FEDERATED INVESTMENT TRUST, 485BPOS, 1996-09-26

FEDERATED INVESTMENT TRUST
485BPOS, 1996-09-26

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1933 Act File No. 33-00053
1940 Act File No. 811-07477

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Post-Effective Amendment No. 2 .................. X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 3 ................................. X

FEDERATED INVESTMENT TRUST

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

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

John W. McGonigle, Esquire
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
x on September 30, 1996 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.

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:

X filed the Notice required by that Rule on July 16, 1996; or
intends to file the Notice required by that Rule on or about
; or
------------
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.

Copies To:

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

Federated Investment Portfolios has also executed this Registration
Statement.

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of Federated Investment
Trust, which consists of one portfolio, Federated Bond Index Fund which
consists of (a) Institutional Shares and (b) Institutional Service Shares),
is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page...............(a,b) Cover Page.
Item 2. Synopsis.................(a) Summary of Fund Expenses -
Institutional Shares; (b) Summary of
Fund Expenses - Institutional Service
Shares.
Item 3. Condensed Financial
Information..............(a,b) Performance Information.
Item 4. General Description of
Registrant...............(a,b) General Information; Investment
Information; Investment Objective;
Investment Policies; Investment
Limitations; Additional Investment
Strategies and Techniques: Risk
Factors; Special Information Concerning
Hub and Spoke; Other Classes of Shares;
Miscellaneous.

Item 5. Management of the Fund...(a,b) Information About the Trust and
Federated Portfolios; Management of the
Trust and Federated Portfolios; (a)
Distribution of Institutional Shares;
(b) Distribution of Institutional
Service Shares; (a, b) Administration of
the Trust; Service Providers of the
Portfolio; Effect of Banking Laws.
Item 6. Capital Stock and Other
Securities...............(a,b) Dividends; Capital Gains;
Shareholder Information; Voting Rights;
Tax Information.
Item 7. Purchase of Securities Being
Offered..................(a,b) Net Asset Value; (a) Investing in
Institutional Shares; (b) Investing in
Institutional Service Shares; (a,b)
Share Purchases; Minimum Investment
Required; What Shares Cost; Certificates
and Confirmations; Retirement Plans.

Item 8. Redemption or Repurchase.(a) Redeeming Institutional Shares; (b)
Redeeming Institutional Service Shares;
(a,b) Telephone Redemption; Written
Requests; Accounts With Low Balances.
Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page...............(a, b) Cover Page.
Item 11. Table of Contents........(a, b) Table of Contents.
Item 12. General Information and
History..................(a, b) Description of Federated
Portfolios; About Federated Investors.
Item 13. Investment Objectives and
Policies.................(a, b) Investment Objective and
Policies.

Item 14. Management of the Trust..(a, b) Management of the Trust and
Federated Portfolios; Trustees'
Compensation.
Item 15. Control Persons and Principal
Holders of Securities....(a, b) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(a, b) Investment Advisory and Sub-
Advisory Services; Other Services.

Item 17. Brokerage Allocation.....(a,b) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............(a,b) Massachusetts Partnership Law.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered..................(a, b) Purchasing Shares; Determining
Net Asset Value; Redeeming Shares;
Redemption in Kind.
Item 20. Tax Status...............(a, b) Tax Status.

Item 21. Underwriters.............Not applicable.
Item 22. Calculations of Performance
Data.....................(a, b) Total Return; Yield; Performance
Comparisons.

Item 23. Financial Statements.....(a,b) Financial Statements for the
fiscal year ended May 31, 1996, are
incorporated herein by reference to the
Fund's Annual Report dated May 31, 1996.
(File Nos. 33-00053 and 811-07477).

FEDERATED BOND INDEX FUND
(A PORTFOLIO OF FEDERATED INVESTMENT TRUST)
INSTITUTIONAL SHARES
PROSPECTUS

The Institutional Shares of Federated Bond Index Fund (the "Fund") offered by
this prospectus represent interests in a diversified portfolio of securities
which is an investment portfolio of Federated Investment Trust (the "Trust"), an
open-end management investment company (a mutual fund). Institutional Shares are
sold at net asset value.

The investment objective of the Fund is to provide investment results that
correspond to the investment performance of the Lehman Brothers Aggregate Bond
Index, a broad market-weighted index which encompasses U.S. Treasury and agency
securities, corporate investment grade bonds, and mortgage-backed securities.

UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL
OF ITS INVESTABLE ASSETS ("ASSETS") IN BOND INDEX PORTFOLIO (THE "PORTFOLIO"), A
DIVERSIFIED SERIES OF FEDERATED INVESTMENT PORTFOLIOS (THE "FEDERATED
PORTFOLIOS"), AN OPEN-END MANAGEMENT INVESTMENT COMPANY. THE PORTFOLIO HAS THE
SAME INVESTMENT OBJECTIVE AND POLICIES AS THE FUND. THEREFORE, THE FUND'S
INVESTMENT EXPERIENCE WILL CORRESPOND DIRECTLY WITH THAT OF THE PORTFOLIO. THE
FUND INVESTS IN THE PORTFOLIO THROUGH A TWO-TIER MASTER/FEEDER FUND STRUCTURE.
SEE "SPECIAL INFORMATION CONCERNING HUB AND SPOKE. "

Federated Research Corp. is the Portfolio's investment adviser. Federated
Research Corp. has delegated the daily management of the security holdings of
the Portfolio to United States Trust Company of New York ("U.S. Trust Company"),
acting as sub-adviser. U.S. Trust Company and Federated Research Corp. may
hereinafter be referred to collectively as the "Investment Managers." For more
information on the Investment Managers of the Fund, please refer to the
prospectus section herein entitled "Management of the Trust and Federated
Portfolios."

THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK (INCLUDING U.S. TRUST COMPANY), ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference.

The Fund has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated September 30, 1996, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-245-4270. To obtain other
information or make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
The Statement of Additional Information, material incorporated by reference into
this document, and other
information regarding the Trust is maintained electronically with the SEC at
Internet Web site
(http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated September 30, 1996

TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES--
INSTITUTIONAL SHARES 1
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------

GENERAL INFORMATION 3
- ------------------------------------------------------

INVESTMENT INFORMATION 3
- ------------------------------------------------------

Investment Objective 4
Investment Policies 4
Additional Investment Strategies
and Techniques; Risk Factors 7
Investment Limitations 13
Special Information Concerning Hub
and Spoke 14

INFORMATION ABOUT THE TRUST AND
FEDERATED PORTFOLIOS 15
- ------------------------------------------------------

Management of the Trust and Federated
Portfolios 15
Distribution of Institutional Shares 18
Administration of the Trust 19
Service Providers of the Portfolio 20

NET ASSET VALUE 20
- ------------------------------------------------------

INVESTING IN INSTITUTIONAL SHARES 20
- ------------------------------------------------------

Share Purchases 20
Minimum Investment Required 21
What Shares Cost 21
Certificates and Confirmations 22
Dividends 22
Capital Gains 22
Retirement Plans 22

REDEEMING INSTITUTIONAL SHARES 23
- ------------------------------------------------------

Telephone Redemption 23
Written Requests 23
Accounts With Low Balances 24

SHAREHOLDER INFORMATION 24
- ------------------------------------------------------

Voting Rights 24

EFFECT OF BANKING LAWS 25
- ------------------------------------------------------

TAX INFORMATION 25
- ------------------------------------------------------

PERFORMANCE INFORMATION 27
- ------------------------------------------------------

OTHER CLASSES OF SHARES 27
- ------------------------------------------------------

MISCELLANEOUS 27
- ------------------------------------------------------

ADDRESSES 29
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES

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

The following table provides (i) a summary of estimated expenses related to
purchases and sales of Fund Shares and the aggregate annual operating expenses
of Fund Shares and the Portfolio as a percentage of their average daily net
assets, and (ii) an example illustrating the dollar cost of such expenses on a
$1,000 investment in Fund Shares.
<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable).............................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).......................................... None
Exchange Fee................................................................................................ None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)........................................................................... 0.00%
12b-1 Fee................................................................................................... None
Total Other Expenses (after expense reimbursement by the Investment Managers and administrator)............. 0.29%
Shareholder Services Fee (after waiver) (2).................................................. 0.00%
Total Institutional Shares Operating Expenses (after waivers and reimbursements ) (3)............... 0.29%
</TABLE>

(1) The management fee has been reduced to reflect the anticipated voluntary
waiver of the management fee. While the Fund does not pay any fee directly
to an investment adviser, it bears indirectly, as an investor in the
Portfolio, any fees paid by the Portfolio to its investment adviser. The
Portfolio has entered into an investment advisory agreement with Federated
Research Corp. and agrees to pay an annual fee of up to 0.25% of the
Portfolio's average net assets. Federated Research Corp. can terminate this
voluntary waiver at any time at its sole discretion.

(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder service fee is 0.25%.

(3) The Total Institutional Shares Operating Expenses are estimated to be 2.47%
absent the anticipated voluntary waivers of the management fee and the
shareholder services fee and the anticipated voluntary reimbursement of
certain other operating expenses by the Investment Managers and
administrator.

Total Institutional Shares Operating Expenses include the Fund's pro rata share
of the aggregate annual operating expenses of the Portfolio, in which all of the
investable assets of the Fund are invested. The Trustees of the Trust considered
the aggregate per share expenses of the Fund, the Fund's pro rata shares of the
expenses for the Portfolio and the potential economies of scale the Fund could
achieve by investing its assets in the Portfolio. As a result, the Trustees
believe that the aggregate per share expenses of the Fund and the Fund's pro
rata share of the expenses for the Portfolio will be less than or approximately
equal to the expenses which the Fund would incur if it retained the services of
an investment adviser and the assets of the Fund were invested directly in the
type of securities held by the Portfolio. Federated Investors has agreed to
maintain total operating expenses (after waivers and reimbursements) of the
Portfolio at no greater than 0.20% of average net assets of the Portfolio for
the twelve month period following January 2, 1996.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND
"INFORMATION ABOUT THE TRUST AND FEDERATED PORTFOLIOS." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period.................................................................. $3 $9 $16 $37
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

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

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Ernst & Young, LLP, the Fund's
independent auditors. Their report, dated July 18, 1996, on the Fund's financial
statements for the period ended May 31, 1996, and on the following table for the
period presented, is included in the Fund's Annual Report, which is incorporated
herein by reference. This table should be read in conjunction with the Fund's
financial statements and notes thereto, contained in the Fund's Annual Report,
which may be obtained from the Fund.
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1996(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.25
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.12
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.29)
- ----------------------------------------------------------------------------------------------- ------
Total from investment operations (0.17)
- ----------------------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (0.12)
- ----------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $ 6.96
- ----------------------------------------------------------------------------------------------- ------
TOTAL RETURN (b) (2.32%)
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS*
- -----------------------------------------------------------------------------------------------
Expenses 0.09%
- -----------------------------------------------------------------------------------------------
Net investment income 7.01%
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 8.18%
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$7,409
- -----------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from February 22, 1996 (start of
performance) to May 31, 1996.

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

Further information about the Fund's performance is contained in the Annual
Report dated May 31, 1996, which can be obtained free of charge.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated October 3, 1995. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees of the Trust (the "Trustees") has established two classes of shares of
the Fund, known as Institutional Shares and Institutional Service Shares. This
prospectus relates only to Institutional Shares.

Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. Shares are also made available
to financial intermediaries, as well as public and private organizations. An
investment in the Fund serves as a convenient means of accumulating an interest
in a professionally managed, diversified portfolio of U.S. investment grade
fixed income securities that attempt to provide investment results that
correspond to the Lehman Brothers Aggregate Bond Index, a broad market-weighted
index which encompasses U.S. Treasury and agency securities, corporate
investment grade bonds and mortgage-backed securities, each with maturities
greater than one year. A minimum initial investment of $25,000 over a 90-day
period is required, unless the investment is in a retirement program, in which
case the minimum initial investment is $50. Subsequent investments must be in
amounts of at least $100, or $50 for retirement programs.

Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.

The Fund invests through the Portfolio, a series of Federated Portfolios, which
is a business trust organized under the laws of the Commonwealth of
Massachusetts. Federated Portfolios was established as a Massachusetts business
trust under a Declaration of Trust dated as of September 29, 1995.

INVESTMENT INFORMATION
- --------------------------------------------------------------------------------

Unless otherwise stated, all of the investment objectives, policies and
strategies discussed herein and in the Statement of Additional Information are
deemed "non-fundamental," i.e., the approval of the Fund's shareholders is not
required to change its investment objective or any of its investment policies
and strategies. Likewise, the approval of the Fund and other investors in the
Portfolio is not required to change the Portfolio's investment objective or any
of the Portfolio's investment policies and strategies. Any changes in the Fund's
or the Portfolio's investment objective, policies or strategies could result in
the Fund having investment objectives, policies and strategies different from
those applicable at the time of a shareholder's investment in the Fund.

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide investment results that
correspond to the investment performance of the Lehman Brothers Aggregate Bond
Index (the "Aggregate Bond Index"), a broad market-weighted index which
encompasses U.S. Treasury and agency securities, corporate investment grade
bonds, and mortgage-backed securities, each with maturities greater than one
year.

The Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio, which is a diversified open-end management investment
company that has the same investment objective, policies and limitations as the
Fund. The Portfolio seeks to achieve its investment objective by replicating the
yield and total return of the Aggregate Bond Index through a statistically
selected sample of debt instruments. The Aggregate Bond Index is a broad market-
weighted index of U.S. investment grade fixed income securities.

While there is no assurance that the Fund (or the Portfolio) will achieve its
investment objective, the Fund (and the Portfolio) endeavor to do so by
following the investment policies described in this prospectus. Shareholder
approval is not required to change the Fund's investment objective. Likewise,
the approval of the investors in the Portfolio is not required to change the
Portfolio's investment objective. Shareholders will be given 30 days' prior
notice before any material change becomes effective. If there is a change in the
Fund's (or the Portfolio's) investment objective, such change could result in
the Fund (or the Portfolio) having an investment objective that is different
than the objective a shareholder considered applicable at the time of
investment. If the Fund's (or the Portfolio's) investment objective is changed,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then-current financial position and needs.
Since the investment policies and limitations of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investment policies and limitations of the Portfolio. Further information about
the investment policies and limitations of the Portfolio, including a list of
those investment limitations that are fundamental (i.e., that cannot be changed
without shareholder approval) appears in the Statement of Additional
Information.

INVESTMENT POLICIES

Unless indicated otherwise, the investment policies discussed below may be
changed without the approval of the Fund's shareholders (or the investors of the
Portfolio). Shareholders will be given 30 days' prior notice before any material
change becomes effective.

INVESTMENT PHILOSOPHY AND STRATEGIES. U.S. Trust Company, the sub-adviser for
the Portfolio, is a state-chartered bank and trust company which offers a
variety of specialized fiduciary and financial services to high net worth
individuals, institutions and corporations. As one of the largest institutions
of its type, U.S. Trust Company prides itself in offering an attentive and high
level of service to each of its clients.

utilizing a passive or indexing investment approach, will attempt to
duplicate the investment performance of the Aggregate Bond Index.

The Portfolio seeks to duplicate the investment performance of the
Aggregate Bond Index through statistical sampling procedures, that is, the
Portfolio will invest in a selected group-- not the entire universe--of
securities in the Aggregate Bond Index. This group of securities, when
taken together, is expected to perform similarly to the Aggregate Bond
Index as a whole. The sampling technique is expected to enable the
Portfolio to track the price movements and performance of the Aggregate
Bond Index, while minimizing brokerage, custodial and accounting costs.

The Trust expects that there will be a close correlation between the
Portfolio's performance and that of the Aggregate Bond Index in both rising
and falling markets. The Portfolio will attempt to maximize the correlation
between its performance and that of the Aggregate Bond Index. The
Investment Managers seek a correlation of 0.95 or better. In the event that
a correlation of 0.95 or better is not achieved, the Trustees of Federated
Portfolios will review methods for increasing such correlation with the
Investment Managers, such as through adjustments in securities holdings of
the Portfolio. A correlation of 1.0 would indicate a perfect correlation,
which would be achieved when the Portfolio's net asset value, including the
value of its dividend and capital gains distributions, increases or
decreases in exact proportion to changes in the Aggregate Bond Index. The
Portfolio's Investment Managers monitor the correlation between the
performance of the Portfolio and the Aggregate Bond Index on a regular
basis. Factors such as the size of the Portfolio's securities holdings,
transaction costs, management fees and expenses, brokerage commissions and
fees, the extent and timing of cash flows into and out of the Portfolio,
and changes in the securities markets and the Index itself, are expected to
account for any differences between the Portfolio's performance and that of
the Aggregate Bond Index.

The Portfolio invests at least 80% of its assets in a portfolio of
securities consisting of a representative selection of debt instruments
included in the Aggregate Bond Index. The Portfolio intends to remain fully
invested, to the extent practicable, in a pool of securities that match the
yield and total return of the Aggregate Bond Index.
LEHMAN BROTHERS AGGREGATE BOND INDEX. The Aggregate Bond Index is a broad
market-weighted index which encompasses three major classes of United States
investment grade fixed income securities with maturities greater than one year:
U.S. Treasury and agency securities, corporate bonds, and mortgage-backed
securities. The Index measures the total investment return (capital change plus
income) provided by a universe of fixed income securities, weighted by the
market value outstanding of each security. The securities included in the Index
generally meet the following criteria, as defined by Lehman Brothers: an
outstanding market value of at least $100 million and investment grade quality
(rated a minimum of Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Ratings Group ("S&P")).

The Aggregate Bond Index is composed of the following kinds of securities:
public obligations of the U.S. Government; publicly issued debt of U.S.
Government agencies and quasi-federal corporations; corporate debt guaranteed by
the U.S. Government; fixed rate nonconvertible dollar-
denominated corporate debt; 15-year and 30-year fixed rate securities backed by
mortgage pools of the Government National Mortgage Association (GNMA), the
Federal Home Loan Mortgage Corporation (FHLMC), and the Federal National
Mortgage Association (FNMA); and asset-backed pass-through securities
representing pools of credit card receivables and auto or home equity loans.

As of June 30, 1996, the following classes of fixed income securities
represented the stated proportions of the total market value of the Aggregate
Bond Index:
<TABLE>
<S> <C>
U.S. Treasury and government agency securities 51.68%
Corporate Bonds 17.45%
Mortgage- and asset-backed securities 30.87%
</TABLE>

The Portfolio has a policy of weighting its holdings so as to approximate the
relative composition of the securities contained in the Aggregate Bond Index,
under normal circumstances. Therefore, for each of the three classes of debt
instruments listed above, the variation in weighting between the assets held by
the Portfolio and the assets in the Aggregate Bond Index is not expected to be
greater than plus or minus 5%. These weightings will be monitored at the time
securities are purchased by the Portfolio. The prices of fixed income securities
fluctuate inversely to the direction of interest rates.

U.S. GOVERNMENT AND AGENCY SECURITIES. The Portfolio may invest in U.S.
Government securities and securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance: Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, such as Government
National Mortgage Association pass-through certificates, are supported by the
full faith and credit of the U.S. Treasury; other securities, such as those of
the Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the Treasury. Securities issued by the Federal National Mortgage
Association are supported by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; other securities,
such as those issued by the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. The Portfolio and the Fund and their respective net
asset values and yields are not guaranteed by the U.S. Government or any federal
agency or instrumentality.

CORPORATE BONDS. The Portfolio may purchase debt securities of United States
corporations only if they are deemed investment grade, that is, they carry a
rating of at least Baa from Moody's or BBB from S&P or, if not rated by these
rating agencies, are judged by the Investment Managers to be of comparable
quality. With respect to securities rated Baa by Moody's and BBB by S&P,
interest and principal payments are regarded as adequate for the present;
however, securities with these ratings may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make interest and principal payments than is the

case with higher grade bonds. The Portfolio intends to dispose of, in an orderly
manner, any security which is downgraded below investment grade subsequent to
its purchase. See the Appendix to the Statement of Additional Information for a
more detailed explanation of these ratings.

Corporate bonds are subject to call risk during periods of falling interest
rates. Securities with high stated interest rates may be prepaid (or called)
prior to maturity, requiring the Portfolio to invest the proceeds at generally
lower interest rates. Call provisions, common in many corporate bonds, allow
bond issuers to redeem bonds prior to maturity (at a specific price). When
interest rates are falling, bond issuers often exercise these call provisions,
paying off bonds that carry high stated interest rates and often issuing new
bonds at lower rates. For the Portfolio, the result would be that bonds with
high interest rates are called and must be replaced with lower-yielding
instruments. In these circumstances, the income of the Portfolio would decline.

MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS. The Portfolio
may purchase mortgage and mortgage-related securities such as pass-throughs and
collateralized mortgage obligations that meet the Portfolio's selection criteria
and are investment grade or of comparable quality (collectively, "Mortgage
Securities"). Mortgage pass-throughs are securities that pass through to
investors an undivided interest in a pool of underlying mortgages. These are
issued or guaranteed by U.S. government agencies such as GNMA, FNMA, and FHLMC.
Other mortgage pass-throughs consist of whole loans originated and issued by
private limited purpose corporations or conduits. Collateralized mortgage
obligation bonds are obligations of special purpose corporations that are
collateralized or supported by mortgages or mortgage securities such as
pass-throughs.

As a result of its investments in Mortgage Securities, the mortgage-backed
securities in the Portfolio may be subject to a greater degree of market
volatility as a result of unanticipated prepayments of principal. During periods
of declining interest rates, the principal invested in mortgage-backed
securities with high interest rates may be repaid earlier than scheduled, and
the Portfolio will be forced to reinvest the unanticipated payments at generally
lower interest rates. When interest rates fall and principal prepayments are
reinvested at lower interest rates, the income that the Portfolio derives from
mortgage-backed securities is reduced. In addition, like other fixed income
securities, Mortgage Securities generally decline in price when interest rates
rise.

Because the Portfolio will seek to represent all major sectors of the investment
grade fixed income securities market, the Fund may be a suitable vehicle for
those investors seeking ownership in the "bond market" as a whole, without
regard to particular sectors. The Fund is intended to be a long-term investment
vehicle and is not designed to provide investors with a means of speculating on
short-term bond market movements. Because of potential share price fluctuations,
the Fund may be inappropriate for investors who have short-term objectives or
who require stability of principal. Investors should not consider the Fund a
complete investment program.

ADDITIONAL INVESTMENT STRATEGIES AND TECHNIQUES; RISK FACTORS

The Portfolio may utilize the investment strategies and techniques described
below.

SAMPLING AND TRADING IN THE PORTFOLIO. The Portfolio does not expect to hold
all of the individual issues which comprise the Aggregate Bond Index because of
the large number of securities involved. Instead, the Portfolio will hold a
representative sample of securities, selecting one or two issues to represent
entire classes or types of securities in the Index. This sampling technique is
expected to be an effective means of substantially duplicating the income and
capital returns provided by the Index.

To reduce transaction costs, the Portfolio's securities holdings will not be
automatically traded or re-balanced to reflect changes in the Aggregate Bond
Index. The Portfolio will seek to buy round lots of securities and may trade
large blocks of securities. These policies may cause a particular security to be
over- or under-represented in the Portfolio relative to its Index weighting or
result in its continued ownership by the Portfolio after its deletion from the
Index, thereby reducing the correlation between the Portfolio and the Index. The
Portfolio is not required to buy or sell securities solely because the
percentage of its assets invested in Index securities changes when their market
values increase or decrease. In addition, in order to more closely correlate to
the Index, the Portfolio may omit or remove Index securities from its portfolio
and substitute other Index securities if the Investment Managers believe the
removed security to be insufficiently liquid or believe the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Investment Managers seek a correlation of 0.95 or better between
the performance of the Portfolio and that of the Aggregate Bond Index. See
"Investment Philosophy and Strategies" above.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place in the future, beyond the normal settlement date, at a stated price
and yield. Securities purchased on a forward commitment or when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. When such transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. Accordingly, the Portfolio may pay more/less than the market value
of the securities on the settlement date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Portfolio will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities, as the case may be. However,
the Portfolio may dispose of a commitment prior to settlement if the Investment
Managers deem it appropriate to do so. In addition, the Portfolio may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Portfolio may realize short-term profits or
losses upon the sale of such commitments. At the time the Portfolio enters into
a transaction on a when-issued or forward commitment basis, a segregated account
consisting of cash or high grade liquid debt securities equal to the value of
the when-issued or forward commitment securities will be established and
maintained. There is a risk that the securities may not be delivered and that
the Portfolio may incur a loss.

REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Trustees of Federated Portfolios. In a repurchase agreement,
the Portfolio buys a security from a seller that has agreed to repurchase it at
a mutually agreed upon date and price, reflecting the interest rate effective
for the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest, and this value is maintained during
the term of the agreement. If the seller defaults and the collateral value
declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
disposition of collateral may be delayed or limited. Investments in certain
repurchase agreements and certain other investments which may be considered
illiquid are limited. See "Illiquid Investments; Privately Placed and other
Unregistered Securities" below.

REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds, in an amount up
to one-third of the value of its total assets, for temporary or emergency
purposes, such as meeting larger than anticipated redemption requests, and not
for leverage. The Portfolio may also agree to sell portfolio securities to
financial institutions such as banks and broker-dealers and to repurchase them
at a mutually agreed date and price (a "reverse repurchase agreement"). The
Securities and Exchange Commission ("SEC") views reverse repurchase agreements
as a form of borrowing. At the time the Portfolio enters into a reverse
repurchase agreement, it will place in a segregated custodial account cash, U.S.
Government securities or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Portfolio
may decline below the repurchase price of those securities.

INVESTMENT COMPANY SECURITIES. In connection with the management of its daily
cash position, the Portfolio may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. In addition to the advisory and sub-advisory fees and
other expenses the Portfolio bears directly in connection with its own
operations, as a shareholder of another investment company the Portfolio would
bear its pro rata portion of the other investment company's advisory fees and
other expenses. As such, the Fund's shareholders would indirectly bear the
expenses of the other investment company, some or all of which would be
duplicated. Securities of other investment companies may be acquired by the
Portfolio to the extent permitted under the 1940 Act, that is, the Portfolio may
invest a maximum of up to 10% of its total assets in securities of other
investment companies so long as not more than 3% of the total outstanding voting
stock of any one investment company is held by the Portfolio. In addition, not
more than 5% of the Portfolio's total assets may be invested in the securities
of any one investment company.

securities. Moreover, the Portfolio may sell futures and options to "close out"
futures and options it may have purchased or to protect against a decrease in
the price of securities it owns but intends to sell. The Portfolio will not
invest in futures or options as part of a defensive strategy to protect against
potential market declines. See "Futures Contracts and Options on Futures
Contracts" in the Statement of Additional Information.

The Portfolio may (a) purchase exchange-traded and over the counter (OTC) put
and call options on securities and indices of securities, (b) purchase and sell
futures contracts on securities and indices of securities and (c) purchase put
and call options on futures contracts on securities and indices of securities.
In addition, the Portfolio may sell (write) exchange-traded and OTC put and call
options on securities and indices of securities and on futures contracts on
securities and indices of securities. The staff of the SEC has taken the
position that OTC options are illiquid and, therefore, together with other
illiquid securities held by the Portfolio, cannot exceed 15% of the Portfolio's
net assets. The Portfolio intends to comply with this limitation.

The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these techniques by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these investments entail certain other risks. If the Investment
Managers apply a strategy at an inappropriate time or judge market conditions or
trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's potential to realize gains as
well as limit its exposure to losses. The Portfolio could also experience losses
if the prices of its options and futures positions were poorly correlated with
its other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, the Portfolio will incur transaction
costs, including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Portfolio's turnover rate. For more information on these investment
techniques, see the Statement of Additional Information.

The Portfolio may purchase and sell put and call options on securities, indices
of securities and futures contracts, or purchase and sell futures contracts,
only if such options are written by other persons and if (i) the aggregate
premiums paid on all such options which are held at any time do not exceed 20%
of the Portfolio's total net assets, and (ii) the aggregate margin deposits
required on all such futures and premium on options thereon held at any time do
not exceed 5% of the Portfolio's total assets. The Portfolio may also be subject
to certain limitations pursuant to the regulations of the Commodity Futures
Trading Commission. The Portfolio does not have any current intention of
purchasing futures contracts or investing in put and call options on securities,
indices of securities, or futures contracts if more than 5% of its net assets
would be at risk from such transactions.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may acquire investments that are illiquid or have limited liquidity,
such as private placements or investments that are not registered under the
Securities Act of 1933 (the "1933 Act") and cannot be offered for public sale in
the United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal

course of business at approximately the amount at which it is valued by the
Portfolio. The price the Portfolio pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly the valuation of these securities will reflect
any limitations on their liquidity.

Acquisitions of illiquid investments by the Portfolio are subject to the
following non-fundamental policies. The Portfolio may not invest in additional
illiquid securities if, as a result, more than 15% of the market value of its
net assets would be invested in illiquid securities. The Portfolio may also
purchase Rule 144A securities sold to institutional investors without
registration under the 1933 Act. These securities may be determined to be liquid
in accordance with guidelines established by the Investment Managers and
approved by the Trustees of Federated Portfolios. The Trustees of Federated
Portfolios will monitor the implementation of these guidelines on a periodic
basis. Because Rule 144A is relatively new, it is not possible to predict how
markets in Rule 144A securities will develop. If trading in Rule 144A securities
were to decline, these securities could become illiquid after being purchased,
increasing the level of illiquidity of the Portfolio. As a result, the Portfolio
might not be able to sell these securities when the Investment Managers wish to
do so, or might have to sell them at less than fair value.

SHORT-TERM INSTRUMENTS. The Portfolio may invest in short-term income
securities in accordance with its investment objective and policies as described
above. The Portfolio may also make money market investments pending other
investments or settlement, or to maintain liquidity to meet shareholder
redemptions. Although the Portfolio normally seeks to remain substantially fully
invested in securities selected to match the Aggregate Bond Index consistent
with seeking a correlation of 0.95 or better between the Portfolio's performance
and that of the Aggregate Bond Index, the Portfolio may invest temporarily up to
20% of its assets in certain short-term fixed income securities. The Portfolio
will not invest in short-term instruments as part of a defensive strategy to
protect against potential market declines.

Short-term investments include: obligations of the U.S. Government and its
agencies or instrumentalities; commercial paper and other debt securities;
variable and floating rate securities; bank obligations; repurchase agreements
collateralized by these securities; and shares of other investment companies
that primarily invest in any of the above referenced securities. Commercial
paper consists of short-term, unsecured promissory notes issued to finance
short-term credit needs. Other corporate obligations in which the Portfolio may
invest consist of high quality, U.S. dollar-denominated short-term bonds and
notes (including variable amount master demand notes) issued by domestic and
foreign corporations. The Portfolio may invest in commercial paper issued by
major corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) of the 1933 Act. Such commercial paper may be issued only to
finance current transactions and must mature in nine months or less. Trading of
such commercial paper is conducted primarily by institutional investors through
investment dealers, and individual investor participation in the commercial
paper market is very limited.

instruments include Yankee Certificates of Deposit ("Yankee CDs"), which are
certificates of deposit denominated in U.S. dollars and issued in the United
States by the domestic branch of a foreign bank. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits which may be held by the
Portfolio are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. Government. The Portfolio will not invest more than 15%
of the value of its net assets in time deposits maturing in longer than seven
days and other instruments which are deemed illiquid or not readily marketable.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations in which the
Portfolio may invest include uninsured, direct obligations which have either
fixed, floating or variable interest rates.

The Portfolio will limit its short-term investments to those U.S.
dollar-denominated instruments which are determined by or on behalf of the
Trustees of Federated Portfolios to present minimal credit risks and which are
of "high quality" as determined by a major rating service (i.e., rated P-1 by
Moody's or A-1 by S&P) or, in the case of instruments which are not rated, are
deemed to be of comparable quality pursuant to procedures established by the
Trustees of Federated Portfolios. The Portfolio may invest in obligations of
banks which at the date of investment have capital, surplus and undivided
profits (as of the date of their most recently published financial statements)
in excess of $100 million. Investments in high quality short-term instruments
may, in many circumstances, result in a lower yield than would be available from
investments in instruments with a lower quality or longer term.

SECURITIES LENDING. The Portfolio may seek to increase its income by lending
securities to banks, brokers or dealers and other recognized institutional
investors. Such loans may not exceed 30% of the value of the Portfolio's total
assets. In connection with such loans, the Portfolio will receive collateral
consisting of cash, U.S. Government or other high quality securities,
irrevocable letters of credit issued by a bank, or any combination thereof. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. The Portfolio can increase
its income through the investment of any such collateral consisting of cash. The
Portfolio continues to be entitled to payments in amounts equal to the interest
or dividends payable on the loaned security and in addition, if the collateral
received is other than cash, receives a fee based on the amount of the loan.
Such loans will be terminable at any time upon specified notice. The Portfolio
might experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Portfolio. For
example, the loaned securities may not be available to the Portfolio on a timely
basis and the Portfolio may, therefore, lose the opportunity to sell the
securities at a desirable price.

SHORT SALES "AGAINST THE BOX.' ' In a short sale, the Portfolio sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The Portfolio may engage in short sales only if at the time
of the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box." The Portfolio may make a short sale as
a hedge, when it believes that the value of a security owned by it (or a
security convertible or exchangeable for such security) may

decline, or when the Portfolio wants to sell the security at an attractive
current price but wishes to defer recognition of gain or loss for tax purposes.
Not more than 40% of the Portfolio's total assets would be involved in short
sales "against the box."

CERTAIN OTHER OBLIGATIONS. Consistent with its investment objectives, policies
and restrictions, the Portfolio may also invest in participation interests,
guaranteed investment contracts and zero coupon obligations. See the Statement
of Additional Information. In order to allow for investments in new instruments
that may be created in the future, upon supplementing this prospectus, the
Portfolio may invest in obligations other than those listed previously, provided
such investments are consistent with the Portfolio's and Fund's investment
objective, policies and restrictions.

DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has traditionally
-
been applied to certain contracts (including, futures, forward, option and swap
contracts) that "derive" their value from changes in the value of an underlying
security, currency, commodity or index. Certain types of securities that
incorporate the performance characteristics of these contracts are also referred
to as "derivatives." The term has also been applied to securities "derived" from
the cash flows from underlying securities, mortgages or other obligations.

Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stocks and bonds, derivatives do not
necessarily present greater market risks than traditional investments. The
Portfolio will only use derivative contracts for the purposes disclosed in the
applicable sections above. To the extent that the Portfolio invests in
securities that could be characterized as derivatives, such as mortgage pass-
throughs and collateralized mortgage obligations, it will only do so in a manner
consistent with its investment objectives, policies and limitations.

INVESTMENT LIMITATIONS

As a diversified investment company, 75% of the assets of the Portfolio are
represented by cash and cash items (including receivables), government
securities, securities of other investment companies, and other securities which
for purposes of this calculation are subject to the following fundamental
limitations: (a) the Portfolio may not invest more than 5% of its total assets
in the securities of any one issuer, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer. In addition, the
Portfolio may not invest 25% or more of its assets in the securities of issuers
in any one industry, unless the securities in a single industry were to comprise
25% or more of the Aggregate Bond Index in which case the Portfolio will invest
25% or more of its assets in that industry. These are fundamental investment
policies which may not be changed without investor approval.

The Statement of Additional Information includes a further discussion of
investment strategies and techniques, and a listing of other fundamental
investment restrictions and non-fundamental investment policies which govern the
investment policies of the Fund and the Portfolio. Fundamental investment
restrictions may not be changed, in the case of the Fund, without the approval
of the shareholders of the Fund or, in the case of the Portfolio, without the
approval of the investors (including the Fund) in the Portfolio. If a percentage
restriction (other than a restriction as to borrowing) or a rating restriction
on investment or utilization of assets is adhered to at the time

an investment is made or assets are so utilized, a later change in percentage
resulting from changes in the value of the securities held by the Portfolio or a
later change in the rating of a security held by the Portfolio is not considered
a violation of the policy.

SPECIAL INFORMATION CONCERNING HUB AND SPOKE

Unlike other mutual funds that directly acquire and manage their own portfolios
of securities, the Fund seeks to achieve its investment objective by investing
all of its Assets in the Portfolio. The Fund invests in the Portfolio through
Signature Financial Group, Inc.'s two-tier structure master/ feeder fund known
as the Hub and Spoke financial services method. Hub and Spoke is a registered
service mark of Signature Financial Group, Inc. and is licensed to Federated
Services Company. The Fund has the same investment objective and policies as the
Portfolio. In addition to selling a beneficial interest to the Fund, the
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to
issue their shares at the same public offering price as the Fund due to
variations in sales commissions and other operating expenses. Investors in the
Fund should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests (e.g., other spokeSM or feeder
funds) in the Portfolio is available from Federated Services Company at
1-800-245-4270.

The investment objective of the Fund may be changed without the approval of the
Fund's shareholders but not without written notice thereof to the Fund's
shareholders thirty days prior to implementing the change. If there were a
change in the Fund's investment objective, shareholders should consider whether
the Fund remains an appropriate investment in light of their then-current
financial position and needs. The investment objective of the Portfolio may be
changed without the approval of the investors in the Portfolio, but not without
written notice thereof to the Portfolio's investors (and notice by the Fund to
its shareholders) thirty days prior to implementing the change. There can, of
course, be no assurance that the investment objective of the Fund or the
Portfolio will be achieved. See "Investment Limitations" in the Statement of
Additional Information for a description of the fundamental investment policies
and restrictions of the Portfolio and the Fund that cannot be changed without
approval by the holders of a "majority of the outstanding voting securities" (as
defined in the Investment Company Act of 1940 ("1940 Act")) of the Portfolio or
Fund. Except as stated otherwise, the investment objective, policies, strategies
and restrictions described herein and in the Statement of Additional Information
are non-fundamental.

the proposal is one, if which made with respect to the Fund, would not require
the vote of Fund shareholders, as long as such action is permissible under
applicable statutory and regulatory requirements. Conversely, except as
permitted by the SEC, whenever the Fund is requested to vote as an investor in
the Portfolio on matters pertaining to the Portfolio because the 1940 Act
requires approval of the matter by an investment company's shareholders, the
Fund will hold a meeting of its shareholders and will cast all of its votes as
an investor in the Portfolio in the same proportion as directed by the votes of
the Fund's shareholders. Fund shareholders who do not vote will not affect the
votes cast by the Fund at the meeting of the Portfolio investors. The percentage
of votes representing the Fund's shareholders will be voted by the Fund in the
same proportion as the Fund's shareholders who do, in fact, vote. Certain
changes in the Portfolio's investment objective, policies or limitations may
require the Fund to withdraw its investment in the Portfolio. Any such
withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
shareholder redemption requests, such as borrowing.

The Fund may withdraw its investment in the Portfolio at any time, if the
Trustees of the Trust determine that it is in the best interests of the Fund to
do so. Upon any such withdrawal, the Trustees of the Trust would consider what
action might be taken, including investing the Fund's Assets in another pooled
investment entity having the same investment objective and policies as the Fund
or retaining an investment adviser to manage the Fund's assets in accordance
with the investment policies described above with respect to the Portfolio.

For descriptions of the investment objective, policies and limitations of the
Portfolio, see "Investment Objective," "Investment Policies," and "Investment
Limitations" herein and in the Statement of Additional Information. For
descriptions of the management of the Portfolio, see "Management of the Trust
and Federated Portfolios" herein and in the Statement of Additional Information.
For descriptions of the expenses of the Portfolio, see "Management of the Trust
and Federated Portfolios" and "Expenses" below.

INFORMATION ABOUT THE TRUST AND FEDERATED PORTFOLIOS
- --------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST AND FEDERATED PORTFOLIOS

BOARD OF TRUSTEES. Each of the Trust and Federated Portfolios is managed by its
Board of Trustees. The respective Trustees are responsible for managing the
business affairs of the Trust and Federated Portfolios and for exercising all
the powers of the Trust and Federated Portfolios except those reserved for the
shareholders and investors, respectively. The Executive Committee of each Board
of Trustees handles the Board's responsibilities between meetings of the Board.
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Federated Portfolios, up to and including creating a separate board of

trustees. See "Management of the Trust and of Federated Portfolios" in the
Statement of Additional Information for more information about the Trustees and
officers of the Trust and of Federated Portfolios.

INVESTMENT ADVISER. The Fund seeks to achieve its investment objective by
investing all of its Assets in the Portfolio, which has the same investment
objective, policies, and limitations as the Fund. Federated Research Corp. (the
"Adviser") is responsible for the management of the assets of the Portfolio,
pursuant to an investment advisory agreement (the "Advisory Agreement") with
Federated Portfolios on behalf of the Portfolio. As of September 30, 1996,
Federated Management was replaced as adviser to the Portfolio by Federated
Research Corp. In all other respects, the advisory arrangements are identical.
Both advisers are subsidiaries of Federated Investors, are registered investment
advisers and have common directors/trustees, officers and employees. Federated
Research Corp. has delegated the daily management of the security holdings of
the Portfolio to U.S. Trust Company, acting as sub-adviser.

Subject to the general guidance and policies set by the Trustees of Federated
Portfolios, the Adviser provides general supervision over the investment
management functions performed by U.S. Trust Company. The Adviser closely
monitors U.S. Trust Company's application of the Portfolio's investment policies
and strategies, and regularly evaluates U.S. Trust Company's investment results
and trading practices.

ADVISORY FEES. For its services under the Advisory Agreement, the Adviser is
entitled to receive from the Portfolio a fee accrued daily and paid monthly at
an annual rate equal to .25% of the Portfolio's average daily net assets. The
Adviser has agreed to currently waive all investment advisory fees with respect
to the Portfolio. This waiver may be terminated at any time. The Adviser has
also undertaken to reimburse the Portfolio for operating expenses in excess of
limitations established by certain states.

ADVISER'S BACKGROUND. Federated Research Corp., a Maryland corporation
organized on May 23, 1958, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All
of the Class A (voting) shares of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors.

Federated Research Corp. and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1995, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

Susan M. Nason has been the Portfolio's portfolio manager since its inception.
Ms. Nason joined Federated Investors in 1987 and has been a Vice President of
the Adviser since 1993. Ms. Nason

served as an Assistant Vice President of the Adviser from 1990 until 1992. Ms.
Nason is a Chartered Financial Analyst and received her M.B.A. in Finance from
Carnegie Mellon University.

SUB-ADVISER. Federated Research Corp. has delegated the daily management of the
Portfolio's security holdings to U.S. Trust Company. U.S. Trust Company is
located at 114 West 47th Street, New York, New York. Subject to the general
guidance and policies set by the Trustees of Federated Portfolios, Federated
Research Corp. closely monitors U.S. Trust Company's application of the
Portfolio's investment policies and strategies, and regularly evaluates U.S.
Trust Company's investment results and trading practices.

SUB-ADVISORY FEES. Pursuant to a Sub-Advisory Agreement (the "Sub-Advisory
Agreement") between the Adviser and U.S. Trust Company, U.S. Trust Company makes
the day-to-day investment decisions and portfolio selections for the Portfolio,
consistent with the general guidelines and policies established by the Adviser
and the Trustees of Federated Portfolios. For the investment management services
it provides to the Portfolio, U.S. Trust Company is compensated only by the
Adviser, and receives no fees directly from the Fund or the Portfolio. For its
services under the Sub-Advisory Agreement, U.S. Trust Company is entitled to
receive from the Adviser a fee accrued daily and paid monthly at an annual rate
equal to .12% of the Portfolio's average daily net assets. U.S. Trust Company
has agreed to currently waive all sub-advisory fees with respect to the
Portfolio, although this waiver may be terminated at any time. U.S. Trust
Company furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the Portfolio's investments and effecting
securities transactions for the Portfolio.

SUB-ADVISER'S BACKGROUND. U.S. Trust Company is a state-chartered bank and
trust company which provides trust and banking services to individuals,
corporations and institutions, both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency services, and personal and corporate banking. U.S.
Trust Company is a member bank of the Federal Reserve System and the Federal
Deposit Insurance Corporation and is one of the twelve members of the New York
Clearing House Association. On June 30, 1996, U.S. Trust Company's Asset
Management Group had approximately $50.3 billion in assets under management.
U.S. Trust Company, which has its principal offices at 114 West 47th Street, New
York, New York, is a subsidiary of U.S. Trust Corporation, a registered bank
holding company. U.S. Trust Company also serves as investment adviser to
Excelsior Funds, Inc. (formerly known as UST Master Funds, Inc.), Excelsior
Tax-Exempt Funds, Inc. (formerly known as UST Master Tax-Exempt Funds, Inc.),
and Excelsior Institutional Trust, all of which are registered investment
companies. U.S. Trust Company also serves as investment adviser to the UST
Variable Series, Inc.

It is the responsibility of U.S. Trust Company in its capacity as sub-adviser to
make the day-to-day investment decisions for the Portfolio and to place the
purchase and sales orders for securities transactions of the Portfolio, subject
to the general supervision of Federated Research Corp. U.S. Trust Company
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Portfolio's investments and effecting securities
transactions for the Portfolio.

Bruce Tavel, Senior Vice President, and Cyril M. Theccanat, Vice President, of
U.S. Trust Company, Structured Investment Management Department, have been
portfolio managers of the Portfolio since its inception and are responsible for
the day-to-day management of the Portfolio.

Mr. Theccanat has been managing structured investment portfolios at U.S. Trust
Company since January, 1990. Mr. Tavel designs, develops and implements analytic
procedures and services utilizing quantitative and financial information. He has
over 18 years of experience in the execution of decision support systems at U.S.
Trust Company and previously at Lehman Asset Management, where he was Director
of Institutional Computer Services.

The Trust, Federated Portfolios, the Adviser and the Sub-Adviser each has
adopted strict codes of ethics governing the conduct of all employees who manage
the Fund, the Portfolio and their portfolio securities. These codes recognize
that such persons owe a fiduciary duty to the Fund's shareholders and the
Portfolio's investors and must place their interests ahead of the employees' own
interest. Among other things, the code governing the Trust, the Federated
Portfolios and the Adviser: requires preclearance and periodic reporting of
personal securities transactions; prohibits personal transactions in securities
being purchased or sold, or being considered for purchase or sale, by the Fund
and Portfolio; prohibits purchasing securities in initial public offerings; and
prohibits taking profits on securities held for less than sixty days. The code
governing the Sub-Adviser: requires preclearance and periodic reporting of
personal securities transactions; prohibits personal transactions in securities
being purchased or sold, or being considered for purchase or sale, by the Fund
and Portfolio; and prohibits purchasing securities in initial public offerings
for 30 days. Violations of the codes are subject to review by the Trustees, and
could result in severe penalties.

CERTAIN RELATIONSHIPS AND ACTIVITIES. U.S. Trust Company and its affiliates may
have deposit, loan and other commercial banking relationships with the issuers
of securities which may be purchased on behalf of the Portfolio, including
outstanding loans to such issuers which could be repaid in whole or in part with
the proceeds of securities so purchased. U.S. Trust Company has informed the
Portfolio that, in making investment decisions, it does not obtain or use
material inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Portfolio, U.S. Trust
Company will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Portfolio is a customer of U.S.
Trust Company, its parents or its subsidiaries or affiliates. When dealing with
its customers, U.S. Trust Company, its parents, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of such customers
are held by any fund managed by U.S. Trust Company or any such affiliate.

DISTRIBUTION OF INSTITUTIONAL SHARES

Federated Securities Corp. is the principal distributor for Shares. It is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.

SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25% of the average
daily net asset value of Shares of the Fund, computed at
an annual rate, to obtain certain personal services for shareholders and to
maintain shareholder accounts ("Shareholder Services"). From time to time and
for such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform Shareholder Services directly or will select
financial institutions to perform Shareholder Services. Financial institutions
will receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may also pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services or shareholder services. The
support may include sponsoring sales, educational and training seminars for
employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such financial assistance
will be predicated upon the amount of Shares the financial institution sells or
may sell and/or upon the type and nature of sales or marketing support furnished
by the financial institution. Any payments made by the distributor may be
reimbursed by the Adviser or its affiliates.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.

ADMINISTRATION OF THE TRUST

Federated Services Company provides these services at an annual rate, accrued
daily and paid monthly, which relates to the average aggregate daily net assets
of the Fund as specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FUND
<S> <C>
0.1000% on the first $250 million
0.0875% on the next $250 million
0.0750% on the next $250 million
0.0700% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least $60,000
per fund and $30,000 per each additional class of shares. Federated Services
Company may choose voluntarily to waive a portion of its fee.

SERVICE PROVIDERS OF THE PORTFOLIO

Federated Securities Corp. is the placement agent for investments in the
Portfolio but receives no fee for such services.

Federated Services Company, through its subsidiary Federated Administrative
Services, Inc., provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the
Portfolio. Federated Services Company is entitled to receive a fee from the
Portfolio accrued daily and paid monthly at an annual rate of up to 0.05% of the
average daily net assets of the Portfolio, subject to a minimum of $60,000 for
the Portfolio (unless waived). From time to time, Federated Services Company may
waive all or a portion of the administrative fee. Federated Services Company,
through Federated Administrative Services, Inc., also maintains the Portfolio's
accounting records and records of investors. Federated Investors and its
subsidiaries have agreed to waive fees and reimburse expenses in order to
maintain total operating expenses (after waivers and reimbursements) of the
Portfolio at no greater than 0.20% of average net assets for the twelve month
period following January 2, 1996.

NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. The net asset value per share
for Shares is determined by adding the interest of the Shares in the market
value of all securities and other assets of the Fund, subtracting the interest
of the Shares in the liabilities of the Fund and those attributable to Shares,
and dividing the remainder by the total number of Shares outstanding. Since the
Fund will invest all of its Assets in the Portfolio, the value of the Fund's
Assets will be equal to the value of its beneficial interest in the Portfolio.

INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.

To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.

Federated Bond Index Fund--Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Wire
Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.

BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Bond Index Fund-- Institutional Shares to Federated Shareholder Services
Company, P.O. Box 8600, Boston, Massachusetts 02266-8600. Orders by mail are
considered received after payment by check is converted by the transfer agent's
bank, State Street Bank, into federal funds. This is generally the next business
day after State Street Bank receives the check.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. Subsequent investments must be in amounts of at least $100. The minimum
initial investment in Shares is $50 if the investment is in a retirement
program, for which subsequent investments must be in amounts of at least $50. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Trust. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum investment.

WHAT SHARES COST

Shares are sold at their net asset value per Share next determined after an
order is received. There is no sales charge imposed by the Fund. Investors who
purchase Shares through a non-affiliated bank or broker may be charged an
additional service fee by that bank or broker.

The net asset value of the Fund is determined as of the close of trading
(normally 4:00 p.m., Eastern time) (the "Valuation Time") on the New York Stock
Exchange, Monday through Friday, except on (i) days on which there are not
sufficient changes in the value of the Portfolio's portfolio securities such
that its net asset value might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received; and (iii) the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Any day on which the Fund may determine its net asset value, as
described above, may be referred to herein as a "Business Day."

Assets in the Portfolio which are traded on a recognized domestic exchange or
are quoted on a national securities market are valued at the last sale price on
the securities exchange on which such securities are primarily traded or at the
last sale price on such national securities market. Securities traded only on
over-the-counter markets are valued on the basis of closing over-the-counter bid
prices. Restricted securities, securities for which market quotations are not
readily available, and other assets are valued at fair value, pursuant to
guidelines adopted by the Trustees of Federated Portfolios. Absent unusual
circumstances, debt securities maturing in 60 days or less are valued at
amortized cost. Some of the securities acquired by the Portfolio may be traded
on over-the-counter markets on days which are not Business Days. In such cases,
the net asset value per share of Fund Shares may be significantly affected on
days when shareholders neither purchase nor redeem their

shares of beneficial interest in the Fund. The Portfolio may use one or more
independent pricing services in connection with the pricing of its portfolio
securities.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company maintains
a share account for each shareholder. Certificates for Shares of the Fund are
not issued unless requested by contacting the Fund or Federated Shareholder
Services Company in writing.

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.

DIVIDENDS

Dividends equal to all or substantially all of the Fund's net investment income
allocable to Shares are declared daily and paid monthly. The Fund's net income
for dividend purposes consists of (i) all accrued income, whether taxable or
tax-exempt, plus discount earned on the Fund's assets, less (ii) amortization of
premium on such assets, accrued expenses directly attributable to the Fund and
the general expenses of the Trust (e.g., legal, administrative, accounting, and
Trustees' fees). Dividends and distributions will reduce the net asset value of
the Fund by the amount of the dividend or distribution. Dividends are declared
just prior to determining net asset value. If an order for Shares is placed on
the preceding Business Day, Shares purchased by wire begin earning dividends on
the Business Day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next Business Day. Shares purchased by check begin earning
dividends on the Business Day after the check is converted by the transfer agent
into federal funds. Dividends are automatically reinvested on payment dates in
additional Shares unless cash payments are requested by contacting the Fund.

CAPITAL GAINS

Long-term capital gains realized by the Fund, if any, will be distributed once a
year, usually in December, if the Fund's profits during that year from the sale
of securities held for longer than the applicable period exceed losses during
such year from the sale of securities together with any net capital losses
carried forward from prior years (to the extent not used to offset short-term
capital gains). Net short-term capital gains realized during the Fund's fiscal
year will also be distributed during such year.

RETIREMENT PLANS

Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact Federated Securities Corp. and
consult a tax adviser.

REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.

TELEPHONE REDEMPTION

Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following Business Day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. If at
any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.

An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.

In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as written requests, should be considered. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.

WRITTEN REQUESTS

Shares may also be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. If Share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.

The written request should state: the Fund name and class of shares name; the
account number; and the number of shares to be redeemed or the dollar amount
requested. All owners of the account must sign the request exactly as the Shares
are registered. Normally, a check for the proceeds is mailed within one business
day, but in no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible

guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.

ACCOUNTS WITH LOW BALANCES

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER 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 all classes of
each series in the Trust have equal voting rights except that in matters
affecting only a particular series or class, only shares of that series or class
are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Fund's operation (e.g., to approve a
change in the Fund's fundamental investment policies or limitations) and for the
election of Trustees under certain circumstances. For additional information on
voting by the Fund and its shareholders on matters relating to the Portfolio,
see "Special Information Concerning Hub and Spoke."

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote. Shareholders of all series of
the Trust will vote together to elect Trustees of the Trust and for certain
other matters. Under certain circumstances, the shareholders of one or more
series of the Trust could control the outcome of these votes. As of September 3,
1996, Frojack Co., who was the owner of record of 728,686 (49.44%) of the
Institutional Shares of the Fund and Menomin Co., who was the owner of record of
698 (96.08%) of the Institutional Service Shares of the Fund may for certain
purposes be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.

The Fund invests in the Portfolio, a series of Federated Portfolios, which is a
business trust organized under the laws of the Commonwealth of Massachusetts.
The interests in Federated Portfolios are divided into separate series or
portfolios. Investors in each series of Federated Portfolios will vote
separately or together in the same manner as shareholders of the Trust's series.
Federated Portfolios' Declaration of Trust provides that the Fund and other
entities investing in the Portfolio and the other series of Federated Portfolios
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the series in which they invest (and of no other series) and of the overall
obligations

of Federated Portfolios. However, the Trustees of the Trust believe that the
risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which neither the Portfolio nor Federated Portfolios
are able to meet their obligations, and that neither the Fund nor its
shareholders will be exposed to a material risk of liability by reason of the
Fund's investment in the Portfolio.

For more information regarding the Trustees of the Trust and of Federated
Portfolios, see "Management of Trust and Federated Portfolios" in the Statement
of Additional Information.

EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------

The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956,
such as U.S. Trust Company, or any affiliate thereof, from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, and from issuing, underwriting, selling
or distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of their customers. Based on
advice of its counsel, it is the position of U.S. Trust Company that it may
perform the investment sub-advisory services it performs under the Sub-Advisory
Agreement with the Adviser without violating the Glass-Steagall Act or other
applicable banking laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as future judicial or administrative
decisions or interpretations of present or future statutes and regulations,
could prevent a bank from continuing to perform all or part of the above
services. If this happens, changes in the operation of the Portfolio (or the
Fund) may occur and the Trustees would consider alternative sub-advisers and
other means of continuing available investment services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.

States securities laws governing the ability of depository institutions to act
as underwriters or distributors of securities may differ from interpretations
given to the Glass-Steagall Act and, therefore, banks and financial institutions
may be required to register as dealers pursuant to state law.

TAX INFORMATION
- --------------------------------------------------------------------------------

Each year the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Provided the Fund meets all income,
distribution and diversification requirements of the Code, and distributes
substantially all of its net investment income and realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code, no
federal income or excise taxes will be required to be paid from the Fund. If the
Fund fails to qualify as a "regulated investment company" in any year, the Fund
would incur a regular corporate federal income tax upon its taxable income.
Whether or not the Fund qualifies as a RIC, the Fund's distributions would
generally be taxable as ordinary dividend income to shareholders. The Portfolio
in which the Fund invests is also not expected to be required to pay any federal
income or excise taxes.

Shareholders of the Fund normally will have to pay federal income taxes and any
state or local taxes on the dividends and net capital gain distributions, if
any, they receive from the Fund. Dividends from ordinary income and any
distributions from net short-term capital gains are taxable to Fund shareholders
as ordinary income for federal income tax purposes. Distributions of net capital
gains are taxable to Fund shareholders as long-term capital gains without regard
to the length of time the Fund shareholders have held their Shares. Dividends
and distributions, if any, paid to shareholders will be treated in the same
manner for federal income tax purposes whether received in cash or reinvested in
additional Shares of the Fund.

Dividends declared in October, November or December of any year payable to Fund
shareholders of record on a specified date in such months will be deemed to have
been received by Fund shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
At the end of each calendar year, each Fund shareholder receives information for
tax purposes on the dividends and other distributions received during that
calendar year, including the portion thereof taxable as ordinary income, the
portion taxable as long-term capital gains, the portion (if any) which
constitutes a return of capital (which is generally free of tax but results in a
basis reduction), and the amount of dividends (if any) which may qualify for the
dividends-received deduction for corporations.

In general, any gain or loss realized upon a taxable disposition of Shares of
the Fund by a shareholder that holds such Shares as a capital asset will be
treated as a long-term capital gain or loss if the Shares have been held for
more than 12 months and otherwise as a short-term capital gain or loss. However,
any loss realized upon a redemption of Shares in the Fund held for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those Shares. Any loss
realized upon a disposition of Shares may also be disallowed under rules
relating to wash sales.

The Fund may be required to withhold federal income tax at the rate of 31% from
all taxable distributions and redemption proceeds payable to shareholders who do
not provide the Fund with their correct taxpayer identification number or make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Such withholding is not an
additional tax. Any amounts withheld may be credited against the Fund
shareholder's federal income tax liability.

Under current law, neither the Trust, as a business trust, nor the Fund is
liable for any income or franchise tax in the Commonwealth of Massachusetts as
long as the Fund continues to qualify as a "regulated investment company" under
the Code.

The foregoing discussion is intended for general information only. An investor
should consult with his or her own tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state and local laws.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time, the Fund advertises its total return and yield for Shares.

Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Fund after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.

The Fund is sold without any sales charge or other similar non-recurring
charges.

Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------

The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
retail and private banking customers of financial institutions and are subject
to a minimum initial investment of $5,000. Institutional Shares and
Institutional Service Shares are subject to certain of the same expenses;
however, Institutional Service Shares are distributed under a 12b-1 Plan adopted
by the Fund. This, plus other expense differences between Institutional Shares
and Institutional Service Shares, may affect the performance of each class.

To obtain more information and a prospectus for Institutional Service Shares,
investors may call
1-800-245-4270.

MISCELLANEOUS
- --------------------------------------------------------------------------------

The Fund's Statement of Additional Information bears the same date as this
prospectus and contains more detailed information about the Fund and the
Portfolio, including information related to (i) investment policies and
restrictions of the Fund and the Portfolio, (ii) Trustees and officers of the
Trust and of Federated Portfolios, (iii) portfolio transactions and any
brokerage commissions, (iv) rights and liabilities of shareholders of the Trust
and investors in Federated Portfolios, (v) additional performance information,
including a description of the Fund's calculation of yield
and total return, (vi) determination of the net asset value of Shares of the
Fund, and (vii) financial statements for the Fund and the Portfolio.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Bond Index Fund
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Distributor for Federated Bond Index Fund and
Placement Agent for Bond Index Portfolio
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Investment Adviser for Bond Index Portfolio
Federated Research Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Sub-Adviser for Bond Index Portfolio
United States Trust Company of New York 114 West 47th Street
New York, New York 10036
- -----------------------------------------------------------------------------------------------------------------------

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

Administrator
Federated Administrative Services, Inc. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

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

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

Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

FEDERATED BOND
INDEX FUND
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End Diversified Management
Investment Company

Prospectus dated September 30, 1996

[LOGO} FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors

G01556-02-IS (9/96)
Cusip 313909103

FEDERATED BOND INDEX FUND
(A PORTFOLIO OF FEDERATED INVESTMENT TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

The Institutional Service Shares of Federated Bond Index Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is an investment portfolio of Federated Investment Trust (the
"Trust"), an open-end management investment company (a mutual fund).
Institutional Service Shares are sold at net asset value.
The investment objective of the Fund is to provide investment results that
correspond to the investment performance of the Lehman Brothers Aggregate Bond
Index, a broad market-weighted index which encompasses U.S. Treasury and agency
securities, corporate investment grade bonds, and mortgage-backed securities.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL
OF ITS INVESTABLE ASSETS ("ASSETS") IN BOND INDEX PORTFOLIO (THE "PORTFOLIO"), A
DIVERSIFIED SERIES OF FEDERATED INVESTMENT PORTFOLIOS (THE "FEDERATED
PORTFOLIOS"), AN OPEN-END MANAGEMENT INVESTMENT COMPANY. THE PORTFOLIO HAS THE
SAME INVESTMENT OBJECTIVE AND POLICIES AS THE FUND. THEREFORE, THE FUND'S
INVESTMENT EXPERIENCE WILL CORRESPOND DIRECTLY WITH THAT OF THE PORTFOLIO. THE
FUND INVESTS IN THE PORTFOLIO THROUGH A TWO-TIER MASTER/FEEDER FUND STRUCTURE.
SEE "SPECIAL INFORMATION CONCERNING HUB AND SPOKE."

THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK (INCLUDING U.S. TRUST COMPANY), ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Fund. Keep this prospectus for
future reference.

The Fund has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated September 30, 1996, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-245-4270. To obtain other
information or make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus. The
Statement of Additional Information, material incorporated by reference into
this document, and other
information regarding the Trust is maintained electronically with the SEC at
Internet Web site
(http://www.sec.gov).

Prospectus dated September 30, 1996

TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES--
INSTITUTIONAL SERVICE SHARES 1
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FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 4
Additional Investment Strategies
and Techniques; Risk Factors 7
Investment Limitations 13
Special Information Concerning Hub
and Spoke 13

INFORMATION ABOUT THE TRUST AND
FEDERATED PORTFOLIOS 15
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Management of the Trust and Federated
Portfolios 15
Distribution of Institutional Service
Shares 18
Administration of the Trust 20
Service Providers of the Portfolio 20

NET ASSET VALUE 20
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INVESTING IN INSTITUTIONAL SERVICE SHARES 21
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Share Purchases 21
Minimum Investment Required 21
What Shares Cost 21
Certificates and Confirmations 22
Dividends 22
Capital Gains 22
Retirement Plans 23

REDEEMING INSTITUTIONAL SERVICE SHARES 23
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Telephone Redemption 23
Written Requests 23
Accounts With Low Balances 24

SHAREHOLDER INFORMATION 24
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Voting Rights 24

EFFECT OF BANKING LAWS 25
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TAX INFORMATION 26
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PERFORMANCE INFORMATION 27
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OTHER CLASSES OF SHARES 27
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MISCELLANEOUS 28
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ADDRESSES 29
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SUMMARY OF FUND EXPENSES

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The following table provides (i) a summary of estimated expenses related to
purchases and sales of Fund Shares and the aggregate annual operating expenses
of Fund Shares and the Portfolio as a percentage of their average daily net
assets, and (ii) an example illustrating the dollar cost of such expenses on a
$1,000 investment in Fund Shares.
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................ None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)..................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)........................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................... None
Exchange Fee................................................................................................. None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)............................................................................ 0.00%
12b-1 Fee (after waiver) (2)................................................................................. 0.00%
Total Other Expenses (after expense reimbursement by the Investment Managers and administrator).............. 0.54%
Shareholder Services Fee...................................................................... 0.25%
Total Institutional Service Shares Operating Expenses (after waivers and reimbursements) (3)......... 0.54%
</TABLE>

(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the 12b-1
fee. The distributor can terminate this voluntary waiver at any time at its
sole discretion. The maximum 12b-1 fee is 0.25%.

(3) The Total Institutional Service Shares Operating Expenses are estimated to
be 2.72% absent the anticipated voluntary waivers of the management fee and
the 12b-1 fee and the anticipated voluntary reimbursement of certain other
operating expenses by the Investment Managers and administrator.

Total Institutional Service Shares Operating Expenses include the Fund's pro
rata share of the aggregate annual operating expenses of the Portfolio, in which
all of the investable assets of the Fund are invested. The Trustees of the Trust
considered the aggregate per share expenses of the Fund, the Fund's pro rata
shares of the expenses for the Portfolio and the potential economies of scale
the Fund could achieve by investing its assets in the Portfolio. As a result,
the Trustees believe that the aggregate per share expenses of the Fund and the
Fund's pro rata share of the expenses for the Portfolio will be less than or
approximately equal to the expenses which the Fund would incur if it retained
the services of an investment adviser and the assets of the Fund were invested
directly in the type of securities held by the Portfolio. Federated Investors
has agreed to maintain total operating expenses (after waivers and
reimbursements) of the Portfolio at no greater than 0.20% of average net assets
of the Portfolio for the twelve month period following January 2, 1996.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SERVICE SHARES"
AND "INFORMATION ABOUT THE TRUST AND FEDERATED PORTFOLIOS." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period.................................................................. $6 $17 $30 $68
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated July 18, 1996, on the Funds financial
statements for the period ended May 31, 1996, and on the following table for the
period presented, is included in the Fund's Annual Report, which is incorporated
herein by reference. This table should be read in conjunction with the Fund's
financial statements and notes thereto, contained in the Fund's Annual Report,
which may be obtained from the Fund.
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1996(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.25
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.12
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Net realized and unrealized gain (loss) on investments (0.29)
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Total from investment operations (0.17)
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LESS DISTRIBUTIONS
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Distributions from net investment income (0.12)
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NET ASSET VALUE, END OF PERIOD $ 6.96
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TOTAL RETURN (b) (2.32%)
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RATIOS TO AVERAGE NET ASSETS*
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Expenses 0.09%
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Net investment income 7.01%
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Expense waiver/reimbursement (c) 8.18%
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $ 0.2
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</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from February 22, 1996 (start of
performance) to May 31, 1996.

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

Further information about the Fund's performance is contained in the Annual
Report dated
May 31, 1996, which can be obtained free of charge.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
U.S. investment grade fixed income securities that attempt to provide investment
results that correspond to the Lehman Brothers Aggregate Bond Index, a broad
market-weighted index which encompasses U.S. Treasury and agency securities,
corporate investment grade bonds and mortgage-backed securities, each with
maturities greater than one year. A minimum initial investment of $5,000 is
required, unless the investment is in a retirement program, in which case the
minimum initial investment is $50. Subsequent investments must be in amounts of
at least $100, and $50 for retirement programs.

Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.

The Fund invests through the Portfolio, a series of Federated Portfolios, which
is a business
trust organized under the laws of the Commonwealth of Massachusetts. Federated
Portfolios
was established as a Massachusetts business trust under a Declaration of Trust
dated as of
September 29, 1995.

INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
Unless otherwise stated, all of the investment objectives, policies and
strategies discussed herein and in the Statement of Additional Information are
deemed "non-fundamental," i.e., the approval of the Fund's shareholders is not
required to change its investment objective or any of its investment policies
and strategies. Likewise, the approval of the Fund and other investors in the
Portfolio is not required to change the Portfolio's investment objective or any
of the Portfolio's investment policies and strategies. Any changes in the Fund's
or the Portfolio's investment objective, policies or strategies could result in
the Fund having investment objectives, policies and strategies different from
those applicable at the time of a shareholder's investment in the Fund.

INVESTMENT OBJECTIVE

corporate investment grade bonds, and mortgage-backed securities, each with
maturities greater than one year.

Since the investment policies and limitations of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investment policies and limitations of the Portfolio. Further information about
the investment policies and limitations of the Portfolio, including a list of
those investment limitations that are fundamental (i.e., that cannot be changed
without shareholder approval) appears in the Statement of Additional
Information.

INVESTMENT POLICIES

INVESTMENT PHILOSOPHY. The Portfolio is not managed pursuant to
traditional methods of active investment management, which involve the
buying and selling of securities based upon economic, financial and market
analyses and investment judgment. Instead, the Portfolio, utilizing a
passive or indexing investment approach, will attempt to duplicate the
investment performance of the Aggregate Bond Index.

when taken together, is expected to perform similarly to the Aggregate Bond
Index as a whole. The sampling technique is expected to enable the
Portfolio to track the price movements and performance of the Aggregate
Bond Index, while minimizing brokerage, custodial and accounting costs.

LEHMAN BROTHERS AGGREGATE BOND INDEX. The Aggregate Bond Index is a broad
market-weighted index which encompasses three major classes of United States
investment grade fixed income securities with maturities greater than one year:
U.S. Treasury and agency securities, corporate bonds, and mortgage-backed
securities. The Index measures the total investment return (capital change plus
income) provided by a universe of fixed income securities, weighted by the
market value outstanding of each security. The securities included in the Index
generally meet the following criteria, as defined by Lehman Brothers: an
outstanding market value of at least $100 million and investment grade quality
(rated a minimum of Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Ratings Group ("S&P")).

The Aggregate Bond Index is composed of the following kinds of securities:
public obligations of the U.S. Government; publicly issued debt of U.S.
Government agencies and quasi-federal corporations; corporate debt guaranteed by
the U.S. Government; fixed rate nonconvertible dollar-denominated corporate
debt; 15- and 30-year fixed rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), and the Federal National Mortgage Association (FNMA); and
asset-backed pass-through securities representing pools of credit card
receivables and auto or home equity loans.

ADDITIONAL INVESTMENT STRATEGIES AND TECHNIQUES; RISK FACTORS

The Portfolio may utilize the investment strategies and techniques described
below.

To reduce transaction costs, the Portfolio's securities holdings will not be
automatically traded or re-balanced to reflect changes in the Aggregate Bond
Index. The Portfolio will seek to buy round lots of securities and may trade
large blocks of securities. These policies may cause a particular security to be
overor under-represented in the Portfolio relative to its Index weighting or
result in its continued ownership by the Portfolio after its deletion from the
Index, thereby reducing the correlation between the Portfolio and the Index. The
Portfolio is not required to buy or sell securities solely because the
percentage of its assets invested in Index securities changes when their market
values increase or decrease. In addition, in order to more closely correlate to
the Index, the Portfolio may omit or remove Index securities from its portfolio
and substitute other Index securities if the Investment Managers believe the
removed security to be insufficiently liquid or believe the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Investment Managers seek a correlation of 0.95 or better between
the performance of the Portfolio and that of the Aggregate Bond Index. See
"Investment Philosophy and Strategies" above.

If the seller defaults and the collateral value declines, the Portfolio might
incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Portfolio's realization upon the disposition of collateral may be
delayed or limited. Investments in certain repurchase agreements and certain
other investments which may be considered illiquid are limited. See "Illiquid
Investments; Privately Placed and other Unregistered Securities" below.

FUTURES CONTRACTS AND OPTIONS. The Portfolio may purchase put and call options
on securities, indices of securities and futures contracts. The Portfolio may
also purchase and sell futures contracts. Futures contracts on securities and
securities indices will be used primarily to accommodate cash flows or in
anticipation of taking a market position when, in the opinion of the Investment
Managers, available cash balances do not permit economically efficient purchases
of securities. Moreover, the Portfolio may sell futures and options to "close
out" futures and options it may have purchased or to protect against a decrease
in the price of securities it owns but intends to sell. The Portfolio will not
invest in futures or options as part of a defensive strategy to protect against
potential market declines. See "Futures Contracts and Options on Futures
Contracts" in the Statement of Additional Information.

securities. In addition, the Portfolio may sell (write) exchange-traded and OTC
put and call options on securities and indices of securities and on futures
contracts on securities and indices of securities. The staff of the SEC has
taken the position that OTC options are illiquid and, therefore, together with
other illiquid securities held by the Portfolio, cannot exceed 15% of the
Portfolio's net assets. The Portfolio intends to comply with this limitation.

ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may acquire investments that are illiquid or have limited liquidity,
such as private placements or investments that are not registered under the
Securities Act of 1933 (the "1933 Act") and cannot be offered for public sale in
the United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.

These securities may be determined to be liquid in accordance with guidelines
established by the Investment Managers and approved by the Trustees of Federated
Portfolios. The Trustees of Federated Portfolios will monitor the implementation
of these guidelines on a periodic basis. Because Rule 144A is relatively new, it
is not possible to predict how markets in Rule 144A securities will develop. If
trading in Rule 144A securities were to decline, these securities could become
illiquid after being purchased, increasing the level of illiquidity of the
Portfolio. As a result, the Portfolio might not be able to sell these securities
when the Investment Managers wish to do so, or might have to sell them at less
than fair value.

The Portfolio may invest in U.S. dollar-denominated certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued by
domestic banks and domestic or foreign branches or subsidiaries of foreign
banks. Certificates of deposit are certificates evidencing the obligation of a
bank to repay funds deposited with it for a specified period of time. Such
instruments include Yankee Certificates of Deposit ("Yankee CDs"), which are
certificates of deposit denominated in U.S. dollars and issued in the United
States by the domestic branch of a foreign bank. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits which may be held by the
Portfolio are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. Government. The Portfolio will not invest more than 15%
of the value of its net assets in time deposits maturing in longer than seven
days and other instruments which are deemed illiquid or not readily marketable.
Bankers' acceptances are credit instruments evidencing the obligation of a

bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations in which the
Portfolio may invest include uninsured, direct obligations which have either
fixed, floating or variable interest rates.

SHORT SALES "AGAINST THE BOX." In a short sale, the Portfolio sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The Portfolio may engage in short sales only if at the time
of the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box." The Portfolio may make a short sale as
a hedge, when it believes that the value of a security owned by it (or a
security convertible or exchangeable for such security) may decline, or when the
Portfolio wants to sell the security at an attractive current price but wishes
to defer recognition of gain or loss for tax purposes. Not more than 40% of the
Portfolio's total assets would be involved in short sales "against the box."

INVESTMENT LIMITATIONS

SPECIAL INFORMATION CONCERNING HUB AND SPOKE

Unlike other mutual funds that directly acquire and manage their own portfolios
of securities, the Fund seeks to achieve its investment objective by investing
all of its Assets in the Portfolio. The
Fund invests in the Portfolio through Signature Financial Group, Inc.'s two-tier
structure master/ feeder fund known as the Hub and Spoke financial services
method. Hub and Spokeis a registered service mark of Signature Financial Group,
Inc. and is licensed to Federated Services Company. The Fund has the same
investment objective and policies as the Portfolio. In addition to selling a
beneficial interest to the Fund, the Portfolio may sell beneficial interests to
other mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to issue their shares at the same public offering
price as the Fund due to variations in sales commissions and other operating
expenses. Investors in the Fund should be aware that these differences may
result in differences in returns experienced by investors in the different funds
that invest in the Portfolio. Such differences in returns are also present in
other mutual fund structures. Information concerning other holders of interests
(e.g., other spokeSM or feeder funds) in the Portfolio is available from
Federated Services Company at
1-800-245-4270.

Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control over the operations of the Portfolio. (However, these situations also
exist for traditionally structured funds which have large or institutional
investors). Whenever the Fund is requested to vote on a matter pertaining to the
Portfolio, the Fund will vote its shares without a meeting of Fund shareholders
if the proposal is one, if which made with respect to the Fund, would not
require the vote of Fund shareholders, as long as such action is permissible
under applicable statutory and regulatory requirements. Conversely, except as
permitted by the SEC, whenever the Fund is requested to vote as an investor in
the Portfolio on matters pertaining to the Portfolio because the 1940 Act
requires approval of the matter by an investment company's shareholders (other
than a vote by the Fund to continue the operation of the Portfolio such as when
there is the withdrawal of another investor in the Portfolio), the Fund will
hold a meeting of its shareholders and will cast all of its votes as an

investor in the Portfolio in the same proportion as directed by the votes of the
Fund's shareholders. Fund shareholders who do not vote will not affect the votes
cast by the Fund at the meeting of the Portfolio investors. The percentage of
votes representing the Fund's shareholders will be voted by the Fund in the same
proportion as the Fund's shareholders who do, in fact, vote. Certain changes in
the Portfolio's investment objective, policies or limitations may require the
Fund to withdraw its investment in the Portfolio. Any such withdrawal could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution from the Portfolio). If securities are distributed, the Fund could
incur brokerage, tax or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.

MANAGEMENT OF THE TRUST AND FEDERATED PORTFOLIOS

A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Federated Portfolios, up to and including creating a separate board of trustees.
See "Management of the Trust and of Federated Portfolios" in the Statement of
Additional Information for more information about the Trustees and officers of
the Trust and of Federated Portfolios.

INVESTMENT ADVISER. The Fund seeks to achieve its investment objective by
investing all of its Assets in the Portfolio, which has the same investment
objective, policies, and limitations as the Fund. Federated Research Corp. (the
"Adviser") is responsible for the management of the assets of
the Portfolio, pursuant to an investment advisory agreement (the "Advisory
Agreement") with Federated Portfolios on behalf of the Portfolio. As of
September 30, 1996, Federated Management was replaced as adviser to the
Portfolio by Federated Research Corp. In all other respects, the advisory
arrangements are identical. Both advisers are subsidiaries of Federated
Investors, are registered investment advisers and have common
directors/trustees, officers and employees. Federated Research Corp. has
delegated the daily management of the security holdings of the Portfolio to U.S.
Trust Company, acting as sub-adviser.

ADVISER'S BACKGROUND. Federated Research Corp., a Maryland corporation
organized on
May 23, 1958, is a registered investment adviser under the Investment Advisers
Act of 1940. It is a subsidiary of Federated Investors. All of the Class A
(voting) shares of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr.
Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President
and Trustee of Federated Investors.

Susan M. Nason has been the Portfolio's portfolio manager since its inception.
Ms. Nason joined Federated Investors in 1987 and has been a Vice President of
the Adviser since 1993. Ms. Nason served as an Assistant Vice President of the
Adviser from 1990 until 1992. Ms. Nason is a Chartered Financial Analyst and
received her M.B.A. in Finance from Carnegie Mellon University.

Mr. Theccanat has been managing structured investment portfolios at U.S. Trust
Company since January, 1990. Mr. Tavel designs, develops and implements analytic
procedures and services utilizing quantitative and financial information. He has
over 18 years of experience in the execution
of decision support systems at U.S. Trust Company and previously at Lehman Asset
Management, where he was Director of Institutional Computer Services.

DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the distributor may be paid a fee by the Fund in an amount, computed at an
annual rate of 0.25% of the average daily net asset value of Shares. The
distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales services or distribution-related support services as agents for their
clients or customers.

The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by

it from the Fund, interest, carrying, or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses. However,
the distributor may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Distribution Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its Shares to obtain certain personal services for shareholders and maintain
shareholder accounts.

Under the Shareholder Services Agreement, Federated Shareholder Services will
either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Distribution Plan and Shareholder Services Agreement, Federated
Securities Corp. and Federated Shareholder Services, from their own assets, may
pay financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be reimbursed by
the Adviser or its affiliates.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.

The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the plans.

ADMINISTRATION OF THE TRUST

ADMINISTRATIVE SERVICES. Federated Services Company provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company, a
Pennsylvania corporation, is a subsidiary of Federated Investors and is located
in Pittsburgh, Pennsylvania. Federated Services Company provides these services
at an annual rate, accrued daily and paid monthly, which relates to the average
aggregate daily net assets of the Fund as specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS OF THE FUND
<S> <C>
0.1000% on the first $250 million
0.0875% on the next $250 million
0.0750% on the next $250 million
0.0700% on assets in excess of $750 million
</TABLE>

SERVICE PROVIDERS OF THE PORTFOLIO

Federated Securities Corp. is the placement agent for investments in the
Portfolio but receives no fee for such services.

NET ASSET VALUE
- --------------------------------------------------------------------------------

The Fund's net asset value per share fluctuates. The net asset value per share
for Shares is determined by adding the interest of the Shares in the market
value of all securities and other assets of the Fund, subtracting the interest
of the Shares in the liabilities of the Fund and those attributable to Shares,
and dividing the remainder by the total number of Shares outstanding. Since the
Fund will invest all of its Assets in the Portfolio, the value of the Fund's
Assets will be equal to the value of its beneficial interest in the Portfolio.

INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.

BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated Bond Index Fund--Institutional Service Shares; Fund Number
(this number can be found on the account statement or by contacting the Fund);
Group Number or Wire Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire transfers
are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Bond Index Fund --Institutional Service Shares to Federated Shareholder Services
Company, P.O. Box 8600, Boston, Massachusetts 02266-8600. Orders by mail are
considered received after payment by check is converted by the transfer agent's
bank, State Street Bank, into federal funds. This is generally the next business
day after State Street Bank receives the check.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $5,000. Subsequent investments must
be in amounts of at least $100. The minimum initial and subsequent investment
amounts in Shares is $50 if the investment is in a retirement program. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Trust. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum investment.

WHAT SHARES COST

Day, Thanksgiving Day and Christmas Day. Any day on which the Fund may determine
its net asset value, as described above, may be referred to herein as a
"Business Day."

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.

DIVIDENDS

CAPITAL GAINS

gains). Net short-term capital gains realized during the Fund's fiscal year will
also be distributed during such year.

RETIREMENT PLANS

Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact Federated Securities Corp. and
consult a tax adviser.

REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

TELEPHONE REDEMPTION

An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $5,000. This requirement
does not apply, however, if the balance falls below $5,000 because of changes in
the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

VOTING RIGHTS

Portfolios will vote separately or together in the same manner as shareholders
of the Trust's series.
Federated Portfolios' Declaration of Trust provides that the Fund and other
entities investing in the Portfolio and the other series of Federated Portfolios
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the series in which they invest (and of no other series) and of the overall
obligations of Federated Portfolios. However, the Trustees of the Trust believe
that the risk of the Fund incurring financial loss on account of such liability
is limited to circumstances in which neither the Portfolio nor Federated
Portfolios are able to meet their obligations, and that neither the Fund nor its
shareholders will be exposed to a material risk of liability by reason of the
Fund's investment in the Portfolio.

For more information regarding the Trustees of the Trust and of Federated
Portfolios, see "Management of Trust and Federated Portfolios" in the Statement
of Additional Information.

EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------

The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956,
such as U.S. Trust Company, or any affiliate thereof, from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, and from issuing, underwriting, selling
or distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of their customers. Based on
advice of its counsel, it is the position of U.S. Trust Company that it may
perform the investment sub-advisory services it performs under the Sub-Advisory
Agreement with the Adviser without violating the Glass-Steagall Act or other
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future judicial or administrative
decisions or interpretations of present or future statutes and regulations,
could prevent a bank from continuing to perform all or part of the above
services. If this happens, changes in the operation of the Portfolio (or the
Fund) may occur and the Trustees would consider alternative sub-advisers and
other means of continuing available investment services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.

TAX INFORMATION
- --------------------------------------------------------------------------------

Each year the Trust intents to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Provided the Fund meets all income,
distribution and diversification requirements of the Code, and distributes
substantially all of its net investment income and realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code, no
federal income or excise taxes will be required to be paid from the Fund. If the
Fund fails to qualify as a "regulated investment company" in any year, the Fund
would incur a regular corporate federal income tax upon its taxable income.
Whether or not the Fund qualifies as a RIC, the Fund's distributions would
generally be taxable as ordinary dividend income to shareholders. The Portfolio
in which the Fund invests is also not expected to be required to pay any federal
income or excise taxes.

At the end of each calendar year, each Fund shareholder receives information for
tax purposes on the dividends and other distributions received during that
calendar year, including the portion thereof taxable as ordinary income, the
portion taxable as long-term capital gains, the portion (if any) which
constitutes a return of capital (which is generally free of tax but results in a
basis reduction), and the amount of dividends (if any) which may qualify for the
dividends-received deduction for corporations.

withholding is not an additional tax. Any amounts withheld may be credited
against the Fund shareholder's federal income tax liability.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time, the Fund advertises its total return and yield for Shares.

The Fund is sold without any sales charge or other similar non-recurring
charges.

Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. Institutional Shares are also
made available to financial intermediaries, as well as private and public
organizations and are subject to a minimum initial investment of $25,000.

Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses; however, Institutional Service Shares are distributed under a
12b-1 Plan adopted by the Fund. This,

plus other expense differences between Institutional Shares and Institutional
Service Shares, may affect the performance of each class.

To obtain more information and a prospectus for Institutional Shares, investors
may call
1-800-245-4270.

MISCELLANEOUS
- --------------------------------------------------------------------------------

The Fund's Statement of Additional Information bears the same date as this
prospectus and contains more detailed information about the Fund and the
Portfolio, including information related to (i) investment policies and
restrictions of the Fund and the Portfolio, (ii) Trustees and officers of the
Trust and of Federated Portfolios, (iii) portfolio transactions and any
brokerage commissions, (iv) rights and liabilities of shareholders of the Trust
and investors in Federated Portfolios, (v) additional performance information,
including a description of the Fund's calculation of yield and total return,
(vi) determination of the net asset value of Shares of the Fund, and (vii)
financial statements for the Fund and the Portfolio.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Bond Index Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Distributor for Federated Bond Index Fund
and Placement Agent for Bond Index Portfolio
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Investment Adviser for Bond Index Portfolio
Federated Research Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

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

Administrator
Federated Administrative Services, Inc. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

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

FEDERATED BOND
INDEX FUND

INSTITUTIONAL SERVICE SHARES

PROSPECTUS
An Open-End, Diversified Management
Investment Company

Prospectus dated September 30, 1996

[LOGO] FEDERATED INVESTORS

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors

G01556-01-SS (9/96)
Cusip 313909202

FEDERATED BOND INDEX FUND
(A PORTFOLIO OF FEDERATED INVESTMENT TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information relates to the Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as ``Shares,''as the context may require). The Shares
represent interests in a diversified portfolio of securities of
Federated Bond Index Fund (the "Fund"), a portfolio of Federated
Investment Trust (the ``Trust'). This Statement of Additional
Information should be read with the respective prospectuses for
Institutional Shares and Institutional Service Shares dated September
30, 1996. This Statement is not a prospectus itself. You may request a
copy of either prospectus or a paper copy of this Statement of
Additional Information, if you have received it electronically, free of
charge by calling 1-800-245-4270. Terms used but not defined herein,
which are defined in the prospectus, are used herein as defined in the
prospectus.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated September 30, 1996

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 313909202
Cusip 313909103
G01556-03 (9/96)

INVESTMENT OBJECTIVE AND POLICIES 4

ASSET-BACKED SECURITIES 4
BANK OBLIGATIONS 6
COMMERCIAL PAPER 7
LENDING OF PORTFOLIO SECURITIES 8
VARIABLE RATE AND FLOATING SECURITIES 9
PARTICIPATION INTERESTS 10
ILLIQUID SECURITIES 11
UNSECURED PROMISSORY NOTES 13
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS 13
GUARANTEED INVESTMENT CONTRACTS 14
WHEN-ISSUED SECURITIES 15
ZERO COUPON OBLIGATIONS 16
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS 17
OPTIONS ON SECURITIES 23
OPTIONS ON SECURITIES INDICES 26
SHORT SALES "AGAINST THE BOX" 27
CERTAIN OTHER OBLIGATIONS 29
RATING SERVICES 29
PORTFOLIO TURNOVER 29
INVESTMENT LIMITATIONS 31
MANAGEMENT OF THE TRUST AND FEDERATED PORTFOLIOS 37

FUND OWNERSHIP 47
TRUSTEE LIABILITY 47
TRUSTEES' COMPENSATION 48
INVESTMENT ADVISORY AND SUB-ADVISORY SERVICES 50

ADVISER AND SUB-ADVISER TO THE PORTFOLIO 50
STATE EXPENSE LIMITATIONS 53
BROKERAGE TRANSACTIONS 53

OTHER SERVICES 56

TRUST ADMINISTRATION 56
CUSTODIAN AND PORTFOLIO RECORDKEEPER 57
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 57
INDEPENDENT AUDITORS 57
PURCHASING SHARES 57

DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND
SHAREHOLDER SERVICES AGREEMENT 57
CONVERSION TO FEDERAL FUNDS 59
DETERMINING NET ASSET VALUE 59

DETERMINING MARKET VALUE OF SECURITIES 59
REDEEMING SHARES 61

REDEMPTION IN KIND 61
MASSACHUSETTS PARTNERSHIP LAW 62

TAX STATUS 63

THE FUND'S TAX STATUS 63
TOTAL RETURN 67

YIELD 67

PERFORMANCE COMPARISONS 68

ECONOMIC AND MARKET INFORMATION 70

DESCRIPTION OF FEDERATED PORTFOLIOS 70

BENEFICIAL INTERESTS 70
SERVICE PROVIDERS 73
ABOUT FEDERATED INVESTORS 75

MUTUAL FUND MARKET 76
INSTITUTIONAL CLIENTS 76
TRUST ORGANIZATIONS 77
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES 77
FINANCIAL STATEMENTS 78

APPENDIX 79

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund and Portfolio is described in the
prospectus. There can, of course, be no assurance that the Fund or the
Portfolio will achieve its investment objective.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Portfolio. The Fund may withdrawal its investment from the
Portfolio at any time if the Board of Trustees of the Trust (`Trustees'')
determines that it is in the best interests of the Fund to do so.
Since the investment characteristics of the Fund correspond directly to
those of the Portfolio, the following supplements the discussions of the
various investments of and techniques employed by the Portfolio set forth
in the prospectus of the Fund.
Unless indicated otherwise, the investment objectives and policies of the
Fund may be changed by the Boards of Trustees of the Trust and of Federated
Portfolios without the approval of the Fund's shareholders. Likewise, the
investment objective and policies of the Portfolio may be changed by the
Board of Trustees of Federated Portfolios without the approval of the
Portfolio's investors, such as the Fund. Fund shareholders will be
notified before any material change becomes effective.
ASSET-BACKED SECURITIES
Asset-backed securities have structural characteristics similar to
mortgage-backed securities but have underlying assets that generally are
not mortgage loans or interests in mortgage loans.
The Portfolio may invest in asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables, equipment
leases, manufactured housing (mobile home) leases, or home equity loans.
These securities may be in the form of pass-through instruments or asset-

backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
The credit characteristics of asset-backed securities differ in a number of
respects from those of traditional debt securities. The credit quality of
most asset-backed securities depends primarily upon the credit quality of
the assets underlying such securities, how well the entity issuing the
securities is insulated from the credit risk of the originator or any other
affiliated entities, and the amount and quality of any credit enhancement
to such securities.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance due. Most issuers
of asset-backed securities backed by motor vehicle installment purchase
obligations permit the servicer of such receivable to retain possession of
the underlying obligations. If the servicer sells these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities.
Further, if a vehicle is registered in one state and is then re-registered
because the owner and obligor moves to another state, such re-registration
could defeat the original security interest in the vehicle in certain
cases. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee
for the holders of asset-backed securities backed by automobile receivables
may not have a proper security interest in all of the obligations backing
such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.

BANK OBLIGATIONS
Domestic commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members
of the Federal Reserve System. Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks
are subject to federal examination and to a substantial body of federal law
and regulation. As a result of federal or state laws and regulations,
domestic banks, among other things, generally are required to maintain
specified levels of reserves, are limited in the amounts which they can
loan to a single borrower, and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations
apply to the foreign branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as certificates of
deposit (`CDs'') and time deposits (``TDs''), may be general obligations of
the parent banks in addition to the issuing branch, or may be limited by
the terms of a specific obligation and governmental regulation. Such
obligations are subject to different risks than are those of domestic
banks. These risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect payment of
principal and interest on the obligations, foreign exchange controls and
foreign withholding and other taxes on interest income. Foreign branches
and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory
reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a
foreign bank than about a domestic bank.

Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal or state
regulation as well as governmental action in the country in which the
foreign bank has its head office. A domestic branch of a foreign bank with
assets in excess of $1 billion may be subject to reserve requirements
imposed by the Federal Reserve System or by the state in which the branch
is located if the branch is licensed in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the
appropriate regulatory authority; and (2) maintain assets within the state
in an amount equal to a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through all of its agencies
or branches within the state.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under an agreement between a
commercial paper issuer and an institutional lender pursuant to which the
lender may determine to invest varying amounts.
The Portfolio may purchase three types of commercial paper, as classified
by exemption from registration under the 1933 Act. The three types include
open market, privately placed, and letter of credit commercial paper.
Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers or directly through the issuers.

Individual investor participation in the commercial paper market is very
limited.
OPEN MARKET. "Open market" commercial paper refers to the commercial paper
of any industrial, commercial, or financial institution which is openly
traded, including directly issued paper. "Open market" paper's 1933 Act
exemption is under Section 3(a)(3) which limits the use of proceeds to
current transactions, limits maturities to 270 days and requires that the
paper contain no provisions for automatic rollovers. PRIVATELY PLACED.
"Privately placed" commercial paper relies on the exemption from
registration provided by Section 4(2) of the 1933 Act, which exempts
transactions by an issuer not involving any public offering. The commercial
paper may only be offered to a limited number of accredited investors.
"Privately placed" commercial paper has no maturity restriction and may be
considered illiquid. See "Illiquid Securities" below. LETTER OF CREDIT.
"Letter of credit" commercial paper is exempt from registration under
Section 3(a)(2) of the 1933 Act. It is backed by an irrevocable or
unconditional commitment by a bank to provide funds for repayment of the
notes. Unlike "open market" and "privately placed" commercial paper,
"letter of credit" paper has no limitations on purchasers.
LENDING OF PORTFOLIO SECURITIES
The Portfolio has the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, the
Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by either investing the cash collateral in
short-term securities subject to payment of a rebate fee to the borrower or
obtaining a fee from the borrower when U.S. Government obligations are used
as collateral. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail

financially. The Portfolio will adhere to the following conditions whenever
its securities are loaned: (i) the Portfolio must receive at least 100%
cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase this collateral whenever the market value of the
loaned securities including accrued interest exceeds the level of the
collateral; (iii) the Portfolio must be able to terminate the loan at any
time subject to prior notice; (iv) the Portfolio must receive a reasonable
return on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value;
(v) the Portfolio may pay only reasonable custodian fees in connection with
the loan; and (vi) voting rights on the loaned securities may pass to the
borrower. However, if a material event adversely affecting the loaned
securities were to occur, the Portfolio would terminate the loan and regain
the right to vote the securities.
VARIABLE RATE AND FLOATING SECURITIES
The Portfolio may purchase floating and variable rate demand notes and
bonds, which are obligations ordinarily having stated maturities in excess
of 397 days, but which permit the holder to demand payment of principal at
any time, or at specified intervals not exceeding 397 days, in each case
upon not more than 30 days' notice. Variable rate demand notes include
master demand notes which are obligations that permit the Portfolio to
invest fluctuating amounts, which may change daily without penalty,
pursuant to direct arrangements between the Portfolio, as lender, and the
borrower. The interest rates on these notes fluctuate from time to time.
The issuer of such obligations normally has a corresponding right, after a
given period, to prepay in its discretion the outstanding principal amount
of the obligations plus accrued interest upon a specified number of days'
notice to the holders of such obligations. The interest rate on a floating
rate demand obligation is based on a known lending rate, such as a bank's

prime rate, and is adjusted automatically each time such rate is adjusted.
The interest rate on a variable rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are
collateralized by letters of credit or other credit support arrangements
provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that
such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not
secured by letters of credit or other credit support arrangements, the
Portfolio's right to redeem is dependent on the ability of the borrower to
pay principal and interest on demand. Such obligations frequently are not
rated by credit rating agencies and the Portfolio may invest in obligations
which are not so rated only if its Investment Managers determine that at
the time of investment the obligations are of comparable quality to the
other obligations in which the Portfolio may invest. The Investment
Managers will consider on an ongoing basis the creditworthiness of the
issuers of the floating and variable rate demand obligations held by the
Portfolio. The Portfolio will not invest more than 15% of the value of its
net assets in floating or variable rate demand obligations as to which it
cannot exercise the demand feature on not more than seven days' notice if
there is no secondary market available for these obligations, and in other
securities that are not readily marketable. See "Investment Limitations"
below.
PARTICIPATION INTERESTS
The Portfolio may purchase from financial institutions participation
interests in securities in which the Portfolio may invest. A participation
interest gives the Portfolio an undivided interest in the security in the
proportion that the Portfolio's participation interest bears to the total

principal amount of the security. These instruments may have fixed,
floating or variable rates of interest, with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given
a rating below that which is permissible for purchase by the Portfolio, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, the Investment Managers of the Portfolio must have
determined that the instrument is of comparable quality to those
instruments in which the Portfolio may invest. For certain participation
interests, the Portfolio will have the right to demand payment, on not more
than seven days' notice, for all or any part of the Portfolio's
participation interest in the security, plus accrued interest. As to these
instruments, the Portfolio intends to exercise its right to demand payment
only upon a default under the terms of the security, as needed to provide
liquidity to meet redemptions or to maintain or improve the quality of its
investment portfolio. The Portfolio will not invest more than 15% of its
net assets in participation interests that do not have this demand feature,
and in other securities that are not readily marketable. Currently, the
Portfolio does not intend to invest more than 5% of its net assets in
participation interests during the current year. See "Investment
Limitations" below.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are
referred to as private placements or restricted securities and are

purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register
such restricted securities in order to dispose of them which, if possible
at all, would result in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A,
which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of
the 1933 Act for resales of certain securities to qualified institutional
buyers.
The Investment Managers will monitor the liquidity of Rule 144A securities
for the Portfolio under the supervision of the Trustees of Federated
Portfolios. In reaching liquidity decisions, the Investment Managers will

consider, among other things, the following factors: (1) the frequency of
trades and quotes for the security, (2) the number of dealers and other
potential purchasers wishing to purchase or sell the security, (3) dealer
undertakings to make a market in the security and (4) the nature of the
security and of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
UNSECURED PROMISSORY NOTES
The Portfolio also may purchase unsecured promissory notes ("Notes") which
are not readily marketable and have not been registered under the 1933 Act,
provided such investments are consistent with the Portfolio's investment
objective and policies. The Portfolio will invest no more than 15% of its
net assets in such Notes and in other securities that are not readily
marketable (which securities would include floating and variable rate
demand obligations as to which the Portfolio cannot exercise the demand
feature described above and as to which there is no secondary market).
Currently, the Portfolio does not intend to invest any of its assets in
unsecured promissory notes during the coming year. See "Investment
Limitations" below.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person purchases a security
and simultaneously commits to resell that security to the seller (which is
usually a member bank of the Federal Reserve System or a member firm of the
New York Stock Exchange or a subsidiary thereof) at an agreed-upon date
within a number of days (usually not more than seven) from the date of
purchase. The resale price reflects the purchase price plus an agreed-upon
market rate of interest which is unrelated to the coupon rate or maturity
of the purchased security. A repurchase agreement involves the obligation
of the seller to pay the agreed-upon price, which obligation is in effect

secured by the value of the underlying security, usually U.S. Government or
government agency issues. Under the Investment Company Act of 1940 (the
"1940 Act"), repurchase agreements may be considered to be loans by the
buyer. The Portfolio's risk is limited to the ability of the seller to pay
the agreed upon amount on the delivery date. If the seller defaults, the
underlying security constitutes collateral for the seller's obligation to
pay although the Portfolio may incur certain costs in liquidating this
collateral and in certain cases may not be permitted to liquidate this
collateral. All repurchase agreements entered into by the Portfolio are
fully collateralized, with such collateral being marked to market daily.
The Portfolio may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage.
One means of borrowing is by agreeing to sell portfolio securities to
financial institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time the Portfolio enters into a reverse repurchase
agreement it will place in a segregated custodial account cash, U.S.
Government securities or high-grade debt obligations having a value equal
to the repurchase price, including accrued interest. Reverse repurchase
agreements involve the risk that the market value of the securities sold by
the Portfolio may decline below the repurchase price of those securities.
GUARANTEED INVESTMENT CONTRACTS
The Portfolio may invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, the Portfolio makes
cash contributions to a deposit fund of the insurance company's general
account. The insurance company then credits guaranteed interest to the
Portfolio. The GICs provide that this guaranteed interest will not be less
than a certain minimum rate. The insurance company may assess periodic
charges against a GIC for expenses and service costs allocable to it, and

the charges will be deducted from the value of the deposit fund. Because
the Portfolio may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, the GIC is considered an
illiquid investment and, together with other instruments in the Portfolio
which are not readily marketable, will not exceed 15% of the Portfolio's
net assets. The term of a GIC will be 13 months or less. In determining
average weighted portfolio maturity, a GIC will be deemed to have a
maturity equal to the longer of the period of time remaining until the next
readjustment of the guaranteed interest rate or the period of time
remaining until the principal amount can be recovered from the issuer
through demand. Currently, the Portfolio intends to invest 5% or less of
its net assets in GICs during the current year.
WHEN-ISSUED SECURITIES
The Portfolio may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that under normal circumstances, the
Portfolio would take delivery of such securities. Prior to committing to
the purchase of a security on a when-issued or on a forward delivery basis,
the Portfolio will establish procedures consistent with the relevant
policies of the SEC. Those policies currently recommend that an amount of
the Portfolio's assets equal to the amount of the purchase commitment be
held aside or segregated to be used to pay for the commitment. Therefore,
the Portfolio expects always to have cash, cash equivalents, or high
quality debt securities sufficient to cover any purchase commitments or to
limit any potential risk. Although the Portfolio does not intend to make
such purchases for speculative purposes and intends to adhere to SEC
policies, purchases of securities on a when-issued or forward delivery
basis may involve additional risks than other types of securities
purchases. For example, the Portfolio may have to sell assets which have
been set aside in order to meet redemptions. Also, if the Portfolio

determines it is advisable as a matter of investment strategy to sell the
when-issued or forward delivery securities, the Portfolio would be required
to meet its obligations from its then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the
sale of the when-issued or forward delivery securities themselves (which
may have a value greater or less than the Portfolio's payment obligation).
When the Portfolio engages in when-issued or forward delivery transactions,
it relies on the other party to consummate the trade. Failure of such other
party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market
value of the Portfolio starting on the day the Portfolio agrees to purchase
the securities. The Portfolio does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
ZERO COUPON OBLIGATIONS
The Portfolio may acquire zero coupon obligations when consistent with its
investment objectives and policies. Such obligations have greater price
volatility than coupon obligations and will not result in payment of
interest until maturity. Since interest income is accrued throughout the
term of the zero coupon obligation but is not actually received until
maturity, the Portfolio, which is required for tax purposes to distribute
to its investors a certain percentage of its income, may have to sell other
securities to distribute the income prior to maturity of the zero coupon
obligation.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The successful use of such instruments by the Portfolio may depend
in part upon the Investment Managers' skill and experience with respect to
such instruments. Should interest rates move in an unexpected manner, the
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a
worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options
on futures contracts and movements in the price of the securities will not
be perfect and could produce unanticipated losses.
FUTURES CONTRACTS. The Portfolio may enter into contracts for the purchase
or sale for future delivery of securities, or contracts based on financial
indices. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed
through a futures commission merchant, or brokerage firm, which is a member
of the relevant contract market. Futures contracts trade on a number of
exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of
the exchange. The Portfolio may enter into futures contracts which are
based on debt securities that are backed by the full faith and credit of
the U.S. Government, such as long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-
backed securities and three-month U.S. Treasury Bills. The Portfolio may
also enter into futures contracts which are based on fixed income
securities issued by entities other than the U.S. Government, including
corporate debt securities, or contracts based on financial indices
including any index of U.S. Government securities, or corporate debt
securities.

At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit").
It is expected that the initial deposit would be approximately 1/2% to 5%
of a contract's face value. Daily thereafter, the futures contract is
valued and the payment of "variation margin" may be required, since each
day the Portfolio would provide or receive cash that reflects any decline
or increase in the contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the
delivery of securities with a different interest rate from that specified
in the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same
month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the
securities. Since all transactions in the futures market are made, offset
or fulfilled through a clearinghouse associated with the exchange on which
the contracts are traded, the Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case
where the Portfolio holds or intends to acquire fixed-income securities, is
to attempt to protect the Portfolio from fluctuations in interest rates
without actually buying or selling fixed-income securities. For example, if
interest rates were expected to increase, the Portfolio might enter into

futures contracts for the sale of debt securities. Such a sale would have
much the same effect as selling an equivalent value of the debt securities
owned by the Portfolio. If interest rates did increase, the value of the
debt security in the Portfolio would decline, but the value of the futures
contracts to the Portfolio would increase at approximately the same rate,
thereby keeping the net asset value of the Portfolio from declining as much
as it otherwise would have. The Portfolio could accomplish similar results
by selling debt securities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures
market is more liquid than the cash market, the use of futures contracts as
an investment technique allows the Portfolio to maintain a defensive
position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated
purchases of debt securities at higher prices. Since the fluctuations in
the value of futures contracts should be similar to those of debt
securities, the Portfolio could take advantage of the anticipated rise in
the value of debt securities without actually buying them until the market
had stabilized. At that time, the futures contracts could be liquidated and
the Portfolio could then buy debt securities on the cash market. To the
extent the Portfolio enters into futures contracts for this purpose, the
assets in the segregated asset account maintained to cover the Portfolio's
obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio
in an amount equal to the difference between the fluctuating market value
of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such
futures contracts.

The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial
deposit and variation margin requirements. Rather than meeting additional
variation margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast
of general interest rate trends by the Investment Managers may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Investment
Managers believe that use of such contracts will benefit the Portfolio, if
the judgment of the Investment Managers about the general direction of
interest rates is incorrect, the Portfolio's overall performance would be
poorer than if it had not entered into any such contract. For example, if
the Portfolio has hedged against the possibility of an increase in interest
rates which would adversely affect the price of debt securities held by it
and interest rates decrease instead, the Portfolio will lose part or all of
the benefit of the increased value of its debt securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient cash, it
may have to sell debt securities to meet daily variation margin

requirements. Such sales of bonds may be, but will not necessarily be, at
increased prices which reflect the rising market. The Portfolio may have to
sell securities at a time when it may be disadvantageous to do so.

Options on Futures Contracts. The Portfolio may purchase and write options
on futures contracts for hedging purposes. The purchase of a call option on
a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based
or the price of the underlying debt securities, it may or may not be less
risky than ownership of the futures contract or underlying debt securities.
As with the purchase of futures contracts, when the Portfolio is not fully
invested it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full
amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Portfolio will retain the
full amount of the option premium which provides a partial hedge against
any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised,
the Portfolio will incur a loss which will be reduced by the amount of the

premium it receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value of its
futures positions, the Portfolio's losses from existing options on futures
may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, the Portfolio may purchase a put option on a futures contract
to hedge its portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above,
the purchase of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value
of the option purchased.
The Trustees of Federated Portfolios have adopted the requirement that
futures contracts and options on futures contracts be used either (i) as a
hedge without regard to any quantitative limitation, or (ii) for other
purposes to the extent that immediately thereafter the aggregate amount of
initial margin deposits on all (non-hedge) futures contracts of the
Portfolio and premiums paid on outstanding (non-hedge) options on futures
contracts owned by the Portfolio do not exceed 5% of the market value of
the net assets of the Portfolio. In addition, the aggregate market value of
the outstanding futures contracts purchased by the Portfolio may not exceed
50% of the market value of the total assets of the Portfolio. Neither of
these restrictions will be changed by the Trustees without considering the
policies and concerns of the various applicable federal and state
regulatory agencies.

OPTIONS ON SECURITIES
The Portfolio may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options"). However, the
Portfolio may forgo the benefits of appreciation on securities sold or may
pay more than the market price on securities acquired pursuant to call and
put options written by the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified
in the option (the "exercise price") by exercising the option at any time
during the option period. If the option expires unexercised, the Portfolio
will realize income in an amount equal to the premium received for writing
the option. If the option is exercised, a decision over which the Portfolio
has no control, the Portfolio must sell the underlying security to the
option holder at the exercise price. By writing a covered call option, the
Portfolio forgoes, in exchange for the premium less the commission ("net
premium"), the opportunity to profit during the option period from an
increase in the market value of the underlying security above the exercise
price.
When the Portfolio writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at
the specified exercise price at any time during the option period. If the
option expires unexercised, the Portfolio will realize income in the amount
of the premium received for writing the option. If the put option is
exercised, a decision over which the Portfolio has no control, the
Portfolio must purchase the underlying security from the option holder at
the exercise price. By writing a covered put option, the Portfolio, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price. The
Portfolio will only write put options involving securities for which a

determination is made at the time the option is written that the Portfolio
wishes to acquire the securities at the exercise price.

The Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration
date as the option previously written. This transaction is called a
"closing purchase transaction." Where the Portfolio cannot effect a
closing purchase transaction, it may be forced to incur brokerage
commissions or dealer spreads in selling securities it receives or it may
be forced to hold underlying securities until an option is exercised or
expires.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to
reflect the current market value of the option written. The current market
value of a traded option is the last sale price or, in the absence of a
sale, the closing bid price. If an option expires on its stipulated
expiration date or if the Portfolio enters into a closing purchase
transaction, the Portfolio will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the premium received when the option
was sold), and the deferred credit related to such option will be
eliminated. If a call option is exercised, the Portfolio will realize a
gain or loss from the sale of the underlying security and the proceeds of
the sale will be increased by the premium originally received. The writing
of covered call options may be deemed to involve the pledge of the
securities against which the option is being written. Securities against

which call options are written will be segregated on the books of the
custodian for the Portfolio.
The Portfolio may purchase call and put options on any securities in which
it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The
purchase of a call option would entitle the Portfolio, in exchange for the
premium paid, to purchase a security at a specified price during the option
period. The Portfolio would ordinarily have a gain if the value of the
securities increased above the exercise price sufficiently to cover the
premium and would have a loss if the value of the securities remained at or
below the exercise price during the option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective
puts") or securities of the type in which it is permitted to invest. The
purchase of a put option would entitle the Portfolio, in exchange for the
premium paid, to sell a security, which may or may not be held in the
Portfolio's portfolio, at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the market value of the Portfolio's portfolio securities. Put
options also may be purchased by the Portfolio for the purpose of
affirmatively benefiting from a decline in the price of securities which
the Portfolio does not own. The Portfolio would ordinarily recognize a gain
if the value of the securities decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value
of the securities remained at or above the exercise price. Gains and losses
on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
The Portfolio has adopted certain other non-fundamental policies concerning
option transactions which are discussed below. The Portfolio's activities

in options may also be restricted by the requirements of the Internal
Revenue Code of 1986 (the "Code") for the Fund's qualification as a
regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker
rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. To
reduce this risk, the Portfolio will purchase such options only from
broker-dealers who are primary government securities dealers recognized by
the Federal Reserve Bank of New York and who agree to (and are expected to
be capable of) entering into closing transactions, although there can be no
guarantee that any such option will be liquidated at a favorable price
prior to expiration. The Investment Managers will monitor the
creditworthiness of dealers with whom the Portfolio enters into such option
transactions, under the general supervision of the Trustees of Federated
Portfolios.
OPTIONS ON SECURITIES INDICES
In addition to options on securities, the Portfolio may also purchase and
write (sell) call and put options on securities indices. Such options give

the holder the right to receive a cash settlement during the term of the
option based upon the difference between the exercise price and the value
of the index. Such options will be used for the purposes described under
"Options on Securities."
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close
out options positions on securities indices is more likely to occur,
although the Portfolio generally will only purchase or write such an option
if its Investment Managers believe the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included
in the index is interrupted. The Portfolio will not purchase such options
unless its Investment Managers believe the market is sufficiently developed
such that the risk of trading in such options is no greater than the risk
of trading in options on securities.
Price movements in the Portfolio's securities may not correlate precisely
with movements in the level of an index and, therefore, the use of options
on indices cannot serve as a complete hedge. Because options on securities
indices require settlement in cash, the Investment Managers may be forced
to liquidate portfolio securities to meet the Portfolio's settlement
obligations.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security.
The Portfolio may engage in short sales only if at the time of the short
sale it owns or has the right to obtain, at no additional cost, an equal
amount of the security being sold short. This investment technique is known
as a short sale "against the box."

In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until
delivery occurs. If the Portfolio engages in a short sale, the collateral
for the short position will be maintained by its custodian or qualified
sub-custodian. While the short sale is open, the Portfolio maintains in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for
such equivalent securities. These securities constitute the Portfolio's
long position.
The Portfolio will not engage in short sales against the box for investment
purposes. The Portfolio may, however, make a short sale as a hedge, when it
believes that the price of a security may decline, causing a decline in the
value of a security (or a security convertible or exchangeable for such
security), or when the Portfolio wants to sell the security at an
attractive current price, but also wishes to defer recognition of gain or
loss for federal income tax purposes or for purposes of satisfying certain
tests applicable to regulated investment companies under the Code. In such
case, any future losses in the Portfolio's long position should be reduced
by a gain in the short position. Conversely, any gain in the long position
should be reduced by a loss in the short position. The extent to which such
gains or losses are reduced depends upon the amount of the security sold
short relative to the amount the Portfolio owns. There are certain
additional transaction costs associated with short sales against the box,
but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
As a non-fundamental operating policy, not more than 40% of the Portfolio's
total assets would be involved in short sales against the box.

CERTAIN OTHER OBLIGATIONS
In order to allow for the investments in new instruments that may be
created in the future, upon supplementing this registration statement, the
Portfolio may invest in obligations other than those listed previously,
provided such investments are consistent with the investment objectives,
policies and limitations of the Portfolio and the Fund.
RATING SERVICES
Ratings represent the opinions of rating services as to the quality of the
securities that they undertake to rate. It should be emphasized, however,
that the ratings are relative and subjective and are not absolute standards
of quality. Although these ratings are an initial criterion for selection
of portfolio investments, the Investment Managers also make their own
evaluations of these securities, subject to review by the Trustees of
Federated Portfolios. After purchase by the Portfolio, an obligation may
cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event would require the Portfolio to
dispose of the obligation, but its Investment Managers will consider such
an event in their determination of whether the Portfolio should continue to
hold the obligation. A description of the ratings used herein and in the
prospectus is set forth in the Appendix to this Statement of Additional
Information.

PORTFOLIO TURNOVER
Although the Portfolio is managed to reflect the composition of the
Aggregate Bond Index, the Portfolio may sell securities irrespective of how
long such securities have been held. Ordinarily, securities will be sold
from the Portfolio only to reflect certain administrative changes in the
Lehman Brothers Aggregate Bond Index (including mergers or changes in its

composition) or to accommodate cash flows into and out of the Portfolio
while maintaining the similarity of its portfolio to its benchmark index.
The Portfolio may sell a portfolio investment immediately after its
acquisition if the Investment Managers believe that such a disposition is
consistent with the investment objective of the Portfolio. Portfolio
investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability
of continuing to hold such investments.
Except as may be required to ensure satisfaction of certain tests
applicable to regulated investment companies under the Code, portfolio
changes are made without regard to the length of time a security has been
held, or whether a sale would result in the recognition of a profit or
loss. The Portfolio may engage in short-term trading to achieve its
investment objective. Portfolio turnover may vary greatly from year to year
as well as within a particular year. The Portfolio's portfolio turnover
rate may also be affected by cash requirements for redemptions of shares
and by regulatory provisions which enable the Portfolio to receive certain
favorable tax treatment. Portfolio turnover will not be a limiting factor
in making portfolio decisions. Portfolio trading is engaged in for the
Portfolio if its Investment Managers believe that a transaction net of
costs (including custodian charges) will help achieve the Portfolio's
investment objective.

For the fiscal year ended May 31, 1996 and for the period from July 11,
1994 (date of initial public investment) to May 31, 1995, the Portfolio's
turnover rate was 43% and 67%, respectively. The portfolio turnover rates
presented herein include the operations of the Bond Market Portfolio (the
`Predecessor Portfolio''), a portfolio of the St. James Portfolios, for
periods prior to January 2, 1996. (See `Financial Statements'' for

additional information about the Predecessor Portfolio.) A high rate of
portfolio turnover may involve correspondingly greater brokerage commission
expenses and other transaction costs, which must be borne directly by the
Portfolio and ultimately by the investors in the Portfolio. High portfolio
turnover may result in the realization of substantial net capital gains. To
the extent net short-term capital gains are realized, any distributions
resulting from such gains are considered ordinary income for Federal income
tax purposes.

Except as stated otherwise, all investment policies and limitations
described herein are non-fundamental, and may be changed without prior
shareholder approval.

INVESTMENT LIMITATIONS
The following investment limitations are "fundamental policies" of the Fund
and the Portfolio and may not be changed with respect to the Fund or the
Portfolio without the approval of a "majority of the outstanding voting
securities" of the Fund or the Portfolio, as the case may be. "Majority of
the outstanding voting securities" under the 1940 Act and as used in this
Statement of Additional Information and in the prospectus means, with
respect to the Fund (or the Portfolio), the lesser of (i) 67% or more of
the outstanding voting securities of the Fund (or of the total beneficial
interests of the Portfolio) present at a meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund (or of the total
beneficial interests of the Portfolio) are present or represented by proxy,
or
(ii) more than 50% of the outstanding voting securities of the Fund (or of
the total beneficial interests of the Portfolio).

Because the Fund invests through the Portfolio, shareholders should be
aware that fundamental policies of the Portfolio may not be changed without
the approval of a `majority of the outstanding voting securities'' of the
Portfolio, i.e., the holders of the beneficial interests of the Portfolio.
Whenever the Fund is requested to vote on a fundamental policy of the
Portfolio, the Trust will hold a meeting of the Fund's shareholders and
will cast its vote as instructed by the Fund's shareholders.
With respect to each fundamental investment restriction and each non-
fundamental investment policy listed below, if a percentage restriction
(other than a restriction as to borrowing) or a rating restriction on
investment or utilization of assets is adhered to at the time an investment
is made or assets are so utilized, a later change in such percentage
resulting from changes in the Portfolio's total assets or the value of the
Portfolio's securities, or a later change in the rating of a portfolio
security, will not be considered a violation of the relevant restriction or
policy.

As a diversified investment company, 75% of the assets of the Portfolio (or
the Fund) are represented by cash and cash items (including receivables),
government securities, securities of other investment companies, and other
securities which for purposes of this calculation are subject to the
following limitations: (a) the Portfolio (or the Fund) may not invest more
than 5% of its total assets in the securities of any one issuer; and (b)
the Portfolio (or the Fund) may not own more than 10% of the outstanding
voting securities of any one issuer. This is a fundamental investment
policy which may not be changed without investor approval.

As a matter of fundamental policy , the Portfolio (or the Fund) may not
(except that no investment restriction of the Fund shall prevent the Fund
from investing all of its investable assets in an open-end management
investment company with substantially the same investment objective and
policies as the Fund):
(1) borrow money or mortgage or hypothecate assets of the Portfolio (or
the Fund), except that in an amount not to exceed 1/3 of the current value
of the Portfolio's (or Fund's) assets (including such borrowing) less
liabilities (not including such borrowing), it may borrow money, enter into
reverse repurchase agreements, and purchase when-issued securities, and
except that it may pledge, mortgage or hypothecate its assets to secure
such borrowings, reverse repurchase agreements, or when-issued securities,
provided that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction, and except
that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute.
The Fund will not purchase securities while borrowings exceed 5% of the
Portfolio's (or Fund's) total assets;
(2) underwrite securities issued by other persons except insofar as
Federated Portfolios or the Portfolio (or the Trust or the Fund) may
technically be deemed an underwriter under the 1933 Act in selling a
portfolio security;
(3) make loans to other persons except (a) through the lending of the
Portfolio's (or Fund's) portfolio securities and provided that any such
loans not exceed 30% of the Portfolio's (or Fund's) total assets (taken at
market value), (b) through the use of repurchase agreements or

the purchase of short-term obligations, or (c) by purchasing debt
securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests
in partnerships substantially all of whose assets consist of real estate
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(Federated Portfolios (or the Trust) may hold and sell, for the Portfolio's
(or Fund's) portfolio, real estate acquired as a result of the Portfolio's
(or Fund's) ownership of securities);

(5) invest 25% or more of its assets in any one industry (excluding U.S.
Government securities), unless the debt securities issued by companies in a
single industry were to comprise 25% or more of Lehman Brothers Aggregate
Bond Index, in which case the Portfolio (or Fund) will invest 25% or more
of its assets in that industry; or

(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies, the Portfolio (or Fund) will not as a
matter of operating policy (except that no operating policy shall prevent
the Fund from investing all of its investable assets in an open-end
management investment company with substantially the same investment
objective and policies as the Fund): (i) purchase any security or

evidence of interest therein on margin, except that such short-term credit
as may be necessary for the clearance of purchases and sales of securities
may be obtained and except that deposits of initial deposit and variation
margin may be made in connection with the purchase, ownership, holding or
sale of futures;
(ii) invest for the purpose of exercising control or management;
(iii) purchase securities issued by any other investment company except by
purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided, however,
that securities of any investment company will not be purchased for the
Portfolio (or Fund) if such purchase at the time thereof would cause (a)
more than 10% of the Portfolio's (or Fund's) total assets (taken at the
greater of cost or market value) to be invested in the securities of such
issuers; (b) more than 5% of the Portfolio's (or Fund's) total assets
(taken at the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio (or Fund);
(iv) purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio (or Fund) to hold more than 10% of any
class of securities of such issuer, for which purposes all indebtedness of
an issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class, except that futures or option
contracts shall not be subject to this restriction; (v) purchase or
retain in the Portfolio's (or Fund's) portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of Federated Portfolios (or the Trust), or is an officer
or partner of the Adviser or U.S. Trust Company, if after the purchase of

the securities of such issuer for the Portfolio (or Fund) one or more of
such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both, all
taken at market value;

(vi) invest more than 5% of the Portfolio's (or Fund's) net assets in
warrants. No more than 2% of the Portfolio's (or Fund's) net assets, to be
included within the overall 5% limit on investments in warrants, may be
warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange;

(vii) make short sales of securities or maintain a short position
(excluding short sales if the Portfolio (or Fund) owns an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of equivalent kind and
amount) if such short sales represent more than 25% of the Portfolio's (or
Fund's) net assets (taken at market value); provided, however, that the
value of the Portfolio's (or Fund's) short sales of securities (excluding
U.S. Government securities) of any one issuer may not be greater than 2% of
the value (taken at market value) of the Portfolio's (or Fund's) net assets
or more than 2% of the securities of any class of any issuer; (viii)
enter into repurchase agreements providing for settlement in more than
seven days after notice, or purchase securities which are not readily
marketable, if, in the aggregate, more than 15% of its net assets would be
so invested;

(ix) purchase puts, calls, straddles, spreads or any combination thereof,
if by reason of such purchase the value of its aggregate investment in such
securities would exceed 5% of the Portfolio's (or Fund's) total assets;
(x) invest more than 10% of Portfolio's (or Fund's) total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees of Federated
Portfolios or the Trust; or
(xi) invest more than 5% of the value of Portfolio's (or Fund's) total
assets in securities of issuers which have records of less than three years
of continuous operations, including the operation of any predecessor.
Policies (i) through (xi) above may be changed by the Board of Trustees of
Federated Portfolios or the Trust without investor or shareholder approval.

For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''

MANAGEMENT OF THE TRUST AND FEDERATED PORTFOLIOS

Officers and Trustees of the Trust are listed with their addresses,
birthdates, principal occupations during the past five years, and present
positions, including any affiliation with Federated Research Corp.,
Federated Investors, Federated Securities Corp., Federated Administrative
Services, Federated Administrative Services, Inc., Federated Shareholder

Services, Federated Shareholder Services Company, Federated Services
Company, and the Funds, as defined below. The officers and Trustees of the
Trust also serve in the same capacities as officers and Trustees of
Federated Portfolios.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; MED 3000 Group, Inc.; Trustee, University of
Pittsburgh; Director, or Trustee of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly President, Northgate Village
Development Corporation and Naples Property Management, Inc.; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.
and Director, Ryan Homes, Inc.; Director or Trustee of the Funds;.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company and
Federated Administrative Services, Inc.; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
founding Chairman, National Advisory Council for Environmental Policy and
Technology and Federal Emergency Management Advisory Board; Director or
Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Chairman, Treasurer, and
Trustee, Federated Administrative Services; Trustee or Director of some of
the Funds; Executive Vice President and/or Treasurer of some of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, General Counsel, and Trustee,
Federated Investors; Trustee, Federated Advisers, Federated Management, and
Federated Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company; Director,
Federated Services Company and Federated Administrative Services, Inc.;
President and Trustee, Federated Shareholder Services; Director, Federated
Securities Corp.; Executive Vice President and Secretary of the Funds;
Treasurer of some of the Funds.

* This Trustee is deemed to be an "interested person" as defined in the
1940 Act.
@ Member of both the Trust's and Federated Portfolio's Executive
Committee. The Executive Committee of a Board of Trustees handles the
responsibilities of the Trustees between meetings of the Board.
As used in the table above, `The Funds'' and ``Funds'' mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; 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 U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; Fortress

Utility Fund, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.

FUND OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding shares. As
of September 3, 1996 the following shareholders of record owned 5% or more
of the outstanding shares of the Fund: Temple First Stock Co. owned
approximately 113,496 (7.70%) and Frojack Co. owned approximately 728,686
(49.44%) of the Institutional Shares of the Fund; and Menomin Co. owned
approximately 698 (96.08%) of the Institutional Service Shares of the Fund.

TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.

See `Description of Federated Portfolios'' below for a description of
Trustee liability.
TRUSTEES' COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST/FEDERATED TRUST/ FROM FUND COMPLEX +
PORTFOLIOS FEDERATED PORTFOLIOS*

John F. Donahue, $ 0 $0 for the Trust, Federated Portfolios,
and
Chairman and Trustee 54 other investment companies in the
Fund Complex
J. Christopher Donahue, $ 0 $0 for the Trust, Federated
Portfolios, and
President and Trustee 16 other investment companies in the
Fund Complex
Thomas G. Bigley,++ $ 0 $86,331 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr., $ 0 $115,760 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland, $ 0 $115,760 for the Trust, Federated
Portfolios, and

Trustee 54 other investment companies in the
Fund Complex
James E. Dowd, $ 0 $115,760 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D., $ 0 $104,898 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr., $ 0 $115,760 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden, $ 0 $104,898 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer, $ 0 $104,898 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $ 0 $104,898 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar, $ 0 $104,898 for the Trust, Federated
Portfolios, and

Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts, $ 0 $104,898 for the Trust, Federated
Portfolios, and
Trustee 54 other investment companies in the
Fund Complex

*As of the date of this Statement of Additional Information, neither the
Trust nor Federated Portfolios (each of which consists of one portfolio)
has paid any fees to the Trustees.
+The information is provided for the last calendar year.

++Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through
September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15
additional funds advised or administered by Federated Investors, its
subsidiaries or affiliates.

INVESTMENT ADVISORY AND SUB-ADVISORY SERVICES

ADVISER AND SUB-ADVISER TO THE PORTFOLIO

The Portfolio's investment adviser is Federated Research Corp. (the
`Adviser''), a subsidiary of Federated Investors. All of the voting
securities of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, his wife, and his son, J. Christopher Donahue.

For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.

The Adviser has contracted to U.S. Trust Company the responsibility to make
the day-to-day investment decisions for the Portfolio and to place the
purchase and sales orders for securities transactions of the Portfolio,
subject in all cases to the general supervision of the Adviser. U.S. Trust
Company furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the Portfolio's investments and
effecting securities transactions for the Portfolio.

The Advisory Agreement and the Sub-Advisory Agreement will continue in
effect with respect to the Portfolio as long as such continuance is
specifically approved at least annually by the Trustees of Federated
Portfolios or by a majority vote of the investors in the Portfolio (with
the vote of each being in proportion to the respective values of their
investments) and, in either case, by a majority of the Trustees of
Federated Portfolios who are not parties to the Advisory Agreement, the
Sub-Advisory Agreement, as the case may be, or interested persons of any
such party, at a meeting called for the purpose of voting on the Advisory
Agreement or Sub-Advisory Agreement. The Advisory Agreement and the Sub-
Advisory Agreement were both approved by the Trustees of Federated
Portfolios and are effective on September 30, 1996. The terms of the
contract under which Federated Research Corp., as the current Adviser, and
the Sub-Adviser presently perform these services are identical to those
previously performed by Federated Management, as the former Adviser, and
the Sub-Adviser. The Adviser, U.S. Trust Company, and administrator have
agreed to waive certain fees.

The Advisory Agreement and Sub-Advisory Agreement provide that the Adviser
and U.S. Trust Company may render services to others, and each agreement is
terminable by the Portfolio without penalty on not more than 60 days' nor
less than 30 days' written notice when authorized either by majority vote
of the Fund and the other investors in the Portfolio (with the vote of each
being in proportion to the amount of its investment), or by a vote of a
majority of the Trustees of Federated Portfolios, or by the Adviser or U.S.
Trust Company on not more than 60 days' nor less than 30 days' written
notice. The Advisory Agreement and Sub-Advisory Agreement each will
automatically terminate in the event of its assignment. The Advisory
Agreement and the Sub-Advisory Agreement provide that neither the Adviser,
U.S. Trust Company, nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment,
or for any act or omission in the execution of security transactions for
the Portfolio, except for willful misfeasance, bad faith, gross negligence
or reckless disregard of its or their obligations and duties under the
Advisory and Sub-Advisory Agreements.

For the period from January 2, 1996 to May 31, 1996, Federated Management
and the Sub-Adviser voluntarily waived all of their fees which amounted to
$17,632.
United States Trust Company of the Pacific Northwest (`U.S. Trust
Pacific') was the investment adviser and U.S. Trust Company of New York
(`Sub-Adviser'') was the sub-adviser of the Predecessor Portfolio. U.S.
Trust Pacific and the Sub-Adviser voluntarily agreed to waive all of their
investment advisory fees and reimburse certain operational expenses of the
Predecessor Portfolio. The investment advisory fee waivers and expense
reimbursements totaled $23,111 and $55,998, respectively, for the period
from June 1, 1995 to January 2, 1996, and $47,955 and $83,454,

respectively, for the period from July 11, 1994 (date of initial public
investment) to May 31, 1995.
STATE EXPENSE LIMITATIONS
The Adviser and the Sub-Adviser, if required by applicable state law, shall
reimburse the Fund or waive all or part of its fees up to, but not
exceeding, its investment advisory fees from the Portfolio. Such
reimbursement, if required, will be equal to the combined aggregate annual
expenses of the Fund and the Portfolio which exceed that expense limitation
with the lowest threshold prescribed by any state in which the Fund is
qualified for offer or sale. Management of each of the Trust and Federated
Portfolios has been advised that the lowest such threshold currently in
effect is 2 1/2% of net assets up to $30,000,000, 2% of the next
$70,000,000 of net assets and 1 1/2% of net assets in excess of that
amount.
This arrangement is not part of the Advisory Agreement or Sub-Advisory
Agreement and may be amended or rescinded in the future.

BROKERAGE TRANSACTIONS

The Portfolio's purchase and sales of securities may be principal
transactions, that is, securities may be purchased directly from the issuer
or from an underwriter or market maker for the securities. There usually
are no brokerage commissions paid for such purchases and, therefore, the
Portfolio does not anticipate paying brokerage commissions in such
transactions. Purchases and sales of the Portfolio's portfolio securities
will usually be principal transactions without brokerage commissions. Any

transactions for which the Portfolio pays a brokerage commission will be
effected at the best price and execution available. Purchases from
underwriters of securities include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market
makers include the spread between the bid and the asked price. For the
fiscal year ended May 31, 1996 and for the period from July 11, 1994 (date
of initial public investment) to May 31, 1995, the Portfolio paid no
brokerage commissions. The brokerage commissions presented above include
the operations of the Predecessor Portfolio for periods prior to January 2,
1996.
Allocations of transactions, including their frequency, to various
dealers is determined by the Investment Managers in their best judgment and
in a manner deemed to be in the best interest of the investors in the
Portfolio rather than by any formula. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price.
The Advisory and Sub-Advisory Agreements provide that, in executing
portfolio transactions and selecting brokers or dealers, the Investment
Managers will seek to obtain the best net price and the most favorable
execution. The Investment Managers shall consider factors they deem
relevant, including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis.
In addition, the Advisory and Sub-Advisory Agreements authorize the
Investment Managers, to the extent permitted by law and subject to the
review of Federated Portfolio's Trustees, to cause the Portfolio to pay a
broker which furnishes brokerage and research services a higher commission
than that which might be charged by another broker for effecting the same
transaction, provided that the Investment Managers determine in good faith

that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or the overall responsibilities of the
Investment Managers to the accounts as to which they exercise investment
discretion. Such brokerage and research services might consist of reports
and statistics on specific companies or industries, general summaries of
groups of stocks and their comparative earnings, or broad overviews of the
stock market and the economy. Such services might also include reports on
global, regional, and country by-country prospects for economic growth,
anticipated levels of inflation, prevailing and expected interest rates,
and the outlook for currency relationships.
Supplementary research information so received is in addition to and not in
lieu of services required to be performed by the Investment Managers and
does not reduce the investment advisory fees (if any) payable by the
Portfolio. Such information may be useful to the Investment Managers in
serving the Portfolio and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be
useful to the Investment Managers in carrying out their obligations to the
Portfolio. Investment decisions for the Portfolio will be made
independently from those for any other account or investment company that
is or may in the future become managed by its Investment Managers or any of
their affiliates. If, however, the Portfolio and other investment companies
or accounts managed by the same investment manager are contemporaneously
engaged in the purchase or sales of the same security, the transactions may
be averaged as to price and allocated equitably to each account. In some
cases, this policy might adversely affect the price paid or received by the
Portfolio or the size of the position obtainable for the Portfolio. In
addition, when purchases or sales of the same security for the Portfolio
and for other investment companies managed by the same Investment Managers

occur contemporaneously, the purchase or sale orders may be aggregated in
order to obtain any price advantages available to large denomination
purchases or sales. Furthermore, in certain circumstances affiliates of the
Investment Managers whose investment portfolios are managed internally,
rather than by the Investment Managers, might seek to purchase or sell the
same type of investments at the same time as the Portfolio. Such an event
might also adversely affect the Portfolio.

As of May 31, 1996, the Portfolio owned approximately $514,000 of debt
securities of Lehman Brothers, Inc., one of its regular brokers that
derives more than 15% of gross revenues from securities-related activities.

OTHER SERVICES

For information regarding the service providers of Federated Portfolios,
see `Description of Federated Portfolios-Service Providers'' in this
Statement of Additional Information.
TRUST ADMINISTRATION

Federated Services Company, a subsidiary Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. For the period from February 22, 1996 (date of initial
public investment) to May 31, 1996, Federated Services Company earned
$24,098, all of which was voluntarily waived.

CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the cash and securities of the Fund.
Federated Services Company has contracted on behalf of its subsidiaries
(including Federated Administrative Services) to maintain the Fund's
accounting records. The fee paid for this service is based upon the level
of the Fund's average net assets for the period plus out-of-pocket
expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company, a subsidiary of Federated Services
Company, serves as transfer agent and dividend disbursing agent for the
Fund. For its services, the transfer agent receives a fee based upon the
size, type and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
PURCHASING SHARES

Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in the respective prospectus under "Investing in
Institutional Shares" or "Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER
SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may

include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.

With respect to the Institutional Service Shares class of the Fund, by
adopting the Distribution Plan, the Trustees of the Trust expect that the
Fund will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in seeking to achieve its
investment objectives. By identifying potential investors whose needs are
served by the Fund's objectives, and properly servicing these accounts, it
may be possible to curb sharp fluctuations in rates of redemptions and
sales.

Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.

For the period from February 22, 1996 (date of initial public investment)
to May 31, 1996, no payments were made pursuant to the distribution plan or
shareholder services plan.

CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. Federated Services
Company acts as the shareholder's agent in depositing checks and converting
them to federal funds.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the respective
prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Portfolio securities are valued on the basis of market quotations when they
are readily available. The Portfolio values mortgage-backed and other debt
securities for which market quotations are not readily available at their
fair value as determined in good faith, utilizing procedures approved by
the Board of Trustees of Federated Portfolios, on the basis of valuations
provided either by dealers or a pricing service. Absent unusual
circumstances, debt securities having a remaining maturity of sixty days or
less when purchased, and debt securities originally purchased with
maturities in excess of sixty days but which currently have maturities of
sixty days or less, are valued at cost adjusted for amortization of premium
and accretion of discounts.
Interest rate futures contracts held by the Portfolio are valued on the
basis of closing market quotations, which are normally available daily.
When market quotations are not readily available, the fair value of these
contracts will be determined in good faith utilizing procedures approved by
the Trustees of Federated Portfolios.

A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by the
Board of Trustees of Federated Portfolios. While no single standard for
determining fair value exists, as a general rule, the current fair value of
a security would appear to be the amount which the Portfolio could expect
to receive upon its current sale. Some, but not necessarily all, of the
general factors which may be considered in determining fair value include:
(i) the fundamental analytical data relating to the investment; (ii) the
nature and duration of restrictions on disposition of the securities; and
(iii) an evaluation of the forces which influence the market in which these
securities are purchased and sold. Without limiting or including all of the
specific factors which may be considered in determining fair value, some of
the specific factors include: type of security, financial statements of
the issuer, cost at date of purchase, size of holding, discount from market
value, value of unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as to any
transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the securities, price and extent of
public trading in similar securities of the issuer or comparable companies,
and other relevant matters.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each Business Day. As of the Valuation
Time on each such day, the value of each investor's beneficial interest in
the Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage representing that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or
reductions which are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the fraction

(i) the numerator of which is the value of such investor's investment in
the Portfolio as of the Valuation Time on such day plus or minus, as the
case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected on such day, and
(ii) the denominator of which is the aggregate net asset value of the
Portfolio as of the Valuation Time on such day plus or minus, as the case
may be, the amount of the net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the Valuation Time on the
following Business Day adjusted for any additions or reductions which are
to be effected on that following day.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Institutional Shares" and
"Redeeming Institutional Service Shares." Although State Street Bank does
not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.

REDEMPTION IN KIND
The Fund is obligated to redeem Shares solely in cash up to $250,000 or 1%
of the respective class net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
of the Trust and of Federated Portfolios determine that further cash
payments will have a material adverse effect on the remaining Fund

shareholders and Portfolio investors. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees of the
Trust and of Federated Portfolios deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
Although the Fund intends to redeem shares in cash, the Fund and the
Portfolio reserve the right under certain circumstances to pay the
redemption price in whole or in part by a distribution of securities. To
the extent available, such securities will be readily marketable.
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. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
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.
See `Description of Federated Portfolios'' below for a description of
Massachusetts partnership law and investor liability with respect to an
investment in Federated Portfolios.
TAX STATUS

THE FUND'S TAX STATUS
Each series of the Trust is treated as a separate entity for federal income
tax purposes under the Code. The Fund has elected to be treated and intends
to qualify each year as a `regulated investment company'' under Subchapter
M of the Code (a `RIC'') by meeting all applicable requirement of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of the Fund's distributions, and the composition and
holding period of the Fund's portfolio assets. Because the Fund intends to
distribute substantially all of its net investment income and net realized
capital gains to its shareholders in accordance with the timing
requirements imposed by the Code, it is not expected that the Fund will be
required to pay any federal income or excise taxes. If the Fund fails to
qualify as a RIC in any year, the Fund would incur a regular corporate
federal income tax upon its taxable income. Whether or not the Fund
qualifies as a RIC, the Fund's distributions would generally be taxable as
ordinary dividend income to shareholders.
The Trust anticipates that under interpretations of the Internal Revenue
Service, (1) the Portfolio will be treated for federal income tax purposes
as a partnership and (2) for purposes of determining whether the Fund
satisfies the income and diversification requirements to maintain its
status as a RIC, the Fund, as an investor in the Portfolio, will be deemed
to own a proportionate share of the Portfolio's assets and will be deemed

to be entitled to the Portfolio's income or loss attributable to that
share. The Portfolio has advised the Fund that it intends to conduct its
operations so as to enable its investors, including the Fund, to satisfy
those requirements.
Any Fund distribution or any distribution of net capital gains or net
short-term capital gains will have the effect of reducing the per share net
asset value of Shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the Shares and then
effectively receive a portion of the purchase price back as a taxable
distribution.

Any investment by the Portfolio in zero coupon bonds, certain securities
purchased at a market discount, and similar instruments will cause the
Portfolio to recognize income prior to the receipt of cash payments with
respect to those securities. In order to distribute this income and avoid a
tax on the Fund, the Portfolio may be required to liquidate portfolio
securities that it might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the Fund.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing, and
character of Fund income and distributions to investors.
TAXATION OF THE PORTFOLIO
The Trust anticipates that the Portfolio will be treated as a partnership
for federal income tax purposes. As such, the Portfolio is not subject to
federal income taxation. Instead, the Fund must take into account, in
computing its federal income tax liability, its share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items,

without regard to whether it has received any cash distributions from the
Portfolio.
TAXATION OF FUND DISTRIBUTIONS
Dividends from ordinary income and any distributions from net short-term
capital gains are taxable to Fund shareholders as ordinary income for
federal income tax purposes and will not be eligible for the dividends
received deduction available to corporations. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term
capital losses), if any, are taxable to Fund shareholders as long-term
capital gains without regard to the length of time the shareholders have
held their Shares. Distributions are taxable as described above whether
paid in cash or reinvested in additional Shares. Fund shareholders will be
notified annually as to the federal tax status of distributions.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax.
To prevent imposition of the excise tax, the Fund must, and intends to,
distribute during each calendar year substantially all of its ordinary
income for that year and substantially all of its capital gain in excess of
its capital losses for that year, plus any undistributed ordinary income
and capital gains from previous years. For this and other purposes, the
Fund dividend will be treated as paid on December 31 if it is declared by
the Fund in October, November or December with a record date in such a
month and paid by the Fund during January of the following calendar year.
Accordingly, those distributions will be taxable to shareholders for the
taxable year in which that December 31 falls.

Withdrawals by the Fund from the Portfolio generally will not result in the
Fund recognizing any gain or loss for federal income tax purposes, except
that (1) gain will be recognized to the extent that any cash distributed

exceeds the basis of the Fund's interest in the Portfolio prior to the
distribution, (2) income or loss will be realized if the withdrawal is in
liquidation of all or a part of the Portfolio's interest in the Portfolio
and includes a disproportionate share of any unrealized receivables held by
the Portfolio, and (3) loss will be recognized if the distribution is in
liquidation of that entire interest in the Portfolio and consists solely of
cash and/or unrealized receivables. The basis of the Fund's interest in the
Portfolio generally equals the amount of cash and the basis of any property
that the Fund invests in the Portfolio, increased by the Fund's share of
income from the Portfolio and the amount of any cash distributions and the
basis of any property distributed from the Portfolio.

OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under current
law, neither the Trust nor the Fund is liable for any income or franchise
tax in the Commonwealth of Massachusetts, provided that the Fund continues
to qualify as a RIC for federal income tax purposes.
The Portfolio is organized as a series of Federated Portfolios, a business
trust organized under the laws of the Commonwealth of Massachusetts. The
Portfolio is not subject to any income or franchise tax in the Commonwealth
of Massachusetts. The investment by the Fund in the Portfolio does not
cause the Fund to be liable for any income or franchise tax in the
Commonwealth of Massachusetts.
Fund shareholders may be subject to state and local taxes on Fund
distributions to them by the Fund. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to
them of an investment in the Fund.

TOTAL RETURN

The Fund's cumulative total return for the period from February 22, 1996
(start of performance) to May 31, 1996 for Institutional Shares and
Institutional Services Shares were (2.32%) and (2.32%), respectively.
Cumulative total return reflects the Fund's total performance over a
specific period of time. The total returns are representative of less than
four months of Fund activity since the Fund's start of performance.
The average annual total return all classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 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 maximum offering
price 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 $1,000, less any applicable sales charge,
adjusted over the period by any additional Shares, assuming the
reinvestment of all dividends and distributions.

YIELD

The thirty-day yield for the period ended May 31, 1996 for Institutional
Shares and Institutional Services Shares, were 6.44% and 6.70%,
respectively.

The yield for all classes of shares of the Fund is determined by dividing
the net investment income per Share (as defined by the Securities and
Exchange Commission) earned by any class of Shares over a thirty-day period
by the maximum offering price per share of any class of Shares on the last
day of the period. This value is annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a twelve month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by any class of Shares because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a
class of Shares, performance will be reduced for those shareholders paying
those fees.
PERFORMANCE COMPARISONS

The performance of each class of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the Portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the expenses of the Portfolio, the Fund, or either class of
Shares; and
o various other factors.
A class of Shares' performance fluctuates on a daily basis largely because
net earnings and offering price per Share fluctuate daily. Both net
earnings and net asset value per Share are factors in the computation of
yield and total return.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various categories by
making competitive calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund will quote its
Lipper ranking in the `general bond funds'' category in advertising
and sales literature.
o LEHMAN BROTHERS AGGREGATE BOND INDEX which is composed of securities
from 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.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on nonstandardized base periods. These
total returns also represent the historic change in the value of an
investment in any class of Shares based on monthly reinvestment of
dividends over a specified period of time.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by portfolio managers and their views and analysis on
how such developments could affect the Fund. In addition, advertising and
sales literature may quote statistics and give general information about
the mutual funds industry, including the growth of the industry, from
sources such as the Investment Company Institute.

DESCRIPTION OF FEDERATED PORTFOLIOS

BENEFICIAL INTERESTS

The Bond Index Portfolio is a series of Federated Portfolios, which is
organized as a trust having separate series under the laws of the
Commonwealth of Massachusetts. Under the Declaration of Trust, the Trustees
are authorized to issue beneficial interests in one or more series.
Currently, there is one portfolio of Federated Portfolios, the Bond Index
Portfolio. The Trustees have established five other series, none of which
are being offered presently: Bond Portfolio, Connecticut Municipal Money
Market Portfolio, Florida Municipal Money Market Portfolio, Max-Cap

Portfolio and New Jersey Municipal Money Market Portfolio. Investors in a
portfolio will be held personally liable for the obligations and
liabilities of that portfolio (and of no other portfolio) and Federated
Portfolios, subject, however, to indemnification by Federated Portfolios in
the event that there is imposed upon an investor any liability or
obligation of the Portfolio or Federated Portfolios. The Declaration of
Trust also provides that Federated Portfolios may maintain appropriate
insurance for the protection of Federated Portfolios, its Trustees,
officers, employees and agents, and covering possible tort and other
liabilities. The risk of an investor incurring financial loss on account of
investor liability is limited to circumstances in which the Portfolio or
Federated Portfolios are unable to meet their obligations.

Investors in a portfolio are entitled to participate pro rata in
distributions of taxable income, loss, gain and credit of their respective
portfolio only. Upon liquidation or dissolution of a portfolio, investors
are entitled to share pro rata in the portfolio's (and no other
portfolio's) net assets available for distribution to its investors.
Federated Portfolios reserves the right to create and issue additional
portfolios of beneficial interests, in which case the beneficial interests
in each new portfolio would participate equally in the earnings, dividends
and assets of that portfolio (and of no other portfolio). Investments in a
portfolio have no preference, preemptive, conversion or similar rights and
are fully paid and nonassesable, except as set forth below. Investments in
a portfolio may not be transferred.
Each investor of Federated Portfolios is entitled to a vote in proportion
to the amount of its investment in each portfolio. Investors in a portfolio
do not have cumulative voting rights, and a plurality of the aggregate
beneficial interests in all outstanding series of Federated Portfolios may

elect all of the Trustees if they choose to do so and in such event other
investors would not be able to elect any Trustees. Investors in each
portfolio will vote as a separate class except as to voting for the
election or removal of Trustees, the termination of Federated Portfolios,
as otherwise required by the 1940 Act, or if the matter is determined by
the Trustees to be a matter which affects all portfolios. Federated
Portfolio's Declaration of Trust may be amended without the vote of
investors, except that investors have the right to approve by affirmative
majority vote any amendment which would adversely affect their voting
rights, alter the procedures to amend the Declaration of Trust of Federated
Portfolios, as required by Federated Portfolio's registration statement, or
as submitted to them by the Trustees.
Federated Portfolios or any portfolio may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved
(a) at a meeting of investors by investors representing the lesser or (i)
67% or more of the beneficial interests in the affected portfolio present
or represented at such meeting, if investors in more than 50% of all such
beneficial interests are present or represented by proxy, or (ii) more than
50% of all such beneficial interests (hereinafter referred to as a
`Majority Shareholder Vote'') are present or represented by proxy, or (b)
by an instrument in writing without a meeting, consented to by a Majority
Shareholder Vote of the investors holding a majority of the beneficial
interests in the affected portfolio.
Federated Portfolios' Declaration of Trust provides that obligations of
Federated Portfolios are not binding upon the Trustees individually but
only upon the property of Federated Portfolios and that the Trustees will
not be liable for any action or failure to act, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith,

gross negligence, or reckless disregard of the duties involved in the
conduct of his office.
Federated Portfolio's Declaration of Trust further provides that it will
indemnify its Trustees, officers, employees and agents against liabilities
and expenses incurred in connection with litigation in which they may be
involved because of their offices with Federated Portfolios, unless, as to
liability to the Federated Portfolios or its investors, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices.
In the case of settlement, the By-Laws of Federated Portfolios provide that
such indemnification will not be provided unless it has been determined by
a court or other body approving the settlement or other disposition, or by
a reasonable determination, based upon a review of readily available facts,
by a vote of a majority of disinterested Trustees or by a written opinion
of independent counsel, that such officers or Trustees have not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
SERVICE PROVIDERS
ADMINISTRATION

Federated Services Company, through its subsidiary Federated Administrative
Services, Inc., provides administrative personnel and services to Federated
Portfolios at an annual rate which relates to the average aggregate daily
net assets of each series as specified below:
Average Aggregate Daily
Maximum Administrative Fee Net Assets of the Portfolio
.050% on the first $1 billion
.045% on the next $1 billion
.040% on the next $1 billion

.025% on the next $1 billion
.010% on the next $1 billion
.005% on assets in excess of $5 billion
The minimum administrative fee shall be $60,000 annually for each series
(unless waived).
Prior to March 1, 1996, Federated Administrative Services was designated as
the subsidiary through which Federated Services Company provided
administrative services and also maintained the Portfolio's portfolio
accounting records. Subsequently, Federated Administrative Services, Inc.
has been designated as the subsidiary to provide such services. For the
period from January 2, 1996 to May 31, 1996, the administrators earned and
voluntarily agreed to waive their entire fee of $24,754. Administrative and
portfolio accounting services were provided to the Predecessor Portfolio by
Signature Financial Services, Inc. (`Signature''). For the period from
June 1, 1995 to January 2, 1996, and the period from July 11, 1994 (date of
initial public investment) to May 31, 1995, Signature earned administrative
fees of $33,589 and $54,279, respectively.

CUSTODIAN AND PORTFOLIO RECORDKEEPER

As of June 5, 1996, State Street Bank and Trust Company, P.O. Box 8600 ,
Boston, Massachusetts, 02266-8600, is custodian for the cash and securities
of the Portfolio. Prior thereto, the Portfolio's custodian was Investors
Bank & Trust Company.
Federated Services Company through its subsidiary Federated Administrative
Services, Inc. also maintains the Trust's portfolio accounting records and
records of investors for which it receives a fee. The fee is based upon the
level of Federated Portfolio's average net assets for the period plus out-
of-pocket expenses.

INDEPENDENT AUDITORS
The Independent Auditors for the Portfolio are Ernst & Young LLP, One
Oxford Centre, Pittsburgh, Pennsylvania, 15219.
ABOUT FEDERATED INVESTORS

Federated Investors in dedicated to meeting investor needs which is
reflected in its investment decision making - structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.

The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the corporate bond sector, as of December 31, 1995, Federated Investors
managed 10 money market funds, and 14 bond funds with assets approximating
$11.5 billion and $2.7 billion, respectively. Federated's corporate bond
decision making--based on intensive, diligent credit analysis--is backed by
over 20 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the
industry. In 17 years ended December 1995, Federated's high-yield
portfolios experienced a default rate of just 1.86%, versus 3.10% for the
market as a whole. In 1983, Federated was one of the first fund managers to
participate in the asset-backed securities market, a market totaling more
than $200 billion.

In the government sector, as of December 31, 1995, Federated Investors
managed 9 mortgage-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $7.7 billion, $1.7 billion,
and $20.9 billion, respectively. Federated trades approximately $300
million in U.S. government and mortgage-backed securities daily and places
approximately $13 billion in repurchase agreements each day. Federated
introduced the first U.S. government fund to invest in U.S. government bond
securities in 1969. Federated has been a major force in the short- and
intermediate-term government markets since 1982 and currently manages
nearly $10 billion in government funds within these maturity ranges.

J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit
and defined contribution programs, cash management, and
asset/liability management. Institutional clients include

corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional
clients is headed by John B. Fisher, President, Institutional Sales
Division.

TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing
& Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage
firms nationwide including 200 New York Stock Exchange firms
supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has
earned it high rankings in several DALBAR Surveys. The marketing
effort to these firms is headed by James F. Getz, President,
Broker/Dealer Division.

*Source: Investment Company Institute

FINANCIAL STATEMENTS

Subsequent to the approval by its Board of Trustees, the shareholders of
Excelsior Institutional Bond Index Fund, a portfolio of Excelsior
Institutional Trust , ratified a restructuring whereby Excelsior
Institutional Trust withdrew, on December 29, 1995, the investment of all
of the assets of the Excelsior Institutional Bond Index Fund from the
Predecessor Portfolio, a portfolio of St. James Portfolios, and thereafter
invested all of the investable assets of Excelsior Institutional Bond Index
Fund into Bond Index Portfolio, a series of Federated Investment
Portfolios.
The investment objective and policies of Federated Bond Index Fund are
identical to those of Excelsior Institutional Bond Index Fund, Bond Index
Portfolio and the Predecessor Portfolio. Since the Federated Bond Index
Fund invests all of its investable assets in Bond Index Portfolio, the
historical financial statements of Excelsior Institutional Bond Index Fund
and the Predecessor Portfolio are reflected in the financial statements of
Bond Index Portfolio, which reflect the past performance and financial
history of these funds. Therefore, the financial statements of Bond Index
Portfolio, for the period ended May 31, 1996 are included in the Annual
Report of Federated Bond Index Fund (File No. 811-07477) dated May 31,
1996. A copy of this Annual Report is incorporated herein by reference and
may be obtained without charge by calling 1-800-245-4270.

Past performance is not predictive of future performance. Investment
returns and principal values will vary and shares may be worth more or less
at redemption than their original cost.

APPENDIX

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR--'NR'' indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy. S&P may apply a
plus (+) or minus (-) to the above rating classifications to show relative
standing within the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS

AAA--Bonds 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 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
risks appear somewhat larger than in `AAA'' securities.
A--Bonds 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 sometime in the
future.
BAA--Bonds which are rated `BAA'' are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics
as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3
in each generic rating classification from `AA'' through ``B'' in its
corporate bond rating system. The modifier 1 indicates that the security

ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

PRIME-1--Issuers rated `PRIME-1'' (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. `PRIME-1'' repayment capacity will normally be evidenced by
the following characteristics:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o broad margins in earnings coverage of fixed financial charges and high
internal cash generation; or
o well-established access to a range of financial markets and assured
sources of alternate liquidity.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
`F-1+.''

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) The Financial Statements for the fiscal year ended May 31,
1996, are incorporated herein by reference to the Fund's
Annual Report dated May 31, 1996. (File Nos. 33-00053 and
811-07477). The financial statements filed in the Annual
Report are as follows:

FEDERATED BOND INDEX FUND
(For the period from February 22, 1996 to
May 31, 1996 (audited))
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights-Institutional Shares
Financial Highlights-Institutional Service Shares
Notes to Financial Statements
Report of Ernst & Young LLP

BOND INDEX PORTFOLIO
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets

Notes to Financial Statements
Report of Ernst & Young LLP

(b) Exhibits filed herewith:

(1) Conformed copy of Declaration of Trust of the
Registrant;(1)
(2) Copy of By-Laws of the Registrant;(1)
(3) Not applicable;
(4) (i) Specimen Certificate for Institutional Shares of
Federated Bond Index Fund; (2)
(ii) Specimen Certificate for Institutional Service
Shares of Federated Bond Index Fund;(2)
(5) Not applicable;
(6) (i) Conformed copy of the Distributor's Contract of the
Registrant including Exhibits A and B; (3)
(ii) 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);
(7) Not applicable;
(8) Conformed copy of the Custodian Agreement of the
Registrant; (2)

(9) (i) Conformed copy of the Master Agreement for
Administration and Management Services; (3)
(ii) Form of Amended and Restated Shareholder Services
Agreement; +
(iii) The responses described in Item 24(b)6(ii) are
hereby incorporated by reference.

+ All exhibits have been filed electronically.
1. Response is incorporated by Reference to Registrant's Initial
Registration Statement on Form N-1A filed January 4, 1996. (Files Nos.
033-00053 and 811-07477).
2. Response is incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed March 5, 1996. (Files Nos. 33-00053
and 811-07477).
3. Response is incorporated by Reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed July 30, 1996. (Files Nos. 33-00053
and 811-07477).

(10) Conformed Copy of Opinion and Consent of Counsel as to
Legality of Shares being registered; (2)
(11) Conformed copy of consent of Ernst & Young LLP,
Independent Auditors (Federated Bond Index Fund and
Bond Index Portfolio); +
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding;(2)
(14) Not applicable;

(15) (i) Conformed copy of Registrant's Distribution Plan
pursuant to Rule
12b-1; (3)
(ii) The responses described in Item 24(b)6(ii) are
hereby incorporated by reference.
(16) Schedule for Computation of Fund Performance; (3)
(17) Financial Data Schedules;+
(18) The Registrant hereby incorporates by reference the
conformed copy of the specimen Multiple Class Plan
from Item 24(b)(18) of the World Investment Series,
Inc. Registration Statement on Form N-1A, filed with
the Commission on January 26, 1996. (File Nos. 33-
52149 and 811-07141)
(19) (i) Conformed copy of Power of Attorney of Registrant;
(3)
(ii) Conformed copy of Power of Attorney of Federated
Investment Portfolios; (3)

Item 25. Persons Controlled by or Under Common Control with Registrant:
None.

Item 26. Number of Holders of Securities of Bond Index Fund as of
September 3, 1996:
Institutional Shares - 107
Institutional Service Shares - 6

Item 27. Indemnification: (1)

+ All exhibits have been filed electronically.

1. Response is incorporated by Reference to Registrant's Initial
Registration Statement on Form N-1A filed January 4, 1996. (Files Nos.
033-00053 and 811-07477).
2. Response is incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed March 5, 1996. (Files Nos. 33-00053
and 811-07477).
3. Response is incorporated by Reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed July 30, 1996. (Files Nos. 33-00053
and 811-07477).

Item 28. Business and Other Connections of Investment Adviser:

Not applicable.

Item 29. Principal Underwriters:

(a) 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series;Federated Master Trust; Federated Municipal

Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; 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 U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust
Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; The Biltmore Funds; The Biltmore Municipal Funds; The Monitor Funds;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Tower Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.; and World
Investment Series, Inc., Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment company: Liberty Term
Trust, Inc.- 1999.

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.

John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President,Secretary
Pittsburgh, PA 15222-3779 and Treasurer

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark R. Gensheimer Executive Vice President of --

Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Eugene B. Reed Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

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

Registrant Federated Investors Tower Pittsburgh,
Pennsylvania
15222-3779

Federated Administrative Federated Investors Tower
Services Pittsburgh, Pennsylvania
(Administrator and Portfolio 15222-3779
Accountant)

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

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

Item 31. Management Services:

Not applicable.

Item 32. 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
a special meeting of shareholders.

Registrant hereby undertakes to furnish each shareholder to whom a
prospectus is delivered, a copy of the Registrant's latest annual report,
upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED INVESTMENT 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
Securutues Act of 1933 and has duly caused this 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 26th day of
September,1996.

FEDERATED INVESTMENT TRUST

BY: /s/ J Crilley Kelly
J Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
September 26, 1996

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

NAME TITLE DATE
By:/s/ J Crilly Kelly
J Crilly Kelly Attorney In Fact September 26, 1996
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Trustee
(Chief Executive Officer)

J. Christopher Donahue* President and Trustee

John W. McGonigle* Secretary, Treasurer
and Executive Vice President
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Trustee

John T. Conroy, Jr.* Trustee

William J. Copeland* Trustee

James E. Dowd* Trustee

Lawrence D. Ellis, M.D.* Trustee

Edward L. Flaherty, Jr.* Trustee

Peter E. Madden* Trustee

Gregor F. Meyer* Trustee

John E. Murray, Jr* Trustee

Wesley W. Posvar* Trustee

Marjorie P. Smuts* Trustee

* By Power of Attorney

SIGNATURES

Federated Investment Portfolios ("Federated Portfolios"), has duly caused the
Registration Statement on Form N-1A ("Registration Statement") of Federated
Investment Trust ("Registrant") and 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 to be signed on
its behalf by the undersigned, thereto duly authorized in the city of
Pittsburgh and the Commonwealth of Pennsylvania of the 26th day of September,
1996.

FEDERATED INVESTMENT PORTFOLIOS

BY: /s/ Victor R. Siclari
Victor R. Siclari, Assistant Secretary
Attorney in Fact for John F. Donahue
September 26, 1996

Pursuant to the requirements of Securities Act of 1933, this amendment to
the Registrant's Registration Statement has been signed below by the
following persons in the capacity and on the date indicated:

NAME TITLE DATE
By:/s/ Victor R. Siclari
Victor R. Siclari Attorney In Fact September 26, 1996
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Trustee
(Chief Executive Officer)

J. Christopher Donahue* President and Trustee

John W. McGonigle* Secretary, Treasurer and
Executive Vice President
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Trustee

John T. Conroy, Jr.* Trustee

William J. Copeland* Trustee

James E. Dowd* Trustee

Lawrence D. Ellis, M.D.* Trustee

Edward L. Flaherty, Jr.* Trustee

Peter E. Madden* Trustee

Gregor F. Meyer* Trustee

John E. Murray, Jr* Trustee

Wesley W. Posvar* Trustee

Marjorie P. Smuts* Trustee

* By Power of Attorney

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions `Financial
Highlights''and ``Independent Auditors'' and to the use of our reports
dated July 18, 1996 on the financial statements and financial highlights of
Federated Bond Index Fund (a portfolio of Federated Investment Trust) and
on the financial statements of Bond Index Portfolio (a Portfolio of
Federated Investment Portfolios) in Post-Effective Amendment Number 2 to
the Registration Statement (Form N-1A No. 33-00053) of Federated Bond Index
Fund and the related Prospectuses dated September 30, 1996.

Pittsburgh, Pennsylvania
September 25, 1996

Exhibit 9(ii) on Form N-1A
Exhibit 10 under Item 601/Reg. SK

AMENDED AND RESTATED
SHAREHOLDER SERVICES AGREEMENT

THIS AGREEMENT, amended and restated as of the first day of September,
1995, (originally made and enterered into as of the first day of March,
1994), by and between those investment companies listed on Exhibit 1, as
may be amended from time to time, having their principal office and place
of business at Federated Investors Tower, Pittsburgh, PA 15222-3779 and
who have approved this form of Agreement (individually referred to herein
as a "Fund" and collectively as "Funds") and Federated Shareholder
Services, a Delaware business trust, having its principal office and place
of business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts of
shareholders of the Funds ("Services"). In addition to providing Services
directly to shareholders of the Funds, FSS is hereby appointed the Funds'
agent to select, negotiate and subcontract for the performance of Services.
FSS hereby accepts such appointments. FSS agrees to provide or cause to be
provided Services which, in its best judgment (subject to supervision and
control of the Funds' Boards of Trustees or Directors, as applicable), are
necessary or desirable for shareholders of the Funds. FSS further agrees
to provide the Funds, upon request, a written description of the Services
which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS and FSS
agrees to accept as full compensation for its services rendered hereunder a
fee at an annual rate, calculated daily and payable monthly, up to 0.25% of
1% of average net assets of each Fund.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate

Amended and Restated
Shareholder Services Agreement Page 2
proration of the monthly fee on the basis of the number of days that this
Agreement is in effect with respect to such Fund during the month.
3. This Agreement shall continue in effect for one year from the date of
its execution, and thereafter for successive periods of one year only if
the form of this Agreement is approved at least annually by the Board of
each Fund, including a majority of the members of the Board of the Fund who
are not interested persons of the Fund ("Independent Board Members") cast
in person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote
of a majority of the Independent Board Members of any Fund or
by a vote of a majority of the outstanding voting securities of
any Fund as defined in the Investment Company Act of 1940 on
sixty (60) days' written notice to the parties to this
Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving the
other party at least sixty (60) days' written notice of its
intention to terminate.
5. FSS agrees to obtain any taxpayer identification number certification
from each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Fund or its designee
with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation
of any required backup withholding.

Amended and Restated
Shareholder Services Agreement Page 3
6. FSS shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement. FSS shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for such Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice. Any person, even though also an officer, trustee, partner,
employee or agent of FSS, who may be or become a member of such Fund's
Board, officer, employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of such Fund
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or one under the
control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or
termination is sought.
8. FSS is expressly put on notice of the limitation of liability as set
forth in the Declaration of Trust of each Fund that is a Massachusetts
business trust and agrees that the obligations assumed by each such Fund
pursuant to this Agreement shall be limited in any case to such Fund and
its assets and that FSS shall not seek satisfaction of any such obligations
from the shareholders of such Fund, the Trustees, Officers, Employees or
Agents of such Fund, or any of them.

Amended and Restated
Shareholder Services Agreement Page 4
9. The execution and delivery of this Agreement have been authorized by
the Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees
or shareholders of FSS, but bind only the trust property of FSS as provided
in the Declaration of Trust of FSS.
10.Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given if delivered to
any Fund and to such Fund at the following address: Federated Investors
Tower, Pittsburgh, PA 15222-3779, Attention: President and if delivered
to FSS at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11.This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written. If any provision of this Agreement shall
be held or made invalid by a court or regulatory agency decision, statute,
rule or otherwise, the remainder of this Agreement shall not be affected
thereby. Subject to the provisions of Sections 3 and 4, hereof, this
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein shall be construed
in a manner inconsistent with the Investment Company Act of 1940 or any
rule or regulation promulgated by the Securities and Exchange Commission
thereunder.
12.This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an

Amended and Restated
Shareholder Services Agreement Page 5
original, and all such counterparts shall together constitute one and the
same instrument.
13.This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by any Fund, or of the
Funds in the case of assignment by FSS, except that any party may assign to
a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating its
responsibilities to another entity to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first
above written.

Amended and Restated
Shareholder Services Agreement Page 6
Investment Companies (listedon Exhibit 1)

By:
John F. Donahue
Chairman

Attest:
John W. McGonigle
Secretary

Federated Shareholder Services

By:

President

Attest:
Secretary

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Federated Bond Index Fund
Institutional Service Shares
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