INVESTMENT SERIES FUNDS INC, 485APOS, 1998-10-30

INVESTMENT SERIES FUNDS INC
485APOS, 1998-10-30

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1933 Act File No. 33-48847
1940 Act File No. 811-07021

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----

Pre-Effective Amendment No. ..................

Post-Effective Amendment No. 16 .................. X
------ -----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 17 ................................. X
------ -----

INVESTMENT SERIES FUNDS, INC.

(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)

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

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b) on _
________________pursuant to paragraph (b) 60 days after filing pursuant to
paragraph (a) (i)
X on _DECEMBER 31, 1998 pursuant to paragraph (a) (i). 75 days after filing
pursuant to paragraph (a)(ii) on pursuant to paragraph (a)(ii) of Rule
485.

If appropriate, check the following box:

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

Copies to:

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

PROSPECTUS DECEMBER 31, 1998

FEDERATED BOND FUND
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES

A mutual fund seeking to provide as high a level of current income as is
consistent with the preservation of capital by investing primarily in a
professionally managed, diversified portfolio of fixed income securities.

FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.

TABLE OF CONTENTS

RISK/RETURN SUMMARY

WHAT ARE THE FUND'S FEES AND EXPENSES?

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

WHAT DO SHARES COST?

HOW IS THE FUND SOLD?

HOW TO PURCHASE SHARES

HOW TO REDEEM SHARES

ACCOUNT AND SHARE INFORMATION

WHO MANAGES THE FUND?

FINANCIAL INFORMATION

<PAGE>

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests at least 65% of its assets in investment grade fixed income
securities. The Fund may invest up to 35% of its assets in fixed income
securities rated below investment grade.

Fixed income securities rated below investment grade, also known as junk bonds,
generally entail greater risks than investment grade fixed income securities.

RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class B Shares of Federated Bond
Fund as of the calendar year-end for each of two years.

The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 2 up to 12.

The `x' axis represents calculation periods from the earliest calendar
year end of the Fund's Class B Shares' start of business through the
calendar year ended 1997. The light gray shaded chart features two
distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year
stated directly at its base. The calculated total return percentage for
the Class B Shares of the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1996 through
1997, are 4.60% and 10.09%.

The total returns displayed for the Fund's Class B Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.

The Fund's Class B Shares' total return from January 1, 1998 to September 30,
1998, was 7.52%.

Within the period shown in the Chart, the Fund's Class B Shares' highest
quarterly return was 4.18%. Its lowest quarterly return was (1.91%).

Average Annual Total Return for the Fund's Class B Shares Compared to the Lehman
Brothers Corporate Bond Index (LBCBI) and the Lipper Corporate Debt Funds BBB
Average (LCDFA) for the calendar periods ending December 31, 1997.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Calendar Period Class A..... ClassB Class C LBCBI LCDFA

Life of the Fund * __ % __% __% __% __%

1 Year __ % . __% __% __% __%

* Since inception date of June 28, 1995.
</TABLE>

The bar chart shows the variability of the Fund's actual total return on a
yearly basis.
The table shows the Fund's Class A Shares, Class B Shares, and Class C Shares
total returns averaged over a period of years relative to the LBCBI, a
broad-based market index and the LCDFA, an average of funds with similar
investment objectives. While past performance does not necessarily predict
future performance, this information provides you with historical performance
information so that you can analyze whether the Fund's investment risks are
balanced by its potential rewards.

<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED BOND FUND
FEES AND EXPENSES ......

THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND'S CLASS A, B, AND C SHARES.

SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS B CLASS C

<S> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.50% None None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............... 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)........................... None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee................................................... None None None
Maximum Account Fee...............................................None None None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(as a percentage of average net assets)

Management Fee ................................................ 0.75% 0.75% 0.75%
Shareholder Services Fee ...................................... 0.25% 0.25% 0.25%
Distribution (12b-1) Fee....................................... 0.25% 0.75% 0.75%
Other Expenses ................................................ ____% ____% ____%
Total Annual Fund Operating Expenses (before waivers)..........
____% ____% ____%
- ----------------------------------------------------------------------------
ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.

WAIVER OF FUND EXPENSES (2) (3) (4)
- ----% ----% ----%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
..... ____% ____% ( 5) ____%

</TABLE>

(1) Shareholders who purchased $1 million or more of Class A Shares through an
investment professional on or after August 3, 1998 may be charged a contingent
deferred sales charge (load) of 0.75% for redemptions made within 24 months of
purchase if the investment professional received an advance payment. For
shareholders of Class B Shares, the maximum deferred sales charge (load) is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred sales
charge ( load) 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."

(2) The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was ____% for the year ended October 31, 1998.

(3) Class A Shares did not pay or accrue the distribution (12b-1) fee during the
fiscal year ended October 31, 1998. Class A Shares has no present intention of
paying or accruing the distribution (12b-1) fee during the year ended October
31, 1999.

(4) The shareholder services fee for Class A Shares has been voluntarily
reduced. This voluntary reduction can be terminated at any time. The shareholder
services fee paid by the Fund ( after the voluntary reduction) was ____% for the
year ended October 31, 1998.

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

The following Example is intended to help you compare the cost of investing in
the Fund's Class A, B, and C Shares with the cost of investing in other mutual
funds.

The Example assumes that you invest $10,000 in the Fund's Class A, B, and C
Shares for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Class A, B, and C Shares operating expenses
are BEFORE WAIVERS as shown above and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:

EXAMPLE
CLASS A CLASS B CLASS C
Payment of the maximum sales charge:
1 Year
3 Years
5 Years
10 Years

Expenses assuming no redemption:
1 Year
3 Years
5 Years
10 Years

<PAGE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund invests at least 65% of its assets in investment grade fixed income
securities. The Adviser allocates the Fund's portfolio among business sectors
and adjusts the credit quality of the portfolio by analyzing current economic
and securities market conditions, particularly changes in interest rates and
expected trends in corporate earnings. These factors also guide the selection of
maturity and duration of portfolio securities. Duration measures the price
sensitivity of a fixed income security to changes in interest rates. In
selecting a portfolio security, the Adviser analyzes the business, competitive
position, and financial condition of the issuer to assess whether the security's
risk is commensurate with its potential return.

The Fund may invest up to 35% of its assets in noninvestment grade fixed income
securities. Although the selection of noninvestment grade securities involves
the same factors as investment grade securities, the Adviser gives greater
emphasis to its analysis of the issuer. The Fund will invest in noninvestment
grade securities primarily by investing in another mutual fund advised by an
affiliate of the Adviser. The other mutual fund is managed independently of the
Fund and may incur additional expenses. The Fund may also invest directly in
noninvestment grade securities.

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

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

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

A security's YIELD measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields.

The following describes the principal types of fixed income securities in which
the Fund invests. The securities may be issued by companies based outside of the
U.S.

CORPORATE DEBT SECURITIES are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities.

MUNICIPAL SECURITIES are fixed income securities issued by states, counties,
cities and other political subdivisions and authorities. Although many
municipal securities are exempt from federal income tax, the Fund intends to
invest in taxable municipal securities.

ZERO COUPON SECURITIES do not pay interest or principal until final maturity.
Most debt securities provide periodic payments of interest (referred to as a
"coupon payment"). In contrast, investors buy zero coupon securities at a
price below the amount payable at maturity. The difference between the price
and the amount paid at maturity represents interest on the zero coupon
security. This increases the market and credit risk of a zero coupon
security.

PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Issuers often have the right to redeem their preferred
stock. The Fund treats redeemable preferred stock as a fixed income security.

INVESTMENT RATINGS. Investment grade securities include fixed income securities
rated AAA, the highest rating category, through BBB by a Nationally Recognized
Rating Service (Rating Service) or, if unrated, those securities determined to
be of equivalent quality by the Adviser. Noninvestment grade fixed income
securities are rated BB or below by a Rating Service or unrated. When the Fund
invests in fixed income securities some will be noninvestment grade at the time
of purchase. Unrated securities will be determined by the Adviser to be of like
quality and may have greater risk but a higher yield than comparable rated
securities.

Securities rated BBB or below by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on fixed income securities with
longer durations.

CREDIT RISK
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's assessment
of the likelihood of default by the issuer. The lower the rating of the fixed
income security, the greater the credit risk.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.

CALL RISK
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("call") at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.

LIQUIDITY RISKS
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
other securities. This may increase the price volatility of these securities.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.

RISK OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors. Due to these risk factors, foreign
securities may be more volatile and less liquid than similar securities
traded in the U.S.

WHAT DO SHARES COST?

You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next determined public offering price.

The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open.

The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.

- -------------------------------------------------------------------------
MAXIMUM SALES CHARGE
SHARES OFFERED MINIMUM FRONT-END CONTINGENT
INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE(2) SALES
AMOUNTS(1) CHARGE(3)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
CLASS A $1500/$100 4.50% None
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
CLASS B $1500/$100 None 5.50%
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
CLASS C $1500/$100 None 1.00%
- -------------------------------------------------------------------------

(1) The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professional may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be
invested in Class A Shares instead of Class B Shares in order to maximize
your return and to minimize the sales charges and marketing fees. Accounts
held in the name of an investment professional may be treated differently.
Class B Shares will convert to Class A Shares at NAV approximately eight
years after purchase.

(2) Front-End Sales Charge is expressed as a percentage of public offering
price. See Sales Charge When You Purchase below.

(3) See Sales Charge When You Redeem below.

<PAGE>

SALES CHARGE WHEN YOU PURCHASE

------------------------------------------------------------
CLASS A SHARES
PURCHASE AMOUNT SALES CHARGE AS SALES CHARGE
A PERCENTAGE OF AS A
PUBLIC OFFERING PERCENTAGE OF
PRICE NAV
------------------------------------------------------------
------------------------------------------------------------
Less than $100,000 4.50% 4.71%
------------------------------------------------------------
------------------------------------------------------------
$100,000 but less than 3.75% 3.90%
$250,000
------------------------------------------------------------
------------------------------------------------------------
$250,000 but less than 2.50% 2.56%
$500,000
------------------------------------------------------------
------------------------------------------------------------
$500,000 but less than 2.00% 2.04%
$1 million
------------------------------------------------------------
------------------------------------------------------------
$1 million or greater(1) 0.00% 0.00%
------------------------------------------------------------
------------------------------------------------------------
(1) A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase under
certain investment programs where an investment professional received an
advance payment on the transaction.

THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY: Opurchasing
Shares in greater quantities to reduce the applicable sales charge;
Ocombining concurrent purchases of Shares:
Oby you, your spouse, and your children under age 21; or
Oof the same class of two or more Federated Funds (other than money
market funds);
oaccumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
osigning a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES: owithin 120
days of redeeming Shares of an equal or lesser amount; oas a Federated
Life Member; oby exchanging shares from the same share class of another
Federated Fund (other than a money market fund); othrough wrap accounts or
other investment programs where you pay the investment professional
directly for services; or othrough investment professionals that receive
no portion of the sales charge.

If your investment qualifies for a reduction or elimination of the sales
charge, you or your investment professional must notify the Fund's
Distributor, Federated Securities Corp., at the time of purchase. You will
receive the reduced sales charge only on additional purchases, and not
retroactively on previous purchases.

<PAGE>

SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).

------------------------------------------------------------
CLASS B SHARES
SHARES HELD UP TO: CDSC
------------------------------------------------------------
------------------------------------------------------------
1 year 5.50%
------------------------------------------------------------
------------------------------------------------------------
2 years 4.75%
------------------------------------------------------------
------------------------------------------------------------
3 years 4.00%
------------------------------------------------------------
------------------------------------------------------------
4 years 3.00%
------------------------------------------------------------
------------------------------------------------------------
5 years 2.00%
------------------------------------------------------------
------------------------------------------------------------
6 years 1.00%
------------------------------------------------------------
------------------------------------------------------------
7 years or more 0.00%
------------------------------------------------------------

------------------------------------------------------------
CLASS C SHARES

------------------------------------------------------------
------------------------------------------------------------
You will pay a 1% CDSC if you redeem Shares within one year of the
purchase date.
------------------------------------------------------------

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
opurchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
othat you exchange into the same share class of another Federated Fund
where the original shares were held for seven years or more (other than a
money market fund);
opurchased through investment professionals that did not receive advanced
sales payments; or oif you have certain disabilities as defined by the
IRS.

<PAGE>

In addition, you will not be charged a CDSC:
owhen the Fund redeems your Shares and closes your account for failing to
meet the minimum balance requirement; oif your redemption is a required
retirement plan distribution; oupon the death of the shareholder(s) of the
account or the redemption of Shares by a designated beneficiary.

If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES
IN THIS ORDER:
oShares that are not subject to a CDSC;
oShares held the longest (to determine the number of years your Shares
have been held, include the time you held shares of other Federated Funds
that have been exchanged for Shares of this Fund); and
othen, the CDSC is based on the NAV at the time you purchased or redeemed
those Shares, whichever is lower.

HOW IS THE FUND SOLD?

The Fund offers four share classes: Class A Shares, Class B Shares, Class C
Shares, and Class F Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Class A Shares, Class B Shares, and
Class C Shares. Each share class has different sales charges and other expenses,
which affect their performance. Contact your investment professional or call
1-800-341-7400 for more information concerning the other class.

The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares, and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares. Where the Fund
offers more than one Share Class and you do not specify the Class choice on your
form of payment, you automatically will receive Class A Shares.

<PAGE>

THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within three business days. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire or By Check."

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

You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.

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

BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.

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

BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to: Federated Shareholder Services Company P.O.
Box 8600, Boston, MA 02266-8600.

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).

THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.

BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.

<PAGE>

BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

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

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or o directly from the Fund if you purchased Shares
directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE. You may redeem or exchange Shares by calling the Fund once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.

BY MAIL. You may redeem or exchange Shares by mailing a written request to
the Fund. You will receive a redemption amount based on the NAV on the day the
Fund receives your written request in proper form.

Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to: Federated Shareholder
Services Company 1099 Hingham Street, Rockland, MA 02370-3317.

ALL REQUESTS MUST INCLUDE:
o Fund Name and Class Share, account number and account registration ; o amount
to be redeemed or exchanged; o signatures of all Shareholders exactly as
registered; and
o IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of record;
w your redemption will be sent to an address of record that was changed within
the last thirty days; w a redemption is payable to someone other than the
shareholder(s) of record; or w IF EXCHANGING (TRANSFERRING) into another fund
with a different shareholder registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.

PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:

o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.

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

LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.

REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.

EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must: w ensure that the Share registrations are
identical; w meet any minimum initial investment requirements; and w receive a
prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares on a regular basis by completing
the appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.

<PAGE>

SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES. You will not be
charged a CDSC on SWP redemptions if: you redeem 12% or less of your
account value in a single year; your account is at least one year old;
you reinvest all dividends and capital gains distributions; and your
account has at least a $10,000 balance when you establish the SWP (You
cannot aggregate multiple Class B Share accounts to meet
this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12%
annual limit. In measuring the redemption percentage, your account is valued
when you establish the SWP and then annually at calendar year-end. You can
redeem only at a rate of 1% monthly, 3% quarterly, or 6% semi-annually.

CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.

DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charge to your account for this service.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.

SHARE CERTIFICATES. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.

DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends monthly to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.

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

<PAGE>

ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.

TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.

Fund distributions are expected to be primarily dividends. Redemptions and
exchanges are taxable sales. Please consult your tax preparer regarding your
federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Advisers. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The portfolio managers are:

Joseph M. Balestrino has been the Fund's portfolio manager since June, 1992
and is responsible for managing the allocation of fixed income assets (between
investment grade and high yield). Mr. Balestrino also manages the investment
grade portion of the Fund. Mr. Balestrino joined Federated Investors, Inc. or
its predecessor in 1986 and has been a Vice President of the Fund's investment
adviser and Federated Research Corp. since 1995. Mr. Balestrino served as
Assistant Vice President of the investment adviser and Federated Research Corp.
from 1991 until 1995. Mr. Balestrino is a Chartered Financial Analyst and
received his Master's Degree in Urban and Regional Planning from the University
of Pittsburgh.

Mark E. Durbiano has been the Fund's portfolio manager since June, 1992 and
is responsible for managing the high yield portion of the Fund. Mr. Durbiano
joined Federated Investors, Inc. or its predecessor in 1982 and has been a
Senior Vice President of the Fund's investment adviser and Federated Research
Corp. since January 1996. From 1988 through 1995, Mr. Durbiano was a Vice
President of the Fund's investment adviser and Federated Research Corp. Mr.
Durbiano is a Chartered Financial Analyst and received his M.B.A. in Finance
from the University of Pittsburgh.

The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

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

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

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

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

However, this may be difficult with certain issuers. For example, funds dealing
with foreign service providers or investing in foreign securities, will have
difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.

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

FINANCIAL INFORMATION

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

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

<PAGE>

53
FEDERARTED BOND FUND
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES

(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)

A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports, and other
information without charge call your investment professional or the Fund at
1-800-341-7400.

Internet Address: www.federatedinvestors.com

You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.

Cusip 461444507
Cusip 461444606
Cusip 461444705
G01271-01 (12/98)

811-07021

PROSPECTUS DECEMBER 31, 1998

FEDERATED BOND FUND
CLASS F SHARES

TABLE OF CONTENTS

RISK/RETURN SUMMARY

WHAT ARE THE FUND'S FEES AND EXPENSES?

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

WHAT DO SHARES COST?

HOW IS THE FUND SOLD?

HOW TO PURCHASE SHARES

HOW TO REDEEM SHARES

ACCOUNT AND SHARE INFORMATION

WHO MANAGES THE FUND?

FINANCIAL INFORMATION

<PAGE>

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests at least 65% of its assets in investment grade fixed income
securities. The Fund may invest up to 35% of its assets in fixed income
securities rated below investment grade.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND? All mutual funds take
investment risks. Therefore, it is possible to lose money by investing in the
Fund. The primary factors that may reduce the Fund's returns include:
a general rise in interest rates, and
defaults or an increase in the risk of defaults on portfolio
securities.
Fixed income securities rated below investment grade, also known as junk bonds,
generally entail greater risks than investment grade fixed income securities.

RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class F Shares of Federated Bond
Fund as of the calendar year-end for each of ten years.

The `y' axis reflects the "% Total Return" beginning with (10) and
increasing in increments of 10 up to 50.

The `x' axis represents calculation periods for the last ten calendar
years of Class F Shares of the Fund, beginning with 1988. The light gray
shaded chart features ten distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for
the calendar year stated directly at its base. The calculated total return
percentage for the Fund's Class F Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1988
through 1997, are 9.08%, 1.32%, (9.59%), 44.62%, 15.94%, 16.31%, (3.36%),
20.18%, 5.40%, and 10.92%.

The total returns displayed for Class F Shares of the Fund do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.

The Fund's Class F Shares' total return from January 1, 1998, to September 30,
1998, was 8.34%.

Within the period shown in the Chart, the Fund's Class F Shares' highest
quarterly return was 21.02%. Its lowest quarterly return was (7.31%).

Average Annual Total Return for Class F Shares of the Fund Compared to the
Lehman Brothers Corporate Bond Index (LBCBI), and the Lipper Corporate Debt
Funds BBB Average (LCDFA) for the calendar periods ending December 31, 1997.
Calendar Period Class F........... LBCBI LCDFA
10 Year ......__ % ....... __% __%
5 Year ......__ % ....... __% __%
1 Year ......__ % ....... __% __%

The bar chart shows the variability of the Fund's actual total return on a
yearly basis.
The table shows the Fund's Class F Shares total returns averaged over a period
of years relative to the LBCBI, a broad-based market index and the LCDFA, an
average of funds with similar investment objectives. While past performance does
not necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.

<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED BOND FUND
FEES AND EXPENSES ..................

THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND'S CLASS F SHARES.

SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable)................... 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)........................... None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee................................................... None
Maximum Account Fee.....................................................None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(as a percentage of average net assets)

Management Fee ................................................ 0.75%
Shareholder Services Fee ...................................... 0.25%
Distribution (12b-1) Fee....................................... None
Other Expenses ................................................ ____%
Total Annual Fund Operating Expenses (before waivers).......... ____%
- -----------------------------------------------------------------------------

ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.

WAIVER OF FUND EXPENSES (1)(2)................................. ___%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).... ___%

(1) The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was____% for the year ended October 31, 1998.

(2) The shareholder services fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The shareholder services fee paid by
the Fund (after the voluntary reduction) was ____% for the year ended October
31, 1998.

EXAMPLE

The following Example is intended to help you compare the cost of investing
in the Fund's Class F Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Class F Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Class F Shares operating expenses are BEFORE WAIVERS as
shown above and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:

.....................................1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
CLASS F SHARES
Payment of the maximum sales
charge Expenses assuming no
redemption..

<PAGE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

A security's YIELD measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields.

The following describes the principal types of fixed income securities in which
the Fund invests. The securities may be issued by companies based outside of the
U.S.

CORPORATE DEBT SECURITIES are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities.

Securities rated BBB by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

<PAGE>

WHAT DO SHARES COST?

The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open.

(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professional may impose
higher or lower minimum investment requirements on their customers than those
imposed by the Fund.
(2) Front-End Sales Charge is expressed as a percentage of public offering
price. See Sales Charge When You Purchase below.
(3) See Sales Charge When You Redeem below.

<PAGE>

SALES CHARGE WHEN YOU PURCHASE

------------------------------------------------------------
CLASS F SHARES
PURCHASE AMOUNT SALES CHARGE AS SALES CHARGE
A PERCENTAGE OF AS A
PUBLIC OFFERING PERCENTAGE OF
PRICE NAV
------------------------------------------------------------
------------------------------------------------------------
Less than $1 million 1.00% 1.01%
------------------------------------------------------------
------------------------------------------------------------
$1 million or greater 0.00% 0.00%
------------------------------------------------------------
------------------------------------------------------------

THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY: Opurchasing
Shares in greater quantities to reduce the applicable sales charge;

O combining concurrent purchases of Shares:

O by you, your spouse, and your children under age 21; or

O of the same class of two or more Federated Funds (other than money
market funds);

o accumulating purchases (in calculating the sales charge on an
additional purchase, include the current value of previous Share
purchases still invested in the Fund); or

o signing a letter of intent to purchase a specific dollar amount of
Shares within 13 months (call your investment professional or the Fund
for more information).

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:

o within 120 days of redeeming Shares of an equal or lesser amount;

o when the Fund's Distributor does not advance payment to the investment
professional for your purchase; oby exchanging shares from the same
share class of another Federated Fund;

o for trusts or pension or profit-sharing plans where the third-party
administrator has an arrangement with the Fund's Distributor or its
affiliates to purchase shares without a sales charge; or

o through investment professionals that receive no portion of the sales
charge.

<PAGE>

SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).

------------------------------------------------------------
CLASS F SHARES
PURCHASE AMOUNT SHARES HELD CDSC
------------------------------------------------------------
------------------------------------------------------------
Up to $2 million 4 years or less 1.00%
------------------------------------------------------------
------------------------------------------------------------
$2 - $5 million 2 years or less 0.50%
------------------------------------------------------------
------------------------------------------------------------
$5 million or more 1 year or less 0.25%
------------------------------------------------------------

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

o purchased with reinvested dividends or capital gains;

o purchased within 120 days of redeeming Shares of an equal or lesser
amount;

o that you exchange into the same share class of another Federated Fund
where the original shares were held for more than four years (other
than a money market fund);

o purchased through investment professionals that did not receive
advanced sales payments; or oif you have certain disabilities as
defined by the IRS.

<PAGE>

In addition, you will not be charged a CDSC:

o when the Fund redeems your Shares and closes your account for failing
to meet the minimum balance requirement;

o if your redemption is a required retirement plan distribution;

o upon the death of the shareholder(s) of the account or the redemption
of Shares by a designated beneficiary.

If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES
IN THIS ORDER:

o Shares that are not subject to a CDSC;

o Shares held the longest (to determine the number of years your Shares
have been held, include the time you held shares of other Federated
Funds that have been exchanged for Shares of this Fund); and

o then, the CDSC is based on the NAV at the time you purchased or
redeemed those Shares, whichever is lower.

HOW IS THE FUND SOLD?

The Fund offers four share classes: Class A Shares, Class B Shares, Class C
Shares, and Class F Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Class F Shares. Each share class has
different sales charges and other expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other classes.

HOW TO PURCHASE SHARES

Where the Fund offers more than one Share Class and you do not specify the Class
choice on your form of payment, you automatically will receive Class A Shares.

<PAGE>

Investment professionals should send payments according to the instructions in
the sections "By Wire or By Check."

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

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

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

BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).

<PAGE>

HOW TO REDEEM AND EXCHANGE SHARES

DIRECTLY FROM THE FUND

Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to: Federated Shareholder
Services Company 1099 Hingham Street, Rockland, MA 02370-3317.

ALL REQUESTS MUST INCLUDE:
o Fund Name and Share Class, account number and account registration; o amount
to be redeemed or exchanged; o signatures of all Shareholders exactly as
registered; and
o IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.

o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.

You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.

<PAGE>

DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charge to your account for this service.

ADDITIONAL CONDITIONS

ACCOUNT AND SHARE INFORMATION

<PAGE>

Fund distributions are expected to be primarily dividends. Redemptions and
exchanges are taxable sales. Please consult your tax preparer regarding your
federal, state, and local tax liability.

WHO MANAGES THE FUND?

The portfolio managers are:

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

<PAGE>

FINANCIAL INFORMATION

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

<PAGE>

143
FEDERATED BOND FUND
CLASS F SHARES

(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)

A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.

Internet Address: www.federatedinvestors.com

Cusip 461444309
G01271-02-F (12/98)

811-07021

STATEMENT OF ADDITIONAL INFORMATION DECEMBER 31, 1998

FEDERATED BOND FUND
[A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.]
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES, CLASS F SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses for Federated Bond Fund
(Fund), dated December 31, 1998.

This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectuses or the Annual Report without charge by calling 1-800-341-7400.

TABLE OF CONTENTS

HOW IS THE FUND ORGANIZED?
SECURITIES IN WHICH THE FUND INVESTS
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
SUBACCOUNTING SERVICES
REDEMPTION IN KIND
ACCOUNT AND SHARE INFORMATION
TAX INFORMATION
WHO MANAGES AND PROVIDES
SERVICES TO THE FUND?
HOW DOES THE FUND MEASURE PERFORMANCE?
WHO IS FEDERATED INVESTORS, INC.?
INVESTMENT RATINGS

[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors
CUSIP 461444507
CUSIP 461444606
CUSIP 461444705
CUSIP 461444309
2041304b (12/98)

<PAGE>

HOW IS THE FUND ORGANIZED?

The Fund is a diversified portfolio of Investment Series Funds, Inc.
(Corporation)]. The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on May 19, 1992.
The Corporation may offer separate series of shares representing interests in
separate portfolios of securities. On May 20, 1994, Class A and Class C Shares
were added to the Fund. On May 19, 1995, Class B Shares were added. On June 27,
1995, shareholders approved the name of the Fund to be changed to Federated Bond
Fund. On June 2, 1996, the name of the Fund's "Fortress Shares" class was
changed to "Class F Shares."

The Board of Directors (the Board) has established four classes of shares of the
Fund, known as Class A Shares, Class B Shares, Class C Shares and Class F Shares
(Shares). This SAI relates to all of the above-mentioned Shares.

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

The following describes the types of fixed income securities in which the Fund
invests.

TREASURY SECURITIES are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risk.

AGENCY SECURITIES are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risk, but not as low
as Treasury securities.

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

CORPORATE DEBT SECURITIES are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The Fund may also purchase interests in bank loans
to corporations.

The credit risks of corporate debt securities vary widely among issuers. The
credit risk of an issuer's debt security may also vary based on its priority
for repayment. For example, higher ranking ("senior") debt securities have a
higher priority than lower ranking ("subordinated") securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event
of bankruptcy, holders of senior securities may receive amounts otherwise
payable to the holders of subordinated securities. Some subordinated
securities, such as trust preferred and capital securities notes, permit the
issuer to defer payments under certain circumstances.

MORTGAGE BACKED SECURITIES represent interests in pools of mortgages. The
underlying mortgages normally have similar interest rates, maturities and
other terms. Mortgages may have fixed or adjustable interest rates. Interests
in pools of adjustable rate mortgages are know as "ARMS."

Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high rate mortgages when
mortgage rates fall. This results in the prepayment of mortgage backed
securities, which deprives holders of the securities of the higher yields.
Conversely, prepayments due to refinancings decrease when mortgage rates
increase. This extends the life of mortgage backed securities with lower
yields. As a result, increases in prepayments of premium mortgage backed
securities, or decreases in prepayments of discount mortgage backed
securities, may reduce their yield and price.

This relationship between interest rates and mortgage prepayments makes the
price of mortgage backed securities more volatile than most other types of
fixed income securities with comparable credit risks. Mortgage backed
securities tend to pay higher yields to compensate for this volatility.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
"PASS-THROUGH CERTIFICATES." Holders of pass-through certificates receive a
pro rata share of the payments from the underlying mortgages. Holders also
receive a pro rata share of any prepayments, so they assume all the
prepayment risk of the underlying mortgages.

Collateralized mortgage obligations ("CMOS"), including interests in real
estate mortgage investment conduits ("REMICS"), allocate payments and
prepayments from an underlying pass-through certificate among holders of
different classes of mortgage backed securities. This creates different
prepayment and market risks for each CMO class. For example, in a SEQUENTIAL
PAY CMO, one class of CMOs receives all principal payments (including
prepayments). The next class of CMOs receives all principal payments after
the first class is paid off. This process repeats for each sequential class
of CMO. As a result, each class of sequential pay CMOs reduces the prepayment
risk of subsequent classes.

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

In addition, CMOs may allocate interest payments to one class ("IOS") and
principal payments to another class ("POS"). POs increase in value when
prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs prices tend to increase when interest rates rise (and
prepayments fall), making IOs a useful hedge against market risk.

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

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

The degree of increased or decreased prepayment risk depends upon the
structure of the CMOs. [Z classes,] IOs, POs, and Inverse Floaters are among
the most volatile investment grade fixed income securities currently traded
in the United States. However, the actual returns on any type of mortgage
backed security depends upon the performance of the underlying pool of
mortgages, which no one can predict and will vary among pools.

ASSET BACKED SECURITIES are payable from pools of obligations other than
mortgages. Almost any type of fixed income assets (including other fixed
income securities) may be used to create an asset backed security. However,
most asset backed securities involve consumer or commercial debts with
maturities of less than ten years. Asset backed securities may take the form
of commercial paper or notes, in addition to pass through certificates. Asset
backed securities may also resemble some types of CMOs, such as Floaters,
Inverse Floaters, IOs and POs.

Historically, borrowers are more likely to refinance their mortgage than any
other type of consumer debt or short term commercial debt. In addition, some
asset backed securities use prepayment to buy addition assets, rather than
paying off the securities. Therefore, although asset backed securities may
have some prepayment risks, they generally do not present the same degree of
risk as mortgage backed securities.

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

COMMERCIAL PAPER is an issuer's draft or note with a maturity of less than
nine months. Companies typically issue commercial paper to Fund current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. Commercial paper may
default if the issuer cannot continue to obtain liquidity in this fashion.
The short maturity of commercial paper reduces both the market and credit
risk as compared to other debt securities of the same issuer.

BANK INSTRUMENTS are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Instruments denominated in U.S. dollars and
issued by Non-U.S. branches of U.S. or foreign banks are commonly referred
to as EURODOLLAR instruments. Instruments denominated in U.S. dollars and
issued by U.S. branches of foreign banks are referred o as YANKEE
instruments.

DEMAND INSTRUMENTS are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year. INSURANCE CONTRACTS include guaranteed
investment contracts, funding agreements and annuities. The Fund treats these
contracts as fixed income securities. Insurance companies may also issue
corporate debt securities, including surplus notes that that are payable
solely from the capital of the company.

CREDIT ENHANCEMENT consists of an arrangement in which one company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the other company makes all payments directly to the security holders
and receives reimbursement from the issuer. Normally, the company providing
such credit enhancement has greater financial resources and liquidity than
the issuer. This may lead the Adviser to evaluate the credit risk of a fixed
income security based solely upon its credit enhancement.

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

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

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

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES. Corporations typically issue
stocks. Other types of entities may issue securities comparable to common or
preferred stocks. These entities include limited partnerships, limited
liability companies, business trusts and companies organized outside the
United States.

REITS are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.

WARRANTS give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. RIGHTS are the same as warrants, except they are
typically issued to existing stockholders.

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

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

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

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

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

For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.

Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.

The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling derivatives contracts. Hedging activities are intended to reduce various
kinds of risks. For example, in order to protect against certain events that
might cause the value of its portfolio securities to decline, the Fund can buy
or sell a derivative contract (or a combination of derivative contracts)
intended to rise in value under the same circumstances. Hedging activities will
not eliminate risk, even if they work as they are intended to. In addition,
these strategies are not always successful, and could result in increased
expenses and losses to the Fund.

The Fund may trade in the following types of derivative contracts.

FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Futures contracts traded OTC
are frequently referred to as "forward contracts." Entering into a contract
to buy is commonly referred to as buying or purchasing a contract or holding
a long position. Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position. Futures are considered to be
commodity contracts.

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

The Fund may:

Buy put options on portfolio securities and listed put options on futures (in
anticipation of a decrease in the value of the underlying asset).

Write call options on futures and portfolio securities (to generate income
from premiums, and in anticipation of a decrease or only limited increase in
the value of the underlying asset). If a call written by a Fund is exercised,
the Fund foregoes any possible profit from an increase in the market price of
the underlying asset over the exercise price plus the premium received.

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

HYBRID INSTRUMENTS combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest, and/or the principal amount, payable on a hybrid security is
determined by reference to prices, changes in prices, or differences between
prices, of an underlying asset or by reference to another benchmark (such as
interest rates, currency exchange rates, a commodity index, or a securities
index). Hybrid Instruments may take a variety of forms, such as debt
instruments with interest, principal payments, and/or redemption terms
determined by reference to the value of a currency or commodity or securities
index at a future point in time; preferred stock with dividend rates
determined by reference to the value of a currency; or convertible securities
with the conversion terms related to a particular commodity. Trading in
hybrids is often done in the OTC market.

The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks that are not associated with a similar
investment in a traditional fixed income instrument. Hybrid instruments are
also potentially more volatile and carry greater Market Risk than traditional
instruments. Moreover, depending on the structure of the particular hybrid,
it may expose the Fund to Leverage Risk or carry Liquidity Risk.

FOREIGN SECURITIES are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S. In
addition to the risks normally associated with U.S. securities of the same type,
Foreign Securities are subject to Country Risk and Currency Risk.

DEPOSITARY RECEIPTS represent interests in underlying securities issued by a
foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are
traded in the U.S. ADRs provide a way to buy shares of foreign-based
companies in the U.S. rather than in overseas markets. ADRs are also traded
in U.S. dollars, eliminating the need for foreign exchange transactions. The
foreign securities underlying European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs), and International Depositary Receipts (IDRs), are
traded globally or outside the U.S. Depositary Receipts involve many of the
same risks of investing directly in foreign securities, including Country
Risk and Currency Risk.

FOREIGN EXCHANGE CONTRACTS. In order to convert U.S. dollars into the
currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars, the Fund may
enter into "spot" currency trades. The Fund may also enter into derivative
contracts in which a foreign currency is an underlying asset. Use of these
derivative contracts may increase or decrease the Fund's exposure to Currency
Risk.

FOREIGN GOVERNMENT SECURITIES generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.

Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are
owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith
and credit and general taxing powers. Further, foreign government securities
include mortgage- related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds 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

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

Repurchase Agreements are subject to Credit Risk.

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

WHEN ISSUED TRANSACTIONS are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.

DOLLAR ROLLS are transactions where the Fund sells mortgage-backed securities
with a commitment to purchase similar, but not identical, mortgage-backed
securities on a future date at a lower price. Often one or both securities
involved are TBA mortgage backed securities.
Dollar rolls are subject to Market Risk and Credit Risk.

SECURITIES LENDING. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy.. In return,, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. 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 collateral to
a securities lending agent or broker.

Securities lending activities are subject to Market Risk and Credit Risk.

ASSET COVERAGE. In order to secure its obligations in connection with futures
contracts, options, foreign exchange agreements, when-issued, and
delayed-delivery transactions, the Fund will "cover" such transactions, as
required under applicable interpretations of the SEC, either by owning the
underlying securities; entering into an offsetting transaction; or segregating,
earmarking, or depositing into an escrow account readily marketable securities
in an amount at all times equal to or exceeding the Fund's commitment with
respect to these instruments or contracts. As a result, use of these instruments
will impede the Fund's ability to freely trade the assets being used to cover
them, which could result in harm to the Fund.

INVESTMENT RISKS
The following risks relate to investments in fixed income securities.

The following risks relate to investments in equity securities.

STOCK MARKET RISKS

The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations.
Consequently, the Fund's share price may decline and you could lose money.
The Fund's investment adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.

LIQUIDITY RISKS

Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.

RISKS RELATED TO COMPANY SIZE

Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.

SECTOR RISK

Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. As the adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.

LEVERAGE RISK

Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.

<PAGE>

RISK OF FOREIGN INVESTING

Exchange rates for currency fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.

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 of any one issuer(other than cash, cash items,
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by such
U.S. government securities, and securities of other investment companies) if as
a result more than 5% of the value of its total assets would be in the
securities of that issuer, or would own more than 10% of the outstanding voting
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.

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:

o during 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

o not more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time.

The above limitations cannot be changed unless authorized by the vote of a
majority of its outstanding voting securities. The following limitation,
however, may be changed by the Directors without shareholder approval.
Shareholders will be notified before any material change in this limitation
becomes effective.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 15% of its net assets.

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.

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.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:

o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;

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

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

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

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

The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.

TRADING IN FOREIGN SECURITIES. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.

WHAT DO SHARES COST?

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

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.

QUANTITY DISCOUNTS. Larger purchases of the same Share class reduce the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.

ACCUMULATED PURCHASES. If you make an additional purchase of Shares, you can
count previous Share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.

CONCURRENT PURCHASES. You can combine concurrent purchases of the
corresponding Share class of two or Federated Funds in calculating the
applicable sales charge.

LETTER OF INTENT. You can sign a letter of intent committing to purchase a
certain amount of the same or corresponding class of Shares within a 13 month
period in order to combine such purchases in calculating the applicable sales
charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete your commitment, the escrowed Shares
will be released to your account. If you do not complete your commitment within
13 months, the custodian will redeem an appropriate number of escrowed Shares to
pay for the applicable sales charge.

REINVESTMENT PRIVILEGE. You may reinvest, within 120 days, your Share redemption
proceeds at the next determined NAV, without any sales charge. This sales charge
elimination is offered because a sales charge was previously assessed.

PURCHASES BY AFFILIATES OF THE FUND. The following individuals and their
immediate family members may buy Shares at NAV without any sales charge because
there are nominal sales efforts associated with their purchases:

o the Directors, employees, and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;

o Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc.
(Federated) on December 31, 1997;

o any associated person of an investment dealer who has a sales agreement
with the Distributor; and o trusts, pension or profit-sharing plans for
these individuals.

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling investment professional, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.

Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;
o 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;
orepresenting a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account, following retirement;
o which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements; o which are qualifying redemptions of
Class B Shares under a Systematic Withdrawal Program (as described below); o of
Shares that represent a reinvestment within 120 days of a previous redemption
that was assessed a CDSC; o of Shares held by the Directors, employees, and
sales representatives of the Fund, the Adviser, the Distributor and their
affiliates;
employees of any investment professional that sells Shares pursuant to a sales
agreement with the Distributor; and the immediate family members of the
foregoing persons; and
o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.

HOW IS THE FUND SOLD?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professional for sales and/or administrative services. Any payments
to investment professional in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.

RULE 12B-1 PLAN (CLASS A, B, AND C SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.

Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professional.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.

<PAGE>

SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.

Investment professional receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professional may be
paid 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. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.

When a investment professional's customer purchases shares, the investment
professional may receive:

o an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to
a reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)

o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.

o an amount on the NAV of Class F Shares purchased as follows: up to 1% on
purchases below $2 million; 0.50% on purchases from $2 million but below $5
million; and 0.25% on purchases of $5 million or more.

In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A and Class F that its customer
has not redeemed over the first year.

CLASS A SHARES. Investment professionals purchasing Class A Shares for their
customers are eligible to receive an advance payment from the distributor based
on the following breakpoints:

Advance Payments
as a Percentage of
TRANSACTION AMOUNT PUBLIC OFFERING PRICE

First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%

For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.

Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program. Investment professionals must notify the Fund once an account
reaches $1 million in order to qualify for advance payments.

A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC will be waived
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.

CLASS F SHARES. Investment professionals purchasing Class F Shares for their
customers are eligible to receive an advance payment from the distributor of
0.25% of the purchase price.

<PAGE>

HOW TO BUY SHARES

EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.

SUBACCOUNTING SERVICES

Investment professional are encouraged to open single master accounts. However,
certain investment professional may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professional holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.

REDEMPTION IN KIND

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

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

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

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

ACCOUNT AND SHARE 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 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.

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

<PAGE>

As of October 9, 1998, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class A Shares of the Fund: Charles Schwab &
Co., Inc., San Francisco, CA, owned 5.66%; MLPF&S, Jacksonville, FL, owned
18.05%; and Strafe & Co. F/A/O, Westerville, OH, owned 5.16%.

As of October 9, 1998, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class B Shares of the Fund: MLPF&S,
Jacksonville, FL, owned 9.11%.

As of October 9, 1998, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class C Shares of the Fund: MLPF&S,
Jacksonville, FL, owned 34.88%.

As of October 9, 1998, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class F Shares of the Fund: MLPF&S,
Jacksonville, FL, owned 12.64%; and Nationwide QPVA, Columbus, OH, owned 10.61%.

TAX INFORMATION

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

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

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

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

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

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

<PAGE>

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
the following data: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years, total compensation
received as a Director from the Corporation for its most recent fiscal year, and
the total compensation received from the Federated Fund Complex for the most
recent calendar year. The Corporation is comprised of one fund and the Federated
Fund Complex is comprised of 56 funds, whose investment advisers are affiliated
with the Fund's Adviser. As of October 9, 1998, the Fund's Board and Officers as
a group owned less than 1% of the Fund's outstanding Class A, B, C, F Shares.

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

JOHN F. DONAHUE*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924

Chairman and Director

Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, President and Director of the Corporation.

Compensation from Corporation $0
Compensation from Federated Fund Complex $0

THOMAS G. BIGLEY
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934

Director

Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.