terminate this voluntary waiver and reimbursement at any time. Total other operating expenses paid by the Fund (after the voluntary waiver and reimbursement) were 0.51% for the fiscal year ended October 31, 2005.

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EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses are before waivers and reimbursement as estimated in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

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1 Year		$157

3 Years		$486

5 Years		$839

10 Years		$1,834

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What are the Fund’s Investment Strategies?

The Fund provides exposure to the high-yield corporate bond market. The Adviser actively manages the Fund’s portfolio seeking to realize the potentially higher returns of high-yield bonds (also known as “junk bonds”) compared to returns of high-grade securities by seeking to minimize default risk and other risks through careful security selection and diversification. The Fund primarily invests in domestic high-yield bonds but may invest a portion of its portfolio in securities of issuers based outside of the United States. A description of the various types of securities in which the Fund invests, and their risks, immediately follows the strategy discussion.

The Adviser selects securities seeking high yields, low relative credit risk as compared with other high-yield bonds, and high portfolio diversification. The securities in which the Fund invests have high yields primarily because of the market’s greater uncertainty about the issuer’s ability to make all required interest and principal payments, and therefore about the returns that will in fact be realized by the Fund.

The Adviser attempts to select bonds for investment by the Fund which offer high potential returns for the default risks being assumed. The Adviser’s securities selection process consists of a credit-intensive, fundamental analysis of the issuing firm. The Adviser’s analysis focuses on the financial condition of the issuing firm together with the issuer’s business and product strength, competitive position and management expertise. Further, the Adviser considers current economic, financial market and industry factors, which may affect the issuer.

The Adviser attempts to minimize the Fund’s portfolio credit risk through diversification. The Adviser selects securities to maintain broad portfolio diversification both by company and industry. The Adviser does not target an average maturity for the Fund’s portfolio.

The Adviser may opportunistically invest in derivative contracts, such as swaps, options, futures, and forward contracts, to efficiently implement the Fund’s overall investment strategies. The following examples illustrate some, but not all, of the specific ways in which the Fund may use derivative contracts. First, the Adviser may use derivatives to increase or decrease the Fund’s exposure to an underlying asset without actually buying or selling the asset. Second, the Fund may invest in derivatives that are designed to have risk/return characteristics similar to the Fund’s benchmark or another diversified basket of individual securities, as a way to quickly or cost effectively adjust the Fund’s exposure to the domestic high yield debt market. Third, the Adviser may use derivatives to obtain exposure to an issuer that does not have publicly traded debt. Finally, the Adviser may use derivatives to implement the Fund’s hedging strategies, as more fully described below.

Because the Fund refers to high-yield investments in its name, it will notify shareholders in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its assets in investments rated below investment grade.

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.

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.

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:

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.

Lower-Rated, Fixed Income Securities

Lower-rated fixed income securities are securities rated below investment grade (i.e., BB or lower) by a nationally recognized rating service. There is no minimal acceptable rating for a security to be purchased or held by the Fund and the Fund may purchase or hold unrated securities and securities whose issuers are in default.

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. 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.

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.

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, such as corporate debt securities) may be used to create an asset-backed security. Asset-backed securities may take the form of notes or pass-through certificates.

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 nonconvertible 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 fixed income securities for purposes of its investment policies and limitations, because of their unique characteristics.

FOREIGN SECURITIES

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

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.

The foreign securities in which the Fund invests may be 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 may also be subject to liquidity risks.

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.

PREFERRED STOCKS

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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.

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DERIVATIVE CONTRACTS

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

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.

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

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

Futures Contracts

Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of 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, currency futures and foreign currency forward contracts.

Options

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

Swaps

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

SPECIAL TRANSACTIONS

Hybrid Instruments

Hybrid instruments combine elements of two different kinds of underlying investments. Hybrid instruments can take on many forms including, but not limited to, the following two forms: First, a common form of a hybrid instrument combines elements of derivative contracts with those of another security (typically a fixed income security). In this case 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). Secondly, hybrid instruments may include convertible securities with conversion terms related to an underlying asset or benchmark.

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Depending on the type of hybrid instrument the risks of investing in hybrid instruments may reflect a combination of the risks of investing in securities, derivative contracts and currencies. 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.

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CREDIT LINKED NOTES

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A credit linked note is a type of hybrid instrument in which a special purpose entity issues a structured note that is intended to replicate a single bond, a portfolio of bonds, or the unsecured credit of an issuer, in general (each a “Reference Instrument”). Most credit linked notes use a corporate bond (or a portfolio of corporate bonds) as the Reference Instrument. However, almost any type of fixed income security (including foreign government securities) or derivative contract (such as a credit default swap) can be used as the Reference Instrument.

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ASSET COVERAGE

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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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 also invest in 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. The Fund may also invest in such securities directly. These other investment companies are managed independently of the Fund and incur additional expenses. Therefore, any such investment by the Fund may be subject to duplicate expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the additional expenses.

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What are the Specific Risks of Investing in the Fund?

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. The high-yield bonds in which the Fund invests have a higher default risk than investment grade securities. Low-grade bonds are almost always uncollateralized and subordinated to other debt that a firm has outstanding.

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

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

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.

These features may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell a security, sell other securities to raise cash or give up an investment opportunity, any of which could have a negative effect on the Fund’s performance. Infrequent trading of securities may also lead to an increase in their price volatility.

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

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

RISKS ASSOCIATED WITH NON-INVESTMENT-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 negatively, and their trading market may be more limited.

RISKS RELATED TO THE ECONOMY

The prices of high-yield securities are affected by the economy. The value of the Fund’s portfolio may decline in tandem with a drop in the overall value of the stock market based on negative developments in the United States and global economies.

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to 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.

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.

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

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

CURRENCY RISKS

Exchange rates for currencies fluctuate daily. The combination of currency risk and market risks tends to make securities traded in foreign markets more volatile than securities traded exclusively in the United States.

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

RISKS OF INVESTING IN DERIVATIVES CONTRACTS AND HYBRID INSTRUMENTS

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The Fund’s use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying 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 and hybrid instruments 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 and hybrid instruments may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts and hybrid instruments may also involve other risks described in this prospectus, such as interest rate, currency risks, credit, liquidity and leverage risks.

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LEVERAGE RISKS

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.

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

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). When the Fund holds foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund’s assets may change on days you cannot purchase or redeem Shares. The Fund does not charge a front-end sales charge. NAV is determined as of the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund’s current NAV and public offering price may be found in the mutual funds section of certain local newspapers under “Federated.”

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The Fund generally values fixed income securities according to prices furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost. Prices furnished by an independent pricing service are intended to be indicative of the mean between the bid and asked prices currently offered to institutional investors for the securities. Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges.

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

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

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

In some cases, events affecting the issuer of a portfolio security may be considered significant events. Announcements concerning earnings, acquisitions, new products, management changes, litigation developments, a strike or natural disaster affecting the company’s operations or regulatory changes or market developments affecting the issuer’s industry occurring between the time as of which the price of the portfolio security is determined and the close of trading on the NYSE are examples of potentially significant events. For securities of foreign issuers, such events could also include political or other developments affecting the economy or markets in which the issuer conducts its operations or its securities are traded.

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

The required minimum initial investment for Fund Shares is $1,000,000. The required minimum subsequent investment amount is $100. The minimum initial and subsequent investment amount for retirement plans is $250.

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An institutional investor’s minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through financial intermediaries may be subject to a smaller minimum investment amount. Keep in mind that financial intermediaries may charge you fees for their services in connection with your Share transactions.

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FEE WHEN YOU REDEEM OR EXCHANGE

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For 90 days following your purchase, Shares are redeemable at a price equal to the current NAV per Share less a 2.00% redemption fee. This 2.00% fee, referred to in the prospectus and Statement of Additional Information (SAI) as a redemption/exchange fee, directly affects the amount a shareholder who is subject to the fee receives upon exchange or redemption. The redemption/exchange fee is intended to encourage long-term investments in the Fund, to offset transaction and other Fund expenses caused by short-term redemptions, and to facilitate portfolio management (e.g., by decreasing the likelihood that the Fund will need to sell portfolio securities at an inopportune time, or maintain a larger cash position, in order to meet short-term redemption requests). There are no assurances that the redemption/exchange fee will deter short-term redemptions, as intended, including redemptions made as part of an overall strategy to buy and sell Shares in response to incremental changes in the Fund’s NAV. The redemption/exchange fee will be paid to the Fund. The redemption/exchange fee is not a sales charge, is not paid to the Adviser or its affiliates, and is not subject to waiver or reduction except as described in this section. The Fund reserves the right to modify the terms of or terminate this redemption/exchange fee at any time. For purposes of computing this redemption/exchange fee, Shares will be deemed to be redeemed on a first in, first out basis (i.e., Shares held the longest will be deemed to be redeemed first).

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The Fund’s goal is to collect the redemption/exchange fee on all Shares that are redeemed or exchanged within 90 days of purchase. However, the Fund may not be able to achieve its goal, since many financial intermediaries do not have the systems capability to collect the redemption/exchange fee from underlying account owners. Until these systems limitations are resolved, the Fund specifically anticipates that it may not be able to collect the redemption/
exchange fee with respect to Shares purchased through some omnibus accounts, including omnibus accounts of banks, broker/dealers, trust companies and retirement plan record keepers.

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Participant directed transactions involving Shares held in retirement plans established under Sections 401(a) or 401(k) of the Internal Revenue Code (the “Code”), custodial plan accounts established under Section 403(b)(7) of the Code, or deferred compensation plans established under Section 457 of the Code will be subject to the redemption/exchange fee. Non-participant directed transactions such as distributions due to death, disability, health, or financial hardship will not be subject to the redemption/exchange fee. The redemption/
exchange fee will not apply to Shares held in plans administered as college savings programs under Section 529 of the Code. Finally, Shares acquired by reinvestment of dividends or distributions of the Fund, or purchased pursuant to the Systematic Investment Program (SIP) or withdrawn pursuant to the Systematic Withdrawal Program, will not be subject to the redemption/exchange fee. For more discussion regarding the redemption/exchange fee, please see the Fund’s SAI.

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How is the Fund Sold?

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The Fund’s Distributor, Federated Securities Corp., markets the Shares described in this prospectus to banks acting in a fiduciary, advisory, agency, custodial (including Individual Retirement Account), or similar capacity or to individuals, directly or through investment professionals. Under the Distributor’s Contract with the Fund, the Distributor offers Shares on a continuous, best-efforts basis. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

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Payments to Financial Intermediaries

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The Fund and its affiliated service providers may pay fees as described below to financial intermediaries (such as Broker/Dealers, Banks, Investment Advisers or Third-Party Administrators) whose customers are shareholders of the Fund.

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RECORDKEEPING FEES

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

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NETWORKING FEES

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

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ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

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

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

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How to Purchase Shares

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

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THROUGH A FINANCIAL INTERMEDIARY

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Establish an account with the financial intermediary; and

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

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Financial intermediaries should send payments according to the instructions in the sections “By Wire” or “By Check.”

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DIRECTLY FROM THE FUND

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

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

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

By Wire

Send your wire to:

State Street Bank and Trust Company Boston, MA Dollar Amount of Wire ABA Number 011000028 Attention: EDGEWIRE Wire Order Number, Dealer Number or Group Number Nominee/Institution Name Fund Name and Number and Account Number

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

By Check

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

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

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

The Federated Funds 66 Brooks Drive Braintree, MA 02184

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.

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THROUGH AN EXCHANGE

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

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BY SYSTEMATIC INVESTMENT PROGRAM

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

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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

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

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How to Redeem and Exchange Shares

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You should redeem or exchange Shares:

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through a financial intermediary if you purchased Shares through a financial intermediary; or

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directly from the Fund if you purchased Shares directly from the Fund.

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

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Shares may be redeemed at the NAV next determined after the Fund receives the redemption request. If the Shares are redeemed or exchanged within 90 days of purchase, a 2% redemption/exchange fee will be charged, as more fully described previously under the sub-heading, “Fee When You Redeem or Exchange.” The redemption/exchange fee will be paid to the Fund.

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THROUGH A FINANCIAL INTERMEDIARY

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

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DIRECTLY FROM THE FUND

By Telephone

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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.

By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

The Federated Funds 66 Brooks Drive Braintree, MA 02184

All requests must include:

Fund Name and Share Class, account number and account registration;

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amount to be redeemed or exchanged;

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signatures of all shareholders exactly as registered; and

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if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.

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

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Signature Guarantees

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

your redemption will be sent to an address other than the address of record;

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your redemption will be sent to an address of record that was changed within the last 30 days;

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

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

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

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.

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

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REDEMPTIONS FROM RETIREMENT ACCOUNTS

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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.

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EXCHANGE PRIVILEGE

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

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ensure that the account registrations are identical;

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meet any minimum initial investment requirements; and

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receive a prospectus for the fund into which you wish to exchange.

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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. In addition, the Fund may terminate your exchange privilege if your exchange activity is found to be excessive under the Fund’s frequent trading policies. See “Account and Share Information–Frequent Trading Policies.”

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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 financial intermediary or the Fund. Your account value must meet the minimum initial investment amount at the time the program is established. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income.

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ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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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.

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DIVIDENDS AND CAPITAL GAINS

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

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

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

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

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ACCOUNTS WITH LOW BALANCES

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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.

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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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FREQUENT TRADING POLICIES

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

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The Fund’s Board has approved policies and procedures intended to discourage excessive frequent or short-term trading of the Fund’s Shares. As described above, the Fund imposes a fee on redemptions or exchanges of Fund Shares within 90 days of the date of purchase. See “What Do Shares Cost?” The Fund’s fair valuation procedures are intended in part to discourage short-term trading strategies by reducing the potential for these strategies to succeed. See “What Do Shares Cost?” The Fund also monitors trading in Fund Shares in an effort to identify disruptive trading activity. The Fund monitors trades into and out of the Fund within a period of 30 days or less. The size of Share transactions subject to monitoring varies. However, where it is determined that a shareholder has exceeded the detection amounts twice within a period of twelve months, the shareholder will be precluded from making further purchases or exchanges of Fund Shares. The Fund may also monitor trades into and out of the Fund over periods longer than 30 days, and if potentially disruptive trading activity is detected, the shareholder will be precluded from making further purchases or exchanges of Fund Shares. Whether or not the specific monitoring limits are exceeded, the Fund’s management or the Adviser may determine from the amount, frequency or pattern of purchases and redemptions or exchanges that a shareholder is engaged in excessive trading that is or could be detrimental to the Fund and other shareholders and may preclude the shareholder from making further purchases or exchanges of Fund Shares. No matter how the Fund defines its limits on frequent trading of Fund Shares, other purchases and sales of Fund Shares may have adverse effects on the management of the Fund’s portfolio and its performance.

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

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

PORTFOLIO HOLDINGS INFORMATION

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

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To access this information from the “Products” section of the website, click on “Portfolio Holdings” and select the appropriate link opposite the name of the Fund, or select the name of the Fund from the menus on the “Products” section, and from the Fund’s page click on the “Portfolio Holdings” or “Composition” link. A user is required to register on the website the first time the user accesses this information.

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

Who Manages the Fund?

The Board of Trustees (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 133 equity, fixed income, and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $179 billion in assets as of December 31, 2004. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1,385 employees. Federated provides investment products to more than 5,700 investment professionals and institutions.

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PORTFOLIO MANAGEMENT INFORMATION

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Mark E. Durbiano

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Mark E. Durbiano has been the Fund’s Portfolio Manager since its inception. He is Vice President of the Fund. 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.

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

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ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the Fund’s average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

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A discussion of the Board’s review of the Fund’s investment advisory contract is available in the Fund’s Annual Report dated October 31, 2005.

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Legal Proceedings

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Since October 2003, Federated and related entities (collectively, “Federated”), and various Federated funds (“Funds”), have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated’s first public announcement that it had received requests for information on shareholder trading activities in the Funds from the SEC, the Office of the New York State Attorney General (“NYAG”), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay disgorgement and a civil money penalty in the aggregate amount of an additional $72 million and, among other things, agreed that it would not serve as investment adviser to any registered investment company unless (i) at least 75% of the fund’s directors are independent of Federated, (ii) the chairman of each such fund is independent of Federated, (iii) no action may be taken by the fund’s board or any committee thereof unless approved by a majority of the independent trustees of the fund or committee, respectively, and (iv) the fund appoints a “senior officer” who reports to the independent trustees and is responsible for monitoring compliance by the fund with applicable laws and fiduciary duties and for managing the process by which management fees charged to a fund are approved. The settlements are described in Federated’s announcement which, along with previous press releases and related communications on those matters, is available in the “About Us” section of Federated’s website at FederatedInvestors.com.

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

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

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Financial Information

FINANCIAL HIGHLIGHTS

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

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

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Financial Highlights

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(For a Share Outstanding Throughout Each Period)

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Year Ended October 31	2005			2004			2003

Net Asset Value, Beginning of Period	$12.00			$11.64			$10.00
Income From Investment Operations:
Net investment income	0.81			0.93			0.90
Net realized and unrealized gain (loss) on investments	(0.40	)		0.45			1.63

TOTAL FROM INVESTMENT OPERATIONS	0.41			1.38			2.53

Less Distributions:
Distributions from net investment income	(0.89	)		(0.95	)		(0.89	)
Distributions from net realized gain on investments	(0.82	)		(0.07	)		--

TOTAL DISTRIBUTIONS	(1.71	)		(1.02	)		(0.89	)

Net Asset Value, End of Period	$10.70			$12.00			$11.64

Total Return¹	3.69	%		12.43	%		26.19	%


Ratios to Average Net Assets:

Net expenses	0.51	%		0.50	%		0.46	%

Net investment income	7.50	%		7.79	%		8.20	%

Expense waiver/reimbursement²	1.03	%		0.71	%		0.84	%

Supplemental Data:

Net assets, end of period (000 omitted)	$19,547		$36,763			$48,437

Portfolio turnover	35	%		56	%		22	%

Redemption fees consisted of the following per share amounts	$0.00	³		$0.00	³		$0.00	³

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

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Total returns for periods of less than one year are not annualized.

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

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3 Represents less than $0.01.

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Further Information about the Fund’s performance is contained in the Annual Report, dated October 31, 2005, which can be obtained free of charge.

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A Statement of Additional Information (SAI) dated December 31, 2005, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund’s SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report’s Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund’s performance during its last fiscal year. The SAI contains a description of the Fund’s policies and procedures with respect to the disclosure of its portfolio securities. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your financial intermediary or the Fund at 1-800-341-7400.

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

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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 website at www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC’s Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room’s operations and copying fees.

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Federated Investors
World-Class Investment Manager

Federated Institutional High Yield Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7193

Federated is a registered mark of Federated Investors, Inc.
2005 © Federated Investors, Inc.

Cusip 31420B300

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27831 (12/05)

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FEDERATED INSTITUTIONAL HIGH YIELD BOND FUND
A Portfolio of Federated Institutional Trust

STATEMENT OF ADDITIONAL INFORMATION

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DECEMBER 31, 2005

This Statement of Additional Information (SAI) is not a prospectus.
Read this SAI in conjunction with the prospectus for Federated
Institutional High Yield Bond Fund (Fund), dated December 31, 2005.
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. </R>

[GRAPHIC OMITTED]
CONTENTS
[GRAPHIC OMITTED]

How is the Fund Organized?.......................1
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Securities in Which the Fund Invests.............1
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What Do Shares Cost?............................12
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How is the Fund Sold?...........................13
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Subaccounting Services..........................14
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Redemption in Kind 15
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Massachusetts Partnership Law...................15
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Account and Share Information...................15
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Tax Information.................................15
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Who Manages and Provides Services to
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the Fund?.......................................16
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How Does the Fund Measure
Performance?....................................26
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Who is Federated Investors, Inc.?...............27
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Financial Information...........................29
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Investment Ratings..............................29
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Addresses.........................................
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Appendix..........................................
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[GRAPHIC OMITTED][GRAPHIC OMITTED]
HOW IS THE FUND ORGANIZED?

The Fund is a diversified portfolio of Federated Institutional Trust
(Trust). The Trust is an open-end, management investment company that
was established under the laws of the Commonwealth of Massachusetts on
June 9, 1994. The Trust may offer separate series of shares
representing interests in separate portfolios of securities.

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 may invest.

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.

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 risk.

Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity (GSE) acting under federal authority. Some
GSE securities are supported by the full faith and credit of the United
States. These include the Government National Mortgage Association,
Small Business Administration, Farm Credit System Financial Assistance
Corporation, Farmer's Home Administration, Federal Financing Bank,
General Services Administration, Department of Housing and Urban
Development, Export-Import Bank, Overseas Private Investment
Corporation, and Washington Metropolitan Area Transit Authority Bonds.
Other GSE securities receive support through federal subsidies, loans
or other benefits. For example, the U.S. Treasury is authorized to
purchase specified amounts of securities issued by (or otherwise make
funds available to) the Federal Home Loan Bank System, Federal Home
Loan Mortgage Corporation, Federal National Mortgage Association,
Student Loan Marketing Association, and Tennessee Valley Authority in
support of such obligations.
A few GSE securities have no explicit financial support, but are
regarded as having implied support because the federal government
sponsors their activities. These include the Farm Credit System,
Financing Corporation, and Resolution Funding Corporation.
Investors regard agency securities as having low credit risks, but not
as low as Treasury securities.
A Fund treats mortgage-backed securities guaranteed by a GSE as if
issued or guaranteed by a federal agency. Although such a guarantee
protects against credit risks, it does not reduce market and prepayment
risks.

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 Asset backed securities are structured in many ways, including,
but not limited to the following:

IOs and POs
Asset backed securities may be structured to 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
asset backed securities. 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 pools of obligations. 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.

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
market 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 know as coupon
stripping. 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.

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

CONVERTIBLE SECURITIES

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

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

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

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.

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

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

The following describes the types of equity securities in which the
Fund may invest.

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

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

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.

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.

The foreign securities in which the Fund invests may be 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 may also be subject to liquidity risks.

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.

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

Foreign 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.

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 or
combinations of derivative contracts.

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

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

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

|_|" Buy call options on 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
|_|" 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:

|_|" 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
|_|" 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.

<R>

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

</R>

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

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

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

Repurchase agreements are subject to credit risks.

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

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

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 market risks and
credit risks.

Hybrid Instruments
Hybrid instruments combine elements of two different kinds of
underlying investments. Hybrid instruments can take on many forms
including, but not limited to, the following three forms: First, a
common form of a hybrid instrument combines elements of derivative
contracts with those of another security (typically a fixed income
security). In this case 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). Secondly,
a hybrid instrument may also combine elements of a fixed income
security and an equity security. Lastly, hybrid instruments may include
convertible securities with conversion terms related to an underlying
asset or benchmark.

Depending on the type of hybrid instrument, the risks of investing in
hybrid instruments may reflect a combination of the risks of investing
in securities, options, futures and currencies. Thus, an investment in
a hybrid instrument may entail significant risks in addition to those
associated with traditional fixed income, equity 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.

<R>

CREDIT LINKED NOTES
A credit linked note ("CLN") is a type of hybrid instrument in which a
special purpose entity issues a structured note (the "Note Issuer")
that is intended to replicate a single bond, a portfolio of bonds, or
with respect to the unsecured credit of an issuer, in general (the
"Reference Instrument"). The purchaser of the CLN (the "Note Purchaser")
invests a par amount and receives a payment during the term of the CLN
that equals a fixed or floating rate of interest equivalent to a high
rated funded asset (such as a bank certificate of deposit) plus an
additional premium that relates to taking on the credit risk of the
Reference Instrument. Upon maturity of the CLN, the Note Purchaser will
receive a payment equal to (i) the original par amount paid to the Note
Issuer, if there is neither a designated event of default (an "Event of
Default") with respect to the Reference Instrument nor a restructuring
of the issuer of the Reference Instrument (a "Restructuring Event") or
(ii) the value of the Reference Instrument, if an Event of Default or
Restructuring Event 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 the Reference Instrument in the event of an Event
of Default or a Restructuring Event. Most credit linked notes use a
corporate bond (or a portfolio of corporate bonds) as the Reference
Instrument(s). However, almost any type of fixed income security
(including foreign government securities) or derivative contract (such
as a credit default swap) can be used as the Reference Instrument.
</R>

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.

<R>

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 also invest in 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. The
Fund may also invest in such securities directly. These other
investment companies are managed independently of the Fund and incur
additional expenses. Therefore, any such investment by the Fund may be
subject to duplicate expenses. However, the Adviser believes that the
benefits and efficiencies of this approach should outweigh the
additional expenses. </R>

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

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

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

FIXED INCOME SECURITIES INVESTMENT RISKS

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. The high yield bonds in which the
Fund invests have a higher default risk than investment-grade
securities. Low-grade bonds are almost always uncollateralized and
subordinated to other debt that a firm has outstanding.
|_|" Many fixed income securities receive credit ratings from services
such as Standard & Poor's and Moody's Investors Service. These services
assign ratings to securities by assessing the likelihood of issuer
default. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon
the Adviser's credit assessment.
|_|" 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.

Leverage Risks
|_|" 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.
|_|" Investments can have these same results if their returns are
based on a multiple of a specified index, security, or other
benchmark.

Liquidity Risks
|X| 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. 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.
|X| 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.
|X| OTC derivative contracts generally carry greater liquidity risk
than exchange-traded contracts.

Risks Related to the Economy
|X| The prices of high-yield securities are affected by investor
sentiment. The value of the Fund's portfolio may decline in tandem
with a drop in the overall value of the stock market based on negative
developments in the U.S. and global economics.

Call Risks
|X| 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.
|X| 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.

Risks Associated with Non-Investment-Grade Securities
Securities rated below investment grade, also known as junk bonds,
generally entail greater market, credit and liquidity risks than
investment-grade securities. 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.

EQUITY SECURITIES INVESTMENT RISKS

Stock Market Risks
|_|" The value of equity securities in the Fund's portfolio will rise
and fall. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of
individual portfolio stocks or general changes in stock valuations.
Consequently, the Fund's Share price may decline.

RISKS OF INVESTING IN DERIVATIVE CONTRACTS AND HYBRID INSTRUMENTS
|_|" The Fund's use of derivative contracts and hybrid instruments
involves risks different from, or possibly greater than, the risks
associated with investing directly in securities and other traditional
investments. First, changes in the value of the derivative contracts
and hybrid instruments in which the Fund invests may not be correlated
with changes in the value of the underlying 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 and hybrid instruments 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 and hybrid instruments
may cause the Fund to realize increased ordinary income or short-term
capital gains (which are treated as ordinary income for Federal income
tax purposes) and, as a result, may increase taxable distributions to
shareholders. Derivative contracts and hybrid instruments may also
involve other risks described in this SAI, such as interest rate,
credit, liquidity and leverage risks.

RISKS OF BOTH FIXED INCOME AND EQUITY SECURITIES

Liquidity Risks
|_|" Trading opportunities are more limited for equity securities that
are not widely held. This may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have
to accept a lower price to sell a security, sell other securities to
raise cash or give up an investment opportunity, any of which could
have a negative effect on the Fund's performance. Infrequent trading
of securities may also lead to an increase in their price volatility.
|_|" Liquidity risk also refers to the possibility that the Fund may
not be able to sell a security or close out a derivative contract when
it wants to. If this happens, the Fund will be required to continue to
hold the security or keep the position open, and the Fund could incur
losses.
|_|" OTC derivative contracts generally carry greater liquidity risk
than exchange-traded contracts.

Currency Risks
|_|" Exchange rates for currencies fluctuate daily. The combination of
currency risk and market risk tends to make securities traded in
foreign markets more volatile than securities traded exclusively in
the United States.
|_|" The Adviser attempts to manage currency risk by limiting the
amount the Fund invests in securities denominated in a particular
currency. However, diversification will not protect the Fund against a
general increase in the value of the U.S. dollar relative to other
currencies.

Risks of Foreign Investing
|_|" Foreign securities pose additional risks because foreign economic
or political conditions may be less favorable than those of the United
States. Securities in foreign markets may also be subject to taxation
policies that reduce returns for U.S. investors.
|_|" Foreign companies may not provide information (including
financial statements) as frequently or to as great an extent as
companies in the United States. Foreign companies may also receive
less coverage than U.S. companies by market analysts and the financial
press. In addition, foreign countries may lack uniform accounting,
auditing and financial reporting standards or regulatory requirements
comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning
foreign companies that is as frequent, extensive and reliable as the
information available concerning companies in the United States.
|_|" Foreign countries may have restrictions on foreign ownership of
securities or may impose exchange controls, capital flow restrictions
or repatriation restrictions which could adversely affect the
liquidity of the Fund's investments.

FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to seek high current income. The
investment objective may not be changed by the Fund's Board without
shareholder approval.

INVESTMENT LIMITATIONS

Diversification
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer (other
than cash; cash items; securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such U.S. government
securities; and securities of other investment companies) if, as a
result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10%
of the outstanding voting securities of that issuer.

Concentration
The Fund will not purchase securities if, as a result of such purchase,
more than 25% of the value of its assets would be invested in any one
industry. However, the Fund may invest more than 25% of the value of
its total assets in cash or cash items (not including certificates of
deposit), securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these
instruments, such as repurchase agreements.

Investing in Commodities
The Fund will not purchase or sell commodities. The Fund reserves the
right to purchase financial futures and put options on financial
futures, not including stock index futures.

Investing in Real Estate
The Fund will not purchase or sell real estate, although it will invest
in the securities of companies whose business involves the purchase or
sale of real estate or in securities which are secured by real estate
or interests therein.

Buying on Margin
The Fund will not purchase on margin, but may obtain such short-term
credits as are necessary for the clearance of transactions and may make
margin payments in connection with buying financial futures and put
options on financial futures, not including stock index futures.

Selling Short
The Fund will not sell securities short, unless at all times when a
short position is open it owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any
future consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of
the value of the Fund's net assets (taken at current value) are held as
collateral for such sales at any one time. It is the present intention
of the Fund to make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes.

Borrowing Money
The Fund will not issue senior securities, except as permitted by the
Fund's investment objective and policies and except that the Fund may
borrow money and engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary or emergency measure
or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous.

Lending
The Fund will not lend any of its assets except portfolio securities
(this shall not prevent the purchase or holding of corporate or
government bonds, debentures, notes, certificates of indebtedness or
other debt securities of an issuer, repurchase agreements or other
transactions which are permitted by the Fund's investment objective and
policies or Declaration of Trust).

Underwriting
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies and limitations.

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 Investment Company Act of 1940 (1940 Act). The
following limitations, however, may be changed by the Board without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

Illiquid Securities
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits that the Fund cannot dispose of within seven days, if
immediately after and as a result, the value of such securities would
exceed, in the aggregate, 15% of the Fund's net assets.

Writing Covered Call Options
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.

Acquiring Securities
The Fund will not purchase securities of a company for the purpose of
exercising control or management.

However, the Fund may invest in up to 10% of the voting securities of
any one issuer and may exercise its voting powers consistent with the
best interests of the Fund. In addition, the Fund, other companies
advised by the Fund's Adviser, and other affiliated companies may
together buy and hold substantial amounts of voting stock of a company
and may vote together in regard to such company's affairs. In some
cases, the Fund and its affiliates might collectively be considered to
be in control of such company. In some such cases, the Board and other
persons associated with the Fund and its affiliates might possibly
become directors of companies in which the Fund holds stock.

Investing in Foreign Securities
The Fund will not invest more than 10% of the value of its total assets
in foreign securities which are not publicly traded in the United
States.

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

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
accordance with procedures established by and under the general
supervision of 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 net
asset value (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 NAV per Share fluctuates and is based on the market value of
all securities and other assets of the Fund.

<R>

FEE WHEN YOU REDEEM OR EXCHANGE
For 90 days following your purchase, Shares are redeemable at a price
equal to the current NAV per Share less a 2.00% redemption fee. This
2.00% fee, referred to in the prospectus and SAI as a
redemption/exchange fee, directly affects the amount a shareholder who
is subject to the fee receives upon exchange or redemption. The
redemption/exchange fee is intended to encourage long-term investments
in the Fund, to offset transaction and other Fund expenses caused by
short-term redemptions, and to facilitate portfolio management (e.g.,
by decreasing the likelihood that the Fund will need to sell portfolio
securities at an inopportune time, or maintain a larger cash position,
in order to meet short-term redemption requests). There are no
assurances that the redemption/exchange fee will deter short-term
redemptions, as intended, including redemptions made as part of an
overall strategy to buy and sell Shares in response to incremental
changes in the Fund's NAV. The redemption/ exchange fee will be paid to
the Fund. The redemption/exchange fee is not a sales charge, is not
paid to the Adviser or its affiliates, and is not subject to waiver or
reduction except as described in this section. The Fund reserves the
right to modify the terms of or terminate this redemption/exchange fee
at any time. For purposes of computing this redemption/exchange fee,
Shares will be deemed to be redeemed on a first in, first out basis
(i.e., Shares held the longest will be deemed to be redeemed first).
The Fund's goal is to collect the fee on all Shares that are redeemed
or exchanged within 90 days of purchase. However, the Fund may not be
able to achieve its goal, since many financial intermediaries do not
have the systems capability to collect the redemption/exchange fee from
underlying account owners. Until these systems limitations are
resolved, the Fund specifically anticipates that it may not be able to
collect the redemption/exchange fee with respect to Shares purchased
through some omnibus accounts, including omnibus accounts of banks,
broker/dealers and trust companies.
Participant directed transactions involving Shares held in retirement
plans established under Sections 401(a) or 401(k) of the Internal
Revenue Code (the "Code"), custodial plan accounts established under
Section 403(b)(7) of the Code, or deferred compensation plans
established under Section 457 of the Code ( "Retirement Plans") will
be subject to the redemption/exchange fee. The following is a list of
specific examples of non-participant directed Retirement Plan
transactions that will not be subject to the redemption / exchange
fee:
o Distributions from a Retirement Plan due to death, disability,
health or financial hardship;
o Distributions from a Retirement Plan made in connection with the
termination of employment;
o Distributions from a Retirement Plan required by the Code, such
as the distribution that must be made when the plan participant
reaches age 70 1/2 (and any subsequent, related distributions for years
thereafter);
o Distributions from a Retirement Plan made in connection with a
qualified participant loan;
o Redemptions from a Retirement Plan made in connection with the
regularly scheduled automatic rebalancing of assets in a Retirement
Plan (i.e., automatic rebalancing according to predetermined
allocation levels); and
o Redemptions from or exchanges within a Retirement Plan made as a
result of plan level directed events, such as changes to plan
investment options;
Additionally, the redemption/exchange fee will not apply to Shares held
in plans administered as college savings programs under Section 529 of
the Code.
Finally, Shares acquired by reinvestment of dividends or distributions
of the Fund, or purchased pursuant to the Systematic Investment Program
or withdrawn pursuant to the Systematic Withdrawal Program, will not be
subject to the redemption/exchange fee. </R>

HOW IS THE FUND SOLD?

<R>

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

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

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

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

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

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

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

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

</R>

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

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

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

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

MASSACHUSETTS PARTNERSHIP LAW

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

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

ACCOUNT AND SHARE INFORMATION

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

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

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

<R>

As of December 5, 2005, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares:

FirstOak & Co., First United Bank & Trust, Oakland, MD owned
approximately 468,581 shares (20.49%); Piernat & Co., Bankwest Inc.,
Pierre, SD owned approximately 164,833 shares (7.21%); Bay Road
Partners, Pittsburgh, PA owned approximately 181,506 shares (7.94%);
SEI Private Trust Company, Oaks, PA owned approximately 268,404 shares
(11.73%); and Post & Co., New York, NY owned approximately 417,475
shares (18.25%).

</R>

TAX INFORMATION

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

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

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

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

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

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

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and
for exercising all the Trust's powers except those reserved for the
shareholders. The following tables give information about each Board
member and the senior officers of the Fund. Where required, the tables
separately list Board members who are "interested persons" of the Fund
(i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of
each person listed is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA. As of December 31, 2004, the Trust comprised two
portfolios, and the Federated Fund Complex consisted of 44 investment
companies (comprising 133 portfolios). Unless otherwise noted, each
Officer is elected annually. Unless otherwise noted, each Board member
oversees all portfolios in the Federated Fund Complex and serves for an
indefinite term.

<R>

As of December 5, 2005, the Fund's Board and Officers as a group owned
approximately 181,506 shares (7.94%) of the Fund's outstanding Shares.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

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

Name ----------------------
Birth Date
Address Aggregate Total Compensation
Positions Held with Trust Principal Occupation(s) for Past Compensation From Trust and
-------------------------- Five Years, From Fund Federated Fund
Date Service Began Other Directorships Held and (past fiscal year) Complex
Previous Position(s) (past calendar year)
John F. Donahue* Principal Occupations: Chairman and $0 $0
Birth Date: July 28, 1924 Director or Trustee of the
CHAIRMAN AND TRUSTEE Federated Fund Complex; Chairman
Began serving: June 1994 and Director, Federated Investors,
Inc.

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

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

Lawrence D. Ellis, M.D.* Principal Occupations: Director or $515.12 $148,500
Birth Date: October 11, Trustee of the Federated Fund --------------------
1932 Complex; Professor of Medicine,
3471 Fifth Avenue University of Pittsburgh; Medical
Suite 1111 Director, University of Pittsburgh
Pittsburgh, PA Medical Center Downtown;
TRUSTEE Hematologist, Oncologist and
Began serving: June 1994 Internist, University of Pittsburgh
Medical Center.

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

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

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

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

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

---------
----------------------
Name -----
Birth Date Aggregate Total Compensation
Address Principal Occupation(s) for Past Compensation From Trust and
Positions Held with Trust Five Years, From Fund Federated Fund
Date Service Began Other Directorships Held and (past fiscal year) Complex
Previous Position(s) (past calendar year)
Thomas G. Bigley Principal Occupation: Director or $566.63 $163,350
Birth Date: February 3, Trustee of the Federated Fund
1934 Complex.
15 Old Timber Trail
Pittsburgh, PA Other Directorships Held: Director,
TRUSTEE Member of Executive Committee,
Began serving: November Children's Hospital of Pittsburgh;
1994 Director, University of Pittsburgh.

Previous Position: Senior Partner,
Ernst & Young LLP.

John T. Conroy, Jr. Principal Occupations: Director or $566.63 $163,350
Birth Date: June 23, 1937 Trustee of the Federated Fund --------------------
Investment Properties Complex; Chairman of the Board,
Corporation Investment Properties Corporation;
3838 North Tamiami Trail Partner or Trustee in private real
Suite 402 estate ventures in Southwest
Naples, FL Florida.
TRUSTEE
Began serving: June 1994 Previous Positions: President,
Investment Properties Corporation;
Senior Vice President, John R. Wood
and Associates, Inc., Realtors;
President, Naples Property
Management, Inc. and Northgate
Village Development Corporation.

Nicholas P. Constantakis Principal Occupation: Director or $566.63 $163,350
Birth Date: September 3, Trustee of the Federated Fund --------------------
1939 Complex.
175 Woodshire Drive
Pittsburgh, PA Other Directorships Held: Director
TRUSTEE and Member of the Audit Committee,
Began serving: February Michael Baker Corporation
1998 (engineering and energy services
worldwide).

Previous Position: Partner,
Andersen Worldwide SC.

John F. Cunningham Principal Occupation: Director or $515.12 $148,500
Birth Date: March 5, 1943 Trustee of the Federated Fund --------------------
353 El Brillo Way Complex.
Palm Beach, FL
TRUSTEE Other Directorships Held: Chairman,
Began serving: January President and Chief Executive
1999 Officer, Cunningham & Co., Inc.
(strategic business consulting);
Trustee Associate, Boston College.

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

Peter E. Madden Principal Occupation: Director or $515.12 $148,500
Birth Date: March 16, 1942 Trustee of the Federated Fund --------------------
One Royal Palm Way Complex.
100 Royal Palm Way
Palm Beach, FL Other Directorships Held: Board of
TRUSTEE Overseers, Babson College.
Began serving: June 1994
Previous Positions: Representative,
Commonwealth of Massachusetts
General Court; President, State
Street Bank and Trust Company and
State Street Corporation (retired);
Director, VISA USA and VISA
International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.

Charles F. Mansfield, Jr. Principal Occupations: Director or $566.63 $163,350
Birth Date: April 10, 1945 Trustee of the Federated Fund --------------------
80 South Road Complex; Management Consultant;
Westhampton Beach, NY Executive Vice President, DVC
TRUSTEE Group, Inc. (marketing,
Began serving: July 1999 communications and technology)
(prior to 9/1/00).

Previous Positions: Chief Executive
Officer, PBTC International Bank;
Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank;
Senior Vice President, HSBC Bank
USA (formerly, Marine Midland
Bank); Vice President, Citibank;
Assistant Professor of Banking and
Finance, Frank G. Zarb School of
Business, Hofstra University.

John E. Murray, Jr., Principal Occupations: Director or $ 618.16 $178,200
J.D., S.J.D. Trustee of the Federated Fund --------------------
Birth Date: December 20, Complex; Chancellor and Law
1932 Professor, Duquesne University;
Chancellor, Duquesne Partner, Murray, Hogue & Lannis.
University
Pittsburgh, PA Other Directorships Held: Director,
TRUSTEE Michael Baker Corp. (engineering,
Began serving: February construction, operations and
1995 technical services).

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

Marjorie P. Smuts Principal Occupations: Director or $515.12 $148,500
Birth Date: June 21, 1935 Trustee of the Federated Fund --------------------
4905 Bayard Street Complex; Public Relations/Marketing
Pittsburgh, PA Consultant/Conference Coordinator.
TRUSTEE
Began serving: June 1994 Previous Positions: National
Spokesperson, Aluminum Company of
America; television producer;
President, Marj Palmer Assoc.;
Owner, Scandia Bord.

John S. Walsh Principal Occupations: Director or $515.12 $148,500
Birth Date: November 28, Trustee of the Federated Fund --------------------
1957 Complex; President and Director,
2604 William Drive Heat Wagon, Inc. (manufacturer of
Valparaiso, IN construction temporary heaters);
TRUSTEE President and Director,
Began serving: July 1999 Manufacturers Products, Inc.
(distributor of portable
construction heaters); President,
Portable Heater Parts, a division
of Manufacturers Products, Inc.

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

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

OFFICERS**

Name
Birth Date
Address
Positions Held with Trust
------------------------------------ Principal Occupation(s) and Previous Position(s)
Date Service Began
John W. McGonigle Principal Occupations: Executive Vice President and Secretary
Birth Date: October 26, 1938 of the Federated Fund Complex; Vice Chairman, Executive Vice
EXECUTIVE VICE PRESIDENT AND President, Secretary and Director, Federated Investors, Inc.
SECRETARY
Began serving: June 1994 Previous Positions: Trustee, Federated Investment Management
Company and Federated Investment Counseling; Director,
Federated Global Investment Management Corp., Federated
Services Company and Federated Securities Corp.

Richard J. Thomas Principal Occupations: Principal Financial Officer and
Birth Date: June 17, 1954 Treasurer of the Federated Fund Complex; Senior Vice
TREASURER President, Federated Administrative Services.
Began serving: September 1997
Previous Positions: Vice President, Federated Administrative
Services; held various management positions within Funds
Financial Services Division of Federated Investors, Inc.

Richard B. Fisher Principal Occupations: Vice Chairman or Vice President of some
Birth Date: May 17, 1923 of the Funds in the Federated Fund Complex; Vice Chairman,
VICE PRESIDENT Federated Investors, Inc.; Chairman, Federated Securities Corp.
Began serving: November 1998
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.
Robert J. Ostrowski Principal Occupations: Robert J. Ostrowski joined Federated
Birth Date: April 26, 1963 in 1987 as an Investment Analyst and became a Portfolio
CHIEF INVESTMENT OFFICER Manager in 1990. He was named Chief Investment Officer of
Began serving: May 2004 taxable fixed income products in 2004 and also serves as a
Senior Portfolio Manager. He has been a Senior Vice President
of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered
Financial Analyst. He received his M.S. in Industrial
Administration from Carnegie Mellon University.
---------------------------------------------------------------

Mark E. Durbiano Mark E. Durbiano has been the Fund's Portfolio Manager since
Birth Date: September 21, 1959 its inception. He is Vice President of the Trust. Mr.
VICE PRESIDENT Durbiano joined Federated in 1982 and has been a Senior
Began serving: November 2002 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.
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Susan R. Hill Susan R. Hill is Vice President of the Trust. Ms. Hill joined
Birth Date: June 20, 1963 Federated in 1990 and has been a Senior Portfolio Manager
VICE PRESIDENT since 2003 and a Senior Vice President of the Fund's Adviser
Began serving: November 2002 since 2005. Ms. Hill was a Portfolio Manager from 1994 until
2003, and served as Vice President of the Fund's Adviser from
1997 until 2004 and an Assistant Vice President of the Fund's
Adviser from 1994 until 1997. Ms. Hill is a Chartered
Financial Analyst and received an M.S. in Industrial
Administration from Carnegie Mellon University.

-------------------------------------------------------------------------
** Officers do not receive any compensation from the Fund.

COMMITTEES OF THE BOARD

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

Audit Thomas G. Bigley The purposes of the Audit Committee are to Nine
John T. Conroy, Jr. oversee the accounting and financial
Nicholas P. reporting process of the Fund, the Fund`s
Constantakis internal control over financial reporting,
Charles F. and the quality, integrity and independent
Mansfield, Jr. audit of the Fund`s financial statements.
The Committee also oversees or assists the
Board with the oversight of compliance with
legal requirements relating to those matters,
approves the engagement and reviews the
qualifications, independence and performance
of the Fund`s independent registered public
accounting firm, acts as a liaison between
the independent registered public accounting
firm and the Board and reviews the Fund`s
internal audit function.

Nominating Thomas G. Bigley The Nominating Committee, whose members One
John T. Conroy, Jr. consist of all Independent Trustees, selects
Nicholas P. and nominates persons for election to the
Constantakis Fund`s Board when vacancies occur. The
John F. Cunningham Committee will consider candidates
Peter E. Madden recommended by shareholders, Independent
Charles F. Trustees, officers or employees of any of the
Mansfield, Jr. Fund`s agents or service providers and
John E. Murray, Jr. counsel to the Fund. Any shareholder who
Marjorie P. Smuts desires to have an individual considered for
John S. Walsh nomination by the Committee must submit a
recommendation in writing to the Secretary of
the Fund, at the Fund's address appearing on
the back cover of this Statement of
Additional Information. The recommendation
should include the name and address of both
the shareholder and the candidate and
detailed information concerning the
candidate's qualifications and experience. In
identifying and evaluating candidates for
consideration, the Committee shall consider
such factors as it deems appropriate. Those
factors will ordinarily include: integrity,
intelligence, collegiality, judgment,
diversity, skill, business and other
experience, qualification as an "Independent
Trustee," the existence of material
relationships which may create the appearance
of a lack of independence, financial or
accounting knowledge and experience, and
dedication and willingness to devote the time
and attention necessary to fulfill Board
responsibilities.

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

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF
INVESTMENT COMPANIES AS OF DECEMBER 31, 2004

Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated
Board Member Name in Fund Family of
Investment
Companies
John F. Donahue Over $100,000 Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. None Over $100,000

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

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

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

The Adviser is a wholly owned subsidiary of Federated.

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

<R>

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

Other Accounts Managed by Mark Durbiano Total Number of Other Accounts Managed /
Total Assets*

Registered Investment Companies 9 funds / $ 3,444.95 million

Other Pooled Investment Vehicles 4 portfolios / $ 343.23 million

Other Accounts 4 accounts / $ 121.56 million

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

Dollar value range of shares owned in the Fund: $100,001-$500,000.

Mark Durbiano is paid a fixed base salary and a variable annual
incentive. Base salary is determined within a market competitive
position-specific salary range, based on the portfolio manager's
experience and performance. The annual incentive amount is determined
based on multiple performance criteria using a Balanced Scorecard
methodology, and may be paid entirely in cash, or in a combination of
cash and restricted stock of Federated Investors, Inc. (Federated).
There are Four weighted performance categories in the Balanced
Scorecard. Investment Product Performance (IPP) is the predominant
factor. Of lesser importance are: Leadership/Teamwork/Communication,
Client Satisfaction and Service, and Financial Success. The total
Balanced Scorecard "score" is applied against an annual incentive
opportunity that is competitive in the market for this portfolio
manager role to determine the annual incentive payment.

IPP is measured on a rolling 1, 3, and 5 calendar year pre-tax total
return basis vs. the Fund's benchmark (i.e. Lehman Brothers U.S.
Corporate High Yield 2% Issuer Constrained Index), and on a rolling 3
and 5 calendar year pre-tax total return basis vs. a designated peer
group of comparable funds (e.g., a subset of funds in the same category
as established by Lipper). These performance periods are adjusted if
the portfolio manager has been managing the fund for less than five
years; funds with less than one year of performance history under the
portfolio manager may be excluded. As noted above, Mr. Durbiano is
also the portfolio manager for other accounts in addition to the Fund.
Such other accounts may have different benchmarks. The performance of
certain of these accounts is excluded when calculating IPP. Investment
performance is calculated with an equal weighting of each included
account managed by the portfolio manager. In addition, Mr. Durbiano
serves on one or more Investment Teams that establish guidelines on
various performance drivers (e.g., currency, duration, sector,
volatility, and/or yield curve) for Taxable Fixed Income funds. A
portion of the IPP score is based on Federated's senior management's
assessment of team contributions.

Leadership/Teamwork/Communication is assessed by the Chief Investment
Officer in charge of the portfolio manager's group, with input from the
portfolio manager's co-workers.

Client Satisfaction and Service is assessed by Federated's senior
management considering the quality, amount, and effectiveness of client
support activities, with input from sales management.

Financial success is assessed to tie the portfolio manager's bonus, in
part, to Federated's overall financial health. In making this
assessment, Federated's senior management considers the following
factors: growth of the portfolio manager's funds (assets under
management and revenues), net fund flows relative to industry trends
for the product category, supporting the appropriate number of funds to
improve efficiency and enhance strong fund performance, growth in
assets under management and revenues attributable to the portfolio
manager's Department, and Departmental expense management. Although a
number of these factors are quantitative in nature, the overall
assessment for this category is based on management's judgment. The
financial success score is lowered if Federated's overall financial
targets are not achieved.

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

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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.

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

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

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

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

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

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

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

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

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

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

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

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

Proxy Voting Procedures
The Adviser has established a Proxy Voting Committee (Proxy Committee),
to exercise all voting discretion granted to the Adviser by the Board
in accordance with the proxy voting policies. The Adviser has hired
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.

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Proxy Voting Report
A report on "Form N-PX" of how the Fund voted any proxies during the
most recent 12-month period ended June 30 is available through
Federated's website. Go to FederatedInvestors.com; select "Products;"
select the Fund; then use the link to "Prospectuses and Regulatory
Reports" to access the link to Form N-PX. Form N-PX filings are also
available at the SEC's website at www.sec.gov.

</R>

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

To access this information from the "Products" section of the website,
click on "Portfolio Holdings" and select the appropriate link opposite
the name of the Fund, or select the name of the Fund from the menus on
the "Products" section, and from the Fund's page click on the
"Portfolio Holdings" or "Composition" link. A user is required to
register on the website the first time the user accesses this
information.

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

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

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

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

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BROKERAGE TRANSACTIONS AND INVESTMENT ALLOCATION
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. The Adviser will generally use those who
are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The
Adviser may select brokers and dealers based on whether they also offer
research services (as described below). The Adviser may also direct
certain portfolio trades to a broker that, in turn, pays a portion of
the Fund's operating expenses. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to
review by the Fund's Board.

Investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser. Except as noted below, when the
Fund and one or more of those accounts invests in, or disposes of, the
same security, available investments or opportunities for sales will be
allocated among the Fund and the account(s) in a manner believed by the
Adviser to be equitable. While the coordination and ability to
participate in volume transactions may benefit the Fund, it is possible
that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund. Investments
for Federated Kaufmann Fund and other accounts managed by that fund's
portfolio managers in initial public offerings ("IPO") are made
independently from any other accounts, and much of their non-IPO
trading may also be conducted independently from other accounts.

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

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

Average Aggregate Daily
Maximum Administrative Fee Net Assets of the Federated Funds
0.150 of 1% on the first $5 billion
0.125 of 1% on the next $5 billion
0.100 of 1% on the next $10 billion
0.075 of 1% on assets over $20 billion

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

The administrative fee received during any fiscal year shall be at
least $150,000 per portfolio. FAS may voluntarily waive a portion of
its fee and may reimburse the Fund for expenses.

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

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

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

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

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FEES PAID BY THE FUND FOR SERVICES

For the Year Ended October 31
----------------------------------------------------- 2004 2003
2005
Advisory Fee Earned $113,495 $163,320 $118,027
Advisory Fee Reduction $113,495 $163,320 $118,027
Advisory Fee Reimbursement $0 $48 $90
Brokerage Commissions $0 $0 $0
Administrative Fee $125,284 $125,407 $70,833

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

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HOW DOES THE FUND MEASURE PERFORMANCE?

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

The performance of Shares depends upon such variables as: portfolio
quality; average portfolio maturity; type and value of portfolio
securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.

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

AVERAGE ANNUAL TOTAL RETURNS AND YIELD
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Total returns are given for the one-year and Start of Performance
periods ended October 31, 2005.

Yield is given for the 30-day period ended October 31, 2005.

Start of
Performance on
30-Day Period 1 Year November 1, 2002
Total Return
Before Taxes N/A 3.69% 13.73%
After Taxes on Distributions N/A (0.59)% 9.97%
After Taxes on Distributions N/A
and Sale of Shares ------------- 9.73%
3.34%
Yield 7.68% 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 financial intermediaries charge fees in connection with
services provided in conjunction with an investment in Shares, the
Share performance is lower for shareholders paying those fees.

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:

Credit Suisse First Boston High Yield Index
Credit Suisse First Boston High Yield Index serves as a benchmark to
evaluate the performance of low quality bonds. Low quality is defined
as those bonds in the range from BBB to CCC and defaults.

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Lehman Brothers High Yield 2% Issuer Constrained Index

The Lehman Brothers High Yield 2% Issuer Constrained Index is the 2%
Issuer Cap of the Lehman Brothers U.S. Corporate High Yield Index
(LCHYI). The LCHYI is an index that covers the universe of fixed rate,
non-investment grade debt. Pay-in-kind (PIK) bonds, eurobonds, and debt
issues from countries designated as emerging markets (e.g., Argentina,
Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds
(SEC registered) of issuers in non-EMG countries are included.
Original issue zeroes, step up coupon structures, and 144-As are also
included.

</R>

Lehman Brothers Aggregate Bond Index
Lehman Brothers Aggregate Bond Index is an unmanaged index composed of
securities from the Lehman Brothers Government/ Corporate Bond Index,
Mortgage Backed Securities Index and the Asset Backed Securities Index.
Total return comprises price appreciation/depreciation and income as a
percentage of the original investment. Indices are rebalanced monthly
by market capitalization.

Lehman Brothers Government/Corporate (Total) Index
Lehman Brothers Government/Corporate (Total) Index is comprised of
approximately 5,000 issues, which include: nonconvertible bonds
publicly issued by the U.S. government or its agencies; 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.

Lehman Brothers Government/Corporate (Long-Term) Index
Lehman Brothers Government/Corporate (Long-Term) Index is composed of
the same types of issues as defined above. However, the average
maturity of the bonds included on this index approximates 22 years.

Lehman Brothers High Yield Composite Bond Index
Lehman Brothers High Yield Composite Bond Index is an unmanaged index
that includes all fixed income securities having a maximum quality
rating of Ba1, a minimum amount outstanding of $150m, and at least one
year to maturity.

Lehman Brothers Single B Index
Lehman Brothers Single B Index is a proprietary unmanaged index of
Single B rated securities.

Merrill Lynch 7-10 Year Treasury Index
Merrill Lynch 7-10 Year Treasury Index is an unmanaged index tracking
U.S. government securities with maturities between 7 and 9.99 years.
Merrill Lynch, Pierce, Fenner & Smith, Inc. produces the index.

Merrill Lynch 10-15 Year Treasury Index
Merrill Lynch 10-15 Year Treasury Index is an unmanaged index tracking
U.S. government securities with maturities between 10 and 14.99 years.
Merrill Lynch, Pierce, Fenner & Smith, Inc. produces the index.

Merrill Lynch High Yield Master Index
Merrill Lynch High Yield Master Index is an unmanaged index comprised
of publicly placed, nonconvertible, coupon-bearing domestic debt.
Issues in the index are less than investment grade as rated by Standard
& Poor's or Moody's Investors Service, and must not be in default.
Issues have a term to maturity of at least one year. Merrill Lynch,
Pierce, Fenner & Smith, Inc. produces the index.

Lipper, Inc.
Lipper, Inc. ranks funds in various fund categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in NAV over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the "high
current yield funds" category in advertising and sales literature.

Salomon Brothers AAA-AA Corporates
Salomon Brothers AAA-AA Corporates calculates total returns of
approximately 775 issues, which include long-term, high-grade domestic
corporate taxable bonds, rated AAA-AA, with maturities of 12 years or
more; it also includes companies in industry, public utilities and
finance.

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.?

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

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

FEDERATED FUNDS OVERVIEW

Equities
As of December 31, 2004, Federated managed 34 equity funds totaling
approximately $26.0 billion in assets across growth, value, equity
income, international, index and sector allocation styles.

Taxable Fixed Income
As of December 31, 2004, Federated managed 31 taxable bond funds
including: high-yield, multi-sector, mortgage-backed, U.S. government,
U.S. corporate and international, with assets approximating $17.7
billion.

Tax Free Fixed Income
As of December 31, 2004, Federated managed 15 municipal bond funds with
approximately $3.4 billion in assets and 22 municipal money market
funds with approximately $24.4 billion in total assets.

Money Market Funds
As of December 31, 2004, Federated managed $110.6 billion in assets
across 53 money market funds, including 19 government, 11 prime, 22
municipal and 1 euro-denominated with assets approximating $43.9
billion, $42.1 billion, $24.4 billion and $58.9 million.

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

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended October
31, 2005 are incorporated herein by reference to the Annual Report to
Shareholders of Federated Institutional High Yield Bond Fund dated
October 31, 2005.

</R>

INVESTMENT RATINGS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</R>

ADDRESSES

FEDERATED INSTITUTIONAL HIGH YIELD BOND FUND

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

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

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

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

Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

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

Custodian
State Street Bank and Trust Company

Securities Lending Agent
State Street Bank and Trust Company

Independent Registered Public Accounting Firm
Ernst & Young LLP

Legal Counsel
Reed Smith LLP
Dickstein Shapiro Morin & Oshinsky, LLP

Service Providers
Bloomberg
Factset
Institutional Shareholder Services, Inc.
Wilshire Associates, Inc.

Security Pricing Services
FT Interactive Data
Reuters
Ratings Agencies

Standard & Poor's

Performance Reporting/Publications
Fidelity Strategic Advisors
Lipper
Morningstar
NASDAQ
Value Line
Vickers
Wiesenberger/Thomson Financial
<R>
Other
Investment Company Institute
</R>

PART C. OTHER INFORMATION.

Item 23. Exhibits:
--------

(a) (i) Conformed copy of Amended and
Restated Declaration of Trust of
the Registrant; (2)
(ii) Conformed copy of Amendment No. 3
to the Declaration of Trust of
the Registrant; (10)
(iii) Conformed copy of Amendment No. 4
to the Declaration of Trust of
the Registrant; (7)
(iv) Conformed copy of Amendment No. 5
to the Declaration of Trust of
the Registrant; (8)
(v) Conformed copy of Amendment No. 6
to the Declaration of Trust of
the Registrant; (10)
(vi) Conformed copy of Amendment No. 7 to the Declaration of Trust of
the Registrant; (11)
(vii) Conformed copy of Amendment No. 8 to the Declaration of Trust of
the Registrant; (12)
(viii) Conformed copy of Amendment No. 9 to the Declaration of
Trust of the Registrant; (17)
(b) (i) Copy of By-Laws of the
Registrant; (2)
(ii) Copy of Amendment Nos. 1-4 of the
By-Laws of the Registrant; (7)
(iii) Copy of Amendment No. 5 to the By-Laws of the Registrant; (11)
(iv) Copy of Amendment No. 6 to the By-Laws of the Registrant; (13)
(v) Copy of Amendment No. 7 to the By-Laws of the Registrant; (15)
(vi) Copy of Amendment 8 to the By-Laws of the Registrant; (+)
(c) Copy of Specimen Certificate for
Shares of Beneficial Interest of
the Registrant; (2)
(d) (i) Conformed copy of Investment
Advisory Contract of the
Registrant (including Exhibit A)
of the Registrant; (3)
(ii) Conformed copy of Amendment to
the Investment Advisory Contract
of the Registrant; (9)
(iii) Conformed copy of Exhibit B to
the Investment Advisory Contract
of the Registrant; (10)
(iv) Conformed copy of Exhibit C to
the Investment Advisory Contract
of the Registrant; (16)
(e) (i) Conformed copy of Distributor's
Contract of the Registrant
(including Exhibit A) of the
Registrant; (3)
(ii) Conformed copy of Exhibit B to
the Distributor's Contract of the
Registrant: (6)
(iii) Conformed copy of Amendment to the
Distributor's Contract of the
Registrant; (9)
(iv) 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).
(vii) Conformed copy of Exhibit C and Exhibit D to the Distributor's
Contract of the Registrant; (12)
(viii) Amendment to the Distributor's Contact of the Registrant;
(13)
(ix) Conformed copy of Exhibits E and F to the Distributor's Contract
of the Registrant (16)
(f) Not applicable;
(g) (i) Conformed copy of Custodian
Contract of the Registrant; (3)
(ii) Conformed copy of Custodian Fee
Schedule; (5)
(iii) Conformed copy of Amendment to
the Custodian Contract of the
Registrant; (10)
(h) (i) Conformed copy of Amended and
Restated Agreement for Fund
Accounting Services,
Administrative Services, Transfer
Agency Services, and Custody
Services Procurement; (7)
(ii) Conformed copy of Amendment to
the Agreement for Fund Accounting
Services, Administrative
Services, Transfer Agency
Services, and Custody Services
Procurement; (9)
(iii) The responses described in Item
23(e)(iv) are hereby incorporated
by reference.
(iv) The Registrant hereby
incorporates by reference the
conformed copy of the Agreement
for Administrative Services, with
Exhibit 1 and Amendments 1 and 2
attached, between Federated
Administrative Services and the
Registrant from Item 23(h)(iv) of
the Federated Total Return
Series, Inc. Registration
Statement on Form N-
1A, filed with the Commission on
November 29, 2004.
(File Nos. 33-50773 and 811-7115);

(v) The Registrant hereby
incorporates the conformed copy
of the Second Amended and
Restated Services Agreement, with
attached Schedule 1 revised
6/30/04, from Item (h) (vii) of
the Cash Trust Series, Inc.
Registration Statement on Form
N-1A, filed with the Commission
on July 29, 2004. (Files Nos.
33-29838 and 811-5843);
(vi) The Registrant hereby
incorporates the conformed copy
of the Financial Administration
and Accounting Services
Agreement, with attached Exhibit
A revised 6/30/04, from Item
(h)(viii) of the Cash Trust
Series, Inc. Registration
Statement on Form N-1A filed with
the Commission on July 29, 2004.
(File Nos. 33-29838 and 811-5843)
(vii) The Registrant hereby incorporates
the conformed copy of Transfer
Agency and Service Agreement
between the Federated Funds and
State Street Bank and Trust Company
from Item 23(h)(ix)of the Federated
Total Return Government Bond Fund
Registration Statement on Form
N-1A, filed with the Commission on
April 28, 2005. (File Nos. 33-60411
and 811-07309)
(viii) The Registrant hereby
incorporates by reference the
conformed copy of Amendment No. 3
to the Agreement for
Administrative Services between
Federated Administrative Services
Company and the Registrant dated
June 1, 2005, from Item 23 (h)
(ii) of the Cash Trust Series,
Inc. Registration Statement on
Form N-1A, filed with the
Commission on July 27, 2005.
(File Nos. 33-29838 and 811-5843)
(ix) Copy of Schedule 1, revised
9/1/05, to the Second Amended and
Restated Services Agreement; (17)
(x) Copy of Exhibit A, revised
9/1/05, to the Financial
Administration and Accounting
Services Agreement; (17)
(xi) Copy of Exhibit A, revised
6/1/05, to the Transfer Agency
Agreement between the Federated
Funds and State Street Bank and
Trust Company; (17)
(i) Conformed copy of Opinion and
Consent of Counsel as to legality
of shares being registered; (2)
(j) Conformed copy of Consent of
Independent Registered Public
Accounting Firm; (+)
(k) Not applicable;

(l) Conformed copy of Initial Capital
Understanding; (2)
(m) (i) Conformed copy of Distribution
Plan (including Exhibits A and B)
of the Registrant; (14)
(ii) The responses described in Item 23(e)(iv) are hereby incorporated
by reference.
(iii) Conformed copy of Exhibit C to the Distribution Plan of the
Registrant; (17)
(n) Copy of the Multiple Class Plan
and attached Exhibits of the
Registrant; (17)
(o) (i) Conformed copy of Power of
Attorney of the Registrant; (8)
(ii) Conformed copy of Power of
Attorney of Trustees of the
Registrant;(9)
(iii) Conformed copy of the Power of
Attorney of the Chief Investment
of Officer the Registrant; (9)
(p) The Registrant hereby
incorporates the copy of the Code
of Ethics for Access Persons from
Item 23(p) of the Money Market
Obligations Trust Registration
Statement on Form N-1A filed with
the Commission on February 26,
2004. (File Nos. 33-31602 and
811-5950).
(i) The Registrant hereby
incorporates the copy of the
Federated Investors, Inc. Code of
Ethics for Access Persons,
effective 1/1/2005, from Item
23(p) of the Money Market
Obligations Trust Registration
Statement on Form N-1A filed with
the Commission on February 25,
2005. (File Nos. 33-31602 and
811-5950).

+ Exhibits are filed electronically.
------------------------------------------------------------------

2. Response is incorporated by reference to Registrant's
Registration Statement on Form N-1A filed August 26, 1994.
(File Nos. 33-54445 and 811-7193).
3. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 1 on Form N-1A filed
September 22, 1995. (File Nos. 33-54445 and 811-7193).
5. Response is incorporated by reference to Registrant's
Post-Effective Amendment No.5 on Form N-1A filed February
27, 1998. (File Nos. 33-5444 and 811-7193).
6. Response is incorporated by reference to Registrant's
Post-Effective Amendment No.6 on Form N-1A filed March 30,
1998. (File Nos. 33-5444 and 811-7193).
7. Response is incorporated by reference to Registrant's
Post-Effective Amendment No.7 on Form N-1A filed September
25, 1998. (File Nos. 33-54445 and 811-7193).
8. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 9 on Form N-1A filed
September 28, 1999. (File Nos. 33-54445 and 811-7193).
9. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 11 on Form N-1A filed
September 14, 2001. (File Nos. 33-54445 and 811-7193).
10. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 13 on Form N-1A filed
September 27, 2002. (File Nos. 33-54445 and 811-7193).
11. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 16 on Form N-1A filed January
2, 2003. (File Nos. 33-54445 and 811-7193).
12. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 17 on Form N-1A filed
September 30, 2003. (File Nos. 33-54445 and 811-7193).
13. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 18 on Form N-1A filed October
31, 2003. (File Nos. 33-54445 and 811-7193).
14. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 20 on Form N-1A filed
September 29, 2004. (File Nos. 33-54445 and 811-7193).
15. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 22 on Form N-1A filed
December 29, 2004. (File Nos. 33-54445 and 811-7193).
16. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 23 on Form N-1A filed June
15, 2005. (File Nos. 33-54445 and 811-7193).
17. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 24 on Form N-1A filed
September 28, 2005. (File Nos. 33-54445 and 811-7193).

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

None

Item 25. Indemnification:(2)
---------------

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

The remaining Officers of the investment adviser are:

President/ Chief Executive Officer
and Trustee: Keith M. Schappert
Vice Chairman: William D. Dawson, III
Senior Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Donald T. Ellenberger

Susan R. Hill
Robert M. Kowit
Jeffrey A. Kozemchak
Mary Jo Ochson
Robert J. Ostrowski
Richard Tito

Vice Presidents: Todd A. Abraham
Randall S. Bauer
Nancy J.Belz
G. Andrew Bonnewell
Lee R. Cunningham, II
B. Anthony Delserone,Jr.
Eamonn G. Folan
Richard J. Gallo
John T. Gentry
Patricia L. Heagy
William R. Jamison
Nathan H. Kehm
John C. Kerber
J. Andrew Kirschler
Marian R. Marinack
Kevin McCloskey
Natalie F. Metz
Thomas J. Mitchell
Joseph M. Natoli
Mary Kay Pavuk
Jeffrey A. Petro
Ihab L. Salib
Roberto Sanchez-Dahl, Sr.
John Sidawi
Michael W. Sirianni, Jr.
Christopher Smith
Timothy G. Trebilcock
Paolo H. Valle
Stephen J. Wagner
Paige M. Wilhelm
George B. Wright
Assistant Vice Presidents: Lori Andrews
Hanan Callas
Jerome Conner
James R. Crea, Jr.
Karol M. Crummie
Richard Cumberledge
Kathyrn P. Glass
James Grant
Tracey L. Lusk
Ann Manley
Karl Mocharko
Gene Neavin
Bob Nolte
Liam O'Connell
Rae Ann Rice
Brian Ruffner
Kyle D. Stewart
Mary Ellen Tesla
Nichlas S. Tripodes
Mark Weiss

Secretary: G. Andrew Bonnewell
Treasurer: Thomas R. Donahue
Assistant Treasurer: Denis McAuley, III

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

Item 27. Principal Underwriters:
-----------------------

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

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

(b)

(1) (2) (3)
Positions and Offices Positions and Offices
With Distributor Name With Registrant
--------------------- ----------------- ----------------------

Chairman: Richard B. Fisher Vice President

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

Vice President, Assistant
Secretary and Director: Peter J. Germain

Treasurer and Director: Denis McAuley III

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
Harry J. Kennedy
Anne H. Kruczek
Amy Michaliszyn
Keith Nixon
Solon A. Person, IV
Colin B. Starks
Thomas E. Territ
Robert F. Tousignant
Paul Uhlman

Vice Presidents: Irving Anderson
Dan Berry
John B. Bohnet
Edward R. Bozek
Jane E. Broeren-Lambesis
Bryan Burke
Craig Burness
David J. Callahan
Mark Carroll
Dan Casey
Scott Charlton
Steven R. Cohen
Mary J. Combs
James Conely
Kevin J. Crenny
G. Michael Cullen
Beth C. Dell
Ron Dorman
Donald C. Edwards
Lee England

Timothy Franklin
Jamie Getz
Scott Gundersen
Dayna C. Haferkamp
Raymond J. Hanley
Vincent L. Harper, Jr.
Bruce E. Hastings
Christopher L. Johnston
Stephen Kittel
Michael W. Koenig
Ed Koontz
Theodore J. Kravits, Jr.
Christopher A. Layton
Michael H. Liss
Michael R. Manning
Michael Marcin
Martin J. McCaffrey
Mary A. McCaffrey
Richard C. Mihm
Chris Milliken
Vincent T. Morrow
Doris T. Muller
Alec H. Neilly
Rebecca Nelson
James E. Ostrowski
Mark Patsy
Thomas A. Peter III
Robert F. Phillips
Chris Randal
Josh Rasmussen
Richard A. Recker
Christopher Renwick
Diane M. Robinson
Brian S. Ronayne
Timothy A. Rosewicz
Thomas S. Schinabeck
Edward J. Segura
Peter Siconolfi
Edward L. Smith
John A. Staley
Jeffrey A. Stewart
Mark Strubel
Kevin Stutz
William C. Tustin
Michael Vahl
G. Walter Whalen
Stephen White
Jeff Wick
Patrick M. Wiethorn
Lewis Williams
Edward J. Wojnarowski
Michael P. Wolff

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

Secretary: C. Todd Gibson

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

Item 28. Location of Accounts and Records:
--------------------------------

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

Federated Institutional Reed Smith LLP
Trust ("Registrant") Investment Management Group (IMG)
Federated Investors Tower
12th Floor
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent
for Service at the above address)

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

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

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

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

Item 29. Management Services: Not applicable.
-------------------

Item 30. Undertakings:
------------

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

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant,
FEDERATED INSTITUTIONAL TRUST, 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 of December,
2005.

FEDERATED INSTITUTIONAL TRUST

BY: /s/ Andrew Cross
Andrew Cross, Assistant Secretary
December 29, 2005

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 Cross Attorney In December 29, 2005
Andrew Cross Fact For the
ASSISTANT SECRETARY Persons Listed
Below

NAME TITLE
John F. Donahue* Chairman and Trustee

J. Christopher Donahue* President and Trustee
(Principal Executive
Officer)
Richard J. Thomas* Treasurer (Principal
Financial Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
Nicholas P. Constantakis* Trustee
John F. Cunningham* Trustee
Lawrence D. Ellis, M.D.* Trustee
Peter E. Madden* Trustee
Charles F. Mansfield, Jr.* Trustee
John E. Murray, Jr., J.D., S.J.D.* Trustee
Marjorie P. Smuts* Trustee
John S. Walsh* Trustee

* By Power of Attorney