INTERNATIONAL SERIES INC, 485APOS, 1998-11-30

INTERNATIONAL SERIES INC
485APOS, 1998-11-30

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1933 Act File No. 2-91776
1940 Act File No. 811-3984

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

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

Post-Effective Amendment No. 33 ................... X_

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _ X

Amendment No. 28 ................................... _X

INTERNATIONAL SERIES, INC.

(Exact Name of Registrant as Specified in Charter)

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

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

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

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
_ on __________________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) X on January 31, 1999
pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii) on _________________
pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

Copies To:

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

PROSPECTUS

FEDERATED INTERNATIONAL EQUITY FUND

A Portfolio of International Series, Inc.

CLASS A SHARES, CLASS B SHARES, CLASS C SHARES

A mutual fund seeking to obtain a total return on its assets by investing
primarily in equity securities of companies based outside the United States.

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

CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information

JANUARY 31, 1999

<PAGE>

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to obtain a total return on its assets.

This investment objective may be changed by the Fund's Directors without
shareholder approval. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.

The Fund's total return will consist of two components: (1) changes in the
market value of its portfolio securities, and (2) income received from its
portfolio securities. The Fund expects that changes in market value will
comprise the largest component of its total return. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The adviser
manages the Fund based on the view that international equity markets are
inefficient at pricing securities and that careful security selection offers the
best potential for superior long-term investment returns. Selection of industry
and country are secondary considerations.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

fluctuations in the value of equity securities in foreign securities
markets, and

fluctuations in the exchange rate between the U.S. dollar and foreign
currencies. An investment in the Fund involves additional risks such as risks of
foreign investing, sector risks and Euro risks.

RISK/RETURN BAR CHART AND TABLE
THE GRAPHIC PRESENTATION DISPLAYED HERE CONSISTS OF A BAR CHART REPRESENTING THE
ANNUAL TOTAL RETURNS OF CLASS A SHARES OF FEDERATED INTERNATIONAL EQUITY FUND AS
OF THE CALENDAR YEAR-END FOR EACH OF TEN YEARS. THE `Y' AXIS REFLECTS THE "%
TOTAL RETURN" BEGINNING WITH "-15%" AND INCREASING IN INCREMENTS OF 5% UP TO
35%. THE `X' AXIS REPRESENTS CALCULATION PERIODS FOR THE LAST TEN CALENDAR YEARS
OF THE FUND'S CLASS A SHARES, BEGINNING WITH DECEMBER 31, 1988. THE LIGHT GRAY
SHADED CHART FEATURES TEN DISTINCT VERTICAL BARS, EACH SHADED IN CHARCOAL, AND
EACH VISUALLY REPRESENTING BY HEIGHT THE TOTAL RETURN PERCENTAGES FOR THE
CALENDAR YEAR STATED DIRECTLY AT ITS BASE. THE CALCULATED TOTAL RETURN
PERCENTAGE FOR THE CLASS A SHARES FOR EACH CALENDAR YEAR IS STATED DIRECTLY AT
THE TOP OF EACH RESPECTIVE BAR, FOR THE CALENDAR YEARS 1988 THROUGH 1997. THE
PERCENTAGES NOTED ARE:
16.17%, 18.34%, -11.55%, 7.53%, -5.89%, 31.29%, 0.49%, 6.52%, 5.76%, AND 7.08%,
RESPECTIVELY.
THE BAR CHART SHOWS THE VARIABILITY OF THE PERFORMANCE OF THE FUND'S CLASS A
SHARES ON A YEARLY BASIS. THE FUND'S CLASS A SHARES ARE SOLD SUBJECT TO A SALES
CHARGE (LOAD). THE IMPACT OF THE SALES CHARGES ARE NOT REFLECTED IN THE TOTAL
RETURNS ABOVE, AND IF THESE AMOUNTS WERE REFLECTED, RETURNS WOULD BE LESS THAN
THOSE SHOWN. THE FUND'S CLASS A SHARES' TOTAL RETURN FROM JANUARY 1, 1998 TO
SEPTEMBER 30, 1998 WAS 9.23%. WITHIN THE PERIOD SHOWN IN THE CHART, THE FUND'S
CLASS A SHARES' HIGHEST QUARTERLY RETURN WAS 12.24% (QUARTER ENDED JUNE 30,
1997). ITS LOWEST QUARTERLY RETURN WAS -19.77% (QUARTER ENDED SEPTEMBER 30,
1990). AVERAGE ANNUAL RETURN FOR THE FUND'S CLASS A, CLASS B, AND CLASS C
SHARES, COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA,
FAR EAST INDEX (MSCI-EAFE) AND THE LIPPER INTERNATIONAL FUNDS AVERAGE (LIFA) FOR
THE CALENDAR PERIODS ENDING DECEMBER 31, 1997.

AVERAGE ANNUAL TOTAL RETURN
10 Years/Life of the Fund1 1 Year 5 Years
Class A 6.35% 1.20% 8.50%
Class B 1.90% 0.44% _
Class C 7.79% 5.15% _
MSCI-EAFE % % %
LIFA % % %
1 THE FUND'S CLASS B AND CLASS C SHARES LIFE OF FUND START DATES WERE SEPTEMBER
28, 1994 AND APRIL 1, 1993, RESPECTIVELY.

THE TABLE SHOWS THE FUND'S TOTAL RETURNS AVERAGED OVER A PERIOD OF YEARS
RELATIVE TO MSCI-EAFE, A BROAD-BASED MARKET INDEX AND LIFA, AN AVERAGE OF FUNDS
WITH SIMILAR INVESTMENT OBJECTIVES. WHILE PAST PERFORMANCE DOES NOT NECESSARILY
PREDICT FUTURE PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL
PERFORMANCE INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT
RISKS ARE BALANCED BY ITS POTENTIAL REWARDS.

<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED INTERNATIONAL EQUITY FUND

FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.

SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 5.50% None None
percentage of offering price)

Maximum Deferred Sales Charge (Load) (as a percentage of 0.00% 5.50% 1.00%
original purchase price or redemption proceeds, as
applicable)(1)

Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
(and other Distributions) (as a percentage of offering price)

Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)

Exchange Fee None None None

Maximum Account Fee None None None

ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 1.00% 1.00% 1.00%
Shareholder Services Fee 0.25% 0.25% 0.25%
Distribution (12b-1) Fee None 0.75% 0.75%
Other Expenses ___% ---% ---%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES ___% ___%(2) ___%
</TABLE>

- -----------------------------------------------------------------------------
(1) SHAREHOLDERS WHO PURCHASED $1 MILLION OR MORE OF CLASS A SHARES THROUGH AN
INVESTMENT PROFESSIONAL ON OR AFTER AUGUST 3, 1998, MAY BE CHARGED A CONTINGENT
DEFERRED SALES CHARGE OF 0.75% FOR REDEMPTIONS MADE WITHIN 24 MONTHS OF PURCHASE
IF THE INVESTMENT PROFESSIONAL RECEIVED AN ADVANCED PAYMENT. FOR SHAREHOLDERS OF
CLASS B SHARES, THE MAXIMUM DEFERRED SALES CHARGE (LOAD) IS 5.50% IN THE FIRST
YEAR DECLINING TO 1.00% IN THE SIXTH YEAR AND 0.00% THEREAFTER. FOR SHAREHOLDERS
OF CLASS C SHARES, THE CONTINGENT DEFERRED SALES CHARGE (LOAD) ASSESSED IS 1.00%
OF THE LESSER OF THE ORIGINAL PURCHASE PRICE OF THE NET ASSET VALUE OF SHARES
REDEEMED WITHIN ONE YEAR OF THEIR PURCHASE DATE. (2) CLASS B SHARES CONVERT TO
CLASS A SHARES (WHICH PAY LOWER ONGOING EXPENSES) APPROXIMATELY EIGHT YEARS
AFTER PURCHASE.

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

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

<PAGE>

Class Class Class
A B C
Payment of the maximum sales charge:
1 Year $___ $___ $___
3 Years $___ $___ $___
5 Years $___ $___ $___
10 Years $___ $___ $___
Expenses assuming no
redemption:
1 Year $___ $___ $___
3 Years $___ $___ $___
5 Years $___ $___ $___
10 Years $___ $___ $___

<PAGE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The adviser
manages the Fund based on the view that international equity markets are
inefficient at pricing securities and that careful security selection offers the
best potential for superior long-term investment returns. Selection of industry
and country are secondary considerations. Using its own quantitative process,
the adviser ranks the future performance potential of companies. The adviser
evaluates each company's earnings potential in light of its current valuation to
narrow the list of attractive companies. The adviser then evaluates management
quality and may meet with company representatives, company suppliers, customers,
or competitors The adviser also reviews the company's financial statements and
forecasts of earnings. Based on this information, the adviser evaluates the
sustainability of the company's current growth trends and potential catalysts
for increased growth. Using this type of fundamental analysis, the adviser
selects the most promising companies for the Fund's portfolio. With respect to
the Fund's investments in developed markets, companies may be grouped together
in broad categories called business sectors. The adviser may emphasize certain
business sectors in the portfolio that exhibit stronger growth potential or
higher profit margins. The Fund will not invest more than 20% of its assets in
companies located in emerging markets. In selecting emerging markets countries
in which to invest, the adviser reviews the country's economic outlook, its
interest and inflation rates, and the political and foreign exchange risk of
investing in a particular country. The adviser then analyzes companies located
in particular emerging market countries.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock. PREFERRED STOCKS Preferred stocks
have the right to receive specified dividends or distributions before the
issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to
redeem the stock.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
The specific risks associated with foreign securities are as follows:
CURRENCY RISKS
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S. o The adviser
attempts to manage currency risk by limiting the amount the Fund invests in
securities denominated in a particular currency. However, diversification
will not protect the Fund against a general increase in the value of the U.S.
dollar relative to other currencies.

RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors. o Due to these risk factors, foreign
securities may be more volatile and less liquid than similar securities
traded in the U.S.
EURO RISKS
The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments. With the advent of the Euro, the
participating countries in the EMU can no longer follow independent monetary
policies. This may limit these country's ability to respond to economic
downturns or political upheavals, and consequently reduce the value of their
foreign government securities.

LIQUIDITY RISKS
o Trading opportunities are more limited for equity securities issued by
companies located in emerging markets. This may make it more difficult to
sell or buy a security at a favorable price or time. Consequently, the Fund
may have to accept a lower price to sell a security, sell other securities to
raise cash or give up an investment opportunity, any of which could have a
negative effect on the Fund's performance. Infrequent trading may also lead
to greater price volatility.
The specific risks associated with equity securities are as follows:

STOCK MARKET RISKS
o The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations.
Consequently, the Fund's share price may decline and you could lose money.
o The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.

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

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

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

INVESTMENT RATINGS
Some of the securities in which the Fund invests will be rated A or better by
Standard & Poor's or Moody's Investors Service, Inc. at the time of purchase.
Unrated securities will be determined by the Adviser to be of like quality and
may have greater risk but a higher yield than comparable rated securities.

WHAT DO SHARES COST?

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

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

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

Maximum Sales Charge
Minimum Front-End Contingent
Shares Offered Initial/Subsequent Sales Deferred
Investment Charge2 Sales
Amounts1 Charge3
Class A $1,500/$100 5.50% None
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
1 THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT AMOUNTS FOR RETIREMENT PLANS ARE
$250 AND $100, RESPECTIVELY. THE MINIMUM SUBSEQUENT INVESTMENT AMOUNTS FOR
SYSTEMATIC INVESTMENT PROGRAMS IS $50. INVESTMENT PROFESSIONALS MAY IMPOSE
HIGHER OR LOWER MINIMUM INVESTMENT REQUIREMENTS ON THEIR CUSTOMERS THAN THOSE
IMPOSED BY THE FUND.
ORDERS FOR $250,000 OR MORE WILL BE INVESTED IN CLASS A SHARES INSTEAD OF
CLASS B SHARES IN ORDER TO MAXIMIZE YOUR RETURN AND TO MINIMIZE THE SALES
CHARGES AND MARKETING FEES. ACCOUNTS HELD IN THE NAME OF AN INVESTMENT
PROFESSIONAL MAY BE TREATED DIFFERENTLY. CLASS B SHARES WILL CONVERT TO CLASS A
SHARES AT NAV APPROXIMATELY EIGHT YEARS AFTER PURCHASE.

2 FRONT-END SALES CHARGE IS EXPRESSED AS A PERCENTAGE OF PUBLIC OFFERING PRICE.
SEE "SALES CHARGE WHEN YOU PURCHASE." 3 SEE "SALES CHARGE WHEN YOU REDEEM."

SALES CHARGE WHEN YOU PURCHASE

CLASS A SHARES

<PAGE>

Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
Less than $50,000 5.50% 5.82%
$50,000 but less than 4.50% 4.71%
$100,000
$100,000 but less than 3.75% 3.90%
$250,000
$250,000 but less than 2.50% 2.56%
$500,000
$500,000 but less than $1 2.00% 2.04%
million
$1 million or greater1 0.00% 0.00%
1 A CONTINGENT DEFERRED SALES CHARGE OF 0.75% OF THE REDEMPTION AMOUNT APPLIES
TO CLASS A SHARES REDEEMED UP TO 24 MONTHS AFTER PURCHASE UNDER CERTAIN
INVESTMENT PROGRAMS WHERE AN INVESTMENT PROFESSIONAL RECEIVED AN ADVANCE PAYMENT
ON THE TRANSACTION.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:

purchasing Shares in greater quantities to reduce the applicable sales
charge;

combining concurrent purchases of Shares:

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

- - of the same class of two or more Federated Funds (other than money market
funds); accumulating purchases (in calculating the sales charge on an
additional purchase, include the current value of previous Share purchases
still invested in the Fund); or

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

<PAGE>

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:

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

as a Federated Life Member;

by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);

through wrap accounts or other investment programs where you pay the
investment professional directly for services; or

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

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

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

CLASS B SHARES
Shares Held Up To: CDSC
1 year 5.50%
2 years 4.75%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%

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

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
purchased with reinvested dividends or capital gains;

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

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

purchased through investment professionals that did not receive advanced
sales payments; or

if you have certain disabilities as defined by the IRS.

In addition, you will not be charged a CDSC:

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

if your redemption is a required retirement plan distribution;

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

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

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

Shares that are not subject to a CDSC;

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

then, the CDSC is calculated using the share price at the time of purchase,
whichever is lower.

HOW IS THE FUND SOLD?

The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.

The Fund's Distributor markets the Shares described in this prospectus to
investors who wish to spread their investments beyond the United States and are
prepared to accept the particular risks associated with these investments. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).

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

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.

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

THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and

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

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

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account
Form; and

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

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

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

BY WIRE Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

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

Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.

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

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

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

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

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

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange Shares:

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

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

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

DIRECTLY FROM THE FUND

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

BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:

Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:

Fund Name and Share Class, account number and account registration;

amount to be redeemed or exchanged;

signatures of all Shareholders exactly as registered; and

IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

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

SIGNATURE GUARANTEES Signatures must be guaranteed if:

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

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

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

IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.

Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.

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

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

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

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

LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

to allow your purchase to clear;

during periods of market volatility; or

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

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

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

EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:

ensure that the Share registrations are identical;

meet any minimum initial investment requirements; and

receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.

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

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

SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES You will not be charged a
CDSC on SWP redemptions if:

you redeem 12% or less of your account value in a single year;

your account is at least one year old;

you reinvest all dividends and capital gains distributions; and

your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).

You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem only at
a rate of 1% monthly, 3% quarterly, or 6% semi-annually.

ADDITIONAL CONDITIONS

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

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

ACCOUNT AND SHARE INFORMATION

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

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

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

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

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

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

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

<PAGE>

WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Research Corp. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address is 175
Water Street, New York, NY 10038-4965.

The Fund's portfolio managers are: Henry A. Frantzen and Drew J. Collins.

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 until 1995.

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

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

ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

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

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

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

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.

<PAGE>

FINANCIAL INFORMATION

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

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

(The Financial Highlights Table to be filed by Amendment.)

<PAGE>

FEDERATED INTERNATIONAL EQUITY FUND

A Portfolio of International Series, Inc.

CLASS A SHARES, CLASS B SHARES, CLASS C SHARES

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

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

INVESTMENT COMPANY ACT FILE NO. 811-3984
CUSIP 46031P308
CUSIP 46031P605
CUSIP 46031P100
000000-00 (1/99)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED INTERNATIONAL EQUITY FUND

A Portfolio of International Series, Inc.

CLASS A SHARES, CLASS B SHARES, CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Class A Shares, Class B Shares, and
Class C Shares of Federated International Equity Fund (Fund), dated January 31,
1999. This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-800-341-7400.

JANUARY 31, 1999

CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
How to Buy Shares
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
CUSIP 46031P308

CUSIP 46031P605

CUSIP 46031P407

00000000 (1/99)

<PAGE>

HOW IS THE FUND ORGANIZED?

The Fund is a diversified portfolio of International Series, Inc. (Corporation).
The Corporation is an open-end, management investment company that was
established under the laws of the State of Maryland on February 11, 1991. The
Corporation may offer separate series of shares representing interests in
separate portfolios of securities. The Corporation changed its name from FT
Series, Inc., to International Series, Inc. on March 15, 1994.

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

SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if: it is
organized under the laws of, or has a principal office located in, another
country; the principal trading market for its securities is in another
country; or it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets, capitalization, gross revenue or profit
from
goods produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are SUBJECT CURRENCY RISKS AND RISKS OF FOREIGN INVESTING. TRADING IN
CERTAIN FOREIGN MARKETS IS ALSO SUBJECT TO LIQUIDITY RISKS.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to
buy shares of foreign-based companies in the United States rather than in
overseas markets. ADRs are also traded in U.S. dollars, eliminating the need
for foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary Receipts involve many of the same risks of
investing directly in foreign securities, including CURRENCY RISKS AND RISKS
OF FOREIGN INVESTING. FOREIGN EXCHANGE CONTRACTS In order to convert U.S.
dollars into the currency needed to buy a foreign security, or to convert
foreign currency received from the sale of a foreign security into U.S.
dollars, the Fund may enter into spot currency trades. In a spot trade, the
Fund agrees to exchange one currency for another at the current exchange
rate. The Fund may also enter into derivative contracts in which a foreign
currency is an underlying asset. The exchange rate for currency derivative
contracts may be higher or lower than the spot exchange rate. Use of these
derivative contracts may increase or decrease the Fund's exposure to CURRENCY
RISKS. FOREIGN GOVERNMENT SECURITIES Foreign government securities generally
consist of fixed income securities supported by national, state or provincial
governments or similar political subdivisions. Foreign government securities
also include debt obligations of supranational entities, such as
international organizations designed or supported by governmental entities to
promote economic reconstruction or development, international banking
institutions and related government agencies. Examples of these include, but
are not limited to, the International Bank for Reconstruction and Development
(the World Bank), the Asian Development Bank, the European Investment Bank
and the Inter-American Development Bank. Foreign government securities also
include fixed income securities of quasi-governmental agencies that are
either issued by entities owned by a national, state or equivalent government
or are obligations of a political unit that are not backed by the national
government's full faith and credit. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.

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

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

PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the
stock. INTERESTS IN OTHER LIMITED LIABILITY COMPANIES Entities such as
limited partnerships, limited liability companies, business trusts and
companies organized outside the United States may issue securities comparable
to common or preferred stock. REAL ESTATE INVESTMENT TRUSTS (REITS) REITs are
real estate investment trusts that lease, operate and finance commercial real
estate. REITs are exempt from federal corporate income tax if they limit
their operations and distribute most of their income. Such tax requirements
limit a REIT's ability to respond to changes in the commercial real estate
market. WARRANTS Warrants give the Fund the option to buy the issuer's equity
securities at a specified price (the exercise price) at a specified future
date (the expiration date). The Fund may buy the designated securities by
paying the exercise price before the expiration date. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. This increases the MARKET RISKS of warrants as compared
to the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.

FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the typeS of fixed income securitIES in which the Fund
invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the government of a foreign
country.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a foreign governmental agency
or other government sponsored entity acting under foreign governmental
authority (a GSE). Foreign governments support some GSEs with its full, faith
and credit. Other GSEs receive support through governmental subsidies, loans
or other benefits. A few GSEs have no explicit financial support, but are
regarded as having implied support because the federal government sponsors
their activities. Investors regard agency securities as having low credit
risks, but not as low as treasury securities. CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The CREDIT RISKS of corporate debt securities vary widely
amount issuers. The credit risk of an issuer's debt security may also vary
based on its priority for repayment. For example, higher ranking (senior)
debt securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on
subordinated securities while continuing to make payments on senior
securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of
subordinated securities. Some subordinated securities, such as trust
preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer
any payment that would reduce its capital below regulatory requirements.

CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities. Convertible securities have lower yields
than comparable fixed income securities. In addition, at the time a convertible
security is issued the conversion price exceeds the market value of the
underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment. The Fund treats convertible securities as both fixed income
and equity securities for purposes of its investment policies and limitations,
because of their unique characteristics. DERIVATIVE CONTRACTS Derivative
contracts are financial instruments that require payments based upon changes in
the values of designated (or underlying) securities, currencies, commodities,
financial indices or other assets. Some derivative contracts (such as futures,
forwards and options) require payments relating to a future trade involving the
underlying asset. Other derivative contracts (such as swaps) require payments
relating to the income or returns from the underlying asset. The other party to
a derivative contract is referred to as a counterparty. Many derivative
contracts are traded on securities or commodities exchanges. In this case, the
exchange sets all the terms of the contract except for the price. Investors make
payments due under their contracts through the exchange. Most exchanges require
investors to maintain margin accounts through their brokers to cover their
potential obligations to the exchange. Parties to the contract make (or collect)
daily payments to the margin accounts to reflect losses (or gains) in the value
of their contracts. This protects investors against potential defaults by the
counterparty. Trading contracts on an exchange also allows investors to close
out their contracts by entering into offsetting contracts. For example, the Fund
could close out an open contract to buy an asset at a future date by entering
into an offsetting contract to sell the same asset on the same date. If the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. Exchanges may limit
the amount of open contracts permitted at any one time. Such limits may prevent
the Fund from closing out a position. If this happens, the Fund will be required
to keep the contract open (even if it is losing money on the contract), and to
make any payments required under the contract (even if it has to sell portfolio
securities at unfavorable prices to do so). Inability to close out a contract
could also harm the Fund by preventing it from disposing of or trading any
assets it has been using to secure its obligations under the contract. The Fund
may also trade derivative contracts over-the-counter (OTC) in transactions
negotiated directly between the Fund and the counterparty. OTC contracts do not
necessarily have standard terms, so they cannot be directly offset with other
OTC contracts. In addition, OTC contracts with more specialized terms may be
more difficult to price than exchange traded contracts. Depending upon how the
Fund uses derivative contracts and the relationships between the market value of
a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to market and CURRENCY RISKS, and may
also expose the Fund to LIQUIDITY AND LEVERAGE RISKS. OTC contracts also expose
the Fund to CREDIT RISKS in the event that a counterparty defaults on the
contract.

The Fund may trade in the following types of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts. The Fund can but
or sell futures contracts on portfolio securities or indexes and engage in
foreign currency forward contracts.

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

WRITE CALL OPTIONS ON PORTFOLIO SECURITIES AND SECURITIES WHICH THE FUND HAS THE
RIGHT TO OBTAIN WITHOUT PAYMENT OF FURTHER CONSIDERATION OR FOR WHICH IT HAS
SEGREGATED CASH IN THE AMOUNT OF ANY ADDITIONAL CONSIDERATION TO GENERATE INCOME
FROM PREMIUMS, AND IN ANTICIPATION OF A DECREASE OR ONLY LIMITED INCREASE IN THE
VALUE OF THE UNDERLYING ASSET. IF A CALL WRITTEN BY THE 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.
WRITE PUT OPTIONS ON ALL OR ANY PORTION OF ITS PORTFOLIO OF SECURITIES(TO
GENERATE INCOME FROM PREMIUMS, AND IN ANTICIPATION OF AN INCREASE OR ONLY
LIMITED DECREASE IN THE VALUE OF THE UNDERLYING ASSET). IN WRITING PUTS,
THERE IS A RISK THAT THE FUND MAY BE REQUIRED TO TAKE DELIVERY OF THE
UNDERLYING ASSET WHEN ITS CURRENT MARKET PRICE IS LOWER THAN THE EXERCISE
PRICE.

WRITE CALL OPTION AND PURCHASE PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS AS
A HEDGE TO ATTEMPT TO PROTECT SECURITIES IN ITS PORTFOLIO AGAINST DECREASES
IN VALUE OR AS A HEDGE AGAINST RISING PURCHASE PRICES OF SECURITIES ELIGIBLE
FOR PURCHASE BY THE FUND. WHEN THE FUND WRITES OPTIONS ON FUTURES CONTRACTS,
IT WILL BE SUBJECT TO MARGIN REQUIREMENTS SIMILAR TO THOSE APPLIED TO FUTURES
CONTRACTS. SWAPS Swaps are contracts in which two parties agree to pay each
other (swap) the returns derived from underlying assets with differing
characteristics. Most swaps do not involve the delivery of the underlying
assets by either party, and the parties might not own the assets underlying
the swap. The payments are usually made on a net basis so that, on any given
day, the Fund would receive (or pay) only the amount by which its payment
under the contract is less than (or exceeds) the amount of the other party's
payment. Swap agreements are sophisticated instruments that can take many
different forms, and are known by a variety of names including caps, floors,
and collars. Common swap agreementS that the Fund may use include:
CURRENCY SWAPS
Currency swap agreements provide for interest payments in different
currencies. The parties might agree to exchange the notional principal
amount as well.
HYBRID INSTRUMENTS
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices).
Hybrid instruments also include convertible securities with conversion terms
related to an underlying asset or benchmark. The risks of investing in hybrid
instruments reflect a combination of the risks of investing in securities,
options, futures and currencies, and depend upon the terms of the instrument.
Thus, an investment in a hybrid instrument may entail significant risks in
addition to those associated with traditional fixed income or convertible
securities. Hybrid instruments are also potentially more volatile and carry
greater MARKET RISKS than traditional instruments.

Repurchase agreements are subject to CREDIT RISKS.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
repurchase agreements are subject to CREDIT RISKS. In addition, reverse
repurchase agreements create LEVERAGE RISKS because the Fund must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase. WHEN ISSUED TRANSACTIONS
When issued transactions are arrangements in which the Fund buys
securities for a set price, with payment and delivery of the securities
scheduled for a future time. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest
accrues to the Fund. The Fund records the transaction when it agrees to
buy the securities and reflects their value in determining the price of
its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may
vary from the purchase prices. Therefore, when issued transactions create
MARKET RISKS for the Fund. When issued transactions also involve CREDIT
RISKS in the event of a counterparty default.

SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if
the market value of the loaned securities increases. Also, the borrower must
pay the Fund the equivalent of any dividends or interest received on the
loaned securities. The Fund will reinvest cash collateral in securities that
qualify as an acceptable investment for the Fund. However, the Fund must pay
interest to the borrower for the use of cash collateral. Loans are subject to
termination at the option of the Fund or the borrower. The Fund will not have
the right to vote on securities while they are on loan, but it will terminate
a loan in anticipation of any important vote. The Fund may pay administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash collateral to a securities lending agent
or broker. Securities lending activities are subject to MARKET RISKS AND
CREDIT RISKS.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.

EQUITY SECURITIES INVESTMENT RISKS

LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading may also lead to greater price
volatility.
Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

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.

The above limitations cannot be changed unless authorized by the vote of a
majority of its outstanding voting securities. The following limitations,
however, may be changed by the Directors without shareholder approval.
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 ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including certain restricted securities not determined to
be liquid under criteria established by the Directors, 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.

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, 1998 and 1997, the portfolio
turnover rates were ___% and 210%, respectively.

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

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

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

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

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

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

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

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

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

WHAT DO SHARES COST?

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

The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

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

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

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

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

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

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

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

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

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

any associated person of an investment dealer who has a sales agreement
with the Distributor; and

trusts, pension or profit-sharing plans for these individuals.

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

Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:

following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;

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;

representing a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account, following retirement;

which are involuntary redemptions of shareholder accounts that do not
comply with the minimum balance requirements;

which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program (as described below);

of Shares that represent a reinvestment within 120 days of a previous
redemption that was assessed a CDSC;

of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares pursuant to a sales agreement with
the Distributor; and the immediate family members of the foregoing persons;
and

of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.

HOW IS THE FUND SOLD?

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

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

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

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

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

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

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

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

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

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

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

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

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

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

TRANSACTION ADVANCE PAYMENTS AS A PERCENTAGE OF
AMOUNT PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.

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

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

HOW TO BUY SHARES

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

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

REDEMPTION IN KIND

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

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

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

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

ACCOUNT AND SHARE INFORMATION

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

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

As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Edward C. Gonzales,
Trustt, Federated Investors PS/401K Plan, Pittsburgh, Pennsylvania, 6.64% of
Class A Shares; Hubco, Regions Financial Corp., Birmingham, Alabama, 31.95% of
Class C Shares; Merrill Lynch Pierce Fenner & Smith, for the sole benefit of its
customers, Jacksonville, Florida, 15.80% of Class C Shares.

Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.

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

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

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

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

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

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years, total compensation
received as a Director from the Corporation for its most recent fiscal year, and
the total compensation received from the Federated Fund Complex for the most
recent calendar year. The Corporation is comprised of two funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser.

As of November 5, 1998, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A, B, and C Shares.

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

JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Corporation.

Compensation from Corporation $0

Compensation from Federated Fund Complex $0

THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

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

Director or Trustee of the Federated Fund Complex; 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.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Director or Trustee of the Federated Fund Complex; Attorney, of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director

Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of
America; business owner.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

GLEN R. JOHNSON
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.

Compensation from Corporation $______

Compensation from Federated Fund Complex $______

<PAGE>

J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Director of the Corporation.

Compensation from Corporation $0

Compensation from Federated Fund Complex $0

EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.

Compensation from Corporation $0

Compensation from Federated Fund Complex $0

JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary,and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.

Compensation from Corporation $0

Compensation from Federated Fund Complex $0

RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.

Compensation from Corporation $0

Compensation from Federated Fund Complex $0

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly-owned subsidiary of Federated.

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

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

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

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

For the fiscal year ended November 30, 1998, the Fund's adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $______ for which the Fund
paid $______ in brokerage commissions.

On November 30, 1998, the Fund owned securities of the following regular
broker/dealers:________________________.

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

<PAGE>

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

MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750
million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

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

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED
NOVEMBER 30, 1998 1997 1996
Advisory Fee Earned $___ $___ $___
Advisory Fee Reduction $___ $___ $___
Brokerage Commissions $___ $___ $___
Administrative Fee $___ $___ $___
12b-1 Fee
Class B Shares $___ $___ $___
Class C Shares $___ $___ $___
Shareholder Services Fee
Class A Shares $___ $___ $___
Class B Shares $___ $___ $___
Class C Shares $___ $___ $___

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

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.

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

AVERAGE ANNUAL TOTAL RETURNS
Total returns given for the one-, five- ten-year and since inception periods
ended NOVEMBER 30, 1998.

1 Year 5 Years 10 Years Since Inception*
CLASS A SHARES
Total Return

1 Year 5 Years 10 Years Since Inception*
CLASS B SHARES
Total Return

1 Year 5 Years 10 Years Since Inception*
CLASS C SHARES
Total Return

* Class A Shares inception date was August 17, 1984. Class B Shares inception
date was September 28, 1994. Class C Shares inception date was April 1, 1993.

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

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

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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

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

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

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

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

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

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

LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.

MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDICES
Includes, among others, the Morgan Stanley Capital International Europe,
Australia, Far East Index (EAFE Index). The EAFE Index is an unmanaged index of
more than 1,000 companies of Europe, Australia, and the Far East.

MORNINGSTAR, INC.
An independent rating service, is the publisher of the bi-weekly MUTUAL FUND
VALUES, which 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.

STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500)
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 S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.

WHO IS FEDERATED INVESTORS, INC.?

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

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.

GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.

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

MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.

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

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

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

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

FINANCIAL INFORMATION

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

(The Financial Statements for the Fund to be filed by Amendment.)

INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

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

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

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

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

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

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

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

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

CI--The rating CI is reserved for income bonds on which no interest is being
paid.

D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DDD, DD, and D--Bonds in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

Leading market positions in well established industries.

High rates of return on funds employed.

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

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

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

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

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

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

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

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

<PAGE>

ADDRESSES

FEDERATED INTERNATIONAL EQUITY FUND

Class A Shares

Class B Shares

Class C Shares

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

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

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

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

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

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

PROSPECTUS

FEDERATED INTERNATIONAL INCOME FUND

A Portfolio of International Series, Inc.

CLASS A SHARES, CLASS B SHARES, CLASS C SHARES

A mutual fund seeking a high level of current income in U.S. dollars by
investing in primarily in fixed income securities of foreign governments and
their agencies.

JANUARY 31, 1999

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RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
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.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in fixed income
securities of foreign governments and their agencies. The Fund emphasizes
investments in members of the Organization for Economic Cooperation and
Development which have received investment grade ratings for securities
denominated in their local currency.

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

o a general rise in interest rates.

The Fund is non-diversified. Compared to diversified mutual funds, it may invest
a higher percentage of its assets among fewer issuers of portfolio securities.
This increases the Fund's risk by magnifying the impact (positively or
negatively) that any one issuer has on the Fund's Share price and performance.

RISK/RETURN BAR CHART AND TABLE

THE GRAPHIC PRESENTATION DISPLAYED HERE CONSISTS OF A BAR CHART REPRESENTING THE
ANNUAL TOTAL RETURNS OF CLASS A SHARES OF FEDERATED INTERNATIONAL INCOME FUND AS
OF THE CALENDAR YEAR-END FOR EACH OF six YEARS. THE `Y' AXIS REFLECTS THE "%
TOTAL RETURN" BEGINNING WITH "-10%" AND INCREASING IN INCREMENTS OF 5% UP TO
30%. THE `X' AXIS REPRESENTS CALCULATION PERIODS FROM THE EARLIEST CALENDAR YEAR
END OF THE CLASS A SHARES' start of business THROUGH THE CALENDAR YEAR ENDED
December 31, 1997. THE LIGHT GRAY SHADED CHART FEATURES SIX DISTINCT VERTICAL
BARS, EACH SHADED IN CHARCOAL, AND EACH VISUALLY REPRESENTING BY HEIGHT THE
TOTAL RETURN PERCENTAGES FOR THE CALENDAR YEAR STATED DIRECTLY AT ITS BASE. THE
CALCULATED TOTAL RETURN PERCENTAGE FOR THE CLASS A SHARES FOR EACH CALENDAR YEAR
IS STATED DIRECTLY AT THE TOP OF EACH RESPECTIVE BAR, FOR THE CALENDAR YEARS
1992 THROUGH 1997. THE PERCENTAGES NOTED ARE:
- -1.43%, 26.96%, -4.64%, 17.50%, 10.84%, AND -5.01%, RESPECTIVELY.
The bar chart shows the variability of the performance of the Fund's Class A
Shares on a yearly basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, total returns would be less than those shown.
The Fund's Class A Shares' total return from January 1, 1998 to September 30,
1998 was 10.07%.
Within the period shown in the Chart, the Fund's Class A Shares' highest
quarterly return was 11.37% (quarter ended September 30, 1993). Its lowest
quarterly return was -5.19% (quarter ended March 31, 1997). Average Annual
Return for the Fund's Class A, Class B, and Class C Shares, compared to the J.P.
Morgan Non-Dollar Bond Index and the Lipper International Income Funds Average
(LIIFA) for the calendar periods ending December 31, 1997.

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AVERAGE ANNUAL TOTAL RETURN
Life of the Fund1 1 Year 5 Years
Class A 8.02% -9.25% 7.42%
Class B 6.09% -10.90% -
Class C 7.91% -6.68% -
J.P. Morgan % % %
LIIFA % % %
1 THE FUND'S CLASS A, CLASS B, AND CLASS C SHARES LIFE OF FUND START DATES
WERE JUNE 4, 1991, SEPTEMBER 28, 1994, AND APRIL 1, 1993, RESPECTIVELY.

The table shows the Fund's total returns averaged over a period of years
relative to the J.P. Morgan Non-Dollar Bond Index, a broad-based market index
and LIIFA, an average of funds with similar investment objectives. While past
performance does not necessarily predict future performance, this information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.

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WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED INTERNATIONAL INCOME FUND

FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
<TABLE>
<CAPTION>

SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.50% None None
percentage of offering price)

Maximum Deferred Sales Charge (Load) (as a percentage of 0.00% 5.50% 1.00%
original purchase price or redemption proceeds, as
applicable)(1)

Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
(and other Distributions) (as a percentage of offering price)

Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)

Exchange Fee None None None

Maximum Account Fee None None None

ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Distribution (12b-1) Fee 0.25% 0.75% 0.75%
Other Expenses ___% ---% ---%

TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ___% ---% ---%
ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998.
WAIVER OF FUND EXPENSES(2)(3)(4) ___%
</TABLE>

---% ---%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) ___%
___%(5) ___%

(1)SHAREHOLDERS WHO PURCHASED $1 MILLION OR MORE OF CLASS A SHARES THROUGH AN
INVESTMENT PROFESSIONAL ON OR AFTER AUGUST 3, 1998, MAY BE CHARGED A
CONTINGENT DEFERRED SALES CHARGE OF 0.75% FOR REDEMPTIONS MADE WITHIN 24
MONTHS OF PURCHASE IF THE INVESTMENT PROFESSIONAL RECEIVED AN ADVANCED
PAYMENT. FOR SHAREHOLDERS OF CLASS B SHARES, THE MAXIMUM DEFERRED SALES
CHARGE (LOAD) IS 5.50% IN THE FIRST YEAR DECLINING TO 1.00% IN THE SIXTH YEAR
AND 0.00% THEREAFTER. FOR SHAREHOLDERS OF CLASS C SHARES, THE CONTINGENT
DEFERRED SALES CHARGE (LOAD) ASSESSED IS 1.00% OF THE LESSER OF THE ORIGINAL
PURCHASE PRICE OR THE NET ASSET VALUE OF SHARES REDEEMED WITHIN ONE YEAR OF
THEIR PURCHASE DATE.

(2)THE ADVISER HAS VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE
ADVISER CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE
PAID BY THE FUND (AFTER THE VOLUNTARY WAIVER) WAS ___% FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1998.
(3)FOR SHAREHOLDERS OF CLASS A SHARES, THE SHAREHOLDER SERVICES FEE HAS BEEN
REDUCED TO REFLECT THE VOLUNTARY WAIVER OF A PORTION OF THE SHAREHOLDER
SERVICES FEE. THE SHAREHOLDER SERVICE PROVIDER CAN TERMINATE THIS VOLUNTARY
WAIVER AT ANY TIME AT ITS SOLE DISCRETION. THE SHAREHOLDER SERVICES FEE PAID
BY THE FUND (AFTER THE VOLUNTARY WAIVER) WAS ___% FOR THE YEAR ENDED NOVEMBER
30, 1998.
(4)FOR SHAREHOLDERS OF CLASS A SHARES, THE 12B-1 FEE HAS BEEN REDUCED TO
REFLECT THE VOLUNTARY WAIVER OF A PORTION OF THE 12B-1 FEE. THE DISTRIBUTOR
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME AT ITS SOLE DISCRETION. THE
MAXIMUM 12B-1 FEE PAID BY THE FUND (AFTER THE VOLUNTARY WAIVER) WAS___% FOR
THE YEAR ENDED NOVEMBER 30, 1998.
(5) CLASS B SHARES CONVERT TO CLASS A SHARES (WHICH PAY LOWER ONGOING
EXPENSES) APPROXIMATELY EIGHT YEARS AFTER PURCHASE.

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

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

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WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in fixed income
securities of foreign governments and their agencies which are members of the
Organization for Economic Cooperation and Development.

The adviser uses the J.P. Morgan Global Traded Index Excluding U.S. Index
(Index) as a benchmark for managing the Fund's portfolio. The adviser looks for
opportunities to enhance the Fund's performance by diverging from the Index.
Such opportunities may cause the adviser to weight the portfolio differently
than the Index or to buy securities not represented in the Index. Under ordinary
market conditions, however, the duration of the portfolio securities does not
deviate more than 25% from the duration of the Index. Duration measures the
price sensitivity of a fixed income security to changes in interest rates. The
adviser manages the Fund to maintain an average AA rating of its portfolio
securities. The fund will not invest more than 30% of its assets in any one
country.

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

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

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

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

FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.

FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate.

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WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.

EURO RISKS

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

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

RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
issuers may not provide the same type or amount of information to investors as
U.S. public companies, and the information may not be as timely or accessable.
Foreign financial markets may also have fewer investor protections. Securities
in foreign markets may also be subject to taxation policies that reduce returns
for U.S. investors.

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

BOND MARKET RISKS

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

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations.

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

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

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

o The Fund is non-diversified. Compared to diversified mutual funds, it may
invest a higher percentage of its assets among fewer issuers of portfolio
securities. This increases the Fund's risk by magnifying the impact (positively
or negatively) that any one issuer has on the Fund's share price and
performance.

INVESTMENT RATINGS
The Fund invests in fixed income securities rated A or better at the time of
purchase. Unrated securities will be determined by the Adviser to be of like
quality to the comparable rated securities.

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

WHAT DO SHARES COST?

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

Maximum Sales Charge
Minimum Front-End Contingent
Shares Offered Initial/Subsequent Sales Deferred
Investment Charge2 Sales
Amounts1 Charge3
Class A $1,500/$100 4.50% None
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
1 THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT AMOUNTS FOR RETIREMENT PLANS ARE
$250 AND $100, RESPECTIVELY. THE MINIMUM SUBSEQUENT INVESTMENT AMOUNTS FOR
SYSTEMATIC INVESTMENT PROGRAMS IS $50. INVESTMENT PROFESSIONALS MAY IMPOSE
HIGHER OR LOWER MINIMUM INVESTMENT REQUIREMENTS ON THEIR CUSTOMERS THAN THOSE
IMPOSED BY THE FUND.
ORDERS FOR $250,000 OR MORE WILL BE INVESTED IN CLASS A SHARES INSTEAD OF
CLASS B SHARES IN ORDER TO MAXIMIZE YOUR RETURN AND TO MINIMIZE THE SALES
CHARGES AND MARKETING FEES. ACCOUNTS HELD IN THE NAME OF AN INVESTMENT
PROFESSIONAL MAY BE TREATED DIFFERENTLY. CLASS B SHARES WILL CONVERT TO CLASS A
SHARES AT NAV APPROXIMATELY EIGHT YEARS AFTER PURCHASE.

2 FRONT-END SALES CHARGE IS EXPRESSED AS A PERCENTAGE OF PUBLIC OFFERING PRICE.
SEE "SALES CHARGE WHEN YOU PURCHASE." 3 SEE "SALES CHARGE WHEN YOU REDEEM."

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SALES CHARGE WHEN YOU PURCHASE

CLASS A SHARES

<PAGE>

Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
Less than $100,000 4.50% 4.71%
$100,000 but less than 3.75% 3.90%
$250,000
$250,000 but less than 2.50% 2.56%
$500,000
$500,000 but less than $1 2.00% 2.04%
million
$1 million or greater1 0.00% 0.00%
1 A CONTINGENT DEFERRED SALES CHARGE OF 0.75% OF THE REDEMPTION AMOUNT APPLIES
TO CLASS A SHARES REDEEMED UP TO 24 MONTHS AFTER PURCHASE UNDER CERTAIN
INVESTMENT PROGRAMS WHERE AN INVESTMENT PROFESSIONAL RECEIVED AN ADVANCE PAYMENT
ON THE TRANSACTION.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY: