INTERNATIONAL SERIES INC, 497, 1997-02-03

INTERNATIONAL SERIES INC
497, 1997-02-03

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FEDERATED INTERNATIONAL EQUITY FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

PROSPECTUS

The shares of Federated International Equity Fund (the "Fund") represent
interests in a diversified investment portfolio of International Series, Inc.
(the "Corporation"), an open-end, management investment company (a mutual fund).
The Fund invests primarily in equity securities of non-U.S. issuers to obtain a
total return on its assets.

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

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

The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares and Class C Shares dated January 31, 1997, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund are maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).

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

Prospectus dated January 31, 1997

TABLE OF CONTENTS

Summary of Fund Expenses--
Class A Shares...............................................................1

Summary of Fund Expenses--

Class B Shares...............................................................2
Summary of Fund Expenses--

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

Financial Highlights--Class A Shares...........................................4

Financial Highlights--Class B Shares...........................................5

Financial Highlights--Class C Shares...........................................6

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

Risks Associated with Financial Futures
Contracts and Options on Financial
Futures Contracts........................................................13

Investment Limitations......................................................14

Net Asset Value...............................................................15

Investing in the Fund.........................................................16

How To Purchase Shares........................................................17
Investing in Class A Shares.................................................17
Investing in Class B Shares.................................................19

Investing in Class C Shares.................................................20
Special Purchase Features...................................................21

Exchange Privilege............................................................21
How To Redeem Shares..........................................................23
Special Redemption Features.................................................24
Contingent Deferred Sales Charge............................................24
Elimination of Contingent
Deferred Sales Charge....................................................25

Account and Share Information.................................................26

International Series, Inc. Information........................................27
Management of the Corporation...............................................27
Distribution of Shares......................................................29
Administration of the Fund..................................................30
Brokerage Transactions......................................................30

Shareholder Information.......................................................31
Voting Rights...............................................................31

Tax Information...............................................................31
Federal Income Tax..........................................................31
State and Local Taxes.......................................................32

Performance Information.......................................................32
Addresses.....................................................................33

SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<S> <C> <C>

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

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................ 1.00%
12b-1 Fee..................................................................................................... None
Total Other Expenses.......................................................................................... 0.68%
Shareholder Services Fee (after waiver) (2).................................................... 0.10%
Total Operating Expenses (3)......................................................................... 1.68%
</TABLE>

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

(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(3) The total operating expenses would have been 1.83% absent the waiver of a
portion of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class A Shares" and "International
Series, Inc. Information." Wire-transferred redemptions of less than $5,000 may
be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3)
payment of the maximum sales charge......................................... $71 $105 $141 $243
</TABLE>

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

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

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................ 1.00%
12b-1 Fee..................................................................................................... 0.75%
Total Other Expenses.......................................................................................... 0.83%
Shareholder Services Fee....................................................................... 0.25%
Total Operating Expenses (2)......................................................................... 2.58%
</TABLE>

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

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

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

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period............. $82 $123 $160 $269
You would pay the following expenses on the same investment, assuming no
redemption.................................................................. $26 $80 $137 $269
</TABLE>

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

SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................. None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)......................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) (1)..................................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................ None
Exchange Fee.................................................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................ 1.00%
12b-1 Fee..................................................................................................... 0.75%
Total Other Expenses.......................................................................................... 0.82%
Shareholder Services Fee (after waiver) (2).................................................... 0.24%
Total Operating Expenses (3)......................................................................... 2.57%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within
one year of their purchase date. (See "Contingent Deferred Sales Charge.")

(3) The total operating expenses were 2.58% absent the voluntary waiver of a
portion of the shareholder services fee.

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

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period............. $36 $80 $137 $290
You would pay the following expenses on the same investment, assuming no
redemption.................................................................. $26 $80 $137 $290
</TABLE>

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

FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED INTERNATIONAL EQUITY FUND

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1997, on the
Fund's financial statements for the year ended November 30, 1996, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989
Net asset value, beginning of
period $ 17.89 $ 18.53 $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59 $ 17.34
- ----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment income 0.03 0.09 0.15 0.06 0.10 0.11 0.19 0.18
- ----------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 1.38 0.17 1.96 2.53 (0.37) 0.37 (1.16) 1.60
- ---------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 1.41 0.26 2.11 2.59 (0.27) 0.48 (0.97) 1.78
- ----------------------------------
LESS DISTRIBUTIONS
- ----------------------------------
Distributions from net
investment income (0.09) (0.003) (0.07) (0.06) (0.08) (0.21) (0.20) (0.23)
- ----------------------------------
Distributions in excess of net
investment income(a) -- -- -- (0.13) -- -- -- --
- ---------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions from net
investment income (0.09) (0.003) (0.07) (0.19) (0.08) (0.21) (0.20) (0.23)
- ----------------------------------
Distributions from net realized
gain on investments and foreign
currency transactions (1.89) (0.90) -- -- -- (0.11) (2.14) (1.30)
- ---------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (1.98) (0.90) (0.07) (0.19) (0.08) (0.32) (2.34) (1.53)
- ---------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.32 $ 17.89 $ 18.53 $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59
- ---------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN(B) 8.63% 1.60% 12.82% 18.52% (1.86%) 3.49% (6.72%) 11.55%
- ----------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------
Expenses 1.68% 1.57% 1.61% 1.60% 1.57% 1.52% 1.32% 1.01%
- ----------------------------------
Net investment income 0.15% 0.42% -- 0.13% 0.69% 0.78% 1.39% 1.04%
- ----------------------------------
Expense waiver/ reimbursement(c) 0.15% 0.18% -- 0.01% 0.02% 0.30% 0.25% 0.46%
- ----------------------------------
SUPPLEMENTAL DATA
- ----------------------------------
Net assets, end of period
(000 omitted) $172,988 $191,911 $261,178 $192,860 $106,937 $101,980 $82,541 $65,560
- ----------------------------------
Average Commission Rate Paid $0.0018
- ----------------------------------
Portfolio turnover 119% 166% 73% 74% 91% 84% 114% 85%
- ----------------------------------

<CAPTION>
<S> <C> <C>
1988 1987
Net asset value, beginning of
period $ 19.99 $ 22.87
- ----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment income 0.19 0.24
- ----------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency 3.27 (0.72)
- ---------------------------------- --------- ---------
Total from investment operations 3.46 (0.48)
- ----------------------------------
LESS DISTRIBUTIONS
- ----------------------------------
Distributions from net
investment income (0.23) (0.05)
- ----------------------------------
Distributions in excess of net
investment income(a) -- --
- ---------------------------------- --------- ---------
Total distributions from net
investment income (0.23) (0.05)
- ----------------------------------
Distributions from net realized
gain on investments and foreign
currency transactions (5.88) (2.35)
- ---------------------------------- --------- ---------
Total distributions (6.11) (2.40)
- ---------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.34 $ 19.99
- ---------------------------------- --------- ---------
TOTAL RETURN(B) 24.33% (2.70%)
- ----------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------
Expenses 1.00% 1.00%
- ----------------------------------
Net investment income 1.43% 0.93%
- ----------------------------------
Expense waiver/ reimbursement(c) 0.28% 0.17%
- ----------------------------------
SUPPLEMENTAL DATA
- ----------------------------------
Net assets, end of period
(000 omitted) $68,922 $85,860
- ----------------------------------
Average Commission Rate Paid
- ----------------------------------
Portfolio turnover 98% 130%
- ----------------------------------
</TABLE>

(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

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

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1996, which can be obtained
free of charge.

FINANCIAL HIGHLIGHTS--CLASS B SHARES
FEDERATED INTERNATIONAL EQUITY FUND

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1997, on the
Fund's financial statements for the year ended November 30, 1996, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C> <C>
1996 1995 1994(A)
]NET ASSET VALUE, BEGINNING OF PERIOD $ 17.70 $ 18.50 $ 19.61
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net operating loss (0.03) (0.08) (0.01)
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 1.26 0.18 (1.10)
- ---------------------------------------------------------------------------------------- --------- --------- ---------
Total from investment operations 1.23 0.10 (1.11)
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Distributions from net investment income (0.00 (b) -- --
- ----------------------------------------------------------------------------------------
Distributions from net realized gain on investments and foreign currency transactions (1.89) (0.90) --
- ---------------------------------------------------------------------------------------- --------- --------- ---------
Total distributions (1.89) (0.90) --
- ---------------------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.04 $ 17.70 $ 18.50
- ---------------------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN (C) 7.59% 0.68% (5.27%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 2.58% 2.52% 2.59%*
- ----------------------------------------------------------------------------------------
Net investment income (0.74%) (0.52%) (0.88%)*
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $16,707 $6,370 $1,214
- ----------------------------------------------------------------------------------------
Average Commission Rate Paid
$0.0018
- ----------------------------------------------------------------------------------------
Portfolio turnover 119% 166% 73%
- ----------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from September 19, 1994 (date of
initial public investment) to November 30, 1994.

(b) Distributions from net investment income is less than 0.01 per share.

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

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1996, which can be obtained
free of charge.

FINANCIAL HIGHLIGHTS--CLASS C SHARES
FEDERATED INTERNATIONAL EQUITY FUND

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1997, on the
Fund's financial statements for the year ended November 30, 1996, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C> <C> <C>
1996 1995 1994 1993(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.50 $ 18.30 $ 16.41 $ 14.88
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
Net operating loss (0.10) (0.12) (0.05) (0.04)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 1.34 0.22 1.98 1.57
- -------------------------------------------------------------------------------- --------- --------- --------- ---------
Total from investment operations 1.24 0.10 1.93 1.53
- -------------------------------------------------------------------------------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions from net investment income (0.00 (b) (0.00 (b) -- --
- --------------------------------------------------------------------------------
Distributions in excess of net investment income (c) -- -- (0.04) --
- -------------------------------------------------------------------------------- --------- --------- --------- ---------
Total distributions from net investment income 0.00 (0.00) (0.04) --
- -------------------------------------------------------------------------------- --------- --------- --------- ---------
Distributions from net realized gain on investments and foreign currency
transactions (1.89) (0.90) -- --
- -------------------------------------------------------------------------------- --------- --------- --------- ---------
Total distributions (1.89) (0.90) (0.04) --
- -------------------------------------------------------------------------------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 16.85 $ 17.50 $ 18.30 $ 16.41
- -------------------------------------------------------------------------------- --------- --------- --------- ---------
TOTAL RETURN (D) 7.75% 0.69% 11.75% 10.28%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Expenses 2.57% 2.46% 2.55% 2.57%*
- --------------------------------------------------------------------------------
Net investment income (0.72%) (0.47%) (0.91%) (1.10%)*
- --------------------------------------------------------------------------------
Expense waiver/reimbursement (e) 0.01% 0.04% 0.00 0.01%*
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,580 $7,146 $8,836 $2,852
- --------------------------------------------------------------------------------
Average Commission Rate Paid
$0.0018
- --------------------------------------------------------------------------------
Portfolio turnover 119% 166% 73% 74%
- --------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from March 31, 1993 (start of business)
to November 30, 1993.

(b) Distributions from net investment income is less than 0.01 per share.

(c) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

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

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

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1996, which can be obtained
free of charge.

GENERAL INFORMATION

The Corporation was established as FT International Trust, a Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under the
laws of the state of Maryland on February 11, 1991. At a special meeting of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the name of the
Corporation to International Series, Inc. The Articles of Incorporation permit
the Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors of the Corporation (the "Directors") has established three classes
of shares known as Class A Shares, Class B Shares, and Class C Shares
(individually and collectively as the context requires, "Shares").

Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended to
provide a complete investment program for an investor.

The minimum initial investment for Class A Shares is $500. The minimum initial
investment for Class B Shares and Class C Shares is $1,500. However, the minimum
initial investment for a retirement account in any class is $50. Subsequent
investments in any class must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.

The Fund's current net asset value ("NAV") and offering price can be found in
the mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The Fund's objective is to obtain a total return on its assets. The objective is
based on the premise that investing in non-U.S. securities provides three
potential benefits over investing solely in U.S. securities:

the opportunity to invest in non-U.S. companies believed to have superior
growth potential;

the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the United States; and

the opportunity to reduce portfolio volatility to the extent that securities
markets inside and outside the United States do not move in harmony.

While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus. The investment objective and policies may be changed by the
Directors without shareholder approval. Shareholders will be notified before any
material change in the objective or policies becomes effective.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The Fund invests primarily in non-U.S. securities. A substantial portion of
these will be equity securities of established companies in economically
developed countries. The Fund will invest at least 65%, and under normal market
conditions substantially all of its total assets, in equity securities
denominated in foreign currencies, including European Currency Units, of issuers
located in at least three countries outside of the United States and sponsored
or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs"),
collectively, "Depositary Receipts." The Fund may also purchase corporate and
government fixed income securities denominated in currencies other than U.S.
dollars; enter into forward commitments, repurchase agreements, and foreign
currency transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.

EQUITY AND FIXED INCOME SECURITIES

At the date of this prospectus, the Fund has committed its assets primarily to
dividend-paying equity securities of established companies that appear to have
growth potential. However, as a temporary defensive position, the Fund may shift
its emphasis to fixed income securities, warrants, or other obligations of
foreign companies or governments, if they appear to offer potential higher
return. Fixed income securities include preferred stock, convertible securities,
bonds, notes, or other debt securities which are investment grade or higher.
However, in no event will the Fund invest more than 25% of its total assets in
the debt securities of any one foreign country.

The high-quality debt securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by Standard & Poor's Ratings Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if unrated,
will be judged by Federated Global Research Corp., the Fund's investment adviser
(the "Adviser"), to be of comparable quality. Because the average quality of the
Fund's portfolio investments should remain constantly between A and AAA, the
Fund will seek to avoid the adverse consequences that may arise for some debt
securities in difficult economic circumstances. Downgraded securities will be
evaluated on a case by case basis by the Adviser. The Adviser will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. A description of the ratings categories is contained
in the Appendix to the Statement of Additional Information.

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

DEPOSITARY RECEIPTS

The Fund may invest in foreign issuers by purchasing sponsored or unsponsored
ADRs, GDRs, and EDRs. ADRs are depositary receipts typically issued by a United
States bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs and GDRs are typically issued by foreign
banks or trust companies, although they also may be issued by United States
banks or trust companies, and evidence ownership of underlying securities issued
by either a foreign or a United States corporation. Generally, Depositary
Receipts in registered form are designed for use in the United States securities
market and Depositary Receipts in bearer form are designed for use in securities
markets outside the United States. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored Depositary Receipts may not entitle
the Fund to financial or other reports from the issuer of the underlying
security, to which it would be entitled as the owner of sponsored Depositary
Receipts.

FORWARD COMMITMENTS

Forward commitments are contracts to purchase securities for a fixed price at a
date beyond customary settlement time. The Fund may enter into these contracts
if liquid securities in amounts sufficient to meet the purchase price are
segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. Risk is involved if the value of the security
declines before settlement.

Although the Fund enters into forward commitments with the intention of
acquiring the security, it may dispose of the commitment prior to settlement and
realize short-term profit or loss.

MONEY MARKET INSTRUMENTS

The Fund may invest in U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government obligations,
certificates of deposit, bankers' acceptances, commercial paper, short-term
corporate debt securities, and repurchase agreements. The commercial paper in
which the Fund invests will be rated A-1 by S&P or P-1 by Moody's. These
investments may be used to temporarily invest cash received from the sale of
Fund Shares, to establish and maintain reserves for temporary defensive
purposes, or to take advantage of market opportunities. Investments in the World
Bank, Asian Development Bank, or Inter-American Development Bank are not
anticipated.

REPURCHASE AGREEMENTS

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

OPTIONS AND FINANCIAL
FUTURES CONTRACTS

The Fund may purchase put and call options, financial futures contracts, and
options on financial futures contracts. In addition, the Fund may write (sell)
put and call options with respect to securities in the Fund's portfolio.
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

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

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

FOREIGN CURRENCY TRANSACTIONS

The Fund will enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot or cash basis at prevailing rates or through forward
foreign currency exchange contracts.

The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties.

Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated on the Fund's records and
are maintained until the contract has been settled. The Fund will not enter into
a forward contract with a term of more than one year. The Fund will generally
enter into a forward contract to provide the proper currency to settle a
securities transaction at the time the transaction occurs ("trade date"). The
period between the trade date and settlement date will vary between 24 hours and
30 days, depending upon local custom.

The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency. No more than 30% of the Fund's assets will be committed to
forward contracts for hedging purposes at any time. (This restriction does not
include forward contracts entered into to settle securities transactions.)

PUT AND CALL OPTIONS WITH RESPECT TO EQUITY SECURITIES

The Fund may purchase put and call options on its portfolio of securities. Put
and call options will be used as a hedge to attempt to protect securities which
the Fund holds, or will be purchasing, against decreases or increases in value.
The Fund is also authorized to write (sell) put and call options on all or any
portion of its portfolio of securities to generate income. The Fund may write
call options on securities either held in its portfolio or which it has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration. In the case of
put options written by the Fund, the Corporation's custodian will segregate
cash, U.S. Treasury obligations, or highly liquid debt securities with a value
equal to or greater than the exercise price of the underlying securities.

The Fund is authorized to invest in put and call options that are traded on
securities exchanges. The Fund may also purchase and write over-the-counter
options ("OTC options") on portfolio securities in negotiated transactions with
the buyers or writers of the options since options on some of the portfolio
securities held by the Fund are not traded on an exchange. The Fund will
purchase and write OTC options only with investment dealers and other financial
institutions (such as commercial banks or savings associations) deemed
creditworthy by the Adviser.

OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not. Prior to exercise or
expiration, an option position can only be terminated by entering into a
closing purchase or sale transaction. This requires a secondary market on an
exchange which may or may not exist for any particular call or put option at
any specific time. The absence of a liquid secondary market also may limit the
Fund's ability to dispose of the securities underlying an option. The inability
to close options also could have an adverse impact on the Fund's ability to
effectively hedge its portfolio.

FINANCIAL FUTURES AND OPTIONS
ON FINANCIAL FUTURES

The Fund may purchase and sell financial futures contracts to hedge all or a
portion of its portfolio securities against changes in interest rates or
securities prices. Financial futures contracts on securities call for the
delivery of particular securities at a certain time in the future. The seller of
the contract agrees to make delivery of the type of instrument called for in the
contract, and the buyer agrees to take delivery of the instrument at the
specified future time. A financial futures contract on a securities index does
not involve the actual delivery of securities, but merely requires the payment
of a cash settlement based on changes in the securities index.

The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value resulting from anticipated increases in market
interest rates or broad declines in securities prices. When the Fund writes a
call option on a financial futures contract, it is undertaking the obligation of
selling the financial futures contract at a fixed price at any time during a
specified period if the option is exercised. Conversely, as a purchaser of a put
option on a financial futures contract, the Fund is entitled (but not obligated)
to sell a financial futures contract at the fixed price during the life of the
option.

The Fund may also write put options and purchase call options on financial
futures contracts as a hedge against rising purchase prices of securities
eligible for purchase by the Fund. The Fund will use these transactions to
attempt to protect its ability to purchase securities in the future at price
levels existing at the time it enters into the transactions. When the Fund
writes a put option on a futures contract, it is undertaking to buy a particular
futures contract at a fixed price at any time during a specified period if the
option is exercised. As a purchaser of a call option on a futures contract, the
Fund is entitled (but not obligated) to purchase a futures contract at a fixed
price at any time during the life of the option.

The Fund may not purchase or sell financial futures contracts or options on
financial futures contracts if, immediately thereafter, the sum of the amount of
initial margin deposits on the Fund's existing financial futures positions and
premiums paid for related options would exceed 5% of the fair market value of
the Fund's total assets, after taking into account the unrealized profits and
losses on those contracts it has entered into. When the Fund purchases financial
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the financial futures contracts (less any related
margin deposits), will be deposited in a segregated account with the Fund's
custodian to collateralize the position and, thereby, insure that the use of
such financial futures contracts is unleveraged.

RISK CONSIDERATIONS

Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries,
including both developed and developing countries. At least three different
countries will always be represented. As of November 30, 1996, the portfolio
contained securities from issuers located primarily in Japan, the United
Kingdom, France, Hong Kong,Germany, Switzerland and Malaysia. There are also
investments in several other countries.
The Fund occasionally takes advantage of the unusual opportunities for higher
returns available from investing in developing countries. As discussed in the
Statement of Additional Information, however, these investments carry
considerably more volatility and risk because they are associated with less
mature economies and less stable political systems.

The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.

Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.

Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.

Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.

CURRENCY RISKS

Because the majority of the securities purchased by the Fund are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's NAV; the value of interest earned; gains and losses
realized on the sales of securities; and net investment income and capital gain,
if any, to be distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of the Fund assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of Fund assets denominated
in that currency will decrease.

The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to
another currency, it may incur conversion costs. Foreign exchange dealers may
realize a profit on the difference between the price at which they buy and
sell currencies.

FOREIGN COMPANIES

Other differences between investing in foreign and U.S. companies include:

less publicly available information about foreign companies;

the lack of uniform accounting, auditing, and financial reporting standards and
practices or regulatory requirements comparable to those applicable to U.S.
companies;

less readily available market quotations on foreign companies;

differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;

differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;

the limited size of many foreign securities markets and limited trading volume
in issuers compared to the volume of trading in U.S. securities could cause
prices to be erratic for reasons apart from factors that affect the quality of
securities;

the likelihood that foreign securities may be less liquid or more volatile;

foreign brokerage commissions may be higher;

unreliable mail service between countries;

political or financial changes which adversely affect investments in some
countries;

increased risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities;

certain markets may require payment for securities before delivery;

religious and ethnic instability; and

certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests.

U.S. GOVERNMENT POLICIES

In the past, U.S. government policies have discouraged or restricted certain
investments abroad by investors such as the Fund. Investors are advised that
when such policies are instituted, the Fund will abide by them.

SHORT SALES

The Fund intends to sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a borrowed security is sold in
anticipation of a decline in its price. If the decline occurs, Shares equal in
number to those sold short can be purchased at the lower price. If the price
increases, the higher price must be paid. The purchased shares are then returned
to the original lender. Risk arises because no loss limit can be placed on the
transaction. When the Fund enters into a short sale, assets, equal to the market
price of the securities sold short or any lesser price at which the Fund can
obtain such securities, are segregated on the Fund's records and maintained
until the Fund meets its obligations under the short sale.

RISKS ASSOCIATED WITH FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FINANCIAL
FUTURES CONTRACTS

Financial futures contracts and options on financial futures contracts can be
highly volatile and could result in a reduction of the Fund's total return. The
Fund's attempt to use such investment devices for hedging purposes may not be
successful. Successful futures strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors. When
the Fund uses financial futures contracts and options on financial futures
contracts as hedging devices, there is a risk that the prices of the securities
subject to the financial futures contracts and options on financial futures
contracts may not correlate perfectly with the prices of the securities in the
Fund. This may cause the financial futures contract and any related options to
react to market changes differently than the portfolio securities. In addition,
the Adviser could be incorrect in its expectations about the direction or extent
of market factors, such as interest rate, securities price movements, and other
economic factors. In these events, the Fund may lose money on the financial
futures contract or the options on financial futures contracts. It is not
certain that a secondary market for positions in financial futures contracts or
for options on financial futures contracts will exist at all times. Although the
Adviser will consider liquidity before entering into financial futures contracts
or options on financial futures contracts transactions, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
financial futures contract or option on a financial futures contract at any
particular time. The Fund's ability to establish and close out financial futures
contracts and options on financial futures contract positions depends on this
secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the losses to the Fund could be
significant.

INVESTMENT LIMITATIONS

The Fund will not:

with respect to 75% of the value of its total assets, invest more than 5% of
the value of its total assets in the securities (other than securities issued
or guaranteed by the government of the United States or its agencies or
instrumentalities) of any one issuer;

acquire more than 10% of the outstanding voting securities of any one issuer,
or acquire any securities of Fiduciary Trust Company International or its
affiliates;

sell securities short except under strict limitations;

borrow money or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up to
15% of the value of those assets to secure such borrowings; nor

permit margin deposits for financial futures contracts held by the Fund, plus
premiums paid by it for open options on financial futures contracts, to exceed
5% of the fair market value of the Fund's total assets, after taking into
account the unrealized profits and losses on those contracts.

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

The Fund will not:

own securities of open-end or closed-end investment companies, except under
certain circumstances and subject to certain limitations not exceeding 10% of
its total assets (the Fund will indirectly bear its proportionate share of any
fees and expenses paid by other investment companies in addition to the fees
and expenses payable directly by the Fund);

invest more than 15% of the value of its net assets in illiquid securities,
including securities not determined by the Directors to be liquid, including
repurchase agreements with maturities longer than seven days after notice and
certain OTC options; nor

purchase put options on securities unless the securities or an offsetting call
option are held in the Fund's portfolio.

NET ASSET VALUE

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

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

INVESTING IN THE FUND

The Fund offers investors three classes of Shares that carry sales charges and
contingent deferred sales charges in different levels of expenses.

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales charge of 5.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales charges. See "Reducing or
Eliminating the Sales Charge." Class A Shares have no conversion feature.

CLASS B SHARES

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

CLASS C SHARES

Class C Shares are sold without an initial sales charge, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to their 12b-1 fee. Class C Shares have no conversion feature.

HOW TO PURCHASE SHARES

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

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

INVESTING IN CLASS A SHARES

Class A Shares are sold at their NAV next determined after an order is received,
plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES DEALER
SALES CHARGE CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or
greater 0.00% 0.00% 0.25%*
</TABLE>

*See sub-section entitled "Dealer Concession" below.

No sales charge is imposed for Class A Shares purchased through financial
intermediaries that do not receive a reallowance of a sales charge. However,
investors who purchase Class A Shares through a trust department, investment
adviser, or other financial intermediary may be charged a service or other fee
by the financial intermediary. Additionally, no sales charge is imposed on
shareholders designated as Liberty Life Members or on Class A Shares purchased
through "wrap accounts" or similar programs, under which clients pay a fee for
services.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund, or other special events at
recreational-type facilities, or of items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge;
however, the distributor will make twelve monthly payments to the dealer
totaling 0.25% of the public offering price over the first year following the
purchase. Such payments are based on the original purchase price of Shares
outstanding at each month end.

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

REDUCING OR ELIMINATING
THE SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Class A Shares
through:
quantity discounts and accumulated purchases;
concurrent purchases.
signing a 13-month letter of intent;
using the reinvestment privilege; or

purchases with proceeds from redemptions of unaffiliated investment companies.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

As shown in the table on page 17, larger purchases may reduce the sales charge
paid. The Fund will combine purchases of Class A Shares made on the same day by
the investor, the investor's spouse, and the investor's children under age 21
when it calculates the sales charge. In addition, the sales charge, if
applicable, is eliminated or reduced for purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge as a percentage of public offering price on the additional
purchase according to the schedule now in effect would be 3.75%, not 4.50%.

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

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge elimination or reduction, a
shareholder has the privilege of combining concurrent purchases of Class A
Shares of two or more funds for which affiliates of Federated Investors serve as
investment adviser or principal underwriter (the "Federated Funds,") the
purchase price of which includes a sales charge. For example, if a shareholder
concurrently invested $30,000 in Class A Shares of one of the other Federated
Funds with a sales charge, and $20,000 in this Fund, the sales charge would be
reduced.

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

LETTER OF INTENT

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

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

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

REINVESTMENT PRIVILEGE

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

PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

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

INVESTING IN CLASS B SHARES

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

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a fee under the Fund's Distribution Plan
(see "Distribution of Shares"). Such conversion will be on the basis of the
relative NAV per Share, without the imposition of any sales charge, fee, or
other charge. Class B Shares acquired by exchange from Class B Shares of another
Federated Fund will convert into Class A Shares based on the time of the initial
purchase. For purposes of conversion to Class A Shares, Shares purchased through
the reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B Shares in
the shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to Class
A Shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that such conversions will
not constitute taxable events for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the conversion of
Class B Shares to Class A Shares will not occur if such ruling or opinion is
not available. In such event, Class B Shares would continue to be subject to
higher expenses than Class A Shares for an indefinite period.

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

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

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

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

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

Once an account has been established, Shares may be purchased by Federal Reserve
wire by calling the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class);
(Fund Number--this number can be found on the account statement or by contacting
the Fund); Account Number; Trade Date and Order Number; Group Number or Dealer
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.

PURCHASING SHARES BY CHECK

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

SPECIAL PURCHASE FEATURES

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

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or for
Individual Retirement Accounts ("IRAs"). For further details, contact the Fund
and consult a tax adviser.

EXCHANGE PRIVILEGE

CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other Federated Funds at NAV. Neither the Fund nor any of the Federated Funds
imposes any additional fees on exchanges. Shareholders in certain other
Federated Funds may exchange all or some of their shares for Class A Shares.

CLASS B SHARES

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

CLASS C SHARES

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

Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 for information on and prospectuses for the Federated Fund
into which your Shares may be exchanged free of charge.

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

REQUIREMENTS FOR EXCHANGE

Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and the proceeds invested in shares of the
other fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege.

TAX CONSEQUENCES

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

MAKING AN EXCHANGE

Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Shareholder Services Company, 1099 Hingham Street, Rockland,
Massachusetts 02370-3317.

TELEPHONE INSTRUCTIONS

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

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

HOW TO REDEEM SHARES

Shares are redeemed at their NAV, less any applicable contingent deferred sales
charge, next determined after the Fund receives the redemption request.
Redemptions will be made on days on which the Fund computes its NAV. Investors
who redeem Shares through a financial intermediary may be charged a service fee
by that financial intermediary. Redemption requests must be received in proper
form and may be made as described below.

REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION

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

REDEEMING SHARES BY TELEPHONE

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

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

REDEEMING SHARES BY MAIL

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

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

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

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.

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

CONTINGENT DEFERRED SALES CHARGE

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

CLASS A SHARES

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

CLASS B SHARES

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

accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seven and thereafter 0.00%
</TABLE>

CLASS C SHARES

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

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

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

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of the last
surviving shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement plan to
a shareholder who has attained the age of 70 1/2; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. No contingent deferred sales charge
will be imposed on redemptions of Shares held by Directors, employees and sales
representatives of the Fund, the distributor, or affiliates of the Fund or
distributor, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates, or any other
financial institution, to the extent that no payments were advanced for
purchases made through such entities. The Fund reserves the right to discontinue
or modify the elimination of the contingent deferred sales charge. Shareholders
will be notified of a discontinuation. Any Shares purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that the shareholder is
entitled to such elimination.

ACCOUNT AND SHARE
INFORMATION

CERTIFICATES AND CONFIRMATIONS

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

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid during the
year.

DIVIDENDS

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

CAPITAL GAINS

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

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Shares required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the NAV of the
respective Share class. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement.

INTERNATIONAL
SERIES, INC. INFORMATION
MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

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

INVESTMENT ADVISER

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to 1.00% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by many mutual funds with similar objectives and policies. The Adviser may
voluntarily waive a portion of its fee. The Adviser can terminate this voluntary
waiver at any time at its sole discretion.

ADVISER'S BACKGROUND

Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to a
number of investment companies. With over $76 billion invested across more than
348 funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,500 financial
institutions nationwide.

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

Henry A. Frantzen has been the Fund's portfolio manager since September 1995.
Mr. Frantzen joined Federated Investors in 1995 as an Executive Vice President
of the Fund's investment adviser. Mr. Frantzen served as Chief Investment
Officer of international equities at Brown Brothers Harriman & Co. from 1992 to
1995. He was the Executive Vice President and Director of Equities at
Oppenheimer Management Corporation from 1989 to 1991.

Drew J. Collins has been the Fund's portfolio manager since September 1995. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as a Vice President/Portfolio
Manager of international equity portfolios at Arnhold and S. 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.

Mark S. Kopinski has been the Fund's portfolio manager since September 1995. Mr.
Kopinski joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Mr. Kopinski served as Vice President/Portfolio Manager of
international equity funds at Twentieth Century Mutual Funds from 1990 to 1995.
Mr. Kopinski received his M.B.A. in Asian Studies from the University of
Illinois.

Frank Semack has been the Fund's portfolio manager since September 1995. Mr.
Semack joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. He served as an Investment Analyst at Omega Advisers, Inc.
from 1993 to 1994. He served as an Associate Director/Portfolio Manager of
Wardley Investment Services, Ltd. from 1987 to 1993. Mr. Semack received his
M.Sc. in economics from the London School of Economics.

Alexandre de Bethmann has been the Fund's portfolio manager since September
1995. Mr. de Bethmann joined Federated Investors in 1995 as a Vice President of
the Fund's investment 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. He served as an International
Equities Analyst and then as an Assistant Portfolio Manager at the College
Retirement Equities Fund between 1987 and 1994. Mr. de Bethmann received
his M.B.A. in Finance from Duke University.

DISTRIBUTION OF SHARES

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

The distributor will pay dealers an amount equal to 5.50% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.

The distributor may offer to pay financial institutions an amount up to 1.00% of
the NAV of Class C Shares purchased by their clients or customers at the time of
purchase. These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.

DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of 0.75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution-related support services
pursuant to the Distribution Plan.

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

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50% of the NAV of Class A Shares
purchased by their clients or customers under certain qualified plans as
approved by Federated Securities Corp. (Such payments are subject to a reclaim
from the financial institution should the assets leave the program within 12
months after purchase.)

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

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Corporation and the Fund. Federated
Services Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE DAILY
FEE NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>

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

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet this criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that particular Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Fund's operation and for the election of Directors under certain
circumstances.

Directors may be removed by the Directors or by shareholders at a special
meeting. The Directors shall call a special meeting of shareholders upon the
written request of shareholders owning at least 10% of the Corporation's
outstanding shares entitled to vote.

As of December 31, 1996, Merrill Lynch Pierce Fenner & Smith, Jacksonville,
Florida, owned 38.90% of the Class C Shares of the Fund, and therefore, may, for
certain purposes be deemed to control the Fund and be able to affect the out
come of certain matters presented for a vote of shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended (the "Code"), applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies. However, the Fund may invest in the stock of certain foreign
corporations which would constitute a Passive Foreign Investment Company
("PFIC"). Federal income taxes may be imposed on the Fund upon disposition of
PFIC investments.

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

Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.

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

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

STATE AND LOCAL TAXES

Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises the total return for each class of
Shares.

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

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

Total return will be calculated separately for Class A Shares, Class B Shares,
and Class C Shares. Expense differences between Class A Shares, Class B Shares
and Class C Shares may affect the performance of each class.

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

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

Federated International Equity Fund
Class A Shares, Class B Shares and Class C Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

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

INVESTMENT ADVISER
Federated Global Research Corp.
175 Water Street
New York, New York 10038-4965

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
2100 One PPG Place
Pittsburgh, Pennsylvania 15222

FEDERATED INTERNATIONAL
EQUITY FUND

(A PORTFOLIO OF INTERNATIONAL
SERIES, INC.)
CLASS A SHARES, CLASS B SHARES,
CLASS C SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
January 31, 1997

[LOGO]

Cusip 46031P308
Cusip 46031P605
Cusip 46031P407
G00692-02-ABC (1/97)

FEDERATED INTERNATIONAL EQUITY FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
CLASS A SHARES
PROSPECTUS

The Class A Shares of Federated International Equity Fund (the "Fund") represent
interests in a diversified investment portfolio of International Series, Inc.
(the "Corporation"), an open-end, management investment company (a mutual fund).
The Fund invests primarily in equity securities of non-U.S. issuers to obtain a
total return on its assets.

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

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

The Fund has also filed a Statement of Additional Information dated January 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact the Fund
at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Fund are maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).

Prospectus dated January 31, 1997

TABLE OF CONTENTS

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

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

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

Investment Information.........................................................3
Investment Objective.........................................................3
Investment Policies..........................................................3
Risks Associated with Financial
Futures Contracts and Options
on Financial Futures Contracts...........................................10
Investment Limitations......................................................10

Net Asset Value...............................................................11

How to Purchase Shares........................................................12
Investing in Shares.........................................................12
Reducing or Eliminating
the Sales Charge.........................................................13
Purchasing Shares through
a Financial Institution..................................................14
Purchasing Shares By Wire...................................................15
Purchasing Shares By Check..................................................15
Special Purchase Features...................................................15
Retirement Plans............................................................15

Exchange Privilege............................................................16
Requirements for Exchange...................................................16
Tax Consequences............................................................16

Making an Exchange..........................................................16

How to Redeem Shares..........................................................17
Redeeming Shares Through Your
Financial Institution....................................................17
Redeeming Shares by Telephone...............................................17
Redeeming Shares by Mail....................................................18
Special Redemption Features.................................................18
Contingent Deferred Sales Charge............................................19
Elimination of Contingent Deferred
Sales Charge.............................................................19

Account and Share Information.................................................20

International Series, Inc. Information........................................21
Management of the Corporation...............................................21
Distribution to Shares......................................................23
Administration of the Fund..................................................23
Brokerage Transactions......................................................24
Shareholder Information.......................................................25
Voting Rights...............................................................25

Tax Information...............................................................25
Federal Income Tax..........................................................25
State and Local Taxes.......................................................26

Performance Information.......................................................26

Other Classes of Shares.......................................................27

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

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

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee............................................................................................... 1.00%
12b-1 Fee.................................................................................................... None
Total Other Expenses......................................................................................... 0.68%
Shareholder Services Fee (after waiver) (2).................................................. 0.10%
Total Operating Expenses (3)................................................................................. 1.68%
</TABLE>

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

(3) The total operating expenses would have been 1.83% absent the waiver of a
portion of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Shares" and "International Series,
Inc. Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period, and (3) payment of the maximum sales charge....................... $71 $105 $141 $243
</TABLE>

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

FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1997, on the
Fund's financial statements for the year ended November 30, 1996, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.89 $ 18.53 $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59 $ 17.34
- ------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------
Net investment income 0.03 0.09 0.15 0.06 0.10 0.11 0.19 0.18
- ------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.38 0.17 1.96 2.53 (0.37) 0.37 (1.16) 1.60
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 1.41 0.26 2.11 2.59 (0.27) 0.48 (0.97) 1.78
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------
Distributions from net investment
income (0.09) (0.003) (0.07) (0.06) (0.08) (0.21) (0.20) (0.23)
- ------------------------------------
Distributions in excess of net
investment income (a) -- -- -- (0.13) -- -- -- --
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions from net
investment income (0.09) (0.003) (0.07) (0.19) (0.08) (0.21) (0.20) (0.23)
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Distributions from net realized
gain on investments and foreign
currency transactions (1.89) (0.90) -- -- -- (0.11) (2.14) (1.30)
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (1.98) (0.90) (0.07) (0.19) (0.08) (0.32) (2.34) (1.53)
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.32 $ 17.89 $ 18.53 $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (B) 8.63% 1.60% 12.82% 18.52% (1.86%) 3.49% (6.72%) 11.55%
- ------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------
Expenses 1.68% 1.57% 1.61% 1.60% 1.57% 1.52% 1.32% 1.01%
- ------------------------------------
Net investment income 0.15% 0.42% -- 0.13% 0.69% 0.78% 1.39% 1.04%
- ------------------------------------
Expense waiver/reimbursement (c) 0.15% 0.18% -- 0.01% 0.02% 0.30% 0.25% 0.46%
- ------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------
Net assets, end of period
(000 omitted) $172,938 $191,911 $261,178 $192,860 $106,937 $101,980 $82,541 $65,560
- ------------------------------------
Averge Commission Rate Paid $0.0018
- ------------------------------------
Portfolio turnover 119% 166% 73% 74% 91% 84% 114% 85%
- ------------------------------------

<CAPTION>
<S> <C> <C>
1988 1987
<S> <C> <C>
- ------------------------------------ --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.99 $ 22.87
- ------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------
Net investment income 0.19 0.24
- ------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 3.27 (0.72)
- ------------------------------------ --------- ---------
Total from investment operations 3.46 (0.48)
- ------------------------------------ --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------
Distributions from net investment
income (0.23) (0.05)
- ------------------------------------
Distributions in excess of net
investment income (a) -- --
- ------------------------------------ --------- ---------
Total distributions from net
investment income (0.23) (0.05)
- ------------------------------------ --------- ---------
Distributions from net realized
gain on investments and foreign
currency transactions (5.88) (2.35)
- ------------------------------------ --------- ---------
Total distributions (6.11) (2.40)
- ------------------------------------ --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.34 $ 19.99
- ------------------------------------ --------- ---------
TOTAL RETURN (B) 24.33% (2.70%)
- ------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------
Expenses 1.00% 1.00%
- ------------------------------------
Net investment income 1.43% 0.93%
- ------------------------------------
Expense waiver/reimbursement (c) 0.28% 0.17%
- ------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------
Net assets, end of period
(000 omitted) $68,922 $85,860
- ------------------------------------
Averge Commission Rate Paid
- ------------------------------------
Portfolio turnover 98% 130%
- ------------------------------------
</TABLE>

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

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1996, which can be obtained
free of charge.

GENERAL INFORMATION

The Corporation was established as FT International Trust, a Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under the
laws of the state of Maryland on February 11, 1991. At a special meeting of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the name of the
Corporation to International Series, Inc. The Articles of Incorporation permit
the Corporation to offer separate series of shares representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Directors of the Corporation (the "Directors") has
established three classes of shares known as Class A Shares, Class B Shares, and
Class C Shares. This prospectus relates only to Class A Shares (the "Shares") of
the Fund.

Class A Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended to
provide a complete investment program for an investor. A minimum initial
investment of $500 is required, unless the investment is in a retirement
account, in which case the minimum investment is $50.

The Fund's current net asset value ("NAV") and offering price can be found in
the mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

the opportunity to invest in non-U.S. companies believed to have superior
growth potential;

the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the United States; and

the opportunity to reduce portfolio volatility to the extent that securities
markets inside and outside the United States do not move in harmony.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

three countries outside of the United States and sponsored or unsponsored
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), and
European Depositary Receipts ("EDRs"), collectively, "Depositary Receipts." The
Fund may also purchase corporate and government fixed income securities
denominated in currencies other than U.S. dollars; enter into forward
commitments, repurchase agreements, and foreign currency transactions; maintain
reserves in foreign or U.S. money market instruments; and purchase options and
financial futures contracts.

EQUITY AND FIXED INCOME SECURITIES

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

DEPOSITARY RECEIPTS

FORWARD COMMITMENTS

are segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. Risk is involved if the value of the security
declines before settlement. Although the Fund enters into forward commitments
with the intention of acquiring the security, it may dispose of the commitment
prior to settlement and realize short-term profit or loss.

MONEY MARKET INSTRUMENTS

REPURCHASE AGREEMENTS

OPTIONS AND FINANCIAL FUTURES CONTRACTS

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

FOREIGN CURRENCY TRANSACTIONS

may be used by the Fund to protect against a decline in the value of one or more
currencies, such efforts may also limit any potential gain that might result
from a relative increase in the value of such currencies and might, in certain
cases, result in losses to the Fund.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

PUT AND CALL OPTIONS WITH RESPECT TO EQUITY SECURITIES

credit-worthy by the Adviser.

OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while OTC options may not. Prior to exercise or expiration, an option position
can only be terminated by entering into a closing purchase or sale transaction.
This requires a secondary market on an exchange which may or may not exist for
any particular call or put option at any specific time. The absence of a liquid
secondary market also may limit the Fund's ability to dispose of the securities
underlying an option. The inability to close options also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio.

FINANCIAL FUTURES AND OPTIONS
ON FINANCIAL FUTURES

RISK CONSIDERATIONS

The Fund occasionally takes advantage of the unusual opportunities for higher
returns available from investing in developing countries. As discussed in the
Statement of Additional Information, however, these investments carry
considerably more volatility and risk because they are associated with less
mature economies and less stable political systems.

entered into a contract to sell the security, could result in possible liability
to the purchaser.

CURRENCY RISKS

The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.

FOREIGN COMPANIES
Other differences between investing in foreign and U.S. companies include:

. less publicly available information about foreign companies;

. the lack of uniform accounting, auditing, and financial reporting standards
and practices or regulatory requirements comparable to those applicable to
U.S. companies;

. less readily available market quotations on foreign companies;

. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;

. differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;

. the limited size of many foreign securities markets and limited trading volume
in issuers compared to the volume of trading in U.S. securities could cause
prices to be erratic for reasons apart from factors that affect the quality of
securities;

. the likelihood that foreign securities may be less liquid or more volatile;

. foreign brokerage commissions may be higher;

. unreliable mail service between countries;

. political or financial changes which adversely affect investments in some
countries;

. increased risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities;
. certain markets may require payment for securities before delivery;

. religious and ethnic instability; and

. certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests.

U.S. GOVERNMENT POLICIES

SHORT SALES

The Fund intends to sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a borrowed security is sold in
anticipation of a decline in its price. If the decline occurs, Shares equal in
number to those sold short can be purchased at the lower price. If the price
increases, the higher price must be paid. The purchased Shares are then returned
to the original lender. Risk arises because no loss limit can be placed on the
transaction. When the Fund enters into a short sale, assets, equal to the market
price of the securities sold short or any lesser price at which the Fund can
obtain such securities, are segregated on the Fund's records and maintained
until the Fund meets its obligations under the short sale.

RISKS ASSOCIATED WITH FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FINANCIAL
FUTURES CONTRACTS

INVESTMENT LIMITATIONS

The Fund will not:

. with respect to 75% of the value of its total assets, invest more than 5% of
the value of its total assets in the securities (other than securities issued
or guaranteed by the government of the United States or its agencies or
instrumentalities) of any one issuer;

. acquire more than 10% of the outstanding voting securities of any one issuer,
or acquire any securities of Fiduciary Trust Company International or its
affiliates;

. sell securities short except under strict limitations;

. borrow money or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and pledge
up to 15% of the value of those assets to secure such borrowings; nor

. permit margin deposits for financial futures contracts held by the Fund, plus
premiums paid by it for open options on financial futures contracts, to exceed
5% of the fair market value of the Fund's total assets, after taking into
account the unrealized profits and losses on those contracts.

The Fund will not:

. own securities of open-end or closed-end investment companies, except under
certain circumstances and subject to certain limitations not exceeding 10% of
its total assets (the Fund will indirectly bear its proportionate share of any
fees and expenses paid by other investment companies, in addition to the fees
and expenses payable directly by the Fund);

. invest more than 15% of the value of its net assets in illiquid securities,
including securities not determined by the Directors to be liquid, including
repurchase agreements with maturities longer than seven days after notice and
certain OTC options; nor

. purchase put options on securities unless the securities or an offsetting call
option are held in the Fund's portfolio.

NET ASSET VALUE

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

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

HOW TO PURCHASE SHARES

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

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

INVESTING IN SHARES

Shares are sold at their NAV next determined after an order is received, plus a
sales charge as follows:
<TABLE>
<CAPTION>
SALES DEALER
SALES CHARGE CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or
greater 0.00% 0.00% 0.25%*
</TABLE>

*See sub-section entitled "Dealer Concession" below.

No sales charge is imposed for Shares purchased through financial intermediaries
that do not receive a reallowance of a sales charge. However, investors who
purchase Shares through a trust department, investment adviser or other
financial intermediary may be charged a service or other fee by the financial
intermediary. Additionally, no sales charge is imposed on shareholders
designated as Liberty Life Members or on Shares purchased through "wrap
accounts" or similar programs, under which clients pay a fee for services.

DEALER CONCESSION

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

$1 million or more, the investor pays no sales charge; however, the distributor
will make twelve monthly payments to the dealer totaling 0.25% of the public
offering price over the first year following the purchase. Such payments are
based on the original purchase price of Shares outstanding at each month end.

REDUCING OR ELIMINATING THE
SALES CHARGE
The sales charge can be reduced or eliminated on the purchase of Shares through:
. quantity discounts and accumulated purchases;

. concurrent purchases;

. signing a 13-month letter of intent;

. using the reinvestment privilege; or

. purchases with proceeds from redemptions of unaffiliated investment companies.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

As shown in the table on page 12, larger purchases may reduce the sales charge
paid. The Fund will combine purchases of Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
eliminated or reduced for purchases made at one time by a trustee or fiduciary
for a single trust estate or a single fiduciary account.

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

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

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge elimination or reduction, a
shareholder has the privilege of combining concurrent purchases of Class A
Shares of two or more funds for which affiliates of Federated Investors serve as
investment adviser or principal underwriter (the "Federated Funds"), the
purchase price of which includes a sales charge. For example, if a shareholder
concurrently invested $30,000 in Class A Shares of one of the other Federated
Funds with a sales charge, and $20,000 in this Fund, the sales charge would be
reduced.

If a shareholder intends to purchase at least $50,000 of Class A Shares of
Federated Funds (excluding management funds) over the next 13

months, the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period, and a
provision for the custodian to hold 5.50% of the total amount intended to be
purchased in escrow (in Shares) until such purchase is completed.

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

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

REINVESTMENT PRIVILEGE

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

PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

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

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

promptly. Financial institutions may charge additional fees for their services.

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by Federal Reserve
wire by calling the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number--this
number can be found on the account statement or by contacting the Fund); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.

PURCHASING SHARES BY CHECK

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

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

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

RETIREMENT PLANS

Shares of the Fund can be purchased as an investment for retirement plans or for
Individual Retirement Accounts ("IRAs"). For further details, contact the Fund
and consult a tax adviser.

EXCHANGE PRIVILEGE

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a NAV equal to the
minimum investment requirements of the fund into which the exchange is being
made. Before the exchange, the shareholder must receive a prospectus of the fund
for which the exchange is being made.
Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and the proceeds invested in shares of the
other fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege.

TAX CONSEQUENCES

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

MAKING AN EXCHANGE

TELEPHONE INSTRUCTIONS

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600, and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 P.M. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day.

Shareholders exchanging into a fund will not receive any dividend that is
payable to shareholders of record on that date. This privilege may be modified
or terminated at any time.

HOW TO REDEEM SHARES

Shares are redeemed at their NAV, less any applicable contingent deferred sales
charges, next determined after the Fund receives the redemption request.
Redemptions will be made on days on which the Fund computes its NAV. Investors
who redeem Shares through a financial intermediary may be charged a service fee
by that financial intermediary. Redemption requests must be received in proper
form and may be made as described below.

REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION

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

REDEEMING SHARES BY TELEPHONE

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

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

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

REDEEMING SHARES BY MAIL

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

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

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. To be eligible to participate in
this program, a shareholder must have an account value of at least $10,000,
other than retirement accounts subject to required minimum distributions. A
shareholder may apply for participation in this program through his financial
institution. Due to the fact that Shares are sold with a sales charge, it is not
advisable for shareholders to continue to purchase Shares while participating in
this program.
CONTINGENT DEFERRED SALES CHARGE

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

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

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

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

ACCOUNT AND SHARE
INFORMATION

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid during the
year.

DIVIDENDS

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

ACCOUNTS WITH LOW BALANCES

of $500. This requirement does not apply, however, if the balance falls below
$500 because of changes in the Fund's NAV. Before Shares are redeemed to close
an account, the shareholder is notified in writing and allowed 30 days to
purchase additional Shares to meet the minimum requirement.

INTERNATIONAL SERIES, INC.
INFORMATION

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

ADVISORY FEES

ADVISER'S BACKGROUND

Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment

Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to a
number of investment companies. With over $76 billion invested across more than
348 funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,500 financial
institutions nationwide.

Frank Semack has been the Fund's portfolio manager since September 1995. Mr.
Semack joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Mr. Semack served as an Investment Analyst at Omega
Advisers, Inc. from 1993 to 1994. He served as an Associate Director/Portfolio
Manager of Wardley Investment Services, Ltd. from 1987 to 1993. Mr. Semack
received his M.Sc. in economics from the London School of Economics.

DISTRIBUTION OF SHARES

SHAREHOLDER SERVICES

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

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50% of the NAV of Class A Shares
purchased by their clients or customers under certain qualified retirement plans
as approved by Federated Securities Corp. (Such payments are subject to a
reclaim from the financial institution should the assets leave the program
within 12 months after purchase.)

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

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

affiliates of Federated Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet this criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.

SHAREHOLDER INFORMATION

VOTING RIGHTS

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

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

As of December 31, 1996, Merrill Lynch Pierce Fenner & Smith, Jacksonville,
Florida, owned 38.90% of the Class C Shares of the Fund, and, therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

long-term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.

STATE AND LOCAL TAXES

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

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

PERFORMANCE INFORMATION

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

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

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

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

OTHER CLASSES OF SHARES

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

Class B Shares are sold at NAV and are subject to a 12b-1 Plan, a Shareholder
Services Agreement and a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50. A
contingent deferred sales charge is imposed on certain shares which are redeemed
within six full years of purchase.

Class C Shares are sold at NAV and are subject to a 12b-1 Plan, a Shareholder
Services Agreement and a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50. A
contingent deferred sales charge of 1.00% is imposed on assets redeemed within
the first full 12 months following purchase.

Expense differences between Class A Shares, Class B Shares and Class C Shares
may affect the performance of each class.

To obtain more information and a prospectus for Class B Shares and Class C
Shares, investors may call 1-800-341-7400 or contact their financial
institution.

ADDRESSES

Federated International Equity Fund
Class A Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

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

INVESTMENT ADVISER
Federated Global Research Corp.
175 Water Street
New York, New York 10038-4965

TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

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

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222

FEDERATED INTERNATIONAL
EQUITY FUND
(A PORTFOLIO OF INTERNATIONAL
SERIES, INC.)
CLASS A SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
January 31, 1997

[LOGO] FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

FEDERATED SECURITIES CORP. IS THE DISTRIBUTOR OF THE FUND
AND IS A SUBSIDIARY OF FEDERATED INVESTORS.

Cusip 46031P308
1010302A-A (1/97) [RECYCLED LOGO]

FEDERATED INTERNATIONAL EQUITY FUND
A PORTFOLIO OF INTERNATIONAL SERIES, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated International Equity Fund (the ``Fund'), a
portfolio of International Series, Inc. (the ``Corporation') dated
January 31, 1997. This Statement is not a prospectus. You may request a
copy of a prospectus or a paper copy of this Statement of Additional
Information, if you have received it electronically, free of charge by
calling 1-800-341-7400.

Statement dated January 31, 1997

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 46031P308
Cusip 46031P605
Cusip 46031P407
1010302B (1/97)

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Types of Investments 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 1
Lending Portfolio Securities 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 2
Futures Contracts 2
Put Options on Futures Contracts 3
Call Options on Futures Contracts 3
``Margin''in Futures Transactions 4
Regulatory Restrictions 4
Purchasing Put Options on Portfolio Securities4
Writing Covered Call Options on Portfolio
Securities 4
Over-the-Counter Options 4
Warrants 5
Additional Risk Considerations 5
Portfolio Turnover 5
INVESTMENT LIMITATIONS 5

INTERNATIONAL SERIES, INC. MANAGEMENT 8

Fund Ownership 12
Directors Compensation 13
INVESTMENT ADVISORY SERVICES 14

Adviser to the Fund 14

Advisory Fees 14
BROKERAGE TRANSACTIONS 14

OTHER SERVICES 14

Fund Administration 14
Custodian and Portfolio Accountant 15
Transfer Agent 15
Independent Public Accountants 15
PURCHASING SHARES 15

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 15

Purchases by Sales Representatives, Directors of
the Corporation, and Employees 15
DETERMINING NET ASSET VALUE 16

Determining Market Value of Securities 16
Trading in Foreign Securities 16
REDEEMING SHARES 16

Redemption in Kind 16
Elimination of the Contingent Deferred Sales
Charge 17
TAX STATUS 17

The Fund's Tax Status 17
Foreign Taxes 17
Shareholders' Tax Status 17
TOTAL RETURN 18

PERFORMANCE COMPARISONS 18

Economic and Market Information 19
ABOUT FEDERATED INVESTORS 19

FINANCIAL STATEMENTS 20

APPENDIX 21

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in International Series, Inc. (the
`Corporation''), which was established as FT International Trust, a
Massachusetts business trust, under a Declaration of Trust dated March 9,
1984, and reorganized as a corporation under the laws of the state of
Maryland on February 11, 1991. At a special meeting of shareholders held on
March 15, 1994, the shareholders of the Corporation approved an amendment
to the Articles of Incorporation to change the name of the Corporation from
FT Series, Inc., to International Series, Inc.
Shares of the Fund are offered in three classes, known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively referred
to as `Shares'' as the context may require). This Statement of Additional
Information relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to obtain a total return on its assets.
The objective is based on the premise that investing in non-U.S. securities
provides three potential benefits over investing solely in U.S. securities:
othe opportunity to invest in non-U.S. companies believed to have
superior growth potential;
othe opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United
States; and
othe opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not move
in harmony.
TYPES OF INVESTMENTS
The Fund invests in a diversified portfolio composed primarily of non-U.S.
securities. A substantial portion of these instruments will be equity

securities of established companies in economically developed countries.
The Fund will invest at least 65%, and under normal market conditions,
substantially all of its total assets, in equity securities denominated in
foreign currencies, including European Currency Units, of issuers located
in at least three countries outside of the United States and sponsored or
unsponsored American Depositary Receipts , Global Depositary Receipts , and
European Depositary Receipts , collectively, `Depositary Receipts.'' The
Fund may also purchase investment grade fixed income securities and foreign
government securities; enter into forward commitments, repurchase
agreements, and foreign currency transactions; and maintain reserves in
foreign or U.S. money market instruments.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
In the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject

to repurchase agreements, a court of competent jurisdiction would rule in
favor of the Fund and allow retention or disposition of such securities.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by Federated Global Research Corp., the Fund's investment adviser (the
`Adviser'') to be creditworthy.

LENDING PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its portfolio
securities to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the Adviser has
determined are creditworthy under guidelines established by the
Corporation's Board of Directors (the `Directors'') and will receive
collateral equal to at least 100% of the value of the securities loaned.
The Fund did not lend portfolio securities during the last fiscal year and
has no present intent to do so in the current fiscal year.
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and

regain the right to vote if that were considered important with respect to
the investment.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission (`SEC'') Staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the `Rule''). The Rule is a
non-exclusive, safe-harbor for certain secondary market transactions
involving securities subject to restrictions on resale under federal
securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under Rule 144A. The
Fund believes that the staff of the SEC has left the question of
determining the liquidity of all restricted securities (eligible for resale
under Rule 144A) to the Directors. The Directors consider the following
criteria in determining the liquidity of certain restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
When the Fund invests in certain restricted securities determined by the
Directors to be liquid, such investments could have the effect of
increasing the level of Fund illiquidity to the extent that the buyers in
the secondary market for such securities (whether in Rule 144A resales or
other exempt transactions) become, for a time, uninterested in purchasing
these securities.

FUTURES AND OPTIONS TRANSACTIONS
The Fund may engage in futures and options hedging transactions. In an
effort to reduce fluctuations in the net asset value of Shares, the Fund
may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options
on portfolio securities to attempt to increase its current income. The Fund
will maintain its positions in securities, option rights, and segregated
cash subject to puts and calls until the options are exercised, closed, or
have expired. An option position on financial futures contracts may be
closed out only on the exchange on which the position was established.
FUTURES CONTRACTS
The Fund may engage in transactions in futures contracts. A futures
contract is a firm commitment by two parties: the seller who agrees to make
delivery of the specific type of security called for in the contract
(`going short'') and the buyer who agrees to take delivery of the security
(`going long'') at a certain time in the future. However, a stock index
futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the difference between
the value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written. No
physical delivery of the underlying securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by anticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest

rates. A rise in rates generally means a drop in price. Conversely, a drop
in rates generally means a rise in price. In order to hedge its holdings of
fixed income securities against a rise in market interest rates, the Fund
could enter into contracts to deliver securities at a predetermined price
(i.e., `go short'') to protect itself against the possibility that the
prices of its fixed income securities may decline during the anticipated
holding period. The Fund would `go long'' (i.e., agree to purchase
securities in the future at a predetermined price) to hedge against a
decline in market interest rates.
PUT OPTIONS ON FUTURES CONTRACTS
The Fund may engage in transactions in put options on futures contracts.
The Fund may purchase listed put options on futures contracts. Unlike
entering directly into a futures contract, which requires the purchaser to
buy a financial instrument on a set date at a specified price, the purchase
of a put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price. The Fund would purchase put options on
futures contracts to protect portfolio securities against decreases in
value resulting from market factors, such as an anticipated increase in
interest rates.
Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, the Fund
will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale of the
second option may be large enough to offset both the premium paid by the
Fund for the original option plus the decrease in value of the hedged
securities. Alternatively, the Fund may exercise its put option to close

out the position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would then
deliver the futures contract in return for payment of the strike price. If
the Fund neither closes out nor exercises an option, the option will expire
on the date provided in the option contract, and only the premium paid for
the contract will be lost.
When the Fund sells a put on a futures contract, it receives a cash premium
which can be used in whatever way is deemed most advantageous to the Fund.
In exchange for such premium, the Fund grants to the purchaser of the put
the right to receive from the Fund, at the strike price, a short position
in such futures contract, even though the strike price upon exercise of the
option is greater than the value of the futures position received by such
holder. If the value of the underlying futures position is not such that
exercise of the option would be profitable to the option holder, the option
will generally expire without being exercised. The Fund has no obligation
to return premiums paid to it whether or not the option is exercised. It
will generally be the policy of the Fund, in order to avoid the exercise of
an option sold by it, to cancel its obligation under the option by entering
into a closing purchase transaction, if available, unless it is determined
to be in the Fund's interest to deliver the underlying futures position. A
closing purchase transaction consists of the purchase by the Fund of an
option having the same term as the option sold by the Fund, and has the
effect of canceling the Fund's position as a seller. The premium which the
Fund will pay in executing a closing purchase transaction may be higher
than the premium received when the option was sold, depending in large part
upon the relative price of the underlying futures position at the time of
each transaction.

CALL OPTIONS ON FUTURES CONTRACTS
The Fund may engage in transactions in call options on futures contracts.
In addition to purchasing put options on futures, the Fund may write listed
call options on futures contracts to hedge its portfolio against, for
example, an increase in market interest rates. When the Fund writes a call
option on a futures contract, it is undertaking the obligation of assuming
a short futures position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the option is exercised.
As market interest rates rise or as stock prices fall, causing the prices
of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the
value of the Fund's call option position to increase. In other words, as
the underlying future's price goes down below the strike price, the buyer
of the option has no reason to exercise the call, so that the Fund keeps
the premium received for the option. This premium can help substantially to
offset the drop in value of the Fund's portfolio securities. Prior to the
expiration of a call written by the Fund, or exercise of it by the buyer,
the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the
premium received by the Fund for the initial option. The net premium income
of the Fund will then help offset the decrease in value of the hedged
securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the
comparative market value of such futures position at the time the option is

exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract.

The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio (including cash or cash
equivalents) plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
`MARGIN'' IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of `initial margin'' in cash or U.S.
Treasury bills with the custodian (or the broker, if legally permitted).
The nature of initial margin in futures transactions is different from that
of margin in securities transactions in that futures contracts initial
margin does not involve a borrowing by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund

pays or receives cash, called `variation margin,'' equal to the daily
change in value of the futures contract. This process is known as `marking
to market.''Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions. The Fund is also required to deposit and maintain margin
when it writes call options on futures contracts.
REGULATORY RESTRICTIONS
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid status as a `commodity pool operator,''
the Fund will not enter into a futures contract, or purchase an option
thereon, if immediately thereafter the initial margin deposits for futures
contracts held by it, plus premiums paid by it for open options on futures,
would exceed 5% of the total assets of the Fund. The Fund will not engage
in transactions in futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting
the value of assets which the Fund holds or intends to purchase. When
futures contracts or options thereon are purchased in order to protect
against a price increase on securities or other assets intended to be
purchased later, it is anticipated that at least 75% of such intended
purchases will be completed. When other futures contracts or options
thereon are purchased, the underlying value of such contracts will at all
times not exceed the sum of (1) accrued profit on such contracts held by
the broker; (2) cash or high-quality money market instruments set aside in
an identifiable manner; and (3) cash proceeds from investments due in 30
days or less.

PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may write covered call options to generate income. As a writer of
a call option, the Fund has the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment of
the exercise price. The Fund may only sell call options either on
securities held in its portfolio or on securities which it has the right to
obtain without payment of further consideration (or has segregated cash in
the amount of any additional consideration).
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options (`OTC options'')
on portfolio securities in negotiated transactions with the buyers or
writers of the options for those options on portfolio securities held by
the Fund and not traded on an exchange.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while over-the-counter options may not.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market
value of the optioned common stock at issuance) valid for a specific period

of time. Warrants may have a life ranging from less than a year to twenty
years or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of the
common stock does not exceed the warrant's exercise price during the life
of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase or decrease
in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition
by any foreign government of exchange control restrictions which would
affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of
foreign governments to which such assets may be exposed. The Directors also
consider the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in the
absence of willful misfeasance, bad faith or gross negligence on the part
of the Adviser, any losses resulting from the holding of the Funds'
portfolio securities in foreign countries and/or with securities
depositories will be at the risk of shareholders. No assurance can be given
that the Directors' appraisal of the risks will always be correct or that
such exchange control restrictions or political acts of foreign governments
might not occur.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. Portfolio securities will be

sold when the Adviser believes it is appropriate, regardless of how long
those securities have been held. For the fiscal years ended November 30,
1996 and 1995, the portfolio turnover rates were 119% and 166%,
respectively.
For the fiscal year ended November 30, 1995, the variation in the Fund's
portfolio turnover rate was due to country rotations, investment
transactions, and an increase in the number of redemptions incurred by the
Fund.
INVESTMENT LIMITATIONS

DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will
not purchase securities of any one issuer (other than securities
issued or guaranteed by the government of the United States or its
agencies or instrumentalities) if as a result more than 5% of the
value of its total assets would be invested in the securities of that
issuer.
ACQUIRING SECURITIES
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer, or acquire any securities of Fiduciary
Trust Company International or its affiliates.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of its total assets in
securities of issuers having their principal business activities in
the same industry.
BORROWING
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts up to
one-third of the value of its total assets, including the amount

borrowed. The Fund will not purchase securities while outstanding
borrowings exceed 5% of the value of its total assets. (This borrowing
provision is not for investment leverage but solely to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities would be
inconvenient or disadvantageous. )

PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate assets, except when
necessary for permissible borrowings. In those cases, it may pledge
assets having a value of 15% of its assets taken at cost. Neither the
deposit of underlying securities or other assets in escrow in
connection with the writing of put or call options or the purchase of
securities on a when-issued basis, nor margin deposits for the
purchase and sale of financial futures contracts and related options
are deemed to be a pledge.
BUYING ON MARGIN
The Fund will not purchase any securities on margin, but may obtain
such short-term credits as are necessary for clearance of
transactions, except that the Fund may make margin payments in
connection with its use of financial futures contracts or related
options and transactions.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except in connection with
transactions described in other investment limitations or as required
by forward commitments to purchase securities or currencies.

UNDERWRITING
The Fund will not underwrite or participate in the marketing of
securities of other issuers, except as it may be deemed to be an
underwriter under federal securities law in connection with the
disposition of its portfolio securities.
INVESTING IN REAL ESTATE
The Fund will not invest in real estate, although it may invest in
securities secured by real estate or interests in real estate or
issued by companies, including real estate investment trusts, which
invest in real estate or interests therein.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities or commodity contracts,
except that the Fund may purchase and sell financial futures contracts
and options on financial futures contracts, provided that the sum of
its initial margin deposits for financial futures contracts held by
the Fund, plus premiums paid by it for open options on financial
futures contracts may not exceed 5% of the fair market value of the
Fund's total assets, after taking into account the unrealized profits
and losses on those contracts. Further, the Fund may engage in foreign
currency transactions and purchase or sell forward contracts with
respect to foreign currencies and related options.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. This
shall not prevent the purchase or holding of bonds, debentures, notes,
certificates of indebtedness, or other debt securities of an issuer,
repurchase agreements or other transactions which are permitted by the
Fund's investment objective and policies or its Articles of
Incorporation.

INVESTING IN MINERALS
The Fund will not invest in interests in oil, gas, or other mineral
exploration or development programs, other than debentures or equity
stock interests.
SELLING SHORT
The Fund will not sell securities short unless (1) it owns, or has a
right to acquire, an equal amount of such securities, or (2) it has
segregated an amount of its other assets equal to the lesser of the
market value of the securities sold short or the amount required to
acquire such securities. The segregated amount will not exceed 10% of
the Fund's net assets. While in a short position, the Fund will retain
the securities, rights, or segregated assets.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by
the Directors without shareholder approval. Except as noted, shareholders
will be notified before any material change in these limitations becomes
effective.

PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.

assets in closed-end investment companies in general. The Fund will
purchase securities of closed-end investment companies only in open-
market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization, or acquisition of
assets. The Fund will indirectly bear its proportionate share of any
fees and expenses paid by other investment companies, in addition to
the fees and expenses payable directly by the Fund.

INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets
in illiquid securities, including securities not determined by the
Directors to be liquid, repurchase agreements with maturities longer
than seven days after notice, and certain over-the-counter options.
DEALING IN PUTS AND CALLS
The Fund will not write call options or put options on securities,
except hat the Fund may write covered call options and secured put
options on all or any portion of its portfolio, provided the
securities are held in the Fund's portfolio or the Fund is entitled to
them in deliverable form without further payment or the Fund has
segregated cash in the amount of any further payments. The Fund will
not purchase put options on securities unless the securities or an
offsetting call option is held in the Fund's portfolio. The Fund may
also purchase, hold or sell (i) contracts for future delivery of
securities or currencies and (ii) warrants granted by the issuer of
the underlying securities.

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.
The Fund did not borrow money or pledge securities in excess of 5% of the
value of its total assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.

INTERNATIONAL SERIES, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with International Series, Inc., and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934

Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.

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

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

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

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

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University

Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

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

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Director
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp.

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

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

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;

Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

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

*This Director is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, `The Funds'' and ``Funds'' mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated

Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of December 31, 1996, the following shareholders of record owned 5% or
more of the outstanding Class A Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, FL, on behalf of certain underlying accounts,
owned approximately 141,211 (5.74%) Class A Shares; Clooney & Co., New
York, New York, owned approxiately 391,006 (5.89%) Class A Shares; and

Wendel & Co., New York, New York, owned approximately 177,766 (7.23%) Class
A Shares.
As of December 31 , 1996, no shareholder of record owned 5% or more of the
outstanding Class B Shares of the Fund.
As of December 31, 1996, the following shareholder of record owned 5% or
more of the outstanding Class C Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, FL, on behalf of certain underlying accounts,
owned approximately 174,493 (38.90%) Class C Shares.

DIRECTORS COMPENSATION

AGGREGATE TOTAL COMPENSATION PAID
NAME , COMPENSATION TO DIRECTORS FROM
POSITION WITH FROM THE THE CORPORATION
THE CORPORATION CORPORATION *# AND FUND COMPLEX +

John F. Donahue, $0 $0 for the Corporation and
Chairman and Director 56 other investment companies in
the Fund Complex

Thomas G. Bigley, $698.35 $108,725 for the Corporation and
Director 56 other investment companies in
the Fund Complex

John T. Conroy, Jr., $768.30 $119,615or the Corporation and
Director 56 other investment companies in
the Fund Complex

William J. Copeland, $768.30 $119,615for the Corporation and
Director 56 other investment companies in
the Fund Complex

James E. Dowd, $768.30 $119,615for the Corporation and
Director 56 other investment companies in
the Fund Complex

Lawrence D. Ellis, M.D., $698.35 $108,725for the
Corporation and
Director 56 other investment companies in
the Fund Complex

Edward L. Flaherty, Jr. $768.30 $119,615for the
Corporation and
Director 56 other investment companies in
the Fund Complex

Peter E. Madden, $698.35 $108,725for the Corporation and
Director 56 other investment companies in
the Fund Complex

Gregor F. Meyer, $698.35 $108,725 for the Corporation and
Director 56 other investment companies in
the Fund Complex

John E. Murray, Jr. $698.35 $108,725for the Corporation and

Director 56 other investment companies in
the Fund Complex

Wesley W. Posvar, $698.35 $108,725for the Corporation and
Director 56 other investment companies in
the Fund Complex

Marjorie P. Smuts, $698.35 $108,725for the Corporation and
Director 56 other investment companies in
the Fund Complex

*Information is furnished for the fiscal year ended November 30, 1996.
#The aggregate compensation is provided for the Corporation which is
comprised of 2 portfolios.
+The information is provided for the last calendar year.

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. It is a
subsidiary of Federated Investors. All the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund, the Corporation, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or omitted
by it, except acts or omissions involving willful misfeasance, bad faith,

gross negligence, or reckless disregard of the duties imposed upon it by
its contract with the Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal year ended
November 30, 1996, and for the period from September 1, 1995 to November
30, 1995, the Adviser received $2,004,435 and $535,649, respectively. For
the period from December 1, 1994 to August 31, 1995, Federated Management,
the Fund's former investment adviser, received $1,772,031. For the period
from March 15, 1994 to November 30, 1994, Federated Management received
$1,872,710. For the period from December 1, 1993 through March 14, 1994,
Fiduciary International, Inc., the Fund's initial investment adviser,
received $656,740.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the Adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The Adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. For the fiscal
years ended November 30, 1996, 1995, and 1994, the Fund paid total

brokerage commissions of $1,602,769, $2,289,648, and $1,256,110,
respectively.
Although investment decisions for the Fund are made independently from
those of any other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser
is not obligated to obtain any material non-public (`inside'') information
about any securities issuer, or to base purchase or sale recommendations on
such information.
OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
administrator. Both former administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated

Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended November 30, 1996,
1995, and 1994, the Administrators earned $185,000, $322,342, and $349,224,
respectively.

CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
PURCHASING SHARES

Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value, plus a sales charge
(for Class A Shares only) on days the New York Stock Exchange (`NYSE'') is
open for business. The procedure for purchasing Shares is explained in the
prospectus under `How to Purchase Shares.''

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

With respect to Class B Shares and Class C Shares, the Fund has adopted a
Distribution Plan in accordance with Investment Company Act Rule 12b-1.
Additionally, the Fund has adopted a Shareholder Services Agreement with
respect to all classes of Shares.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities may include, but are
not limited to, marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Distribution Plan (Class B Shares and Class C Shares), the
Directors expect that the Fund will be able to achieve a more predictable
flow of cash for investment purposes and to meet redemptions. This will
facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objective. By identifying potential investors whose
needs are served by the Fund's objective, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)

enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended November 30, 1996, the Class B Shares and Class C
Shares incurred $92,608 and $58,555, respectively, in distribution services
fees, none of which were waived. In addition, for the fiscal year ended
November 30, 1996, Class A Shares, Class B Shares and Class C Shares,
incurred shareholder services fees in the amount of $450,721, $30,869, and
$19,518 respectively, of which $274,003, $0, and $1,101, respectively, were
waived.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS OF THE CORPORATION, AND
EMPLOYEES
Directors, employees, and sales representatives of the Fund, the Adviser,
and Federated Securities Corp., or their affiliates, or any investment
dealer who has a sales agreement with Federated Securities Corp., and their
spouses and children under 21, may buy Shares at net asset value without a
sales charge. Shares may also be sold without sales charges to trusts or
pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
Dividend income is recorded on the ex-dividend date, except certain
dividends from foreign securities where the ex-dividend date may have
passed. Such dividends are recorded as soon as the Fund is informed of the
ex-dividend date.

DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Fund's portfolio securities are determined as
follows:
oaccording to the last reported sale price on a recognized securities
exchange, if available. (If a security is traded on more than one
exchange, the price on the primary market for that security, as
determined by the Adviser or sub- adviser, is used);
oaccording to the mean between the last closing bid and asked prices,
if no sale on the recognized exchange is reported or if the security
is traded over-the-counter;
oat fair value as determined in good faith by the Directors; or
ofor short-term obligations with remaining maturities of 60 days or
less at the time of purchase, at amortized cost, which approximates
value.
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; coupon rate;
maturity; type of issue; trading characteristics; and other market data.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the NYSE. In computing the net asset value, the Fund values
foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain
foreign currency exchange rates may also be determined at the latest rate
prior to the closing of the NYSE. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at current rates. Occasionally,
events that affect these values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such
events materially affect the value of portfolio securities, these

securities may be valued at their fair value as determined in good faith by
the Directors, although the actual calculation may be done by others.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to
a contingent deferred sales charge. Redemption procedures are explained in
the prospectus under `How to Redeem Shares.'' Although the Fund does not
charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and Class C Shares
redeemed within one year of purchase may be subject to a contingent
deferred sales charge. The amount of the contingent deferred sales charge
is based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the financial institutions for services
rendered, and the length of time the investor remains a shareholder in the
Fund. Should financial institutions elect to receive an amount less than
the administrative fee that is stated in the prospectus for servicing a
particular shareholder, the contingent deferred sales charge and/or holding
period for that particular shareholder will be reduced accordingly.
Since portfolio securities of the Fund may be traded on foreign exchanges
which trade on Saturdays or on holidays on which the Fund will not make
redemptions, the net asset value of each class of Shares of the Fund may be
significantly affected on days when shareholders do not have an opportunity
to redeem their Shares.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price, in whole or
in part, by a distribution of securities from the Fund's portfolio. The

Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, under which the Corporation is obligated to redeem
Shares for any one shareholder in cash only up to the lesser of $250,000 or
1% of a class of Shares' net asset value during any 90-day period. Any
redemption beyond this amount will also be in cash unless the Directors
determine that further cash payments will have a materially adverse effect
on remaining shareholders. In such a case, the Fund will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Directors deem fair and
equitable.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Directors determine to
be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made is kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.

ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales
Charge may not exceed 12% annually with reference initially to the value of
the Class B Shares upon establishment of the Systematic Withdrawal Program
and then as calculated at the fiscal year end. Redemptions on a qualifying
Systematic Withdrawal Program can be made at a rate of 1.00% monthly, 3.00%
quarterly, or 6.00% semi-annually with reference to the applicable account

valuation amount. Amounts that exceed the 12.00% annual limit for
redemption, as described, may be subject to the Contingent Deferred Sales
Charge. To the extent that a shareholder exchanges Shares for Class B
Shares of other Federated Funds, the time for which the exchanged-for
Shares are to be held will be added to the time for which exchanged-from
Shares were held for purposes of satisfying the 12 month holding
requirement. However, for purposes of meeting the $10,000 minimum account
value requirement, Class B Share accounts values will not be aggregated.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the
Fund must, among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations
which would constitute a Passive Foreign Investment Company (`PFIC'').
Federal income taxes may be imposed on the Fund upon disposition of PFIC
investments.

FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may
invest 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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The Fund's dividends, and any
short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held the Fund Shares.

TOTAL RETURN

The Fund's average annual total returns for Class A Shares for the one-
year, five-year and ten-year periods ended November 30, 1996, were 2.66%,
6.48%, and 5.95%, respectively.
The Fund's average annual total returns for Class B Shares for the fiscal
year ended November 30, 1996, and for the period from September 28, 1994
(start of performance) to November 30, 1996, were 1.65% and -0.69%,
respectively.
The Fund's average annual total returns for Class C Shares for the fiscal
year ended November 30, 1996, and for the period from April 1, 1993 (start
of performance) to November 30, 1996, were 6.66% and 8.24%, respectively.

The average annual total return for each class of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the offering price per
Share at the end of the period. The number of Shares owned at the end of
the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge on Class A Shares,
adjusted over the period by any additional Shares, assuming the annual
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investment
based on the lesser of the original purchase price or the offering price of
Shares redeemed. Occasionally, total return which does not reflect the
effect of the sales charge may be quoted in advertising.
PERFORMANCE COMPARISONS

The Fund's performance of each class of Shares depends upon such variables
as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates on money market instruments;
ochanges in the Fund's or a class of Shares' expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of total
return.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any indices used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC., for example, makes comparative
calculations for one-month, three-month, one-year, and five-year
periods which assume the reinvestment of all capital gains
distributions and income dividends.
oEUROPE, AUSTRALIA, AND FAR EAST (EAFE) INDEX 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.
oSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, 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 Standard & Poor's figures.

oMORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Advertisements and sales literature for all three classes of Shares may
quote total returns which are calculated on non-standardized base periods.
These total returns also represent the historic change in the value of an
investment in any class of Shares based on annual reinvestment of dividends
over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge or contingent deferred sales charge, as
applicable.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information

about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the equity sector, Federated Investors has more than 26 years
experience. As of December 31, 1996, Federated managed 31 equity funds
totaling approximately $7.6 billion in assets across growth, value, equity
income, international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitive and qualitative
analysis and features a structured, computer-assisted composite modeling
system that was developed in the 1970s.
J. Thomas Madden, Executive Vice President, oversees Federated Investor's
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investor's domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investor's international portfolios.
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 $3.5 trillion to the more than 6,000
funds available.*

* Source: Investment Company Institute
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients
is headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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 Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--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 rankings 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 Division.
FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended November 30, 1996, are
incorporated herein by reference to the Annual Report of the Fund dated
November 30, 1996 (File Nos. 2-91776 and 811-3984). A copy of the Report
may be obtained without charge by contacting the Fund.

APPENDIX

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1-Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics:
oLeading market positions in well established industries;
oHigh rates of return on funds employed;
oConservative capitalization structures with moderate reliance on
debt and ample asset protection;

oBroad margins in earning coverage of fixed financial charges and
high internal cash generation; and
oWell-established access to a range of financial markets and assured
sources of alternate liquidity.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
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 edge.'' 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.

STANDARD AND POOR'S RATINGS GROUP LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.

FEDERATED INTERNATIONAL INCOME FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS

The shares of Federated International Income Fund (the "Fund") represent
interests in a non-diversified investment portfolio of International Series,
Inc. (the "Corporation"), an open-end, management investment company (a mutual
fund). The Fund invests primarily in high-quality debt securities denominated
primarily in foreign currencies to seek a high level of current income in U.S.
dollars consistent with prudent investment risk. The Fund has a secondary
objective of capital appreciation.

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

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

Prospectus dated January 31, 1997

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

Summary of Fund Expenses--
Class A Shares...............................................................1

Summary of Fund Expenses--
Class B Shares...............................................................2

Summary of Fund Expenses--
Class C Shares...............................................................3

Financial Highlights--Class A Shares...........................................4

Financial Highlights--Class B Shares...........................................5

Financial Highlights--Class C Shares...........................................6

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

Investment Information.........................................................7
Investment Objective.........................................................7
Investment Policies..........................................................7
Hedging Strategies..........................................................13
Investment Limitations......................................................15

Net Asset Value...............................................................16

Investing in the Fund.........................................................16

How to Purchase Shares........................................................17
Investing in Class A Shares.................................................17
Investing in Class B Shares.................................................20

Investing in Class C Shares.................................................20
Special Purchase Features...................................................21

Exchange Privilege............................................................22

How to Redeem Shares..........................................................23
Special Redemption Features.................................................24
Contingent Deferred Sales Charge............................................25
Elimination of Contingent Deferred Sales
Charge...................................................................26

Account and Share Information.................................................27

International Series, Inc. Information........................................28

Management of the Corporation...............................................28

Distribution of Shares......................................................30

Administration of the Fund..................................................31

Shareholder Information.......................................................32
Voting Rights...............................................................32

Tax Information...............................................................32
Federal Income Tax..........................................................32
State and Local Taxes.......................................................33

Performance Information.......................................................33

Addresses.....................................................................34

- -------------------------------------------------------
-------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL INCOME FUND

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................................. 0.71%
12b-1 Fee (after waiver) (3).................................................................................. 0.08%
Total Other Expenses.......................................................................................... 0.51%
Shareholder Services Fee (after waiver) (4).................................................... 0.12%
Total Operating Expenses (5)......................................................................... 1.30%
</TABLE>

(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge
and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.05% for redemptions made within one
year of purchase.

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

(3) The 12b-1 fee has been reduced to reflect the voluntary waiver of a portion
of the 12b-1 fee. The distributor can terminate the voluntary waiver at any
time at its sole discretion. The maximum 12b-1 fee is 0.25%.

(4) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(5) The total operating expenses would have been 1.64% absent the voluntary
waivers of portions of the management fee, the 12b-1 fee and the
shareholder services fee.

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

- -------------------------------------------------------
-------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL INCOME FUND

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

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................................. 0.71%
12b-1 Fee..................................................................................................... 0.75%
Total Other Expenses.......................................................................................... 0.64%
Shareholder Services Fee....................................................................... 0.25%
Total Operating Expenses (3)(4)...................................................................... 2.10%
</TABLE>

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

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

(4) The total operating expenses would have been 2.12% absent the voluntary
waiver of a portion of the management fee.

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

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of each time period,
and (3) payment of the maximum sales charge.................................. $78 $109 $136 $222
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $21 $66 $113 $222
</TABLE>

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

- -------------------------------------------------------
-------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL INCOME FUND

<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................. None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)....................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as
applicable) (1).............................................................................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................. None
Exchange Fee................................................................................................... None

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2).............................................................................. 0.71%
12b-1 Fee...................................................................................................... 0.75%
Total Other Expenses........................................................................................... 0.63%
Shareholder Services Fee (after waiver) (3)..................................................... 0.24%
Total Operating Expenses (4).......................................................................... 2.09%
</TABLE>

(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%

(4) The total operating expenses would have been 2.13% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.

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

subject to additional fees.

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

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of each time period,
and (3) payment of the maximum sales charge.................................. $31 $65 $112 $242
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $21 $65 $112 $242
</TABLE>

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

- -------------------------------------------------------
-------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED INTERNATIONAL INCOME FUND
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated January 15, 1997, on the
Fund's financial statements for the year ended November 30, 1996, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.38 $ 10.52 $ 11.86 $ 10.47 $ 10.84
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------
Net investment income 0.74** 0.79 0.70 0.88 0.62
- -------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 0.67 0.84 (0.76) 1.40 (0.20)
- ------------------------------------------------------------------- --------- --------- --------- --------- ---------
Total from investment operations 1.41 1.63 (0.06) 2.28 0.42
- ------------------------------------------------------------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Distributions from net investment income (0.87) (0.77) (0.63) (0.75) (0.71)
- -------------------------------------------------------------------
Distributions in excess of net investment income (b) -- -- -- -- (0.05)
- -------------------------------------------------------------------
Distributions from net realized gain on investments and foreign
currency transactions -- -- (0.65) (0.14) (0.03)
- ------------------------------------------------------------------- --------- --------- --------- --------- ---------
Total distributions (0.87) (0.77) (1.28) (0.89) (0.79)
- ------------------------------------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.92 $ 11.38 $ 10.52 $ 11.86 $ 10.47

- ------------------------------------------------------------------- --------- --------- --------- --------- ---------
TOTAL RETURN (C) 13.27% 16.12% (0.84%) 22.95% 3.82%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses 1.30% 1.30% 1.30% 1.25% 0.99%
- -------------------------------------------------------------------
Net investment income 6.58% 6.79% 6.67% 7.71% 5.83%
- -------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.34% 0.40% 0.20% 0.27% 0.62%
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted)
$200,758 $173,905 $209,008 $220,602 $86,937
- -------------------------------------------------------------------
Portfolio turnover 92% 41% 136% 189% 314%
- -------------------------------------------------------------------

<CAPTION>
<S> <C>
1991(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------
Net investment income 0.25
- -------------------------------------------------------------------

Net realized and unrealized gain (loss) on investments and
foreign currency 0.75
- ------------------------------------------------------------------- -----------
Total from investment operations 1.00
- ------------------------------------------------------------------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Distributions from net investment income (0.16)
- -------------------------------------------------------------------
Distributions in excess of net investment income (b) --
- -------------------------------------------------------------------
Distributions from net realized gain on investments and foreign
currency transactions --
- ------------------------------------------------------------------- -----------
Total distributions (0.16)
- ------------------------------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.84
- ------------------------------------------------------------------- -----------
TOTAL RETURN (C) 10.07%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses 0.32%*
- -------------------------------------------------------------------
Net investment income 7.54%*
- -------------------------------------------------------------------
Expense waiver/reimbursement (d) 1.18%*
- -------------------------------------------------------------------

SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted) 23,465
- -------------------------------------------------------------------
Portfolio turnover 35%
- -------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

** Per share information is based upon the monthly average number of shares
outstanding.

(a) Reflects operations for the period from June 4, 1991 (date of initial
public investment) to November 30, 1991. For the period from the start of
business, May 15, 1991, to June 3, 1991, the net investment income was
distributed to the Corporation's adviser.

(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

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

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

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1996, which can be obtained
free of charge.

- -------------------------------------------------------
-------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
FEDERATED INTERNATIONAL INCOME FUND
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.36 $ 10.51 $ 10.21
- ------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income 0.64** 0.77 0.08
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 0.68 0.78 0.22
- ------------------------------------------------------------------------------------ --------- --------- -----------
Total from investment operations 1.32 1.55 0.30
- ------------------------------------------------------------------------------------ --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------
Distributions from net investment income (0.79) (0.70) --
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.89 $ 11.36 $ 10.51
- ------------------------------------------------------------------------------------ --------- --------- -----------
TOTAL RETURN (B) 12.41% 15.28% 2.44%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------
Expenses 2.10% 2.10% 2.11%*
- ------------------------------------------------------------------------------------

Net investment income 5.76% 5.76% 7.07%*
- ------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.02% 0.10% 0.10%*
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$8,641 $1,123 $101
- ------------------------------------------------------------------------------------
Portfolio turnover 92% 41% 136%
- ------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

** Per share information is based upon the monthly average number of shares
outstanding.

(a) Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.

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

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1996, which can be obtained
free of charge.

- -------------------------------------------------------
-------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
FEDERATED INTERNATIONAL INCOME FUND

- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.36 $ 10.48 $ 11.84 $ 10.23
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.67** 0.60 0.58 0.41
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign
currency 0.64 0.95 (0.72) 1.58
- ------------------------------------------------------------------------ --------- --------- --------- -----------
Total from investment operations 1.31 1.55 (0.14) 1.99
- ------------------------------------------------------------------------ --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Distributions from net investment income (0.78) (0.67) (0.57) (0.38)
- ------------------------------------------------------------------------
Distributions from net realized gain on investments and foreign
currency transactions -- -- (0.65) --
- ------------------------------------------------------------------------ --------- --------- --------- -----------
Total distributions (0.78) (0.67) (1.22) (0.38)
- ------------------------------------------------------------------------ --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.89 $ 11.36 $ 10.48 $ 11.84
- ------------------------------------------------------------------------ --------- --------- --------- -----------
TOTAL RETURN (B) 12.31% 15.32% (1.54%) 19.67%

- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 2.09% 2.06% 2.05% 2.05%*
- ------------------------------------------------------------------------
Net investment income 5.80% 5.96% 6.00% 5.39%*
- ------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.04% 0.14% 0.10% 0.21%*
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$14,976 $12,015 $ 8,098 $ 4,767
- ------------------------------------------------------------------------
Portfolio turnover 92% 41% 136% 189%
- ------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

** Per share information is based upon the monthly average number of shares
outstanding.

(a) Reflects operations for the period from March 31, 1993 (start of business)
to November 30, 1993.

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

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended November 30, 1996, which can be obtained
free of charge.

- -------------------------------------------------------
-------------------------------------------------------

GENERAL INFORMATION

The Fund's current net asset value ("NAV") and offering price can be found in
the mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

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

INVESTMENT OBJECTIVE

The Fund's objective is to seek a high level of current income in U.S. dollars
consistent with prudent investment risk. The Fund has a secondary investment
objective of capital appreciation. The investment objectives cannot be changed
without the approval of the shareholders. The Fund will pursue these objectives
by investing in high-quality debt securities denominated primarily in foreign
currencies.

While there is no assurance that the Fund will achieve its investment
objectives, it endeavors to do so by following the investment policies described
in this prospectus. Unless indicated otherwise, the investment policies of the
Fund may be changed by the Directors without shareholder approval. Shareholders
will be notified before any material change in the policies becomes effective.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The Fund will invest primarily in high-quality debt securities denominated in
the currencies of the nations that are members of the Organization for Economic
Cooperation and Development. These nations include, but are not limited to, the
following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Luxembourg, Netherlands,
New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom,
and the United States. The Fund will invest at least 65%, and under normal
market conditions substantially all of its total assets in high-quality debt
securities denominated in foreign currencies of issuers located in at least
three countries outside of the United

States. Additionally, investments may be made in securities denominated in the
European Currency Unit, a multinational currency unit which represents specified
amounts of the currencies of certain member states of the European Union.

The high-quality debt securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by Standard & Poor's Ratings Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if unrated,
will be judged by Federated Global Research Corp., the Fund's investment adviser
(the "Adviser") to be of comparable quality. Because the average quality of the
Fund's portfolio investments should remain constantly between A and AAA, the
Fund will seek to avoid the adverse consequences that may arise for some debt
securities in difficult economic circumstances. Downgraded securities will be
evaluated on a case by case basis by the Adviser. The Adviser will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. A description of the ratings categories is contained

in the Appendix to the Statement of Additional Information.

The Fund's portfolio of debt securities will be comprised mainly of foreign
government, foreign governmental agency or supranational institution bonds. In
addition, the Fund will also invest in high quality debt securities issued by
corporations in the currencies specified above and subject to the credit
limitations listed above. No more than 25% of the Fund's total assets will be
invested in the securities of issuers located in any one country. The Fund will
also invest in both exchange traded and over-the-counter options, subject to the
limitations outlined in this prospectus.

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

FOREIGN GOVERNMENT SECURITIES

The foreign government securities in which the Fund may invest generally consist
of obligations supported by national, state or provincial governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, which include international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank and the Inter-American Development Bank.

Foreign government securities also include debt securities of
"quasi-governmental agencies." Debt securities of quasi-governmental agencies

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

TEMPORARY INVESTMENTS

Up to 10% of the Fund's total assets may be invested at any one time in cash
deposits or in certificates of deposit issued by banks of high credit quality,
or in commercial paper with an A1/P1 rating assigned by S&P or Moody's, or in
repurchase agreements. At the discretion of the Adviser, these instruments may
be denominated in foreign currencies or U.S. dollars.

REPURCHASE AGREEMENTS

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

LENDING OF PORTFOLIO SECURITIES

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

RISK CONSIDERATIONS

Investing in foreign securities carries substantial risks in addition to those
associated with investments in domestic securities. In an attempt to reduce some
of these risks, the Fund will attempt to distribute its investments broadly
among foreign countries. The debt securities of at least three different foreign
countries will always be represented.

Repatriation of investment income, capital, and the proceeds of sales by foreign

investors may require governmental registration and/or

approval in some countries. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls will be
considered illiquid if it appears reasonably likely that this process will take
more than seven days.

ALLOCATION

The allocation of the Fund's assets in a particular market and currency will be
based on a fundamental assessment of the economic strength of each relevant
country combined with considerations of credit quality and currency and interest
rate trends. These factors are reviewed on a regular basis in order to derive
specific interest rate and currency forecasts, which are quantified in terms of
total return. The market and currency allocation of the Fund will vary to
achieve an optimal mix of investments to achieve the investment objectives of
the Fund.

DURATION

Duration measures the magnitude of the change in the price of a debt security
relative to a given change in the market rate of interest. The duration of a
debt security depends primarily upon the security's coupon rate, maturity date,
and level of market interest rates for similar debt securities. There will be no
limit on the duration of any one individual issue purchased by the Fund, except
that the purchase of an issue that has no final maturity date shall not be
permitted. The weighted average duration of the Fund shall not exceed ten years
and shall not be less than one year, but will normally fall within a range of
three to seven years. The Adviser regards that range as being consistent with a
prudent attitude towards risk. Shifts outside this range would be made only
under unusual circumstances.

FOREIGN SECURITIES

Investments in foreign securities involve special risks that differ from those
associated with investments in domestic securities. The risks associated with

investments in foreign securities relate to political and economic developments
abroad, as well as those that result from the differences between the regulation
of domestic securities and issuers and foreign securities and issuers. These
risks may include, but are not limited to, expropriation, confiscatory taxation,
currency fluctuations, withholding taxes on interest, limitations on the use or
transfer of Fund assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual obligations
or obtain court judgments abroad than would be the case in the United States
because

of differences in the legal systems. Moreover, individual foreign economies may
differ favorably or unfavorably from the domestic economy in such respects as
growth of gross national product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.

Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include:

less publicly available information about foreign issuers;

credit risks associated with certain foreign governments;

the lack of uniform accounting, auditing, and financial reporting standards and
practices or regulatory requirements comparable to those applicable to U.S.
companies;

less readily available market quotations on foreign issues;

differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;

differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;

the likelihood that securities of foreign issuers may be less liquid or more
volatile;

foreign brokerage commissions may be higher;

unreliable mail service between countries;

political or financial changes which adversely affect investments in some
countries;

increased risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities;

certain markets may require payment for securities before delivery;

religious and ethnic instability; and

certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests.

U.S. GOVERNMENT POLICIES

CURRENCY RISKS

Because the majority of the debt securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's NAV net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the U.S.
dollar, the value of Fund assets denominated in that currency will decrease.
Under the U.S. tax code, the Fund is required to separately account for the
foreign currency component of gains or losses, which will usually be viewed
under the U.S. tax code as items of ordinary and distributable income or loss,
thus affecting the Fund's distributable income (See "Federal Income Tax").

The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental interpretation, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. Dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.

The Fund will engage in foreign currency exchange transactions in connection
with its investments in foreign securities. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e. cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through forward
contracts to purchase or sell foreign currencies.

The Adviser believes that active management of currency risks through a variety
of hedging vehicles and strategies can considerably limit the risk of capital
loss through movements in the foreign exchange markets, such as those described
above. The Adviser will not engage in hedging for speculative purposes.

HEDGING VEHICLES

The Fund may use the following hedging vehicles in an attempt to manage currency
and interest rate risks:

forward foreign currency exchange contracts;

options contracts; and

futures contracts.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

A forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers. When the Fund
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may want to establish the U.S. dollar cost or proceeds, as
the case may be. By entering into a forward contract in U.S. dollars for the
purchase or sale of the amount of foreign currency involved in an underlying
security transaction, the Fund is able to protect itself against a possible loss
between trade and settlement dates resulting from an adverse change in the
relationship between the U.S. dollar and such foreign currency. However, this
tends to limit potential gains which might result from a positive change in such
currency relationships.

There is no limitation as to the percentage of the Fund's assets that may be

committed under forward foreign currency exchange contracts. The Fund does not
enter into such forward contracts or maintain a net exposure in such contracts
where the Fund would be obligated to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or, in the case of a "cross-hedge" (see "Hedging
Strategies" below), denominated in a currency or currencies that the Adviser
believes will reflect a high degree of correlation with the currency with regard
to price movements. The Fund generally does not enter into a forward foreign
currency exchange contract with a term longer than one year.

OPTIONS CONTRACTS

The Fund may deal in options on foreign currencies, foreign currency futures,
securities, and securities indices, which options may be listed for trading on a
national securities exchange or traded over-the-counter. The Fund may write
covered call options and secured put options on up to 25% of its net assets and
may purchase put and call options provided that no more than 5% of the fair
market value of its net assets may be invested in premiums on such options.

eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.

Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and a wider range of expiration dates
and exercise prices, than are exchange traded options.

FUTURES CONTRACTS

Futures contracts are contracts that obligate the long or short holder to take
or make delivery of a specified quantity of an asset, such as a currency, a
security, or the cash value of a securities index at a specified future date at
a specified price. The Fund may engage in futures transactions, but will not
participate in futures contracts if the sum of its initial margin deposits on
open contracts will exceed 5% of the fair market value of the Fund's net assets.

HEDGING STRATEGIES

CURRENCY HEDGING

When the Adviser believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell an amount of that foreign currency for a fixed U.S.
dollar amount approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency (i.e., "hedge"). The Fund may,
as an alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Adviser believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated (i.e., "cross-hedge"). A
cross hedge can be achieved not only by using a "proxy" currency in which Fund
securities are denominated, but also by using the Canadian dollar as a "proxy"
currency for the U.S. dollar. This strategy may be beneficial because the level
of divergence in the exchange rates of U.S. and Canadian currencies has
historically tended to be relatively small.

For example, the Fund may invest in securities denominated in a Western European
currency, such as the French Franc, and seek to hedge against the effect of an
increase in the value of the U.S. dollar against that currency by entering into
a forward foreign currency exchange contract to sell the lower yielding German
Mark, which has historically had price movements that tend to correlate closely
with those of the French Franc, thereby creating a hedge similar to the simple
Dollar/Franc hedge, but at a possibly lower cost. In addition, the Fund might
arrange to sell those Marks against Canadian Dollars in an effort to minimize
hedging costs.

INTEREST RATE HEDGING

The Fund may engage in futures transactions and may use options in an attempt to
hedge against the effects of fluctuations in interest rates and other market
conditions. For example, if the Fund owned long-term bonds and interest rates
were expected to rise, it could sell futures contracts or the cash value of a
securities index. If interest rates did increase, the value of the bonds in the
Fund would decline, but this decline would be offset in whole or in part by an
increase in the value of the Fund's futures contracts or the cash value of the
securities index. If, on the other hand, long-term interest rates were expected
to decline, the Fund could hold short-term debt securities and benefit from the
income earned by holding such securities, while at the same time the Fund could
purchase futures contracts on long-term bonds or the cash value of a securities
index. Thus, the Fund could take advantage of the anticipated rise in the value
of long-term bonds without actually buying them. The futures contracts and
short-term debt securities could then be liquidated and the cash proceeds used
to buy long-term bonds.

GENERAL

The Fund might not employ any of the techniques or strategies described above,
and there can be no assurance that any technique or strategy (or combination
thereof) used will succeed. The use of these techniques and strategies involves
certain risks, including:

dependence on the Adviser's ability to predict movements in the prices of
assets being hedged or movements in interest rates and currency markets;

imperfect correlation between the hedging instruments and the securities or
currencies being hedged;

the fact that skills needed to use these instruments are different from those
needed to select the Fund's securities;

the possible absence of a liquid secondary market for any particular instrument
at any particular time;

possible impediments to effective portfolio management or the ability to meet
redemption requests or other short-term obligations because of the percentage
of the Fund's assets segregated to cover its obligations; and

the possible need to defer closing out hedged positions to avoid adverse tax
consequences.

New futures contracts, options thereon and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.

NON-DIVERSIFICATION

total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the Fund's
portfolio will have a greater impact on the total value of the portfolio than
would be the case if the portfolio were diversified among more issuers.

The Fund intends to comply with Subchapter M of the Internal Revenue Code (the
"Code"). This undertaking requires that at the end of each quarter of the
taxable year, with regard to at least 50% of the Fund's total assets, no more
than 5% of its total assets are invested in the securities of a single issuer;
beyond that, no more than 25% of its total assets are invested in the securities
of a single issuer.

PORTFOLIO TURNOVER

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The Fund's rate of portfolio turnover may exceed that of certain
other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the Fund's

portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Adviser deems it appropriate to
make changes in the Fund's portfolio.

INVESTMENT LIMITATIONS

The Fund will not:

borrow money directly or through reverse repurchase agreements (arrangements in
which the Fund sells a portfolio instrument for a percentage of its cash value
with an agreement to buy it back on a set date) or pledge securities except,
under certain circumstances, the Fund may borrow up to one-third of the value
of its total assets and pledge up to 15% of the value of those assets to secure
such borrowings; nor

sell securities short except under strict limitations.

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

The Fund will not:

invest more than 15% of the value of its net assets in restricted or other

securities determined by the Directors not to be liquid, including repurchase
agreements with maturities longer than seven days after notice and certain OTC
options.

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

- -------------------------------------------------------
INVESTING IN THE FUND

The Fund offers investors three classes of Shares that carry sales charges and
contingent deferred sales charges in different levels of expenses.

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales load of 4.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies."). Certain
purchases of Class A Shares qualify for reduced sales charges. See "Reducing or
Eliminating the Sales Charge." Class A Shares have no conversion feature.

CLASS B SHARES

full years after the purchase date. Class B Shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but (until conversion) will have a higher expense ratio and
pay lower dividends than Class A Shares due to the 12b-1 fee.

CLASS C SHARES

expense ratio and pay lower dividends than Class A Shares due to their 12b-1
fee. Class C Shares have no conversion feature.

- -------------------------------------------------------
HOW TO PURCHASE SHARES

with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)

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

INVESTING IN CLASS A SHARES

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

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

*See sub-section entitled "Dealer Concession" below.

DEALER CONCESSION

twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.

REDUCING OR ELIMINATING
THE SALES CHARGE

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

quantity discounts and accumulated purchases;

concurrent purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

purchases with proceeds from redemptions of unaffiliated investment companies.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

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

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

To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the

time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more
funds for which affiliates of Federated Investors serve as investment adviser or
principal underwriter (the "Federated Funds"), the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in Class A Shares of one of the other Federated Funds with a sales
charge, and $20,000 in the Class A Shares of this Fund, the sales charge would
be reduced.

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

LETTER OF INTENT

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

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

REINVESTMENT PRIVILEGE

PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

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

INVESTING IN CLASS B SHARES

CONVERSION OF CLASS B SHARES

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

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

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

INVESTING IN CLASS C SHARES

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

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

purchase order or when payment is converted into federal funds. Purchase orders

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

PURCHASING SHARES BY WIRE

Services Company, c/o State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE: For Credit to: (Fund Name) (Fund Class);
(Fund Number--this number can be found on the account statement or by
contracting the Fund); Account Number; Trade Date and Order Number; Group Number
or Dealer Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.

PURCHASING SHARES BY CHECK

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

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be

automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the NAV
next determined after an order is received by the Fund, plus the applicable
sales charge. Shareholders should contact their financial institution or the
Fund to participate in this program.

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or for
Individual Retirement Accounts ("IRAs"). For further details, contact the Fund
and consult a tax adviser.

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

CLASS A SHARES

CLASS B SHARES

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

CLASS C SHARES

Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 for information on and prospectuses for the Federated Funds
into which your Shares may be exchanged free of charge.

REQUIREMENTS FOR EXCHANGE

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

TAX CONSEQUENCES

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

MAKING AN EXCHANGE

TELEPHONE INSTRUCTIONS

telephone only if the two funds have identical shareholder registrations.

- -------------------------------------------------------
HOW TO REDEEM SHARES

REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can

be obtained from Federated Securities Corp. Proceeds will be mailed in the form
of a check to the shareholder's address of record or wire-
transferred to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System. The minimum amount for a wire transfer is
$1,000. Proceeds from redeemed Shares purchased by check or through an ACH will
not be wired until that method of payment has been cleared. Proceeds from

redemption requests received on holidays when wire transfers are restricted will
be wired the following business day. Questions about telephone redemptions on
days when wire transfers are restricted should be directed to your shareholder
services representative at the telephone number listed on your account
statement.

REDEEMING SHARES BY MAIL

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

The written request should state: the Fund name and the Share class designation;
the account name as registered with the Fund; the account number; and the number

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

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

CONTINGENT DEFERRED SALES CHARGE

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

CLASS A SHARES

time of purchase or the NAV of the redeemed Shares at the time of redemption.

CLASS B SHARES

<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

CLASS C SHARES

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

and long-term capital gains; (2) Shares held for more than six full years from
the date of purchase with respect to Class B Shares and one full year from the
date of purchase with respect to Class C Shares and applicable Class A Shares;
(3) Shares held for fewer than six years with respect to Class B Shares and less
than one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares on a first-in, first-out basis. A contingent deferred
sales charge is not assessed in connection with an exchange of Fund Shares for
shares of other Federated Funds in the same class (see "Exchange Privilege").
Any contingent deferred sales charge imposed at the time the exchanged-for
Shares are redeemed is calculated as if the shareholder had held the shares from
the date on which he became a shareholder of the exchanged-from Shares.
Moreover, the contingent deferred sales charge will be eliminated with respect
to certain redemptions (see "Elimination of Contingent Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. No contingent deferred sales charge
will be imposed on redemptions of Shares held by Directors, employees and sales
representatives of the Fund, the distributor, or affiliates of the Fund or
distributor, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates, or any other
financial institution, to the extent that no payments were advanced for
purchases made through such entities. The Fund reserves the right to discontinue
or modify the elimination of the contingent deferred sales charge. Shareholders
will be notified of a discontinuation. Any Shares purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that the shareholder is

entitled to such elimination.

- -------------------------------------------------------

ACCOUNT AND SHARE
INFORMATION

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid during the
year.

DIVIDENDS

dividend. If Shares are redeemed or exchanged prior to the record date, or
purchased after the record date, those Shares are not entitled to that quarter's
dividend. A portion of distributions to shareholders could, under some
circumstances, be reclassified as a return of capital for income tax purposes
(See "Federal Income Tax").

CAPITAL GAINS

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

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Shares required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the NAV of the
respective Share Class. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement.

- -------------------------------------------------------
INTERNATIONAL SERIES, INC.

INFORMATION

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

INVESTMENT ADVISER

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to 0.75% the Fund's
average daily net assets. The fees paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by many mutual funds with similar objectives and policies. The Adviser may
voluntarily waive a portion of its fees. The Adviser can terminate this

voluntary waiver at any time at its sole discretion.

ADVISER'S BACKGROUND

Henry A. Frantzen has been the Fund's portfolio manager since December 1995. Mr.
Frantzen joined Federated Investors in 1995 as an Executive Vice President of
the Fund's investment adviser. Mr. Frantzen served as Chief Investment Officer
of international equities at Brown Brothers Harriman & Co. from 1992 to 1995. He
was the Executive Vice President and Director of Equities at Oppenheimer
Management Corporation from 1989 to 1991.

Drew J. Collins has been the Fund's portfolio manager since December 1995. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as a Vice President/Portfolio
Manager of international equity portfolios at Arnhold and S. 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 has been the Fund's portfolio manager since December 1995. Mr.
Kowit joined Federated Investors in 1995 as a Vice President of the Fund's
investment 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 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.

Micheal W. Casey, Ph.D. has been the Fund's portfolio manager since January
1997. Mr. Casey joined Federated Investors in 1996 as an Assistant Vice
President. 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.

DISTRIBUTION OF SHARES

DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee computed at

an annual rate of up to .25% of the average daily net assets for Class A Shares
and up to .75% of the average daily net assets for Class B Shares and Class C
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. For Class A Shares and Class C
Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor may
not exceed an annual rate of .75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales service and distribution-related support services
pursuant to the Distribution Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with

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

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50% of the NAV of Class A Shares
purchased by their clients or customers under certain qualified retirement plans
as approved by Federated Securities Corp. (Such payments are subject to a
reclaim from the financial institution should the assets leave the program
within 12 months after purchase.)

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

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>

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

VOTING RIGHTS

Directors may be removed by the Directors or by shareholders at a special
meeting. The Directors shall call a special meeting of shareholders upon the

written request of shareholders owning at least 10% of the Corporation's
outstanding shares entitled to vote.

As of December 31, 1996, Charles Schwab & Co., Inc., San Francisco, California,
and Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida, owned 63.58% and
63.76%, respectively, of the Class A Shares and Class C Shares, respectively, of
the Fund, and, therefore, may, for certain purposes, be deemed to control the
Fund and be able to affect the outcome of certain matters presented for a vote
of shareholders.

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

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Code, as amended, applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Corporation's other
portfolios, if any, will not be combined for tax purposes with those realized by
the Fund.

reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.

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

Quarterly distributions from the Fund are based on estimates of book income for
the year. Tax

basis income includes gains or losses attributable to currency fluctuation,
whereas book income generally consists solely of the coupon income generated by
the portfolio. Due to differences in the book and tax treatment of fixed incomes
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 more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code, as

amended, may limit a shareholder's ability to claim a foreign tax credit.
Furthermore, 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.

STATE AND LOCAL TAXES

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

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

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

From time to time, the Fund advertises the total return and yield for each class
of Shares.

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

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

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Expense differences between Class A Shares, Class B
Shares and Class C Shares may affect the performance of each class.

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

Federated International Income Fund
Class A Shares, Class B Shares, Class C Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

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

INVESTMENT ADVISER
Federated Global Research Corp.
175 Water Street
New York, New York 10038-4965

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
2100 One PPG Place
Pittsburgh, Pennsylvania 15222

FEDERATED INTERNATIONAL
INCOME FUND

(A PORTFOLIO OF INTERNATIONAL
SERIES, INC.)
CLASS A SHARES, CLASS B SHARES,
CLASS C SHARES
PROSPECTUS
A Non-Diversified Portfolio of
International Series, Inc.,
An Open-End Management
Investment Company
Prospectus dated January 31, 1997

[LOGO] FEDERATED INVESTORS

Since 1955

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 46031P100
Cusip 46031P506
Cusip 46031P209
G00494-02-ABC (1/97)

[LOGO]
RECYCLED
PAPER

FEDERATED INTERNATIONAL INCOME FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
CLASS A SHARES

PROSPECTUS

The Class A Shares of Federated International Income Fund (the "Fund") represent
interests in a non-diversified investment portfolio of International Series,
Inc. (the "Corporation"), an open-end, management investment company (a mutual
fund).

The Fund's objective is to seek a high level of current income in U.S. dollars
consistent with prudent investment risk. The Fund has a secondary objective of
capital appreciation. The Fund will pursue these objectives by investing in
high-quality debt securities denominated primarily in foreign currencies.

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

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

Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact the Fund
at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Fund are maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).

Prospectus dated January 31, 1997

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

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

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

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

Investment Information.........................................................3
Investment Objective.........................................................3
Investment Policies..........................................................3
Hedging Strategies...........................................................9
Investment Limitations......................................................11

Net Asset Value...............................................................12

How to Purchase Shares........................................................12
Investing in Shares.........................................................12
Reducing or Eliminating the
Sales Charge.............................................................13
Purchasing Shares Through a
Financial Institution....................................................15
Purchasing Shares By Wire...................................................15
Purchasing Shares By Check..................................................15
Special Purchase Features...................................................16
Retirement Plans............................................................16

How To Redeem Shares..........................................................18
Redeeming Shares Through Your
Financial Institution....................................................18

Redeeming Shares by Telephone...............................................18
Redeeming Shares by Mail....................................................18
Special Redemption Features.................................................19
Contingent Deferred Sales Charge............................................19
Elimination of Contingent
Deferred Sales Charge....................................................20

Account and Share Information.................................................21

International Series, Inc. Information........................................22
Management of the Corporation...............................................22
Distribution of Shares......................................................23
Administration of the Fund..................................................24
Brokerage Transactions......................................................24

Shareholder Information.......................................................25
Voting Rights...............................................................25

Tax Information...............................................................26
Federal Income Tax..........................................................26
State and Local Taxes.......................................................26

Performance Information.......................................................27

Other Classes of Shares.......................................................27

Addresses.....................................................................28
- -------------------------------------------------------

-------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL INCOME FUND

<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................. 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).......................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) (1)...................................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................. None
Exchange Fee................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2).............................................................................. 0.71%
12b-1 Fee (after waiver) (3)................................................................................... 0.08%
Total Other Expenses........................................................................................... 0.51%
Shareholder Services Fee (after waiver) (4)..................................................... 0.12%
Total Operating Expenses (5).......................................................................... 1.30%

</TABLE>

(5) The total operating expenses would have been 1.64% absent the voluntary
waivers of portions of the management fee, the 12b-1 fee and the
shareholder services fee.

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

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

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------

<CAPTION>
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.38 $ 10.52 $ 11.86 $ 10.47 $ 10.84 $ 10.00
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.74** 0.79 0.70 0.88 0.62 0.25
- -----------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.67 0.84 (0.76) 1.40 (0.20) 0.75
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
Total from investment operations 1.41 1.63 (0.06) 2.28 0.42 1.00
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.87) (0.77) (0.63) (0.75) (0.71) (0.16)
- -----------------------------------------------
Distributions in excess of net investment
income (b) -- -- -- -- (0.05) --
- -----------------------------------------------

Distributions from net realized gain on
investments and foreign currency
transactions -- -- (0.65) (0.14) (0.03) --
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
Total distributions (0.87) (0.77) (1.28) (0.89) (0.79) (0.16)
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.92 $ 11.38 $ 10.52 $ 11.86 $ 10.47 $ 10.84
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (C) 13.27% 16.12% (0.84%) 22.95% 3.82% 10.07%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 1.30% 1.30% 1.30% 1.25% 0.99% 0.32%*
- -----------------------------------------------
Net investment income 6.58% 6.79% 6.67% 7.71% 5.83% 7.54%*
- -----------------------------------------------
Expense waiver/reimbursement (d) 0.34% 0.40% 0.20% 0.27% 0.62% 1.18%*
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $200,758 $173,905 $209,008 $220,602 $86,937 $23,465
- -----------------------------------------------
Portfolio turnover 92% 41% 136% 189% 314% 35%
- -----------------------------------------------
</TABLE>

* Computed on an annualized basis.

** Per share information presented is based upon the monthly average number of
shares outstanding.

(a) Reflects operations for the period from June 4, 1991 (date of initial
public investment) to November 30, 1991. For the period from start of
business, May 15, 1991 to June 3, 1991, the net investment income was
distributed to the Corporation's adviser.

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

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

Further information about the Fund's performance is contained in the Fund's

annual report for the fiscal year ended November 30,1 996, which can be obtained
free of charge.

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

The Corporation was established as FT International Trust, a Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under the
laws of the state of Maryland on February 11, 1991. At a special meeting of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the name of the
Corporation to International Series, Inc. The Articles of Incorporation permit
the Corporation to offer separate series of shares representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Directors of the Corporation (the "Directors") has
established three classes of shares, known as Class A Shares, Class B Shares,
and Class C Shares. This prospectus relates only to Class A Shares (the
"Shares") of the Fund.

provide a complete investment program for an investor. A minimum initial
investment of $500 is required, unless the investment is in a retirement
account, in which case the minimum investment is $50.

The Fund's current net asset value ("NAV") and offering price can be found in
the mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

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

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The Fund invests primarily in high-quality debt securities denominated in the
currencies of the nations that are members of the Organization for Economic
Cooperation and Development. These nations include, but are not limited to, the
following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Luxembourg, Netherlands,
New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom,
and the United States. The Fund will invest at least 65%, and under normal
market conditions substantially all of its total assets in high-quality debt
securities denominated in foreign currencies of issuers located in at least
three countries outside of the United States.

Additionally, investments may be made in securities denominated in the European
Currency Unit, a multinational currency unit which represents specified amounts
of the currencies of certain member states of the European Union.

Fund will seek to avoid the adverse consequences that may arise for some debt
securities in difficult economic circumstances. Downgraded securities will be
evaluated on a case by case basis by the Adviser. The Adviser will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. A description of the ratings categories is contained
in the Appendix to the Statement of Additional Information.

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

FOREIGN GOVERNMENT SECURITIES

and Development (the World Bank), the Asian Development Bank and the
Inter-American Development Bank.

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

TEMPORARY INVESTMENTS

REPURCHASE AGREEMENTS

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

LENDING OF PORTFOLIO SECURITIES

form of cash or U.S. government securities equal to at least 100% of the value
of the securities loaned.

RISK CONSIDERATIONS

companies to prevent, among other concerns, violation of foreign investment
limitations.

Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or

With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the U.S.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the

security, could result in possible liability to the purchaser.

ALLOCATION

DURATION

FOREIGN SECURITIES

Investments in foreign securities involve special risks that differ from those
associated with investments in domestic securities. The risks associated with
investments in foreign securities relate to political and economic developments
abroad, as well as those that result from the differences between the regulation
of domestic securities and issuers and foreign securities and issuers. These
risks may include, but are not limited to, expropriation, confiscatory taxation,
currency fluctuations, withholding taxes on interest, limitations on the use or
transfer of Fund assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual obligations
or obtain court judgments abroad than would be the case in the United States
because of differences in the legal systems. Moreover, individual foreign
economies may differ favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.

Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include:

less publicly available information about foreign issuers;

credit risks associated with certain foreign governments;

the lack of uniform accounting, auditing, and financial reporting standards and
practices or regulatory requirements comparable to those applicable to U.S.
companies;

less readily available market quotations on foreign issues;

differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;

differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;

the likelihood that securities of foreign issuers may be less liquid or more
volatile;

foreign brokerage commissions may be higher;

unreliable mail service between countries;

political or financial changes which adversely affect investments in some
countries;

increased risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities;

certain markets may require payment for securities before delivery;

religious and ethnic instability; and

certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests.

U.S. GOVERNMENT POLICIES

CURRENCY RISKS

Because the majority of the debt securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's NAV; the value of interest
earned; gains and losses realized on the sale of securities; and net investment
income and capital gain, if any, to be distributed to shareholders by the Fund.
If the value of a foreign currency rises against the U.S. dollar, the value of
Fund assets denominated in that currency will increase; correspondingly, if the
value of a foreign currency declines against the U.S. dollar, the value of Fund
assets denominated in that currency will decrease. Under the U.S. tax code, the
Fund is required to separately account for the foreign currency component of
gains or losses, which will usually be viewed under the U.S. tax code as items
of ordinary and distributable income or loss, thus affecting the Fund's
distributable income (See "Federal Income Tax").

The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.

HEDGING VEHICLES

The Fund may use the following hedging vehicles in an attempt to manage currency
and interest rate risks:

forward foreign currency exchange contracts;

options contracts; and

futures contracts.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

There is no limitation as to the percentage of the Fund's assets that may be
committed under forward foreign currency exchange contracts. The Fund does not
enter into such forward contracts or maintain a net exposure in such contracts
where the Fund would be obligated to deliver an amount of foreign currency in

excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or, in the case of a "cross-hedge" (see "Hedging
Strategies" below), denominated in a currency or currencies that the Adviser
believes will reflect a high degree of correlation with the currency with regard
to price movements. The Fund generally does not enter into a forward foreign
currency exchange contract with a term longer than one year.

OPTIONS CONTRACTS

A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price

plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.

FUTURES CONTRACTS

HEDGING STRATEGIES

CURRENCY HEDGING

When the Adviser believes that the currency of a particular foreign country may

suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell an amount of that foreign currency for a fixed U.S.
dollar amount approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency (i.e., "hedge"). The Fund may,
as an alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Adviser believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated (i.e., "cross-hedge"). A
cross hedge can be achieved not only by using a "proxy" currency in which Fund
securities are denominated, but also by using the Canadian Dollar as a "proxy"
currency for the U.S. dollar. This strategy may be beneficial because the level
of divergence in the exchange rates of U.S. and Canadian currencies has
historically tended to be relatively small.

INTEREST RATE HEDGING

The Fund may engage in futures transactions and may use options in an attempt to

hedge against the effects of fluctuations in interest rates and other market
conditions. For example, if the Fund owned long-term bonds and interest rates
were expected to rise, it could sell futures contracts or the cash value of a
securities index. If interest rates did increase, the value of the bonds in the
Fund would decline, but this decline would be offset in whole or in part by an
increase in the value of the Fund's futures contracts or the cash value of the
securities index. If, on the other hand, long-term interest rates were expected
to decline, the Fund could hold short-term debt securities and benefit from the
income earned by holding such securities, while at the same time the Fund could
purchase futures contracts on long-term bonds or the cash value of a securities
index. Thus, the Fund could take advantage of the anticipated rise in the value
of long-term bonds without actually buying them. The futures contracts and
short-term debt securities could then be liquidated and the cash proceeds used
to buy long-term bonds.

GENERAL

dependence on the Adviser's ability to predict movements in the prices of
assets being hedged or movements in interest rates and currency markets;

imperfect correlation between the hedging instruments and the securities or
currencies being hedged;

the fact that skills needed to use these instruments are different from those
needed to select the Fund's securities;

the possible absence of a liquid secondary market for any particular instrument
at any particular time;

the possible need to defer closing out hedged positions to avoid adverse tax
consequences.

NON-DIVERSIFICATION

The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified portfolio of securities because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the total
market value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio will
have a greater impact on the total value of the portfolio than would be the case

if the portfolio were diversified among more issuers.

PORTFOLIO TURNOVER

INVESTMENT LIMITATIONS

The Fund will not:

sell securities short except under strict limitations.

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

The Fund will not:

invest more than 15% of the value of its net assets in restricted or other
securities determined by the Directors not to be liquid, including repurchase
agreements with maturities longer than seven days after notice and certain OTC
options.

--------------------------------------------------------

NET ASSET VALUE

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

- -------------------------------------------------------

HOW TO PURCHASE SHARES

Shares are sold on days on which the New York Stock Exchange is open. Shares may

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

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

INVESTING IN SHARES

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

<TABLE>
<CAPTION>
Dealer
Sales Concession As
Sales Charge As Charge As A Percentage
A Percentage Of A Percentage Of Of
Amount Of Public Net Amount Public
Transaction Offering Price Invested Offering Price
<S> <C> <C> <C>
Less than
$100,000 4.50% 4.71% 4.00%
$100,000
but less
than
$250,000 3.75% 3.90% 3.25%
$250,000
but less
than
$500,000 2.50% 2.56% 2.25%
$500,000
but less
than $1
million 2.00% 2.04% 1.80%
$1 million
or
greater 0.00% 0.00% 0.25%*
</TABLE>

*See sub-section entitled "Dealer Concession" below.

No sales charge is imposed for Shares purchased through financial intermediaries
that do not receive a reallowance of a sales charge. However, investors who
purchase Shares through a trust department, investment adviser or other
financial intermediary may be charged a service or other fee by the financial
intermediary. Additionally, no sales charge is imposed on shareholders
designated as Liberty Life Members or on Class A Shares purchased through "wrap
accounts" or similar programs, under which clients pay a fee for services.

DEALER CONCESSION

following the purchase. Such payments are based on the original purchase price
of Shares outstanding at each month end.

REDUCING OR ELIMINATING THE SALES CHARGE

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

quantity discounts and accumulated purchases;

concurrent purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

purchases with proceeds from redemptions of unaffiliated investment companies.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

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

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge elimination or reduction, a
shareholder has the privilege of combining concurrent purchases of Class A
Shares of two or more funds for which affiliates of Federated Investors serve as
investment adviser or principal underwriter (the "Federated Funds"), the
purchase price of which includes a sales charge. For example, if a shareholder
concurrently invested $30,000 in Class A shares in one of the other Federated
Funds with a sales charge, and $20,000 in Class A Shares of this Fund, the sales
charge would be reduced.

LETTER OF INTENT

the amount actually purchased within the 13-month period, and a provision for
the custodian to hold 4.50% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.

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

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

REINVESTMENT PRIVILEGE

If Shares in the Fund have been redeemed, the shareholder has, the privilege
within 120 days, to reinvest the redemption proceeds at the next-determined NAV

without any sales charge. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial institution of the reinvestment in
order to eliminate a sales charge. If the shareholder redeems his Shares in the
Fund, there may be tax consequences.

PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

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

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by Federal Reserve
wire by calling the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number--this
number can be found on the account statement or by contacting the Fund); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire

on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.

PURCHASING SHARES BY CHECK

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

an Automated Clearing House ("ACH") member and invested in the Fund at the NAV
next determined after an order is received by the Fund, plus the applicable
sales charge. Shareholders should contact their financial institution or the
Fund to participate in this program.

RETIREMENT PLANS

Shares of the Fund can be purchased as an investment for retirement plans or for
Individual Retirement Accounts ("IRAs"). For further details, contact the Fund
and consult a tax adviser.

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

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other Federated Funds at NAV. Neither the Fund nor any of the Federated Funds
impose any additional fees on exchanges. Shareholders in certain other Federated
Funds may exchange all or some of their shares for Class A Shares.

REQUIREMENTS FOR EXCHANGE

TAX CONSEQUENCES

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

MAKING AN EXCHANGE

TELEPHONE INSTRUCTIONS

- -------------------------------------------------------

HOW TO REDEEM SHARES

REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION

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

REDEEMING SHARES BY TELEPHONE

when wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.

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

REDEEMING SHARES BY MAIL

The written request should state: the Fund Name and the Share Class name; the

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

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

amount directed by the shareholder.

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

CONTINGENT DEFERRED SALES CHARGE

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

ELIMINATION OF CONTINGENT
DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as

defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of the last
surviving shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement plan to
a shareholder who has attained the age of 70-1/2; and (3) involuntary
redemptions by the Fund of Shares in shareholder accounts that do not comply
with the minimum balance requirements. No contingent deferred sales charge will
be imposed on redemptions of Shares held by Directors, employees and sales
representatives of the Fund, the distributor, or affiliates of the Fund or
distributor, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates, or any other
financial institution, to the extent that no payments were advanced for
purchases made through such entities. The Fund reserves the right to discontinue
or modify the elimination of the contingent deferred sales charge. Shareholders
will be notified of a discontinuation. Any Shares purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that the shareholder is
entitled to such elimination.

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

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid during the
year.

DIVIDENDS

Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Dividends are automatically reinvested in additional
Shares on the payment date, at the ex-dividend date NAV without a sales charge,
unless shareholders request cash payments on the new account form or by writing
to the transfer agent. All shareholders on the record date are entitled to the
dividend. If Shares are redeemed or exchanged prior to the record date, or
purchased after the record date, those Shares are not entitled to that quarter's
dividend. A portion of distributions to shareholders could under some
circumstances, be reclassified as a return of capital for income tax purposes

(see "Federal Income Tax").

CAPITAL GAINS

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

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$500. This requirement does not apply, however, if the balance falls below $500
because of changes in the Fund's NAV. Before Shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.

- -------------------------------------------------------
INTERNATIONAL SERIES, INC. INFORMATION

MANAGEMENT OF THE CORPORATION

BOARD OF DIRECTORS

The Corporation is managed by a Board of Directors. The Directors are

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

INVESTMENT ADVISER

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to 0.75% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by many mutual funds with similar objectives and policies. The Adviser may
voluntarily waive a portion of its fee. The Adviser can terminate this voluntary
waiver at any time at its sole discretion.

ADVISER'S BACKGROUND

Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a

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

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

Robert M. Kowit has been the Fund's portfolio manager since December 1995. Mr.
Kowit joined Federated Investors in 1995 as a Vice President of the Fund's

investment 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 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.

DISTRIBUTION OF SHARES

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee computed at
an annual rate of up to .25% of the average daily net assets for the Shares to
finance any activity which is principally intended to result in the sale of
Shares subject to the Distribution Plan. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.

The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from payments made by Shares under the
Distribution Plan. In addition, the Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of the Shares to obtain certain personal services for
shareholders and for the maintenance of shareholder accounts. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based

upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of the Shares, an amount equal to .50% of the NAV of the Class A Shares
purchased by their clients or customers under certain qualified retirement plans
as approved by Federated Securities Corp. (Such payments are subject to a
reclaim from the financial institution should the assets leave the program
within 12 months after purchase.)

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

Adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750
million
</TABLE>

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet this criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.

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

VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Director elections and

other matters submitted to shareholders for vote. All shares of each portfolio
or class in the Corporation have equal voting rights, except that in matters
affecting only a particular fund or class, only shares of that particular fund
or class are entitled to vote.

- -------------------------------------------------------

TAX INFORMATION

FEDERAL INCOME TAX

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

Quarterly distributions from the Fund are based on estimates of book income for

the year. Tax basis income includes gains or losses attributable to currency
fluctuation, whereas book income generally consists solely of the coupon income
generated by the portfolio. Due to differences in the book and tax treatment of
fixed incomes securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations can not 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 more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code, as
amended, may limit a shareholder's ability to claim a foreign tax credit.
Furthermore, 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.

STATE AND LOCAL TAXES

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

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

distributions as income or return of capital.

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

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

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

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

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

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

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

Expense differences between Class A Shares, Class B Shares and Class C Shares
may affect the performance of each class.

To obtain more information and a prospectus for Class B Shares and Class C
Shares, investors may call 1-800-341-7400 or contact their financial
institution.

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ADDRESSES

Federated International Income Fund
Class A Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR

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

INVESTMENT ADVISER
Federated Global Research Corp.
175 Water Street
New York, New York 10038-4965

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
2100 One PPG Place
Pittsburgh, Pennsylvania 15222

FEDERATED INTERNATIONAL

INCOME FUND
(A PORTFOLIO OF INTERNATIONAL
SERIES, INC.)
CLASS A SHARES

PROSPECTUS

An Open-End Management
Investment Company

Prospectus Dated January 31, 1997

[LOGO] FEDERATED INVESTORS

Since 1955

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 46031P100
1051602A-A (1/97)

[LOGO]
RECYCLED
PAPER

FEDERATED INTERNATIONAL INCOME FUND
A PORTFOLIO OF INTERNATIONAL SERIES, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated International Income Fund (the ``Fund'), a
portfolio of International Series, Inc. (the ``Corporation') dated
January 31, 1997. This Statement is not a prospectus. You may request a
copy of a prospectus or a paper copy of this Statement of Additional
Information, if you have received it electronically, free of charge by
calling 1-800-341-7400.

Statement dated January 31, 1997

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 46031P100
Cusip 46031P506
Cusip 46031P209
1051602B (1/97)

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVES AND POLICIES 1

Types of Investments and Investment Techniques1
When-Issued and Delayed Delivery Transactions 6
Repurchase Agreements 6
Reverse Repurchase Agreements 6
Lending Portfolio Securities 6
Restricted and Illiquid Securities 6
Duration 7
Additional Risk Considerations 7
Portfolio Turnover 7
INVESTMENT LIMITATIONS 8

INTERNATIONAL SERIES, INC. MANAGEMENT 10

Fund Ownership 14
Directors Compensation 15
INVESTMENT ADVISORY SERVICES 16

Adviser to the Fund 16
Advisory Fees 16
BROKERAGE TRANSACTIONS 16

OTHER SERVICES 17

Fund Administration 17
Custodian and Portfolio Accountant 17
Transfer Agent 17
Independent Public Accountants 17

PURCHASING SHARES 17

Distribution Plan and Shareholder Services 17
Conversion to Federal Funds 18
Purchases by Sales Representatives, Directors of
the Corporation, and Employees 18
DETERMINING NET ASSET VALUE 18

Determining Market Value of Securities 18
Trading in Foreign Securities 18
REDEEMING SHARES 18

Redemption in Kind 19
Elimination of the Contingent Deferred Sales
Charge 19
TAX STATUS 19

The Fund's Tax Status 19
Foreign Taxes 19
Shareholders' Tax Status 19
TOTAL RETURN 20

YIELD 20

PERFORMANCE COMPARISONS 20

Economic and Market Information 21
ABOUT FEDERATED INVESTORS 21

FINANCIAL STATEMENTS 22

APPENDIX 23

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in International Series, Inc. (the
`Corporation''), which was established as FT International Trust, a
Massachusetts business trust, under a Declaration of Trust dated March 9,
1984, and reorganized as a corporation under the laws of the state of
Maryland on February 11, 1991. At a special meeting of shareholders held on
March 15, 1994, the shareholders of the Corporation approved an amendment
to the Articles of Incorporation to change the name of the Corporation from
FT Series, Inc., to International Series, Inc.
Shares of the Fund are offered in three classes known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively referred
to as `Shares'' as the context may require). This Statement of Additional
Information relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVES AND POLICIES

The Fund's investment objective is to seek a high level of current income
in U.S. dollars consistent with prudent investment risk. The Fund has a
secondary objective of capital appreciation. The investment objectives of
the Fund cannot be changed without the approval of the shareholders.
TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
GENERAL
The Fund will invest primarily in high-quality debt securities
denominated in foreign currencies in accordance with the Fund's
investment objectives and policies. The Fund intends to engage in
forward contracts, futures and options transactions whenever it
appears to Federated Global Research Corp., the Fund's investment
adviser (the `Adviser'') (a) to be advantageous to do so in pursuing
the Fund's investment objectives; (b) to hedge (i.e., protect) against

foreign currency and interest rate risks; and (c) to stabilize the
value of the Fund's assets. The Fund will not engage in such
transactions for speculation. Up to 10% of the Fund's total assets may
be invested at any one time in commercial paper, certificates of
deposit or repurchase agreements. The use of forward contracts,
futures and options, and the attendant benefits and possible risks of
such transactions, are discussed below along with certain other
investment information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and a
foreign currency involved in an underlying transaction. However,
forward foreign currency exchange contracts may limit potential gains
which could result from a positive change in such currency
relationships. The Adviser believes that it is important to have the
flexibility to enter into forward foreign currency exchange contracts
whenever it determines that it is in the Fund's best interest to do
so. The Fund will not speculate in foreign currency exchange.
There is no limitation as to the percentage of the Fund's assets that
may be committed to such contracts. The Fund does not enter into
forward foreign currency exchange contracts or maintain a net exposure
in such contracts when the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency or,
in the case of a `cross-hedge'' denominated in a currency or
currencies that the Adviser believes will tend to be closely
correlated with that currency with regard to price movements.

Generally, the Fund does not enter into a forward foreign currency
exchange contract with a term longer than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to
buy or sell a stated amount of foreign currency at the exercise price
on a specified date or during the option period. The owner of a call
option has the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not the
obligation to sell the currency.
When the option is exercised, the seller (i.e., writer) of the option
is obligated to fulfill the terms of the sold option. However, either
the seller or the buyer may, in the secondary market, close its
position during the option period at any time prior to expiration.

A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency
depreciates in value. Although purchasing a foreign currency option
can protect the Fund against an adverse movement in the value of a
foreign currency, the option will not limit the movement in the value
of such currency. For example, if the Fund were holding securities
denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the
value of the currency, the Fund would not have to exercise its put
option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in
conjunction with that purchase, were to purchase a foreign currency

call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of
purchase and the settlement date, the Fund would not have to exercise
its call. Instead, the Fund could acquire in the spot market the
amount of foreign currency needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain
additional risks associated with foreign currency options. The markets
in foreign currency options are relatively new, and the Fund's ability
to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
Adviser, the market for them has developed sufficiently to ensure that
the risks in connection with such options are not greater than the
risks in connection with the underlying currency, there can be no
assurance that a liquid secondary market will exist for a particular
option at any specific time.
In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and investments
generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the
price of the option position may vary with changes in the value of
either or both currencies and may have no relationship to the
investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign

currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than
$1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis. Available quotation information is generally representative of
very large transactions in the interbank market and thus may not
reflect relatively smaller transactions (i.e. less than $1 million)
where rates may be less favorable. The interbank market in foreign
currencies is a global, around-the-clock market subject to significant
price and rate movements.
FUTURES CONTRACTS
The Fund may enter into contracts for the future delivery of a
financial instrument such as an amount of foreign currency, a
security, or the cash value of a securities index during a specified
future period at a specified price. This investment technique is
designed primarily to hedge against anticipated future changes in
foreign exchange rates, interest rates or market conditions, all of
which might otherwise have an adverse effect upon the value of
securities or other assets which the Fund holds or intends to
purchase. A `sale'' of a futures contract means the undertaking of a
contractual obligation to deliver the underlying foreign currency,
security or cash value of a securities index called for by the
contract at a specified price during a specified delivery period. A
`purchase'' of a futures contract means the undertaking of a
contractual obligation to acquire the underlying foreign currency,

security or cash value of a securities index at a specified price
during a specified delivery period. At the time of delivery, in the
case of fixed income securities pursuant to the contract, adjustments
are made to recognize differences in value resulting from the delivery
of securities with a different interest rate than the rate specified
in the contract. In some cases, securities called for by a futures
contract may not have been issued at the time the contract was
written.
Although some futures contracts by their terms call for the actual
delivery or acquisition of assets, in most cases a party will close
out the contractual commitment before delivery without having to make
or take delivery of the underlying assets by purchasing (or selling,
as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction,
if effected through a member of an exchange, cancels the obligation to
make or take delivery of the underlying assets. All transactions in
the futures market are made, offset or fulfilled through a clearing
house associated with the exchange on which the contracts are traded.
Brokerage fees will be incurred by the Fund when it purchases or sells
contracts, and the Fund will be required to maintain margin deposits.
At the time the Fund enters into a futures contract, it is required to
deposit with its custodian, on behalf of the broker, a specified
amount of cash or eligible securities, called `initial margin.'' The
initial margin required for a futures contract is set by the exchange
on which the contract is traded. Subsequent payments, which are called
`variation margin,'' to and from the broker are made on a daily basis
as the market price of the futures contract fluctuates. The costs

incurred in connection with futures transactions could reduce the
Fund's return.
Futures contracts entail risks. If the Adviser's judgment about the
general direction of interest rates, markets or exchange rates is
wrong, the overall performance may be poorer than if no such contracts
had been entered into. An imperfect correlation may exist between
movements in the prices of futures contracts and portfolio assets
being hedged. Further, the market prices of futures contracts may be
affected by certain factors. For example, the normal relationship
between the assets and futures markets could be distorted if
participants in the futures market were to elect to close out their
contracts through offsetting transactions rather than by meeting
margin requirements. Price distortions also could result if investors
in futures contracts were to decide to make or take delivery of
underlying assets rather than engaging in closing transactions because
of the resultant liquidity of the futures market. Further, increased
participation by speculators in the futures market could cause
temporary price distortions because, as perceived by speculators,
margin requirements in the futures market are less onerous than margin
requirements in the cash market. Because of the possibility of price
distortions in the futures market and the imperfect correlation
between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of
market trends by the Adviser still may not result in a successful
hedging transaction. If one of these events were to occur, the Fund
could lose money on the futures contracts as well as on its portfolio
assets.

OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write call and put options on futures
contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a
futures contract at a specified price at any time during the period of
the option. When the option is exercised, the writer of the option
delivers the futures contract to the holder at the exercise price.
With regard to put and call options on futures contracts written by
the Fund, the Fund would be required to deposit initial and
maintenance margin with the custodian. Options on futures contracts
involve risks similar to those discussed above that relate to
transactions in futures contracts. Furthermore, an option on a futures
contract purchased by the Fund may expire worthless, which would cause
the Fund to lose the premium paid for the option.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such
contracts, the Fund may be able to achieve many of the same objectives
as it would through the use of forward foreign currency exchange
contracts. The Fund may be able to achieve these objectives possibly
more effectively and at a lower cost by using futures transactions
instead of forward foreign currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those
associated with options on foreign currencies, as described above.

Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures
contracts is relatively new. The ability to establish and close out
positions on such options is subject to the maintenance of a liquid
secondary market. To reduce this risk, the Fund will not purchase or
write options on foreign currency futures contracts unless and until,
in the Adviser opinion, the market for such options has developed
sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the
underlying foreign currency futures contracts. Compared to the
purchase or sale of foreign currency futures contracts, the purchase
of call or put options on futures contracts involves less potential
risk to the Fund because the maximum amount at risk is the premium
paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in
the price of the underlying currency or futures contract.

OPTIONS ON SECURITIES
The Fund may write (sell) covered call options on securities if it
owns securities that are acceptable for escrow purposes. Additionally,
the Fund may write secured put options on securities. When writing a
secured put option, the Fund will invest an amount not less than the
exercise price of the put option in eligible securities, so long as
the Fund is obligated as a writer of a put option. A call option gives
the purchaser the right to buy, and the writer the obligation to sell,
the underlying security at the exercise price during the option

period. A put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying security at the exercise
price during the option period. The premium received for writing an
option will reflect such factors as the current market price of the
underlying security, the relationship of the exercise price to such
market price, the option period, supply and demand, and interest
rates. The exercise price of an option may be below, equal to or above
the current market value of the underlying security at the time that
the option is written. The Fund may also write or purchase spread
options. A spread option is an option for which the exercise price may
be a fixed dollar spread or yield spread between the security
underlying the option and another security that it does not own but
uses as a bench mark.
The purchase of a put option by the owner of the related security
protects the purchaser against any decline in the related security's
price below the exercise price (less the amount paid for the option).
The ability of the Fund to purchase put options allows it to protect
capital gains in an appreciated security without actually requiring
the Fund to sell the appreciated security. On occasion, the Fund would
like to establish a position in a security upon which call options are
available. The purchase of a call option enables the Fund to fix the
cost of acquiring the security, which would be the cost of the call
plus the exercise price of the option. In addition, this method of
acquiring securities provides some protection from an unexpected
downturn in the market. This is because the Fund is at risk only for
the amount of the premium paid for the call option, which it can let
lapse, if it so chooses.

During the option period, the covered call writer gives up the
potential for capital appreciation above the exercise price if the
underlying asset rises in value, and the secured put writer retains
the risk of loss if the underlying asset declines in value. For the
covered call writer, substantial appreciation in the value of the
underlying asset would result in the asset being `called away.'' For
the secured put writer, substantial depreciation in the value of the
underlying asset could result in the asset being `put to'' the
writer. If a covered call option expired unexercised, the writer of
the call would realize a gain and the buyer would realize a loss in
the amount of the premium. If the covered call option writer had to
sell the underlying asset because of the exercise of the call option,
it would realize a gain or loss from the sale of the underlying asset,
with the proceeds being increased by the amount of the premium.
If a secured put option expired unexercised, the writer would realize
a gain and the buyer would realize a loss on the amount of the
premium. If the secured put writer would have to buy the underlying
asset because of the exercise of the put option, the writer would
incur an unrealized loss to the extent that the current market value
of the underlying asset is less than the exercise price of the put
option, less the premium received.
OVER-THE-COUNTER OPTIONS
The Fund may deal in over-the-counter traded options (`OTC options'')
in addition to exchange traded options. OTC options differ from
exchange traded options in several respects. First, they are
transacted with dealers rather than a clearing corporation. Second, a
risk of nonperformance by the dealer exists, whether as a result of
the insolvency of the dealer or otherwise, which could cause the Fund

to experience material losses; however, in writing OTC options, the
premium is paid in advance by the dealer. Third, in contrast to
exchange traded options, OTC options are available for a greater
variety of securities and wider range of expiration dates and exercise
prices. Because there is no exchange in the case of OTC options,
pricing is normally done with reference to information from market
makers, which is carefully monitored by the Fund's investment adviser
and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it
voluntarily only by entering into a closing transaction. In the case
of OTC options, there cannot be any assurance that a continuous liquid
secondary market will exist for any particular option at any given
time. As a result, the Fund may be able to realize the value of an OTC
option it has purchased only by exercising it or by entering into a
closing sale transaction with the dealer that issued it. Likewise, in
cases where the Fund writes an OTC option, it generally can close out
that option prior to its expiration only by entering into a closing
purchase transaction with the dealer to whom the Fund wrote the
option. If a covered call option writer is unable to effect a closing
transaction, it cannot sell the underlying asset until the option
either expires or is exercised. Thus, a covered call option writer of
an OTC option may not be able to sell an underlying asset even though
it might otherwise be advantageous to do so. Moreover, a secured put
writer of an OTC option may be unable to sell the assets pledged to
secure the put for other investment purposes so long as it is
obligated as a put writer, and a purchaser of the put or call option
might also find it difficult to terminate its position on a timely
basis when no secondary market exists.

OPTIONS ON SECURITIES INDICES
The Fund also may purchase and write call and put options on
securities indices in order to hedge against market conditions which
affect the values of securities that the Fund owns or intends to
purchase. The Fund will not purchase and write such options for
speculation. By writing and purchasing index options, the Fund may be
able to achieve many of the same objectives as through the purchasing
and writing of options on individual securities. Options on securities
indices are similar to options on individual securities. However,
unlike an option on an individual security, which gives the right to
take or make delivery of a security at a specified price, an option on
a securities index gives the holder upon exercise the right to receive
an amount of cash if the closing level of the securities index upon
which the option is based exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option. Upon
exercise of the option, the amount of cash received by the holder is
equal to the difference between the closing price of the index and the
exercise price of the option. In consideration for the premium
received, the writer of the option has an obligation to make delivery
of the amount of cash resulting from the exercise of the option.
Unlike options on individual securities, all settlements are in cash,
and the gain or loss depends upon price movements in the market
generally or in a segment of the market, rather than upon price
movements in individual securities.
The Fund covers call options written on a securities index through the
ownership of securities whose changes in price, in the opinion of the
Adviser, are anticipated to be similar to the price changes of the
index, or in such other manner or may be in conformance with

applicable laws, regulations and exchange rules. Any changes in the
prices of the securities owned by the Fund probably will not be
perfectly correlated with the securities index. The Fund will secure
put options written on a securities index by means of segregating
liquid high-grade securities equal to the exercise price, or in such
other manner as may be in conformance with applicable laws,
regulations and exchange rules. Upon writing an option on a securities
index, the Fund will be required to deposit with its custodian and
mark-to-market, eligible securities that are equal in value to at
least 100% of the exercise price in the case of a put or, in the case
of a call, the value of the contract. Additionally, if the Fund writes
a call option on a securities index at a time when the value of the
contract is greater than the exercise price, the Fund will segregate
and mark to market, until such time as the option expires or is closed
out, cash or a cash equivalent equal in value to the excess of the
contract value.
In addition, the Fund may purchase and write options on other
appropriate indices, as available (e.g., foreign currency indices).
Index options involve risks similar to those associated with
transactions in futures contracts, as described above. Also, an option
purchased by the Fund may expire worthless. In such case, the Fund
could lose the premium paid for the option.
REGULATORY RESTRICTIONS
To the extent required to comply with Securities and Exchange
Commission (`SEC'') Release No. 10666, when purchasing a futures
contract, writing a put option or entering into a delayed delivery
purchase or forward foreign currency exchange purchase, the Fund will

establish and maintain a segregated account consisting of cash or
liquid high-grade securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid status as a `commodity
pool operator', the Fund will not enter into a futures contract, or
purchase an option thereon, if immediately thereafter the initial
margin deposits for futures contracts held by the Fund, plus premiums
paid by it for open options of futures, would exceed 5% of the total
assets of the Fund. The Fund will not engage in transactions in
futures contracts or options thereon for speculation, but only to
attempt to hedge against changes in market conditions affecting the
values of assets which the Fund holds or intends to purchase. When
futures contracts or options thereon are purchased in order to protect
against a price increase on securities or other assets intended to be
purchased later, it is anticipated that at least 75% of such intended
purchases will be completed. When other futures contracts or options
thereon are purchased, the underlying value of such contracts will at
all times not exceed the sum of (1) accrued profit on such contracts
held by the broker; (2) cash or high-quality money market instruments
set aside in an identifiable manner; and (3) cash proceeds from
investments due in 30 days or less.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.

The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
In the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject
to repurchase agreements, a court of competent jurisdiction would rule in
favor of the Fund and allow retention or disposition of such securities.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers which are deemed
by the Adviser to be creditworthy pursuant to guidelines established by the
Corporation's Board of Directors (the `Directors'').
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase

agreements does not ensure that the Fund will be able to avoid selling
portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
assets are marked to market daily and maintained until the transaction is
settled.
LENDING PORTFOLIO SECURITIES
The Fund may lend its portfolio securities to broker-dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker-dealers, banks, or other institutions which
the Adviser has determined are creditworthy under guidelines established by
the Directors and will receive collateral equal to at least 100% of the
value of the securities loaned.
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,

therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a SEC Staff position set forth in
the adopting release for Rule 144A under the Securities Act of 1933 (the
`Rule''). The Rule is a non-exclusive, safe-harbor for certain secondary
market transactions involving securities subject to restrictions on resale
under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under
Rule 144A. The Fund believes that the staff of the SEC has left the
question of determining the liquidity of all restricted securities
(eligible for resale under Rule 144A) for determination of the Directors.
The Directors consider the following criteria in determining the liquidity
of certain restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealers' undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona
fide market does not exist at the time of purchase or subsequent
transaction shall be treated as illiquid securities by the Directors.

When the Fund invests in certain restricted securities determined by the
Directors to be liquid, such investments could have the effect of
increasing the level of Fund illiquidity to the extent that the buyers in
the secondary market for such securities (whether in Rule 144A resales or
other exempt transactions) become, for a time, uninterested in purchasing
these securities.
DURATION
Duration is a measure of a debt security's price sensitivity expressed in
years and is a measure of the interest rate risk of a debt security, taking
into consideration that there may be cash flows before the maturity date
and that the cash flows must be considered in terms of their present value.
Duration is similar to, but more precise than, average life. It is a
measure of the number of years until the average dollar-in present value
terms-is received from coupon and principal payments. As such, it is one
measure of systematic risk. Average life, on the other hand, is a measure
of the time to receive a dollar of principal-it takes into consideration
neither interest payments nor present value. Duration is computed by
multiplying each principal and interest payment by its present value,
summing these products, and dividing the sum by the full price of the debt
security. When a Fund invests in mortgage pass-through securities, its
duration will be calculated in a manner which requires assumptions to be
made regarding future principal prepayments. A more complete description of
this calculation is available upon request from the Fund.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition
by any foreign government of exchange control restrictions which would
affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of

foreign governments to which such assets may be exposed. The Directors also
consider the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in the
absence of willful misfeasance, bad faith or gross negligence on the part
of the Adviser, any losses resulting from the holding of the Funds'
portfolio securities in foreign countries and/or with securities
depositories will be at the risk of shareholders. No assurance can be given
that the Directors' appraisal of the risks will always be correct or that
such exchange control restrictions or political acts of foreign governments
might not occur.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's
investment objectives, without regard to the length of time a particular
security may have been held. The Adviser does not anticipate that portfolio
turnover will result in adverse tax consequences. For the fiscal years
ended November 30, 1996 and 1995, the portfolio turnover rates were 92% and
41% , respectively.

INVESTMENT LIMITATIONS

ACQUIRING SECURITIES
The Fund will not acquire any securities of Fiduciary Trust Company
International or its affiliates.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of its total assets in
securities of any one government or supranational issuer.

BORROWING
The Fund will not borrow money except from banks or through reverse
repurchase agreements as a temporary measure for extraordinary or
emergency purposes and then only in amounts up to one-third of the
value of its total assets, including the amount borrowed, but entering
into futures contracts shall not be considered borrowing. This
borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio securities would
be inconvenient or disadvantageous. The Fund will not purchase
securities while outstanding borrowings exceed 5% of the value of its
total assets.
PLEDGING SECURITIES
The Fund will not mortgage, pledge, or hypothecate securities, except
when necessary for permissible borrowings. In those cases, it may
pledge assets having a value of 15% of its assets taken at cost. For
purposes of the limitation, (a) the deposit of assets in escrow in
connection with the writing of covered call and secured put options
and (b) collateral arrangements with respect to (i) the purchase and
sale of options and (ii) initial or variation margins for futures
contracts, will not be deemed to be pledges of the Fund's assets.
BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain
such short-term credits as may be necessary for clearance of purchases
and sales of securities, and except that the Fund may make margin
deposits or payments in connection with its use of options, futures
contracts and options on futures contracts.

ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except in connection with
transactions described in other investment limitations or as required
by forward commitments to purchase securities or currencies.
UNDERWRITING
The Fund will not underwrite or participate in the marketing of
securities of other issuers, except as it may be deemed to be an
underwriter under federal securities law in connection with the
disposition of its portfolio securities.
INVESTING IN REAL ESTATE
The Fund will not invest in real estate, including limited partnership
interests, although it may invest in securities secured by real estate
or interests in real estate or issued by companies, including real
estate investment trusts, which invest in real estate or interests
therein.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities or commodity contracts,
except that the Fund may purchase or sell futures contracts and
options thereon, provided that the sum of its initial margin deposits
on open contracts will not exceed 5% of the fair market value of the
Fund's net assets. Further, the Fund may engage in transactions in
foreign currencies and may purchase and sell options on foreign
currencies and indices for hedging purposes.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. This
shall not prevent the purchase or holding of bonds, debentures, notes,
certificates of indebtedness, or other debt securities of an issuer,
repurchase agreements or other transactions which are permitted by the

Fund's investment objective and policies or its Articles of
Incorporation.
INVESTING IN MINERALS
The Fund will not invest in interests in oil, gas, or other mineral
exploration or development programs or leases.
DEALING IN PUTS AND CALLS
The Fund may not write or purchase options, except that the Fund may
write covered call options and secured put options on up to 25% of its
net assets and may purchase put and call options, provided that no
more than 5% of its net assets may be invested in premiums of such
options.
SELLING SHORT
The Fund will not sell securities short unless (1) it owns, or has a
right to acquire, an equal amount of such securities, or (2) it has
segregated an amount of its other assets equal to the lesser of the
market value of the securities sold short or the amount required to
acquire such securities. The segregated amount will not exceed 10% of
the Fund's net assets. While in a short position, the Fund will retain
the securities, rights, or segregated assets.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by
the Directors without shareholder approval. Except as noted, shareholders
will be notified before any material change in these limitations becomes
effective.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not own securities of open-end investment companies, own
more than 3% of the total outstanding voting stock of any closed-end
investment company, invest more than 5% of its total assets in any
closed-end investment company, or invest more than 10% of its total
assets in closed-end investment companies in general. The Fund will
purchase securities of closed-end investment companies only in open-
market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization, or acquisition of
assets. The Fund will indirectly bear its proportionate share of any
fees and expenses paid by other investment companies in addition to
the fees and expenses payable directly by the Fund.

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.
The Fund did not borrow money, invest in reverse repurchase agreements,
pledge securities in excess of 5% of the value of its total assets or sell
securities short in an amount exceeding 5% of its net assets, during the
past year and does not anticipate doing so during the current fiscal year.

INTERNATIONAL SERIES, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with International Series, Inc., and principal occupations.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director of the
Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director

President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference

Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of December 31, 1996, the following shareholders of record owned 5% or
more of the outstanding Class A Shares of the Fund: Wabank & Co.,
Waukesha, WI, owned approximately 696,819 (5.65%) Class A Shares; North
Central Trust Co., Lacrosse, WI, owned approximately 1,907,214 (15.46%)
Class A Shares; Jato, Minneapolis, MN, owned approximately 2,148,697
(17.42%) Class A Shares; and Charles Schwab & Co., Inc., San Francisco, CA,
on behalf of certain underlying accounts, owned approximately 2,878,352
(63.58%) Class A Shares.

As of December31, 1996, the following shareholder of record owned 5% or
more of the outstanding Class B Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, FL, on behalf of certain underlying accounts,
owned approximately 68,187 (8.60%) Class B Shares.
As of December 31, 1996, the following shareholder of record owned 5% or
more of the outstanding Class C Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, FL, on behalf of certain underlying accounts,
owned approximately 826,613 (63.76%) Class C Shares.

DIRECTORS COMPENSATION

AGGREGATE TOTAL COMPENSATION PAID
NAME , COMPENSATION TO DIRECTORS FROM
POSITION WITH FROM THE THE CORPORATION
THE CORPORATION CORPORATION *# AND FUND COMPLEX +

John F. Donahue, $0 $0 for the Corporation and
Chairman and Director 56 other investment companies in
the Fund Complex

Thomas G. Bigley, ++ $680.91 $108,725for the Corporation and
Director 56 other investment companies in
the Fund Complex

John T. Conroy, Jr., $749.11 $119,615for the Corporation and
Director 56 other investment companies in
the Fund Complex

William J. Copeland, $749.11 $119,615for the Corporation and
Director 56 other investment companies in
the Fund Complex

James E. Dowd, $749.11 $119,615for the Corporation and
Director 56 other investment companies in
the Fund Complex

Lawrence D. Ellis, M.D., $680.91 $108,725for the
Corporation and
Director 56 other investment companies in
the Fund Complex

Edward L. Flaherty, Jr. $749.11 $119,615for the
Corporation and
Director 56 other investment companies in
the Fund Complex

Peter E. Madden, $680.91 $108,725for the Corporation and
Director 56 other investment companies in
the Fund Complex

Gregor F. Meyer, $680.91 $108,725for the Corporation and
Director 56 other investment companies in
the Fund Complex

John E. Murray, Jr. $680.91 $108,725for the Corporation and

Director 56 other investment companies in
the Fund Complex

Wesley W. Posvar, $680.91 $108,725for the Corporation and
Director 56 other investment companies in
the Fund Complex

Marjorie P. Smuts, $680.91 $108,725for the Corporation and
Director 56 other investment companies in
the Fund Complex

*Information is furnished for the fiscal year ended November 30, 1996.
#The aggregate compensation is provided for the Corporation which is
comprised of 2 portfolios.
+ The information is provided for the last calendar year.

INVESTMENT ADVISORY SERVICES

gross negligence, or reckless disregard of the duties imposed upon it by
its contract with the Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal year ended
November 30, 1996, and for the period from September 1, 1995 to November
30, 1995, the Adviser received $1,476,050 and $353,494, respectively. For
the period from December 1, 1994 to August 31, 1995, Federated Management,
the Fund's former investment adviser received $1,105,820 For the period
from March 15, 1994 to November 30, 1994, Federated Management received
$1,281,997. For the period from December 1, 1993 to March 14, 1994,
Fiduciary Trust International Limited, the Fund's initial investment
adviser, received $537,219.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Directors. The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the Adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the Adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant

services for which the Adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The Adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. For the fiscal years ended November 30, 1996, 1995, and
1994, the Fund did not pay any brokerage commissions .
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

OTHER SERVICES

administrator. Both former administrators are subsidiaries of Federated
Investors. For purposes of the Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended November 30, 1996,
1995, and 1994, the Administrators earned $184,998, $271,797, and $334,436,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
PURCHASING SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value, plus a sales charge (for Class A Shares
only) on days the New York Stock Exchange (`NYSE'') is open for business.
The procedure for purchasing Shares is explained in the prospectus under
`How to Purchase Shares.''

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities may include, but are
not limited to, marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objective. By
identifying potential investors whose needs are served by the Fund's
objective, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended November 30, 1996, the Class A Shares, Class B
Shares and Class C Shares incurred $448,844, $32,098 and $97,111,
respectively, in distribution services fees, of which $308,676, $0 and $0,
respectively were waived. In addition, for the fiscal year ended November

30, 1996, the Class A Shares, Class B Shares and Class C Shares, paid
shareholder services fees in the amount of $448,844, $10,699 and $32,370,
respectively, of which $229,937, $0 and $1,130, respectively, were waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS OF THE CORPORATION, AND
EMPLOYEES
Directors, employees, and sales representatives of the Fund, the Adviser,
and Federated Securities Corp., or their affiliates, or any investment
dealer who has a sales agreement with Federated Securities Corp., and their
spouses and children under 21, may buy Shares at net asset value without a
sales charge. Shares may also be sold without sales charges to trusts or
pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market or appraised values of the Fund's portfolio securities are
determined as follows:

oaccording to the prices provided by an independent pricing service,
if available, or at fair value as determined in good faith by the
Directors; or
ofor short-term obligations with remaining maturities of 60 days or
less at the time of purchase, at amortized cost, unless the
Directors determine that particular circumstances of the security
indicate otherwise.
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; coupon rate;
maturity; type of issue; trading characteristics; and other market data.
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 the net
asset value, the Fund values foreign securities at the latest closing price
on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined
at the latest rate prior to the closing of the NYSE. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at current
rates. Occasionally, events that affect these values and exchange rates may
occur between the times at which they are determined and the closing of the
NYSE. If such events materially affect the value of portfolio securities,
these securities may be valued at their fair value as determined in good
faith by the Directors, although the actual calculation may be done by
others.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to

a contingent deferred sales charge. Redemption procedures are explained in
the prospectus under `How to Redeem Shares.'' Although the Fund does not
charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and Class C Shares
redeemed within one year of purchase may be subject to a contingent
deferred sales charge. The amount of the contingent deferred sales charge
is based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the financial institutions for services
rendered, and the length of time the investor remains a shareholder in the
Fund. Should financial institutions elect to receive an amount less than
the administrative fee that is stated in the prospectus for servicing a
particular shareholder, the contingent deferred sales charge and/or holding
period for that particular shareholder will be reduced accordingly.
Since portfolio securities of the Fund may be traded on foreign exchanges
which trade on Saturdays or on holidays on which the Fund will not make
redemptions, the net asset value of each class of Shares of the Fund may be
significantly affected on days when shareholders do not have an opportunity
to redeem their Shares.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price, in whole or
in part, by a distribution of securities from the Fund's portfolio. The
Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, under which the Corporation is obligated to redeem
Shares for any one shareholder in cash only up to the lesser of $250,000 or
1% of a class of Shares' net asset value during any 90-day period. Any
redemption beyond this amount will also be in cash unless the Directors

determine that further cash payments will have a materially adverse effect
on remaining shareholders. In such a case, the Fund will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Directors deem fair and
equitable.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Directors determine to
be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made is kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales
Charge may not exceed 12% annually with reference initially to the value of
the Class B Shares upon establishment of the Systematic Withdrawal Program
and then as calculated at the fiscal year end. Redemptions on a qualifying
Systematic Withdrawal Program can be made at a rate of 1.00% monthly, 3.00%
quarterly, or 6.00% semi-annually with reference to the applicable account
valuation amount. Amounts that exceed the 12.00% annual limit for
redemption, as described, may be subject to the Contingent Deferred Sales
Charge. To the extent that a shareholder exchanges Shares for Class B
Shares of other Federated Funds, the time for which the exchanged-for
Shares are to be held will be added to the time for which exchanged-from
Shares were held for purposes of satisfying the 12 month holding

requirement. However, for purposes of meeting the $10,000 minimum account
value requirement, Class B Share accounts values will not be aggregated.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may
invest 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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The Fund's dividends, and any
short-term capital gains, are taxable as ordinary income.

CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held the Fund Shares.
TOTAL RETURN

The Fund's average annual total returns for Class A Shares for the one- and
five-year periods ended November 30, 1996 and for the period from June 4,
1991 (date of initial public investment) to November 30, 1996, were 8.14%,
9.72% and 10.74%, respectively.
The Fund's average annual total returns for Class B Shares for the fiscal
year ended November 30, 1996 and for the period from September 28, 1994
(start of performance) to November 30, 1996, were 6.55% and 12.09%,
respectively.
The Fund's average annual total returns for Class C Shares for the fiscal
year ended November 30, 1996 and for the period from April 1, 1993 (start
of performance) to November 30, 1996, were 11.27% and 12.22%, respectively.
The average annual total return for each class of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the offering price per
Share at the end of the period. The number of Shares owned at the end of
the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge on Class A Shares,
adjusted over the period by any additional Shares, assuming the annual
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investment
based on the lesser of the original purchase price or the offering price of

Shares redeemed. Occasionally, total return which does not reflect the
effect of the sales charge may be quoted in advertising.
YIELD

The yield for Class A Shares for the thirty-day period ended November 30,
1996, was 5.20%.
The yield for Class B Shares for the thirty-day period ended November 30,
1996, was 4.64%.
The yield for Class C Shares for the thirty-day period ended November 30,
1996, was 4.63%.
The yield for all classes of Shares of the Fund is determined by dividing
the net investment income per Share (as defined by the SEC) earned by any
class of Shares over a thirty-day period by the maximum offering price per
Share of any class of Shares on the last day of the period. This value is
then annualized using semi-annual compounding. This means that the amount
of income generated during the thirty-day period is assumed to be generated
each month over a 12-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by any class of
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 that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
PERFORMANCE COMPARISONS

The Fund's performance of each class of Shares depends upon such variables
as: .portfolio quality;

oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates on money market instruments;
ochanges in the Fund's or a class of Shares' expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC., for example, makes comparative
calculations for one-month, three-month, one-year, and five-year
periods which assume the reinvestment of all capital gains
distributions and income dividends.
oSALOMON BROTHERS HIGH GRADE BOND INDEX; SALOMON BROTHERS WORLD
GOVERNMENT BOND INDEX; AND J.P. MORGAN GOVERNMENT BOND INDEX.
oMORNINGSTAR, 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.

oLEHMAN BROTHERS GOVERNMENT/CORPORATE BOND 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.
Advertisements and sales literature for all three classes of Shares may
quote total returns which are calculated on non-standardized base periods.
These total returns also represent the historic change in the value of an
investment in any class of Shares based on annual reinvestment of dividends
over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge or contingent deferred sales charge, as
applicable.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the

securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute (`ICI''). For example,
according to the ICI, twenty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as
well as businesses and institutions, have entrusted over $3 trillion to the
more than 5,500 funds available.
ABOUT FEDERATED INVESTORS

J. Thomas Madden, Executive Vice President, oversees Federated Investor's
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investor's domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investor's international portfolios.
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 $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients
is headed by John B. Fisher, President, Institutional Sales Division.

BANK MARKETING
Other institutional clients include close relationships with 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 Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--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 rankings 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 Division.
FINANCIAL STATEMENTS

APPENDIX