MANAGED SERIES TRUST, 497, 1999-02-01

MANAGED SERIES TRUST
497, 1999-02-01

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MANAGED SERIES TRUST

Federated Managed Income Fund

Federated Managed Growth and Income Fund

Federated Managed Growth Fund

Federated Managed Aggressive Growth Fund

SELECT SHARES

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>
<CAPTION>
CONTENTS

<S> <C>
Risk/Return Summary 1
What are the Funds' Fees and Expenses? 5
What are the Funds' Investment Strategies? 9
What are the Principal Securities in Which the Funds Invest? 12
What are the Specific Risks of Investing in the Funds? 13
What do Shares Cost? 16
How are the Funds Sold? 16
How to Purchase Shares 16
How to Redeem Shares 17
Account and Share Information 19
Who Manages the Funds? 20
Financial Information 23
</TABLE>

JANUARY 31, 1999

Risk/Return Summary

WHAT IS EACH FUND'S INVESTMENT OBJECTIVE?

Fund Objective
Federated Managed Income Fund To seek current income
Federated Managed Growth and To seek current income and

Income Fund capital appreciation
Federated Managed Growth Fund To seek capital appreciation
Federated Managed Aggressive To seek capital appreciation

Growth Fund

While there is no assurance that a Fund will achieve its investment objective,
it endeavors to do so by following the investment strategies and policies
described in this prospectus.

WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?

The Funds invest in diversified portfolios which are allocated among several
categories of equity and fixed income securities. The adviser manages the Funds
based on the view that the investment performance of each Fund's portfolio over
the long term depends primarily on the fact that the portfolio consists of
securities from multiple categories. Of secondary importance to each Fund's
performance is allocation of the portfolio among asset categories in response to
market conditions and the selection of securities within asset categories.
Therefore, each Fund pursues its investment objective in the following manner:

. by setting long-term ranges for each Fund's portfolio investments in each
asset category;

. by allocating each Fund's portfolio among asset categories within those
defined ranges; and

. by actively selecting securities within each of the asset categories.

The following is a summary of the asset categories and the percentage of each
Fund's total assets which may be invested in each asset category:

Asset Category FMAGF FMGF FMGIF FMINCF

Range Range Range Range

<S> <C> <C> <C> <C>
Equities 70-90% 50-70% 30-50% 10-30%
Large Company Stocks 40-60% 30-50% 22.5-37.5% 7.5-22.5%
Small Company Stocks 10-20% 5-15% 0-5% 0%
Foreign Stocks 10-20% 5-15% 0-5% 0%
Utility Stocks 0% 0% 2.5-7.5% 2.5-7.5%
Fixed Income Securities 10-30% 30-50% 50-70% 70-90%
U.S. Government Securities 0-20% 0-40% 0-56% 0-72%
Mortgage-Backed Securities 0-10% 0-15% 0-35% 0-45%
Investment-Grade Corporate Debt 0-10% 0-15% 0-35% 0-45%
Non-Investment-Grade Corporate Debt 0-10% 0-15% 0-10% 0-10%
Foreign Fixed Income Securities 0-10% 0-15% 0-10% 0-10%
</TABLE>

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Funds. The primary factors that may reduce the Funds'
returns include:

. a general rise in interest rates;
. fluctuations in the value of equity securities; and

. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies.

The Funds may also invest in fixed income securities rated below investment
grade, also known as junk bonds, that generally entail greater risks than
investment grade fixed income securities. An investment in the Funds involves
additional risks such as call and prepayment risks, liquidity risks, sector
risks and risks of foreign investing.

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

Risk Return Bar Charts and Tables

Income Fund

[GRAPH APPEARS HERE-SEE APPENDIX]

The bar chart shows the variability of the Fund's Select Shares total returns on
a yearly basis.
The Fund's Shares are not subject to a sales charge (load). The total returns
displayed above are based upon the net asset value.

Within the period shown in the Chart, the Fund's Select Shares highest quarterly
return was 5.04% (quarter ended March31,1995). Its lowest quarterly return was -
0.46% (quarter ended December 31, 1994).

Average Annual Total Return

Average Annual Return for the Fund's Select Shares, compared to the S&P 500
Index (S&P 500), the Lehman Brothers Government/Corporate Bond Index (LBGCBI),
and the Lipper Balanced Funds Average (LBFA).

Calendar Period Select S&P 500 LBGCBI LBFA
Shares

1 The Start of Performance date for Select Shares was May 25,1994.

The table shows the Fund's Select Shares average annual total returns compared
to the S&P 500 and LBGCBI, which are broad-based market indexes, and the LBFA,
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.

Growth and Income Fund

[GRAPH APPEARS HERE-SEE APPENDIX]

Within the period shown in the Chart, the Fund's Select Shares highest quarterly
return was 5.89% (quarter ended September 30, 1997). Its lowest quarterly return
was -2.33% (quarter ended September 30, 1998).

Average Annual Total Return

Calendar Period Select S&P 500 LBGCBI LBFA
Shares

<S> <C> <C> <C> <C>
1 Year 11.56% 28.58% 9.47% 15.09%
Life of the Fund1 10.42% 26.76% 8.98% 15.75%

</TABLE>

1 The start of Performance date for Select Shares was May25,1994.

Growth Fund

[GRAPH APPEARS HERE-SEE APPENDIX]

Within the period shown in the Chart, the Fund's Select Shares highest quarterly
return was 8.34% (quarter ended June 30, 1997). Its lowest quarterly return
was - 7.24% (quarter ended September 30, 1998).

Average Annual Total Return

Calendar Period Select S&P 500 LBGCBI LBFA
Shares

1 The Start of Performance date of Select Shares was May 25,1994.

Aggressive Growth Fund

[GRAPH APPEARS HERE-SEE APPENDIX]

Within the period shown in the Chart, the Fund's Select Shares highest quarterly
return was 10.19% (quarter ended March 31, 1998). Its lowest quarterly return
was -10.53% (quarter ended September 30, 1998).

Average Annual Total Return

Calendar Period Select S&P 500 LBGCBI LBFA
Shares
<S> <C> <C> <C> <C>
1 Year 15.06% 28.58% 9.47% 15.09%
Life of the Fund1 13.37% 26.76% 8.98% 15.75%
</TABLE>

1 The Start of Performance date of Select Shares was May 25,1994.

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.

What are the Fund's Fees and Expenses?

FEDERATED MANAGED INCOME FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Select Shares of the Fund.

<TABLE>

<S> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) None
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

Annual Fund Operating Expenses (Before Waiver/Reimbursements)1

Expenses That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee2 0.75%
Distribution (12b-1) Fee3 0.75%
Shareholder Services Fee 0.25%
Other Expenses 0.42%
Total Annual Fund Operating Expenses 2.17%
</TABLE>

<TABLE>

<S> <C> <C>
1 Although not contractually obligated to do so, the adviser waived and the
distributor reimbursed certain amounts. These are shown below along with the
net expenses the Fund actually paid for the fiscal year ended
November 30,1998. Waiver/Reimbursement of Fund Expenses....................................... 0.67%
Total Actual Annual Fund Operating Expenses (after waivers/reimbursements).................... 1.50%

2 The adviser has voluntarily waived a portion of the management fee. The adviser can
terminate this waiver at any time. The management fee paid by the Fund (after the voluntary
waiver) for the Select Shares was 0.33% for the year ended November30, 1998.

3 The distributor has voluntarily reimbursed a portion of the Select Shares
distribution (12b-1) fee. The distributor can terminate this voluntary
reimbu]The distribution fee paid by the Fund (after the voluntary
reimbursement) for Select Shares was 0.50% for the year ended November 30,
1998.

</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Select Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Select 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 Select Shares operating expenses are before
waivers/reimbursements as shown in the Table and remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Select Shares $220 $679 $1,164 $2,503

</TABLE>

What are the Fund's Fees and Expenses?

FEDERATED MANAGED GROWTH AND INCOME FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Select Shares of the Fund.

<TABLE>

Annual Fund Operating Expenses (Before reimbursements)1

Expenses That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee 0.75%
Distribution (12b-1) Fee2 0.75%
Shareholder Services Fee 0.25%
Other Expenses 0.28%
Total Annual Fund Operating Expenses 2.03%
</TABLE>

<TABLE>

<S> <C> <C>
1 Although not contractually obligated to do so, the distributor reimbursed

certain amounts. These are shown below along with the net expenses the Fund
actually paid for the fiscal year ended November30, 1998. Reimbursement of
Fund Expenses......................................................................... 0.25%
Total Actual Annual Fund Operating Expenses (after reimbursements).................... 1.78%

2 The distributor has voluntarily reimbursed a portion of the Select Shares
distribution (12b-1) fee. The distributor can terminate this voluntary
reimbursement at any time. The distribution fee paid by the Fund (after the
voluntary reimbursement) for Select Shares was 0.50% for the year ended
November 30, 1998.

</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Select Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Select 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 Select Shares operating expenses are before reimbursements
as shown in the table and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Select Shares $206 $637 $1,093 $2,358

</TABLE>

What are the Fund's Fees and Expenses?

FEDERATED MANAGED GROWTH FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Select Shares of the Fund.

Shareholder Fees

<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) None
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

Annual Fund Operating Expenses (Before Reimbursements)1

Expenses That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee 0.75%
Distribution (12b-1) Fee2 0.75%
Shareholder Services Fee 0.25%
Other Expenses 0.27%
Total Annual Fund Operating Expenses 2.02%
</TABLE>

<TABLE>

<S> <C> <C>
1 Although not contractually obligated to do so, the distributor reimbursed certain amounts.

These are shown below along with the net expenses the Fund actually paid for the fiscal
year ended November30, 1998.
Reimbursement of Fund Expenses.................................................................... 0.25%
Total Actual Annual Fund Operating Expenses (after reimbursements)................................ 1.77%

2 The distributor has voluntarily reimbursed a portion of the Select Shares distribution
(12b-1) fee. The distributor can terminate this voluntary reimbursement at any time.
The distribution fee paid by the Fund (after the voluntary reimbursement)
for Select Shares was 0.50% for the year ended November 30, 1998.

</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Select Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Select 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 Select Shares operating expenses are before reimbursements
as shown in the table and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Select Shares $205 $634 $1,088 $2,348

</TABLE>

What are the Fund's Fees and Expenses?

FEDERATED MANAGED AGGRESSIVE GROWTH FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Select Shares of the Fund.

Shareholder Fees

Annual Fund Operating Expenses (Before Waiver/Reimbursements)1

Expenses That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee2 0.75%
Distribution (12b-1) Fee3 0.75%
Shareholder Services Fee 0.25%
Other Expenses 0.45%
Total Annual Fund Operating Expenses 2.20%

1 Although not contractually obligated to do so, the adviser waived and the distributor
reimbursed certain amounts. These are shown below along with the net expenses the Fund
actually paid for the fiscal year ended November30, 1998.
Waiver/Reimbursement of Fund Expenses........................................................... 0.38%
Total Actual Annual Fund Operating Expenses (after waivers/reimbursements)...................... 1.82%
2 The adviser has voluntarily waived a portion of the management fee. The adviser can
terminate this waiver at any time. The management fee paid by the Fund (after the
voluntary waiver) for the Select Shares was 0.62% for the year ended November30, 1998.

3 The distributor has voluntarily reimbursed a portion of the Select Shares distribution
(12b-1) fee. The distributor can terminate this voluntary reimbursement at any time. The
distribution fee paid by the Fund (after the voluntary reimbursement) for Select Shares was
0.50% for the year ended November 30, 1998.

</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Select Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Select 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 Select Shares operating expenses are before
waivers/reimbursements as shown in the table and remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Select Shares $224 $691 $1,185 $2,544

</TABLE>

What are the Funds' Investment-Strategies?

Each Fund will primarily invest in two types of assets: equities and fixed
income securities. The Funds have divided each type into several asset
categories. The adviser manages the Funds based on the view that the investment
performance of each Fund's portfolio over the long term depends primarily on the
fact that the portfolio consists of securities from multiple asset categories.
Of secondary importance to each Fund's performance is allocation of the
portfolio among asset categories in response to market conditions and the
selection of securities within asset categories. Therefore, each Fund pursues
its investment objective in the following manner:

. by setting long-term ranges for each Fund's portfolio investments in each
asset category;

. by allocating each Fund's portfolio among asset categories within those
defined ranges; and

. by actively selecting securities within each of the asset categories.

The following is a summary of the asset categories and the percentage of each
Fund's total assets which may be invested in each asset category:

Asset Category FMAGF FMGF FMGIF FMINCF

Range Range Range Range

The Funds' adviser will regularly review each Fund's allocation among the asset
categories. The adviser will attempt to exploit price inefficiencies among the
various asset categories. For example, the adviser may move an asset category to
its upper limit if the adviser expects it to offer superior returns relative to
the other asset categories. Likewise, the adviser may move an asset category to
its lower limit if the adviser believes it is overvalued relative to the other
asset categories.

The selection of portfolio securities involves an approach that is specific to
each asset category. The approach for each category is summarized as follows.

LARGE COMPANY STOCKS

With regard to the portion of each Fund's portfolio allocated to large company
stocks, each Fund pursues its investment objective by investing in common stock
of companies with large market capitalizations. Large market capitalization
companies are those which are the 1,000 companies with the largest market
capitalization. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. The adviser invests in
companies that offer growth prospects or in companies whose stock is
undervalued. Using its own quantitative process, the adviser rates the future
performance potential of companies, selecting the most promising companies for a
Fund's portfolio.

SMALL COMPANY STOCKS

With regard to the portion of each Fund's portfolio allocated to small company
stocks, each Fund pursues its investment objective by investing at least 65% of
the allocation in equity securities of companies that fall within the market
capitalization range of the S&P 600 Small Cap Index (Index). As of October 21,
1998, this range was $18.5 million to $3.2 billion. Market capitalization is
determined by multiplying the number of outstanding shares by the current market
price per share. The adviser invests in companies that offer growth prospects or
in companies whose stock is undervalued. Using its own quantitative process, the
adviser rates the future performance potential of companies, selecting the most
promising companies for the Fund's portfolio.

Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the adviser limits a Fund's exposure to each business sector that comprises the
Index. A Fund's allocation to a sector will not be less than 50% or more than
200% of the Index's allocation to that sector. Each Fund ordinarily will hold
between 100 and 350 companies in its portfolio.

The Funds will buy securities in initial public offerings. The Funds will
participate in such offerings without regard to the issuer's market
capitalization. The adviser will select initial public offerings based solely on
its fundamental analysis of the issuer.

FOREIGN STOCKS

With regard to the portion of each Fund's portfolio allocated to foreign stocks,
each Fund pursues its investment objective by investing the allocation in equity
securities of companies based outside the United States. The adviser manages the
Funds based on the view that international equity markets are inefficient at
pricing securities and that careful security selection offers the best potential
for superior long-term investment returns. Selection of industry and country are
secondary considerations.

Using its own quantitative process, the adviser ranks the future performance
potential of companies. The adviser evaluates each company's earnings potential
in light of its current valuation to narrow the list of attractive companies.
The adviser then evaluates management quality and may meet with company
representatives, company suppliers, customers, or competitors. The adviser also
reviews the company's financial statements and forecasts of earnings. Based on
this information, the adviser evaluates the sustain ability of the company's
current growth trends and potential catalysts for increased growth. Using this
type of fundamental analysis, the adviser selects the most promising companies
for the Funds' portfolios.

UTILITY STOCKS

With regard to the portion of each Fund's portfolio allocated to utility stocks,
each Fund may pursue its investment objective by investing in stocks of gas and
electric companies comprising the S&P Utility Index. The number of companies and
the amount invested in those companies will depend on the amount of each Fund's
total assets allocated to the utilities sector and the cost of investing in the
companies.

U.S. GOVERNMENT SECURITIES

The adviser invests the U.S. government securities portion of the Funds'
portfolios by setting an average duration target for the fixed income portion of
each Fund. The adviser selects securities which match the targeted average
duration.

MORTGAGE BACKED SECURITIES

In selecting mortgage backed securities, the analysis focuses on the expected
cash flows from the pool of mortgage obligations supporting the security. To
assess the relative returns and risks of these securities, the adviser analyzes
how the timing, amount and division of cash flows from the pool might change in
response to changing economic and market conditions.

Effective March 1, 1999, the Funds may invest in mortgage-backed securities
primarily by investing in another mutual fund (which is not available for
general investment by the public) that owns those securities and that is advised
by an affiliate of the adviser. This other mutual fund is managed independently
of the Funds and may incur administrative expenses. Therefore, any such
investment by the Funds may be subject to duplicate expenses. However, the
adviser believes that the benefits and efficiencies of this approach should
outweigh the potential additional expenses. The Funds may also invest in such
securities directly.

INVESTMENT GRADE CORPORATE DEBT

With regard to the allocation in domestic corporate fixed income securities, the
adviser allocates investments among industries 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.

NON-INVESTMENT GRADE CORPORATE DEBT

The Funds will invest in noninvestment grade securities primarily by investing
in another mutual fund (which is not available for general investment by the
public) advised by an affiliate of the adviser. The other mutual fund is managed
independently of the Funds and may incur administrative expenses. Therefore, any
such investment by the Funds may be subject to duplicate expenses. However, the
adviser believes that the benefits and efficiencies of this approach should
outweigh the potential additional expenses. The Funds may also invest directly
in noninvestment grade securities. Although the selection of noninvestment grade
domestic corporate securities involves the same factors as investment grade
securities, the adviser gives greater emphasis to its analysis of the issuer.

FOREIGN FIXED INCOME SECURITIES

With regard to the allocation to foreign fixed income securities, each Fund
pursues its objective by investing primarily in fixed income securities of
foreign governments and their agencies which are members of the Organization for
Economic Cooperation and Development.

The adviser manages the foreign fixed income allocation to maintain an average
AA rating of its portfolio securities. The adviser uses the J.P. Morgan Global
Traded Index Excluding U.S. Index (Global Index) as a benchmark for managing the
foreign fixed income allocation. The adviser looks for opportunities to enhance
each Fund's performance by diverging from the Global Index. Such opportunities
may cause the adviser to weight the portfolio differently than the Global Index
or to buy securities not represented in the Index. Under ordinary market
conditions, however, the duration of the portfolio securities does not deviate
more than 25% from the duration of the Global Index. No more than 25% of the
foreign fixed income allocation will be invested in any one country. The Funds
also intend to invest at least 50% of the foreign fixed income allocation in
securities that have received ratings in the two highest rating categories or
unrated securities that the adviser considers of comparable quality.

The adviser weighs several factors in selecting investments for the foreign
fixed income portfolio. First, the adviser analyzes a country's general economic
condition and outlook, including its interest rates, foreign exchange rates and
trade balance. The adviser then analyzes the country's financial condition,
including its credit ratings, government budget, tax base, outstanding public
debt and the amount of public debt held outside the country. In connection with
this analysis, the adviser also considers how developments in other countries in
the region or the world might affect these factors.

Using its analysis, the adviser tries to identify countries with favorable
characteristics, such as a strengthening economy, favorable inflation rate,
sound budget policy or strong public commitment to repay government debt. The
adviser then evaluates available foreign fixed income investments in these
countries based upon its outlook for interest and foreign exchange rates. The
adviser tries to select securities that offer the best potential returns
consistent with its general portfolio strategy.

PORTFOLIO TURNOVER

Each Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause a Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases a Fund's trading costs
and may have an adverse impact on a Fund's performance.

What are the Principal Securities in Which the Funds Invest?

EQUITY SECURITIES

Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Funds cannot predict the income they will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. 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 type of equity security in which the Funds principally
invest.

Common Stocks

Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings 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.

FIXED INCOME SECURITIES

The following describes the types of fixed income securities in which the
Funds principally invest.

Treasury Securities

Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest credit
risks.

Agency Securities

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

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

Corporate Debt Securities

Mortgage Backed Securities

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

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

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United States.
The Funds consider an issuer to be based outside the United States if:

. it is organized under the laws of, or has a principal office located in,
another country;

. the principal trading market for its securities is in another country; or

. it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

What are the Specific Risks of Investing in the Funds?

STOCK MARKET RISKS

. The value of equity securities in each Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. A Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, a Fund's share price may
decline.

. The adviser attempts to manage market risk by limiting the amount each Fund
invests in each company's equity securities. However, diversification will
not protect a Fund against widespread or prolonged declines in the stock
market.

BOND MARKET RISKS

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 the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

CREDIT RISKS

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

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

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

Credit risk includes the possibility that a party to a transaction involving
the Funds will fail to meet its obligations. This could cause the Funds to lose
the benefit of the transaction or prevent the Funds from selling or buying other
securities to implement its investment strategy.

CURRENCY RISKS

Exchange rates for currencies 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 United States.

The adviser attempts to manage currency risk by limiting the amount the Funds
invest in securities denominated in a particular currency. However,
diversification will not protect the Funds against a general increase in the
value of the U.S. dollar relative to other currencies.

EURO RISKS

The Funds make significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Funds' investments.

With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these country's
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.

CALL AND PREPAYMENT RISKS

Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a 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 or prepaid, the Funds may have to
reinvest the proceeds in other fixed income securities with lower interestrates,
higher credit risks, or other less favorable characteristics.

Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life
of mortgage backed securities with lower interest rates.

As a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage backed
securities, may reduce their yield and price. This relationship between interest
rates and mortgage prepayments makes the price of mortgage backed securities
more volatile than most other types of fixed income securities with comparable
credit risks.

SECTOR RISKS

Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or as the market as a whole. As the adviser
allocates more of a 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.

LIQUIDITY RISKS

Trading opportunities are more limited for securities that are not widely held.
This may make it more difficult to sell or buy a security at a favorable price
or time. Consequently, the Funds may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Funds'
performance. Infrequent trading may also lead to greater price volatility.

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

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 its
outstanding shares by the current market price per share.

Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
larger, well capitalized companies.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.

RISKS OF FOREIGN INVESTING

Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.

Foreign financial markets may have fewer investor protections than U.S.
markets. For instance, there may be less publicly available information about
foreign companies and foreign countries may lack uniform accounting, auditing
and financial reporting standards or regulatory requirements comparable to those
applicable to U.S. companies.

. Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the United States.

What do Shares Cost?

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

The Funds do not charge a front-end sales charge.

NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.

The required minimum initial investment in for each Fund is $1,500. There is no
required minimum subsequent investment amount. Accounts established through
investment professionals may be subject to a smaller minimum amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.

How are the Funds Sold?

The Funds offer two share classes: Select Shares and Institutional Shares, each
representing interests in a single portfolio of securities. This prospectus
relates only to Select Shares. Each share class has different expenses which
affect their performance. Contact your investment professional or call 1-800-
341-7400 for more information concerning the other class.

The Funds' Distributor markets the Shares described in this prospectus to retail
and private banking customers of financial institutions.

When the Distributor receives 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

Each 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 a Fund's Select 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 or directly from the
Funds. The Funds reserve the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

. Establish an account with the investment professional; and

. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated 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 FUNDS

. Establish your account with a Fund by submitting a completed New Account

Form; and

. 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 next
calculated NAV after 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 a Fund
and the Shares will be priced at the next calculated NAV after 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 Funds will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).

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 (SIP)
section of the New Account Form or by contacting the Funds or your investment
professional. The minimum investment amount for SIPs is $50.

BY AUTOMATED CLEARINGHOUSE (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.

How to Redeem Shares

You should redeem Shares:

. through an investment professional if you purchased Shares through an
investment professional;or

. directly from the Funds if you purchased Shares directly from the Funds.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUNDS

By Telephone

You may redeem Shares by calling the Funds once you have completed the
appropriate authorization form for telephone transactions. If you call before
the end of regular trading on the NYSE (normally 4:00p.m. Eastern time) you will
receive a redemption amount based on that day's NAV.

By Mail

You may redeem Shares by mailing a written request to a Fund. You will receive a
redemption amount based on the next calculated NAV after 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 service to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317
All requests must include:

. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and

. signatures of all Shareholders exactly as registered

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

Signature Guarantees
Signatures must be guaranteed if:

. your redemption will be sent to an address other than the address of record;

. your redemption will be sent to an address of record that was changed within
the last thirty days;or

. a redemption is payable to someone other than the shareholder(s) of record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.

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 when the
account was opened:

. an electronic transfer to your account at a financial institution that is an
ACH member; or

. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

Redemption in Kind

Although each 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:

. to allow your purchase to clear;
. during periods of market volatility; or

. when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from a Fund if
those checks are undeliverable and returned to the Fund.

SYSTEMATIC WITHDRAWAL PROGRAM

You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Funds. 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.

ADDITIONAL CONDITIONS

Telephone Transactions

The Funds will record your telephone instructions. If the Funds do not follow
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.

Share Certificates

The Funds no longer issue share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Funds, you must
return the certificates with your written redemption 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 and redemptions (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

Each Fund (except the Income Fund) declares and pays any dividends quarterly to
shareholders. The Income Fund declares and pays any dividends monthly to
shareholders. Dividends are paid to all shareholders invested in a 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 Funds pay any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares unless you elect cash payments.

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 taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before a Fund declares a dividend or
capital gain. Contact your investment professional or the Funds for information
concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Funds send 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 Funds. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time a Fund holds
its assets.

Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.

Who Manages the Funds?

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

The adviser has delegated daily management of some Fund assets to the sub-
adviser, Federated Global Investment Management Corp., who is paid by the
Adviser and not by the Funds based on the portion of foreign securities the sub-
adviser manages. The sub-adviser's address is 175 Water Street, New York, NY
10038-4965.

PORTFOLIO MANAGERS

The portfolio managers for the Funds' individual asset categories are as
follows:

Name Asset Category Managed Biography
<S> <C> <C>

(Portfolio Manager since)

John W. Harris Overall Allocation and John W. Harris is a portfolio manager for the Funds and performs the
(December, 1998) Domestic Large Company overall asset allocation of the Funds' assets among the various asset

Stocks categories. In addition, Mr. Harris is a manager of the domestic large
company stocks asset category. In allocating the Funds' assets,
Mr.Harris evaluates the market environment and economic outlook,
utilizing the services of the adviser's Investment Strategy Committee.
Mr.Harris has been a Portfolio Manager and an Assistant Vice President
of the Funds' adviser since 1998. Mr. Harris initially joined Federated
in 1987 as an Investment Analyst. He served as an Investment Analyst
and an Assistant Vice President from 1990 through 1992 and as a Senior
Investment Analyst and a Vice President through May 1993. After leaving
the money management field to travel extensively, he rejoined Federated
in 1997 as a Senior Investment Analyst. Mr. Harris is a Chartered
Financial Analyst. He received his M.B.A. from the University of
Pittsburgh.

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Michael P. Donnelly Domestic Large Company Mr. Donnelly joined Federated in 1989 as an Investment Analyst and has
(June 1997) Stocks been a Portfolio Manager and a Vice President of the Funds' adviser

since 1994. Mr. Donnelly is a Chartered Financial Analyst and received
his M.B.A. from the University of Virginia.

- ----------------------------------------------------------------------------------------------------------------------------------
James E. Grefenstette (August Domestic Large Company Mr. Grefenstette joined Federated in 1992 and has been a Portfolio
1994) Stocks Manager and a Vice President of the Funds' adviser since 1996. From

1994 until 1996, Mr. Grefenstette was a Portfolio Manager and an
Assistant Vice President of the Funds' adviser. Mr. Grefenstette is a
Chartered Financial Analyst; he received his M.S. in Industrial
Administration from Carnegie Mellon University.

- ----------------------------------------------------------------------------------------------------------------------------------
Susan M. Nason (Inception) U.S. Treasury Securities Ms. Nason joined Federated in 1987 and has been a Senior Portfolio
Manager and a Senior Vice President of the Funds' adviser since 1997.

Ms.Nason served as a Portfolio Manager and Vice President of the Funds'

adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst
and received her M.S.I.A. concentrating in Finance from Carnegie Mellon

University.

- ----------------------------------------------------------------------------------------------------------------------------------
Joseph M. Balestrino (March U.S. Treasury Mr. Balestrino joined Federated in 1986 and has been a Senior Portfolio
1995) Securities and Manager and Senior Vice President of the Funds' adviser since 1998. He

Investment-Grade was a Portfolio Manager and a Vice President of the Funds' adviser from
Corporate Bonds 1995 to 1998. Mr.Balestrino served as a Portfolio Manager and an

Assistant Vice President of the Funds' adviser from 1993 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.

- ----------------------------------------------------------------------------------------------------------------------------------
Kathleen M. Foody-Malus Mortgage-Backed Ms. Foody-Malus joined Federated in 1983 and has been a Senior
(Inception) Securities Portfolio Manager since 1996 and a Vice President of the Funds' adviser

since 1993. She was a Portfolio Manager from 1993 to 1996.

Ms.FoodyMalus received her M.B.A. in Accounting/Finance from the
University of Pittsburgh.

- ----------------------------------------------------------------------------------------------------------------------------------
Robert E. Cauley Mortgage-Backed Mr. Cauley joined Federated in 1996 as a Senior Investment Analyst and
(July 1997) Securities an Assistant Vice President of the Funds' adviser and has been a

Portfolio Manager since 1997. Mr. Cauley has been a Portfolio Manager
and a Vice President of the adviser since 1999. Mr. Cauley was a member
of the Asset-Backed Structuring Group at Lehman Brothers Holding, Inc.
from 1994 to 1996. From 1992 to 1994, Mr.Cauley served as a Senior
Associate/Credit Analyst at Barclays Bank, PLC. Mr.Cauley earned his
M.S.I.A., concentrating in Finance and Economics, from Carnegie
Mellon University.

- ----------------------------------------------------------------------------------------------------------------------------------
John T. Gentry Investment Grade Mr. Gentry joined Federated in 1995 as an Investment Analyst and has
(July 1997) Corporate Bonds been a Senior Investment Analyst and an Assistant Vice President of the

Funds' adviser since 1997. Mr. Gentry served as a Senior Treasury
Analyst at Sun Company, Inc. from 1991 to 1995. Mr. Gentry is a
Chartered Financial Analyst and earned his M.B.A., with concentrations
in Finance and Accounting, from Cornell University.

- ----------------------------------------------------------------------------------------------------------------------------------
Mark E. Durbiano (Inception) High Yield Corporate Mr. Durbiano joined Federated in 1982 and has been a Senior Portfolio
Bonds Manager and a Senior Vice President of the Funds' adviser since 1996.

From 1988 through 1995, Mr. Durbiano was a Portfolio Manager and a Vice

President of the Funds' adviser. Mr.Durbiano is a Chartered Financial

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

- ----------------------------------------------------------------------------------------------------------------------------------
Drew J. Collins Foreign Stocks Mr. Collins joined Federated in 1995 as a Senior Portfolio Manager and
(November 1995) a Senior Vice President of the Funds' sub-adviser. Mr. Collins served

as a Vice President/Portfolio Manager of international equity
portfolios at Arnhold and Bleichroeder, Inc. from 1994 to 1995. He
served as an Assistant Vice President/Portfolio Manager for
international equities at the College Retirement Equities Fund from
1986 to 1994. Mr. Collins is a Chartered Financial Analyst and received
his M.B.A. in finance from the Wharton School of The University of
Pennsylvania.

- ----------------------------------------------------------------------------------------------------------------------------------
Robert M. Kowit Foreign Bonds Mr. Kowit joined Federated in 1995 as a Portfolio Manager and a Vice
(November 1995) President of the Funds' sub-adviser. Mr. Kowit served as a Managing

Partner of Copernicus Global Asset Management from January 1995 through
October 1995. From 1990 to 1994, he served as Senior Vice
President/Portfolio Manager of International Fixed Income and Foreign
Exchange for John Hancock Advisers. Mr. Kowit received his M.B.A. from
Iona College with a concentration in Finance.

- ----------------------------------------------------------------------------------------------------------------------------------
Michael W. Casey, Ph. D. Foreign Bonds Mr. Casey joined Federated in 1996 as a Senior Investment Analyst and
(January 1997) an Assistant Vice President of the Funds' sub-adviser. Mr. Casey

currently serves as a Portfolio Manager and has been a Vice President
of the sub-adviser since 1998. Mr. Casey served as an International
Economist and Portfolio Strategist for Maria Fiorini Ramirez Inc. from
1990 to 1996. Mr. Casey earned a Ph.D. concentrating in economics from
The New School for Social Research and a M.Sc. from the London School

of Economics.

- ----------------------------------------------------------------------------------------------------------------------------------
Linda A. Duessel Utility Stocks Ms.Duessel joined Federated in 1991 and has been a Portfolio Manager
(February 1997) and a Vice President of the Funds' adviser since 1995. Ms.Duessel was a

Senior Investment Analyst and an Assistant Vice President of the Funds'
adviser from 1991 until 1995. Ms. Duessel is a Chartered Financial
Analyst and received her M.S. in Industrial Administration from
Carnegie Mellon University.

- ----------------------------------------------------------------------------------------------------------------------------------
Steven J. Lehman (December Utility Stocks Mr. Lehman joined Federated in 1997 as a Portfolio Manager and a Vice
1995) President of the Funds' adviser. He has been a Senior Portfolio Manager

since 1998. From 1986 to 1997, Mr.Lehman served as a Portfolio Manager,

then Vice President/Senior Portfolio Manager, at First Chicago NBD. Mr.
Lehman is a Chartered Financial Analyst; he received his M.A. from the

University of Chicago.

- ----------------------------------------------------------------------------------------------------------------------------------
Aash M. Shah Domestic Small Company Mr. Shah joined Federated in 1993 and has been a Portfolio Manager and
(June 1997) Stocks a Vice President of the Funds adviser since 1997. Mr.Shah was a

Portfolio Manager and served as an Assistant Vice President of the
adviser from 1995 to 1996, and as an Investment Analyst from 1993 to
1995. Mr. Shah received his Masters in Industrial Administration from
Carnegie Mellon University with a concentration in Finance and
Accounting. Mr.Shah is a Chartered Financial Analyst.

- ----------------------------------------------------------------------------------------------------------------------------------
Keith J. Sabol Domestic Small Company Mr. Sabol joined Federated in 1994 and has been a Portfolio Manager
(June 1997) Stocks since 1996 and a Vice President of the Funds' adviser since 1998.

Mr.Sabol was an Investment Analyst, and then Equity Research
Coordinator for the Funds' adviser from 1994 to 1996. Mr. Sabol is a
Chartered Financial Analyst; he earned his M.S. in Industrial
Administration from Carnegie Mellon University.

- ----------------------------------------------------------------------------------------------------------------------------------
Alexandre de Bethmann Foreign Stocks Mr. de Bethmann joined Federated in 1995 as a Senior Portfolio Manager
(November 1995) and a Vice President of the Funds' sub-adviser. Mr. de Bethmann served

as Assistant Vice President/Portfolio Manager for Japanese and Korean
equities at the College Retirement Equities Fund from 1994 to 1995.
Mr.de Bethmann received his M.B.A. in Finance from Duke University.

- ----------------------------------------------------------------------------------------------------------------------------------
Frank Semack Foreign Stocks Mr. Semack joined Federated in 1995 as a Senior Portfolio Manager and a
(November 1995) Vice President of the Funds' sub-adviser. Mr. Semack served as an

Investment Analyst at Omega Advisers, Inc. from 1993 to 1994. Mr.Semack
received his M.Sc. in economics from the London School of Economics.

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

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of each Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse a 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 Funds.

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

The Funds' 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 Funds' 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 Funds
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 Financial Highlights will help you understand each Fund's financial
performance for its past five fiscal years, or since inception, if the life of a
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 a Fund, assuming reinvestment of any dividends and capital gains.

This information has been audited by Arthur Andersen LLP, whose report, along
with the Funds' audited financial statements, is included in the Annual Report.

Financial Highlights_
Federated Managed Income Fund

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended November 30 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.77 $ 10.56 $ 10.54 $ 9.77 $10.00
Income from Investment Operations:

Net investment income 0.48 0.51 0.53 0.48 0.28
Net realized and unrealized gain (loss) on 0.49 0.31 0.10 0.83 (0.25)
investments, foreign currency transactions
and futures contracts

TOTAL FROM INVESTMENT OPERATIONS 0.97 0.82 0.63 1.31 0.03
Less Distributions:
Distributions from net investment income (0.48) (0.54) (0.54) (0.54) (0.26)
Distributions from net realized gain on (0.13) (0.07) (0.07)
investments, foreign currency transactions
and futures contracts

TOTAL DISTRIBUTIONS (0.61) (0.61) (0.61) (0.54) (0.26)
Net Asset Value, End of Period $ 11.13 $ 10.77 $ 10.56 $ 10.54 $ 9.77
Total Return/2/ 9.29% 8.14% 6.23% 13.76% 0.26%

Ratios to Average Net Assets:

Expenses 1.50% 1.50% 1.50% 1.50% 1.42%/3/
Net investment income 4.39% 4.93% 5.02% 5.56% 5.24%/3/
Expense waiver/reimbursement/4/ 0.67% 0.75% 0.85% 1.06% 1.26%/3/
Supplemental Data:

Net assets, end of period (000 omitted) $46,193 $36,608 $25,459 $13,927 $3,198
Portfolio turnover 122% 99% 164% 165% 153%
</TABLE>

1 Reflects operations for the period from May 25, 1994 (date of initial public
investment) to November 30, 1994. For the period from the start of business,
January 27, 1994 to May 24, 1994, the net investment income was distributed
to the Fund's adviser.

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

3 Computed on an annualized basis.

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

Financial Highlights_
Federated Managed
Growth & Income Fund

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended November 30 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C> C>
Net Asset Value, Beginning of Period $ 11.96 $ 11.36 $ 11.12 $ 9.83 $10.00
Income from Investment Operations:

Net investment income 0.37 0.40 0.43 0.37 0.21
Net realized and unrealized gain (loss) on 0.81 0.74 0.41 1.34 (0.25)
investments, foreign currency transactions
and futures contracts

TOTAL FROM INVESTMENT OPERATIONS 1.18 1.14 0.84 1.71 (0.04)
Less Distributions:
Distributions from net investment income (0.38) (0.42) (0.44) (0.42) (0.13)
Distributions from net realized gain on (0.62) (0.12) (0.16)
investments, foreign currency transactions
and futures contracts

TOTAL DISTRIBUTIONS (1.00) (0.54) (0.60) (0.42) (0.13)
Net Asset Value, End of Period $ 12.14 $ 11.96 $ 11.36 $ 11.12 $ 9.83
Total Return/2/ 10.51% 10.41% 7.92% 17.76% (0.40)%

Ratios to Average Net Assets:

Expenses 1.78% 1.75% 1.75% 1.75% 1.64%/3/
Net investment income 3.07% 3.51% 4.02% 4.37% 4.33%/3/
Expense waiver/reimbursement/4/ 0.25% 0.30% 0.36% 0.55% 0.84%/3/
Supplemental Data:

Net assets, end of period (000 omitted) $62,787 $47,499 $44,248 $24,787 $3,697
Portfolio turnover 117% 130% 154% 157% 132%
</TABLE>

1 Reflects operations for the period from May 25, 1994 (date of initial public
investment) to November 30, 1994. For the period from January 27, 1994 (start
of business) to May 24, 1994, the Fund had no investment activity.

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

3 Computed on an annualized basis.

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

Financial Highlights_
Federated Managed Growth Fund

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended November 30 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.06 $ 12.20 $ 11.50 $ 9.81 $10.00
Income from Investment Operations:

Net investment income 0.26 0.30 0.36 0.23 0.15
Net realized and unrealized gain (loss) on 0.92 1.18 0.94 1.79 (0.24)
investments, foreign currency transactions
and futures contracts

TOTAL FROM INVESTMENT OPERATIONS 1.18 1.48 1.30 2.02 (0.09)
Less Distributions:
Distributions from net investment income (0.25) (0.32) (0.37) (0.33) (0.10)
Distributions from net realized gain on (0.88) (0.30) (0.23)
investments, foreign currency transactions
and futures contracts

TOTAL DISTRIBUTIONS (1.13) (0.62) (0.60) (0.33) (0.10)
Net Asset Value, End of Period $ 13.11 $ 13.06 $ 12.20 $ 11.50 $ 9.81
Total Return/2/ 9.80% 12.56% 11.75% 20.95% (0.90%)

Ratios to Average Net Assets:

Expenses 1.77% 1.75% 1.75% 1.75% 1.70%/3/
Net investment income 2.00% 2.37% 3.06% 3.48% 3.53%/3/
Expense waiver/reimbursement/4/ 0.25% 0.31% 0.45% 0.76% 1.15%/3/
Supplemental Data:

Net assets, end of period (000 omitted) $88,588 $72,746 $60,208 $27,358 $2,952
Portfolio turnover 111% 136% 95% 106% 71%
</TABLE>

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

3 Computed on an annualized basis.

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

Financial Highlights_
Federated Managed
Aggressive Growth Fund

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended November 30 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.56 $ 12.50 $ 11.59 $ 9.80 $10.00
Income from Investment Operations:

Net investment income 0.15 0.18 0.28 0.17 0.13
Net realized and unrealized gain (loss) on 1.21 1.46 1.19 1.89 (0.25)
investments, foreign currency transactions
and futures contracts

TOTAL FROM INVESTMENT OPERATIONS 1.36 1.64 1.47 2.06 (0.12)
Less Distributions:
Distributions from net investment income (0.13) (0.22) (0.30) (0.25) (0.08)
Distributions from net realized gain on (0.69) (0.36) (0.26) (0.02)
investments, foreign currency transactions
and futures contracts

TOTAL DISTRIBUTIONS (0.82) (0.58) (0.56) (0.27) (0.08)
Net Asset Value, End of Period $ 14.10 $ 13.56 $ 12.50 $ 11.59 $ 9.80
Total Return/2/ 10.58% 13.66% 13.22% 21.36% (1.20%)

Ratios to Average Net Assets:

Expenses 1.82% 1.75% 1.75% 1.75% 1.64%/3/
Net investment income 0.96% 1.29% 2.26% 2.65% 2.67%/3/
Expense waiver/reimbursement/4/ 0.38% 0.57% 0.93% 1.71% 1.97%/35/
Supplemental Data:

Net assets, end of period (000 omitted) $66,407 $45,514 $31,390 $12,342 $1,673
Portfolio turnover 123% 115% 86% 139% 77%
</TABLE>

1 Reflects operations for the period from May 25, 1994 (date of initial public
investment) to November 30, 1994. For the period January27, 1994, the Fund
had no investment activity.

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

3 Computed on an annualized basis.

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

5 The adviser waived $6,858 of the investment advisory fee, which represents
0.11% of average net assets, to comply with certain state expense
limitations. The remainder of the waiver/reimbursement was voluntary. This
expense decrease is reflected in both the expense and net investment income
ratios shown above.

[logo]

Managed
Series
Trust

Federated Managed Income Fund
Federated Managed Growth and
Income Fund
Federated Managed Growth Fund
Federated Managed Aggressive
Growth Fund

SELECT SHARES

JANUARY 31, 1999

A Statement of Additional Information (SAI) dated January 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Funds' investments is available in the Funds' annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected each 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 Funds at 1-
800-341-7400.

You can obtain information about the Funds (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 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.

[logo]
Managed Series Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.federatedinvestors.com

- --------------------------
Federated Securities Corp., Distributor

Investment Company Act File No. 811-7129

Cusip 56166K 206

Cusip 56166K 404

Cusip 56166K 602

Cusip 56166K 800

G00873-04-SEL (1/99)

Federated is a registered mark of Federated Investors, Inc.
1999@Federated Investors, Inc.

[logo]

PROSPECTUS

Managed Series Trust

Federated Managed Income Fund
Federated Managed Growth and Income Fund
Federated Managed Growth Fund
Federated Managed Aggressive Growth Fund

INSTITUTIONAL SHARES

<TABLE>
<CAPTION>
CONTENTS

Risk/Return Summary

WHAT IS EACH FUND'S INVESTMENT OBJECTIVE?

Fund Objective

<S> <C>

Federated Managed Income Fund

To seek current income

Federated Managed Growth and To seek current income and
Income Fund capital appreciation

Federated Managed Growth Fund To seek capital appreciation
Federated Managed Aggressive To seek capital appreciation

Growth Fund

</TABLE>

While there is no assurance that a Fund will achieve its investment objective,
it endeavors to do so by following the investment strategies and policies
described in this prospectus.

WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?

. by setting long-term ranges for each Fund's portfolio investments in each
asset category;

. by allocating each Fund's portfolio among asset categories within those
defined ranges; and

. by actively selecting securities within each of the asset categories.

The following is a summary of the asset categories and the percentage of each
Fund's total assets which may be invested in each asset category:

Asset Category FMAGF FMGF FMGIF FMINCF

Range Range Range Range

<S> <C> <C> <C> <C>
Equities 70-90% 50-70% 30-50% 10-30%
Large Company Stocks 40-60% 30-50% 22.5-37.5% 7.5-22.5%
Small Company Stocks 10-20% 5-15% 0-5% 0
Foreign Stocks 10-20% 5-15% 0-5% 0
Utility Stocks 0 0 2.5-7.5% 2.5-7.5%
Fixed Income Securities 10-30% 30-50% 50-70% 70-90%
U.S. Government Securities 0-20% 0-40% 0-56% 0-72%
Mortgage-Backed Securities 0-10% 0-15% 0-35% 0-45%
Investment-Grade Corporate Debt 0-10% 0-15% 0-35% 0-45%
Non-Investment-Grade Corporate Debt 0-10% 0-15% 0-10% 0-10%
Foreign Fixed Income Securities 0-10% 0-15% 0-10% 0-10%
</TABLE>

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Funds. The primary factors that may reduce the Funds'
returns include:

. a general rise in interest rates;
. fluctuations in the value of equity securities; and

. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies.

Risk/Return Bar Charts and Tables

Income Fund

[GRAPH GOES HERE-SEE APPENDIX]

The bar chart shows the variability of the Fund's Institutional Shares total
returns on a yearly basis.

The Fund's Shares are not subject to a sales charge (load). The total returns
displayed above are based upon the net asset value.

Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 5.24% (quarter ended March 31, 1995). Its lowest quarterly
return was -0.27% (quarter ended December 31, 1994).

Average Annual Total Return

Average Annual Return for the Fund's Institutional Shares, compared to the S&P
500 Index (S&P 500), the Lehman Brothers Government/Corporate Bond Index
(LBGCBI), and the Lipper Balanced Funds Average (LBFA).

Calendar Institutional

Period Shares S&P 500 LBGCBI LBFA
<S> <C> <C> <C> <C>
1 Year 9.95% 28.58% 9.47% 15.09%
Life of
the Fund/1/ 9.17% 26.76% 8.98% 15.75%
</TABLE>

1 The Start of Performance date for Institutional Shares was May 25, 1994.

The table shows the Fund's Institutional Shares average annual total returns
compared to the S&P 500 and LBGCBI, which are broad-based market indexes, and
the LBFA, an average of funds with similar investment objectives.

Growth and Income Fund

[GRAPH GOES HERE-SEE APPENDIX]

The bar chart shows the variability of the Fund's Institutional
Shares total returns on a yearly basis.

The Fund's Shares are not subject to a sales charge (load).
The total returns displayed above are based upon the net asset value.

Within the period shown in the Chart, the Fund's Institutional
Shares highest quarterly return was 6.06% (quarter ended September 30, 1997).
Its lowest quarterly return was -2.14% (quarter ended September 30, 1998).

Average Annual Total Return

Average Annual Return for the Fund's Institutional
Shares, compared to the S&P 500 Index (S&P 500), the Lehman Brothers
Government/Corporate Bond Index (LBGCBI), and the Lipper Balanced Funds Average

(LBFA).

Calendar Institutional

Period Shares S&P 500 LBGCBI LBFA
<S> <C> <C> <C> <C>
1 Year 12.43% 28.58% 9.47% 15.09%
Life of the

Fund/1/ 11.17% 26.76% 8.98% 15.75%
</TABLE>

1 The Start of Performance date for Institutional Shares was May 25, 1994.

The table shows the Fund's Institutional Shares average annual total returns
compared to the S&P 500 and LBGCBI, which are broad-based market indexes,
and the LBFA, an average of funds with similar investment objectives.

Growth Fund

[GRAPH GOES HERE-SEE APPENDIX]

The bar chart shows the variability of the Fund's Institutional Shares total
returns on a yearly basis.

The Fund's Shares are not subject to a sales charge (load).
The total returns displayed above are based upon the net asset value.

Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 8.41% (quarter ended June 30, 1997). Its lowest quarterly
return was -7.13% (quarter ended September 30, 1998).

Average Annual Total Return

Average Annual Return for the Fund's Institutional
Shares, compared to the S&P 500 Index (S&P 500), the Lehman Brothers
Government/Corporate Bond Index (LBGCBI), and the Lipper Balanced Funds Average

(LBFA).

Calendar Institutional

Period Shares S&P 500 LBGCBI LBFA
<S> <C> <C> <C> <C>
1 Year 13.75% 28.58% 9.47% 15.09%
Life of the

Fund/1/ 13.15% 26.76% 8.98% 15.75%
</TABLE>

1 The Start of Performance date for Institutional Shares was May 25, 1994.

Aggressive Growth Fund

[GRAPH GOES HERE-SEE APPENDIX]

The bar chart shows the variability of the Fund's Institutional Shares total
returns on a yearly basis.

The Fund's Shares are not subject to a sales charge (load). The total returns
displayed above are based upon the net asset value.

Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 10.36% (quarter ended March 31, 1998). Its lowest quarterly
return was -10.37% (quarter ended September 30, 1998).

Average Annual Total Return

Calendar Institutional

Period Shares S&P 500 LBGCBI LBFA
<S> <C> <C> <C> <C>
1 Year 15.77% 28.58% 9.47% 15.09%
Life of the

Fund/1/ 14.11% 26.76% 8.98% 15.75%
</TABLE>

1 The Start of Performance date for Institutional Shares was May 25, 1994.

What are the Fund's Fees and Expenses?

FEDERATED MANAGED INCOME FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Fund.

<TABLE>

Annual Fund Operating Expenses (Before Waivers/Reimbursements)1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee2 0.75%
Distribution (12b-1) Fee None
Shareholder Services Fee3 0.25%
Other Expenses 0.42%
Total Annual Fund Operating Expenses 1.42%

</TABLE>

<TABLE>

<S> <C>
Waiver/Reimbursement of Fund Expenses 0.62%
Total Actual Annual Fund Operating Expenses (after waivers/reimbursements) 0.80%

</TABLE>

2 The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) for the Institutional Shares was 0.33%
for the year ended November 30, 1998.

3 The distributor has voluntarily reimbursed a portion of the Institutional
Shares shareholder services fee. This voluntary reimbursement can be
terminated at any time. The shareholder services fees paid by the Fund
(after the voluntary reimbursement) for the Institutional Shares was 0.05%
for the year ended November 30, 1998.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Institutional 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 Institutional Shares operating expenses are before
waivers/reimbursements as shown in the table remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Institutional Shares $145 $449 $776 $1,702

</TABLE>

What are the Fund's Fees and Expenses?

FEDERATED MANAGED GROWTH AND INCOME FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Fund.

<TABLE>

Annual Fund Operating Expenses (Before Reimbursements)1

Expenses That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee 0.75%
Distribution (12b-1) Fee None
Shareholder Services Fee2 0.25%
Other Expenses 0.28%
Total Annual Fund Operating Expenses 1.28%

</TABLE>

1 Although not contractually obligated to do so, the distributor reimbursed
certain amounts. These are shown below along with the net expenses the Fund
actually paid for the fiscal year ended November30, 1998.

<TABLE>

<S> <C>
Reimbursement of Fund Expenses 0.20%
Total Actual Annual Fund Operating Expenses (after reimbursements) 1.08%

</TABLE>

2 The distributor has voluntarily reimbursed a portion of the Institutional
Shares shareholder services fee. This voluntary reimbursement can be
terminated at any time. The shareholder services fees paid by the Fund (after
the voluntary reimbursement) for the Institutional Shares was 0.05% for the
year ended November 30, 1998.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund's Institutional 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 Institutional Shares operating expenses are before reimbursements as
shown in the table and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Institutional Shares $130 $406 $702 $1,545

</TABLE>

What are the Fund's Fees and Expenses?

FEDERATED MANAGED GROWTH FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Fund.

<TABLE>

Annual Fund Operating Expenses (Before Reimbursements)/1/

Expenses That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee 0.75%
Distribution (12b-1) Fee None
Shareholder Services Fee/2/ 0.25%
Other Expenses 0.27%
Total Annual Fund Operating Expenses 1.27%

</TABLE>

<TABLE>

<S> <C>
Reimbursement of Fund Expenses 0.20%
Total Actual Annual Fund Operating Expenses (after reimbursements) 1.07%

</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Institutional 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 Institutional Shares operating expenses are before
reimbursements as shown in the table and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:

Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Institutional Shares $129 $403 $697 $1,534
</TABLE>

What are the Fund's Fees and Expenses?

FEDERATED MANAGED AGGRESSIVE GROWTH FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Fund.

<TABLE>

Annual Fund Operating Expenses (Before Waivers/Reimbursements)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee2 0.75%
Distribution (12b-1) Fee None
Shareholder Services Fee/3/ 0.25%
Other Expenses 0.45%
Total Annual Fund Operating Expenses 1.45%

</TABLE>

<TABLE>

<S> <C>
Waiver/Reimbursement of Fund Expenses 0.33%
Total Actual Annual Fund Operating Expenses (after waivers/reimbursements) 1.12%

</TABLE>

2 The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) for the Institutional Shares was 0.62% for
the year ended November 30, 1998.

3 The distributor has voluntarily reimbursed a portion of the Institutional
Shares shareholder services fee. This voluntary reimbursement can be
terminated at any time. The shareholder services fees paid by the Fund (after
the voluntary reimbursement) for the Institutional Shares was 0.05% for the
year ended November 30, 1998.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Institutional 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 Institutional Shares operating expenses are before
waivers/reimbursements as shown in the table and remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

<TABLE>

Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Institutional Shares $148 $459 $792 $1,735

</TABLE>

What are the Funds' Investment Strategies?

. by setting long-term ranges for each Fund's portfolio investments in each
asset category;

. by allocating each Fund's portfolio among asset categories within those
defined ranges; and

. by actively selecting securities within each of the asset categories.

The following is a summary of the asset categories and the percentage of each
Fund's total assets which may be invested in each asset category:

Asset Category FMAGF FMGF FMGIF FMINCF

Range Range Range Range

The selection of portfolio securities involves an approach that is specific to
each asset category. The approach for each category is summarized as follows.

LARGE COMPANY STOCKS

SMALL COMPANY STOCKS

FOREIGN STOCKS

Using its own quantitative process, the adviser ranks the future performance
potential of companies. The adviser evaluates each company's earnings potential
in light of its current valuation to narrow the list of attractive companies.
The adviser then evaluates management quality and may meet with company
representatives, company suppliers, customers, or competitors. The adviser also
reviews the company's financial statements and forecasts of earnings. Based on
this information, the adviser evaluates the sustainability of the company's
current growth trends and potential catalysts for increased growth. Using this
type of fundamental analysis, the adviser selects the most promising companies
for the Funds' portfolios.

UTILITY STOCKS

U.S. GOVERNMENT SECURITIES

MORTGAGE BACKED SECURITIES

INVESTMENT GRADE CORPORATE DEBT

NON-INVESTMENT GRADE CORPORATE DEBT

FOREIGN FIXED INCOME SECURITIES

PORTFOLIO TURNOVER

What are the Principal Securities in Which the Funds Invest?

EQUITY SECURITIES

Common Stocks

FIXED INCOME SECURITIES

The following describes the types of fixed income securities in which the
Funds principally invest.

Treasury Securities

Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest credit
risks.

Agency Securities

Agency securities are generally regarded as having low credit risks, but not as
low as treasury securities.

Corporate Debt Securities

Mortgage Backed Securities

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United States.
The Funds consider an issuer to be based outside the United States if:

. it is organized under the laws of, or has a principal office located in,
another country;

. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least

50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

What are the Specific Risks of Investing in the Funds?

STOCK MARKET RISKS

The value of equity securities in each Fund's portfolio will rise and fall.
These fluctuations could be a portfolio will reflect changes in prices of
individual portfolio stocks or general changes in stock valuations.

Consequently, a Fund's share price may decline.

The adviser attempts to manage market risk by limiting the amount each Fund
invests in each company's equity securities. However, diversification will not
protect a Fund against widespread or prolonged declines in the stock market.

BOND MARKET RISKS

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.

CREDIT RISKS

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

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

CURRENCY RISKS

EURO RISKS

With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.

CALL AND PREPAYMENT RISKS

If a fixed income security is called or prepaid, the Funds may have to
reinvest the proceeds in other fixed income securities with lower interest
rates, higher credit risks, or other less favorable characteristics.

Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates.

SECTOR RISKS

LIQUIDITY RISKS

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

RISKS RELATED TO COMPANY SIZE

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

RISKS OF FOREIGN INVESTING

Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. 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 United States.

What do Shares Cost?

The Funds do not charge a front-end sales charge.

NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.

The required minimum initial investment for each Fund is $25,000. There is no
required minimum subsequent investment amount. An account may be opened with a
smaller amount as long as the minimum is reached within 90 days. An
institutional investor's minimum investment is calculated by combining all
accounts it maintains with a Fund. Accounts established through investment
professionals may be subject to a smaller minimum amount. Keep in mind that
investment professionals may charge you fees for their services in connection
with your Share transactions.

How are the Funds Sold?

The Funds offer two share classes: Institutional Shares and Select Shares, each
representing interests in a single portfolio of securities. This prospectus
relates only to Institutional Shares. Each share class has different expenses
which affect their performance. Contact your investment professional or call 1-
800-341-7400 for more information concerning the other class.

The Funds' Distributor markets the Shares described in this prospectus to
individuals and financial institutions.

How to Purchase Shares

You may purchase Shares through an investment professional or directly from the
Funds. The Funds reserve the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

. Establish an account with the investment professional; and

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

DIRECTLY FROM THE FUNDS

. Establish your account with a Fund by submitting a completed New Account

Form; and

. Send your payment to the Fund by Federal Reserve wire or check.

An institution may establish an account and place an order by calling a Fund and
the Shares will be priced at the next calculated NAV after 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 Funds will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).

BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARINGHOUSE (ACH)

How to Redeem Shares

You should redeem Shares:

. through an investment professional if you purchased Shares through an
investment professional; or

. directly from the Funds if you purchased Shares directly from the Funds.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUNDS

By Telephone

You may redeem Shares by calling the Funds once you have completed the
appropriate authorization form for telephone transactions. If you call before
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) you
will receive a redemption amount based on that day's NAV.

By Mail

You may redeem Shares by mailing a written request to a Fund. You will receive a
redemption amount based on the
next calculated NAV after 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 service to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

All requests must include:

. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. signatures of all Shareholders exactly as registered.

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

Signature Guarantees

Signatures must be guaranteed if:

. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within

the last thirty days; or

. a redemption is payable to someone other than the shareholder(s) of record.

PAYMENT METHODS FOR REDEMPTIONS

. an electronic transfer to your account at a financial institution that is an
ACH member; or

. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

Redemption in Kind

Although each 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:

. to allow your purchase to clear;
. during periods of market volatility; or

. when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from a Fund if
those checks are undeliverable and returned to the Fund

SYSTEMATIC WITHDRAWAL PROGRAM

You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or

contact your investment professional or the Funds. 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.

ADDITIONAL CONDITIONS

Telephone Transactions

The Funds will record your telephone instructions. If the Funds do not follow
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

In addition, the Funds pay any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares unless you elect cash payments.

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.

Who Manages the Funds?

The adviser has delegated daily management of some Fund assets to the sub-
adviser, Federated Global Investment Management Corp., who is paid by the
adviser and not by the Funds based on the portion of foreign securities the sub-
adviser manages. The sub-adviser's address is 175 Water Street, New York, NY
10038-4965.

PORTFOLIO MANAGERS

The portfolio managers for the Funds' individual asset categories are as
follows:

<TABLE>

Name

(Portfolio Manager since) Asset Category Managed Biography
<S> <C> <C>
John W. Harris Overall Allocation and John W. Harris is a portfolio manager for the Funds and performs the
(December, 1998) Domestic Large Company overall asset allocation of the Funds' assets among the various asset

since 1994. Mr. Donnelly is a Chartered Financial Analyst and received
his M.B.A. from the University of Virginia.

Ms.Nason served as a Portfolio Manager and Vice President of the Funds'

adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst
and received her M.S.I.A. concentrating in Finance from Carnegie Mellon

University.

Investment-Grade was a Portfolio Manager and a Vice President of the Funds' adviser from
Corporate Bonds 1995 to 1998. Mr.Balestrino served as a Portfolio Manager and an

Assistant Vice President of the Funds' adviser from 1993 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.

since 1993. She was a Portfolio Manager from 1993 to 1996.

Ms.FoodyMalus received her M.B.A. in Accounting/Finance from the
University ofPittsburgh.

Portfolio Manager since 1997. Mr. Cauley has been a Portfolio Manager
and a Vice President of the adviser since 1999. Mr. Cauley was a member
of the Asset-Backed Structuring Group at Lehman Brothers Holding, Inc.
from 1994 to 1996. From 1992 to 1994, Mr.Cauley served as a Senior
Associate/Credit Analyst atBarclays Bank, PLC. Mr.Cauley earned his
M.S.I.A., concentrating in Finance and Economics, from Carnegie
MellonUniversity.

- ----------------------------------------------------------------------------------------------------------------------------------
Mark. E Durbiano (Inception) High Yield Corporate Mr. Durbiano joined Federated in 1982 and has been a Senior Portfolio
Bonds Manager and a Senior Vice President of theFunds' adviser since 1996.

From 1988 through 1995, Mr. Durbiano was a Portfolio Manager and a Vice

President of the Funds' adviser. Mr.Durbiano is a Chartered Financial

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

- ----------------------------------------------------------------------------------------------------------------------------------
Robert M. Kowit Foreign Bonds Mr. Kowit joined Federated in 1995 as a Senior Portfolio Manager and a
(November 1995) Vice President of the Funds' sub-adviser. Mr. Kowit served as a

Managing Partner of Copernicus Global Asset Management from January
1995 through October 1995. From 1990 to 1994, he served as Senior Vice
President/Portfolio Manager of International Fixed Income and Foreign
Exchange for JohnHancock Advisers. Mr. Kowit received his M.B.A. from
Iona College with a concentration in Finance.

ofEconomics.

- ----------------------------------------------------------------------------------------------------------------------------------
Steven J. Lehman (December Utility Stocks Mr. Lehman joined Federated in1997 as a Portfolio Manager and a Vice
1995) President of the Funds' adviser. He has been a Senior Portfolio Manager

since 1998. From 1986 to1997, Mr.Lehman served as a Portfolio Manager,

then Vice President/Senior Portfolio Manager, at First Chicago NBD. Mr.
Lehman is a CharteredFinancial Analyst; he received his M.A. from the

University of Chicago.

Portfolio Manager and served as an Assistant Vice President of the
adviser from 1995 to 1996, and as an Investment Analyst from 1993 to
1995. Mr. Shah received his Masters in Industrial Administration from
Carnegie Mellon University with a concentration in finance and
accounting. Mr.Shah is a Chartered Financial Analyst.

- ----------------------------------------------------------------------------------------------------------------------------------
Frank Semack Foreign Stocks Mr. Semack joined Federated in 1995 as a Senior Portfolio Manager and a
(November 1995) VicePresident of the Funds' sub-adviser. Mr. Semack served as an

Investment Analyst at Omega Advisers, Inc. from 1993 to 1994. Mr.Semack
received his M.Sc. in Economics from the London School ofEconomics.

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

More than 4,000 investment professionals make Federated Funds available to their
customers.

ADVISORY FEES

YEAR 2000 READINESS

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

This information has been audited by Arthur Andersen LLP, whose report, along
with the Funds' audited financial statements, is included in the Annual Report.
Financial HighlightsFederated Managed Income Fund

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended November 30 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.77 $ 10.56 $ 10.54 $ 9.76 $ 10.00
Income from Investment Operations:

Net investment income 0.55 0.60 0.59 0.62 0.31
Net realized and unrealized gain (loss) on 0.49 0.30 0.12 0.78 (0.25)
investments, foreign currency transactions
and futures contracts

TOTAL FROM INVESTMENT OPERATIONS 1.04 0.90 0.71 1.40 0.06
Less Distributions:
Distributions from net investment income (0.55) (0.62) (0.62) (0.62) (0.30)
Distributions from net realized gain on (0.13) (0.07) (0.07)
investments, foreign currency transactions
and futures contracts

TOTAL DISTRIBUTIONS (0.68) (0.69) (0.69) (0.62) (0.30)
Net Asset Value, End of Period $ 11.13 $ 10.77 $ 10.56 $ 10.54 $ 9.76
Total Return/2/ 10.06% 8.88% 6.98% 14.74% 0.55%

Ratios to Average Net Assets:

Expenses 0.80% 0.80% 0.80% 0.75% 0.67%/3/
Net investment income 5.09% 5.63% 5.72% 6.26% 6.02%/3/
Expense waiver/reimbursement/4/ 0.62% 0.70% 0.80% 1.06% 1.01%/3/
Supplemental Data:

Net assets, end of period (000 omitted) $81,421 $71,058 $67,122 $50,852 $34,692
Portfolio turnover 122% 99% 164% 165% 153%
</TABLE>

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

3 Computed on an annualized basis.

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

Financial Highlights_Federated Managed Growth & Income Fund

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended November 30 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.98 $ 11.37 $ 11.14 $ 9.85 $ 10.00
Income from Investment Operations:

Net investment income 0.44 0.49 0.50 0.50 0.25
Net realized and unrealized gain (loss) on 0.81 0.74 0.41 1.28 (0.25)
investments, foreign currency transactions
and futures contracts

TOTAL FROM INVESTMENT OPERATIONS 1.25 1.23 0.91 1.78 0.00
Less Distributions:
Distributions from net investment income (0.46) (0.50) (0.52) (0.49) (0.15)
Distributions from net realized gain on (0.62) (0.12) (0.16)
investments, foreign currency transactions
and futures contracts

TOTAL DISTRIBUTIONS (1.08) (0.62) (0.68) (0.49) (0.15)
Net Asset Value, End of Period $ 12.15 $ 11.98 $ 11.37 $ 11.14 $ 9.85
Total Return/2/ 11.19% 11.25% 8.54% 18.51% 0.02%

Ratios to Average Net Assets:

Expenses 1.08% 1.05% 1.05% 1.00% 0.88%/3/
Net investment income 3.77% 4.27% 4.72% 5.10% 5.07%/3/
Expense waiver/reimbursement/4/ 0.20% 0.25% 0.31% 0.55% 0.59%/3/
Supplemental Data:

Net assets, end of period (000 omitted) $178,521 $164,728 $155,635 $103,715 $43,793
Portfolio turnover 117% 130% 154% 157% 132%
</TABLE>

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

3 Computed on an annualized basis.

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

Financial Highlights_Federated Managed Growth Fund

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>

Year Ended November 30 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.10 $ 12.23 $ 11.52 $ 9.82 $ 10.00
Income from Investment Operations:

Net investment income 0.35 0.38 0.41 0.40 0.20
Net realized and unrealized gain (loss) on 0.92 1.19 0.97 1.70 (0.26)
investments, foreign currency transactions
and futures contracts

TOTAL FROM INVESTMENT OPERATIONS 1.27 1.57 1.38 2.10 (0.06)
Less Distributions:
Distributions from net investment income (0.34) (0.40) (0.44) (0.40) (0.12)
Distributions from net realized gain on (0.88) (0.30) (0.23)
investments, foreign currency transactions
and futures contracts

TOTAL DISTRIBUTIONS (1.22) (0.70) (0.67) (0.40) (0.12)
Net Asset Value, End of Period $ 13.15 $ 13.10 $ 12.23 $ 11.52 $ 9.82
Total Return/2/ 10.56% 13.39% 12.54% 21.79% (0.59%)

Ratios to Average Net Assets:

Expenses 1.07% 1.05% 1.05% 1.00% 0.89%/3/
Net investment income 2.67% 3.07% 3.77% 4.29% 4.28%/3/
Expense waiver/reimbursement/4/ 0.20% 0.26% 0.40% 0.76% 0.90%/3/
Supplemental Data:

Net assets, end of period (000 omitted) $173,514 $163,519 $136,255 $88,313 $28,973
Portfolio turnover 111% 136% 95% 106% 71%
</TABLE>

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

3 Computed on an annualized basis.

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

Financial Highlights_Federated Aggressive Growth Fund

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>

<S> <C> <C> <C> <C> <C>
Year Ended November 30 1998 1997 1996 1995 1994/1/
Net Asset Value, Beginning of Period $ 13.58 $ 12.52 $ 11.59 $ 9.82 $ 10.00
Income from Investment Operations:

Net investment income 0.23 0.30 0.33 0.35 0.17
Net realized and unrealized gain (loss) on 1.22 1.43 1.24 1.77 (0.25)
investments, foreign currency transactions
and futures contracts

TOTAL FROM INVESTMENT OPERATIONS 1.45 1.73 1.57 2.12 (0.08)
Less Distributions:
Distributions from net investment income (0.22) (0.31) (0.38) (0.33) (0.10)
Distributions from net realized gain on (0.69) (0.36) (0.26) (0.02)
investments, foreign currency transactions
and futures contracts

TOTAL DISTRIBUTIONS (0.91) (0.67) (0.64) (0.35) (0.10)
Net Asset Value, End of Period $ 14.12 $ 13.58 $ 12.52 $ 11.59 $ 9.82
Total Return2 11.34% 14.40% 14.13% 21.96% (0.87%)

Ratios to Average Net Assets:

Expenses 1.12% 1.05% 1.05% 1.00% 0.89%/3/
Net investment income 1.66% 2.27% 2.96% 3.42% 3.42%/3/
Expense waiver/reimbursement/4/ 0.33% 0.52% 0.88% 1.71% 1.72%/3//5/
Supplemental Data:

Net assets, end of period (000 omitted) $88,113 $76,271 $49,715 $25,611 $15,696
Portfolio turnover 123% 115% 86% 139% 77%
</TABLE>

1 Reflects operations for the period from May 25, 1994 (date of initial public
investment) to November 30, 1994. For the period January 27, 1994, the Fund
had no investment activity.

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

3 Computed on an annualized basis.

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

[LOGO OF FEDERATED]

Managed
Series
Trust

Federated Managed Income Fund
Federated Managed Growth and Income Fund
Federated Managed Growth Fund
Federated Managed Aggressive Growth Fund

INSTITUTIONAL SHARES

JANUARY 31, 1999

A Statement of Additional Information (SAI) dated January 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Funds' investments is available in the Funds' annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected each Fund's performance during its last
fiscal year. To obtain the SAI and the annual and semi-annual reports and other
information without charge call your investment professional or the Funds at 1-
800-341-7400.

[LOGO OF FEDERATED]

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

1-800-341-7400

www.federatedinvestors.com

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7129
Cusip 56166K 107

Cusip 56166K 305
Cusip 56166K 503
Cusip 56166K 701

G00873-03-IS (1/99) [RECYCLED PAPER LOGO]

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED MANAGED INCOME FUND

FEDERATED MANAGED GROWTH AND INCOME FUND

FEDERATED MANAGED GROWTH FUND

FEDERATED MANAGED AGGRESSIVE GROWTH FUND

Portfolios of Managed Series Trust

INSTITUTIONAL SHARES
SELECT SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses for the Funds, dated January 31,
1999.

The SAI incorporates by reference the Funds' Annual Report. Obtain a
prospectus or the Annual Report without charge by calling 1-800-341-7400.

january 31, 1999

CONTENTS

How are the Funds Organized? 1
Securities in Which the Funds Invest 1
What do Shares Cost? 11
How are the Funds Sold? 11
Subaccounting Services 12
Redemption in Kind 12
Massachusetts Partnership Law 12
Account and Share Information 13
Tax Information 13
Who Manages and Provides Services to the Funds? 14
How Do the Funds Measure Performance? 19
Who is Federated Investors, Inc.? 22
Financial Information 23
Investment Ratings 24
Addresses Back Cover
CUSIP 56166K800
CUSIP 56166K 701
CUSIP 56166K 404
CUSIP 56166K 305
CUSIP 56166K 602
CUSIP 56166K 503
CUSIP 56166K 206
CUSIP 56166K 107

G00873-05 (1/99)

<PAGE>

HOW ARE THE FUNDS ORGANIZED?

Each Fund is a diversified portfolio of Managed Series Trust (the Trust).
The Trust is an open-end, management investment company that was established
under the laws of the Commonwealth of Massachusetts on November 15, 1993. The
Trust may offer separate series of shares representing interests in separate
portfolios of securities.

The Board of Trustees (the Board) has established two classes of shares of
each Fund, known as Institutional Shares and Select Shares (Shares). This SAI
relates to both classes of Shares.

SECURITIES IN WHICH THE FUNDS INVEST

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

Following is a table that indicates which types of securities are a:

o P = PRINCIPAL investment of a Fund; (shaded in chart)

o A = ACCEPTABLE (but not principal) investment of a Fund; or

o N = NOT AN ACCEPTABLE investment of a Fund.

SECURITIES INCOME GROWTH AND GROWTH FUND AGGRESSIVE
FUND INCOME FUND GROWTH FUND
<S> <C> <C> <C> <C>
- ----------------------------------------------------- ----------- -------------- ------------- -------------
EQUITY SECURITIES A A A A

- -----------------------------------------------------
----------- -------------- ------------- -------------
COMMON STOCK A A A A

----------- -------------- ------------- -------------
- ----------------------------------------------------- ----------- -------------- ------------- -------------
SMALL COMPANY STOCKS7 N A P P

----------- -------------- ------------- -------------
- ----------------------------------------------------- ----------- -------------- ------------- -------------
PREFERRED STOCK A A A A

- ----------------------------------------------------- ----------- -------------- ------------- -------------
- ----------------------------------------------------- ----------- -------------- ------------- -------------
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES A A A A
- ----------------------------------------------------- ----------- -------------- ------------- -------------
- ----------------------------------------------------- ----------- -------------- ------------- -------------
REAL ESTATE INVESTMENT TRUSTS A A A A

----------- -------------- ------------- -------------
- ----------------------------------------------------- ----------- -------------- ------------- -------------
REPURCHASE AGREEMENTS A A A A

- ----------------------------------------------------- ----------- -------------- ------------- -------------
- -----------------------------------------------------
ASSET COVERAGE A A A A

- ----------------------------------------------------- ----------- -------------- ------------- -------------
1.

</TABLE>

Each Fund may invest up to 72%, 56%, 40%, and 20%, respectively, of its
total assets in such securities.

2. Each Fund may invest up to 45%, 35%, 15%, and 10%, respectively, of its
total assets in such securities.

3. Each Fund may invest up to 45%, 35%, 15%, and 10%, respectively, of its
total assets in such securities.

4. Each Fund may invest up to 10%, 10%, 15%, and 10%, respectively, of its
total assets in such securities.

5. Each Fund may invest up to 22.5%, 37.5%, 50%, and 60%, respectively, of its
total assets in such securities.

6. The Income Fund and the Growth and Income Fund may each invest up to 7.5%
of its total assets in such securities.

7. The Growth and Income Fund, Growth Fund and Aggressive Growth Fund may each
invest up to 5%, 15%, and 20%, respectively, of its total assets in such
securities.

8. The Growth and Income Fund, Growth Fund and Aggressive Growth Fund may each
invest up to 5%, 15%, and 20%, respectively, of its total assets in such
securities.

9. Each Fund will not invest more than 3%, 5%, 15%, and 20%, respectively, in
forward foreign currency exchange contracts.

10. The Funds do not intend to engage in such transactions to an extent that
would cause the segregation of more than 20% of the total value of a Fund's
assets.

11. Each Fund may invest up to 10%, 10%, 15%, and 10%, respectively, of its
total assets in such securities.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

Equity securities represent a share of an issuer's earnings and assets,
after the issuer pays its liabilities. The Funds cannot predict the income they
will receive from equity securities because issuers generally have discretion as
to the payment of any dividends or distributions. 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 additional types of equity securities in which the
Funds invest.

COMMON STOCKS

PREFERRED STOCKS

Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on common
stock. Preferred stocks may also permit the issuer to redeem the stock. The
Funds may also treat such redeemable stock as a fixed income security.

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies,
business trusts and companies organized outside the United States may issue
securities comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

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

Warrants give the Funds the option to buy the issuer's equity securities at
a specified price (the exercise price) at a specified future date (the
expiration date). The Funds may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if the
price of the stock does not rise above the exercise price by the expiration
date. This increases the MARKET RISKS of warrants as compared to the underlying
security. Rights are the same as warrants, except companies typically issue
rights to existing stockholders.

FIXED INCOME SECURITIES

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

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

The following describes the types of fixed income securities in which the
Funds invest.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest credit
risks.

AGENCY SECURITIES

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

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

CORPORATE DEBT 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 securities. The Funds may also purchase interests in bank loans
to companies. The CREDIT RISKS of corporate debt securities vary widely amount
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, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.

MORTGAGE BACKED SECURITIES

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

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

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

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

This helps PACs and TACs to control prepayment risks by increasing the
risks to their companion classes.

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

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

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

The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. 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 depend upon the performance of the underlying pool of mortgages, which
no one can predict and will vary among pools.

ZERO COUPON SECURITIES

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

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

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may 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 risks by
providing another source of payment for a fixed income security.

CONVERTIBLE SECURITIES

Convertible securities are fixed income securities that the Funds have the
option to exchange for equity securities at a specified conversion price. The
option allows the Funds to realize additional returns if the market price of the
equity securities exceeds the conversion price. For example, a Fund may hold
fixed income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock 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. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
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
Funds to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.

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

<PAGE>

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United
States. The Funds consider an issuer to be based outside the United States if:

o it is organized under the laws of, or has a principal office located in,
another country;

o the principal trading market for its securities is in another country; or

o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same type,
foreign securities are subject to CURRENCY RISKS and RISKS OF FOREIGN INVESTING.
Trading in certain foreign markets is also subject to LIQUIDITY RISKS.

DEPOSITARY RECEIPTS

Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States 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 United States. Depositary
Receipts involve many of the same risks of investing directly in foreign
securities, including CURRENCY RISKS and RISKS OF FOREIGN INVESTING.

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. In a
spot trade, a Fund agrees to exchange one currency for another at the current
exchange rate. A Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
CURRENCY RISKS.

FOREIGN GOVERNMENT SECURITIES

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 that are either issued by entities 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. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.

DERIVATIVE CONTRACTS

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

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

For example, a Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, a Fund realizes a gain; if it is less, a Fund realizes a loss. Exchanges
may limit the amount of open contracts permitted at any one time. Such limits
may prevent a Fund from closing out a position. If this happens, a 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). Inability to close out a
contract could also harm a Fund by preventing it from disposing of or trading
any assets it has been using to secure its obligations under the contract.

The Funds may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between a 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 the Funds use derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease a Fund's exposure to market and
CURRENCY RISKS, and may also expose a Fund to LIQUIDITY RISKS. OTC contracts
also expose the Funds to CREDIT RISKS in the event that a counterparty defaults
on the contract.

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

FUTURES CONTRACTS

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

The Funds may buy or sell forward foreign currency exchange contracts,
interest rate futures contracts and stock index futures to accommodate cash
flows and to hedge against the effects of changes in the value of portfolio
securities due to anticipated changes in interest rates and market conditions.

OPTIONS

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

The Funds may buy and sell options on foreign currencies, foreign currency
futures, securities and securities indexes to manage interest rate and currency
risks. The Funds may write call options on securities which they own to generate
income.

HYBRID INSTRUMENTS

Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.

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 in addition to those associated with traditional fixed
income or convertible securities. Hybrid instruments are also potentially more
volatile and carry greater MARKET RISKS than traditional instruments.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

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

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

Repurchase agreements are subject to CREDIT RISKS.

<PAGE>

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which the Funds
are the sellers (rather than the buyers) 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 Funds. Reverse repurchase agreements
are subject to CREDIT RISKS. In addition, reverse repurchase agreements create
LEVERAGE RISKS because the Funds 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

When issued transactions are arrangements in which the Funds buy securities
for a set price, with payment and delivery of the securities scheduled for a
future time. During the period between purchase and settlement, no payment is
made by the Funds to the issuer and no interest accrues to the Funds. The Funds
record the transaction when they agree to buy the securities and reflect their
value in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, when issued
transactions create MARKET RISKS for the Funds. When issued transactions also
involve CREDIT RISKS in the event of a counterparty default.

TO BE ANNOUNCED SECURITIES (TBAS)

As with other when issued transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the particular
securities to be delivered. Instead, the Funds agree to accept any security that
meets specified terms. For example, in a TBA mortgage backed transaction, the
Funds and the seller would agree upon the issuer, interest rate and terms of the
underlying mortgages. However, the seller would not identify the specific
underlying mortgages until it issues the security. TBA mortgage backed
securities increase MARKET RISKS because the underlying mortgages may be less
favorable than anticipated by the Funds.

Dollar rolls are transactions where the Funds sell mortgage-backed
securities with a commitment to buy similar, but not identical, mortgage-backed
securities on a future date at a lower price. Normally, one or both securities
involved are TBA mortgage backed securities. Dollar rolls are subject to MARKET
RISKS AND CREDIT RISKS.

SECURITIES LENDING

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

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

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

Securities lending activities are subject to MARKET RISKS AND CREDIT RISKS.

SECURITIES OF OTHER INVESTMENT COMPANIES

Each Fund may invest its assets in securities of other investment
companies, including the securities of affiliated money market funds, as an
efficient means of carrying out its investment policies and managing its
univested cash. It should be noted that investment companies incur certain
expenses, such as management fees, and, therefore, any investment by the Fund in
shares of other investment companies may be subject to such duplicate expenses.

ASSET COVERAGE

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

INVESTMENT RISKS

STOCK MARKET RISKS

o The value of equity securities in each Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. A
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, a Fund's share
price may decline and you could lose money.

o The Adviser attempts to manage market risk by limiting the amount each Fund
invests in each company. However, diversification will not protect a Fund
against widespread or prolonged declines in the stock market.

BOND MARKET RISKS

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

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

CREDIT RISKS

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

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

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

o Credit risk includes the possibility that a party to a transaction
involving the Funds will fail to meet its obligations. This could cause the
Funds to lose the benefit of the transaction or prevent the Funds from
selling or buying other securities to implement its investment strategy.

CURRENCY RISKS

o Exchange rates for currencies 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.

O The adviser attempts to manage currency risk by limiting the amount the
Funds invest in securities denominated in a particular currency. However,
diversification will not protect the Funds against a general increase in
the value of the U.S. dollar relative to other currencies.

CALL AND PREPAYMENT RISKS

O Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below it's current market
price. An increase in the likelihood of a call may reduce the security's
price.

o Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage backed securities with higher interest rates. Conversely,
prepayments due to refinancings decrease when mortgage rates increase. This
extends the life of mortgage backed securities with lower interest rates.

o As a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. This relationship
between interest rates and mortgage prepayments makes the price of mortgage
backed securities more volatile than most other types of fixed income
securities with comparable credit risks.

o If a fixed income security is called or prepaid, the Funds may have to
reinvest the proceeds in other fixed income securities with lower interest
rates, higher credit risks, or other less favorable characteristics.

<PAGE>

SECTOR RISKS

O Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or as the market as a whole. As the
Adviser allocates more of a 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.

RISKS RELATED TO COMPANY SIZE

o 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 its outstanding shares by the current market price per share.

o Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than larger, well capitalized companies.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o Securities rated below investment grade, also known as junk bonds,
generally entail greater market, credit and liquidity risks than investment
grade securities. For example, their prices are more volatile, economic
downturns and financial setbacks may affect their prices more negatively,
and their trading market may be more limited.

o 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.

o Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.

LEVERAGE RISKS

o Leverage risk is created when an investment exposes a Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify a Fund's risk of loss and potential for gain.

LIQUIDITY RISKS

o Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Funds may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Funds' performance. Infrequent trading may also lead to greater price
volatility.

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

o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

INVESTMENT LIMITATIONS

ISSUING SENIOR SECURITIES AND BORROWING MONEY

A Fund will not issue senior securities, except that it may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amount borrowed, and except to the
extent that a Fund may enter into futures contracts.

A Fund will not borrow money or engage in reverse repurchase agreements
except as a temporary, extraordinary, or emergency measure or to facilitate
management of the Fund by enabling it to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. A Fund will not purchase any securities while any borrowings in
excess of 5% of its total assets are outstanding.

INVESTING IN COMMODITIES

The Funds will not invest in commodities, except that the Funds reserve the
right to engage in transactions involving financial futures contracts, options,
and forward contracts with respect to foreign securities or currencies.

INVESTING IN REAL ESTATE

The Funds will not purchase or sell real estate, including limited
partnership interests, although the Funds may invest in securities of issuers
whose business involves the purchase or sale of real estate or in securities
which are secured by real estate or which represent interests in real estate.

CONCENTRATION OF INVESTMENTS

A Fund will not invest 25% or more of the value of its total assets in any
one industry (other than securities issued by the U.S. government, its agencies,
or instrumentalities).

UNDERWRITING

A 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 which the Fund may purchase in accordance with its
investment objective, policies, and limitations.

SELLING SHORT AND BUYING ON MARGIN

The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities. A deposit or payment by a Fund
of initial or variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a security on
margin.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total assets,
a Fund will not purchase securities issued by any one issuer (other than cash,
cash items or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the value of
its total assets would be invested in the securities of that issuer or if it
would own more than 10% of the outstanding voting securities of such issuer.

PLEDGING ASSETS

The Funds will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, a Fund may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets at the time of the pledge. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits for the
purchase and sale of financial futures contracts and related options; and
segregation of collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.

LENDING CASH OR SECURITIES

A Fund will not lend any of its assets except portfolio securities. This
shall not prevent the purchase or holding of U.S. government obligations,
corporate bonds, debentures, notes, certificates of indebtedness, or other debt
securities of any issuer, repurchase agreements, or other transactions which are
permitted by the Funds' respective investment objectives, policies, or
Declaration of Trust.

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

INVESTING IN ILLIQUID SECURITIES

A Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days after notice, over-the-counter options, and certain
securities not determined by the Trustees to be liquid.

INVESTING IN PUT OPTIONS

A Fund will not purchase put 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.

WRITING COVERED CALL OPTIONS

A 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.

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.

No Fund expects to borrow money in excess of 5% of the value of its net
assets during the coming fiscal year.

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

DETERMINING MARKET VALUE OF SECURITIES

Market values of a Fund's portfolio securities are determined as follows:

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;

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

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

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

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

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

The Funds value 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 net asset value,
the Funds value 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 Funds' Board, although the actual
calculation may be done by others.

WHAT DO SHARES COST?

Each 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.

HOW ARE THE FUNDS SOLD?

Under the Distributor's Contract with the Funds, 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.

RULE 12B-1 PLAN-SELECT SHARES

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals 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 Select Shares so that overall Fund assets are maintained or increased.
This helps the Funds achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Select Share redemptions.
Also, the Funds' service providers that receive asset-based fees also benefit
from stable or increasing Fund assets.

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

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.

SHAREHOLDER SERVICES

The Funds may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (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.

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 professionals receive such fees for providing
distribution-related services 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 Funds 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.

SUBACCOUNTING SERVICES

Certain investment professionals 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 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 about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although each 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 Funds have
elected to be governed by Rule 18f-1 under the Investment Company Act of 1940,
the Funds are 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 Funds' Board determines that payment should be in kind. In such a
case, the Funds will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as each Fund determines its NAV.
The portfolio securities will be selected in a manner that the Funds' 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.

MASSACHUSETTS PARTNERSHIP LAW

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

<PAGE>

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each share of a Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All Shares of the Trust
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.

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

As of January 7, 1999 the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Shares of the Funds:

Charles Schwab & Co., 101 Montgomery Street, San Francisco, CA owned
approximately 5.12% of the Institutional Shares of the Income Fund. Western
Bank, P.O. Box 1784, Menford, OR, owned approximately 7.22% of the Institutional
Shares of the Growth and Income Fund and 5.17% of the Institutional Shares of
the Growth Fund. Sunflower Bank, P.O. Box 800, Salina, KS, owned approximately
5.25% or the Growth Fund.

Kirchabak & Co., Richfield Bank and Trust Co., 6625 Lyndale Ave. South,
Richfield, MN, owned approximately 14.42% of the Select Shares of the Income
Fund. The Provident Bank, 309 Vine Street, Mail Stop 653D, Cincinnati, OH, owned
approximately 8.18% of the Select Shares of the Income Fund and 5.61% of the
Select Shares of the Aggressive Growth Fund. Oltrust & Co., Old National Bank,
P.O. Box 966, Evansville, IN, owned approximately 5.05% of the Select Shares of
the Aggressive Growth Fund.

TAX INFORMATION

FEDERAL INCOME TAX

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

Each 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
Trust's other portfolios will be separate from those realized by the Funds.

FOREIGN INVESTMENTS

If a 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 Funds intend 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 a 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 a 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.

WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?

BOARD OF TRUSTEES

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

As of January 31, 1999 the Funds' Board and Officers as a group owned less
than 1% of the Funds' outstanding Shares.

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

NAME TOTAL
BIRTHDATE AGGREGATE COMPENSATION

ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST AND FUND COMPLEX

- ------------------------- ------------------------------------------- ------------ ----------------
<S> <C> <C> <C>
JOHN F. DONAHUE*#+ Chief Executive Officer and Director or $0 $0 for the
Birthdate: July 28, 1924 Trustee of the Federated Fund Complex, Trust and 54
Federated Investors Chairman and Director, Federated other
Tower Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, companies in
Pittsburgh, PA and Federated Research; Chairman and the Fund
CHAIRMAN AND TRUSTEE Director, Federated Research Corp., and Complex
Federated Global Research Corp.; Chairman,
Passport Research, Ltd.

- --------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1485.62 $113,860.22 for
Birthdate: February 3, Complex; Director, Member of Executive the Trust and
1934 Committee, Children's Hospital of 54 other
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, investment
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 companies in
TRUSTEE Group, Inc.; Director, Member of Executive the Fund Complex
Committee, University of Pittsburgh.

- --------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1634.42 $125,264.48 for
Birthdate: June 23, 1937 Complex; President, Investment Properties the Trust and
Wood/IPC Commercial Dept. Corporation; Senior Vice President, 54 other
John R. Wood Associates, John R. Wood and Associates, Inc., investment
Inc. Realtors Realtors; Partner or Trustee in private companies in
3255 Tamiami Trial North real estate ventures in Southwest Florida; the Fund Complex
Naples, FL formerly: President, Naples Property
TRUSTEE Management, Inc. and Northgate Village
Development Corporation.

- --------------------------
WILLIAM J. COPELAND Director or Trustee of the Federated Fund $1634.42 $125,264.48 for
Birthdate: July 4, 1918 Complex; Director and Member of the the Trust and
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; 54 other
Pittsburgh, PA formerly: Vice Chairman and Director, PNC investment
TRUSTEE Bank, N.A., and PNC Bank Corp.; Director, companies in
Ryan Homes, Inc. the Fund Complex

Previous Positions: Director, United
Refinery; Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.

- --------------------------
JOHN F. CUNNINGHAM Director or Trustee of some of the $0 $0 for the
Birthdate: March 5, 1943 Federated Funds; Chairman, President and Trust and 26
353 El Brillo Way Chief Executive Officer, Cunningham & Co., other
Palm Beach, FL Inc. ; Trustee Associate, Boston College; investment
TRUSTEE Director, EMC Corporation; formerly: companies in
Director, Redgate Communications. the Fund Complex

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

- --------------------------
JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund $1634.42 $125,264.48 for
Birthdate: May 18, 1922 Complex; Attorney-at-law; Director, The the Trust and
571 Hayward Mill Road Emerging Germany Fund, Inc. 54 other
Concord, MA investment
TRUSTEE Previous Positions: President, Boston companies in
Stock Exchange, Inc.; Regional the Fund Complex
Administrator, United States Securities

and Exchange Commission.

- --------------------------
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1485.62 $113,860.22 for
Birthdate: October 11, Complex; Professor of Medicine, University the Trust and
1932 of Pittsburgh; Medical Director, 54 other
3471 Fifth Avenue University of Pittsburgh Medical Center - investment
Suite 1111 Downtown; Hematologist, Oncologist, and companies in
Pittsburgh, PA Internist, University of Pittsburgh the Fund Complex
TRUSTEE Medical Center; Member, National Board of
Trustees, Leukemia Society of America.

- --------------------------
EDWARD L. FLAHERTY, JR., Director or Trustee of the Federated Fund $1634.42 $125,264.48 for
ESQ. # Complex; Attorney, of Counsel, Miller, the Trust and
Birthdate: June 18, 1924 Ament, Henny & Kochuba; Director Emeritus, 54 other
Miller, Ament, Henny & Eat'N Park Restaurants, Inc.; formerly: investment
Kochuba Counsel, Horizon Financial, F.A., Western companies in
205 Ross Street Region; Partner, Meyer and Flaherty. the Fund Complex
Pittsburgh, PA

TRUSTEE

- --------------------------
PETER E. MADDEN Director or Trustee of the Federated Fund $1485.62 $125,264.48 for
Birthdate: March 16, 1942 Complex; formerly: Representative, the Trust and
One Royal Palm Way Commonwealth of Massachusetts General 54 other
100 Royal Palm Way Court; President, State Street Bank and investment
Palm Beach, FL Trust Company and State Street companies in
TRUSTEE Corporation. the Fund Complex

Previous Positions: Director, VISA USA and
VISA International; Chairman and Director,
Massachusetts Bankers Association;
Director, Depository Trust Corporation.

- --------------------------
CHARLES F. MANSFIELD, JR. Director or Trustee of some of the $0 $0 for the
Birthdate: April 10, 1945 Federated Funds; Management Consultant. Trust and 25
80 South Road other
Westhampton Beach, NY Previous Positions: Chief Executive investment
TRUSTEE Officer, PBTC International Bank; Chief companies in
Financial Officer of Retail Banking the Fund Complex
Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor

of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.

- --------------------------
JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund $1485.62 $113,860.22 for
J.D., S.J.D. Complex; President, Law Professor, the Trust and
Birthdate: December 20, Duquesne University; Consulting Partner, 54 other
1932 Mollica & Murray. investment
President, Duquesne companies in
University Previous Positions: Dean and Professor of the Fund Complex
Pittsburgh, PA Law, University of Pittsburgh School of
TRUSTEE Law; Dean and Professor of Law, Villanova
University School of Law.

- --------------------------
WESLEY W. POSVAR Director or Trustee of the Federated Fund $1485.62 $113,860.22 for
Birthdate: September 14, Complex; President, World Society of the Trust and
1925 Ekistics (metropolitan planning), Athens; 54 other
1202 Cathedral of Professor, International Politics; investment
Learning Management Consultant; Trustee, Carnegie companies in
University of Pittsburgh Endowment for International Peace, RAND the Fund Complex
Pittsburgh, PA Corporation, Online Computer Library
TRUSTEE Center, Inc., National Defense University
and U.S. Space Foundation; President
Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory
Council for Environmental Policy and
Technology, Federal Emergency Management
Advisory Board; Trustee, Czech Management

Center, Prague.

Previous Positions: Professor, United
States Military Academy; Professor, United
States Air Force Academy.

- --------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1485.62 $113,860.22 for
Birthdate: June 21, 1935 Complex; Public the Trust and
4905 Bayard Street Relations/Marketing/Conference Planning. 54 other
Pittsburgh, PA investment
TRUSTEE Previous Positions: National Spokesperson, companies in
Aluminum Company of America; business the Fund Complex
owner.

JOHN S. WALSH Director or Trustee of some of the $0 $0 for the
Birthdate: November 28, Federated Funds; President and Director, Trust and 22
1957 Heat Wagon, Inc.; President and Director, other
2007 Sherwood Drive Manufacturers Products, Inc.; President, investment
Valparaiso, IN Portable Heater Parts, a division of companies in
TRUSTEE Manufacturers Products, Inc.; Director, the Fund Complex
Walsh & Kelly, Inc.; formerly, Vice
President, Walsh & Kelly, Inc.

GLEN R. JOHNSON* Trustee, Federated Investors, Inc.; staff $0 $0 for the
Birthdate: May 2, 1929 member, Federated Securities Corp. Trust and 8
Federated Investors Tower other
1001 Liberty Avenue investment
Pittsburgh, PA companies in
PRESIDENT AND TRUSTEE the Fund Complex
J. CHRISTOPHER DONAHUE+ President or Executive Vice President of $0 $0 for the
Birthdate: April 11, 1949 the Federated Fund Complex; Director or Trust and 16
Federated Investors Tower Trustee of some of the Funds in the other
1001 Liberty Avenue Federated Fund Complex; President and investment
Pittsburgh, PA Director, Federated Investors, Inc.; companies in
EXECUTIVE VICE PRESIDENT President and Trustee, Federated Advisers, the Fund Complex
Federated Management, and Federated
Research; President and Director,
Federated Research Corp. and Federated
Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.

<PAGE>

EDWARD C. GONZALES Trustee or Director of some of the Funds $0 $0 for the
Birthdate: October 22, in the Federated Fund Complex; President, Trust and 1
1930 Executive Vice President and Treasurer of other
Federated Investors Tower some of the Funds in the Federated Fund investment
1001 Liberty Avenue Complex; Vice Chairman, Federated company in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Fund Complex
EXECUTIVE VICE PRESIDENT Advisers, Federated Management, Federated
Research, Federated Research Corp.,
Federated Global Research Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the
Birthdate: October 26, the Federated Fund Complex; Executive Vice Trust and 54
1938 President, Secretary, and Director, other
Federated Investors Tower Federated Investors, Inc.; Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, companies in
Pittsburgh, PA and Federated Research; Director, the Fund Complex
EXECUTIVE VICE Federated Research Corp. and Federated
PRESIDENT, SECRETARY Global Research Corp.; Director, Federated
Services Company; Director, Federated
Securities Corp.

RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the
Birthdate: June 17, 1954 Vice President - Funds Financial Services Trust and 54
Federated Investors Tower Division, Federated Investors, Inc.; other
1001 Liberty Avenue Formerly: various management positions investment
Pittsburgh, PA within Funds Financial Services Division companies in
TREASURER of Federated Investors, Inc. the Fund Complex
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birthdate: May 17, 1923 Funds in the Federated Fund Complex; Trust and 6
Federated Investors Tower Director or Trustee of some of the Funds other
1001 Liberty Avenue in the Federated Fund Complex; Executive investment
Pittsburgh, PA Vice President, Federated Investors, Inc.; companies in
VICE PRESIDENT Chairman and Director, Federated the Fund Complex
Securities Corp.

J. THOMAS MADDEN Chief Investment Officer of this Fund and $0 $0 for the
Birthdate: October 22, various other Funds in the Federated Fund Trust and 12
1945 Complex; Executive Vice President, other
Federated Investors Tower Federated Investment Counseling, Federated investment
1001 Liberty Avenue Global Research Corp., Federated Advisers, companies in
Pittsburgh, PA Federated Management, Federated Research, the Fund Complex
CHIEF INVESTMENT OFFICER and Passport Research, Ltd.; Vice
President, Federated Investors, Inc.;
Formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated Research
Corp., Federated Advisers, Federated
Management, Federated Research, and
Passport Research, Ltd.

</TABLE>

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

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for
the Funds.

The Adviser is a wholly-owned subsidiary of Federated.

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

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

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

RESEARCH SERVICES

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

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

ADMINISTRATOR

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

MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE
FEE FEDERATED FUNDS

0.150 of 1% on the first $250 million
- -------------------------
0.125 of 1% on the next $250 million
- -------------------------
0.100 of 1% on the next $250 million
- -------------------------
0.075 of 1% on assets in excess of $750 million
- -------------------------

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Funds for expenses.

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

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Funds. Foreign instruments purchased by the
Funds are held by foreign banks participating in a network coordinated by State
Street Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen LLP is the independent public accountant for the Funds.

FEES PAID BY THE FUNDS FOR SERVICES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------ -------------------------------- --------------------------- ---------------------------
FUND ADVISORY FEE PAID BROKERAGE COMMISSIONS PAID ADMINISTRATIVE FEE PAID
ADVISORY FEE WAIVED

SUB-ADVISORY FEE PAID

--------------------------- ---------------------------
-------------------------------- --------------------------- ---------------------------
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,

-------------------------------- --------------------------- ---------------------------
-----------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------
-----------------------------------------------------------------------------------------
INCOME FUND $880,363 $696,806 $599,171 $29,143 $18,013 $19,712 $155,001 $154,890 $155,001
$494,803 $461,157 $479,814
$58,453 $8,724 $2,837
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
GROWTH AND $1,704,532$1,535,953 $1,264,932 $154,743 $235,841 $168,036 $171,362 $155,085 $155,001
INCOME FUND $0 $101,972 $179,385
$313,796 $99,378 $110,351
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
GROWTH FUND $1,876,254$1,653,493 $1,108,082 $461,050 $423,125 $291,744 $188,627 $166,775 $155,001
$0 $129,366 $299,180
$340,468 $243,773 $143,091
- -----------------------------------------------------------------------------------------------------------
AGGRESSIVE $1,048,670$762,135 $434,558 $341,583 $279,734 $163,845 $155,001 $154,893 $155,001
GROWTH FUND $176,779 $326,658 $393,073
$149,290 $87,324 $12,035
- -----------------------------------------------------------------------------------------------------------

- ----------------------- --------------------------- --------------------------- ---------------------------
SELECT SHARES INSTITUTIONAL SHARES SELECT SHARES

--------------------------- --------------------------- ---------------------------
FIGURES FOR THE 12B-1 FEE 12B-FEE SHAREHOLDER SHAREHOLDER SHAREHOLDER SHAREHOLDER
FISCAL YEAR ENDED PAID WAIVED SERVICING SERVICING SERVICING SERVICING
NOVEMBER 30, 1998 FEE PAID FEE WAIVED FEE PAID FEE WAIVED

- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------
INCOME FUND $309,985 $103,328 $190,126 $152,101 $103,328 $0
- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------
GROWTH AND INCOME FUND $410,611 $136,870 $431,307 $345,046 $136,870 $0
- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------
GROWTH FUND $607,721 $202,574 $422,844 $338,275 $202,574 $0
- -----------------------
- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------
AGGRESSIVE GROWTH FUND $406,320 $135,440 $214,116 $171,293 $135,440 $0
- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------

</TABLE>

Fees are allocated among classes based on their pro rata share of Fund
assets, except for marketing (Rule 12b-1) fees and shareholder services fees,
which are borne only by the applicable class of Shares.

HOW DO THE FUNDS MEASURE PERFORMANCE?

The Funds may advertise Share performance by using the Securities and
Exchange Commission's (SEC) standard method for calculating performance
applicable to all mutual funds. The SEC also permits this standard performance
information to be accompanied by non-standard performance information. Unless
otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Funds' or any class of Shares' expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation
of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------- ------------------------------------------------------- ----------------------------
FUND AVERAGE ANNUAL TOTAL RETURNS YIELDS

FOR THE PERIODS ENDED NOVEMBER 30, 1998 FOR THE 30-DAY PERIOD ENDED
-------------------------------------------------------
--------------------------- ---------------------------
INSTITUTIONAL SHARES SELECT SHARES NOVEMBER 30, 1998

--------------------------- --------------------------- ----------------------------
------------- ------------- ------------- -------------
ONE-YEAR SINCE ONE-YEAR SINCE INSTITUTIONAL SELECT

INCEPTION INCEPTION SHARES SHARES

(5/25/94) (5/25/94)

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

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value
of Shares over a specific period of time, and includes the investment of income
and capital gains distributions.

The average annual total return for Shares is the average compounded rate
of return for a given period that would equate a $1,000 initial investment to
the ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

<PAGE>

YIELD

The yield of Shares is calculated by dividing: (i) the net investment
income per Share earned by the Shares over a thirty-day period; by (ii) the
maximum offering price per Share on the last day of the period. This number is
then annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a 12-month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;

o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and

o information about the mutual fund industry from sources such as the
Investment Company Institute.

The Funds may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.

The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete
view of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Funds use in advertising may include:

o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making competitive calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specified
period of time. From time to time, a Portfolio will quote its Lipper
ranking in advertising and sales literature.

o STANDARD & POOR'S RATINGS GROUP UTILITY INDEX is an unmanaged index of
common stocks from forty different utilities. This index indicates daily
changes in the price of the stocks. The index also provides figures for
changes in price from the beginning of the year to date and for a
twelve-month period.

O STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON
STOCKS, a composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the total
returns of funds whose portfolios are invested primarily in common stocks.
In addition, the Standard & Poor's index assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in the Standard & Poor's figures.

o STANDARD & POOR'S RATINGS GROUP SMALL STOCK INDEX, is a broadly diversified
index consisting of approximately 600 small capitalization common stocks
that can be used to compare to the total returns of funds whose portfolios
are invested primarily in small capitalization common stocks.

o EUROPE, AUSTRALIA, AND FAR EAST (EAFE) is a market capitalization weighted
foreign securities index, which is widely used to measure the performance
of European, Australian, New Zealand and Far Eastern stock markets. The
index covers approximately 1,020 companies drawn from 18 countries in the
above regions. The index values its securities daily in both U.S. dollars
and local currency and calculates total returns monthly. EAFE U.S. dollar
total return is a net dividend figure less Luxembourg withholding tax. The
EAFE is monitored by Capital International, S.A., Geneva, Switzerland.

o RUSSELL 1000 INDEX measures the performance of the 1,000 largest companies
in the Russell 3000 Index, which represents approximately 90% of the total
market capitalization of the Russell 3000 Index.

o RUSSELL 2000 INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested
primarily in small capitalization common stocks.

o LEHMAN BROTHERS TREASURY INTERMEDIATE BOND INDEX (U.S. DOLLARS) is an index
composed of all bonds covered by the Lehman Brothers Treasury Bond Index
with maturities between one and 9.9 years. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.

o LEHMAN BROTHERS TREASURY LONG-TERM BOND INDEX (U.S. DOLLARS) is an index
composed of all bonds covered by the Lehman Brothers Treasury Bond Index
with maturities of 10 years or greater. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.

o J.P. MORGAN GLOBAL NON-U.S. GOVERNMENT BOND INDEX is a total return, market
capitalization weighted index, rebalanced monthly consisting of the
following countries: Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden and United Kingdom.

o LEHMAN BROTHERS CORPORATE INTERMEDIATE BOND INDEX (U.S. DOLLARS) is a
subset of the Lehman Brothers Corporate Bond Index covering all corporate,
publicly issued, fixed-rate, nonconvertible U.S. debt issues rated at least
Baa with at least $50 million principal outstanding and maturity less than
10 years.

o LEHMAN BROTHERS CORPORATE B INDEX is an index composed of all bonds covered
by Lehman Brothers High Yield Index rated "B" by Moody's Investors Service.
Bonds have a minimum amount outstanding of $100 million and at least one
year to maturity. Total return comprises price appreciation/depreciation
and income as a percentage of the original investment. Indexes are
rebalanced monthly by market capitalization.

o LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15- and 30-year
fixed-rate securities backed by mortgage pools of the Government National
Mortgage Association , Federal Home Loan Mortgage Corporation , and Federal
National Mortgage Corporation . Graduated payment mortgages and balloons
are included in theindex.

o LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly issued,
fixed rate, non-convertible domestic bonds of companies in industry, public
utilities and finance. The average maturity of these bonds approximates
nine years. Tracked by Lehman Brothers, Inc., the index calculates total
returns for one month, three month, twelve month and ten year periods and
year-to-date.

o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an
unmanaged index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years.
Total return is based on price appreciation/depreciation and income as a
percentage of the original investment. Indices are rebalanced monthly by
market capitalization.

o LEHMAN BROTHERS HIGH YIELD INDEX covers the universe of fixed rate,
publicly issued, noninvestment grade debt registered with the SEC. All
bonds included in the High Yield Index must be dollar-denominated and
nonconvertible and have at least one year remaining to maturity and an
outstanding par value of at least $100 million. Generally securities must
be rated Ba1 or lower by Moodys Investors Service, including defaulted
issues. If no Moodys rating is available, bonds must be rated BB+ or lower
by S&P; and if no S&P rating is available, bonds must be rated below
investment grade by Fitch Investor's Service. A small number of unrated
bonds is included in the index; to be eligible they must have previously
held a high yield rating or have been associated with a high yield issuer,
and must trade accordingly.

o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.

WHO IS FEDERATED INVESTORS, INC.?

Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9
money market funds and 15 bond funds with assets approximating $22.8 billion and
$7.1 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated

advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $5 trillion to the more than 7,300 funds
available, according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety
of investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.

FINANCIAL INFORMATION

The Financial Statements for the Funds for the fiscal year ended November
30, 1998 are incorporated herein by reference to the Annual Report to
Shareholders of the Funds
dated November 30, 1998.

<PAGE>

INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

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

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

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

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

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

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

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

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

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

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

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

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

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

BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA--Bonds which are BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA--Bonds which are rated CA represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

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

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

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

BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.

o Well established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.

<PAGE>

ADDRESSES

FEDERATED MANAGED INCOME FUND

FEDERATED MANAGED GROWTH AND INCOME FUND

FEDERATED MANAGED GROWTH FUND

FEDERATED MANAGED AGGRESSIVE GROWTH FUND

Institutional Shares
Select Shares

Federated Investors Funds
5800 Corporate Drive

Pittsburgh, Pennsylvania 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,

Pittsburgh, Pennsylvania 15222-3779

INVESTMENT ADVISER

Federated Management
Federated Investors Tower
1001 Liberty Avenue,

Pittsburgh, Pennsylvania 15222-3779

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812

APPENDIX

A. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of the Select Shares of the Income
Fund as of the calendar year-end for each of four years. The `y' axis
reflects the "% Total Return" beginning with "0" and increasing in
increments of 5% up to 15%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features four 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 for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 14.83%, 4.72%, 9.84% and 9.27%. The total returns
displayed for 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. Within the period shown in the Chart,
the Fund's Select Shares highest quarterly return was 5.04%. Its lowest
quarterly return was -0.46%.

B. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of the Select Shares of the Growth
and Income Fund as of the calendar year-end for each of four years. The `y'
axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5% up to 20%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features four 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 for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 19.05%, 5.72%, 12.21% and 11.56%. The total returns
displayed for 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. Within the period shown in the Chart,
the Fund's Select Shares highest quarterly return was 5.89%. Its lowest
quarterly return was -2.33%.

C. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of the Select Shares of the Growth
Fund as of the calendar year-end for each of four years. The `y' axis
reflects the "% Total Return" beginning with "0" and increasing in
increments of 5% up to 25%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features four 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 for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 21.42%, 9.78%, 13.44% and 12.99%. The total returns
displayed for 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. Within the period shown in the Chart,
the Fund's Select Shares highest quarterly return was 8.34%. Its lowest
quarterly return was -7.24%.

D. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of the Select Shares of the
Aggressive Growth Fund as of the calendar year-end for each of four years.

The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 5% up to 25%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features four 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 for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 21.62%, 11.62%, 14.04% and 15.06%. The total returns
displayed for 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. Within the period shown in the Chart,
the Fund's Select Shares highest quarterly return was 10.19%. Its lowest
quarterly return was -10.53%.

E. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of the Institutional Shares of the Income
Fund as of the calendar year-end for each of four years. The `y' axis reflects
the "% Total Return" beginning with "0" and increasing in increments of 4% up to
16%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features four 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 for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 15.69%, 5.56%, 10.49% and 9.95%. The total returns
displayed for 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. Within the period shown in the Chart,
the Fund's Institutional Shares highest quarterly return was 5.24%. Its lowest
quarterly return was -0.27%.

F. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of the Institutional Shares of the
Growth and Income Fund as of the calendar year-end for each of four years.

The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 5% up to 25%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features four 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 for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 19.79%, 6.34%, 12.99% and 12.43%. The total returns
displayed for 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. Within the period shown in the Chart,
the Fund's Institutional Shares highest quarterly return was 6.06%. Its lowest
quarterly return was -2.14%.

G. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of the Institutional Shares of the
Growth Fund as of the calendar year-end for each of four years. The `y'
axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5% up to 25%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features four 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 for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 22.26%, 10.50%, 14.29% and 13.75%. The total returns
displayed for 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. Within the period shown in the Chart,
the Fund's Institutional Shares highest quarterly return was 8.41%. Its lowest
quarterly return was -7.13%.

H. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of the Institutional Shares of the
Aggressive Growth Fund as of the calendar year-end for each of four years.

The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 5% up to 25%.

The `x' axis represents calculation periods from the earliest calendar year
end of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features four 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 for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 22.25%, 12.35%, 14.90% and 15.77%. The total returns
displayed for 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. Within the period shown in the Chart,
the Fund's Institutional Shares highest quarterly return was 10.36%. Its lowest
quarterly return was -10.37%.