FEDERATED INVESTMENT TRUST, 485BPOS, 1997-09-26

FEDERATED INVESTMENT TRUST
485BPOS, 1997-09-26

Previous: NORTH CENTRAL BANCSHARES INC, 8-K, 1997-09-26

Next: TECHNOLOGY SERVICE GROUP INC DE, 4, 1997-09-26

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. 3 ................................ X
--- ---

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---

Amendment No. 4 .............................................. 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 29, 1997 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.

<PAGE>

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 15, 1997; 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.

<PAGE>

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.
<TABLE>
<CAPTION>

Prospectus Heading
<C> <S> <C>

(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;
(a,b)
Investment
Information;
(a,b)
Investment
Objective;
(a,b)
Investment
Policies;
(a,b)
Investment
Limitations;
(a,b)
Additional
Investment
Strategies
and
Techniques;
(a,b)
Risk
Factors;
(a,b)
Special
Information
Concerning
Hub and
Spoke(R);
(a,b)
Other
Classes
of
Shares;
(a,b)
Miscellaneous.

Item 5. MANAGEMENT OF THE FUND......................(a,b) Information About the Trust and Federated
----------------------
Portfolios; (a,b) Management of the Trust and
Federated Portfolios; (a) Distribution of
Institutional Shares; (b) Distribution of
Institutional Service Shares; (a, b) Administration
of the Trust; (a,b) Service Providers of the
Portfolio; (a,b) Effect of Banking Laws.
Item 6. CAPITAL STOCK AND OTHER

SECURITIES..................................(a,b) Dividends; (a,b) Capital Gains; (a,b)
Shareholder Information; (a,b) Voting Rights; (a,b)

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; (a,b) Minimum Investment Required;
(a,b) What Shares Cost; (a,b) Confirmations and Account
Statements; (a,b) Retirement Plans.

<PAGE>

Item 8. REDEMPTION OR REPURCHASE....................(a) Redeeming Institutional Shares; (b) Redeeming
------------------------
Institutional Service Shares; (a,b) Telephone Redemption;
(a,b) Written Requests; (a,b) Accounts With Low Balances.

Item 9. PENDING LEGAL PROCEEDINGS...................None.
-------------------------

<PAGE>

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; (a,b)
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; (a,b) 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; (a,b) 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; (a,b) Determining Net
Asset Value; (a,b) Redeeming Shares; (a,b)
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; (a,b) Yield; (a,b) Performance
Comparisons.

Item 23. FINANCIAL STATEMENTS........................(a,b) Financial Statements for the fiscal year
--------------------
ended May 31, 1997, are incorporated herein by
reference to the Fund's Annual Report dated May 31,
1997. (File Nos. 33-00053 and 811-07477).

</TABLE>

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.

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, 1997, 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 1-800-341-74001. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE

CONTRARY IS A CRIMINAL OFFENSE.

Prospectus dated September 30, 1997

TABLE OF CONTENTS

Summary of Fund Expenses 1
Financial Highlights--Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 4
Investment Philosophy and Strategies 4
Additional Investment Strategies and Techniques; Risk Factors 6
Investment Limitations 10
Special Information Concerning Hub and Spoke 10
Trust Information and Federated Portfolios 12
Management of the Trust and Federated Portfolios 12
Administration of the Trust 14
Net Asset Value 15
Investing in Institutional Shares 15
Share Purchases 15
Minimum Investment Required 15
Confirmations and Account Statements 16
Dividends 16
Capital Gains 16
Retirement Plans 16
Redeeming Institutional Shares 16
Telephone Redemption 16
Written Requests 17
Accounts with Low Balances 17
Shareholder Information 17
Voting Rights 17
Effect of Banking Laws 18
Tax Information 18
Performance Information 19
Other Classes of Shares 20
Miscellaneous 20

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.

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

<S> <C>
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 services fee is 0.25%.

(3) The Total Institutional Shares Operating Expenses are estimated to
be 1.79% 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.

The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of the 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.

EXAMPLE

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.

1 Year $ 3
3 Years $ 9
5 Years $16
10 Years $37

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 EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated July 15, 1997, on the Fund's
financial statements for the year ended May 31, 1997, and on the
following table for each of the periods presented, is included in the
Annual Report, which is incorporated by reference. This table should
be read in conjunction with the Fund's financial statements and notes
thereto, which may be obtained from the Fund.

YEAR ENDED MAY 31,
1997 1996(a)

<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.96 $ 7.25
INCOME FROM INVESTMENT OPERATIONS

Net investment income 0.48 0.12
Net realized and unrealized gain (loss) on investments in the Portfolio 0.06 (0.29)
Total from investment operations 0.54 (0.17)
LESS DISTRIBUTIONS

Distributions from net investment income (0.48) (0.12)
NET ASSET VALUE, END OF PERIOD $ 7.02 $ 6.96
TOTAL RETURN(b) 7.97% (2.32%)
RATIOS TO AVERAGE NET ASSETS

Expenses 0.29% 0.09%*
Net investment income 6.83% 7.01%*
Expense waiver/reimbursement(c) 1.73% 8.18%*
SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $20,599 $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
FUND'S ANNUAL REPORT DATED MAY 31, 1997, 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.

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.

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.

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; 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, 1997, the following classes of fixed income securities
represented the stated proportions of the total market value of the
Aggregate Bond Index:

U.S. Treasury and government agency securities 50.63%
Corporate Bonds 18.56%
Mortgage- and asset-backed securities 30.81%

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 domestic and foreign corporate and
sovereign debt securities denominated in U.S. dollars. The Portfolio
may purchase debt securities 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.
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 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.

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.

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.

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.

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. 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

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

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(R)

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 1-800-341-7400. 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.

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, 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" below. TRUST INFORMATION 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.
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 0.25% 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.

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 $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and
through 4,500 financial institutions nationwide.

Susan M. Nason has been the Portfolio's portfolio manager since its
inception. Ms. Nason joined Federated Investors in 1987 and has been a
Senior Vice President of the Adviser since 1997. Ms. Nason served as a Vice
President of the Adviser from 1993 to 1997, and as an Assistant Vice
President from 1990 until 1992. Ms. Nason is a Chartered Financial Analyst
and received her M.B.A. concentrating 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 0.12% 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, 1997, U.S. Trust Company's Asset Management Group had
approximately $53 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., Excelsior Tax-Exempt
Funds, Inc., and Excelsior Institutional Trust, all of which are
registered investment companies.

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.

ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES

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
FEE DAILY NET ASSETS

<C> <S>

0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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.

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.

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 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. CONFIRMATIONS AND ACCOUNT STATEMENTS

Shareholders will receive detailed confirmations of transactions. In
addition, shareholders will receive periodic statements reporting all
account activity, including dividends paid. The Fund will not issue
share certificates.

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

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 $25,000. This requirement does not apply, however, if the
balance falls below $25,000 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

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(R)."

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 7, 1997, Frojack Co., who was the owner of record of
1,149,889 (37%) of the Institutional Shares of the Fund and Bankers
Trust Company as Trustee of Framatome Technologies Thrift Plan who was
the owner of record of 896,635 (51.68%), and Resource Trust Company
for the exclusive benefit of various customers of IMS who was the
owner of record of 693,572 (39.98%) 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

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
"regulated investment company," 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.

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. 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 Taxpayer Relief Act of 1997 significantly modifies the taxation of
capital gains realized by individuals, providing reduced rates for
gain from the sale of certain assets held for specified periods. Fund
Shares are eligible for such reduced rates if held for the requisite
period. Portions of distributions from the Fund may also qualify for
reduced rates.

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 SEC) 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 1-800-341-7400.
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.

[Graphic]

Federated Bond Index Fund

(A Portfolio of Federated Investment Trust)

Institutional Shares

PROSPECTUS

SEPTEMBER 30, 1997

An Open-End, Diversified Management Investment Company

FEDERATED BOND INDEX FUND INSTITUTIONAL SHARES

Federated Investors Tower
Pittsburgh, PA 15222-3779

DISTRIBUTOR FOR FEDERATED BOND INDEX FUND AND
PLACEMENT AGENT FOR BOND INDEX

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

INVESTMENT ADVISER FOR BOND INDEX PORTFOLIO
Federated Research Corp.
Federated Investors Tower

Pittsburgh, PA 15222-3779 SUB-ADVISER FOR BOND INDEX PORTFOLIO United
States Trust Company of New York 114 West 47th Street

New York, NY 10036

CUSTODIAN FOR FEDERATED BOND INDEX FUND AND BOND INDEX PORTFOLIO

State Street Bank and Trust Company
P.O. Box 8600

Boston, MA 02266-8600

ADMINISTRATOR FOR FEDERATED BOND INDEX FUND

Federated Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779

ADMINISTRATOR FOR BOND INDEX PORTFOLIO
Federated Administrative Services, Inc.
Federated Investors Tower

Pittsburgh, PA 15222-3779

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder
Services Company

P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor

Cusip 313909103

G01556-02-IS (9/97)

[Graphic]

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<registered trademark>."
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 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, 1997, 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 1-800-341-7400. 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).

CONTRARY IS A CRIMINAL OFFENSE.

Prospectus dated September 30, 1997

TABLE OF CONTENTS

SUMMARY OF FUND EXPENSES 1 Financial Highlights--Institutional Service
Shares 2 General Information 3 Investment Information 3 Investment
Objective 3 Investment Policies 4 Additional Investment Strategies
and Techniques; Risk Factors 6 Investment Limitations 10 Special
Information Concerning Hub and Spoke<registered trademark> 10 Trust
Information 12 Management of the Trust and Federated Portfolios 12
Distribution of Institutional Service Shares 14 Administration of the
Trust 14 Administrative Services 14 Service Providers of the
Portfolio 15 Net Asset Value 15 Investing in Institutional Service
Shares 15 Share Purchases 15 Minimum Investment Required 15 What
Shares Cost 16 Confirmations and Account Statements 16 Dividends 16
Capital Gains 16 Retirement Plans 16 Redeeming Institutional Service
Shares 16 Telephone Redemption 17 Written Requests 17 Accounts with
Low Balances 17 Shareholder Information 17 Voting Rights 17 Effect of
Banking Laws 18 Tax Information 18 Performance Information 19 Other
Classes of Shares 20 Miscellaneous 20

SUMMARY OF FUND EXPENSES

INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES

<S> <C>
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
<CAPTION>

ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)

<S> <C> <C> 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 2.04% 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.

The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of the 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>

EXAMPLE

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.

<S> <C>
1 Year $ 6
3 Years $17
5 Years $30
10 Years $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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED MAY 31,
1997 1996(a)

<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.96 $ 7.25
INCOME FROM INVESTMENT OPERATIONS

Net investment income 0.46 0.12
Net realized and unrealized gain (loss) on investments in the Portfolio 0.06 (0.29)
Total from investment operations 0.52 (0.17)
LESS DISTRIBUTIONS

Distributions from net investment income (0.46) (0.12)
NET ASSET VALUE, END OF PERIOD $ 7.02 $ 6.96
TOTAL RETURN(b) 7.70% (2.32%)
RATIOS TO AVERAGE NET ASSETS

Expenses 0.54% 0.09%*
Net investment income 6.64% 7.01%*
Expense waiver/reimbursement(c) 1.37% 8.18%*
SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $4,396 $0.2
</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
FUND'S ANNUAL REPORT DATED MAY 31, 1997, 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.

INVESTMENT INFORMATION

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.

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

INVESTMENT PHILOSOPHY

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.

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; 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.

As of June 30, 1997, the following classes of fixed income securities
represented the stated proportions of the total market value of the
Aggregate Bond Index:

U.S. Treasury and government agency securities 50.63%
Corporate Bonds 18.56%
Mortgage- and asset-backed securities 30.81%

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

CORPORATE BONDS

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.

ADDITIONAL INVESTMENT STRATEGIES AND TECHNIQUES; RISK FACTORS

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

SAMPLING AND TRADING IN THE PORTFOLIO

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 when-issued or forward commitment
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.
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

REVERSE REPURCHASE AGREEMENTS

FUTURES CONTRACTS AND OPTIONS

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.

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.

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.

SECURITIES LENDING

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 the 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.

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<registered trademark>
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<registered trademark> financial services method. Hub and
Spoke<registered trademark> 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 1-800-341-7400. 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.

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

BOARD OF DIRECTORS

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.
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

ADVISER'S BACKGROUND

SUB-ADVISER

SUB-ADVISORY FEES

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, 1997, U.S. Trust Company's Asset Management Group had
approximately $53 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., Excelsior Tax-Exempt
Funds, Inc., and Excelsior Institutional Trust, all of which are
registered investment companies. 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.

CERTAIN RELATIONSHIPS AND ACTIVITIES

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 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:

MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS

<C> <S>

0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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

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

CAPITAL GAINS

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.

WRITTEN REQUESTS

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

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, or any affiliate thereof, such as U.S.
Trust Company, 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 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 "regulated investment
company," 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. 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 Taxpayer Relief Act of 1997 significantly modifies
the taxation of capital gains realized by individuals, providing
reduced rates for gain from the sale of certain assets held for
specified periods. Fund Shares are eligible for such reduced rates if
held for the requisite period. Portions of distributions from the Fund
may also qualify for reduced rates. 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.

PERFORMANCE INFORMATION

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

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 1-800-341-7400.
MISCELLANEOUS

FEDERATED BOND
INDEX FUND

INSTITUTIONAL SERVICE SHARES

Federated Investors Tower
Pittsburgh, PA 15222-3779

DISTRIBUTOR FOR FEDERATED BOND INDEX FUND AND
PLACEMENT AGENT FOR

BOND INDEX PORTFOLIO

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

SUB-ADVISER FOR BOND INDEX PORTFOLIO

United States Trust Company
of New York
114 West 47th Street

New York, NY 10036

CUSTODIAN FOR FEDERATED BOND

INDEX FUND AND

BOND INDEX PORTFOLIO

State Street Bank and
Trust Company

P.O. Box 8600
Boston, MA 02266-8600

ADMINISTRATOR FOR
FEDERATED BOND

INDEX FUND

Federated Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779

ADMINISTRATOR FOR BOND INDEX PORTFOLIO

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

TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT AUDITORS

Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

[Graphic]

FEDERATED BOND INDEX FUND

(A Portfolio of Federated

Investment Trust)

Institutional Service Shares

PROSPECTUS
SEPTEMBER 30, 1997

AN OPEN-END, DIVERSIFIED

MANAGEMENT INVESTMENT COMPANY

Federated Securities Corp., Distributor

Cusip 313909202

G01556-01-SS (9/97)

[Graphic]

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, 1997. 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 1-800-341-7400. 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, 1997

[Graphic]

Cusip 313909202
Cusip 313909103

G01556-03 (9/97)

TABLE OF CONTENTS

INVESTMENT OBJECTIVE AND POLICIES 1
Asset-Backed Securities 1
Bank Obligations 1
Commercial Paper 2
Lending of Portfolio Securities 2
Variable Rate and Floating Securities 3
Participation Interests 3
Illiquid Securities 3
Unsecured Promissory Notes 4
Repurchase Agreements and Reverse Repurchase Agreements 4
Guaranteed Investment Contracts 4
When-Issued Securities 5
Zero Coupon Obligations 5
Futures Contracts and Options on Futures Contracts 5
Options on Securities 7
Options on Securities Indices 8
Short Sales "Against the Box" 9
Certain Other Obligations 9
Rating Services 9
Portfolio Turnover 10
Investment Limitations 10
MANAGEMENT OF THE TRUST AND FEDERATED PORTFOLIOS 12
Fund Ownership 15
Trustee Liability 16
Trustees' Compensation 16
INVESTMENT ADVISORY AND SUB-ADVISORY SERVICES 17
Adviser and Sub-Adviser to the Portfolio 17
BROKERAGE TRANSACTIONS 17
OTHER SERVICES 18
Trust Administration 18
Custodian and Portfolio Recordkeeper 19
Transfer Agent and Dividend Disbursing Agent 19
Independent Auditors 19
PURCHASING SHARES 19
Distribution Plan (Institutional Service Shares only) and Shareholder
Services Agreement 19
Conversion to Federal Funds 19
DETERMINING NET ASSET VALUE 19
Determining Market Value of Securities 19
REDEEMING SHARES 20
Redemption In Kind 20
MASSACHUSETTS PARTNERSHIP LAW 21
TAX STATUS 21
The Fund's Tax Status 21
Taxation of the Portfolio 21
Taxation of Fund Distributions 22
Other Taxation 22
TOTAL RETURN 22
YIELD 22
PERFORMANCE COMPARISONS 23
Economic and Market Information 23
DESCRIPTION OF FEDERATED PORTFOLIOS 24
Beneficial Interests 24
Service Providers 25
Custodian and Portfolio Recordkeeper 25
Independent Auditors 25
ABOUT FEDERATED INVESTORS 25
Mutual Fund Market 26
FINANCIAL STATEMENTS 26
APPENDIX 27

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 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 years
ended May 31, 1997 and 1996, the Portfolio's turnover rates were 49%
and 43%, 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. FEDERAL RESTRICTIONS

In order to comply with certain 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 of any investment
company 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) 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; Policies (i)
through (v) 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

15 Old Timber Trail

Pittsburgh, PA

Birthdate: February 3, 1934

Trustee

Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, 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, Naples Property
Management, Inc. and Northgate Village Development Corporation; 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.; 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

203 Kensington Ct.

Pittsburgh, PA

Birthdate: October 6, 1926

Trustee

Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Retired
from the law firm of Miller, Ament, Henny & Kochuba; 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; 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 and U.S. Space Foundation;
President Emeritus, University of Pittsburgh; Founding Chairman, National
Advisory Council for Environmental Policy and Technology, Federal Emergency
Management Advisory Board and Czech Management Center, Prague; Director or
Trustee of the Funds.

Marjorie P. Smuts

4905 Bayard Street
Pittsburgh, PA

Birthdate: June 21, 1935

Trustee

Public Relations/Marketing/Conference Planning; 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; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer 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, 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.

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.

* This Trustee is deemed to be an "interested person" as defined in
the Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; 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.; 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
Obligations Trust II; 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; Wesmark Funds; and World Investment Series, Inc.

FUND OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding
shares. As of September 7, 1997, the following shareholders of record
owned 5% or more of the outstanding Institutional Shares of the Fund:
Century Bank & Trust, Coldwater, Michigan owned approximately 207,451
(6.67%); Droves & Company, York, Pennsylvania owned approximately
194,446 (6.25%); Temple First Stock Co., Temple, Texas owned
approximately 184,321 (5.93%); and Frojack Co., Grand Forks, Maryland
owned approximately 1,149,889 (37%). As of September 7, 1997, the
following shareholders of record owned 5% or more of the outstanding
Institutional Service Shares of the Fund: Bankers Trust Company as
Trustee of Framatome Technologies Thrift Plan, Jersey City, New Jersey
owned approximately 896,635 (51.68%); Resources Trust Company for the
Exclusive Benefit of Various Customers of IMS, Englewood, Colorado
owned approximately 693,572 (39.98%); and FTC & Co., Denver, Colorado
owned approximately 109,660 (6.32%). 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

<TABLE>

AGGREGATE

NAME, COMPENSATION FROM

POSITION WITH THE FEDERATED TOTAL COMPENSATION PAID
TRUST TRUST* PORTFOLIOS* FROM FUND COMPLEX+
<S> <C> <C> <C>
John F. Donahue, $0 $0 $0 for the Trust, Federated Portfolios and

President and Trustee 56 other investment companies in the Fund Complex

Thomas G. Bigley, $505 $767 $108,725 for the Trust, Federated Portfolios and
Trustee 56 other investment companies in the Fund
Complex

John T. Conroy, Jr., $555 $843 $119,615 for the Trust, Federated Portfolios and
Trustee 56 other investment companies in the Fund
Complex

William J. Copeland, $555 $843 $119,615 for the Trust, Federated Portfolios and
Trustee 56 other investment companies in the Fund
Complex

J. Christopher Donahue, $0 $0 $0 for the Trust, Federated Portfolios and
President and Trustee 15 other investment companies in the Fund
Complex

James E. Dowd, $555 $843 $119,615 for the Trust, Federated Portfolios
and