FEDERATED CORE TRUST/PA, POS AMI, 1999-11-22

FEDERATED CORE TRUST/PA
POS AMI, 1999-11-22

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14
1940 Act File No.811-08519

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 5 ............................................ X
------ -------

FEDERATED CORE TRUST

(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)

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

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

Copies To:

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

FEDERATED CORE TRUST

Prospective Investor ____________________ Copy # ____________________

CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

FEDERATED MORTGAGE CORE PORTFOLIO

November 22, 1999

Investment Adviser
FEDERATED INVESTMENT MANAGEMENT COMPANY

Placement Agent
FEDERATED SECURITIES CORP.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222

Do Not Copy or Circulate

<PAGE>

FEDERATED CORE TRUST

Federated Mortgage Core Portfolio

CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

November 22, 1999

A Confidential Statement of Additional Information ("SAI") with respect to
Federated Mortgage Core Portfolio (the "Portfolio") with the same date has been
filed with the Securities and Exchange Commission (the "SEC"), and is
incorporated herein by reference. A copy of the SAI is available without charge
by calling the Portfolio's placement agent at 1-800-341-7400.

Shares of the Portfolio are not deposits or obligations of any bank, are not
endorsed or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.

The securities described herein are offered pursuant to an exemption from the
registration requirements of the Securities Act of 1933 (the "1933 Act"), as
amended, and have not been registered with or approved or disapproved by the SEC
or any other regulatory authority of any jurisdiction, nor has the SEC passed
upon the accuracy or adequacy of this Memorandum. Any representation to the
contrary is a criminal offense.

Shares of the Portfolio are being offered for investment only to investment
companies, insurance company separate accounts, common or commingled trust funds
or similar organizations or entities that are "accredited investors" within the
meaning of Regulation D of the 1933 Act.

Investors will be required to represent that they meet certain financial
requirements and that they are familiar with and understand the terms, risks and
merits of an investment in the Portfolio.

No resale of shares may be made unless the shares are subsequently registered
under the Securities Act or an exemption from such registration is available.

This Confidential Private Offering Memorandum has been prepared on a
confidential basis solely for the information of the recipient and may not be
reproduced, provided to others or used for any other purpose.

No person has been authorized to make representations or give any information
with respect to the shares, except the information contained herein or in the
Trust's registration statement filed under the Investment Company Act of
1940.

<PAGE>

FEDERATED MORTGAGE CORE PORTFOLIO

A Portfolio of Federated Core Trust

CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

Part A
(information required in a prospectus)

November 22, 1999

Please read this Confidential Private offering Memorandum carefully before
investing and retain it for future reference. It contains important information
about the Portfolio that investors should know before investing.

A copy of a Subscription Agreement for use in subscribing to purchase shares of
the Portfolio accompanies delivery of this Memorandum. In order to purchase
shares of the Portfolio, a prospective investor must satisfactorily complete,
execute and deliver the Subscription Agreement to the Portfolio's Transfer
Agent.

Items 1,2 3, 5 and 9 of Part A are omitted pursuant to Item B(2)(b)of the
General Instructions to Form N-1A.

Investment Objective, Principal Investment Strategies and Related Risks

Investment Objective
The investment objective of the Portfolio is to provide total return. While
there is no assurance that the Portfolio will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
offering memorandum.

Investment Strategy
The Portfolio pursues its investment objective by investing primarily in
mortgage backed securities, including collateralized mortgage obligations
(CMOs).

The adviser manages the portfolio by targeting a dollar weighted average
duration relative to that of the Lehman Brothers Mortgage Backed Securities
Index. Duration measures the price sensitivity of a portfolio of fixed income
securities to changes in interest rates. The adviser targets this range based
upon its interest rate outlook. The adviser formulates its interest rate outlook
by analyzing a variety of factors, such as:

o current U.S. economic activity and the economic outlook,

o current short-term interest rates,

o the Federal Reserve Board's policies regarding short-term interest rates,
and

o potential effects of foreign economic activity on interest rates.

The adviser generally shortens the portfolio's average duration when it
expects interest rates to rise and extends the duration when it expects interest
rates to fall.

The adviser selects securities used to lengthen or shorten the portfolio's
average duration by comparing the returns currently offered by different
investments to their historical and expected returns. In selecting mortgage
backed securities, including CMOs, the analysis also focuses on the expected
cash flows from the pool of mortgage obligations supporting the security. The
Adviser attempts to assess the relative returns and risks of these securities by
analyzing how the timing, amount and division of cash flows from the pool might
change in response to changing economic and market conditions. The adviser may
use CMOs with more predictable cash flows (such as sequential pay, planned
amortization class and targeted amortization class) to improve the Portfolio's
performance in volatile markets. The adviser may also use combinations of CMOs
or CMOs and pass-through certificates to provide a higher yielding investment
with market risks similar to a pass-through certificate or a Treasury security.
The combination may involve different mortgage pools. Unanticipated differences
in prepayment rates of the pools may reduce the return of the combined
investment. Combinations may also include CMOs (such as IOs, POs, and inverse
floaters) that have complex terms or less predictable cash flows.

In addition to buying mortgage backed securities outright, the Portfolio
may acquire securities on a "to be announced" basis in order to enhance yield.
The Portfolio engages in dollar roll transactions to increase income. The
Portfolio uses repurchase agreements to secure its obligations in these
transactions.

Securities and Techniques

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

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

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

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

The Portfolio treats mortgage backed securities guaranteed by GSEs as
agency securities. Although a GSE guarantee protects against credit risks,
it does not reduce the market and prepayment risks of these mortgage backed
securities.

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

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

The Portfolio may invest in both agency mortgage backed securities and in
mortgage backed securities that are issued by a private entity. Securities
issued by private entities must be rated investment grade by one or more
nationally recognized rating services. The ability to invest in securities
issued by a private entity creates credit risk.

Collateralized Mortgage Obligations
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and market risks
for each CMO class.

Sequential CMOs
In a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all principal
payments after the first class is paid off. This process repeats for
each sequential class of CMO. As a result, each class of sequential pay
CMOs reduces the prepayment risks of subsequent classes.

PACs, TACs and Companion Classes
More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with
companion classes. PACs and TACs receive principal payments and
prepayments at a specified rate. The companion classes receive
principal payments and prepayments in excess of the specified rate. In
addition, PACs will receive the companion classes' share of principal
payments, if necessary, to cover a shortfall in the prepayment rate.
This helps PACs and TACs to control prepayment risks by increasing the
risks to their companion classes.

IOs and POs
CMOs may allocate interest payments to one class (Interest Only or IOs)
and principal payments to another class (Principal Only or POs). POs
increase in value when prepayment rates increase. In contrast, IOs
decrease in value when prepayments increase, because the underlying
mortgages generate less interest payments. However, IOs tend to
increase in value when interest rates rise (and prepayments decrease),
making IOs a useful hedge against market risks.

Floaters and Inverse Floaters
Another variant allocates interest payments between two classes of
CMOs. One class (Floaters) receives a share of interest payments based
upon a market index such as LIBOR. The other class (Inverse Floaters)
receives any remaining interest payments from the underlying mortgages.
Floater classes receive more interest (and Inverse Floater classes
receive correspondingly less interest) as interest rates rise. This
shifts prepayment and market risks from the Floater to the Inverse
Floater class, reducing the price volatility of the Floater class and
increasing the price volatility of the Inverse Floater class.

Z Classes
CMOs must allocate all payments received from the underlying mortgages
to some class. To capture any unallocated payments, CMOs generally have
an accrual (Z) class. Z classes do not receive any payments from the
underlying mortgages until all other CMO classes have been paid off.
Once this happens, holders of Z class CMOs receive all payments and
prepayments. Similarly, REMICs have residual interests that receive any
mortgage payments not allocated to another REMIC class.

The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. However, the actual returns on any type of
mortgage backed security depend upon the performance of the underlying
pool of mortgages, which no one can predict and will vary among pools.

Special Transactions

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

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

Repurchase agreements are subject to credit risks.

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

To Be Announced Securities (TBAs)
As with other delayed delivery transactions, a seller agrees to issue a
TBA security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Portfolio agrees to
accept any security that meets specified terms. For example, in a TBA
mortgage backed transaction, the Portfolio and the seller would agree
upon the issuer, interest rate and terms of the underlying mortgages.
The seller would not identify the specific underlying mortgages until
it issues the security. TBA mortgage backed securities increase market
risks because the underlying mortgages may be less favorable than
anticipated by the Portfolio.

Dollar Rolls
Dollar rolls are transactions where the Portfolio sells mortgage-backed
securities with a commitment to buy similar, but not identical,
mortgage-backed securities on a future date at a lower price. Normally,
one or both securities involved are TBA mortgage backed securities.
Dollar rolls are subject to market risks and credit risks.

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

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

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

Securities lending activities are subject to market risks and credit risks.

Asset Coverage
In order to secure its obligations in connection with derivatives contracts
or special transactions, the Portfolio will either own the underlying
assets, enter into an offsetting transaction or set aside readily
marketable securities with a value that equals or exceeds the Portfolio's
obligations. Unless the Portfolio has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations entering
into an offsetting derivative contract or terminating a special
transaction. This may cause the Portfolio to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.

Portfolio Turnover
Prepayment of mortgage backed securities owned by the Portfolio could result in
a high portfolio turnover rate, which is likely to generate shorter-term gains
(losses) for its shareholders. Short-term gains are taxed at a higher rate than
longer-term gains. High portfolio turnover increases the Portfolio's trading
costs and may have an adverse impact on the Portfolio's performance.

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

<PAGE>

Investment Risks

Bond Market Risks
o Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.

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

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

Prepayment Risks

o Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage backed securities with higher interest rates. Conversely,
prepayments due to refinancings decrease when mortgage rates increase. This
extends the life of mortgage backed securities with lower interest rates.
As a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. This relationship
between interest rates and mortgage prepayments makes the price of mortgage
backed securities more volatile than most other types of fixed income
securities with comparable credit risks.

o Mortgage backed securities generally compensate for greater prepayment risk
by paying a higher yield. The difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security is
perceived to have increased prepayment risk or less market demand. An
increase in the spread may cause the price of the security to decline.
o If a fixed income security is called, the Portfolio may have to reinvest
the proceeds in other fixed income securities with lower interest rates,
higher credit risks, or other less favorable characteristics.

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

o Liquidity risk also refers to the possibility that the Portfolio may not be
able to sell a security when it wants to. If this happens, the Portfolio
will be required to continue to hold the security, and the Portfolio could
incur losses.

Risks Associated with Complicated CMOs
o CMOs with complicated terms, such as companion classes, IOs, POs and
Inverse Floaters, generally entail greater market, prepayment and liquidity
risks than other mortgage backed securities. For example, their prices are
more volatile and their trading market may be more limited.

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

<PAGE>

Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Portfolio.

While it is impossible to determine in advance all of the risks to the
Portfolio, the Portfolio could experience interruptions in basic financial and
operational functions. Portfolio shareholders could experience errors or
disruptions in Portfolio share transactions or Portfolio communications.

The Portfolio's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Portfolio's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of securities
the Portfolio may purchase.

The financial impact of these issues for the Portfolio is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Portfolio.

Management Organization and Capital Structure

Investment Adviser
A Board of Directors governs the Trust. The Board selects and oversees the
Adviser, Federated Research Corp. The Adviser manages the Portfolio's assets
including buying and selling portfolio securities. The Adviser's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The
Adviser will not receive a fee for its investment advisory services.

The Adviser and other subsidiaries of Federated advise more than 175 mutual
funds and private accounts, which total over $111 billion in assets as of
December 31, 1998. Federated was established in 1955 and is one of the largest
mutual fund investment managers in the United States with approximately 1,900
employees. Over 4,000 investment professionals make Federated Funds available to
their customers.

Portfolio Managers
The Portfolio's managers are: Kathleen Foody-Malus, Edward Tiedge and Todd
Abraham.

Kathleen M. Foody-Malus has been the Portfolio's portfolio manager since
inception. Ms. Foody-Malus joined Federated Investors in 1983 and has been a
Vice President of the Adviser since 1993. Ms. Foody-Malus served as an Assistant
Vice President of the investment adviser from 1990 until 1992. Ms. Foody-Malus
received her M.B.A. in Accounting/Finance from the University of Pittsburgh.

Edward J. Tiedge has been the Portfolio's portfolio manager since inception. Mr.
Tiedge joined Federated Investors in 1993 and has been a Vice President of the
Adviser since January 1996. He served as an Assistant Vice President of the
Portfolio's investment adviser in 1995, and an Investment Analyst during 1993
and 1994. Mr. Tiedge served as Director of Investments at Duquesne Light Company
from 1990 to 1993. Mr. Tiedge is a Chartered Financial Analyst and received his
M.S. in Industrial Administration from Carnegie Mellon University.

Todd A. Abraham has been the Portfolio's portfolio manager since inception. Mr.
Abraham has been a Vice President of the Adviser since July 1997. Mr. Abraham
joined Federated Investors in 1993 as an Investment Analyst and served as
Assistant Vice President from 1995 to 1997. Mr. Abraham served as a Portfolio
Analyst at Ryland Mortgage Co. from 1992 to 1993. Mr. Abraham is a Chartered
Financial Analyst and received his M.B.A. in finance from Loyola College.

Shareholder Information

Beneficial interests in the Portfolio are issued solely in private placement
transactions which do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933 (1933 Act). Investments in the
Portfolio may only be made by investment companies, insurance company separate
accounts, common or commingled trust funds or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D of the 1933
Act. This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.

Pricing of Portfolio Shares
The net asset value (NAV) of the Portfolio is determined as of the end of
regular trading (normally, 4:00 p.m., Eastern time) each day the NYSE is open.

The NAV per share of the Portfolio is computed by dividing the value of the
Portfolio's assets, less all liabilities, by the total number of shares
outstanding.

Purchase of Portfolio Shares
Shares of the Portfolio may be purchased any day the New York Stock Exchange
(NYSE) is open.

Purchases should be made in accordance with procedures established by the
Transfer Agent.

Purchase orders for Shares of the Portfolio will receive the NAV next determined
after the purchase order is received in proper form by the Portfolio's Transfer
Agent, Federated Shareholder Services Company.

Payment by federal funds must be received by the Trust's custodian, State Street
Bank and Trust Company, by 3:00 p.m. (Eastern time) the next business day
following the receipt of the purchase order.

There is no minimum required initial or subsequent investment amount.

The Portfolio reserves the right to cease accepting investments in the Portfolio
at any time or to reject any investment order.

Redemption of Portfolio Shares
Shares of the Portfolio may be redeemed any day the NYSE is open.

Redemption requests should be made in accordance with procedures established by
the Transfer Agent.

Redemption requests will receive the NAV next determined after the request is
received in proper form by the Transfer Agent.

Redemption proceeds will normally be delivered within one business day after a
request is received in proper form. Payment may be delayed up to seven days:

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

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

Confirmations and Account Statements
Shareholders will receive confirmation of purchases and redemptions. In
addition, shareholders will receive periodic statements reporting all account
activity including dividends paid. The Trust will not issue share certificates.

Dividends and Distributions
The Portfolio declares dividends daily and pays them monthly to shareholders.
Purchases made by wire begin earning dividends on the day the wire is received.
Purchases made by check begin earning dividends on the business day after the
Portfolio receives the check. In either case, dividends are earned through the
day a redemption request is received.

Dividends will be automatically reinvested in additional Shares unless the
shareholder has elected cash payments.

Tax Consequences
Portfolio distributions are taxable to the shareholder whether paid in cash or
reinvested in the Portfolio. Dividends are taxable as ordinary income; capital
gains are taxable at different rates depending upon the length of time the
Portfolio holds its assets.

Portfolio distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales.

Distribution Arrangements

Federated Securities Corp., is the Trust's Placement Agent. It receives no fee
for its services.

FEDERATED MORTGAGE CORE PORTFOLIO

A Portfolio of Federated Core Trust

CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

Part B
(information required in a statement of additional information)

November 22, 1999

This Part B is not a prospectus, Read this Part B in conjunction with the Part A
for Federated Mortgage Core Portfolio dated November 22, 1999. Obtain
Part A without charge by calling 1-800-341-7400.

Table of Contents

Portfolio History 1

Investments, Techniques, Risks and Limitations 2

Management of the Trust 7

Investment Advisory and Other Services 10

Brokerage Allocation and Other Practices 11

Capital Stock and Other Securities 11

Shareholder Information 12

Taxation of the Portfolio 12

Financial Statements 12

Appendix 13

Addresses 15

Portfolio History

The Portfolio is a diversified portfolio of Federated Core Trust (the Trust).
The Trust is an open-end, management investment company that was established
under the laws of the Commonwealth of Massachusetts on August 21, 1996. The
Trust may offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities.

<PAGE>

Investments, Techniques, Risks and Limitations

Securities in which the Portfolio Invests
Following is a table that indicates which types of securities are a:
o P= Principal investment of the Portfolio; (shaded in chart)
- -------------------------------------------------------------------- -----------
Securities Mortgage Core
Portfolio
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Fixed Income Securities P
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Treasury Securities A
- --------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
Agency Securities P
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Zero Coupon Securities A
- -------------------------------------------------------------------- -----------
- --------------------------------------------------------------------
Mortgage Backed Securities P
- --------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
CMOs P
- --------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
Asset Backed Securities (home equity, manufactured housing) A
- --------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
Credit Enhancement (home equity, manufactured housing) A
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Derivative Contracts A
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Futures Contracts A
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Options A
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Swaps A
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Interest Rate Swaps A
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Caps and Floors A
- -------------------------------------------------------------------- -----------
Special Transactions P
- -------------------------------------------------------------------- -----------
- --------------------------------------------------------------------
Repurchase Agreements P
- --------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
Reverse Repurchase Agreements A
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
When issued Transactions P
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
To Be Announced Securities P
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Dollar Rolls P
- --------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
Securities Lending P
- -------------------------------------------------------------------- -----------
- -------------------------------------------------------------------- -----------
Securities of Other Investment Companies A
- --------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
Asset Coverage P
- -------------------------------------------------------------------- -----------

<PAGE>

o A= Acceptable (but not principal) investment of the Portfolio

Securities Descriptions and Techniques
In addition to the principal securities listed in Part A, the Portfolio may also
invest in the following:

<PAGE>

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

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

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

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

Mortgage Related Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial
debts. The Portfolio will purchase only mortgage-related asset backed
securities such as home equity loans, second mortgages and manufactured
housing obligations. Asset backed securities have prepayment risks. Like
CMOs, asset backed securities may be structured like Floaters, Inverse
Floaters, IOs and POs.

Like mortgage backed securities, asset backed securities may be issued by a
private entity and, although these securities must be rated investment
grade, they present credit risk.

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

Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes
arrangements where securities or other liquid assets secure payment of a
fixed income security. If a default occurs, these assets may be sold and
the proceeds paid to security's holders. Either form of credit enhancement
reduces credit risks by providing another source of payment for a fixed
income security.

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

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

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

The Portfolio may trade in the following types of derivative contracts:

Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset
is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts.

The Portfolio may buy/sell financial futures contracts.

Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from
the seller (writer) of the option. A put option gives the holder the right
to sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or premium, from the buyer, which the writer
keeps regardless of whether the buyer uses (or exercises) the option.

The Portfolio may:

o Buy put options on financial futures contracts in anticipation of a
decrease in the value of the underlying asset; and

o Buy or write options to close out existing options positions.

The Portfolio may also write call options on financial futures contracts to
generate income from premiums, and in anticipation of a decrease or only
limited increase in the value of the underlying asset. If a call written by
the Portfolio is exercised, the Portfolio foregoes any possible profit from
an increase in the market price of the underlying asset over the exercise
price plus the premium received.

When the Portfolio writes options on futures contracts, it will be subject
to margin requirements similar to those applied to futures contracts.

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

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

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

<PAGE>

Special Transactions

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

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

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

Securities of Other Investment Companies
The Portfolio may invest its assets in securities of other investment companies,
as an efficient means of carrying out its investment policies and managing its
uninvested cash. It should be noted that investment companies incur certain
expenses, such as management fees, and, therefore, any investment by the
Portfolio in shares of other investment companies may be subject to such
duplicate expenses. The Portfolio will limit its investment in other investment
companies to not more than 3% of the total outstanding voting stock of any
investment company, will invest no more than 5% of its total assets in any one
investment company, and will invest no more than 10% of its total assets in
investment companies in general.

Investment Risks

There are many factors which may effect an investment in the Portfolio. The
Portfolio's principal risks are described in Part A. Risk factors of the
acceptable investments listed above are as follows.

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

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

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

Sector Risks
o A substantial part of the Portfolio's portfolio may be comprised of
securities issued or credit enhanced by companies in similar businesses, or
with other similar characteristics. As a result, the Portfolio will be more
susceptible to any economic, business, political, or other developments
which generally affect these issuers.

Leverage Risks
o Leverage risk is created when an investment exposes the Portfolio to a
level of risk that exceeds the amount invested. Changes in the value of
such an investment magnify the Portfolio's risk of loss and potential for
gain.
o The Portfolio may invest in instruments whose returns are based on a
multiple of a specified index, security, or other benchmark. Such
performance multiplication may increase leverage risks.

Investment Limitations

Selling Short and Buying on Margin
The Portfolio will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities.

Issuing Senior Securities
The Portfolio will not issue senior securities, except as permitted by its
investment objective and policies.

Borrowing Money
The Portfolio will not borrow money, except to the extent permitted under the
1940 Act (which currently limits borrowings to no more than 33 1/3% of the value
of the Portfolio's total assets). For purposes of this investment restriction,
the entry into options, futures contracts and dollar roll transactions shall not
constitute borrowing.

Pledging Assets
The Portfolio will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge or
hypothecate assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of its total assets at the time of
borrowing.

Concentration of Investments
The Portfolio will not purchase securities if, as a result of such purchase, 25%
or more of its total assets would be invested in any one industry. However, the
Portfolio may at any time invest 25% or more of its assets in cash or cash items
and securities issued and/or guaranteed by the U.S. government, its agencies or
instrumentalities.

Investing in Commodities
The Portfolio will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Portfolio may engage
in transactions involving futures contracts and related options.

<PAGE>

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

Lending Cash or Securities
The Portfolio will not lend any of its assets, except portfolio securities up to
one-third of its total assets. This shall not prevent the Portfolio from
purchasing or holding corporate or U.S. government bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer, entering
into repurchase agreements, or engaging in other transactions which are
permitted by the Portfolio's investment objective and policies or the Trust's
Declaration of Trust.

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

Diversification of Investments
With respect to 75% of its total assets, the Portfolio will not purchase the
securities of any one issuer (other than cash, cash items, or securities issued
and/or guaranteed by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities) if, as a result, more
than 5% of its total assets would be invested in the securities of that issuer.
Also, the Portfolio will not purchase more than 10% of any class of the
outstanding voting securities of any one issuer. For these purposes, the
Portfolio considers common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.

The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

Restricted and Illiquid Securities
The Portfolio will not invest more than 15% of its total assets in illiquid
securities, including repurchase agreements providing for settlement in more
than seven days after notice and certain restricted securities not determined by
the Trustees to be liquid.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value of total or net assets will not result in a violation
of such restriction.

The Portfolio has no present intention to borrow money in excess of 5% of the
value of its net assets during the coming fiscal year.

Management of the Trust

Board of Trustees, Management Information, Compensation
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of two portfolios and
the Federated Fund Complex is comprised of 54 investment companies, whose
investment advisers are affiliated with the Portfolio's Adviser.

An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.

<PAGE>

Name Total
Birthdate Aggregate Compensation From
Address Principal Occupations Compensation Trust and Fund
Position With Trust for Past 5 Years From Trust Complex
John F. Donahue*+ Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex; Chairman and Director, and 54 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN AND TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $0 $113,860.22 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust/ and 54 other
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, investment
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; companies in the
TRUSTEE Director, Member of Executive Committee, University Fund Complex
of Pittsburgh.

John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $0 $125,264.48 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and 54 other
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., investment
John R. Wood Associates, Inc. Realtors; Partner or Trustee in private real estate companies in the
Realtors ventures in Southwest Florida; formerly: President, Fund Complex
3255 Tamiami Trial North Naples Property Management, Inc. and Northgate
Naples, FL Village Development Corporation.
TRUSTEE
Nicholas Constantakis Director or Trustee of the Federated Fund Complex; $0 $47,958.02 for the
Birthdate: September 3, 1939 formerly: Partner, Andersen Worldwide SC. Trust and 29 other
175 Woodshire Drive investment
Pittsburgh, PA companies in the
TRUSTEE Fund Complex
William J. Copeland Director or Trustee of the Federated Fund Complex; $0 $125,264.48for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and 54 other
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and investment
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; companies
TRUSTEE Director, Ryan Homes, Inc. in the Fund Complex

Previous Positions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh Civic Light Opera.
John F. Cunningham Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birthdate: March 5, 1943 Chairman, President and Chief Executive Officer, and 26 other
353 El Brillo Way Cunningham & Co., Inc. ; Trustee Associate, Boston investment
Palm Beach, FL College; Director, EMC Corporation; formerly: companies in the
TRUSTEE Director, Redgate Communications. Fund Complex

Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.; President
and Chief Operating Officer, Wang Laboratories;
Director, First National Bank of Boston; Director,
Apollo Computer, Inc.

Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $0 $113,860.22 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and 54 other
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical investment
Suite 1111 Center - Downtown; Hematologist, Oncologist, and companies in the
Pittsburgh, PA Internist, University of Pittsburgh Medical Center; Fund Complex
TRUSTEE Member, National Board of Trustees, Leukemia Society
of America.
Peter E. Madden Director or Trustee of the Federated Fund Complex; $0 $113,860.22 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and 54 other
One Royal Palm Way Massachusetts General Court; President, State Street investment
100 Royal Palm Way Bank and Trust Company and State Street Corporation. companies in the
Palm Beach, FL Fund Complex
TRUSTEE Previous Positions: Director, VISA USA and VISA
International; Chairman and Director, Massachusetts
Bankers Association; Director, Depository Trust
Corporation.
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birthdate: April 10, 1945 Management Consultant. and 25 other
80 South Road investment
Westhampton Beach, NY TRUSTEE Previous Positions: Chief Executive Officer, PBTC companies in the
International Bank; Chief Financial Officer of Retail Fund Complex
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President,
Citibank; Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $0 $113,860.22 for the
S.J.D. President, Law Professor, Duquesne University; Trust and 54 other
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. investment
President, Duquesne University companies in the
Pittsburgh, PA Previous Positions: Dean and Professor of Law, Fund Complex
TRUSTEE University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of Law.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $0 $113,860.22 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and 54 other
4905 Bayard Street investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies in the
TRUSTEE Company of America; business owner. Fund Complex
John S. Walsh Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birthdate: November 28, 1957 President and Director, Heat Wagon, Inc.; President and
2007 Sherwood Drive and Director, Manufacturers Products, Inc.; 22 other investment
Valparaiso, IN President, Portable Heater Parts, a division of companies in the
TRUSTEE Manufacturers Products, Inc.; Director, Walsh & Fund Complex
Kelly, Inc.; formerly: Vice President, Walsh & Kelly,
Inc.

J. Christopher Donahue+ President or Executive Vice President of the $0 $0 for the Trust and
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some 16 other investment
Federated Investors Tower of the Funds in the Federated Fund Complex; President companies in the
1001 Liberty Avenue and Director, Federated Investors, Inc.; President Fund Complex
Pittsburgh, PA and Trustee, Federated Advisers, Federated
PRESIDENT Management, and Federated Research; President and
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.

<PAGE>

Edward C. Gonzales Trustee or Director of some of the Funds in the $0 $0 for the Trust and
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice 1 other investment
Federated Investors Tower President and Treasurer of some of the Funds in the companies
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated in the Fund Complex
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers,
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust and
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, 54 other investment
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; companies in the
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, Fund Complex
Pittsburgh, PA and Federated Research; Director, Federated Research
EXECUTIVE VICE PRESIDENT AND Corp. and Federated Global Research Corp.; Director,
SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust and
Birthdate: June 17, 1954 President - Funds Financial Services Division, 54 other investment
Federated Investors Tower Federated Investors, Inc.; Formerly: various companies in the
1001 Liberty Avenue management positions within Funds Financial Services Fund Complex
Pittsburgh, PA Division of Federated Investors, Inc.
TREASURER
Richard B. Fisher President or Vice President of some of the Funds in $0 $0 for the Trust and
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of 6 other investment
Federated Investors Tower some of the Funds in the Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; Fund Complex
Pittsburgh, PA Chairman and Director, Federated Securities Corp.
VICE PRESIDENT
Mark E. Durbiano Mark E. Durbiano is a Vice President of the Trust. $0 $0 for the Trust and
Birthdate: September 21, 1959 Mr. Durbiano joined Federated Investors, Inc. in 1982 no other investment
Federated Investors Tower and has been a Senior Portfolio Manager and a Senior companies in the
1001 Liberty Avenue Vice President of the Portfolio's investment adviser Fund Complex
Pittsburgh, PA since 1996. From 1998 through 1995, Mr. Durbiano was
VICE PRESIDENT a Portfolio Manager and a Vice President of the
Portfolio's Adviser. Mr. Durbiano is a Chartered
Financial Analyst and received his M.B.A. in Finance
from the University of Pittsburgh.
J. Thomas Madden Chief Investment Officer of this Fund and various $0 $0 for the Trust and
Birthdate: October 22, 1945 other Funds in the Federated Fund Complex; Executive 12 other investment
Federated Investors Tower Vice President, Federated Investment Counseling, companies in the
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, Fund Complex
Pittsburgh, PA Federated Management, Federated Research, and
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Vice President, Federated
Investors, Inc.; Formerly: Executive Vice President
and Senior Vice President, Federated Investment
Counseling Institutional Portfolio Management
Services Division; Senior Vice President, Federated
Research Corp., Federated Advisers, Federated
Management, Federated Research, and Passport
Research, Ltd.
- ------------------------------- -- ------------------------------------------------------- ----------------- -- --------------------
</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, President of the Trust.

As of February 1, 1999 the Portfolio's Board and Officers as a group owned less
than 1% of the Portfolio's outstanding Shares.

Investment Advisory and Other Services

Investment Adviser
The Adviser conducts investment research and makes investment decisions for the
Portfolio. The Adviser is a
wholly-owned subsidiary of Federated Investors, Inc. (Federated).

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

The Adviser will provide investment advisory services at no fee.

<PAGE>

Principal Underwriter
The Portfolio's placement agent is Federated Securities Corp., located at
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

Administrator
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Portfolio. Federated Services Company
provides these services at the following annual rate of the average daily net
assets of all Federated Funds as specified below:

Maximum Average Aggregate Daily Net Assets
Administrative Fee of the Federated Funds
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million

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

Federated Services Company will voluntarily waive all or a portion of the
administrative fee paid by the Portfolio. Federated Services Company may
terminate this voluntary waiver at any time.

Custodian
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Portfolio.

Transfer Agent and Dividend Disbursing Agent
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Portfolio pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.

Independent Auditor
Ernst & Young LLP is the independent auditor for the Portfolio.

Brokerage Allocation and Other Practices

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

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

Investment decisions for the Portfolio are made independently from those of
other accounts managed by the Adviser. When the Portfolio and one or more of
those accounts invests in, or disposes of, the same security, available
investments or opportunities for sales will be allocated among the Portfolio and
the account(s) in a manner believed by the Adviser to be equitable. While the
coordination and ability to participate in volume transactions may benefit the
Portfolio, it is possible that this procedure could adversely impact the price
paid or received and/or the position obtained or disposed of by the Portfolio.

Capital Stock and Other Securities

Capital Stock
Holders of the Portfolio's shares of beneficial interest will have equal rights
to participate in distributions made by the Portfolio, equal rights to the
Portfolio's assets upon dissolution and equal voting rights; the Portfolio does
not allow cumulative voting. Investors will have no preemptive or other right to
subscribe to any additional shares of beneficial interest or other securities
issued by the Trust. Shares may be redeemed at any time at NAV with no charge.

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

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

Shareholder Information

Beneficial interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act.

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

Market values of the Portfolio's portfolio securities are determined as follows:

for bonds and other fixed income securities, at the last sale price on
a national securities exchange, if available, otherwise, as determined by an
independent pricing service;

for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and

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

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

The Portfolio values futures contracts and options at their market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. The Board may determine in good faith that another method of
valuing such investments is necessary to appraise their fair market value.

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

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

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

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

Taxation of the Portfolio

The Portfolio intends to meet requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive special tax treatment and will pay federal
income tax.

Financial Statements

Investors of record will receive annual reports audited by the Portfolio's
independent auditor and unaudited semi-annual reports.

<PAGE>

Appendix

Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB--Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. AA--Bonds which are rated AA are
judged to be of high quality by all standards. Together with the AAA group, they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks appear
somewhat larger than in AAA securities. A--Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. BAA--Bonds which are rated BAA are considered
as medium grade obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. BA--Bonds which are BA are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class. B--Bonds which are rated B
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. CAA--Bonds which are rated CAA are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. CA--Bonds which are rated CA
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. C--Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Fitch IBCA, Inc. Long-Term Debt Rating Definitions AAA--Bonds considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. AA--Bonds considered
to be investment grade and of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong, although not quite as strong as
bonds rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+. A--Bonds considered to be investment
grade and of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings. BB--Bonds
are considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements. B--Bonds are considered
highly speculative. While bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment. CC--Bonds are minimally protected. Default in
payment of interest and/or principal seems probable over time. C--Bonds are
imminent default in payment of interest or principal.

<PAGE>

Addresses

Federated Mortgage Core Portfolio

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

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

Investment Adviser
Federated Research Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

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

Independent Public Accountants
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

(11/99)

FEDERATED CORE TRUST

Prospective Investor ____________________ Copy # ____________________

CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

HIGH-YIELD BOND PORTFOLIO

November 22, 1999

Investment Adviser
FEDERATED INVESTMENT MANAGEMENT COMPANY

Placement Agent
FEDERATED SECURITIES CORP.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222

Do Not Copy or Circulate

<PAGE>

FEDERATED CORE TRUST

High-Yield Bond Portfolio

CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

November 22, 1999

A Confidential Statement of Additional Information ("SAI") with respect to
High-Yield Bond Portfolio (the "Portfolio") with the same date has been filed
with the Securities and Exchange Commission (the "SEC"), and is incorporated
herein by reference. A copy of the SAI is available without charge by calling
the Portfolio's placement agent at 1-800-341-7400.

Investors will be required to represent that they meet certain financial
requirements and that they are familiar with and understand the terms, risks and
merits of an investment in the Portfolio.

No resale of shares may be made unless the shares are subsequently registered
under the Securities Act or an exemption from such registration is available.

<PAGE>

HIGH-YIELD BOND PORTFOLIO

A Portfolio of Federated Core Trust

CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

Part A
(information required in a prospectus)

November 22, 1999

Please read this Confidential Private Offering Memorandum carefully before
investing and retain it for future reference. It contains important information
about the Portfolio that investors should know before investing.

A copy of a Subscription Agreement and Investor Questionnaire for use in
subscribing to purchase shares of the Portfolio accompanies delivery of this
Memorandum. In order to purchase shares of the Portfolio, a prospective investor
must satisfactorily complete, execute and deliver the Subscription Agreement and
Investor Questionnaire to the Portfolio's Placement Agent.

Items 1,2 3, 5 and 9 of Part A are omitted pursuant to Item B(2)(b)of the
General Instructions to Form N-1A.

Investment Objective, Principal Investment Strategies and Related Risks

Investment Objective
The investment objective of the Portfolio is to seek high current income. While
there is no assurance that the Portfolio will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
offering memorandum.

Investment Strategy
The Portfolio provides exposure to the high-yield, lower-rated corporate bond
market. At least 65 percent of the Portfolio's assets are invested in corporate
bonds rated BBB or lower. The Adviser actively manages the Portfolio seeking to
realize the potentially higher returns of high-yield bonds (also known as "junk
bonds") compared to returns of high-grade securities by seeking to minimize
default risk and other risks through careful security selection and
diversification.

The Adviser selects securities seeking high yields, low relative credit risk,
and high portfolio diversification. If the issuer of a bond is unable to make
all coupon and principal payments as promised, realized yields will be less than
promised. The securities in which the Portfolio invests have high yields
primarily because of the market's greater uncertainty about the issuer's ability
to make all required interest and principal payments, and therefore about the
returns that will be in fact be realized by the Portfolio.

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

The Adviser attempts to minimize the Portfolio's credit risk through
diversification. The Adviser selects securities to maintain broad portfolio
diversification both by company and industry.

Securities and Techniques

Fixed Income Securities
The Portfolio invests primarily in lower-rated corporate fixed income
securities. Corporate fixed income securities are debt securities issued by U.S.
or foreign businesses. Notes, bonds, debentures and commercial paper are the
most prevalent types of corporate debt securities. The Portfolio may also
purchase interests in bank loans to companies.

The Portfolio treats preferred stock which is redeemable by the issuer as a
fixed income security. Preferred stocks have the right to receive specified
dividends or distributions before the issuer makes payments on its common stock.
Some preferred stock also participates in dividends and distributions paid on
common stock.

The Portfolio may invest in fixed income securities of issuers based outside the
U.S. The securities of foreign issuers in which the Portfolio invests are
primarily traded in the U.S. and are predominantly denominated in U.S.
dollars.

A security's yield to maturity will increase or decrease depending upon whether
it costs less (a discount) or more (a premium) than the principal amount.

The credit risks of corporate debt securities vary widely among issuers. In
addition, the credit risk of an issuer's debt securities may vary based on their
priority for repayment. For example, higher-ranking (senior) securities have a
higher priority than lower ranking (subordinated) securities. This means that
the issuer might not make payments on subordinated securities while continuing
to make payments on senior securities. Typically, both senior and subordinated
debt securities have a higher priority than redeemable preferred stock. Most of
the fixed income securities in which the Portfolio invests will be
uncollateralized and subordinated to other debt that a corporation has
outstanding.

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

Investment Risks

Credit Risks
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Portfolio will lose money. The high yield bonds in which the Portfolio invests
have a higher default risk than investment grade securities. Low-grade bonds are
almost always uncollateralized and subordinated to other debt that a firm has
outstanding.

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

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

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

<PAGE>

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

Risks Related to the Economy
Like equity securities, the prices of high-yield securities are affected by the
economy, which is keyed to current and anticipated developments in the U.S. and
global economy.

Management Organization and Capital Structure

Investment Adviser
A Board of Directors governs the Trust. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the
Portfolio's assets including buying and selling portfolio securities. The
Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
PA 15222-3779. The Adviser will not receive a fee for its investment advisory
services.

Portfolio Manager

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

Shareholder Information

Beneficial interests in the Portfolio are issued solely in private placement
transactions which do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933 (1933 Act). Investments in the
Portfolio may only be made by investment companies, insurance company separate
accounts, common or commingled trust funds or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D of the 1933
Act. This Confidential Private Offering Memorandum does not constitute an offer
to sell, or the solicitation of an offer to buy, any "security" within the
meaning of the 1933 Act.