INVESTMENT SERIES FUNDS INC, 497, 1996-01-03

INVESTMENT SERIES FUNDS INC
497, 1996-01-03

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CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
CLASS A SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the respective
prospectuses of the Class A Shares and Class C Shares of Capital Growth
Fund (the "Fund") dated December 31, 1995. You may request a copy of a
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge, by calling 1-800-235-
4669.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated December 31, 1995
FEDERATED SECURITIES CORP.
DISTRIBUTOR
A SUBSIDIARY OF Federated Investors

GENERAL INFORMATION ABOUT THE FUND1

INVESTMENT OBJECTIVE AND POLICIES1

TYPES OF INVESTMENTS 1
RESTRICTED AND ILLIQUID SECURITIES
2
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 2
LENDING OF PORTFOLIO SECURITIES 2
REPURCHASE AGREEMENTS 3
REVERSE REPURCHASE AGREEMENTS 3
PORTFOLIO TURNOVER 3
INVESTMENT LIMITATIONS 3

INVESTMENT SERIES FUNDS, INC.
MANAGEMENT 6

FUND OWNERSHIP 10
DIRECTOR'S COMPENSATION 10
INVESTMENT ADVISORY SERVICES 11

ADVISER TO THE FUND 11
ADVISORY FEES 11
BROKERAGE TRANSACTIONS 11

OTHER SERVICES 12

FUND ADMINISTRATION 12
CUSTODIAN 12

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 12
INDEPENDENT AUDITORS 12
PURCHASING SHARES 12

DISTRIBUTION AND SHAREHOLDER
SERVICES PLANS 12
PURCHASES BY SALES REPRESENTATIVES,
DIRECTORS, AND EMPLOYEES 13
CONVERSION TO FEDERAL FUNDS 13
DETERMINING NET ASSET VALUE 13

DETERMINING MARKET VALUE OF
SECURITIES 13
REDEEMING SHARES 13

TAX STATUS 13

THE FUND'S TAX STATUS 13
SHAREHOLDERS' TAX STATUS 14
TOTAL RETURN 14

YIELD 14

PERFORMANCE COMPARISONS 14

ABOUT FEDERATED INVESTORS 15

MUTUAL FUND MARKET 16
INSTITUTIONAL CLIENTS 16
TRUST ORGANIZATIONS 16

BROKER /DEALERS AND BANK
BROKER/DEALER SUBSIDIARIES 16
APPENDIX 17

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of Investment Series Funds, Inc. (the "Corporation").
The Fund was established as a portfolio of Investment Series Trust, a
Massachusetts business trust, on March 17, 1987, and, on December 18, 1992,
reorganized as a portfolio of the Corporation which is organized under the
laws of the State of Maryland. It is qualified to do business as a foreign
corporation in Pennsylvania.
Shares of the Fund are offered in two classes: Class A Shares and Class C
Shares (individually and collectively referred to as "Shares," as the context
may require). This Statement of Additional Information relates to the above-
mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is appreciation of capital. The Fund pursues
this investment objective by investing primarily in equity securities of
companies with prospects for above-average growth in earnings and dividends or
of companies where significant fundamental changes are taking place. The
investment objective cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Fund may invest in common stocks, preferred stocks, corporate bonds,
debentures, notes, warrants, and put options on stocks. The Fund may also
invest in short-term money market instruments, U.S. government securities, and
hold cash in such proportions as the Fund's investment adviser, Federated
Advisers (the "Adviser"), may determine.
CORPORATE DEBT SECURITIES
Corporate debt securities may bear fixed, fixed and contingent, or
variable rates of interest. They may involve equity features such as
conversion or exchange rights, warrants for the acquisition of common

stock of the same or a different issuer, participations based on
revenues, sales, or profits, or the purchase of common stock in a unit
transaction (where corporate debt securities and common stock are offered
as a unit).
PUT AND CALL OPTIONS
The Fund may purchase listed put options on stocks or write covered call
options to protect against price movements in particular securities in
its portfolio and generate income. A put option gives the Fund, in return
for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. As writer of
a call option, the Fund has the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment
of the exercise price.
The Fund may only: (1) buy put options which are listed on a recognized
options exchange and which are on securities held in its portfolio; and
(2) sell listed call options either on securities held in its portfolio
or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any such
additional consideration). The Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and calls
until the options are exercised, closed, or expire.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Adviser
will consider liquidity before entering into option transactions, there
is no assurance that a liquid secondary market on an exchange will exist
for any particular option or at any particular time.
The Fund reserves the right to hedge the portfolio by buying financial
futures and put options on stock index futures and financial futures.

However, the Fund will not engage in these transactions until (1) an
amendment to its Registration Statement is filed with the Securities and
Exchange Commission (the "SEC") and becomes effective and (2) ten days
after a supplement to the prospectus disclosing this change in policy has
been mailed to the shareholders.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
oinstruments of domestic and foreign banks and savings associations if
they have capital, surplus, and undivided profits of over $100,000,000,
or if the principal amount of the instrument is insured in full by the
Federal Deposit Insurance Corporation; and
oprime commercial paper (rated A-1 by Standard and Poor's Ratings Group,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch Investors
Service, Inc.).
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund may invest
generally include direct securities of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and securities issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase certain
securities of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the securities.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFederal Farm Credit Banks;

oFederal Home Loan Banks;
oFederal National Mortgage Association;
oStudent Loan Marketing Association; and
oFederal Home Loan Mortgage Corporation.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Board of Directors of the Corporation (the "Directors") to
determine the liquidity of certain restricted securities is permitted under a
SEC staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under
Rule 144A. The Fund believes that the staff of the SEC has left the question
of determining the liquidity of all restricted securities (eligible for resale
under Rule 144A) to the Directors. The Directors consider the following
criteria in determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the

Fund's records at the trade date. These assets are marked to market daily and
are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of the Fund or the borrower. The Fund may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker. The Fund does not have the right to vote securities on loan,
but would terminate the loan and regain the right to vote if that were
considered important with respect to the investment.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject
to repurchase agreements, and these securities are marked to market daily. To
the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such

securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Directors.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction
is similar to borrowing cash. In a reverse repurchase agreement the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure that the
Fund will be able to avoid selling portfolio instruments at a disadvantageous
time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
are maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to
achieve the Fund's investment objective. For the fiscal years ended October
31, 1995, 1994, and 1993, the portfolio turnover rates were 159.7%, 86% and
74%, respectively.

For the fiscal year ended October 31, 1995, the variation in the Fund's
portfolio turnover rate was due to market sector rotations, aggressive
investment transactions, and an increase in the number of redemptions incurred
by the Fund.
INVESTMENT LIMITATIONS

BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for clearance of transactions and
may make margin payments in connection with buying financial futures, put
options on stock index futures, and put options on financial futures.
SELLING SHORT
The Fund will not sell securities short unless:
oduring the time the short position is open, it owns an equal amount of
the securities sold or securities convertible into or exchangeable,
without payment of additional consideration, for securities of the same
issuer as, and equal in amount to, the securities sold short; and
onot more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except as permitted by its
investment objective and policies. The Fund may borrow money and engage
in reverse repurchase agreements only in amounts up to one-third of the
value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to meet redemption requests where the liquidation of portfolio

securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowing in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the borrowing.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities. The Fund reserves the
right to hedge the portfolio by purchasing financial futures and put
options on stock index futures and on financial futures.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests in real estate, except it may invest in the
securities of companies whose business involves the purchase or sale of
real estate, or in securities which are secured by real estate or
interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities.
This shall not prevent the purchase or holding of corporate or government
bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or other transactions

which are permitted by the Fund's investment objective and policies or
its Articles of Incorporation.
DIVERSIFICATION OF INVESTMENTS
The Fund will not purchase the securities of any issuer (other than the
U.S. government, its agencies, or instrumentalities or instruments
secured by securities of such issuers, such as repurchase agreements) if,
as a result, more than 5% of the value of its total assets would be
invested in the securities of such issuer or acquire more than 10% of any
class of voting securities of any issuer. For these purposes, the Fund
takes all common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry.
However, the Fund may at times invest 25% or more of the value of its
total assets in cash or cash items, or securities issued or guaranteed by
the U.S. government, its agencies, or instrumentalities, or repurchase
agreements secured by such instruments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund 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. In order to comply with certain state
restrictions, the Fund will limit its investment in securities of other
investment companies to those with sales loads of less than 1% of the

offering price of such securities. The Fund will purchase securities of
closed-end investment companies only in open market transactions
involving any customary brokers' commissions. However, these limitations
are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. While it is a
policy to waive advisory fees on Fund assets invested in securities of
other open-end investment companies, it should be noted that investment
companies incur certain expenses such as custodian and transfer agency
fees and, therefore, any investment by the Fund in shares of another
investment company would be subject to such duplicate expenses.
To comply with investment restrictions of certain states, the Fund will limit
its investment in restricted securities to 5% of its total assets.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs, or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of companies, including their predecessors, that have been in
operation for less than three years.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS OF
THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Corporation or its investment adviser

owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
ACQUIRING SECURITIES
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may invest in up to
10% of the voting securities of any one issuer and may exercise its
voting powers consistent with the best interests of the Fund. In
addition, the Fund, other companies advised by the Fund's Adviser, and
other affiliated companies may together buy and hold substantial amounts
of voting stock of a company and may vote together in regard to such
company's affairs. In some such cases, the Fund and its affiliates might
collectively be considered to be in control of such company. In some
cases, Directors and other persons associated with the Fund and its
affiliates might possibly become directors of companies in which the Fund
holds stock.
PURCHASING PUT OPTIONS
The Fund will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open
put options.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net assets in warrants. No
more than 2% of the Fund's net assets, to be included within the overall

5% limit on investments in warrants, may be warrants which are not listed
on the New York Stock Exchange or the American Stock Exchange.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including certain restricted securities not
determined by the Directors to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice.
INVESTING IN RESTRICTED SECURITIES
The Fund will not purchase restricted securities if immediately
thereafter more than 15% of the net assets of the Fund, taken at market
value, would be invested in such securities (except for commercial paper
issued under Section 4(2) of the Securities Act of 1933). To comply with
certain state requirements, the Fund will limit its investment in
restricted securities to 5% of its total assets. (If state requirements
change, this limitation may be revised without notice to shareholders.)
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
For purposes of its limitations, the Fund considers instruments issued by a
U.S. branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment to
be cash items.
The Fund does not expect to borrow money, sell securities short, invest in
reverse repurchase agreements, or invest in put and call options in excess of
5% of the value of its total assets during the current fiscal year.

INVESTMENT SERIES FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, present positions with
Investment Series Funds, Inc., and principal occupations.

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

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.

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

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

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

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

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

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.

Peter E. Madden
70 Westcliff Road
Westin, MA
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.

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

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

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.

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

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

David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors;
Controller, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Vice President,
Federated Shareholder Services; Senior Vice President, Federated
Administrative Services; Treasurer of the Funds.

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

* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board of Directors
between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;

Federated Institutional Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S, Government Securities
Fund: 3-5 Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust;; Insurance
Management Series; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust,
Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trust for Financial Institutions; Trust For Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; The Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of each Fund's outstanding Shares.
As of December 4, 1995, the following shareholder of record owned 5% or more
of the outstanding Class A Shares of the Fund: Merrill Lynch Pierce Fenner and
Smith (as record owner holding shares for its clients), Jacksonville, Florida
owned approximately 85,964 Shares (9.18%).

As of December 4, 1995, the following shareholder of record owned 5% or more
of the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner and
Smith (as record owner holding shares for its clients), Jacksonville, Florida
owned approximately 19,453 Shares (20.25%).
DIRECTORS' COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND CORPORATION* FROM FUND COMPLEX +

John F. Donahue, $ 0 $0 for the Fund and
Chairman and Director
68 other investment companies in the Fund Complex
Thomas G. Bigley $0 $20,688 for the Fund and Director
Director 64 other investment companies in the Fund Complex
John T. Conroy, Jr., $1,274
$117,202 for the Fund and
Director 64 other investment companies in the Fund Complex
William J. Copeland, $1,274
$117,202 for the Fund and
Director 64 other investment companies in the Fund Complex
J. Christopher Donahue, $0
$0 for the Fund and
Vice President and Director
14 other investment companies in the Fund Complex
James E. Dowd, $1,274 $117,202 for the Fund and

Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,163
$106,460 for the Fund and
Director 64 other investment companies in the Fund Complex
Edward L. Flaherty, Jr., $1,274
$117,202 for the Fund and
Director 64 other investment companies in the Fund Complex
Peter E. Madden, $988 $90,563 for the Fund and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer, $1,163 $106,460 for the Fund and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr., $697
$0 for the Fund and
Director 64 other investment companies in the Fund Complex
Wesley W. Posvar,$1,163 $106,460 for the Fund and
Director 64 other investment companies in the Fund Complex
Marjorie P. Smuts, $1,163
$106,460 for the Fund and
Director 64 other investment companies in the Fund Complex

*Information is furnished for the fiscal year ended October 31, 1995.
+The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are

owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any
shareholder of the Fund for any losses that may be sustained in the purchase,
holding, or sale of any security, or for anything done or omitted by it,
except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its
contract with the Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee for the Fund as described in the respective prospectuses. For the fiscal
years ended October 31, 1995, 1994, and 1993, the Adviser earned $76,475,
$139,962, and $165,261, respectively, all of which was waived because of
undertakings to limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will

be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS

The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and 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 provided by brokers and dealers may be used by the adviser
or its affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant 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 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. During the fiscal year(s) ended October 31,
1995, 1994, and 1993, the Fund paid total brokerage commissions of $38,459,
$39,729, and $44,421, respectively.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the adviser

to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES

FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated Administrative
Services, Inc., also a subsidiary of Federated Investors, served as the Fund's
administrator. (For purposes of this Statement of Additional Information,
Federated Administrative Services and Federated Administrative Services, Inc.,
may hereinafter collectively be referred to as, the "Administrators"). For the
fiscal year ended October 31, 1995, Federated Administrative Services earned
$159,192. For the fiscal year ended October 31, 1994, the Administrators
collectively earned $213,197. For the fiscal year ended October 31, 1993,
Federated Administrative Services, Inc. earned $240,157, all of which was
waived by the Adviser in an effort to limit Fund expenses. Dr. Henry J.
Gailliot, an officer of Federated Advisers, the Adviser to the Fund, holds
approximately 20% of the outstanding common stock and serves as a director of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services.
CUSTODIAN
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, Boston, MA, is transfer agent for the Shares of
the Fund, and dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS
Independent auditing services are provided by Ernst & Young LLP, Pittsburgh,
Pennsylvania 15219.
PURCHASING SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value (plus a sales load on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the respective prospectuses under "Investing
in Class A Shares" or "Investing in Class C Shares".
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and
assisting clients in changing dividend options, account designations, and
addresses.
By adopting the Distribution Plan, the Directors expects that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and

assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal years ended October 31, 1995, 1994, and 1993, payments in the
amount of $14,746, $25,279, and $26,209, respectively, were made pursuant to
the Distribution Plan. In addition, for the fiscal years ended October 31,
1995 and 1994, payments in the amount of $22,730 and $8,773 were made pursuant
to the Shareholder Services Plan.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities Corp.,
their spouses, and their children under 21, may buy Shares at net asset value
without a sales load or contingent deferred sales charge. Shares may also be
sold without a sales load to trusts or pension or profit-sharing plans for
these persons.
These sales are made with the purchaser's written assurance that the purchase
is for investment purposes and that the securities will not be resold except
through redemption by the Fund.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in

federal funds or be converted into federal funds before shareholders begin to
earn dividends. State Street Bank and Trust Company acts as the shareholder's
agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset value
is calculated by the Fund are described in the respective prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
o according to the last sale price on a national securities exchange, if
available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices, and for fixed income
securities, as determined by an independent pricing service;
o for unlisted equity securities, the latest bid prices;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for short-term
obligations with remaining maturities less than 60 days at the time of
purchase, at amortized cost unless the Board determines this is not fair
value; or
o at fair value as determined in good faith by the Directors.
Options are valued at the market values established by the exchanges at the
close of option trading unless the Directors determine in good faith that
another method of valuing option positions is necessary.
REDEEMING SHARES

Shares of the Fund are redeemed at the next computed net asset value after the
Fund receives the redemption request. Shareholder redemptions may be subject

to a contingent deferred sales charge. Redemption procedures are explained in
the respective prospectuses under "Redeeming Class A Shares" or "Redeeming
Class C Shares."
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid
by the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable
as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Shares.

TOTAL RETURN

The Fund's Class A Shares average annual total returns for the fiscal year
ended October 31, 1995, and the period from January 16, 1992 (effective date
of Class A Shares registration statement) to October 31, 1995, were 20.74% and
5.35%, respectively.
The Fund's Class C Shares average annual total returns for the fiscal year
ended October 31, 1995, and the period from April 14, 1993 (effective date of
Class C Shares registration statement) to October 31, 1995, were 25.80% and
8.99%, respectively.
The average annual total return for both classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of Shares
owned at the end of the period by the offering price per Share at the end of
the period. The number of Shares owned at the end of the period is based on
the number of Shares purchased at the beginning of the period with $1,000,
less any applicable sales load (Class A Shares only), adjusted over the period
by any additional Shares, assuming the quarterly reinvestment of all dividends
and distributions. Any applicable contingent deferred sales charge will be
deducted from the ending value of the investment based on the lesser of the
offering price per Share at the time of purchase or the offering price per
Share at the time of redemption.
YIELD

The Fund's yield for the thirty-day period ended October 31, 1995, was 0.38%
for Class A Shares and 0% for Class C Shares.
The yield for each class of Shares of the Fund is determined each day by
dividing the net investment income per Share (as defined by the SEC) earned by

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

The Fund's performance of each class of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or a class of Shares' expenses; and
o various other factors.
Any class of Shares' performance fluctuates on a daily basis largely because
net earnings and offering price per Share fluctuate. Both net earnings and
offering price per Share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index

used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in offering price over a
specified period of time. From time to time, the Fund will quote its
Lipper ranking in the "growth funds" category in advertising and sales
literature.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the average
price of stocks in any of its categories. It also reports total sales for
each group of industries. Because it represents the top corporations of
America, the DJIA's index movement are leading economic indicators for
the stock market as a whole.
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition,
the Standard & Poor's index assumes reinvestment of all dividends paid by
stocks listed on its index. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated in the Standard
& Poor's figures.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000

NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an investment
in any class of Shares based on quarterly reinvestment of dividends over a
specified period of time. Advertisements may quote performance information
which does not reflect the effect of a sales load or contingent deferred sales
charge, as applicable.
ABOUT FEDERATED INVESTORS

$31 billion in assets across approximately 43 money market funds, including 17
government, 8 prime and 18 municipal with assets approximating $17 billion,
$7.4 billion and $6.6 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated INVESTORS'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated INVESTORS' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated INVESTORS' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated INVESTORS, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated INVESTORS meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios.

The marketing effort to trust clients is headed by Mark R. Gensheimer,
Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
FEDERATED FUNDS are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.

*Source: Investment Company Institute

APPENDIX

STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1-This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2-Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for issues
designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1-Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed

financial charges and high internal cash generation; and well established
access to a range of financial markets and assured sources of alternate
liquidity.
P-2-Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

461444200
461444408
1102503B (12/95)

FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
FORTRESS SHARES
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectus
for Class A Shares, Class B Shares, and Class C Shares, and the prospectus
for Fortress Shares of Federated Bond Fund (the "Fund") dated December 31,
1995. You may request a copy of a prospectus or a paper copy of this
Statement of Additional Information, if you have received it
electronically, free of charge by calling 1-800-235-4669.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated December 31, 1995
FEDERATED SECURITIES CORP.
DISTRIBUTOR
A SUBSIDIARY OF Federated Investors

GENERAL INFORMATION ABOUT THE FUND1

INVESTMENT OBJECTIVE AND POLICIES1

TYPES OF INVESTMENTS 1
FUTURES AND OPTIONS TRANSACTIONS1
INVESTING IN FOREIGN CURRENCIES 3
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 4
LENDING OF PORTFOLIO SECURITIES 4
REPURCHASE AGREEMENTS 4
REVERSE REPURCHASE AGREEMENTS 4
PORTFOLIO TURNOVER 5
INVESTMENT LIMITATIONS 5

INVESTMENT SERIES FUNDS, INC.
MANAGEMENT 7

FUND OWNERSHIP 11
DIRECTORS' COMPENSATION 11
INVESTMENT ADVISORY SERVICES 12

ADVISER TO THE FUND 12
ADVISORY FEES 12
BROKERAGE TRANSACTIONS 13

OTHER SERVICES 12

FUND ADMINISTRATION 13
CUSTODIAN 13

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 13
INDEPENDENT AUDITORS 13
PURCHASING SHARES 13

DISTRIBUTION PLAN AND SHAREHOLDER
SERVICES AGREEMENT 14
PURCHASES BY SALES
REPRESENTATIVES,
DIRECTORS, AND EMPLOYEES 14
CONVERSION TO FEDERAL FUNDS 14
OTHER PAYMENTS TO FINANCIAL
INSTITUTIONS (FORTRESS SHARES
ONLY) 14
DETERMINING NET ASSET VALUE 14

DETERMINING MARKET VALUE OF
SECURITIES 15
REDEEMING SHARES 15

REDEMPTION IN KIND 15
EXCHANGE PRIVILEGE (FORTRESS SHARES
ONLY) 16

REDUCED SALES CHARGE 16
REQUIREMENTS FOR EXCHANGE 16
TAX CONSEQUENCES 16
MAKING AN EXCHANGE 16
REDEEMING SHARES 16

TAX STATUS 17

THE FUND'S TAX STATUS 17
SHAREHOLDERS' TAX STATUS 17
TOTAL RETURN 17

YIELD 17

PERFORMANCE COMPARISONS 18

DURATION 19
ABOUT FEDERATED INVESTORS 19

MUTUAL FUND MARKET 19
INSTITUTIONAL CLIENTS 19
TRUST ORGANIZATIONS 20
BROKER /DEALERS AND BANK
BROKER/DEALER SUBSIDIARIES 20
APPENDIX 21

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of Investment Series Funds, Inc. (the "Corporation").
The Fund was established as a portfolio of Investment Series Trust, a
Massachusetts business trust, on March 17, 1987, and on February 5, 1993, was
reorganized into a portfolio of the Corporation, which is organized under the
laws of the State of Maryland. It is qualified to do business as a foreign
corporation in Pennsylvania.
Shares of the Fund are offered in four classes known as Class A Shares, Class
B Shares, Class C Shares, and Fortress Shares (individually and collectively
referred to as "Shares," as the context may require). This Statement of
Additional Information relates to all classes of Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to provide as high a level of current
income as is consistent with the preservation of capital. The investment
objective cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
As a matter of investment policy, which may be changed without shareholder
approval, the Fund will, under normal circumstances, invest at least 65% of
the value of its total net assets in investment grade bonds. Permitted
investments include:
o domestically-issued and foreign-issued corporate debt obligations;
o asset-backed securities;
o obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
o taxable municipal debt obligations; and
o repurchase agreements.

FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options on
portfolio securities to attempt to increase its current income. The Fund
currently does not intend to invest more than 5% of its total assets in
options transactions.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future.
In the fixed income securities market, price generally moves inversely to
interest rates. Thus, a rise in rates generally means a drop in price.
Conversely, a drop in rates generally means a rise in price. In order to
hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver securities
at a predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the Fund's anticipated holding period. The Fund would "go long"
(agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but

does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the
option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in
return for payment of the strike price. If the Fund neither closes out
nor exercises an option, the option will expire on the date provided in
the option contract, and the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio against
an increase in market interest rates. When the Fund writes a call option
on a futures contract, it is undertaking the obligation of assuming a
short futures position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the option is
exercised. As market interest rates rise, causing the prices of futures
to go down, the Fund's obligation under a call option on a future (to

sell a futures contract) costs less to fulfill, causing the value of the
Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can offset the drop in value of the Fund's fixed income portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then offset the decrease in value of
the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is

different from that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark-to-
market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) as a specified price during
the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. The Fund may only sell call options either

on securities held in its portfolio or on securities which it has the
right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration).
INVESTING IN FOREIGN CURRENCIES
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and a foreign currency
involved in an underlying transaction. However, forward foreign currency
exchange contracts may limit potential gains which could result from a
positive change in such currency relationships. The Fund's investment
adviser, Federated Advisers (the "Adviser"), believes that it is
important to have the flexibility to enter into forward foreign currency
exchange contracts whenever it determines that it is in the Fund's best
interest to do so. The Fund will not speculate in foreign currency
exchange.
There is no limitation as to the percentage of the Fund's assets that may
be committed to such contracts.
The Fund does not enter into forward foreign currency exchange contracts
or maintain a net exposure in such contracts when the Fund would be
obligated to deliver an amount of foreign currency in excess of the value
of the Fund's portfolio securities or other assets denominated in that
currency or, in the case of a "cross-hedge" denominated in a currency or
currencies that the Adviser believes will tend to be closely correlated
with the currency with regard to price movements. Generally, the Fund
does not enter into a forward foreign currency exchange contract with a
term longer than one year.

FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option
has the right, but not the obligation, to buy the currency. Conversely,
the owner of a put option has the right, but not the obligation to sell
the currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position
during the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency depreciates
in value. Although purchasing a foreign currency option can protect the
Fund against an adverse movement in the value of a foreign currency, the
option will not limit the movement in the value of such currency. For
example, if the Fund were holding securities denominated in a foreign
currency that was appreciating and had purchased a foreign currency put
to hedge against a decline in the value of the currency, the Fund would
not have to exercise its put option. Likewise, if the Fund were to enter
into a contract to purchase a security denominated in foreign currency
and, in conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the currency,
and if the value of the currency instead depreciated between the date of
purchase and the settlement date, the Fund would not have to exercise its
call. Instead, the Fund could acquire in the spot market the amount of
foreign currency needed for settlement.

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally.
In addition, there are certain additional risks associated with foreign
currency options. The markets in foreign currency options are relatively
new, and the Fund's ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
Although the Fund will not purchase or write such options unless and
until, in the opinion of the Adviser, the market for them has developed
sufficiently to ensure that the risks in connection with such options are
not greater than the risks in connection with the underlying currency,
there can be no assurance that a liquid secondary market will exist for a
particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or
both currencies and may have no relationship to the investment merits of
a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying
foreign currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available

through dealers or other market sources be firm or revised on a timely
basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e. less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. option markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets until they
reopen.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the
Fund's records at the trade date. These assets are marked to market daily and
are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of the Fund or the borrower. The Fund may pay reasonable administrative

and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker. The Fund does not have the right to vote securities on loan,
but would terminate the loan and regain the right to vote if that were
considered important with respect to the investment.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject
to repurchase agreements, and these securities are marked to market daily. To
the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that a defaulting seller files for bankruptcy or
becomes insolvent, disposition of securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor
of the Fund and allow retention or disposition of such securities. The Fund
will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the
Adviser to be creditworthy pursuant to guidelines established by the Fund's
Board of Directors (the "Directors").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of

reverse repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure that the
Fund will be able to avoid selling portfolio instruments at a disadvantageous
time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. The securities are marked to market daily
and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to
achieve the Fund's investment objectives. Securities in the Fund's portfolio
will be sold whenever the Adviser believes it is appropriate to do so in light
of the Fund's investment objective, without regard to the length of time a
particular security may have been held. The Adviser does not anticipate that
portfolio turnover will result in adverse tax consequences. Any such trading
will increase the Fund's portfolio turnover rate and transaction costs. For
the fiscal years ended October 31, 1995, and 1994, the portfolio turnover
rates were 77% and 74%, respectively.
INVESTMENT LIMITATIONS

BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions.

ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to one-
third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while any such borrowings in excess
of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of its total assets would be invested in the
securities of that issuer.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in the
securities of companies whose business involves the purchase or sale of

real estate or in securities which are secured by real estate or
interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities. However, the Fund may
purchase put options on portfolio securities and on financial futures
contracts. In addition, the Fund reserves the right to hedge the
portfolio by entering into financial futures contracts and to sell calls
on financial futures contracts. The Fund will notify shareholders before
such a change in its operating policies is implemented.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the federal securities laws
(except for commercial paper issued under Section 4(2) of the Securities
Act of 1933).
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objectives, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities, on
a short-term or long-term basis, up to one-third of the value of its
total assets, to broker/dealers, banks, or other institutional borrowers
of securities.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry. However, investing in U.S. government obligations shall
not be considered investments in any one industry.

SELLING SHORT
The Fund will not sell securities short unless:
oduring the time the short position is open, it owns an equal amount of
the securities sold or securities readily and freely convertible into
or exchangeable, without payment of additional consideration, for
securities of the same issuer as, and equal in amount to, the
securities sold short; and
onot more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in those limitations becomes effective.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
portfolio instruments of unseasoned issuers, including their
predecessors, that have been in operation for less than three years.

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS OF
THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Corporation or its investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
WRITING COVERED CALL OPTIONS AND PURCHASING PUT OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment. The Fund will not purchase put options
on securities unless the securities are held in the Fund's portfolio.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general. The Fund will limit its investments in the
securities of other investment companies to those of money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization or acquisition of
assets. While it is the Fund's policy to waive its investment advisory
fee on assets invested in securities of open-end investment companies, it
should be noted that investment companies incur certain expenses such as
custodian and transfer agent fees, and therefore any investment by a Fund

in shares of another investment company would be subject to such
duplicate expenses.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
For purposes of its limitations, the Fund considers instruments issued by a
U.S. branch of a domestic bank having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
The use of short sales will allow the Fund to retain certain bonds in its
portfolio longer than it would without such sales. To the extent the Fund
receives the current income produced by such bonds for a longer period than it
might otherwise, the Fund's investment objective of current income is
furthered.
The Fund did not borrow money, sell securities short, engage in foreign
currency options, or purchase financial futures contracts in excess of 5% of
the value of its net assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.
INVESTMENT SERIES FUNDS, INC. MANAGEMENT
Officers and Directors are listed with their addresses, present positions with
Investment Series Funds, Inc., and principal occupations.

* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Directors handles the responsibilities of the Directors between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;

Federated Institutional Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S, Government Securities
Fund: 3-5 Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust;; Insurance
Management Series; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust,
Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trust for Financial Institutions; Trust For Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; The Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of December 4, 1995, the following shareholder of record owned 5% or more
of the outstanding Class A shares of the Fund: Merrill Lynch Pierce Fenner &
Smith, Jacksonville, Florida, acting in various capacities for numerous
accounts, owned approximately 38,018 shares (5.09%); Dolores M. Bold,

Pittsburgh, PA, owned approximately 48,929 shares (6.55%); and BHC Securities,
Inc., Philadelphia, PA, acting in various capacities for numerous accounts,
owned approximately 192,064 shares (25.71%).
The following shareholders owned 5% or more of the outstanding Class C Shares
of the Fund: BHC Securities, Inc., Philadelphia, PA, acting in various
capacities for numerous accounts, owned approximately 37,845 shares (5.04%);
Paine Weber, Sun City West, Arizona, owned approximately 40,837 shares
(5.44%); and Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida,
acting in various capacities for numerous accounts, owned approximately
112,989 shares (15.04%).
The following shareholders owned 5% or more of the outstanding Fortress Shares
of the Fund: Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida,
acting in various capacities for numerous accounts, owned approximately
4,824,983 shares (23.03%).
DIRECTORS' COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX +

John F. Donahue, $ 0 $0 for the Fund and
Chairman and Director
68 other investment companies in the Fund Complex
Thomas G. Bigley $0 $20,688 for the Fund
Director 64 other investment companies in the Fund Complex

John T. Conroy, Jr., $1,274
$117,202 for the Fund and
Director 64 other investment companies in the Fund Complex
William J. Copeland, $1,274
$117,202 for the Fund and
Director 64 other investment companies in the Fund Complex
J. Christopher Donahue, $0
$0 for the Fund and
Vice President and Director
14 other investment companies in the Fund Complex
James E. Dowd, $1,274 $117,202 for the Fund and
Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,163
$106,460 for the Fund and
Director 64 other investment companies in the Fund Complex
Edward L. Flaherty, Jr., $1,274
$117,202 for the Fund and
Director 64 other investment companies in the Fund Complex
Peter E. Madden, $988 $90,563 for the Fund and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer, $1,163 $106,460 for the Fund and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr., $697
$0 for the Fund and
Director 64 other investment companies in the Fund Complex
Wesley W. Posvar,$1,163 $106,460 for the Fund and
Director 64 other investment companies in the Fund Complex

Marjorie P. Smuts, $1,163
$106,460 for the Fund and
Director 64 other investment companies in the Fund Complex

*Information is furnished for the fiscal year ended October 31, 1995.
+The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any
shareholder of the Fund for any losses that may be sustained in the purchase,
holding, or sale of any security, or for anything done or omitted by it,
except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its
contract with the Corporation.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee for the Fund as described in the prospectus. For the fiscal years
ended October 31, 1995, 1994, and 1993, the Adviser earned $1,271,771,
$1,081,066, and $671,751, respectively, of which $505,263, $481,690, and
$548,973, were voluntarily waived because of undertakings to limit the Fund's
expenses.

STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
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. In working with dealers, 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 makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Directors. The adviser may
select brokers and dealers who offer brokerage and research services. These

services may be furnished directly to the Fund or to the adviser and 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
provided by brokers and dealers may be used by the adviser or its affiliates
in advising the Fund and other accounts. To the extent that receipt of these
services may supplant 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 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. During the fiscal years ended October 31, 1995, 1994, and 1993, the
Fund paid total brokerage commissions of $5,595, $0, and $0, respectively.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.

OTHER SERVICES

FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated Administrative
Services, Inc., also a subsidiary of Federated Investors, served as the Fund's
administrator. (For purposes of this Statement of Additional Information,
Federated Administrative Services and Federated Administrative Services, Inc.,
may hereinafter collectively be referred to as, the "Administrators"). For the
fiscal year ended October 31, 1995, Federated Administrative Services earned
$156,316. For the fiscal year ended October 31, 1994, the Administrators
collectively earned $192,379. For the fiscal year ended October 31, 1993,
Federated Administrative Services, Inc. earned $288,504. Dr. Henry J.
Gailliot, an officer of Federated Advisers, the Adviser to the Fund, holds
approximately 20% of the outstanding common stock and serves as a director of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services.
CUSTODIAN
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Boston, MA, is transfer agent for the Shares of
the Fund, and dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania 15219.

PURCHASING SHARES

Except under certain circumstances described in the prospectus, shares are
sold at their net asset value plus a sales charge on days the New York Stock
Exchange is open for business. The procedure for purchasing shares of the Fund
is explained in the prospectus under "Investing in the Fund."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and
assisting clients in changing dividend options, account designations, and
addresses.
By adopting the Distribution Plan, the Directors expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder

assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the period from June 28, 1995 (date of initial public investment) to
October 31, 1995, payments in the amount of $25,234 and $5,595 were made
pursuant to the Distribution Plan for Class B Shares and Class C Shares,
respectively.
For the fiscal year ended October 31, 1995, payments in the amount of $387,412
were made pursuant to the Shareholder Services Plan for Fortress Shares, of
which $16,487 was waived. For the period from June 28, 1995 (date of initial
public investment) to October 31, 1995, payments in the amount of $1,478 (of
which $296 was waived), $8,411, and $1,865 were made pursuant to the
Shareholder Services Plan for Class A Shares, Class B Shares, and Class C
Shares, respectively.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp., or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities Corp.,
their spouses, and their children under 21, may buy shares at net asset value
without a sales charge. Shares may also be sold without a sales charge to
trusts or pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the purchase
is for investment purposes and that the securities will not be resold except
through redemption by the Fund.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to

earn dividends. State Street Bank and Trust Company acts as the shareholder's
agent in depositing checks and converting them to federal funds.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS (FORTRESS SHARES ONLY)
The administrative services for which the Distributor will pay financial
institutions include, but are not limited to, providing office space,
equipment, telephone facilities, and various clerical, supervisory and
computer personnel, as is necessary or beneficial to establish and maintain
shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, addresses, and providing such other
services as the Fund may reasonably request.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset value
is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o according to the last sale price on a national securities exchange, if
available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices, and for bonds and
other fixed income securities as determined by an independent pricing
service;
o for short-term obligations, according to the mean bid and asked prices,
as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of less than 60 days at the time of

purchase, at amortized cost unless the Board determines this is not fair
value; or
o at fair value as determined in good faith by the Fund's Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices.
REDEEMING SHARES

of purchase by the distributor to the financial institutions for services
rendered, and the length of time the investor remains a shareholder in the
Fund. Should financial institutions elect to receive an amount
less than the advance payment that is stated in the prospectus for servicing a
particular shareholder, the contingent deferred sales charge and/or holding
period for that particular shareholder will be reduced accordingly.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of
the respective Fund's net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Fund will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way that net asset value is determined. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
EXCHANGE PRIVILEGE (FORTRESS SHARES ONLY)

This section relates only to Fortress Shares of the Fund. For information
regarding the Exchange Privilege for Class A Shares, Class B Shares, and Class
C Shares of the Fund, please see the respective prospectuses for these classes
of Shares.
The Securities and Exchange Commission (the "SEC") has issued an order
exempting the Corporation from certain provisions of the Investment Company

Act of 1940. As a result, Fund shareholders are allowed to exchange all or
some of their shares for shares in other Fortress Funds or certain Federated
Funds which are sold with a sales charge that differs from that of the Fund's
or which impose no sales charge so long as the Federated Funds are advised by
subsidiaries or affiliates of Federated Investors. These exchanges are made at
net asset value plus the difference between the Fund's sales charge already
paid and any sales charge of the fund into which the shares are to be
exchanged, if higher. The order also allows certain other funds, including
funds that are not advised by subsidiaries or affiliates of Federated
Investors, which do not have a sales charge, to exchange their shares for Fund
shares on a basis other than their current offering price. These exchanges may
be made to the extent that such shares were acquired in a prior exchange, at
net asset value, for shares of a Federated Fund carrying a sales charge.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales charge, the shareholder must notify Federated
Securities Corp. or Federated Services Company in writing.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange shares having a net asset
value equal to the minimum investment requirements of the fund into which the
exchange is being made. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders residing in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, Fortress Shares submitted for exchange are
redeemed and the proceeds invested in shares of the other fund.
Further information on the exchange privilege and prospectuses for Fortress
Funds or certain of the Funds are available by calling the Fund.

TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a short or long-term capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for Fortress Funds or certain of the Funds must be
given in writing by the shareholder. Written instructions may require a
signature guarantee.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions of Class B Shares,
Class C Shares, and Fortress Shares may be subject to a contingent deferred
sales charge. Redemption procedures are explained in the respective
prospectuses under "Redeeming Class A Shares," "Redeeming Class B Shares,"
"Redeeming Class C Shares" or "Redeeming Fortress Shares." Although the
transfer agent does not charge for telephone redemptions, it reserves the
right to charge a fee for the cost of wire-transferred redemptions of less
than $5,000.
Fortress Shares redeemed within one to four years of purchase may be subject
to a contingent deferred sales charge. The amount of the contingent deferred
sales charge is based upon the amount of the advance payment paid at the time
of purchase by the distributor to the financial institutions for services
rendered, and the length of time the investor remains a shareholder in the
Fund. Should financial institutions elect to receive an amount less than the
advance payment that is stated in the prospectus for servicing a particular
shareholder, the contingent deferred sales charge and/or holding period for
that particular shareholder will be reduced accordingly.

TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. No portion of any income dividend paid
by the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable
as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund shares.
TOTAL RETURN

Fortress Shares' average annual total returns for the one-year and five-year
periods ended October 31, 1995, and for the period from July 8, 1988

(effective date of the Fund's registration statement) to October 31, 1995,
were 14.30%, 17.03%, and 10.12%, respectively.
For the period from June 28, 1995 to October 31, 1995, Class A Shares, Class B
Shares, and Class C cumulative total returns were (0.71%), (1.91%), and 2.66%,
respectively.
The average annual total return for all classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of Shares
owned at the end of the period by the offering price per Share at the end of
the period. The number of Shares owned at the end of the period is based on
the number of Shares purchased at the beginning of the period with $1,000,
less any applicable sales charge, adjusted over the period by any additional
Shares, assuming a quarterly reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investments based on the lesser of the original purchase price or
the offering price of Shares redeemed.
Cumulative total return reflects total performance over a specific period of
time. Total return assumes and is reduced by the payment of the maximum sales
charge and contingent deferred sales charge, if applicable.
YIELD

The yields for Class A Shares, Class B Shares, Class C Shares, and Fortress
Shares for the thirty-day period ended October 31, 1995, were 7.21%, 6.73%,
6.74% and 7.43%, respectively.
The yield for all classes of Shares of the Fund is determined each day by
dividing the net investment income per share (as defined by the SEC) earned by
the Fund over a thirty-day period by the maximum offering price per share of

the Fund on the last day of the period. This value is then annualized using
semi-annual compounding. This means that the amount of income generated during
the thirty-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the SEC and, therefore, may not correlate to the dividends or
other distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders paying
those fees.
PERFORMANCE COMPARISONS

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
o LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed rate, non-convertible domestic bonds of companies in
industry, public utilities, and finance. The average maturity of these
bonds approximates nine years. Tracked by Lehman Brothers, Inc., the
index calculates total returns for one-month, three-month, twelve-month,
and ten-year periods and year-to-date.
o SALOMON BROTHERS AAA-AA CORPORATES INDEX calculates total returns of
approximately 775 issues which include long-term, high grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years or
more and companies in industry, public utilities, and finance.
o MERRILL LYNCH CORPORATE & GOVERNMENT MASTER INDEX is an unmanaged index
comprised of approximately 4,821 issues which include corporate debt
obligations rated BBB or better and publicly issued, non-convertible
domestic debt of the U.S. government or any agency thereof. These quality
parameters are based on composites of ratings assigned by Standard and
Poor's Ratings Group and Moody's Investors Service, Inc. Only notes and
bonds with a minimum maturity of one year are included.

o MERRILL LYNCH CORPORATE MASTER is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on composites of ratings assigned by
Standard and Poor's Corporation and Moody's Investors Service, Inc. Only
bonds with a minimum maturity of one year are included.
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in offering price over a
specific period of time. From time to time, the Fund will quote its
Lipper ranking in advertising and sales literature.
o THE LEHMAN BROTHERS CORPORATE BOND INDEX is comprised of a large universe
of bonds issued by industrial, utility and financial companies which have
a minimum rating of Baa by Moody's Investors Service, Inc., BBB by
Standard and Poor's Ratings Group or, in the case of bank bonds not rated
by either of the previously mentioned services, BBB by Fitch Investors
Service, Inc.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed Mutual Funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on nonstandardized base periods. These
total returns also represent the historic change in the value of an investment
in any class of Shares based on quarterly reinvestment of dividends over a
specified period of time.

From time to time, the Fund may advertise the performance of any class of
Shares using charts, graphs, and descriptions, compared to federally insured
bank products, including certificates of deposit and time deposits, and to
money market funds using the Lipper Analytical Services money market
instruments average. In addition, advertising and sales literature for the
Fund may use charts and graphs to illustrate the principals of dollar-cost
averaging and may disclose the amount of dividends paid by the Fund over
certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of a sales charge or contingent deferred sales charge, as applicable.
DURATION
Duration is a commonly used measure of the potential volatility in the price
of a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in
the price of a bond relative to a given change in the market rate of interest.
A bond's price volatility depends on three primary variables: the bond's
coupon rate; maturity date; and the level of market yields of similar fixed
income securities. Generally, bonds with lower coupons or longer maturities
will be more volatile than bonds with higher coupons or shorter maturities.
Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by
the sum of the present values of the cash flows. When the Fund invests in
mortgage pass-through securities, its duration will be calculated in a manner
which requires assumptions to be made regarding future principal prepayments.
A more complete description of this calculation is available upon request from
the Fund.

ABOUT FEDERATED INVESTORS

Federated INVESTORS is dedicated to meeting investor needs which is reflected
in its investment decision making-structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands
of clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the money market sector, Federated INVESTORS gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds,
a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money
market fund. As of December 31, 1994, Federated INVESTORS managed more than
$31 billion in assets across approximately 43 money market funds, including 17
government, 8 prime and 18 municipal with assets approximating $17 billion,
$7.4 billion and $6.6 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated INVESTORS'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated INVESTORS' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated INVESTORS' international portfolios.

MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated INVESTORS, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated INVESTORS meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios.
The marketing effort to trust clients is headed by Mark R. Gensheimer,
Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
FEDERATED FUNDS are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.

*Source: Investment Company Institute

APPENDIX

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. 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 payments. 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.
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.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.

AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
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 INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligator'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 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 in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
DDD represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.

A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment.

FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
FORTRESS SHARES

PROSPECTUS

The shares of Federated Bond Fund (the "Fund") represent interests in a
diversified portfolio of securities which is an investment portfolio of
Investment Series Funds, Inc. (the "Corporation"), an open-end management
investment company (a mutual fund).

The investment objective of the Fund is to provide as high a level of current
income as is consistent with the preservation of capital by investing primarily
in a portfolio of investment grade bonds.

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

CUSIP 461444507
CUSIP 461444606
CUSIP 461444705
CUSIP 461444309
2041304B (12/95)

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

The Fund has also filed with the Securities and Exchange Commission a Statement
of Additional Information dated December 31, 1995 for Class A Shares, Class B
Shares, Class C Shares, and Fortress Shares. The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge, by calling 1-800-235-4669. To obtain other
information, or make inquiries about the Fund, contact your financial
institution.

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

Prospectus dated December 31, 1995

TABLE OF CONTENTS

Summary of Fund Expenses.......................................................1

Financial Highlights...........................................................2

General Information............................................................3

Investment Information.........................................................4
Investment Objective.........................................................4
Investment Policies..........................................................4
Investment Risks.............................................................5
Investment Limitations......................................................13

Net Asset Value...............................................................13

Investing in Fortress Shares..................................................14
Share Purchases.............................................................14
Minimum Investment Required.................................................14
What Shares Cost............................................................14
Eliminating the Sales Charge................................................15
Systematic Investment Program...............................................16
Exchange Privileges.........................................................17
Certificates and Confirmations..............................................17
Dividends and Distributions.................................................17
Retirement Plans............................................................17

Redeeming Fortress Shares.....................................................18
Through a Financial Institution.............................................18

Contingent Deferred Sales Charge............................................19
Systematic Withdrawal Program...............................................20
Accounts with Low Balances..................................................20
Exchanges for Shares of Other Funds.........................................20

Fund Information..............................................................21
Management of the Corporation...............................................21
Distribution of Fortress Shares.............................................22
Administration of the Fund..................................................23

Shareholder Information.......................................................24
Voting Rights...............................................................24

Tax Information...............................................................24
Federal Income Tax..........................................................24
State & Local Taxes.........................................................24

Performance Information.......................................................25

Other Classes of Shares.......................................................25

Appendix......................................................................26

Addresses.....................................................................28

SUMMARY OF FUND EXPENSES

<TABLE>
<S> <C> <C>
FORTRESS SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)............................................................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.50%
12b-1 Fee........................................................................................................ None
Total Other Expenses............................................................................................. 0.59%
Shareholder Services Fee (after waiver) (3)....................................................... 0.24%
Total Operating Expenses (4)............................................................................ 1.09%

</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
four years of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge."

(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.75%.

(3) The maximum shareholder services fee is 0.25%.

(4) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1996. The total operating
expenses were 1.03% for the fiscal year ended October 31, 1995 and would
have been 1.34% absent the voluntary waivers of a portion of the management
fee and a portion of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Fortress Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Fortress Shares" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period.......................................................... $31 $55 $69 $142
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $21 $44 $69 $142
</TABLE>

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

FINANCIAL HIGHLIGHTS--FORTRESS SHARES
FEDERATED BOND FUND
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1995, on the Fund's
financial statements for the year ended October 31, 1995, is included in the
Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1992(A) 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.08 $ 10.30 $ 9.23 $ 8.81 $ 6.89 $ 8.79 $ 9.86
- --------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------
Net investment income 0.79 0.76 0.77 0.59 1.01 1.08 1.23
- --------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.65 (1.09) 1.07 0.43 1.92 (1.84) (1.07)
- -------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
Total from investment operations 1.44 (0.33) 1.84 1.02 2.93 (0.76) 0.16
- -------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
LESS DISTRIBUTIONS
- --------------------------------------------
Distributions from net investment income (0.76) (0.75) (0.77) (0.60) (1.01) (1.14) (1.23)
- --------------------------------------------
Distributions from net realized gain on
investment transactions -- (0.14) -- -- -- -- --
- -------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
Total distributions (0.76) (0.89) (0.77) (0.60) (1.01) (1.14) (1.23)
- -------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 9.08 $ 10.30 $ 9.23 $ 8.81 $ 6.89 $ 8.79
- -------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
TOTAL RETURN (C) 16.51% (3.41%) 20.61% 11.79% 44.62% (9.59%) 1.32%

- --------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------
Expenses 1.03% 1.05% 1.04% 0.49%* 1.00% 1.01% 1.14%
- --------------------------------------------
Net investment income 8.20% 7.92% 7.69% 8.05%* 12.17% 13.43% 12.81%
- --------------------------------------------
Expense waiver/reimbursement (d) 0.31% 0.33% 0.61% 2.01%* 1.50% 1.49% 1.36%
- --------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------
Net assets, end of period (000 omitted) $195,502 $146,270 $125,762 $54,886 $6,068 $7,484 $4,734
- --------------------------------------------
Portfolio turnover 77% 74% 51% 49 % 33% 28% 38%
- --------------------------------------------

<CAPTION>
1988(B)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.06
- --------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------
Net investment income 0.61
- --------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.16)
- -------------------------------------------- -----------

Total from investment operations 0.45
- -------------------------------------------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------
Distributions from net investment income (0.65)
- --------------------------------------------
Distributions from net realized gain on
investment transactions --
- -------------------------------------------- -----------
Total distributions (0.65)
- -------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.86
- -------------------------------------------- -----------
TOTAL RETURN (C) 4.62%
- --------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------
Expenses 1.00%*
- --------------------------------------------
Net investment income 12.58%*
- --------------------------------------------
Expense waiver/reimbursement (d) 1.00%*
- --------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------
Net assets, end of period (000 omitted) $4,968
- --------------------------------------------
Portfolio turnover 31%

- --------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) During the ten month period, the Fund changed its fiscal year-end from
December 31 to October 31.

(b) Reflects operations for the period from July 8, 1988 (date of initial
public investment) to December 31, 1988.

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

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1995, which can be obtained
free of charge.

GENERAL INFORMATION

The Corporation was organized under the laws of the State of Maryland on May 20,
1992. Prior to February 5, 1993, the Fund was operated as a portfolio of

Investment Series Trust, a Massachusetts business trust established pursuant to
a Declaration of Trust dated March 17, 1987. On February 3, 1993, the
shareholders of the Fund voted to reorganize the Fund as a portfolio of the
Corporation. On June 15, 1992, the shareholders of High Income Securities Fund
approved a change to the investment objective of the Fund, as well as the name
change of the Fund to Fortress Bond Fund. On June 27, 1995, the name of the Fund
was changed to Federated Bond Fund. The Articles of Incorporation permit the
Fund to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Directors (the "Directors") has established four
classes of shares, known as Class A Shares, Class B Shares, Class C Shares, and
Fortress Shares. This prospectus relates only to Fortress Shares ("Shares," or
"Fortress Shares," as the context requires) of the Fund.

Shares of the Fund are designed primarily for individuals and institutions
seeking as high a level of current income as is consistent with the preservation
of capital by investing in a portfolio of investment grade bonds. A minimum
initial investment of $1,500 is required, unless the investment is in a
retirement account, in which case the minimum initial investment is $50.

Shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed on Shares, other than shares purchased through reinvestment of
dividends, which are redeemed within one to four years of their purchase date.

The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Fortress."

INVESTMENT INFORMATION
INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide as high a level of current
income as is consistent with the preservation of capital. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus. The
investment objective stated above cannot be changed without the approval of
shareholders. Unless stated otherwise, the investment policies of the Fund
described below may be changed without shareholder approval.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

such as Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings
Group ("S&P"), or Fitch Investors Service, Inc. ("Fitch") or that are unrated
but determined by the Fund's investment adviser to be of comparable quality. A
description of the ratings categories is contained in the Appendix to the
Statement of Additional Information. Permitted investments include:

domestic or foreign corporate debt obligations (as a matter of operating
policy, the lowest rated corporate debt obligations, including zero coupon
convertible securities, in which the Fund will invest will be rated B or better
by an NRSRO, at the time of purchase, or which are of comparable quality in the
judgment of the Fund's investment adviser. If a security loses its rating or
has its rating reduced after the Fund has purchased it, the Fund is not
required to sell or otherwise dispose of the security, but may consider doing
so, provided that the Fund will continue to maintain at least 65% of the value
of its net assets in investment grade securities.);

obligations of the United States;

notes, bonds, and discount notes of the following U.S. government agencies or
instrumentalities, such as Federal Home Loan Banks, Federal National Mortgage
Association, Government National Mortgage Association, Farm Credit System
(including the National Bank for Cooperatives and Banks for Cooperatives),
Tennessee Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Student Loan Marketing Association,
Federal Home Loan Mortgage Corporation, or National Credit Union

Administration;

taxable municipal debt obligations (as a matter of operating policy, the lowest
rated municipal debt obligations in which the Fund will invest will be rated
BBB or better by an NRSRO, or which are of comparable quality in the judgment
of the Fund's investment adviser);

asset-backed securities;

commercial paper that matures in 270 days or less and is rated A-1 or A-2 by
S&P, P-1 or P-2 by Moody's, or F-1 or F-2 by Fitch;

time and savings deposits (including certificates of deposit) in commercial or
savings banks whose accounts are insured by the Bank Insurance Fund ("BIF"), or
in institutions whose accounts are insured by the Savings

Association Insurance Fund ("SAIF"), including certificates of deposit issued
by, and other time deposits in, foreign branches of BIF-insured banks which, if
negotiable, mature in six months or less or if not negotiable, either mature in
ninety days or less, or may be withdrawn upon notice not exceeding ninety days;

bankers' acceptances issued by a BIF-insured bank, or issued by the bank's Edge
Act subsidiary and guaranteed by the bank, with remaining maturities of nine
months or less. The total acceptances of any bank held by the Fund cannot
exceed 0.25% of such bank's total deposits according to the bank's last
published statement of condition preceding the date of acceptance;

preferred stock and other equity-related securities which generally have

bond-like attributes, including zero coupon and/or convertible securities;

other securities which are deemed by the Fund's investment adviser, Federated
Advisers (the "Adviser"), to be consistent with the Fund's investment
objective; and
repurchase agreements collateralized by acceptable investments.

INVESTMENT RISKS

CORPORATE DEBT OBLIGATIONS

Although the corporate debt obligations in which the Fund will invest primarily
are rated as investment grade by an NRSRO, or of comparable quality in the
judgment of the investment adviser, the Fund may invest in corporate debt
obligations that are not investment grade bonds, but are rated B or better by an
NRSRO (i.e., "junk bonds"). However, not more than 35% of the Fund's net assets,
under normal circumstances, will be invested in non-investment grade securities.
Corporate debt obligations that are not determined to be investment grade are
high-yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment grade bonds, lower rated bonds tend to reflect
short-term corporate, economic, and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower rated bonds may
be more difficult to dispose of or to value than higher rated, lower-yielding
bonds. Bonds rated "BBB" by S&P or Fitch, or "Baa" by Moody's, have speculative

characteristics. Changes in economic conditions or other circumstances are more
likely to lead to weakened capacity to make principal and interest payments than
higher rated bonds.

The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL
CREDIT MARKET VALUE OF BOND
RATING HOLDINGS AS OF OCTOBER 31, 1995
<S> <C>
BB................... 8.19%
B.................... 17.3%
CC & CCC............. 0%
------
25.49%
------
------
</TABLE>

U.S. GOVERNMENT OBLIGATIONS

The U.S. government obligations in which the Fund invests are either issued or
guaranteed by the U.S. government, its agencies, or instrumentalities. These
securities include, but are not limited to:

direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds; and

notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the Federal Farm Credit System, Federal Home Loan
Banks System, Federal National Mortgage Association, Student Loan Marketing
Association, and Federal Home Loan Mortgage Corporation.

Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These agencies and instrumentalities are supported by:

the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;

discretionary authority of the U.S. government to purchase certain obligations
of an agency or instrumentality; or

the credit of the agency or instrumentality.

MUNICIPAL SECURITIES

Municipal securities are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities. Municipal securities
include industrial development bonds issued by or on behalf of public
authorities to provide financing aid to acquire sites or construct and equip
facilities for privately or publicly owned corporations. The availability of
this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.

ASSET-BACKED SECURITIES

Asset-backed securities are created by the grouping of certain governmental,
government related and private loans, receivables and other lender assets
including vehicle installment purchase obligations and credit card receivables
into pools. Interests in these pools are sold as individual securities and are
not backed or guaranteed by the U.S. government and may not be secured. Payments
from the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued

interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.

Because the loans held in the asset pool often may be prepaid without penalty or
premium, asset-backed securities are generally subject to higher prepayment
risks than most other types of debt instruments. Prepayment risks on mortgage
securities tend to increase during periods of declining mortgage interest rates,
because many borrowers refinance their mortgages to take advantage of the more
favorable rates. Depending upon market conditions, the yield that the Fund
receives from the reinvestment of such prepayments, or any scheduled principal
payments, may be lower than the yield on the original mortgage security. As a
consequence, mortgage securities may be a less effective means of "locking in"
interest rates than other types of debt securities having the same stated
maturity and may also have less potential for capital appreciation. For certain
types of asset pools, such as collateralized mortgage obligations, prepayments
may be allocated to one tranch of securities ahead of other tranches, in order
to reduce the risk of prepayment for the other tranches.

amount will accelerate the recognition of interest income by the Fund, which
would be taxed as ordinary income when distributed to the shareholders.

The credit characteristics of asset-backed securities also differ in a number of
respects from those of traditional debt securities. The credit quality of most

asset-backed securities depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.

NON-MORTGAGE RELATED ASSET-BACKED SECURITIES

The Fund may invest in non-mortgage related asset-backed securities including,
but not limited to, interests in pools of receivables, such as credit card and
accounts receivable and motor vehicle and other installment purchase obligations
and leases. These securities may be in the form of pass-through instruments or
asset-backed obligations. The securities, all of which are issued by
non-governmental entities and carry no direct or indirect government guarantee,
are structurally similar to collateralized mortgage obligations and mortgage
pass-through securities, which are described below.

MORTGAGE RELATED
ASSET-BACKED SECURITIES

The Fund may also invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate mortgage securities,
collateralized mortgage obligations, real estate mortgage investment conduits,
or other securities collateralized by or representing an interest in real estate
mortgages (collectively, "mortgage securities"). Many mortgage securities are
issued or guaranteed by government agencies.

ADJUSTABLE RATE

MORTGAGE SECURITIES ("ARMS")

ARMs are pass-through mortgage securities representing interests in adjustable
rather than fixed interest rate mortgages. The ARMs in which the Fund invests
are issued by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage
Corporation ("FHLMC") and are actively traded. The underlying mortgages which
collateralize ARMs issued by GNMA are fully guaranteed by the Federal Housing
Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMs issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.

COLLATERALIZED
MORTGAGE OBLIGATIONS ("CMOS")

CMOs are bonds issued by single-purpose, stand-alone finance subsidiaries or
trusts of financial institutions, government agencies, investment bankers, or
companies related to the construction industry. CMOs purchased by the Fund may
be:

collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government;

collateralized by pools of mortgages in which payment of principal and interest
is guaranteed by the issuer and such guarantee is collateralized by U.S.
government securities; or

securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest is supported by the credit
of an agency or instrumentality of the U.S. government.

All CMOs purchased by the Fund are investment grade, as rated by a NRSRO.

REAL ESTATE MORTGAGE
INVESTMENT CONDUITS ("REMICS")

REMICs are offerings of multiple class real estate mortgage-backed securities
which qualify and elect treatment as such under provisions of the Internal
Revenue Code (the "Code"). Issuers of REMICs may take several forms, such as
trusts, partnerships, corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the entity is not subject
to federal income taxation. Instead, income is passed through the entity and is
taxed to the person or persons who hold interests in the REMIC. A REMIC interest
must consist of one or more classes of "regular interests," some of which may
offer adjustable rates of interest, and a single class of "residual interests."
To qualify as a REMIC, substantially all the assets of the entity must be in
assets directly or indirectly secured principally by real property.

RESETS OF INTEREST

The interest rates paid on the ARMs, CMOs, and REMICs in which the Fund invests
generally are readjusted at intervals of one year or less to an increment over

some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less volatile.

To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an adjustable rate mortgage security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, adjustable rate mortgage securities
which use indices that lag changes in market rates should experience greater
price volatility than adjustable rate mortgage securities that closely mirror
the market. Certain residual interest tranches of CMOs may have adjustable
interest rates that deviate significantly from prevailing market rates, even
after the interest rate is reset, and
are subject to correspondingly increased price volatility. In the event the Fund
purchases such residual interest mortgage securities, it will factor in the
increased interest and price volatility of such securities when determining its
dollar-weighted average duration.

CAPS AND FLOORS

The underlying mortgages which collateralize the ARMs, CMOs, and REMICs in which
the Fund invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down:
(1) per reset or adjustment interval, and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes.

These payment caps may result in negative amortization. The value of mortgage
securities in which the Fund invests may be affected if market interest rates
rise or fall faster and farther than the allowable caps or floors on the
underlying residential mortgage loans. Additionally, even though the interest
rates on the underlying residential mortgages are adjustable, amortization and
prepayments may occur, thereby causing the effective maturities of the mortgage
securities in which the Fund invests to be shorter than the maturities stated in
the underlying mortgages.

BANK INSTRUMENTS

The Fund only invests in bank instruments either issued by an institution having
capital, surplus and undivided profits over $100 million or insured by BIF or
SAIF. Bank instruments may include Eurodollar Certificates of Deposit ("ECDs"),
Yankee Certificates of Deposit ("Yankee CDs") and Eurodollar Time Deposits
("ETDs"). Due to the fact that institutions issuing such instruments are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as the reserve requirements, loan limitations, examination,

accounting, auditing, recordkeeping, and the public availability of information,
these investments may present additional risks to investors.

ZERO COUPON
CONVERTIBLE SECURITIES

Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to put the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations than conventional
convertible securities.

Federal income tax law requires the holder of a zero coupon convertible security
to recognize income with respect to the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company and
avoid liability of federal income taxes, the Fund will be required to distribute
income accrued with respect to zero coupon convertible securities which it owns,
and may have to sell portfolio securities (perhaps at disadvantageous times) in
order to generate cash to satisfy these distribution requirements.

RESTRICTED AND ILLIQUID SECURITIES

The Fund intends to invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its investment
objective and policies, but which are subject to restriction on resale under
federal securities law. However, the Fund will limit investments in illiquid
securities, including certain restricted securities determined by the Directors
to be illiquid, non-negotiable time deposits, unlisted options, and repurchase
agreements providing for settlement in more than seven days after notice, to 15%
of its net assets.

The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under the federal
securities laws, and is generally sold to institutional investors, such as the
Fund, who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper,
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Directors, are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Directors, including Section 4(2) commercial paper,
as determined by the Adviser, as liquid and not subject to the investment
limitations applicable to illiquid securities.

FOREIGN SECURITIES

Investments in foreign securities, particularly those of non-governmental
issuers, involve considerations which are not ordinarily associated with
investments in domestic issuers. These considerations include the possibility of
expropriation, the unavailability of financial information or the difficulty of
interpreting financial information prepared under foreign accounting standards,
less liquidity and more volatility in foreign securities markets, the impact of
political, social, or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries. It may also be more difficult to enforce
contractual obligations abroad than would be the case in the United States
because of differences in the legal systems. Transaction costs in foreign
securities may be higher. The Adviser will consider these and other factors
before investing in foreign securities and will not make such investments
unless, in its opinion, such investments will meet the Fund's standards and
objectives.

The Fund reserves the right to invest in foreign securities. With respect to
foreign governmental securities, the Fund reserves the right to invest up to 25%
of its total assets in fixed income securities of foreign governmental units
located within an individual foreign nation and to purchase or sell various
currencies on either a spot or forward basis in connection with these
investments.

INVESTING IN SECURITIES
OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of other investment companies, but it will
not own more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of its total assets in any one investment company,
or invest more than 10% of its total assets in investment companies in general.
The Fund will only invest in other investment companies that are money market
funds having an investment objective and policies similar to its own and
primarily for the purpose of investing short-term cash which has not yet been
invested in other portfolio instruments. The Adviser to the Fund will waive its
investment advisory fee on assets invested in securities of open-end investment
companies.

TEMPORARY INVESTMENTS

The Fund may also invest temporarily in cash and cash items during times of
unusual market conditions for defensive purposes and to maintain liquidity.

REPURCHASE AGREEMENTS

Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities or
certificates of deposit to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price. To the extent that the original
seller does not repurchase the securities from the Fund, the Fund could receive
less than the repurchase price on any sale of such securities. Repurchase

agreements are included within the definition of investment grade securities.

WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS

The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete the transaction may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. Accordingly, the Fund may pay more/less than the
market value of the securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under

guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

PUT AND CALL OPTIONS

The Fund may purchase put options on financial futures contracts and put options
on portfolio securities. Financial futures may include index futures. These
options will be used as a hedge to attempt to protect securities which the Fund
holds against decreases in value. For the immediate future, the Fund will enter
into futures contracts directly only when it desires to exercise a financial
futures put option in its portfolio rather than either closing out the option or
allowing it to expire. The Fund will only purchase puts on financial futures
contracts which are traded on a nationally recognized exchange.

The Fund will generally purchase over-the-counter put options on portfolio
securities in negotiated transactions with the writers of the options since
options on the portfolio securities held by the Fund are typically not traded on
an exchange. The Fund purchases options only from investment dealers and other
financial associations (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Adviser.

In general, over-the-counter put options differ from exchange traded put options
in the following respects. Over-the-counter put options are two party contracts
with price and terms negotiated between buyer and seller, and such options are
endorsed and/or guaranteed by third parties (such as a New York Stock Exchange
member). Additionally, over-the-counter strike prices are adjusted to reflect
dividend payments, initial strike prices are generally set at market, and option
premiums (which are all time premiums) are amortized on a straight line basis
over the life of the option. In contrast, exchange traded options are
third-party contracts with standardized strike prices and expiration dates and
are purchased from the Clearing Corporation. Strike prices are not adjusted for
dividends, and options are marked to market, thereby obviating the need to
amortize the time premium.

Exchange traded options have a continuous liquid market while over-the-counter
options do not.

The Fund may also write call options on all or any portion of its portfolio in
an effort to generate income for the Fund. The Fund will write call options on
securities either held in its portfolio or which it has the right to obtain
without payment of further consideration or for which it has segregated cash in
the amount of any additional consideration. The call options which the Fund
writes and sells must be listed on a recognized options exchange. Although the
Fund reserves the right to write covered call options on its entire portfolio,
it will not write such options on more than 25% of its total assets unless a
higher limit is authorized by its Directors.

The Fund may attempt to hedge the portfolio by entering into financial futures
contracts and to write calls on financial futures contracts.

RISKS

When the Fund writes a call option, the Fund risks not participating in any rise
in the value of the underlying security. In addition, when the Fund purchases
puts on financial futures contracts to protect against declines in prices of
portfolio securities, there is a risk that the prices of the securities subject
to the futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and its
corresponding put to react differently than the portfolio securities to market
changes. In addition, the Adviser could be incorrect in its expectations about
the direction or extent of market factors such as interest rate movements. In
such an event, the Fund may lose the purchase price of the put option. Finally,
it is not certain that a secondary market for options will exist at all times.
Although the Adviser will consider liquidity before entering into option
transactions, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option or at any particular time. The
Fund's ability to establish and close out option positions depends on this
secondary market.

DERIVATIVE CONTRACTS
AND SECURITIES

or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages or other obligations.

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

INVESTMENT LIMITATIONS

The Fund will not:

borrow money directly or through reverse repurchase agreements (arrangements in
which the Fund sells a portfolio instrument for a percentage of its cash value
with an agreement to buy it back on a set date) or pledge securities except,
under certain circumstances,

the Fund may borrow up to one-third of the value of its total assets and pledge

up to 10% of the value of those assets to secure such borrowings;

lend any of its assets except portfolio securities up to one-third of the value
of its total assets;

sell securities short except, under strict limitations, it may maintain open
short positions so long as not more than 10% of the value of its net assets is
held as collateral for those positions; nor

with respect to 75% of the value of its total assets, invest more than 5% in
securities of any one issuer other than cash, cash items or securities issued
or guaranteed by the government of the United States, its agencies, or
instrumentalities and repurchase agreements collateralized by such securities.

The above investment limitations cannot be changed without shareholder approval.
The following investment limitation, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any material
change in this investment limitation becomes effective.

The Fund will not:

invest more than 5% of the value of its total assets in securities of issuers
that have records of less than three years of continuous operations including
the operation of any predecessor.

NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares

is determined by adding the interest of the Fortress Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Fortress Shares in the liabilities of the Fund and those attributable to
Fortress Shares, and dividing the remainder by the total number of Fortress
Shares outstanding. The net asset value for Fortress Shares may differ from that
of Class A Shares, Class B Shares, and Class C Shares due to the variance in
daily net income realized by each class. Such variance will reflect only accrued
net income to which the shareholders of a particular class are entitled.

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; or (iii) the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.

INVESTING IN FORTRESS SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution that has a sales agreement with the

distributor, or directly from the distributor, Federated Securities Corp.,
either by mail or by wire. The Fund reserves the right to reject any purchase
request.

THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders through a financial
institution are considered received when the Fund is notified of the purchase
order. Purchase orders through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the broker
to the Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased
at that day's price. Purchase orders through other financial institutions must
be received by the financial institution and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial institution's responsibility to transmit orders promptly.

The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Other Payments to Financial Institutions").

DIRECTLY BY MAIL

To purchase Shares by mail directly from Federated Securities Corp.:

complete and sign the new account form available from the Fund;

enclose a check made payable to Federated Bond Fund--Fortress Shares; and

mail both to the Fund's transfer agent, Federated Services Company, P.O. Box
8600, Boston, Massachusetts 02266-8600.

Orders by mail are considered received after payment by check is converted by
the transfer agent's bank into federal funds. This is generally the next
business day after the transfer agent's bank receives the check.

DIRECTLY BY WIRE

To purchase Shares directly from Federated Securities Corp. by Federal Reserve
wire, call the Fund. All information needed will be taken over the telephone,
and the order is considered received when the transfer agent's bank receives
payment by wire.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,500, except for an IRA account,
which requires a minimum initial investment of $50. Subsequent investments must
be in amounts of at least $100, except for an IRA account, which must be in
amounts of at least $50.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1.00% of the offering price (which is 1.01% of
the net amount invested). There is no sales charge for purchases of $1 million
or more.

In addition, no sales charge is imposed for Shares purchased through bank trust
departments or investment advisers registered under the Investment Advisers Act
of 1940 purchasing on behalf of their clients, or by sales representatives,
Directors, and employees of the Fund, the Adviser, and Federated Securities
Corp., or their affiliates, or any investment dealer who has a sales agreement
with Federated Securities Corp., their spouses and children under age 21, or any
trusts or pension or profit-sharing plans for these persons or retirement plans
where the third party administrator has entered into certain arrangements with
Federated Securities Corp., or its affiliates, to the extent that no payment was
advanced for purchases made by such entities. Unaffiliated institutions through
whom Shares are purchased may charge fees for services provided which may be
related to the ownership of Fund Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to services provided, the fees charged for these services, and any
restrictions and limitations imposed. Under certain circumstances, described
under "Redeeming Fortress Shares," shareholders may be charged a contingent
deferred sales charge by the distributor at the time Shares are redeemed.

DEALER CONCESSION

For sales of Shares, broker/dealers will normally receive 100% of the applicable
sales charge. Any portion of the sales charge which is not paid to a
broker/dealer will be retained by the distributor. However, from time to time,
and at the sole discretion of the distributor, all or a part of that portion may
be paid to a dealer. The sales charge for Shares sold other than through
registered broker/dealers will be retained by Federated Securities Corp.
Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the initiation of customer accounts and
purchases of Shares.

ELIMINATING THE SALES CHARGE

The sales charge can be eliminated on the purchase of Shares through:

quantity discounts and accumulated purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

concurrent purchases.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASE

There is no sales charge for purchases of $1 million or more. The Fund will
combine purchases made on the same day by the investor, his spouse, and his
children under age 21 when it calculates the sales charge.

If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having a current value at the public offering price of $900,000 and he
purchases $100,000 more at the current public offering price, there will be no
sales charge on the additional purchase. The Fund will also combine purchases
for the purpose of reducing the contingent deferred sales charge imposed on some
Share redemptions. For example, if a shareholder already owns Shares having
current value at a public offering price of $1 million and purchases an
additional $1 million at the current public offering price, the applicable
contingent deferred sales charge would be reduced to .50% of those additional
Shares. For more information on the levels of contingent deferred sales charges
and holding periods, see the section entitled "Contingent Deferred Sales
Charge."

To receive the sales charge elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by the shareholder's financial institution at the time the
purchase is made that Shares are already owned or that purchases are being
combined. The Fund will eliminate the sales charge and/or reduce the contingent
deferred sales charge after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least
$1 million of Shares over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge elimination depending on the amount actually
purchased within the 13-month period and a provision for the Fund's custodian to
hold 1.00% of the total amount intended to be purchased in escrow (in Shares)
until such purchase is completed.

The 1.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent,
which must be $1 million or more of Shares, is not purchased. In this event, an
appropriate number of escrowed Shares may be redeemed in order to realize the
1.00% sales charge.

This letter of intent also includes a provision for reductions in the contingent
deferred sales charge and holding period depending on the amount actually
purchased within the 13-month period. For more information on the various levels
of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."

This letter of intent will not obligate the shareholder to purchase Shares. The
letter may be dated as of a prior date to include any purchases made within the
past 90 days (purchases within the prior 90 days may be used to fulfill the
requirements of the letter of intent; however, the sales charge on such
purchases will not be adjusted to reflect a lower sales charge).

REINVESTMENT PRIVILEGE

If Shares have been redeemed, the shareholder has a one-time right, within 120
days, to reinvest the redemption proceeds at the next-
determined net asset value without any sales charge. Federated Securities Corp.
must be notified by the shareholder in writing or by his financial institution
of the reinvestment in order to receive this elimination of the sales charge. If
the shareholder redeems his Shares, there may be tax consequences.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge elimination, a shareholder has the
privilege of combining concurrent purchases of two or more Fortress Shares in
the Federated Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $400,000 in one of the other
Fortress Funds, and $600,000 in Shares, the sales charge would be eliminated.

To receive this sales charge elimination, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will eliminate the sales charge
after it confirms the purchases.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in amounts of not less than $100 per transaction. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account and invested in Shares at the net asset value
next determined after an order is received by the Fund, plus the

1.00% sales charge for purchases under $1 million. A shareholder may apply for
participation in this program through Federated Securities Corp. or his
financial institution.

EXCHANGE PRIVILEGES

Fortress Shares in the Federated Funds may be exchanged for Shares at net asset
value without a sales charge (if previously paid) or a contingent deferred sales
charge. The exchange privilege is available to shareholders residing in any
state in which the shares being acquired may be legally sold.

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Shareholders who desire to automatically exchange Shares of a
predetermined amount on a monthly, quarterly, or annual basis may take advantage
of a systematic exchange privilege. Further information on these exchange
privileges is available by calling Federated Securities Corp. or the
shareholder's financial institution.

Before making an exchange, a shareholder must receive a prospectus of the fund
for which the exchange is being made.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting the Fund.

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

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Dividends and distributions are
automatically reinvested in additional Shares on payment dates at the
ex-dividend date net asset value without a sales charge, unless shareholders
request cash payments on the new account form or by writing to the transfer
agent.

RETIREMENT PLANS

Shares of the Fund can be purchased as an investment for retirement plans
(including 401(k) and 403(b) plans) or for individual retirement accounts
(IRAs). For further details, contact Federated Securities Corp. and consult with
a tax adviser.

REDEEMING FORTRESS SHARES

The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net

asset value. Redemption requests must be received in proper form and can be made
through a financial institution or directly from the Fund by written request.

THROUGH A FINANCIAL INSTITUTION

A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value, less any applicable contingent deferred sales charge,
next determined after the Fund receives the redemption request from the
financial institution. Redemption requests through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. Redemption requests
through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund provided the Fund has a

properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared. Proceeds from redemption requests received on holidays when
wire transfers are restricted will be wired the following business day.
Questions about the telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at the
telephone number listed on your account statement.

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

REDEEMING SHARES BY MAIL

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

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

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.

CONTINGENT DEFERRED SALES CHARGE

Shareholders redeeming Shares from their Fund accounts within certain time

periods of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the Shares redeemed as follows:

<TABLE>
<CAPTION>
CONTINGENT
AMOUNT OF DEFERRED
PURCHASE SHARES HELD SALES CHARGE
<S> <C> <C>
4 full years or
Up to $1,999,999 less 1.00%
$2,000,000 to 2 full years or
$4,999,999 less .50%
1 full year or
$5,000,000 or more less .25%
</TABLE>

To the extent that a shareholder exchanges between or among Fortress Shares in
the Federated Funds, the time for which the exchanged-for Shares were held will
be added, or "tacked", to the time for which the exchanged-from Shares were held
for purposes of satisfying the one-year holding period.

In instances in which Shares have been acquired in exchange for Fortress Shares
in the Federated Funds, (i) the purchase price is the price of the shares when
originally purchased and (ii) the time period during which the shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on shares acquired through the reinvestment of
dividends or distributions of long-term capital gains. In computing the amount
of contingent deferred sales charge for accounts with shares subject to a single
holding period, if any, redemptions are deemed to have occurred in the following
order: 1) first of shares acquired through the reinvestment of dividends and
long-term capital gains, 2) second of purchases of shares occurring prior to the
number of years necessary to satisfy the applicable holding period, and 3)
finally of purchases of shares occurring within the current holding period. For
accounts with shares subject to multiple share holding periods, the redemption
sequence will be determined first, with reinvested dividends and long-term
capital gains, and second, on a first-in, first-out basis.

The contingent deferred sales charge will not be imposed when a redemption

results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account after the beneficial owner
attains age 59-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh Plan,

or a custodial account does not extend to account transfers, rollovers, and
other redemptions made for purposes of reinvestment. Contingent deferred sales
charges are not charged in connection with exchanges of Shares for Fortress
Shares in the Federated Funds, or in connection with redemptions by the Fund of
accounts with low balances. Shares of the Fund originally purchased through a
bank trust department or investment adviser registered under the Investment
Advisers Act of 1940, and third-party administrators acting on behalf of
deferred contribution plans, are not subject to the contingent deferred sales
charge, to the extent that no payment was advanced for purchases made by such
entities.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder; the minimum withdrawal amount
is $100. Depending upon the amount of the withdrawal payments, the amount of

dividends paid and capital gains distributions with respect to Shares, and the
fluctuation of the net asset value of Shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
the Fund. For this reason, payments under this program should not be considered
as yield or income on the shareholder's investment in the Fund. To be eligible
to participate in this program, a shareholder must have invested at least
$10,000 in the Fund (at current offering price).

A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge and
contingent deferred sales charge, it is not advisable for shareholders to be
purchasing Shares while participating in this program.

A contingent deferred sales charge is charged for Shares redeemed through this
program within four years of their purchase dates.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the minimum required value of
$1,000. This requirement does not apply, however, if the balance falls below
$1,000 because of changes in the Fund's net asset value.

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

EXCHANGES FOR SHARES OF OTHER FUNDS

Shares may be exchanged for Fortress Shares in the Federated Funds at net asset
value without a contingent deferred sales charge or a sales charge.

Shareholders using this privilege must exchange shares having a net asset value
equal to the minimum investment required for the fund into which the exchange is
being made. A shareholder may obtain information on the exchange privilege, and
may obtain prospectuses for other Fortress Funds and Federated Funds by calling
Federated Securities Corp. or his financial institution.

This Fund has exchange privileges with the following Federated Funds: American
Leader Fund; California Municipal Income Fund; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Government Income
Securities, Inc.; Liberty Equity Income Fund, Inc.; Limited Term Fund; Limited
Term Municipal Fund; Money Market Management, Inc.; New York Municipal Income
Fund; Ohio Municipal Income Fund; Strategic Income Fund; and World Utility Fund.
Prospectuses for these funds are available by writing to Federated Securities
Corp. Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.

FUND INFORMATION

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.

INVESTMENT ADVISER

Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.

transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to .75 of 1% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by other mutual funds with similar objectives and policies. The Adviser may
voluntarily waive a portion of its fee or reimburse the Fund for certain
operating expenses. The Adviser can terminate this voluntary waiver at any time
at its sole discretion. The Adviser has also undertaken to reimburse the Fund
for operating expenses in excess of limitations established by certain states.

ADVISER'S BACKGROUND

Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

Joseph M. Balestrino has been the Fund's portfolio manager since June, 1992. Mr.
Balestrino joined Federated Investors in 1986 and has been a Vice President of
the Fund's investment adviser since 1995. Mr. Balestrino served as an Assistant
Vice President of the investment adviser from 1991 until 1995, an Investment
Analyst from 1989 until 1991, and from 1986 until 1989 he acted as Project
Manager in the Product Development Department. Mr. Balestrino is a Chartered
Financial Analyst and received his M.U.R.P. in Urban and Regional Planning from
the University of Pittsburgh.

Mark E. Durbiano has been the Fund's portfolio manager since June, 1992. Mr.
Durbiano joined Federated Investors in 1982 and has been a Vice President of the
Fund's investment adviser since 1988. Mr. Durbiano is a Chartered Financial

Analyst and received his M.B.A. in Finance from the University of Pittsburgh.

DISTRIBUTION OF FORTRESS SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

SHAREHOLDER SERVICES

The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to .25 of 1% of the average daily net asset value of
Fortress Shares, computed at an annual rate, to obtain certain personal services
for shareholders and the maintenance of shareholder accounts ("shareholder
services"). Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENT TO
FINANCIAL INSTITUTIONS

The distributor will pay financial institutions, for distribution and/or
administrative services, an amount equal to 1.00% of the offering price of the
Shares acquired by their clients or customers on purchases up to $1,999,999,
.50% of the offering price on purchases of $2,000,000 to $4,999,999, and .25% of
the offering price on purchases of $5,000,000 or more. (This fee is in addition
to the 1.00% sales charge on purchases of less that $1 million.) The financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.

Furthermore, in addition to payments made pursuant to the Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder Services, from
their own assets, may pay financial institutions supplemental fees for the
performance of sales services, distribution-related support services, or
shareholder services. The support may include participating in sales,
educational and training seminars at recreational-type facilities, providing
sales literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and

nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Adviser or its
affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Corporation and the Fund. Federated
Administrative Services provides these at an annual rate which relates to the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors ("Federated Funds") as specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of
$750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote. As of December 4, 1995, BHC Securities, Philadelphia, PA,
acting in various capacities for numerous accounts, was the owner of record of
approximately 192,065 shares (25.71%) of the Class A Shares of the Fund, and
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.

As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Fund's operation and for the election of Directors under certain
circumstances.

Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.

The Fund will be treated as a single separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios, if any, will not be combined for tax purposes
with those realized by the Fund.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any

dividends earned in an IRA or qualified retirement plan until distributed.

STATE AND LOCAL TAXES

Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for Fortress
Shares and the Fund's other classes of shares (described below under "Other
Classes of Shares").

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

The yield of Fortress Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
Fortress Shares over a thirty-day period by the maximum offering price per share
of Fortress Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income

actually earned by Fortress Shares, and therefore, may not correlate to the
dividends or other distributions paid to shareholders.

The performance information reflects the effect of the maximum sales charge and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return.
Total return and yield will be calculated separately for Class A Shares, Class C
Shares, and Fortress Shares.

From time to time, advertisements for the Class A Shares, Class B Shares, Class
C Shares, and Fortress Shares of the Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of Class A Shares, Class B Shares, Class C Shares and Fortress
Shares to certain indices.

OTHER CLASSES OF SHARES

The Fund also offers other classes of shares called Class A Shares, Class B
Shares, and Class C Shares which are all sold primarily to customers of
financial institutions.

Class A Shares are sold subject to a front-end sales charge, a Rule 12b-1 Plan
and a Shareholder Services Plan. Investments in Class A Shares are subject to a

minimum initial investment of $500, unless the investment is in a retirement
account, in which the minimum investment is $50.

Class B Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class B Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50.

Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class C Shares are subject to a minimum investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50.

Class A Shares, Class B Shares and Class C Shares and Fortress Shares are
subject to certain of the same expenses. Expense differences, however, between
Class A Shares, Class B Shares and Class C Shares and Fortress Shares may affect
the performance of each class.

To obtain more information and a combined prospectus for Class A Shares, Class B
Shares and Class C Shares, investors may call 1-800-235-4669.

APPENDIX
(UNAUDITED)

STANDARD AND POOR'S RATINGS GROUP ("S&P") CORPORATE BOND RATINGS

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group. 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 payments. Adverse business,

MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS

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

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

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

Baa--Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and

principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time.

Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.

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.

FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligator'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 limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Investment Series Fund, Inc.
Federated Bond Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

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

Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------

Independent Auditors

Ernst & Young LLP One Oxford Center
Pittsburgh, Pennsylvania 15219
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)
(A PORTFOLIO OF INVESTMENT
SERIES FUNDS, INC.)
FORTRESS SHARES

PROSPECTUS

An Open-End, Diversified
Management Investment Company

Prospectus dated December 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Cusip 461444309
G01271-02 (12/95)

FEDERATED BOND FUND

(FORMERLY, FORTRESS BOND FUND)
(A PORTFOLIO OF INVESTMENT SERIES FUND, INC)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

PROSPECTUS

The investment objective of the Fund is to provide as high a level of current
income as is consistent with the preservation of capital by investing primarily
in a portfolio of investment grade bonds.

This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares, or Class C Shares of the Fund. Keep
this prospectus for future reference.

The Fund has also filed with the Securities and Exchange Commission a Statement
of Additional Information dated December 31, 1995 for Class A Shares, Class B
Shares, Class C Shares, and Fortress Shares. The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge, by calling 1-800-235-4669. To obtain other
information, or to make inquiries about the Fund, contact your financial
institution.

Prospectus dated December 31, 1995

TABLE OF CONTENTS
Summary of Fund Expenses.......................................................1
Class A Shares...............................................................1
Class B Shares...............................................................2

Class C Shares...............................................................3

Financial Highlights...........................................................4
Class A Shares...............................................................4
Class B Shares...............................................................5
Class C Shares...............................................................6

General Information............................................................7

Investment Information.........................................................8
Investment Objective.........................................................8
Investment Policies..........................................................8
Investment Risks.............................................................9
Investment Limitations......................................................17

Net Asset Value...............................................................17

Investing in the Fund.........................................................18

How To Purchase Shares........................................................19
Investing In Class A Shares.................................................19
Reducing or Eliminating the
Sales Charge.............................................................20
Investing In Class B Shares.................................................21
Investing In Class C Shares.................................................22
Special Purchase Features...................................................23

Exchange Privilege............................................................23

Requirements for Exchange...................................................24

How To Redeem Shares..........................................................25
Special Redemption Features.................................................26
Contingent Deferred Sales Charge............................................27
Elimination of Contingent Deferred
Sales Charge.............................................................28

Account and Share Information.................................................29

Fund Information..............................................................30
Management of the Corporation...............................................30
Distribution of Shares......................................................31
Administration of the Fund..................................................32
Expenses of the Corporation and
Class A Shares, Class B Shares, and
Class C Shares...........................................................33

Shareholder Information.......................................................34
Voting Rights...............................................................34

Tax Information...............................................................34
Federal Income Tax..........................................................34
State and Local Taxes.......................................................34

Performance Information.......................................................35

Other Classes of Shares.......................................................35

Appendix......................................................................36

Addresses.....................................................................38

SUMMARY OF FUND EXPENSES
FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)

<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.50%
12b-1 Fee (3).................................................................................................... 0.00%
Total Other Expenses............................................................................................. 0.55%
Shareholder Services Fee (after waiver) (4)....................................................... 0.20%
Total Operating Expenses (5)............................................................................ 1.05%
</TABLE>

(1) Shareholders who purchased shares with the proceeds of a redemption of
shares of an unaffiliated investment company purchased and redeemed with a
sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of 0.50 of 1% for redemptions
made within one year of purchase.

(3) Class A Shares has no present intention of paying or accruing the 12b-1 fee
during the fiscal year ending October 31, 1996. If Class A Shares were
paying or accruing the 12b-1 fee, Class A Shares would be able to pay up to
0.25% of its average daily net assets for the 12b-1 fee. See "Fund
Information."

(4) The maximum shareholder services fee is 0.25%.

(5) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1996. The total operating
expenses were 1.02% for the fiscal year ended October 31, 1995 and would
have been 1.37% absent the voluntary waivers of a portion of the management

fee and a portion of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period............................. $60 $77
You would pay the following expenses on the same investment, assuming
no redemption...................................................................................... $55 $77
</TABLE>

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

SUMMARY OF FUND EXPENSES
FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)

<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.50%
12b-1 Fee........................................................................................................ 0.75%
Total Other Expenses............................................................................................. 0.60%
Shareholder Services Fee.......................................................................... 0.25%
Total Operating Expenses (3)(4)......................................................................... 1.85%
</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year, declining
to 1.00% in the sixth year, and 0.00% thereafter. See "Contingent Deferred
Sales Charge."

(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

(4) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1996. The total operating
expenses were 1.81% for the fiscal year ended October 31, 1995, and would
have been 2.11% absent the voluntary waiver of a portion of the management
fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period............................. $76 $102
You would pay the following expenses on the same investment, assuming no redemption................ $19 $58
</TABLE>

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

SUMMARY OF FUND EXPENSES
FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)

<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.50%
12b-1 Fee........................................................................................................ 0.75%
Total Other Expenses............................................................................................. 0.60%
Shareholder Services Fee.......................................................................... 0.25%
Total Operating Expenses (3)............................................................................ 1.85%

</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For more complete description, see "Contingent
Deferred Sales Charge."

(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1996. The total operating
expenses were 1.81% for the fiscal year ended October 31, 1995, and would
have been 2.11% absent the voluntary waiver of a portion of the management
fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period............................. $29 $58
You would pay the following expenses on the same investment, assuming no redemption................ $19 $58
</TABLE>

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

FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1995 (A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.26
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.11
- ----------------------------------------------------------------------------------------------- ------
Total from investment operations 0.37
- ----------------------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (0.25)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions --
- ----------------------------------------------------------------------------------------------- ------
Total distributions (0.25)
- ----------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $ 9.76
- ----------------------------------------------------------------------------------------------- ------
TOTAL RETURN (B) 3.92%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS

- -----------------------------------------------------------------------------------------------
Expenses 1.02%*
- -----------------------------------------------------------------------------------------------
Net investment income 8.22%*
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.35%*
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$5,070
- -----------------------------------------------------------------------------------------------
Portfolio turnover 77%
- -----------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from June 28, 1995 (date of initial
public offering) to October 31, 1995.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1995, which can be obtained
free of charge.

FINANCIAL HIGHLIGHTS--CLASS B SHARES
FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1995 (A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.24
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.11
- ----------------------------------------------------------------------------------------------- ------
Total from investment operations 0.35
- ----------------------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (0.23)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions --
- ----------------------------------------------------------------------------------------------- ------
Total distributions (0.23)
- ----------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $ 9.76
- ----------------------------------------------------------------------------------------------- ------
TOTAL RETURN (B) 3.72%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS

- -----------------------------------------------------------------------------------------------
Expenses 1.81%*
- -----------------------------------------------------------------------------------------------
Net investment income 7.36%*
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.30%*
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$27,768
- -----------------------------------------------------------------------------------------------
Portfolio turnover 77%
- -----------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from June 28, 1995 (date of initial
public offering) to October 31, 1995.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1995, which can be obtained
free of charge.

FINANCIAL HIGHLIGHTS--CLASS C SHARES
FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1995 (A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.24
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.11
- ----------------------------------------------------------------------------------------------- ------
Total from investment operations 0.35
- ----------------------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (0.23)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions --
- ----------------------------------------------------------------------------------------------- ------
Total distributions (0.23)
- ----------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $ 9.76
- ----------------------------------------------------------------------------------------------- ------
TOTAL RETURN (B) 3.72%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS

- -----------------------------------------------------------------------------------------------
Expenses 1.81%*
- -----------------------------------------------------------------------------------------------
Net investment income 7.31%*
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.30%*
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$5,508
- -----------------------------------------------------------------------------------------------
Portfolio turnover 77%
- -----------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from June 28, 1995 (date of initial
public offering) to October 31, 1995.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1995, which can be obtained
free of charge.

GENERAL INFORMATION

The Corporation was organized under the laws of the State of Maryland on May 20,
1992. Prior to February 5, 1993, the Fund was operated as a portfolio of
Investment Series Trust, a Massachusetts business trust established pursuant to
a Declaration of Trust dated March 17, 1987. On February 3, 1993, the
shareholders of the Fund voted to reorganize the Fund as a portfolio of the
Corporation. On June 15, 1992, the shareholders of High Income Securities Fund
approved a change to the investment objective of the Fund, as well as the name

change of the Fund to Fortress Bond Fund. On June 27, 1995, the name of the Fund
was changed to Federated Bond Fund. The Articles of Incorporation permit the
Fund to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Directors (the "Directors") has established four
classes of shares, known as Class A Shares, Class B Shares, Class C Shares
(individually and collectively referred to, as the context requires, as
"Shares"), and Fortress Shares. This prospectus relates only to the Class A
Shares, Class B Shares, and Class C Shares of the Fund.

For information on how to purchase the Shares offered by this prospectus, please
refer to "Investing in the Fund." The minimum initial investment for Class A
Shares is $500. The minimum initial investment for Class B Shares and Class C
Shares is $1,500. However, the minimum initial investment for a retirement
account in any class is $50. Subsequent investments in any class must be in
amounts of at least $100, except for retirement plans which must be in amounts
of at least $50.

Class A Shares are sold at net asset value plus an applicable sales charge and
are redeemed at net asset value. However, a contingent deferred sales charge is
imposed under certain circumstances. For a more complete description, see
"Redeeming Shares."

Class B Shares are sold at net asset value and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares which
are redeemed within six full years of purchase. See "Redeeming Shares."

Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "Redeeming Shares."

Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as principal underwriter ("Federated Funds") can be found under "Exchange
Privilege."

Federated Advisers is the investment adviser (the "Adviser") to the Fund and
receives compensation for its services.

The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty."

INVESTMENT INFORMATION
INVESTMENT OBJECTIVE

investment objective stated above cannot be changed without the approval of
shareholders. Unless stated otherwise, the investment policies of the Fund
described below may be changed without shareholder approval.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The Fund invests primarily in a professionally managed, diversified portfolio of
bonds. Under normal circumstances, at least 65% of the Fund's net assets will be
invested in such bonds and, in addition, at least 65% of the Fund's net assets
will be invested in investment grade securities, including repurchase agreements
collateralized by investment grade securities. Investment grade securities are
generally described as securities that are rated in one of the top four rating
categories by a nationally recognized statistical rating organization ("NRSRO"),
such as Moody's Investors Service, Inc. ("Moody's), Standard & Poor's Ratings
Group ("S&P"), or Fitch Investors Service, Inc. ("Fitch") or that are unrated
but determined by the Fund's investment adviser to be of comparable quality. A
description of the ratings categories is contained in the Appendix to the
Statement of Additional Information. Permitted investments include:

. domestic or foreign corporate debt obligations (as a matter of operating
policy, the lowest rated corporate debt obligations, including zero coupon
convertible securities, in which the Fund will invest will be rated B or

better by an NRSRO, at the time of purchase, or which are of comparable
quality in the judgment of the Fund's investment adviser. If a security loses
its rating or has its rating reduced after the Fund has purchased it, the Fund
is not required to sell or otherwise dispose of the security, but may consider
doing so, provided that the Fund will continue to maintain at least 65% of the
value of its net assets in investment grade securities.);

. obligations of the United States;

. notes, bonds, and discount notes of the following U.S. government agencies or
instrumentalities, such as Federal Home Loan Banks, Federal National Mortgage
Association, Government National Mortgage Association, Farm Credit System
(including the National Bank for Cooperatives and Banks for Cooperatives),
Tennessee Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Student Loan Marketing
Association, Federal Home Loan Mortgage Corporation, or National Credit Union
Administration;

. taxable municipal debt obligations (as a matter of operating policy, the
lowest rated municipal debt obligations in which the Fund will invest will
be rated BBB or better by an NRSRO, or which are of comparable quality in
the judgment of the Fund's investment adviser);

. asset-backed securities;

. commercial paper that matures in 270 days or less and is rated A-1 or A-2 by
S&P, P-1 or P-2 by Moody's, or F-1 or F-2 by Fitch;

. time and savings deposits (including certificates of deposit) in commercial or
savings banks whose accounts are insured by the Bank Insurance Fund ("BIF"),
or in institutions whose accounts are insured by the Savings

. Association Insurance Fund ("SAIF"), including certificates of deposit issued
by, and other time deposits in, foreign branches of BIF-insured banks which,
if negotiable, mature in six months or less or if not negotiable, either
mature in ninety days or less, or may be withdrawn upon notice not exceeding
ninety days;

. bankers' acceptances issued by a BIF-insured bank, or issued by the bank's
Edge Act subsidiary and guaranteed by the bank, with remaining maturities of
nine months or less. The total acceptances of any bank held by the Fund cannot
exceed 0.25% of such bank's total deposits according to the bank's last
published statement of condition preceding the date of acceptance;

. preferred stock and other equity-related securities which generally have
bond-like attributes, including zero coupon and/or convertible securities;

. other securities which are deemed by the Fund's investment adviser, Federated
Advisers (the "Adviser"), to be consistent with the Fund's investment
objective; and

. repurchase agreements collateralized by acceptable investments.

INVESTMENT RISKS

CORPORATE DEBT OBLIGATIONS

The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL
MARKET VALUE OF BOND
CREDIT RATING HOLDINGS AS OF OCTOBER 31, 1995
<S> <C>
BB..................... 8.19%
B...................... 17.3
CC & CCC............... 0
------
25.49%
------
------
</TABLE>

U.S. GOVERNMENT OBLIGATIONS

The U.S. government obligations in which the Fund invests are either issued or
guaranteed by the U.S. government, its agencies, or instrumentalities. These
securities include, but are not limited to:

. direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds; and

. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the Federal Farm Credit System, Federal Home Loan
Banks System, Federal National Mortgage Association, Student Loan Marketing
Association, and Federal Home Loan Mortgage Corporation.

. the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;

. discretionary authority of the U.S. government to purchase certain obligations
of an agency or instrumentality; or

. the credit of the agency or instrumentality.

MUNICIPAL SECURITIES

ASSET-BACKED SECURITIES

interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.

Because the loans held in the asset pool often may be prepaid without penalty or
premium, asset-backed securities are generally subject to higher prepayment
risks than most other types of debt instruments. Prepayment risks on mortgage
securities tend to increase during periods of declining mortgage interest rates,
because many borrowers refinance their mortgages to take advantage of the more
favorable rates. Depending upon market conditions, the yield that the Fund
receives from the reinvestment of such prepayments, or any scheduled principal
payments, may be lower than the yield on the original mortgage security. As a
consequence, mortgage securities may be a less effective means of "locking in"
interest rates than other types of debt securities having the same stated
maturity and may also have less potential for capital appreciation. For certain
types of asset pools, such as collateralized mortgage obligations, prepayments
may be allocated to one branch of securities ahead of other tranches, in order
to reduce the risk of prepayment for the other tranches.

Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
amount. Conversely, the prepayment of mortgage securities purchased at a market
discount from their stated principal amount will accelerate the recognition of
interest income by the Fund, which would be taxed as ordinary income when
distributed to the shareholders.

The credit characteristics of asset-backed securities also differ in a number of
respects from those of traditional debt securities. The credit quality of most
asset-backed securities depends primarily upon the credit quality of the assets

underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.

NON-MORTGAGE RELATED ASSET-BACKED SECURITIES

MORTGAGE RELATED ASSET-BACKED SECURITIES

ADJUSTABLE RATE MORTGAGE
SECURITIES ("ARMS")

COLLATERALIZED MORTGAGE
OBLIGATIONS ("CMOS")

. collateralized by pools of mortgages in which each mortgage is guaranteed as
to payment of principal and interest by an agency or instrumentality of the
U.S. government;

. collateralized by pools of mortgages in which payment of principal and
interest
is guaranteed by the issuer and such guarantee is collateralized by U.S.

government securities; or

. securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest is supported by the
credit of an agency or instrumentality of the U.S. government.

All CMOs purchased by the Fund are investment grade, as rated by a NRSRO.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")

RESETS OF INTEREST

The interest rates paid on the ARMs, CMOs, and REMICs in which the Fund invests
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less volatile.

To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an adjustable rate mortgage security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, adjustable rate mortgage securities
which use indices that lag changes in market rates should experience greater
price volatility than adjustable rate mortgage securities that closely mirror
the market. Certain residual interest tranches of CMOs may have adjustable
interest rates that deviate significantly from prevailing market rates, even
after the interest rate is reset, and are subject to correspondingly increased
price volatility. In the event the Fund purchases such residual interest
mortgage securities, it will factor in the increased interest and price
volatility of such securities when determining its dollar-weighted average
duration.

CAPS AND FLOORS

BANK INSTRUMENTS

banks, such as the reserve requirements, loan limitations, examination,
accounting, auditing, recordkeeping, and the public availability of information,
these investments may present additional risks to investors.

ZERO COUPON CONVERTIBLE SECURITIES

RESTRICTED AND ILLIQUID SECURITIES

therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Directors, including Section 4(2) commercial paper,
as determined by the Adviser, as liquid and not subject to the investment
limitations applicable to illiquid securities.

FOREIGN SECURITIES

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

TEMPORARY INVESTMENTS

The Fund may also invest temporarily in cash and cash items during times of
unusual market conditions for defensive purposes and to maintain liquidity.

REPURCHASE AGREEMENTS

less than the repurchase price on any sale of such securities. Repurchase
agreements are included within the definition of investment grade securities.

WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS

LENDING OF PORTFOLIO SECURITIES

other institutions which the Adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.

PUT AND CALL OPTIONS

The Fund may attempt to hedge the portfolio by entering into financial futures
contracts and to write calls on financial futures contracts.

RISKS

DERIVATIVE CONTRACTS AND SECURITIES

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

INVESTMENT LIMITATIONS

The Fund will not:

. borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an agreement to buy it back on a set date) or pledge securities
except, under certain circumstances, the Fund may borrow up to one-third of
the value of its total assets and pledge up to 10% of the value of those
assets to secure such borrowings;

. lend any of its assets except portfolio securities up to one-third of the
value of its total assets;

. sell securities short except, under strict limitations, it may maintain open
short positions so long as not more than 10% of the value of its net assets is
held as collateral for those positions; nor

. with respect to 75% of the value of its total assets, invest more than 5% in
securities of any one issuer other than cash, cash items or securities issued
or guaranteed by the government of the United States, its agencies, or
instrumentalities and repurchase agreements collateralized by such securities.

The Fund will not:

. invest more than 5% of the value of its total assets in securities of issuers
that have records of less than three years of continuous operations including
the operation of any predecessor.

NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due

to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.

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

INVESTING IN THE FUND

This prospectus offers investors three classes of Shares that carry sales
charges and contingent deferred sales charges in different forms and amounts and
which bear different levels of expenses:

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales charge of 4.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges

when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies"). Class A
Shares are distributed pursuant to a Rule 12b-1 plan whereby the distributor is
paid a fee of up to .25 of 1.00%. Certain purchases of Class A Shares qualify
for reduced sales charges. See "Reducing or Eliminating the Sales Charge." Class
A Shares have no conversion feature.

CLASS B SHARES

Class B Shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to Class B Shares' higher possible 12b-1 fee
of up to .75 of 1.00%.

CLASS C SHARES

Class C Shares are sold without an initial sales charge but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12

months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to Class C Shares' higher possible 12b-1 fee of up to .75 of 1%.
Class C Shares have no conversion feature.

HOW TO PURCHASE SHARES

Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)

In connection with any sale, Federated Securities Corp., may from time to time,
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.

INVESTING IN CLASS A SHARES

Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:

<TABLE>
<CAPTION>
SALES DEALER
CHARGE SALES CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE*
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1,000,000 or
greater 0.00% 0.00% 0.25%
</TABLE>

*See sub-section entitled "DEALER CONCESSION."

No sales charge is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, to "wrap
accounts" or similar programs for the benefit of clients of financial
institutions under which clients pay fees to such financial institutions, or to
shareholders designated as Liberty Life Members. However, investors who purchase
Shares through a trust department, investment adviser, wrap account, or
retirement plan may be charged an additional service fee by the institution.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of
material value. In some instances, these incentives will be made available only

to dealers whose employees have sold or may sell a significant amount of Shares.
On purchases of $1 million or more, the investor pays no sales charge; however,
the distributor will make twelve monthly payments to the dealer totaling 0.25%
of the public offering price over the first year following the purchase. Such
payments are based on the original purchase price of Shares outstanding at each
month end.

The sales charge for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp. may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Shares.

REDUCING OR ELIMINATING THE
SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Class A Shares
through:

. quantity discounts and accumulated purchases;

. concurrent purchases;

. signing a 13-month letter of intent;

. using the reinvestment privilege; or

. purchases with proceeds from redemptions of unaffiliated investment company
shares.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

As shown in the table on page 19, larger purchases reduce or eliminate the sales
charge paid. The Fund will combine purchases of Class A Shares made on the same
day by the investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge. In addition, the sales charge, if
applicable, is reduced or eliminated for purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the sales charge reduction or elimination, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial institution
at the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms or eliminate the purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of two or more Class A Shares in the
Federated Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $80,000 in one of the other
Class A Shares in the Federated Funds with a sales charge, and $20,000 in this
Fund, the sales charge would be reduced or eliminated.

To receive this sales charge reduction or elimination, Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution at the time the concurrent purchases are made. The Fund will reduce
or eliminate the sales charge after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $100,000 of shares of the funds in
the Federated Funds (excluding money market funds) over the next 13 months, the
sales charge may be reduced or eliminated by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales chargeadjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 4.50% of the total amount intended to
be purchased in escrow (in shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon the
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales charge.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
the Federated Funds, excluding money market accounts, will be aggregated to
provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.

REINVESTMENT PRIVILEGE

If Class A Shares in the Fund have been redeemed, the shareholder has a one-time
right, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his Class A Shares in the Fund, there may be tax
consequences.

PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

Investors may purchase Class A Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by Federated Securities Corp. The purchase must be made
within 60 days of the redemption, and Federated Securities Corp. must be
notified by the investor in writing, or by his financial institution, at the
time the purchase is made. From time to time, the Fund may offer dealers a
payment of .50 of 1.00% for Shares purchased under this program. If Shares are
purchased in this manner, Fund purchases will be subject to a contingent
deferred sales charge for one year from the date of purchase.

INVESTING IN CLASS B SHARES

Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales charge,
under certain circumstances described under "Contingent Deferred Sales
Charge--Class B Shares," a contingent deferred sales charge may be applied by
the distributor at the time Class B Shares are redeemed.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales
charge, fee or other charge. Class B Shares acquired by exchange from Class B
Shares of another fund in the Federated Funds will convert into Class A Shares
based on the time of the initial purchase. For purposes of conversion to Class A
Shares, Shares purchased through the reinvestment of dividends and distributions
paid on Class B Shares will be considered to be held in a separate sub-account.
Each time any Class B Shares in the shareholder's account (other than those in
the sub-account) convert to Class A Shares, an equal pro rata portion of the
Class B Shares in the sub-account will also convert to Class A Shares. The

conversion of Class B Shares to Class A Shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B Shares to Class A Shares will not occur
if such ruling or opinion is not available. In such event, Class B Shares would
continue to be subject to higher expenses than Class A Shares for an indefinite
period.

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

INVESTING IN CLASS C SHARES

Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.

(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.

The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods (see "Other Payments to Financial Institution").

PURCHASING SHARES BY WIRE

To purchase Shares directly from Federated Securities Corp. by Federal Reserve
wire, call the Fund. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.

PURCHASING SHARES BY CHECK

Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking or savings
account at an Automated Clearing House ("ACH") member and invested in the Fund
at the net asset value next determined after an order is received by the Fund,
plus the sales charge, if applicable. Shareholders should contact their
financial institution or the Fund to participate in this program.

RETIREMENT PLANS

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

EXCHANGE PRIVILEGE

CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Federated Funds at net asset value. Neither the Fund nor
any of the funds in the Federated Funds imposes any additional fees on
exchanges.

CLASS B SHARES

Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Federated Funds. (Not all funds in the Federated Funds
currently offer Class B Shares. Contact your financial institution regarding the
availability of other Class B Shares in the Federated Funds). Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged Shares. To the extent that a shareholder exchanges Shares for
Class B Shares in other funds in the Federated Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period.

CLASS C SHARES

Class C shareholders may exchange all or some of their Shares for Class C Shares
in other funds in the Federated Funds at net asset value without a contingent
deferred sales charge. (Not all funds in the Federated Funds currently offer
Class C Shares. Contact your financial institution regarding the availability of
other Class C Shares in the Federated Funds.) Participants in a retirement plan
under the Program may exchange some or all of their Shares for Class C Shares of
other funds offered under their plan at net asset value without a contingent
deferred sales charge. To the extent that a shareholder exchanges Shares for
Class C Shares in other funds in the Federated Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales Charge."

The Fund has exchange privileges with the following Federated Funds:

American Leaders Fund, Inc.; Capital Growth Fund (Class A Shares and Class C
Shares only); Federated Small Cap Strategies Fund; Fund for U.S. Government
Securities, Inc.; Federated International Equity Fund; Federated International
Income Fund; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Utility Fund, Inc.; Limited Term Fund (Class A Shares
only); Limited Term Municipal Fund (Class A Shares only); Michigan Intermediate

Municipal Trust (Class A Shares only); Pennsylvania Municipal Income Fund (Class
A Shares only); Strategic Income Fund; Tax-Free Instruments Trust (Class A
Shares only); and, World Utility Fund.

Prospectuses for these funds are available by writing to Federated Securities
Corp.

Shareholders of Class A Shares who have been designated Liberty Life Members are
exempt from sales charges on future purchases in and exchanges between the Class
A Shares of any funds in the Federated Funds, as long as they maintain a $500
balance in one of the Federated Funds.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange

privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.

Further information on the exchange privilege and prospectuses for the Federated
Funds are available by contacting the Fund.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Federated Services Company, 500
Victory Road--2nd Floor, Quincy, Massachusetts 02171.

Instructions for exchanges for retirement plans participating in the Federated
LifeTrackTM Program should be given to the plan administrator.

TELEPHONE INSTRUCTIONS

Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will not receive any dividend that
is payable to shareholders of record on that date. This privilege may be
modified or terminated at any time.

HOW TO REDEEM SHARES

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below. Redemptions of Shares held through retirement plans will be

governed by the requirements of the respective plans.

REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION

Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve

System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared. Proceeds from redemption requests received on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.

REDEEMING SHARES BY MAIL

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

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution. Due
to the fact that Class A Shares are sold with a sales charge, it is not
advisable for shareholders to continue to purchase Class A Shares while
participating in this program. A contingent deferred sales charge may be imposed
on Class B and C Shares.

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:

CLASS A SHARES

deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Class A Shares at the time of purchase or the net asset value of
the redeemed Class A Shares at the time of redemption.

CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:

<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
</TABLE>

CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase

with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares; (3) Shares held for
fewer than six years with respect to Class B Shares and one full year from the
date of purchase with respect to Class C Shares and applicable Class A Shares on
a first-in, first-out basis. A contingent deferred sales charge is not assessed
in connection with an exchange of Fund Shares for Shares of other funds in the
Federated Funds in the same class (see "Exchange Privilege"). Any contingent
deferred sales charge imposed at the time the exchanged for Shares are redeemed
is calculated as if the shareholder had held the Shares from the date on which
he became a shareholder of the exchanged-from Shares. Moreover, the contingent
deferred sales charge will be eliminated with respect to certain redemptions
(see "Elimination of Contingent Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, or retirement plans where the third party administrator has entered
into certain arrangements with Federated Securities Corp. or its affiliates, or
any other financial institution, to the extent that no payments were advanced
for purchases made through such entities. The Directors reserve the right to
discontinue elimination of the contingent deferred sales charge. Shareholders
will be notified of such elimination. Any Shares purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.

ACCOUNT AND SHARE
INFORMATION

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.

Detailed confirmations of each purchase and redemption are sent to each

shareholder. Monthly confirmations are sent to report dividends paid during that
month.

DIVIDENDS

Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Dividends and distributions are automatically reinvested in
additional Shares of the Fund on payment dates at the ex-dividend date net asset
value without a sales charge, unless shareholders request cash payments on the
new account form or by contacting the transfer agent. All shareholders on the
record date are entitled to the dividend. If Shares are redeemed or exchanged
prior to the record date or purchased after the record date, those Shares are
not entitled to that month's dividend.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance

falls below the required minimum value because of changes in the net asset value
of the respective Share Class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.

FUND INFORMATION

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

INVESTMENT ADVISER

Both the Fund and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These

codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

ADVISORY FEES

ADVISER'S BACKGROUND

Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

DISTRIBUTION OF SHARES

State securities laws may require certain financial institutions such as
depositary institutions to register as dealers.

The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.

The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount
computed at an annual rate of up to .25% for Class A Shares and up to .75% for
Class B Shares and Class C Shares of the average daily net assets of each class
of Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. The Fund does not currently
make payments to the distributor or charge a fee under the Distribution Plan for
Class A Shares, and shareholders of Class A Shares will be notified if the Fund
intends to charge a fee under the Distribution Plan. For Class A Shares and
Class C Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor may
not exceed an annual rate of .75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it

has incurred for its sales services and distribution-related support services
pursuant to the Plan. The Distribution Plan is a compensation type plan. As
such, the Fund makes no payments to the distributor except as described above.
Therefore, the Fund does not pay for unreimbursed expenses of the distributor,
including amounts expended by the distributor in excess of amounts received by
it from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses. However,
the distributor may be able to recover such amounts or may earn a profit from
future payments made by Shares under the Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to .25 of 1% of the average daily net asset value
of Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts
("shareholder services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

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

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Corporation. Federated
Administrative Services provides these at an annual rate which relates to the
average aggregate daily net assets of all Federated Funds as specified below:

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.

EXPENSES OF THE CORPORATION AND CLASS A SHARES, CLASS B SHARES, AND CLASS C
SHARES

Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Corporation and portfolio expenses.

The Corporation expenses for which holders of Class A Shares, Class B Shares,
and Class C Shares pay their allocable portion include, but are not limited to:
the cost of organizing the Corporation and continuing its existence; registering
the Corporation with federal and state securities authorities; Directors' fees;
auditors' fees, the cost of meetings of Directors; legal fees of the
Corporation; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.

The portfolio expenses for which holders of Class A Shares, Class B Shares, and
Class C Shares pay their allocable portion include, but are not limited to:
registering the portfolio and shares of the portfolio; investment advisory
services; taxes and commissions; custodian fees; insurance premiums; auditors'
fees; and such non-recurring and extraordinary items as may arise from time to
time.

At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under the
Corporation's Distribution Plan and fees for Shareholder Services. However, the
Directors reserve the right to allocate certain other expenses to holders of
Class A Shares, Class B Shares, and Class C Shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares, Class B Shares, and Class C Shares;
fees for Shareholder Services; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and to state securities commissions; expenses related to
administrative personnel and services as required to support holders of Class A
Shares, Class B Shares, and Class C Shares; legal fees relating solely to Class
A Shares, Class B Shares, and Class C Shares; and Directors' fees incurred as a
result of issues relating solely to Class A Shares, Class B Shares, and Class C
Shares.

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote. As of December 4, 1995, BHC Securities Inc., Philadelphia, PA,
acting in various capacities for numerous accounts, was the owner of record of
approximately 192,065 (25.71%) of the Class A Shares of the Fund, and therefore,
may, for certain purposes, be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

Fund Shares are exempt from personal property taxes imposed by counties,

municipalities, and school districts in Pennsylvania.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for each class
of Shares including Fortress Shares (described under "Other Classes of Shares").

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

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

The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Fortress Shares.

OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Fortress Shares. Fortress
Shares are sold primarily to customers of financial institutions subject to a
front-end sales charge, a contingent deferred sales charge and a minimum initial
investment of $1,500, unless the investment is in a retirement account in which
the minimum investment is $50.

Shares and Fortress Shares are subject to certain of the same expenses. Expense
differences, however, between Shares and Fortress Shares may affect the
performance of each class.

To obtain more information and a prospectus for Fortress Shares, investors may
call 1-800-235-4669 or contact their financial institution.

APPENDIX
(UNAUDITED)

STANDARD AND POOR'S RATINGS GROUP ("S&P") CORPORATE BOND RATINGS

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group. 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.

B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal payments. 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.

MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS

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

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.

FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS

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+.

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Investment Series Funds, Inc.
Federated Bond Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------------

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

Independent Auditors

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

FEDERATED BOND FUND
(FORMERLY, FORTRESS BOND FUND)
(A PORTFOLIO OF INVESTMENT
SERIES FUNDS, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

PROSPECTUS

An Open-End, Diversified
Management Investment Company

December 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Cusip 461444507
Cusip 461444606

Cusip 461444705
G01271-01 (12/95)

- --------------------------------------------------------------------------------
CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
CLASS A SHARES
PROSPECTUS

The Class A Shares of Capital Growth Fund (the "Fund") represent interests in a
diversified portfolio of securities which is an investment portfolio of
Investment Series Funds, Inc. (the "Corporation"), an open-end, management
investment company (a mutual fund).

The investment objective of the Fund is appreciation of capital.

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

The Fund has also filed a Statement of Additional Information for Class A Shares
and Class C Shares dated December 31, 1995, with the Securities and Exchange
Commission. The information contained in the Statement of Additional Information

is incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information or a paper copy of this prospectus, if you
have received your prospectus electronically, free of charge, by calling
1-800-235-4669. To obtain other information, or make inquiries about the Fund,
contact your financial institution.

Prospectus dated December 31, 1995

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- --------------------------------------------------
GENERAL INFORMATION 3
- --------------------------------------------------
INVESTMENT INFORMATION 3
- --------------------------------------------------
Investment Objective 3
Investment Policies 3
Portfolio Turnover 6
Investment Limitations 7
NET ASSET VALUE 7
- --------------------------------------------------
INVESTING IN CLASS A SHARES 8
- --------------------------------------------------
Share Purchases 8
Minimum Investment Required 9
What Shares Cost 9
Eliminating or Reducing the Sales
Charge 10
Special Purchase Features 12
EXCHANGE PRIVILEGE 12
- --------------------------------------------------
Eliminating or Reducing Sales Charge 12
Requirements for Exchange 12

REDEEMING CLASS A SHARES 13
- --------------------------------------------------
Contingent Deferred Sales Charge 15
Elimination of Contingent Deferred
Sales Charge 15
Systematic Withdrawal Program 16

ACCOUNT AND SHARE INFORMATION 16
- --------------------------------------------------
Certificates and Confirmations 16
Dividends and Distributions 16
Accounts with Low Balances 17

FUND INFORMATION 17
- --------------------------------------------------
Management of the Corporation 17
Distribution of Class A Shares 18
Administration of the Fund 19

BROKERAGE TRANSACTIONS 20
- --------------------------------------------------
SHAREHOLDER INFORMATION 20
- --------------------------------------------------
Voting Rights 20

TAX INFORMATION 20
- --------------------------------------------------
Federal Income Tax 20

State and Local Taxes 21

PERFORMANCE INFORMATION 21
- --------------------------------------------------
OTHER CLASSES OF SHARES 21
- --------------------------------------------------
APPENDIX 23
- --------------------------------------------------
ADDRESSES 25
- --------------------------------------------------
</TABLE>

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... 5.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) (1)................................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None
Exchange Fee..................................................................................... None

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (2)................................................................ 0.00%
12b-1 Fee (3).................................................................................... 0.06%
Total Other Expenses (after expense reimbursement)............................................... 1.19%
Shareholder Services Fee (after waiver) (4)......................................... 0.19%
Total Operating Expenses (5)............................................................. 1.25%
</TABLE>

(1) Class A Shares purchased with proceeds of a redemption of shares of an
unaffiliated investment company purchased and redeemed with a sales charge
and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge".

(2) The management fee has been waived to reflect state imposed expense
limitations. The maximum management fee is 0.55% of average daily net assets
plus 4.50% of gross income, excluding capital gains and losses.

(3) The maximum 12b-1 fee is 0.25%.

(4) The maximum shareholder services fee is 0.25%.

(5) The total operating expenses were 4.54% absent the waiver of the management
fee, the voluntary waivers of a portion of the shareholder services fee and
the 12b-1 fee, and a combination of both a state imposed limitation and
voluntary reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period................................................. $72 $92 $120 $198
You would pay the following expenses on the same investment,
assuming no redemption........................................... $67 $92 $120 $198
</TABLE>

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

CAPITAL GROWTH FUND

FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated December 12, 1995, on the Fund's
financial statements for the year ended October 31, 1995, is included in the
Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------
1995 1994 1993 1992(a)
- ----------------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.31 $13.38 $11.84 $12.00
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income 0.15 0.12 0.09 0.11
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.96 (1.25) 1.71 (0.18)
- ----------------------------------------------------------------------- ------- ------- ------- -------
Total from investment operations 3.11 (1.13) 1.80 (0.07)
- ----------------------------------------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Distributions from net investment income (0.14) (0.12) (0.10) (0.09)
- -----------------------------------------------------------------------
Distribution in excess of net investment income (.01) -- -- --
- -----------------------------------------------------------------------
Distributions from net realized gain on investment transactions (.001) (0.82) (0.16) --
- ----------------------------------------------------------------------- ------- ------- ------- -------
Total distributions (0.15) (0.94) (0.26) (0.09)
- ----------------------------------------------------------------------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $14.27 $11.31 $13.38 $11.84

- ----------------------------------------------------------------------- ------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN (b) 27.79% (8.43%) 15.34% (0.61%)
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 1.25% 1.25% 1.25% 1.17%*
- -----------------------------------------------------------------------
Net investment income 1.06% 1.00% 0.73% 1.19%*
- -----------------------------------------------------------------------
Expense waiver/reimbursement (c) 3.29% 2.79% 2.37% 1.33%*
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $13,069 $9,880 $11,609 $6,540
- -----------------------------------------------------------------------
Portfolio turnover 160% 86% 74% 29%
- -----------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from January 16, 1992 (date of initial
public investment) to October 31, 1992.

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

(c) The Adviser waived all of the investment advisor fee and reimbursed $103,023
of certain operating expenses of the Fund, which represents .65% and .88%,
of average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1995, which can be obtained
free of charge.

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

The Corporation was incorporated under the laws of the State of Maryland on May
20, 1992. Prior to December 18, 1992, the Fund was operated as a portfolio of

Investment Series Trust, a Massachusetts business trust established pursuant to
a Declaration of Trust dated March 17, 1987. On December 18, 1992, the
shareholders of the Fund voted to reorganize the Fund as a portfolio of the
Corporation. The Articles of Incorporation permit the Corporation to offer
separate series of shares of capital stock representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors of the Corporation (the "Directors") has established two
classes of shares, known as Class A Shares and Class C Shares. This prospectus
relates only to the Class A Shares (the "Shares") of the Fund.

Shares of the Fund are designed for individuals as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
equity securities with prospects for above average growth in earnings and
dividends or of companies where significant fundamental changes are taking
place. A minimum initial investment of $500 is required, unless the investment
is in a retirement account, in which case the minimum initial investment is $50.
Shares are sold at net asset value plus a sales charge and are redeemed at net
asset value; however, a contingent deferred sales charge is imposed on certain
Shares. For a more complete description, see "Redeeming Class A Shares."

The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty."

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

INVESTMENT OBJECTIVE

The investment objective of the Fund is appreciation of capital. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing primarily in equity
securities of companies with prospects for above-average growth in earnings and
dividends or of companies where significant fundamental changes are taking
place. The Fund generally invests in companies with market capitalization of
$100,000,000 or more. The investment policies may be changed by the Directors
without shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.

ACCEPTABLE INVESTMENTS. Equity securities are selected by the Fund's investment
adviser, Federated Advisers (the "Adviser"), on the basis of traditional
research techniques, including assessment of earnings and dividend growth
prospects and of the risk and volatility of each company's business.

The fundamental changes which the Adviser will seek to identify in companies
include, for example, restructuring of basic businesses or reallocations of
assets which present opportunities for significant share price appreciation. At
times, the Fund will invest in securities of companies which are deemed by the
Adviser to be candidates for acquisition by other entities as indicated by

changes in ownership, changes in standard price to value ratios, and an
examination of other standard analytical indices. Under normal circumstances, at
least 65% of the value of the Fund's total assets will be invested in equity
securities. However, the Fund is not required to purchase or sell these
securities if the 65% investment level changes due to increases or decreases in
the market value of portfolio securities.

The Fund may invest in preferred stocks, corporate bonds, debentures, notes,
warrants, and put options on stocks. For temporary defensive purposes, the Fund
may also invest in short-term money market instruments, U.S. government
securities, and hold cash in such proportions as the Adviser may determine.

CORPORATE DEBT OBLIGATIONS. The Fund may invest up to 35% of the value of its
total assets in corporate debt obligations that are rated B or better by a
nationally recognized statistical rating organization ("NRSRO"). Corporate debt
obligations that are not determined to be investment grade (rated BBB or higher
by Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc., or
Baa or higher by Moody's Investors Service, Inc. ("Moody's")) are high-yield,
high-risk bonds (i.e., "junk bonds"), typically subject to greater market
fluctuations and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment grade bonds, lower rated bonds tend
to reflect short-term corporate, economic, and market developments, as well as
investor perceptions of the issuer's credit quality. In addition, lower rated
bonds may be more difficult to dispose of or to value than higher-rated,
lower-yielding bonds. Bonds rated BB or B, or Ba or B, respectively, by a NRSRO
have speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payments than higher rated bonds. Downgraded securities will be

evaluated on a case by case basis by the Adviser. The Adviser will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. A full description of the rating categories is
contained in the Appendix to the Statement of Additional Information.

The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.

REPURCHASE AGREEMENTS. The Fund may purchase acceptable investments pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
or other securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the extent that the original seller
does not repurchase the securities from the Fund, they could receive less than
the repurchase price on any sale of such securities.

RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest in restricted
securities up to specific limitations. These limitations are not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objective and policies but which are subject to
restriction on resale under federal securities law. The Fund will limit
investments in illiquid securities, including certain restricted

securities not determined by the Directors to be liquid, and repurchase
agreements providing for settlement in more than seven days after notice, to 15%

of net assets.

The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors such as the Fund who agrees
that the Fund is purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or the investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Fund believes that Section 4(2) commercial
paper and possibly certain other restricted securities which meet the criteria
for liquidity established by the Directors are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Directors, including Section 4(2) commercial paper,
as determined by the Adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Fund intends to not subject such paper to the
limitation applicable to restricted securities.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous. Settlement dates may be
a month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. Accordingly, the

Fund may pay more/less than the market value of the securities on the settlement
date.

FOREIGN SECURITIES. The Fund may invest up to 10% of its net assets in foreign
securities. Investments in foreign securities, particularly those of
non-governmental issuers, involve considerations which are not ordinarily
associated with investments in domestic issuers. These considerations include
the possibility of expropriation, the unavailability of financial information,
or the difficulty of interpreting financial information prepared under foreign
accounting standards, less liquidity and more volatility in foreign securities
markets, the impact of political, social, or diplomatic developments, and the
difficulty of assessing economic trends in foreign countries. It may also be
more difficult to enforce contractual obligations abroad than would be the case
in the United States because of differences in the legal systems. Transaction
costs in foreign securities may be higher. The Adviser will consider these and
other factors before investing in foreign securities and will not make such
investments unless, in its opinion, such investments will meet the Fund's
standards and objective. The Fund will only purchase securities issued in U.S.
dollar denominations.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will only
invest in other investment companies that are money market funds having an
investment objective and policies similar to its own and primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. The Adviser will waive its investment advisory fee on
assets invested in securities of open-end investment companies.

PUT AND CALL OPTIONS. The Fund may purchase put options on stocks. These
options will be used only as a hedge to attempt to protect securities which the
Fund holds against decreases in value. The Fund may purchase these put options
as long as they are listed on a recognized options exchange and the underlying
stocks are held in its portfolio.

The Fund may also write call options on securities either held in its portfolio
or which it has the right to obtain without payment of further consideration or
for which it has segregated cash in the amount of any additional consideration.
The call options which the Fund writes and sells must be listed on a recognized
options exchange. Writing of call options by the Fund is intended to generate
income for the Fund and thereby protect against price movements in particular
securities in the Fund's portfolio.

RISKS. The effective use of options as hedging techniques depends on the
correlation between their prices and the behavior of the Fund's portfolio

securities as well as the Adviser's ability to accurately predict the
direction of stock prices, interest rates and other relevant economic
factors. Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange which may or may not exist for
any particular call or put option at any specific time. The absence of a
liquid secondary market also may limit the Fund's ability to dispose of the
securities underlying an option. The inability to close options also could
have an adverse impact on the Fund's ability to effectively hedge its
portfolio.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the Adviser
has determined are creditworthy under guidelines established by the Directors
and will receive collateral equal to at least 100% of the value of the
securities loaned.

PORTFOLIO TURNOVER

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been

held. The Fund's rate of portfolio turnover may exceed that of certain other
mutual funds with the same investment objective. A higher rate of portfolio
turnover involves correspondingly greater transaction expenses which must be
borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Adviser deems it appropriate to
make changes in the Fund's portfolio.

INVESTMENT LIMITATIONS

The Fund will not:

- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set

date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings;

- sell securities short except, under strict limitations, the Fund may
maintain open short positions so long as not more than 10% of the value of
its net assets is held as collateral for those positions; nor

- lend any of its assets except portfolio securities up to one-third of the
value of its total assets.

The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material changes
in these limitations become effective.

The Fund will not:

- invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations including the
operation of any predecessors;

- commit more than 5% of its total assets to premiums on open put option
positions;

- invest more than 5% of its total assets in securities of one issuer
(except cash and cash items, repurchase agreements collateralized by U.S.
government securities, and U.S. government obligations) or purchase more

than 10% of any class of voting securities of any one issuer; nor

- invest more than 5% of its total assets in warrants.

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

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class A Shares in the market value
of all securities and other assets of the

Fund, subtracting the interest of the Class A Shares in the liabilities of the
Fund and those attributable to the Class A Shares, and dividing the remainder by
the total number of Class A Shares outstanding. The net asset values for Class C
Shares may differ from that of Class A Shares due to the variance in daily net
income realized by each respective class. Such variance will reflect only
accrued net income to which the shareholders of a particular class are entitled.

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

INVESTING IN CLASS A SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.

THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions (such as a registered investment adviser) must be
received by the financial institution and transmitted to the Fund before 4:00
P.M. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial institution's responsibility to transmit orders promptly.

DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor once an account has been established. To do

so:

- complete and sign the new account form available from the Fund;

- enclose a check made payable to Capital Growth Fund--Class A Shares; and

- mail both to Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600.

BY WIRE. To purchase Shares directly from the distributor by wire once an
account has been established, call the Fund. All information needed will be
taken over the telephone, and the order is considered received when State
Street Bank receives payment by wire. Federal funds should be wired as
follows: Federated Services Company, c/o State Street Bank and Trust
Company, Boston, Massachusetts 02105; Attention: Mutual Fund Servicing
Division; For Credit to: Capital Growth Fund--Class A Shares; Fund Number
(this number can be found on the account statement or by contacting the
Fund); Group Number or Order Number; Nominee or Institution Name; ABA Number
011000028. Shares cannot be purchased by wire on Columbus Day, Veterans'
Day, or Martin Luther King Day. Shares cannot be purchased by wire on
holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the

telephone number listed on your account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $500, unless the investment is in a
retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts which must be in amounts of at least $50. (Financial
institutions may impose different minimum investment requirements on their
customers.)

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:

<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF SALES CHARGE AS A DEALER CONCESSION AS A
PUBLIC OFFERING PERCENTAGE OF NET AMOUNT PERCENTAGE OF PUBLIC
AMOUNT OF TRANSACTION PRICE INVESTED OFFERING PRICE*
- ----------------------------- ------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
- -----------------------------
$50,000 but less than
$100,000 4.50% 4.71% 4.00%
- -----------------------------
$100,000 but less than
$250,000 3.75% 3.90% 3.25%
- -----------------------------
$250,000 but less than
$500,000 2.50% 2.56% 2.25%
- -----------------------------
$500,000 but less than
$1,000,000 2.00% 2.04% 1.80%
- -----------------------------
$1,000,000 or greater 0.00% 0.00% 0.25%
- -----------------------------
</TABLE>

*See sub-section entitled "Dealer Concession" on page .

No sales charge is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, or retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp., or its affiliates, or to
shareholders designated as Liberty Life Members. However, investors who purchase
Shares through a trust department, investment adviser, or retirement plan may be
charged an additional service fee by the institution. Additionally, no sales
charge is imposed for Class A Shares

purchased through "wrap accounts" or similar programs, under which clients pay a
fee or fees for services.

DEALER CONCESSION. For sales of Class A Shares, a dealer will normally receive
up to 90% of the applicable sales charge. Any portion of the sales charge which
is not paid to a dealer will be retained by the distributor. However, the
distributor, may offer to pay dealers up to 100% of the sales charge retained by
it. Such payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses to
attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or

more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.

ELIMINATING OR REDUCING THE SALES CHARGE

The sales charge can be eliminated or reduced on the purchase of Shares through:

- quantity discounts and accumulated purchases;

- concurrent purchases;

- signing a 13-month letter of intent;

- using the reinvestment privilege; or

- purchases with proceeds from redemptions of unaffiliated investment
company shares.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on page 9,
larger purchases reduce the sales charge paid. The Fund will combine purchases

of Class A Shares made on the same day by the investor, the investor's spouse,
and the investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.

To receive the sales charge elimination or reduction, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial institution
at the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge elimination
or reduction, a shareholder has the privilege of combining concurrent purchases
of two or more Class A Shares in the Federated Funds, the purchase price of
which includes a sales charge. For example, if a shareholder concurrently
invested $30,000 in one of the other Class A Shares in the Federated Funds with
a sales charge, and $20,000 in this Fund, the sales charge would be reduced.

To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.

LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of
shares of the funds in the Federated Funds (excluding money market funds) over
the next 13 months, the sales charge may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a sales
charge adjustment depending on the amount actually purchased within the 13-month
period and a provision for the custodian to hold up to 5.50% of the total amount
intended to be purchased in escrow (in Shares) until such purchase is completed.

REINVESTMENT PRIVILEGE. If Class A Shares in the Fund have been redeemed, the

shareholder has a one-time right, within 120 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial institution of the reinvestment in order to eliminate a sales
charge. If the shareholder redeems his Class A Shares in the Fund, there may be
tax consequences.

PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES. Investors may purchase Class A Shares at net asset value, without a
sales charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by Federated Securities Corp. The purchase must be made
within 60 days of the redemption, and Federated Securities Corp. must be
notified by the investor in writing, or by his financial institution, at the
time the purchase is made. From time to time, the Fund may offer dealers a
payment of .50 of 1.00% for Shares purchased under this program. If Shares are
purchased in this manner, Fund purchases will be subject to a contingent
deferred sales charge for one year from the date of purchase.

SPECIAL PURCHASE FEATURES

determined after an order is received by the Fund, plus the sales charge, if
applicable. Shareholders should contact their financial institution or the Fund
to participate in this program.

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

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

The Fund has exchange privileges with the following Federated Funds:

American Leaders Fund, Inc.; Federated Bond Fund; Federated Small Cap Strategies
Fund; Fund for U.S. Government Securities, Inc.; Federated International Equity
Fund; Federated International Income Fund; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Limited
Term Fund (Class A Shares only); Limited Term Municipal Fund (Class A Shares
only); Michigan Intermediate Municipal Trust (Class A Shares only); Pennsylvania
Municipal Income Fund (Class A Shares only); Strategic Income Fund; Tax-Free
Instruments Trust (Class A Shares only); and, World Utility Fund.

Prospectuses for these funds are available by writing to Federated Securities
Corp.

ELIMINATING OR REDUCING SALES CHARGE

If a shareholder making such an exchange qualifies for an elimination or
reduction of the sales charge, Federated Securities Corp. must be notified by
the shareholder in writing or by his financial institution.

REQUIREMENTS FOR EXCHANGE

notified of the modification or termination of the exchange privilege.

Further information on the exchange privilege and prospectuses for the Federated
Funds are available by contacting the Fund.

TAX CONSEQUENCES. An exercise of the exchange privilege is treated as a sale
for federal income tax purposes. Depending upon the circumstances, a capital
gain or loss may be realized.

MAKING AN EXCHANGE. Instructions for exchanges for the Federated Funds may be
given in writing or by telephone. Written instructions may require a signature
guarantee. Shareholders of the Fund may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his broker
or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, 500 Victory Road-2nd Floor, Quincy, Massachusetts 02171.

TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Shares may be
exchanged between two funds by telephone only if the two funds have identical
shareholder registrations.

Any Shares held in certificate form cannot be exchanged by telephone but must be

forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will not receive any dividend that
is payable to shareholders of record on that date. This privilege may be
modified or terminated at any time.

REDEEMING CLASS A SHARES
- --------------------------------------------------------------------------------

the redemption request from the financial institution. Redemption requests
through a registered broker/dealer must be received by the broker before 4:00

p.m. (Eastern time) and must be transmitted by the broker to the Fund before
5:00 p.m. (Eastern time) in order for Shares to be redeemed at that day's net
asset value. Redemption requests through other financial institutions (such as
banks) must be received by the financial institution and transmitted to the Fund
before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at that day's
net asset value. The financial institution is responsible for promptly
submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.

REDEEMING SHARES BY TELEPHONE. Shares may be redeemed in any amount by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds will be mailed in
the form of a check, to the shareholder's address of record or by wire transfer
to the shareholder's account at a domestic commercial bank that is a member of
the Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.

Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

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

CONTINGENT DEFERRED SALES CHARGE

Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Federated Securities Corp.
may be charged a contingent deferred sales charge of .50 of 1.00% for
redemptions made within one full year of purchase. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than one
full year from the date of purchase with respect to applicable Class A Shares.
Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge. In
computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
Shares held for more than one full year from the date of purchase with respect
to applicable Class A Shares; and (3) Shares held for less than one full year
from the date of purchase with respect to applicable Class A Shares on a first-
in, first-out basis. A contingent deferred sales charge is not assessed in
connection with an exchange of Fund Shares for shares of other funds in the
Federated Funds in the same class (see "Exchange Privilege"). Any contingent

deferred sales charge imposed at the time the exchanged-for shares are redeemed
is calculated as if the shareholder had held the shares from the date on which
he became a shareholder of the exchanged-from shares. Moreover, the contingent
deferred sales charge will be eliminated with respect to certain redemptions
(see "Elimination of Contingent Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

A contingent deferred sales charge will not be charged in connection with
exchanges of like Shares in other Federated Funds.

or any other financial institution, to the extent that no payments were advanced
for purchases made through such entities. The Directors reserve the right to
discontinue elimination of the contingent deferred sales charge. Shareholders
will be notified of such elimination. Any Shares purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Shares. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in Shares. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution. Due
to the fact that Shares are sold with a sales charge, it is not advisable for

shareholders to be purchasing Shares while participating in this program.

ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder of record. Share certificates are not issued unless
requested in writing to Federated Services Company.

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Distributions of any net realized long-term capital
gains will be made at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares on payment dates
at the ex-dividend date net asset value without a sales charge, unless
shareholders request cash payments on the new account form or by writing to the
dividend disbursing agent. All shareholders on the record date are entitled to
the dividend. If Shares are redeemed or exchanged prior to the record date or
purchased after the record date, those Shares are not entitled to that quarter's
dividend.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement accounts, and pay the proceeds
to the shareholder if the account balance falls below the required minimum value
of $500. This requirement does not apply, however, if the balance falls below
$500 because of changes in the Fund's net asset value.

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

FUND INFORMATION
- --------------------------------------------------------------------------------

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS. The Corporation is managed by a Board of Directors. The
Directors are responsible for managing the business affairs of the Corporation
and for exercising all of the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Directors' responsibilities between meetings of the Directors.

Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.

Both the Fund and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to .55 of 1% of the Fund's average daily net assets plus 4.5% of the Fund's
annual gross income, excluding any capital gains or losses. Gross income
includes, in general, discount earned on U.S. Treasury bills and agency
discount notes, interest earned on all interest bearing obligations and
dividend income recorded on the ex-dividend date but does not include
capital gains or losses or reduction of expenses. The Adviser may
voluntarily waive a portion of its fee or reimburse the Fund for certain
operating expenses. The Adviser can terminate this voluntary waiver at any
time at its sole discretion. The Adviser has also undertaken to reimburse
the Fund for operating expenses in excess of limitations established by
certain states.

ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $72 billion invested across more
than 260 funds under management and/or administration by its subsidiaries,
as of December 31, 1994, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,750
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.

Peter R. Anderson has been the Fund's senior portfolio manager since August
1994. Mr. Anderson joined Federated Investors in 1972 as, and is presently,
a Senior Vice President of the Fund's investment adviser. Mr. Anderson is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Wisconsin.

James E. Grefenstette has been the Fund's co-portfolio manager since
December 1994. Mr. Grefenstette joined Federated Investors in 1992 and has
been an Assistant Vice President of the Fund's investment adviser since
1994. Mr. Grefenstette served as an investment analyst of the adviser from
1992 to 1994. Mr. Grefenstette served as a credit analyst with Westinghouse
Credit Corporation from 1990 to 1992, and as a bond trader and then an
Investment Officer with Pittsburgh National Bank from 1987 to 1990. Mr.
Grefenstette received his M.S.I.A. from Carnegie Mellon University.

DISTRIBUTION OF CLASS A SHARES

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund may pay to the distributor an amount, computed at an annual rate of up
to 0.25 of 1% of the average daily net asset value of Shares to finance any
activity which is principally intended to result in the sale of Shares subject
to the Distribution Plan. The distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and

broker/dealers to provide sales support services as agents for their clients or
customers.

The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Shares to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial

institutions supplemental fees as financial assistance for providing substantial
sales services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the
Corporation and the Fund. Federated Administrative Services provides these at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors (the "Federated Funds") as
specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
-------------------- ------------------------------------
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

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. In working with dealers, 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. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.

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

VOTING RIGHTS

Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote.

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

FEDERAL INCOME TAX

The Fund will pay no federal income tax because the Fund expects to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios, if any, will not be combined for tax purposes

with those realized by the Fund.

shareholders have held the Shares. No federal income tax is due on any dividends
earned in an IRA or qualified retirement plan until distributed.

STATE AND LOCAL TAXES

Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

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

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

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

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

Total return and yield will be calculated separately for Class A Shares and
Class C Shares. Because Class C Shares may be subject to a shareholder services
fee and a higher 12b-1 fee than Class A Shares, total return and yield for Class
A Shares will likely exceed that of Class C Shares for the same period.

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

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

The Fund also offers Class C Shares which are sold primarily to customers of
financial institutions.

Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a shareholder services fee. Investments in
Class C Shares are subject to a minimum investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.

Class A Shares and Class C Shares are subject to certain of the same expenses.
Expense differences, however, between Class A Shares and Class C Shares may
affect the performance of each class.

To obtain more information and a prospectus for Class C Shares, investors may
call 1-800-235-4669 or contact their financial institution.

APPENDIX
(UNAUDITED)
- --------------------------------------------------------------------------------

STANDARD AND POOR'S RATINGS GROUP ("S&P") CORPORATE BOND RATINGS

AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay

interest and repay principal is extremely strong.

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

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

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

BB, B--Debt rated "BB" or "B", is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates a low degree of
speculation.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS

Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as

"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

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

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

APPENDIX--CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
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.

FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS

F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.

F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Investment Series Fund, Inc.
Capital Growth Fund
Class A Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------

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

Transfer Agent and Dividend Disbursing
Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

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

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

- --------------------------------------------------------------------------------
CAPITAL GROWTH FUND
CLASS A SHARES

PROSPECTUS
A Diversified Portfolio of
Investment Series Funds, Inc.,
and Open-End Management
Investment Company
December 31, 1995

[FEDERATED SECURITIES CORP. LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 461444200
1102503A-A (12/95) [RECYCLED PAPER LOGO]
RECYCLED
PAPER

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

CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
CLASS C SHARES
PROSPECTUS

The Class C Shares of Capital Growth Fund (the "Fund") represent interests in a
diversified portfolio of securities which is an investment portfolio of
Investment Series Funds, Inc. (the "Corporation"), an open-end, management
investment company (a mutual fund).

The investment objective of the Fund is appreciation of capital.

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

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

The Fund has also filed a Statement of Additional Information for Class C Shares
and Class A Shares, dated December 31, 1995, with the Securities and Exchange
Commission. The information contained in the Statement of Additional Information
is incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information or a paper copy of this prospectus, if you
have received your prospectus electronically, free of charge, by calling
1-800-235-4669. To obtain other information, or make inquiries about the Fund,

contact your financial institution.

Prospectus dated December 31, 1995

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES 2
- --------------------------------------------------
GENERAL INFORMATION 3
- --------------------------------------------------
INVESTMENT INFORMATION 3
- --------------------------------------------------
Investment Objective 3
Investment Policies 3
Portfolio Turnover 6
Investment Limitations 7
NET ASSET VALUE 7
- --------------------------------------------------
INVESTING IN CLASS C SHARES 8
- --------------------------------------------------
Share Purchases 8
Minimum Investment Required 9
Special Purchase Features 9

EXCHANGE PRIVILEGE 9
- --------------------------------------------------
Requirements for Exchange 10
REDEEMING CLASS C SHARES 11
- --------------------------------------------------
Contingent Deferred Sales Charge 12

Elimination of Contingent Deferred
Sales Charge 13
Systematic Withdrawal Program 13

ACCOUNT AND SHARE INFORMATION 14
- --------------------------------------------------
Certificates and Confirmations 14
Dividends and Distributions 14
Accounts with Low Balances 14

FUND INFORMATION 14
- --------------------------------------------------
Management of the Corporation 14
Distribution of Class C Shares 16
Administration of the Fund 17

BROKERAGE TRANSACTIONS 17
- --------------------------------------------------
SHAREHOLDER INFORMATION 17
- --------------------------------------------------
Voting Rights 17

TAX INFORMATION 18
- --------------------------------------------------
Federal Income Tax 18
State and Local Taxes 18

PERFORMANCE INFORMATION 18

- --------------------------------------------------
OTHER CLASSES OF SHARES 19
- --------------------------------------------------
APPENDIX 20
- --------------------------------------------------
ADDRESSES 22
- --------------------------------------------------
</TABLE>

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) (1)................................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None
Exchange Fee..................................................................................... None

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (2)................................................................ 0.00%
12b-1 Fee........................................................................................ 0.75%
Total Other Expenses (after expense reimbursement)............................................... 1.19%
Shareholder Services Fee (after waiver) (3)......................................... 0.19%
Total Operating Expenses (4)............................................................. 1.94%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge".

(3) The maximum shareholder services fee is 0.25%.

(4) The total operating expenses were 5.04% absent the waiver of the management
fee, the voluntary waiver of a portion of the shareholder services fee, and
a combination of both a state imposed limitation and voluntary reimbursement
of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period................................................. $30 $61 $105 $226
You would pay the following expenses on the same investment,
assuming no redemption........................................... $20 $61 $105 $226
</TABLE>

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

CAPITAL GROWTH FUND

FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1995 1994 1993(a)
- -------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.31 $13.36 $12.39
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.05 0.04 (0.01)
- --------------------------------------------------
Net realized and unrealized gain (loss) on
investments 2.96 (1.23) 0.98
- -------------------------------------------------- ------- ------- -------
Total from investment operations 3.01 (1.19) 0.97
- -------------------------------------------------- ------- ------- -------
LESS DISTRIBUTIONS
- --------------------------------------------------
Distributions from net investment income (0.05) (0.04) --
- --------------------------------------------------
Distribution in excess of net investment income (0.02) -- --
- --------------------------------------------------
Distributions from net realized gain on
investment transactions (.001) (0.82) --
- -------------------------------------------------- ------- ------- -------
Total distributions (0.07) (0.86) --

- -------------------------------------------------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $14.25 $11.31 $13.36
- -------------------------------------------------- ------- ------- -------
------- ------- -------
TOTAL RETURN (b) 26.78% (8.90%) 7.83%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 1.94% 2.00% 2.00%*
- --------------------------------------------------
Net investment income 0.38% 0.35% (0.18%)*
- --------------------------------------------------
Expense waiver/reimbursement (c) 3.10% 2.73% 2.37%*
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $1,354 $1,049 $ 314
- --------------------------------------------------
Portfolio turnover 160% 86% 74%
- --------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from April 13, 1993 (date of initial
public investment) to October 31, 1993.

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

(c) The Adviser waived all of the investment advisory fee and reimbursed
$103,023 of certain operating expenses of the Fund, which represents .65%
and .88% of average net assets, respectively, to comply with certain state
expense limitations. The remainder of the reimbursement was voluntary. This
expense decrease is reflected in both the expense and net investment income
ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1995, which can be obtained
free of charge.

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

The Corporation was incorporated under the laws of the State of Maryland on May
20, 1992. Prior to December 18, 1992, the Fund was operated as a portfolio of

Investment Series Trust, a Massachusetts business trust established pursuant to
a Declaration of Trust dated March 17, 1987. On December 18, 1992, the
shareholders of the Fund voted to reorganize the Fund as a portfolio of the
Corporation. The Articles of Incorporation permit the Corporation to offer
separate series of shares of capital stock representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors of the Corporation (the "Directors") has established two
classes of shares, known as Class C Shares and Class A Shares. This prospectus
relates only to the Class C Shares (the "Shares") of the Fund.

Shares of the Fund are designed for individuals as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
equity securities with prospects for above average growth in earnings and
dividends or of companies where significant fundamental changes are taking
place. A minimum initial investment of $1,500 is required, unless the investment
is in a retirement account, in which case the minimum investment is $50. Shares
are sold at net asset value. However, a contingent deferred sales charge of
1.00% will be imposed on assets redeemed within the first twelve months
following purchase.

The Fund's current net asset value can be found in the mutual funds section of
local newspapers under "Federated Liberty."

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

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.

securities not determined by the Directors to be liquid, and repurchase
agreements providing for settlement in more than seven days after notice, to 15%

of net assets.

The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors such as the Fund who agrees
that the Fund is purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or the investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Fund believes that Section 4(2) commercial
paper and possibly certain other restricted securities which meet the criteria
for liquidity established by the Directors are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Directors, including Section 4(2) commercial paper,
as determined by the Adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Fund intends to not subject such paper to the
limitation applicable to restricted securities.

Fund may pay more/less than the market value of the securities on the settlement
date.

RISKS. The effective use of options as hedging techniques depends on the
correlation between their prices and the behavior of the Fund's portfolio

PORTFOLIO TURNOVER

INVESTMENT LIMITATIONS

The Fund will not:

- lend any of its assets except portfolio securities up to one-third of the
value of its total assets.

The Fund will not:

- invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations including the
operation of any predecessors;

- commit more than 5% of its total assets to premiums on open put option
positions;

than 10% of any class of voting securities of any one issuer; nor

- invest more than 5% of its total assets in warrants.

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

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class C Shares in the market value
of all securities and other assets of the

Fund, subtracting the interest of the Class C Shares in the liabilities of the
Fund and those attributable to the Class C Shares, and dividing the remainder by
the total number of Class C Shares outstanding. The net asset values for Class A
Shares may differ from that of Class C Shares due to the variance in daily net
income realized by each respective class. Such variance will reflect only
accrued net income to which the shareholders of a particular class are entitled.

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

INVESTING IN CLASS C SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders placed through a financial institution are considered received when the
Fund is notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions (such as a registered investment adviser) must be
received by the financial institution and transmitted to the Fund before 4:00
P.M. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial institution's responsibility to transmit orders promptly.

DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor once an account has been established. To do

so:

- complete and sign the new account form available from the Fund;

- enclose a check made payable to Capital Growth Fund--Class C Shares; and

- mail both to Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600.

BY WIRE. To purchase Shares directly from the distributor by wire, call the
Fund. All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by wire.
Federal funds should be wired as follows: Federated Services Company, c/o
State Street Bank and Trust Company, Boston, Massachusetts 02105; Attention:
Mutual Fund Servicing Division; For Credit to: Capital Growth Fund--Class C
Shares; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution
Name; ABA Number 011000028. Shares cannot be purchased by wire on Columbus
Day, Veterans' Day, or Martin Luther King Day. Shares cannot be purchased by
wire on holidays when wire transfers are restricted. Questions on wire
purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,500, unless the investment is in
a retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts, which must be in amounts of at least $50. (Financial
institutions may impose different minimum investment requirements on their
customers.)

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM. Once a Fund account has been opened,
shareholders may add to their investment on a regular basis in a minimum amount
of $100. Under this program, funds may be automatically withdrawn periodically
from the shareholder's checking or savings account at an Automated Clearing
House ("ACH") member and invested in the Fund at the net asset value next
determined after an order is received by the Fund, plus the sales charge, if
applicable. Shareholders should contact their financial institution or the Fund
to participate in this program.

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

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

Class C shareholders may exchange all or some of their Shares for Class C Shares
of other funds in the Federated Funds at net asset value without a contingent
deferred sales charge. (Not all funds in the Federated Funds currently offer
Class C Shares. Contact your financial institution regarding the availability of
other Class C Shares in the Federated Funds.) Participants in a retirement plan
under the Program may exchange some or all of their Shares for Class C Shares of
other funds offered under their plan at net asset value without a contingent
deferred sales charge. To the extent that a shareholder exchanges Shares for
Class C Shares in other funds in the Federated Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales Charge."

The Fund has exchange privileges with the following Federated Funds:

Prospectuses for these funds are available by writing to Federated Securities
Corp.

REQUIREMENTS FOR EXCHANGE

This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. The exchange privilege may be
modified or terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.

Shares in certain Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for Shares. Such
exchanges may be subject to a contingent deferred sales charge and possibly a
sales charge.

Further information on the exchange privilege and prospectuses for the Federated
Funds or certain of the Funds (as defined in the Statement of Additional
Information) are available by contacting the Fund.

TAX CONSEQUENCES. An exercise of the exchange privilege is treated as a sale
for federal income tax purposes. Depending upon the circumstances, a capital
gain or loss may be realized.

MAKING AN EXCHANGE. Instructions for exchanges for the Federated Funds may be
given in writing or by telephone. Written instructions may require a signature

guarantee. Shareholders of the Fund may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his broker
or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, 500 Victory Road-2nd Floor, Quincy, Massachusetts 02171.

REDEEMING CLASS C SHARES
- --------------------------------------------------------------------------------

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be
made, as described below. Redemptions of Shares held through retirement plans
will be governed by the requirements of the respective plans.

REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION. Shares of the Fund may be
redeemed by calling your financial institution to request the redemption. Shares
will be redeemed at the net asset value, less any applicable contingent deferred
sales charge next determined after the Fund receives the redemption request from
the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions (such as banks) must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial institution for this service.

the form of a check, to the shareholder's address of record or by wire transfer
to the shareholder's account at a domestic commercial bank that is a member of
the Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.

shall determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.

CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the

distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than one
full year from the date of purchase with respect to Class C Shares. Redemptions
will be processed in a manner intended to maximize the amount of redemption
which will not be subject to a contingent deferred sales charge. In computing
the amount of the applicable contingent deferred sales charge, redemptions are
deemed to have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for more
than one full year from the date of purchase with respect to Class C Shares; and
(3) Shares held for less than one full year from the date of purchase with
respect to Class C Shares on a first-in, first-out basis. A contingent deferred
sales charge is not assessed in connection with an exchange of Fund Shares for
shares of other funds in the Federated Funds in the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the
exchanged-for shares are redeemed is calculated as if the shareholder had held
the shares from the date on which he became a shareholder

of the exchanged-from shares. Moreover, the contingent deferred sales charge
will be eliminated with respect to certain redemptions (see "Elimination of
Contingent Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

A contingent deferred sales charge will not be charged in connection with
exchanges of like Shares in other Federated Funds.

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70 1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees, and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, or any other financial institution, to the extent that no payments were
advanced for purchases made through such entities. The Directors reserve the
right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Shares. For this reason, payments under this program
should not be considered as yield or income on the shareholder's investment in
Shares. To be eligible to participate in this program, a shareholder must have
an account value of at least $10,000. A shareholder may apply for participation
in this program through his financial institution.

ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.

DIVIDENDS AND DISTRIBUTIONS

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement accounts, and pay the proceeds
to the shareholder if the account balance falls below the required minimum value
of $1,500. This requirement does not apply, however, if the balance falls below
$1,500 because of changes in the Fund's net asset value.

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

FUND INFORMATION
- --------------------------------------------------------------------------------

MANAGEMENT OF THE CORPORATION

INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Corporation, investment decisions for the Fund are made by Federated Advisers,
the Fund's investment adviser, subject to direction by the Directors. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.

result in severe penalties.

as of December 31, 1994, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,750
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.

Credit Corporation from 1990 to 1992, and as a bond trader and then an
Investment Officer with Pittsburgh National Bank from 1987 to 1990. Mr.
Grefenstette received his M.S.I.A. from Carnegie Mellon University.

DISTRIBUTION OF CLASS C SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.

Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

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

In addition, the Fund has entered into a Shareholder Services Agreement with

Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Shares to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees as financial assistance for providing substantial
sales services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing

support furnished by the financial institution. Any payments made by the
distributor may be reimbursed by the Adviser or its affiliates.

ADMINISTRATION OF THE FUND

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
------------------------- ------------------------------------
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

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. In working with dealers, 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. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.

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

VOTING RIGHTS

Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or

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

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

FEDERAL INCOME TAX

with those realized by the Fund.

STATE AND LOCAL TAXES

Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

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

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

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

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

The performance information reflects the effect of non-recurring charges, such
as the contingent deferred sales charge, which, if excluded, would increase the
total return and yield.

Total return and yield will be calculated separately for Class C Shares and
Class A Shares. Because Class A Shares may be subject to a lower 12b-1 fee than
Class C Shares, total return and yield for Class A Shares will likely exceed
that of Class C Shares for the same period.

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

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

The Fund also offers Class A Shares which are sold primarily to customers of

financial institutions.

Class A Shares are sold subject to a front-end sales charge, a Rule 12b-1 Plan
and shareholder services fee. Investments in Class A Shares are subject to a
minimum initial investment of $500, unless the investment is in a retirement
account, in which case the minimum investment is $50.

Class A Shares and Class C Shares are subject to certain of the same expenses.
Expense differences, however, between Class A Shares and Class C Shares may
affect the performance of each class.

To obtain more information and a prospectus for Class C Shares, investors may
call 1-800-235-4669 or contact their financial institution.

APPENDIX
(UNAUDITED)
- --------------------------------------------------------------------------------

STANDARD AND POOR'S RATING GROUP ("S&P") CORPORATE BOND RATINGS

AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

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

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS

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

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

APPENDIX--CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
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.

FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS

F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.

F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Investment Series Funds, Inc.
Capital Growth Fund Federated Investors Tower
Class C Shares Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------

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

Transfer Agent and Dividend Disbursing
Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------

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

- --------------------------------------------------------------------------------
CAPITAL GROWTH FUND
CLASS C SHARES

PROSPECTUS
A Diversified Portfolio of
Investment Series Fund, Inc., an
Open-End
Management Investment Company
December 31, 1995

[FEDERATED SECURITIES CORP. LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
CUSIP 461444408
1102503A-C (12/95) [RECYCLED PAPER LOGO]
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PAPER