INTERNATIONAL SERIES INC, 497, 1998-02-02

INTERNATIONAL SERIES INC
497, 1998-02-02

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FEDERATED INTERNATIONAL EQUITY FUND

(A Portfolio of International Series, Inc.)

Class A Shares, Class B Shares, Class C Shares

PROSPECTUS

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

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

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference. The Fund has also
filed a Statement of Additional Information for Class A Shares, Class B Shares
and Class C Shares dated January 31, 1998, with the Securities and Exchange
Commission ("SEC"). The information contained in the Statement of Additional
Information is incorporated by reference into this prospectus. You may request a
copy of the Statement of Additional Information or a paper copy of this
prospectus, if you have received your prospectus electronically, free of charge
by calling 1-800-341-7400. To obtain other information or to make inquiries
about the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund are
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated January
31, 1998 TABLE OF CONTENTS <TABLE> <S> <C>

Summary of Fund Expenses 1 Financial Highlights--Class A Shares 2 Financial
Highlights--Class B Shares 3 Financial Highlights--Class C Shares 4 General
Information 5 Calling the Fund 5 Investment Information 5 Investment Objective
5 Investment Policies 5 Portfolio Turnover 11 Investment Limitations 11 Net
Asset Value 12 Investing in the Fund 12 Purchasing Shares 12 Purchasing Shares
Through a Financial Intermediary 12 Purchasing Shares by Wire 13 Purchasing
Shares by Check 13 Systematic Investment Program 13 Retirement Plans 13 Class A
Shares 13 Class B Shares 14 Class C Shares 14 Redeeming and Exchanging Shares
14 Redeeming or Exchanging Shares Through a Financial Intermediary 14 Redeeming
or Exchanging Shares by Telephone 14 Redeeming or Exchanging Shares by Mail 15
Requirements for Redemption 15 Requirements for Exchange 15 Systematic
Withdrawal Program 15 Contingent Deferred Sales Charge 15 Account and Share
Information 16 Confirmations and Account Statements 16 Dividends and
Distributions 16 Accounts with Low Balances 16 International Series, Inc.
Information 16 Management of the Corporation 16 Distribution of Shares 17
Administration of the Fund 18 Brokerage Transactions 18 Shareholder Information
19 Voting Rights 19 Tax Information 19 Federal Income Tax 19 State and Local
Taxes 19 Performance Information 20

</TABLE>
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) 5.50% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) None 5.50% 1.00%
Redemption Fee (as a percentage of amount redeemed, if
applicable) None None None
Exchange Fee None None None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)*
<TABLE>
<S> <C> <C> <C>
Management Fee 1.00% 1.00% 1.00%
12b-1 Fee None 0.75% 0.75%
Total Other Expenses 0.77% 0.77% 0.77%
Shareholder Services Fee 0.25% 0.25% 0.25%
Total Operating Expenses(2) 1.77% 2.52%(3) 2.52%
</TABLE>
(1) For shareholders of Class B Shares, the contingent deferred sales charge 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 assessed is 1.00% of the lesser of the original purchase price or the net
asset value of Shares redeemed within one year of their purchase date. For a
more complete description, see "Contingent Deferred Sales Charge." (2) The total
Class A Shares operating expenses were 1.71% for the fiscal year ended November
30, 1997 and would have been 1.81% absent the voluntary waiver of a portion of
the shareholder services fee. The total Class B Shares and Class C Shares
operating expenses were 2.56% and 2.56% respectively, for the fiscal year ended
November 30, 1997. (3) Class B Shares convert to Class A Shares (which pay lower
ongoing expenses) approximately eight years after purchase. * Total operating
expenses are estimated based on average expenses expected to be incurred during
the period ending November 30, 1998. During the course of this period, expenses
may be more or less than the average amount shown. The purpose of this table is
to assist an investor in understanding the various costs and expenses that a
shareholder of the Fund will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Purchasing Shares"
and "International Series, Inc. Information." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees. LONG-TERM SHAREHOLDERS MAY
PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES
PERMITTED UNDER THE RULES OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC. <TABLE> <CAPTION> EXAMPLE CLASS A CLASS B CLASS C <S> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment
of the maximum sales charge.
1 Year $ 72 $ 82 $ 36
3 Years $108 $122 $ 78
5 Years $146 $157 $134
10 Years $252 $266 $286
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption.
<TABLE>
<S> <C> <C> <C>
1 Year $ 72 $ 26 $ 26
3 Years $108 $ 78 $ 78
5 Years $146 $134 $134
10 Years $252 $266 $286
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $17.32 $17.89 $18.53 $16.49 $14.09 $14.44 $14.28 $17.59 $17.34 $19.99
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.04* 0.03 0.09 0.15 0.06 0.10 0.11 0.19 0.18 0.19
Net realized and
unrealized gain (loss)
on investments and
foreign currency 0.95 1.38 0.17 1.96 2.53 (0.37) 0.37 (1.16) 1.60 3.27
Total from investment 0.99 1.41 0.26 2.11 2.59 (0.27) 0.48 (0.97) 1.78 3.46
operations
LESS DISTRIBUTIONS
Distributions from net
investment income -- (0.09) (0.003) (0.07) (0.06) (0.08) (0.21) (0.20) (0.23) (0.23)
Distributions in excess
of net investment
income(a) -- -- -- -- (0.13) -- -- -- -- --
Total distributions -- (0.09) (0.003) (0.07) (0.19) (0.08) (0.21) (0.20) (0.23) (0.23)
from net investment
income
Distributions from net
realized gain on
investmens and foreign
currency transactions (0.38) (1.89) (0.90) -- -- -- (0.11) (2.14) (1.30) (5.88)
Total distributions (0.38) (1.98) (0.90) (0.07) (0.19) (0.08) (0.32) (2.34) (1.53) (6.11)
NET ASSET VALUE, END OF
PERIOD $17.93 $17.32 $17.89 $18.53 $16.49 $14.09 $14.44 $14.28 $17.59 $17.34
TOTAL RETURN(B) 5.89% 8.63% 1.60% 12.82% 18.52% (1.86%) 3.49% (6.72%) 11.55% 24.33%
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.71% 1.68% 1.57% 1.61% 1.60% 1.57% 1.52% 1.32% 1.01% 1.00%
Net investment income 0.23% 0.15% 0.42% -- 0.13% 0.69% 0.78% 1.39% 1.04% 1.43%
Expense waiver/
reimbursement(c) 0.10% 0.15% 0.18% -- 0.01% 0.02% 0.30% 0.25% 0.46% 0.28%
SUPPLEMENTAL DATA
Net assets, end of
period(000 omitted) $134,858 $172,938 $191,911 $261,178 $192,860 $106,937 $101,980 $82,541 $65,560 $68,922
Average commission
rate paid(d) $0.0032 $0.0018 -- -- -- -- -- -- -- --
Portfolio turnover 210% 119% 166% 73% 74% 91% 84% 114% 85% 98%
</TABLE>
* Amount based on average outstanding shares.
(a) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes. (b) Based on
net asset value, which does not reflect the sales charge or contingent deferred
sales charge, if applicable. (c) This voluntary expense decrease is reflected in
both the expense and net investment income ratios shown above. (d) Represents
total commissions paid on portfolio securities divided by total portfolio shares
purchased or sold on which commissions were charged. FURTHER INFORMATION ABOUT
THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S ANNUAL REPORT FOR THE FISCAL
YEAR ENDED NOVEMBER 30, 1997, WHICH CAN BE OBTAINED FREE OF CHARGE.

FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.85 $17.50 $18.30 $16.41 $14.88
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (0.11)** (0.10) (0.12) (0.05) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.92 1.34 0.22 1.98 1.57
Total from investment operations 0.81 1.24 0.10 1.93 1.53
LESS DISTRIBUTIONS
Distributions from net investment income -- 0.00(b) (0.00)(b) -- --
Distributions in excess of net investment income(c) -- -- -- (0.04) --
Total distributions from net investment income (0.00) 0.00 (0.00) (0.04) --
Distributions from net realized gain on investments
and foreign currency transactions (0.38) (1.89) (0.90) 0.00 0.00
Total distributions (0.38) (1.89) (0.90) (0.04) 0.00
NET ASSET VALUE, END OF PERIOD $17.28 $16.85 $17.50 $18.30 $16.41
TOTAL RETURN(D) 4.96% 7.75% 0.69% 11.75% 10.28%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.56% 2.57% 2.46% 2.55% 2.57%*
Net investment income (0.67%) (0.72%) (0.47%) (0.91%) (1.10%)*
Expense waiver/reimbursement(e) 0.00% 0.01% 0.04% 0.00% 0.01%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,841 $7,580 $7,146 $8,836 $2,852
Average commission rate paid(f) $0.0032 $0.0018 -- -- --
Portfolio turnover 210% 119% 166% 73% 74%
</TABLE>
* Computed on an annualized basis.
** Amount based on average outstanding shares.
(a) Reflects operations for the period from March 31, 1993 (start of business)
to November 30, 1993. (b) Distributions from net investment income is less than
0.01 per share. (c) Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principals.
These distributions do not represent a return of capital for federal income tax
purposes. (d) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable. (e) This voluntary expense
decrease is reflected in both the expense and net investment income ratios shown
above. (f) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997, WHICH CAN BE OBTAINED
FREE OF CHARGE.

GENERAL INFORMATION

The Corporation was established as FT International Trust, a Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under the
laws of the State of Maryland on February 11, 1991. At a special meeting of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the name of the
Corporation to International Series, Inc. Class A Shares, Class B Shares, and
Class C Shares are designed for investors who wish to spread their investments
beyond the United States and who are prepared to accept the particular risks
associated with these investments as a convenient means of accumulating an
interest in a professionally managed diversified portfolio of non-U.S.
securities. The Fund's current net asset value and offering price can be found
in the mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing. CALLING THE FUND Call the Fund at
1-800-341-7400.

INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The Fund's objective is to obtain a total return on its assets. The
objective is based on the premise that investing in non-U.S. securities
provides three potential benefits over investing solely in U.S. securities:
* the opportunity to invest in non-U.S. companies believed to have
superior growth potential;
* the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the United States; and
* the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not move in
harmony.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus. The investment policies may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in the objective or policies becomes effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS
The Fund invests primarily in non-U.S. securities. A substantial portion of
these will be equity securities of established companies in economically
developed countries. The Fund will invest at least 65%, and under normal market
conditions substantially all of its total assets, in equity securities
denominated in foreign currencies, including European Currency Units, of issuers
located in at least three countries outside of the United States and sponsored
or unsponsored American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), and European Depositary Receipts ("EDRs"), collectively, "Depositary
Receipts." The Fund may also purchase corporate and government fixed income
securities denominated in currencies other than U.S. dollars; enter into forward
commitments, repurchase agreements, and foreign currency transactions; maintain
reserves in foreign or U.S. money market instruments; and purchase options and
financial futures contracts. EQUITY AND FIXED INCOME SECURITIES At the date of
this prospectus, the Fund has committed its assets primarily to dividend-paying
equity securities of established companies that appear to have growth potential.
However, as a temporary defensive position, the Fund may shift its emphasis to
fixed income securities, warrants, or other obligations of foreign companies or
governments, if they appear to offer potential higher return. Fixed income
securities include preferred stock, convertible securities, bonds, notes, or
other debt securities which are investment grade or higher. However, in no event
will the Fund invest more than 25% of its total assets in the debt securities of
any one foreign country. The high-quality debt securities in which the Fund will
invest will possess a minimum credit rating of A as assigned by Standard &
Poor's Ratings Group ("S&P") or A by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, will be judged by Federated Global Research Corp.,
the Fund's investment adviser (the "Adviser"), to be of comparable quality.
Because the average quality of the Fund's portfolio investments should remain
constantly between A and AAA, the Fund will seek to avoid the adverse
consequences that may arise for some debt securities in difficult economic
circumstances. Downgraded securities will be evaluated on a case by case basis
by the Adviser. The Adviser will determine whether or not the security continues
to be an acceptable investment. If not, the security will be sold. A description
of the ratings categories is contained in the Appendix to the Statement of
Additional Information.

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

CONVERTIBLE SECURITIES
Convertible securities include a spectrum of securities which can be exchanged
for or converted into common stock. Convertible securities may include, but are
not limited to: convertible bonds or debentures; convertible preferred stock;
units consisting of usable bonds and warrants; or securities which cap or
otherwise limit returns to the convertible security holder, such as DECS-
(Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common Stock when
issued as a debt security), LYONS-(Liquid Yield Option Notes, which are
corporate bonds that are purchased at prices below par with no coupons and are
convertible into stock), PERCS- (Preferred Equity Redemption Cumulative Stock
(an equity issue that pays a high cash dividend, has a cap price and mandatory
conversion to common stock at maturity), and PRIDES- (Preferred Redeemable
Increased Dividend Securities (which are essentially the same as DECS; the
difference is little more than who initially underwrites the issue). Convertible
securities are often rated below investment grade or not rated because they fall
below debt obligations and just above common equity in order of preference or
priority on the issuer's balance sheet. Hence, an issuer with investment grade
senior debt may issue convertible securities with ratings less than investment
grade or not rated. Convertible securities rated below investment grade may be
subject to some of the same risks as those inherent in junk bonds. The Fund does
not limit convertible securities by rating, and there is no minimal acceptance
rating for a convertible security to be purchased or held in the Fund.
Therefore, the Fund invests in convertible securities irrespective of their
ratings. This could result in the Fund purchasing and holding, without limit,
convertible securities rated below investment grade by an NRSRO or in the Fund
holding such securities where they have acquired a rating below investment grade
after the Fund has purchased it. The Fund's investments in convertible
securities will not be subject to the quality rating limit on other securities
in which the Fund invests. DEPOSITARY RECEIPTS The Fund may invest in foreign
issuers by purchasing sponsored or unsponsored ADRs, GDRs, and EDRs. ADRs are
depositary receipts typically issued by a United States bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by United States banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a United States corporation. Generally, Depositary Receipts in
registered form are designed for use in the United States securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored Depositary Receipts may not entitle
the Fund to financial or other reports from the issuer of the underlying
security, to which it would be entitled as the owner of sponsored Depositary
Receipts. FORWARD COMMITMENTS Forward commitments are contracts to purchase
securities for a fixed price at a date beyond customary settlement time. The
Fund may enter into these contracts if liquid securities in amounts sufficient
to meet the purchase price are segregated on the Fund's records at the trade
date and maintained until the transaction has been settled. Risk is involved if
the value of the security declines before settlement. Although the Fund enters
into forward commitments with the intention of acquiring the security, it may
dispose of the commitment prior to settlement and realize short-term profit or
loss. MONEY MARKET INSTRUMENTS The Fund may invest in U.S. and foreign
short-term money market instruments, including interest-bearing call deposits
with banks, government obligations, certificates of deposit, bankers'
acceptances, commercial paper, short-term corporate debt securities, and
repurchase agreements. The commercial paper in which the Fund invests will be
rated A-1 by S&P or P-1 by Moody's. These investments may be used to temporarily
invest cash received from the sale of Fund Shares, to establish and maintain
reserves for temporary defensive purposes, or to take advantage of market
opportunities. Investments in the World Bank, Asian Development Bank, or
Inter-American Development Bank are not anticipated. REPURCHASE AGREEMENTS

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
OPTIONS AND FINANCIAL FUTURES CONTRACTS
The Fund may purchase put and call options, financial futures contracts, and
options on financial futures contracts. In addition, the Fund may write (sell)
put and call options with respect to securities in the Fund's portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous. Settlement dates may be
a month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. The Fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. In addition, the Fund may enter into transactions to sell its purchase
commitments to third parties at current market values and simultaneously acquire
other commitments to purchase similar securities at later dates. The Fund may
realize short-term profits or losses upon the sale of such commitments.

RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Directors, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase together
with other illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice and certain over-the-counter
options to 15% of its net assets.

LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its portfolio
securities on a short-term or long-term basis up to one-third the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the Adviser has determined are creditworthy
under guidelines established by the Directors and will receive collateral in the
form of cash or U.S. government securities equal to at least 100% of the value
of the securities loaned. There is the risk that when lending portfolio
securities, the securities may not be available to the Fund on a timely basis
and the Fund may, therefore, lose the opportunity to sell the securities at a
desirable price. In addition, in the event that a borrower of securities would
file for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action. FOREIGN CURRENCY TRANSACTIONS The Fund will enter
into foreign currency transactions to obtain the necessary currencies to settle
securities transactions. Currency transactions may be conducted either on a spot
or cash basis at prevailing rates or through forward foreign currency exchange
contracts. The Fund may also enter into foreign currency transactions to protect
Fund assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the value of
Fund assets which are denominated in foreign currencies, such as foreign
securities or funds deposited in foreign banks, as measured in U.S. dollars.
Although foreign currency exchanges may be used by the Fund to protect against a
decline in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. FORWARD
FOREIGN CURRENCY EXCHANGE CONTRACTS A forward foreign currency exchange contract
("forward contract") is an obligation to purchase or sell an amount of a
particular currency at a specific price and on a future date agreed upon by the
parties. Generally, no commission charges or deposits are involved. At the time
the Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated on the Fund's
records and are maintained until the contract has been settled. The Fund will
not enter into a forward contract with a term of more than one year. The Fund
will generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between the trade date and settlement date will vary between
24 hours and 30 days, depending upon local custom. The Fund may also protect
against the decline of a particular foreign currency by entering into a forward
contract to sell an amount of that currency approximating the value of all or a
portion of the Fund's assets denominated in that currency ("hedging"). The
success of this type of short-term hedging strategy is highly uncertain due to
the difficulties of predicting short-term currency market movements and of
precisely matching forward contract amounts and the constantly changing value of
the securities involved. Although the Adviser will consider the likelihood of
changes in currency values when making investment decisions, the Adviser
believes that it is important to be able to enter into forward contracts when it
believes the interests of the Fund will be served. The Fund will not enter into
forward contracts for hedging purposes in a particular currency in an amount in
excess of the Fund's assets denominated in that currency. No more than 30% of
the Fund's assets will be committed to forward contracts for hedging purposes at
any time. (This restriction does not include forward contracts entered into to
settle securities transactions.) PUT AND CALL OPTIONS WITH RESPECT TO EQUITY
SECURITIES The Fund may purchase put and call options on its portfolio of
securities. Put and call options will be used as a hedge to attempt to protect
securities which the Fund holds, or will be purchasing, against decreases or
increases in value. The Fund is also authorized to write (sell) put and call
options on all or any portion of its portfolio of securities to generate income.
The Fund may write call options on securities either held in its portfolio or
which it has the right to obtain without payment of further consideration or for
which it has segregated cash in the amount of any additional consideration. In
the case of put options written by the Fund, the Corporation's custodian will
segregate cash, U.S. Treasury obligations, or highly liquid debt securities with
a value equal to or greater than the exercise price of the underlying
securities. The Fund is authorized to invest in put and call options that are
traded on securities exchanges. The Fund may also purchase and write
over-the-counter options ("OTC options") on portfolio securities in negotiated
transactions with the buyers or writers of the options since options on some of
the portfolio securities held by the Fund are not traded on an exchange. The
Fund will purchase and write OTC options only with investment dealers and other
financial institutions (such as commercial banks or savings associations) deemed
creditworthy by the Adviser. OTC options are two-party contracts with price and
terms negotiated between buyer and seller. In contrast, exchange-traded options
are third-party contracts with standardized strike prices and expiration dates
and are purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not. Prior to exercise or
expiration, an option position can only be terminated by entering into a closing
purchase or sale transaction. This requires a secondary market on an exchange
which may or may not exist for any particular call or put option at any specific
time. The absence of a liquid secondary market also may limit the Fund's ability
to dispose of the securities underlying an option. The inability to close
options also could have an adverse impact on the Fund's ability to effectively
hedge its portfolio. FINANCIAL FUTURES AND OPTIONS ON FINANCIAL FUTURES The Fund
may purchase and sell financial futures contracts to hedge all or a portion of
its portfolio securities against changes in interest rates or securities prices.
Financial futures contracts on securities call for the delivery of particular
securities at a certain time in the future. The seller of the contract agrees to
make delivery of the type of instrument called for in the contract, and the
buyer agrees to take delivery of the instrument at the specified future time. A
financial futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund may also write call options
and purchase put options on financial futures contracts as a hedge to attempt to
protect securities in its portfolio against decreases in value resulting from
anticipated increases in market interest rates or broad declines in securities
prices. When the Fund writes a call option on a financial futures contract, it
is undertaking the obligation of selling the financial futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as a purchaser of a put option on a financial futures contract, the
Fund is entitled (but not obligated) to sell a financial futures contract at the
fixed price during the life of the option. The Fund may also write put options
and purchase call options on financial futures contracts as a hedge against
rising purchase prices of securities eligible for purchase by the Fund. The Fund
will use these transactions to attempt to protect its ability to purchase
securities in the future at price levels existing at the time it enters into the
transactions. When the Fund writes a put option on a futures contract, it is
undertaking to buy a particular futures contract at a fixed price at any time
during a specified period if the option is exercised. As a purchaser of a call
option on a futures contract, the Fund is entitled (but not obligated) to
purchase a futures contract at a fixed price at any time during the life of the
option. The Fund may not purchase or sell financial futures contracts or options
on financial futures contracts if, immediately thereafter, the sum of the amount
of initial margin deposits on the Fund's existing financial futures positions
and premiums paid for related options would exceed 5% of the fair market value
of the Fund's total assets, after taking into account the unrealized profits and
losses on those contracts it has entered into. When the Fund purchases financial
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the financial futures contracts (less any related
margin deposits), will be deposited in a segregated account with the Fund's
custodian to collateralize the position and, thereby, insure that the use of
such financial futures contracts is unleveraged. RISK CONSIDERATIONS Investing
in non-U.S. securities carries substantial risks in addition to those associated
with domestic investments. In an attempt to reduce some of these risks, the Fund
diversifies its investments broadly among foreign countries, including both
developed and developing countries. At least three different countries will
always be represented. As of November 30, 1996, the portfolio contained
securities from issuers located primarily in Japan, the United Kingdom, France,
Hong Kong, Germany, Switzerland, and Malaysia. There are also investments in
several other countries. The Fund occasionally takes advantage of the unusual
opportunities for higher returns available from investing in developing
countries. As discussed in the Statement of Additional Information, however,
these investments carry considerably more volatility and risk because they are
associated with less mature economies and less stable political systems. The
economies of foreign countries may differ from the U.S. economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency, and balance of payments
position. Further, the economies of developing countries generally are heavily
dependent on international trade and, accordingly, have been, and may continue
to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade. Prior governmental approval
for foreign investments may be required under certain circumstances in some
countries, and the extent of foreign investment in certain debt securities and
domestic companies may be subject to limitation. Foreign ownership limitations
also may be imposed by the charters of individual companies to prevent, among
other concerns, violation of foreign investment limitations. Repatriation of
investment income, capital, and the proceeds of sales by foreign investors may
require governmental registration and/or approval in some countries. The Fund
could be adversely affected by delays in, or a refusal to grant, any required
governmental registration or approval for such repatriation. Any investment
subject to such repatriation controls will be considered illiquid if it appears
reasonably likely that this process will take more than seven days.

With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.

Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. CURRENCY RISKS
Because the majority of the securities purchased by the Fund are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's NAV; the value of interest earned; gains and losses
realized on the sales of securities; and net investment income and capital gain,
if any, to be distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of the Fund assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of Fund assets denominated
in that currency will decrease. The exchange rates between the U.S. dollar and
foreign currencies are a function of such factors as supply and demand in the
currency exchange markets, international balances of payments, governmental
intervention, speculation and other economic and political conditions. Although
the Fund values its assets daily in U.S. dollars, the Fund will not convert its
holdings of foreign currencies to U.S. dollars daily. When the Fund converts its
holdings to another currency, it may incur conversion costs. Foreign exchange
dealers may realize a profit on the difference between the price at which they
buy and sell currencies. FOREIGN COMPANIES Other differences between investing
in foreign and U.S. companies include:
* less publicly available information about foreign companies; * the lack of
uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
* less readily available market quotations on foreign companies; *
differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
* differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
* the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that affect
the quality of securities;
* the likelihood that foreign securities may be less liquid or more
volatile;
* foreign brokerage commissions may be higher;
* unreliable mail service between countries;
* political or financial changes which adversely affect investments in
some countries;
* increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
* certain markets may require payment for securities before delivery; *
religious and ethnic instability; and * certain national policies which may
restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES
In the past, U.S. government policies have discouraged or restricted certain
investments abroad by investors such as the Fund. Investors are advised that
when such policies are instituted, the Fund will abide by them.
SHORT SALES
The Fund intends to sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a borrowed security is sold in
anticipation of a decline in its price. If the decline occurs, Shares equal in
number to those sold short can be purchased at the lower price. If the price
increases, the higher price must be paid. The purchased shares are then returned
to the original lender. Risk arises because no loss limit can be placed on the
transaction. When the Fund enters into a short sale, assets, equal to the market
price of the securities sold short or any lesser price at which the Fund can
obtain such securities, are segregated on the Fund's records and maintained
until the Fund meets its obligations under the short sale. RISKS ASSOCIATED WITH
FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FINANCIAL FUTURES CONTRACTS Financial
futures contracts and options on financial futures contracts can be highly
volatile and could result in a reduction of the Fund's total return. The Fund's
attempt to use such investment devices for hedging purposes may not be
successful. Successful futures strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors. When
the Fund uses financial futures contracts and options on financial futures
contracts as hedging devices, there is a risk that the prices of the securities
subject to the financial futures contracts and options on financial futures
contracts may not correlate perfectly with the prices of the securities in the
Fund. This may cause the financial futures contract and any related options to
react to market changes differently than the portfolio securities. In addition,
the Adviser could be incorrect in its expectations about the direction or extent
of market factors, such as interest rate, securities price movements, and other
economic factors. In these events, the Fund may lose money on the financial
futures contract or the options on financial futures contracts. It is not
certain that a secondary market for positions in financial futures contracts or
for options on financial futures contracts will exist at all times. Although the
Adviser will consider liquidity before entering into financial futures contracts
or options on financial futures contracts transactions, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
financial futures contract or option on a financial futures contract at any
particular time. The Fund's ability to establish and close out financial futures
contracts and options on financial futures contract positions depends on this
secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the losses to the Fund could be
significant.

PORTFOLIO TURNOVER
The Fund does not attempt to set or meet any specific portfolio turnover rate,
since turnover is incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. High turnover rates may result in higher
brokerage commissions and capital gains. See "Tax Information" in this
prospectus.

INVESTMENT LIMITATIONS The Fund will not:
* with respect to 75% of the value of its total assets, invest more than 5%
of the value of its total assets in the securities (other than securities
issued or guaranteed by the government of the United States or its agencies
or instrumentalities) of any one issuer;
* acquire more than 10% of the outstanding voting securities of any one
issuer, or acquire any securities of Fiduciary Trust Company International
or its affiliates;
* sell securities short except under strict limitations; * borrow money or
pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and
pledge up to 15% of the value of those assets to secure such borrowings;
nor
* permit margin deposits for financial futures contracts held by the Fund,
plus premiums paid by it for open options on financial futures contracts,
to exceed 5% of the fair market value of the Fund's total assets, after
taking into account the unrealized profits and losses on those contracts.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:

* purchase put options on securities unless the securities or an offsetting
call option are held in the Fund's portfolio.
* invest more than 15% of the value of its net assets in illiquid securities,
including securities determined by the Directors not to be liquid,
repurchase agreements with maturities longer than seven days after notice
and certain OTC options.

NET ASSET VALUE

** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
+ The following contingent deferred sales charge schedule applies to Class B
Shares:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
++ Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase. See "Conversion of Class
B Shares."
# The contingent deferred sales charge is assessed on Shares redeemed within one
year of their purchase date.
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors ("Federated Funds") may exchange their Shares
for Shares of the corresponding class of the Fund. The Fund reserves the right
to reject any purchase or exchange request.

In connection with any sale, Federated Securities Corp., may, from time to time,
offer certain items of nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial intermediaries must be
received by the financial intermediaries and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge additional fees for their services. The
financial intermediaries which maintain investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial intermediaries may be subject to reclaim by the
distributor for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

PURCHASING SHARES BY WIRE

Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention: EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number--this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.

PURCHASING SHARES BY CHECK

Shares may be purchased by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds in a minimum amount of $50 may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund. Shareholders should
contact their financial intermediary or the Fund to participate in this program.

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
CLASS A SHARES
Class A Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:
* through financial intermediaries that do not receive sales charge
dealer concessions;
* by Federated Life Members; or
* through "wrap accounts" or similar programs under which clients pay a fee
for services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
* purchasing in quantity and accumulating purchases at the levels in the
table under "Investing in the Fund"; * combining concurrent purchases of
two or more funds; * signing a letter of intent to purchase a specific
quantity of shares
within 13 months; or
* using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase. DEALER
CONCESSION For sales of Class A Shares, a dealer will normally receive up to 90%
of the applicable sales charge. Any portion of the sales charge which is not
paid to a dealer will be retained by the distributor. However, the distributor
may offer to pay dealers up to 100% of the sales charge retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses to
attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end. The sales
charge for Shares sold other than through registered broker/dealers will be
retained by Federated Securities Corp. Federated Securities Corp. may pay fees
to banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
establishment of customer accounts and purchases of Shares. CLASS B SHARES Class
B Shares are sold at NAV. Under certain circumstances, a contingent deferred
sales charge will be assessed at the time of a redemption. Orders for $250,000
or more of Class B Shares will automatically be invested in Class A Shares.
CONVERSION OF CLASS B SHARES Class B Shares will automatically convert into
Class A Shares after eight full years from the purchase date. Such conversion
will be on the basis of the relative NAVs per Share, without the imposition of
any charges. Class B Shares acquired by exchange from Class B Shares of another
Federated Fund will convert into Class A Shares based on the time of the initial
purchase. CLASS C SHARES Class C Shares are sold at NAV. A contingent deferred
sales charge of 1.00% will be charged on assets redeemed within the first full
12 months following purchase. REDEEMING AND EXCHANGING SHARES Shares of the Fund
may be redeemed for cash or exchanged for Shares of the same class of other
Federated Funds on days on which the Fund computes its NAV. Shares are redeemed
at NAV less any applicable contingent deferred sales charge. Redemption proceeds
will normally be sent the following day. However, in order to protect
shareholders of the Fund from possible detrimental effects of redemptions, the
Adviser may cause a delay of two to seven days in sending redemption proceeds
during certain periods of market volatility or for certain shareholders.
Exchanges are made at NAV. Shareholders who desire to automatically exchange
Shares, of a like class, in a pre-determined amount on a monthly, quarterly, or
annual basis may take advantage of a systematic exchange privilege. Information
on this privilege is available from the Fund or your financial intermediary.
Depending upon the circumstances, a capital gain or loss may be realized when
Shares are redeemed or exchanged. REDEEMING OR EXCHANGING SHARES THROUGH A
FINANCIAL INTERMEDIARY Shares of the Fund may be redeemed or exchanged by
contacting your financial intermediary before 4:00 p.m. (Eastern time). In order
for these transactions to be processed at that day's NAV, financial
intermediaries (other than broker/dealers) must transmit the request to the Fund
before 4:00 p.m. (Eastern time), while broker/dealers must transmit the request
to the Fund before 5:00 p.m. (Eastern time). The financial intermediary is
responsible for promptly submitting transaction requests and providing proper
written instructions. Customary fees and commissions may be charged by the
financial intermediary for this service. Appropriate authorization forms for
these transactions must be on file with the Fund. REDEEMING OR EXCHANGING SHARES
BY TELEPHONE Shares acquired directly from the Fund may be redeemed in any
amount, or exchanged, by calling 1-800-341-7400. Appropriate authorization forms
for these transactions must be on file with the Fund. Shares held in certificate
form must first be returned to the Fund as described in the instructions under
"Redeeming or Exchanging Shares by Mail." Redemption proceeds will either be
mailed in the form of a check to the shareholder's address of record or
wire-transferred to the shareholder's account at a domestic commercial bank that
is a member of the Federal Reserve System. The minimum amount for a wire
transfer is $1,000. Proceeds from redeemed Shares purchased by check or through
ACH will not be wired until that method of payment has cleared. Telephone
instructions will be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions. In the event of drastic economic or market changes, a shareholder
may experience difficulty in redeeming by telephone. If this occurs, "Redeeming
or Exchanging Shares by Mail" should be considered. The telephone transaction
privilege may be modified or terminated at any time. Shareholders would be
promptly notified. REDEEMING OR EXCHANGING SHARES BY MAIL Shares may be redeemed
in any amount, or exchanged, by mailing a written request to: Federated
Shareholder Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they must accompany the
written request. It is recommended that certificates be sent unendorsed by
registered or certified mail. All written requests should state: Fund Name and
the Share Class name; the account name as registered with the Fund; the account
number; and the number of Shares to be redeemed or the dollar amount of the
transaction. An exchange request should also state the name of the Fund into
which the exchange is to be made. All owners of the account must sign the
request exactly as the Shares are registered. Dividends are paid up to and
including the day that a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION Shareholders requesting a redemption of any amount
to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record, must have their
signatures guaranteed by a commercial or savings bank, trust company or savings
association whose deposits are insured by an organization which is administered
by the Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; or any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed
by a notary public. REQUIREMENTS FOR EXCHANGE Shareholders must exchange Shares
having an NAV equal to the minimum investment requirements of the fund into
which the exchange is being made. Contact your financial intermediary directly
or the Fund for free information on and prospectuses for the Federated Funds
into which your Shares may be exchanged. Before the exchange, the shareholder
must receive a prospectus of the fund for which the exchange is being made. Upon
receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
shares of the other fund. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM Under this program, Shares are redeemed to provide
for periodic withdrawal payments in an amount directed by the shareholder of not
less than $100. To be eligible to participate in this program, a shareholder
must have an account value of at least $10,000, other than retirement accounts
subject to required minimum distributions. A shareholder may apply for
participation in this program through his financial intermediary or by calling
the Fund. Because participation in this program may reduce, and eventually
deplete the shareholder's investment in the Fund, payments under this program
should not be considered as yield or income. It is not advisable for
shareholders to continue to purchase Class A Shares subject to a sales charge
while participating in this program. A contingent deferred sales charge may be
imposed on Class B and C Shares. CONTINGENT DEFERRED SALES CHARGE The contingent
deferred sales charge will be deducted from the redemption proceeds otherwise
payable to the shareholder and will be retained by the distributor. Redemptions
will be processed in a manner intended to maximize the amount of redemption
which will not be subject to a contingent deferred sales charge. The contingent
deferred sales charge will not be imposed with respect to Shares acquired
through the reinvestment of dividends or distributions of long-term capital
gains. In determining the applicability of the contingent deferred sales charge,
the required holding period for your new Shares received through an exchange
will include the period for which your original Shares were held. ELIMINATION OF
CONTINGENT DEFERRED SALES CHARGE Upon written notification to Federated
Securities Corp. or the transfer agent, no contingent deferred sales charge 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;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 701U2;
* 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;
* which are reinvested in the Fund under the reinvestment privilege; * of
Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and
* of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, or
any other financial intermediary, to the extent that no payments were
advanced for purchases made through such entities.
For more information regarding the elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program, or any of the above provisions,
contact your financial intermediary or the Fund. The Fund reserves the right to
discontinue or modify these provisions. Shareholders will be notified of such
action.

ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS

Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates. DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid annually to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining
accounts with low balances, the Fund may close an account by redeeming Shares
and paying the proceeds to the shareholder if the account balance falls below
the applicable minimum investment amount. Retirement plan accounts and accounts
where the balance falls below the minimum due to NAV changes will not be closed
in this manner. Before an account is closed, the shareholder will be notified
and allowed 30 days to purchase additional Shares to meet the minimum.

INTERNATIONAL SERIES, INC. INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Corporation's powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research Corp.,
the Fund's investment adviser, subject to direction by the Board of Directors.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.00% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than
the advisory fee paid by other mutual funds in general, is comparable to fees
paid by many mutual funds with similar objectives and policies. The Adviser
may voluntarily waive a portion of its fee. The Adviser can terminate this
voluntary waiver at any time at its sole discretion.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is
a registered investment adviser under the Investment Advisers Act of 1940. It
is a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $120 billion invested across more
than 300 funds under management and/or administration by its subsidiaries, as
of December 31, 1997, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in
1955. Federated funds are presently at work in and through 4,000 financial
institutions nationwide.

Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of these codes are subject to review by the Board of Directors,
and could result in severe penalties. Henry A. Frantzen has been the Fund's
portfolio manager since September 1995. Mr. Frantzen joined Federated Investors
in 1995 as an Executive Vice President of the Fund's investment adviser. Mr.
Frantzen served as Chief Investment Officer of international equities at Brown
Brothers Harriman & Co. from 1992 to 1995. He was the Executive Vice President
and Director of Equities at Oppenheimer Management Corporation from 1989 to
1991. Drew J. Collins has been the Fund's portfolio manager since September
1995. Mr. Collins joined Federated Investors in 1995 as a Senior Vice President
of the Fund's investment adviser. Mr. Collins served as a Vice
President/Portfolio Manager of international equity portfolios at Arnhold and S.
Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant Vice President/
Portfolio Manager for international equities at the College Retirement Equities
Fund from 1986 to 1994. Mr. Collins is a Chartered Financial Analyst and
received his M.B.A. in finance from the Wharton School of The University of
Pennsylvania. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal
distributor for Shares of the Fund. It is a Pennsylvania corporation organized
on November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of Federated
Investors. The distributor will pay dealers an amount equal to 5.50% of the net
asset vale of Class B Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will not
be made from the assets of the Fund. Dealers may voluntarily waive receipt of
all or any portion of these payments. The distributor may pay a portion of the
distribution fee discussed below to financial institutions that waive all or any
portion of the advance payments. The distributor may offer to pay financial
institutions an amount up to 1.00% of the NAV of Class C Shares purchased by
their clients or customers at the time of purchase. These payments will be made
directly by the distributor from its assets, and will not be made from assets of
the Fund. Financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge. DISTRIBUTION PLAN (CLASS
B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER SERVICES

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

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

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

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to 0.50% of the NAV of Class A
Shares purchased by their clients or customers under certain qualified plans as
approved by Federated Securities Corp. (Such payments are subject to a reclaim
from the financial institution should the assets leave the program within 12
months after purchase.) Furthermore, with respect to Class A Shares, Class B
Shares, and Class C Shares, in addition to payments made pursuant to the
Distribution Plan and Shareholder Services Agreement, Federated Securities Corp.
and Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Adviser or its affiliates.

ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Corporation and the Fund. Federated
Services Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below: <TABLE> <CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase
and sale of portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained elsewhere.
In selecting among firms believed to meet this criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by Federated Securities Corp. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Directors. SHAREHOLDER INFORMATION VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Corporation have equal voting rights, except that in matters
affecting only a portfolio or class, only Shares of that portfolio 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 shall be called by the
Directors upon the written request of shareholders owning at least 10% of the
Fund's outstanding shares of all series entitled to vote. As of January 7, 1998,
the following shareholder of record owned 25% or more of the outstanding Class C
Shares of the Fund: Keith Co., owned approximately 195,254 Class CShares
(29.97%) and, therefore, may for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended (the "Code"), applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies. However, the Fund may invest in the stock of certain foreign
corporations which would constitute a Passive Foreign Investment Company
("PFIC"). Federal income taxes may be imposed on the Fund upon disposition of
PFIC investments. The Fund will be treated as a single, separate entity for
federal income tax purposes so that income (including capital gains) and losses
realized by the Corporation's other portfolios, if any, will not be combined for
tax purposes with those realized by the Fund. Investment income received by the
Fund from sources within foreign countries may be subject to foreign taxes
withheld at the source. The United States has entered into tax treaties with
many foreign countries that entitle the Fund to reduced tax rates or exemptions
on this income. The effective rate of foreign tax cannot be predicted since the
amount of Fund assets to be invested within various countries is unknown.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates where applicable. Unless otherwise exempt, shareholders are required to
pay federal income tax on any dividends and other distributions, including
capital gains distributions, received. This applies whether dividends and
distributions are received in cash or as additional Shares. Distributions
representing long-term capital gains, if any, will be taxable to shareholders as
long-term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed. If more than 50% of the value of
the Fund's assets at the end of the tax year is represented by stock or
securities of foreign corporations, the Fund intends to qualify for certain Code
stipulations that would allow shareholders to claim a foreign tax credit or
deduction on their U.S. income tax returns. The Code may limit a shareholder's
ability to claim a foreign tax credit. Furthermore, shareholders who elect to
deduct their portion of the Fund's foreign taxes rather than take the foreign
tax credit must itemize deductions on their income tax returns. STATE AND LOCAL
TAXES Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania. Shareholders are urged to
consult their own tax advisers regarding the status of their accounts under
state and local tax laws. PERFORMANCE INFORMATION From time to time, the Fund
advertises the total return for each class of Shares. Total return represents
the change, over a specified period of time, in the value of an investment in
each class of Shares after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage. The performance information
reflects the effect of non-recurring charges, such as the maximum sales charge
and contingent deferred sales charges, which, if excluded, would increase the
total return.

Total return will be calculated separately for Class A Shares, Class B Shares,
and Class C Shares. Expense differences between Class A Shares, Class B Shares,
and Class C Shares may affect the performance of each class. From time to time,
advertisements for Class A Shares, Class B Shares, and Class C Shares of the
Fund may refer to ratings, rankings, and other information in certain financial
publications and/or compare the performance of Class A Shares, Class B Shares,
and Class C Shares to certain indices.

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

[Graphic]
FEDERATED INTERNATIONAL EQUITY FUND
(A Portfolio of International Series, Inc.)
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS

JANUARY 31, 1998

An Open-End, Diversified Management Investment Company
[Graphic]
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 46031P308
Cusip 46031P605
Cusip 46031P407
G00692-02-ABC (1/98)
[Graphic]

FEDERATED INTERNATIONAL EQUITY FUND

(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Federated International Equity Fund (the "Fund"), a portfolio of International
Series, Inc. (the "Corporation") dated January 31, 1998. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement of Additional Information, if you have received it electronically,
free of charge by calling 1-800-341-7400.

INTERNATIONAL SERIES, INC.

FEDERATED INVESTORS FUNDS 5800 CORPORATE DRIVE PITTSBURGH, PA 15237-7000
Statement dated January 31, 1998 [Graphic] Federated Securities Corp.,
Distributor Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA
15222-3779 1-800-341-7400 www.federatedinvestors.com Cusip 46031P308 Cusip
46031P605 Cusip 46031P407 1010302B (1/98) [Graphic] TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE FUND 1 INVESTMENT OBJECTIVE AND POLICIES 1 Types
of Investments 1 Convertible Securities 1 When-Issued and Delayed Delivery
Transactions 1 Repurchase Agreements 2 Lending Portfolio Securities 2
Restricted and Illiquid Securities 2 Futures and Options Transactions 2
Portfolio Turnover 5 INVESTMENT LIMITATIONS 5 Diversification of Investments 5
Acquiring Securities 5 Concentration of Investments 5 Borrowing 6 Pledging
Assets 6 Buying on Margin 6 Issuing Senior Securities 6 Underwriting 6
Investing in Real Estate 6 Investing in Commodities 6 Lending Cash or
Securities 6 Investing in Minerals 6 Selling Short 6 Purchasing Securities to
Exercise Control 6 Investing in Illiquid Securities 7 Dealing in Puts and Calls
7 INTERNATIONAL SERIES, INC. MANAGEMENT 7 Fund Ownership 11 Director
Compensation 11 INVESTMENT ADVISORY SERVICES 12 Adviser to the Fund 12 Advisory
Fees 12 BROKERAGE TRANSACTIONS 12 OTHER SERVICES 12 Fund Administration 12
Custodian and Portfolio Accountant 13 Transfer Agent 13 Independent Public
Accountants 13 Purchasing Shares 13 Quantity Discounts and Accumulated
Purchases 13 Concurrent Purchases 13 Letter of Intent 13 Reinvestment Privilege
14 Conversion of Class B Shares 14 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
14 Purchases by Sales Representatives, Fund Directors, and Employees15
DETERMINING NET ASSET VALUE 15 Determining Market Value of Securities 15
Trading in Foreign Securities 15 REDEEMING SHARES 16 Redemption in Kind 16
Contingent Deferred Sales Charge 16 TAX STATUS 17 The Fund's Tax Status 17
Foreign Taxes 17 Shareholders' Tax Status 17 TOTAL RETURN 17 PERFORMANCE
COMPARISONS 17 Economic and Market Information 18 ABOUT FEDERATED INVESTORS 18
Mutual Fund Market 19 Institutional Clients 19 Bank Marketing 19 Broker/Dealers
and Bank Broker/Dealer Subsidaries 19 FINANCIAL STATEMENTS 19 APPENDIX 20

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

CONVERTIBLE SECURITIES
DECS, or similar instruments marketed under different names, offer a substantial
dividend advantage with the possibility of unlimited upside potential if the
price of the underlying common stock exceeds a certain level. DECS convert to
common stock at maturity. The amount received is dependent on the price of the
common stock at the time of maturity. DECS contain two call options at different
strike prices. The DECS participate with the common stock up to the first call
price. They are effectively capped at that point unless the common stock rises
above a second price point, at which time they participate with unlimited upside
potential. PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is limited to
a predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates declines when
the common stock falls, while the cap price limits gains when the common stock
rises. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made
to secure what is considered to be an advantageous price or yield for the Fund.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction has
been settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more than
20% of the total value of its assets. REPURCHASE AGREEMENTS The Fund or its
custodian will take possession of the securities subject to repurchase
agreements, and these securities will be marked to market daily. In the event
that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending court
action. The Fund believes that under the regular procedures normally in effect
for custody of the Fund's portfolio securities subject to repurchase agreements,
a court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by Federated Global Research Corp., the
Fund's investment adviser (the "Adviser") to be creditworthy. LENDING PORTFOLIO
SECURITIES The collateral received when the Fund lends portfolio securities must
be valued daily and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment. RESTRICTED AND ILLIQUID SECURITIES

The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") Staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933. The Directors consider the following criteria in determining the
liquidity of certain restricted securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealer undertakings to make a market in the security; and * the nature of
the security and the nature of the marketplace trades.

FUTURES AND OPTIONS TRANSACTIONS
The Fund may engage in futures and options hedging transactions. In an effort to
reduce fluctuations in the net asset value of Shares, the Fund may attempt to
hedge all or a portion of its portfolio by buying and selling financial futures
contracts, buying put options on portfolio securities and listed put options on
futures contracts, and writing call options on futures contracts. The Fund may
also write covered call options on portfolio securities to attempt to increase
its current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on financial futures
contracts may be closed out only on the exchange on which the position was
established. FUTURES CONTRACTS The Fund may engage in transactions in futures
contracts. A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future. However, a stock index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written. No physical delivery of the
underlying securities in the index is made.

The purpose of the acquisition or sale of a futures contract by the Fund is to
protect the Fund from fluctuations in the value of its securities caused by
anticipated changes in interest rates or market conditions without necessarily
buying or selling the securities. For example, in the fixed-income securities
market, price generally moves inversely to interest rates. A rise in rates
generally means a drop in price. Conversely, a drop in rates generally means a
rise in price. In order to hedge its holdings of fixed-income securities against
a rise in market interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect itself against
the possibility that the prices of its fixed-income securities may decline
during the anticipated holding period. The Fund would "go long" (i.e., agree to
purchase securities in the future at a predetermined price) to hedge against a
decline in market interest rates.

PUT OPTIONS ON FUTURES CONTRACTS
The Fund may engage in transactions in put options on futures contracts. The
Fund may purchase listed put options on futures contracts. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price. The Fund would purchase put options on futures contracts to
protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. Generally, if the
hedged portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its option
by selling an identical option. If the hedge is successful, the proceeds
received by the Fund upon the sale of the second option may be large enough to
offset both the premium paid by the Fund for the original option plus the
decrease in value of the hedged securities. Alternatively, the Fund may exercise
its put option to close out the position. To do so, it would simultaneously
enter into a futures contract of the type underlying the option (for a price
less than the strike price of the option) and exercise the option. The Fund
would then deliver the futures contract in return for payment of the strike
price. If the Fund neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and only the premium paid
for the contract will be lost. When the Fund sells a put on a futures contract,
it receives a cash premium which can be used in whatever way is deemed most
advantageous to the Fund. In exchange for such premium, the Fund grants to the
purchaser of the put the right to receive from the Fund, at the strike price, a
short position in such futures contract, even though the strike price upon
exercise of the option is greater than the value of the futures position
received by such holder. If the value of the underlying futures position is not
such that exercise of the option would be profitable to the option holder, the
option will generally expire without being exercised. The Fund has no obligation
to return premiums paid to it whether or not the option is exercised. It will
generally be the policy of the Fund, in order to avoid the exercise of an option
sold by it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the Fund's
interest to deliver the underlying futures position. A closing purchase
transaction consists of the purchase by the Fund of an option having the same
term as the option sold by the Fund, and has the effect of canceling the Fund's
position as a seller. The premium which the Fund will pay in executing a closing
purchase transaction may be higher than the premium received when the option was
sold, depending in large part upon the relative price of the underlying futures
position at the time of each transaction. CALL OPTIONS ON FUTURES CONTRACTS The
Fund may engage in transactions in call options on futures contracts. In
addition to purchasing put options on futures, the Fund may write listed call
options on futures contracts to hedge its portfolio against, for example, an
increase in market interest rates. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike price at any time
during the life of the option if the option is exercised. As market interest
rates rise or as stock prices fall, causing the prices of futures to go down,
the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call option
position to increase. In other words, as the underlying future's price goes down
below the strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option. This premium
can help substantially to offset the drop in value of the Fund's portfolio
securities. Prior to the expiration of a call written by the Fund, or exercise
of it by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be less
than the premium received by the Fund for the initial option. The net premium
income of the Fund will then help offset the decrease in value of the hedged
securities. When the Fund purchases a call on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the comparative
market value of such futures position at the time the option is exercised. The
holder of a call option has the right to receive a long (or buyer's) position in
the underlying futures contract. The Fund will not maintain open positions in
futures contracts it has sold or call options it has written on futures
contracts if, in the aggregate, the value of the open positions (marked to
market) exceeds the current market value of its securities portfolio (including
cash or cash equivalents) plus or minus the unrealized gain or loss on those
open positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation. "MARGIN" IN FUTURES TRANSACTIONS Unlike the purchase or sale of a
security, the Fund does not pay or receive money upon the purchase or sale of a
futures contract. Rather, the Fund is required to deposit an amount of "initial
margin" in cash or U.S. Treasury bills with the custodian (or the broker, if
legally permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contracts initial margin does not involve a borrowing by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions. The Fund is also required to deposit
and maintain margin when it writes call options on futures contracts. REGULATORY
RESTRICTIONS To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid status as a "commodity pool
operator," the Fund will not enter into a futures contract, or purchase an
option thereon, if immediately thereafter the initial margin deposits for
futures contracts held by it, plus premiums paid by it for open options on
futures, would exceed 5% of the total assets of the Fund. The Fund will not
engage in transactions in futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
value of assets which the Fund holds or intends to purchase. When futures
contracts or options thereon are purchased in order to protect against a price
increase on securities or other assets intended to be purchased later, it is
anticipated that at least 75% of such intended purchases will be completed. When
other futures contracts or options thereon are purchased, the underlying value
of such contracts will at all times not exceed the sum of (1) accrued profit on
such contracts held by the broker; (2) cash or high-quality money market
instruments set aside in an identifiable manner; and (3) cash proceeds from
investments due in 30 days or less. PURCHASING PUT OPTIONS ON PORTFOLIO
SECURITIES The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put option
gives the Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES The Fund may write
covered call options to generate income. As a writer of a call option, the Fund
has the obligation upon exercise of the option during the option period to
deliver the underlying security upon payment of the exercise price. The Fund may
only sell call options either on securities held in its portfolio or on
securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration). OVER-THE-COUNTER OPTIONS The Fund may purchase and write
over-the-counter options ("OTC options") on portfolio securities in negotiated
transactions with the buyers or writers of the options for those options on
portfolio securities held by the Fund and not traded on an exchange. OTC options
are two-party contracts with price and terms negotiated between buyer and
seller. In contrast, exchange-traded options are third-party contracts with
standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while over-the-counter options may not. WARRANTS The Fund may invest in
warrants. Warrants are basically options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned common stock
at issuance) valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be perpetual. However, most
warrants have expiration dates after which they are worthless. In addition, if
the market price of the common stock does not exceed the warrant's exercise
price during the life of the warrant, the warrant will expire as worthless.
Warrants have no voting rights, pay no dividends, and have no rights with
respect to the assets of the corporation issuing them. The percentage increase
or decrease in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock. ADDITIONAL RISK CONSIDERATIONS

The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith, or gross negligence on the part of the Adviser, any losses resulting from
the holding of the Funds' portfolio securities in foreign countries and/or with
securities depositories will be at the risk of shareholders. No assurance can be
given that the Directors' appraisal of the risks will always be correct or that
such exchange control restrictions or political acts of foreign governments
might not occur.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
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, 1997, and 1996, the portfolio
turnover rates were 210% and 119%, respectively.

INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not purchase
securities of any one issuer (other than securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities) if as a
result more than 5% of the value of its total assets would be invested in the
securities of that issuer.
ACQUIRING SECURITIES
The Fund will not acquire more than 10% of the outstanding voting securities of
any one issuer, or acquire any securities of Fiduciary Trust Company
International or its affiliates. CONCENTRATION OF INVESTMENTS The Fund will not
invest more than 25% of its total assets in securities of issuers having their
principal business activities in the same industry. BORROWING The Fund will not
borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in amounts up to one-third of the value of its total
assets, including the amount borrowed. The Fund will not purchase securities
while outstanding borrowings exceed 5% of the value of its total assets. (This
borrowing provision is not for investment leverage but solely to facilitate
management of the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities would be inconvenient or
disadvantageous.) PLEDGING ASSETS The Fund will not mortgage, pledge, or
hypothecate assets, except when necessary for permissible borrowings. In those
cases, it may pledge assets having a value of 15% of its assets taken at cost.
Neither the deposit of underlying securities or other assets in escrow in
connection with the writing of put or call options or the purchase of securities
on a when-issued basis, nor margin deposits for the purchase and sale of
financial futures contracts and related options are deemed to be a pledge.
BUYING ON MARGIN The Fund will not purchase any securities on margin, but may
obtain such short-term credits as are necessary for clearance of transactions,
except that the Fund may make margin payments in connection with its use of
financial futures contracts or related options and transactions. ISSUING SENIOR
SECURITIES The Fund will not issue senior securities except in connection with
transactions described in other investment limitations or as required by forward
commitments to purchase securities or currencies. UNDERWRITING The Fund will not
underwrite or participate in the marketing of securities of other issuers,
except as it may be deemed to be an underwriter under federal securities law in
connection with the disposition of its portfolio securities. INVESTING IN REAL
ESTATE The Fund will not invest in real estate, although it may invest in
securities secured by real estate or interests in real estate or issued by
companies, including real estate investment trusts, which invest in real estate
or interests therein. INVESTING IN COMMODITIES The Fund will not purchase or
sell commodities or commodity contracts, except that the Fund may purchase and
sell financial futures contracts and options on financial futures contracts,
provided that the sum of its initial margin deposits for financial futures
contracts held by the Fund, plus premiums paid by it for open options on
financial futures contracts may not exceed 5% of the fair market value of the
Fund's total assets, after taking into account the unrealized profits and losses
on those contracts. Further, the Fund may engage in foreign currency
transactions and purchase or sell forward contracts with respect to foreign
currencies and related options. LENDING CASH OR SECURITIES

The Fund will not lend any assets except portfolio securities. This shall not
prevent the purchase or holding of bonds, debentures, notes, certificates of
indebtedness, or other debt securities of an issuer, repurchase agreements, or
other transactions which are permitted by the Fund's investment objective and
policies or its Articles of Incorporation.

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

DEALING IN PUTS AND CALLS
The Fund will not write call options or put options on securities, except hat
the Fund may write covered call options and secured put options on all or any
portion of its portfolio, provided the securities are held in the Fund's
portfolio or the Fund is entitled to them in deliverable form without further
payment or the Fund has segregated cash in the amount of any further payments.
The Fund will not purchase put options on securities unless the securities or an
offsetting call option is held in the Fund's portfolio. The Fund may also
purchase, hold or sell (i) contracts for future delivery of securities or
currencies and (ii) warrants granted by the issuer of the underlying securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. The Fund did not borrow money or pledge securities in excess of 5%
of the value of its total assets during the last fiscal year and has no present
intent to do so in the coming fiscal year. INTERNATIONAL SERIES, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with International Series, Inc., and principal occupations. John F.
Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924
Chairman and Director

Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA

Birthdate: February 3, 1934
Director

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

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director

President, Investment Properties Corporation; Senior Vice President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director

Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward
L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA
Birthdate: June 18, 1924 Director Attorney of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Director or Trustee of the Funds. Peter E.
Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16,
1942 Director Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust Company and
State Street Boston Corporation; Director or Trustee of the Funds. John E.
Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA
Birthdate: December 20, 1932 Director

President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA

Birthdate: September 14, 1925
Director

Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.

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

Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA

Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938

Executive Vice President, Secretary, and Treasurer

Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate:
May 17, 1923 Vice President Executive Vice President and Trustee, Federated
Investors; Chairman and Director, Federated Securities Corp.; President or Vice
President of some of the Funds; Director or Trustee of some of the Funds. * This
Director is deemed to be an "interested person" as defined in the Investment
Company Act of 1940. @ Member of the Executive Committee. The Executive
Committee of the Board of Directors handles the responsibilities of the Board
between meetings of the Board.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Automated Government Money Trust;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II;
Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.

FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.

As of January 7, 1998, no shareholder of record owned 5% or more of the
outstanding Class A Shares of the Fund. As of January 7, 1998, no shareholder of
record owned 5% or more of the outstanding Class B Shares of the Fund. As of
January 7, 1998, the following shareholders of record owned 5% or more of the
outstanding Class C Shares of the Fund: Hubco, Birmingham, Alabama owned
approximately 48,884 (7.50%); Merrill Lynch Pierce Fenner & Smith, Jacksonville,
Florida, for the sole benefit of its customers owned approximately 114,796
(17.62%); and Keith Co., Monroe, Alabama owned approximately 195,254 (29.97%).
DIRECTOR COMPENSATION

AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID

TRUST TRUST*# FROM FUND COMPLEX+
John F. Donahue $0 $0 for the Corporation and
Chairman and Director 56 other investment companies in
the Fund Complex
Thomas G. Bigley $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
John T. Conroy, Jr. $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
William J. Copeland $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
James E. Dowd $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Peter E. Madden, $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
John E. Murray, Jr. $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Wesley W. Posvar $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex

* Information is furnished for the fiscal year ended November 30, 1997.

# The aggregate compensation is provided for the Corporation which is
comprised of two portfolios.

+ The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. It is a
subsidiary of Federated Investors. All the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund, the Corporation, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or omitted
by it, except acts or omissions involving willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties imposed upon it by its
contract with the Corporation.
ADVISORY FEES

For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30, 1997,
1996, and for the period from September 1, 1995 to November 30, 1995, the
Adviser received $1,732,925, $2,004,435, and $535,649, respectively, none of
which was voluntarily waived. For the period from December 1, 1994 to August 31,
1995, Federated Management, the Fund's former investment adviser, received
$1,772,031, none of which was voluntarily waived.

BROKERAGE TRANSACTIONS

The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
For the fiscal years ended November 30, 1997, 1996, and 1995, the Fund paid
total brokerage commissions of $4,321,392, $1,602,769, and $2,289,648,
respectively.

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

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services served as the Fund's administrator. Prior to March 1, 1994, Federated
Administrative Services, Inc. served as the Fund's administrator. Both former
administrators are subsidiaries of Federated Investors. For purposes of this
Statement of Additional Information, Federated Services Company, Federated
Administrative Services, and Federated Administrative Services, Inc. may
hereinafter collectively be referred to as the "Administrators." For the fiscal
years ended November 30, 1997, 1996, and 1995, the Administrators earned
$185,000, $185,000, and $322,342, respectively.

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

Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value, plus a sales charge (for Class A Shares only) on days
the New York Stock Exchange ("NYSE") is open for business. The procedure for
purchasing Shares is explained in the prospectus under "How to Purchase Shares."
For further information on any of the programs listed below, please contact you
financial intermediary or Federated Securities Corp. QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES As described in the prospectus, larger purchases of the
same Shares class reduce or eliminate the sales charge paid. For example, the
Fund will combine all Class A Shares purchases made on the same day, by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account. If an additional purchase into the
same Share class is made, the Fund will consider the previous purchases still
invested in the Fund. For example, if a shareholder already owns Class A Shares
having a current value at the public offering price of $90,000 and he purchases
$10,000 more at the current public offering price, the sales charge on the
additional purchase according to the schedule now in effect would be 3.75%, not
4.50%. To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce or eliminate the sales charge
after it confirms the purchases. CONCURRENT PURCHASES Shareholders have the
privilege of combined concurrent purchases of the same Share class of two or
more funds in the Federated Complex in calculating the applicable sales charge.
To receive a sales charge reduction of elimination, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial intermediary
at the time the concurrent purchases are made. The Fund will reduce or eliminate
the sales charge after it confirms the purchases. LETTER OF INTENT A shareholder
can sign a letter of intent committing to purchase a certain amount of the same
Share class 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 the shareholder
completes the commitment, the escrowed Shares will be released to their account.
If the commitment is not completed within 13 months, the custodian will redeem
an appropriate number of escrowed Shares to pay for the applicable sales charge.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Funds, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted. REINVESTMENT PRIVILEGE The reinvestment privilege is available for
all Shares of the Fund within the same Share class. Class A shareholders who
redeem from the Fund may reinvest the redemption proceeds back into the same
Share class at the next determined net asset value without any sales charge. The
original shares must have been subject to a sales charge and the reinvestment
must be within 120 days. Similarly, Class C shareholders who redeem may reinvest
their redemption proceeds in the same Share class within 120 days. Class B
Shares also may be reinvested within 120 days of redemption, although such
reinvestment will be made into Class A Shares. Shareholders would not be
entitled to a reimbursement of the contingent deferred sales charge if paid at
the time of redemption on any Share class. However, reinvested Shares would not
be subject to a contingent deferred sales charge, if otherwise applicable, upon
later redemption. In addition, if Shares were reinvested through a financial
intermediary, the financial intermediary would not be entitled to an advanced
payment from Federated Securities Corp. on the reinvested Shares, if otherwise
applicable. Federated Securities Corp. must be notified by the shareholder in
writing or by his financial intermediary of the reinvestment in order to
eliminate a sales charge or a contingent deferred sales charge. If the
shareholder redeems Shares in the Fund, there may be tax consequences.
CONVERSION OF CLASS B SHARES Class B Shares will automatically convert into
Class A Shares on or around the 15th of the month eight full years from the
purchase date and will no longer be subject to a fee under the distribution
plan. For purposes of conversion to Class A Shares, Shares purchased through the
reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B Shares in
the shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to Class A
Shares is subject to the continuing availability of a ruling from the Internal
Revenue Service or an opinion of counsel that such conversions will not
constitute taxable events for federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
Shares to Class A Shares will not occur if such a ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to Class B Shares and Class C Shares, the Fund has adopted a
Distribution Plan in accordance with Investment Company Act Rule 12b-1.
Additionally, the Fund has adopted a Shareholder Services Agreement with respect
to all classes of Shares. These arrangements permit the payment of fees to
financial institutions, the distributor, and Federated Shareholder Services to
stimulate distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities may include, but are not
limited to, marketing efforts; providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other personnel as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries;
and assisting clients in changing dividend options, account designations, and
addresses. By adopting the Distribution Plan (Class B Shares and Class C
Shares), the Directors expect that the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objective. By identifying potential investors whose
needs are served by the Fund's objective, and properly servicing these accounts,
it may be possible to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.

For the fiscal year ended November 30, 1997, the Class B Shares and Class C
Shares incurred $154,605 and $57,956, respectively, in distribution services
fees, none of which were waived. In addition, for the fiscal year ended November
30, 1997, Class A Shares, Class B, Shares and Class C Shares, incurred
shareholder services fees in the amount of $362,378, $51,535, and $19,319,
respectively, of which $149,924, $0, and $0, respectively, were waived.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES The following
individuals and their immediate family members may buy Class A Shares at net
asset value without a sales charge:
* Directors, employees, and sales representatives of the Fund, Federated
Global Research Corp., and Federated Securities Corp. and its
affiliates;
* Federated Life Members (Class A Shares only);
* any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp.; and
* trusts, pensions, or profit-sharing plans for these individuals. These
sales are made with the purchaser's written assurance that the purchase is for
investment purposes and that the securities will not be resold except through
redemption by the Fund.

DETERMINING NET ASSET VALUE

The Fund's net asset value per Share fluctuates and is based on the market value
of all securities and other assets of the Fund. The net asset value for each
class of Shares may differ due to the variance in daily net income realized by
each class. Net asset value is not determined on (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. DETERMINING MARKET VALUE OF SECURITIES

Market or fair values of the Fund's portfolio securities are determined as
follows:
* according to the last reported sale price on a recognized securities
exchange, if available. (If a security is traded on more than one exchange,
the price on the primary market for that security, as determined by the
Adviser or sub-adviser, is used);
* according to the mean between the last closing bid and asked prices, if no
sale on the recognized exchange is reported or if the security is traded
over-the-counter;
* at fair value as determined in good faith by the Directors; or * for
short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost, which approximates value.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities; yield; quality; coupon rate; maturity; type of
issue; trading characteristics; and other market data.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the NYSE. In computing the net asset value, the Fund values foreign
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the NYSE. Certain foreign currency exchange
rates may also be determined at the latest rate prior to the closing of the
NYSE. Foreign securities quoted in foreign currencies are translated into U.S.
dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the NYSE. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Directors, although the actual calculation may be done by
others. REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
prospectus under "Redeeming and Exchanging Shares." Although the transfer agent
does not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN
KIND Although the Corporation intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price, in whole or in
part, by a distribution of securities from the Fund's portfolio. Redemption in
kind will be made in conformity with applicable SEC rules, taking such
securities at the same value employed in determining net asset value and
selecting the securities in a manner the Directors determine to be fair and
equitable. The Fund has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem Shares for any
shareholder in cash up to the lesser of $250,000 or 1% of the Fund's net asset
value during any 90-day period.

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

CONTINGENT DEFERRED SALES CHARGE
In computing the amount of the applicable Contingent Deferred Sales Charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
Shares held for more than six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares; (3) Shares held for fewer than six years with respect to Class B
Shares and for less than one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis. ELIMINATION OF THE CONTINGENT
DEFERRED SALES CHARGE--CLASS B SHARES To qualify for elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program, the
redemptions of Class B Shares must be from an account that is at least 12 months
old, has all Fund distributions reinvested in Fund Shares, and has an account
value of at least $10,000 when the Systematic Withdrawal Program is established.
Qualifying redemptions may not exceed 1.00% monthly of the account value as
periodically determined by the Fund. The amounts that a shareholder may withdraw
under a Systematic Withdrawal Program that qualify for elimination of the
Contingent Deferred Sales Charge may not exceed 12% annually with reference
initially to the value of the Class B Shares upon establishment of the
Systematic Withdrawal Program and then as calculated at the annual valuation
date. Redemptions on a qualifying Systematic Withdrawal Program can be made at a
rate of 1.00% monthly, 3.00% quarterly, or 6.00% semi-annually with reference to
the applicable account valuation amount. Amounts that exceed the 12.00% annual
limit for redemption, as described, may be subject to the Contingent Deferred
Sales Charge. To the extent that a shareholder exchanges Shares for Class B
Shares of other Federated Funds, the time for which the exchanged-for Shares are
to be held will be added to the time for which exchanged-from Shares were held
for purposes of satisfying the 12-month holding requirement. However, for
purposes of meeting the $10,000 minimum account value requirement, Class B Share
accounts will be not be aggregated. Any Shares purchased prior to the
termination of this program would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
* invest in securities within certain statutory limits; and * distribute to
its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments. FOREIGN
TAXES Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the Fund would be subject. SHAREHOLDERS' TAX STATUS Shareholders are
subject to federal income tax on dividends and capital gains received as cash or
additional Shares. The Fund's dividends, and any short-term capital gains, are
taxable as ordinary income. CAPITAL GAINS Shareholders will pay federal tax at
capital gains rates on long-term capital gains distributed to them regardless of
how long they have held the Fund Shares. TOTAL RETURN

The Fund's average annual total returns based on offering price for the
following periods ended November 30, 1997, were:
<TABLE>
<CAPTION>
SHARE CLASS INCEPTION DATE ONE-YEAR FIVE-YEARS TEN-YEARS SINCE INCEPTION
<S> <S> <C> <C> <C> <C>
Class A 08/17/84 0.05% 8.11% 6.85% 12.06%
Class B 09/28/94 (0.68%) N/A N/A 1.40%
Class C 04/01/93 3.93% N/A N/A 7.53%
</TABLE>
The average annual total return
for all classes of Shares of the Fund is the average compounded rate of return
for a given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed by
multiplying the number of Shares owned at the end of the period by the offering
price per Share at the end of the period. The number of Shares owned at the end
of the period is based on the number of Shares purchased at the beginning of the
period with $1,000, less any applicable sales charge, adjusted over the period
by any additional Shares, assuming a reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge is deducted from
the ending value of the investment based on the lesser of the original purchase
price or the offering price of Shares redeemed. PERFORMANCE COMPARISONS

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

* LIPPER ANALYTICAL SERVICES, INC., for example, makes comparative
calculations for one-month, three-month, one-year, and five-year periods
which assume the reinvestment of all capital gains distributions and income
dividends.
* EUROPE, AUSTRALIA, AND FAR EAST (EAFE) INDEX is a market capitalization
weighted foreign securities index, which is widely used to measure the
performance of European, Australian, New Zealand, and Far Eastern stock
markets. The index covers approximately 1,020 companies drawn from 18
countries in the above regions. The index values its securities daily in
both U.S. dollars and local currency and calculates total returns monthly.
EAFE U.S. dollar total return is a net dividend figure less Luxembourg
withholding tax. The EAFE is monitored by Capital International, S.A.,
Geneva, Switzerland.
* STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and
public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's index assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in Standard & Poor's figures.
* MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.

Advertisements and sales literature for all three classes of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time. Advertisements may quote performance information which does not
reflect the effect of the sales charge or contingent deferred sales charge, as
applicable. Advertising and other promotional literature may include charts,
graphs and other illustrations using the Fund's returns, or returns in general,
that demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form, of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.

ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers. The company's disciplined security selection
process is firmly rooted in sound methodologies backed by fundamental and
technical research. Investment decisions are made and executed by teams of
portfolio managers, analysts, and traders dedicated to specific market sectors.
These traders handle trillions of dollars in annual trading volume.

In the equity sector, Federated Investors has more than 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. J.
Thomas Madden, Executive Vice President, oversees Federated Investor's equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investor's domestic fixed-income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investor's international portfolios.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.*

Institutional Clients
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

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

FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended November 30, 1997, are
incorporated by reference to the Annual Report of the Fund dated November 30,
1997 (File Nos. 2-91776 and 811-3984). A copy of the Report may be obtained
without charge by contacting the Fund.

* Source: Investment Company Institute Federated Investors, through its
subsidiaries, distributes mutual funds for a variety of investment applications.
APPENDIX STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS AAA--Debt
rated AAA has the highest rating assigned by Standard & Poor's Ratings Group.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. BB--Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. B--Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal payments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB rating. CCC--Debt rated CCC
has a currently identifiable vulnerability to default and is dependent upon
favorable business, financial, and economic conditions to meet timely payment of
interest and repayment of principal. CC--The rating CC typically is applied to
debt subordinated to senior debt that is assigned an actual or implied CCC debt
rating. C--The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed but debt service
payments are continued. CI--The rating CI is reserved for income bonds on which
no interest is being paid. D--Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized. MOODY'S INVESTORS SERVICE, INC.,
CORPORATE BOND RATINGS Aaa--Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues. Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Baa--Bonds
which are rated Baa are considered as medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well. Ba--Bonds which are Ba are judged to have
speculative elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. B--Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa--Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca--Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. C--Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS AAA--Bonds considered to
be investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. AA--Bonds considered
to be investment grade and of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong, although not quite as strong as
bonds rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+. A--Bonds considered to be investment
grade and of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligator's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings. BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements. B--Bonds
are considered highly speculative. While bonds in this class are currently
meeting debt service requirements, the probability of continued timely payment
of principal and interest reflects the limited margin of safety and the need for
reasonable business and economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment. CC--Bonds are minimally protected. Default in
payment of interest and/or principal seems probable over time. C--Bonds are in
imminent default in payment of interest or principal. DDD, DD, and D--Bonds are
in default on interest and/or principal payments. Such bonds are extremely
speculative and should be valued on the basis of their ultimate recovery value
in liquidation or reorganization of the obligor. DDD represents the highest
potential for recovery on these bonds, and D represents the lowest potential for
recovery. STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS A-1--This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation. A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1. MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity.
P-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short--term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained. FITCH
INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS F-1+--Exceptionally Strong
Credit Quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1--Very Strong Credit Quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated F-1+. F-2--Good Credit Quality. Issues carrying this
rating have a satisfactory degree of assurance for timely payment.

Federated International Income Fund
(A Portfolio of International Series, Inc.)
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS
The shares of Federated International Income Fund (the "Fund") represent
interests in a non-diversified investment portfolio of International Series,
Inc. (the "Corporation"), an open-end, management investment company (a mutual
fund). The Fund invests primarily in high-quality debt securities denominated
primarily in foreign currencies to seek a high level of current income in U.S.
dollars consistent with prudent investment risk. The Fund has a secondary
objective of capital appreciation. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT
DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This
prospectus contains the information you should read and know before you invest
in the Fund. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, and Class C Shares dated January 31, 1998, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund are maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
TABLE OF CONTENTS

Summary of Fund Expenses 1 Financial Highlights--Class A Shares 2 Financial
Highlights--Class B Shares 3 Financial Highlights--Class C Shares 4 General
Information 5 Calling the Fund 5 Investment Information 5 Investment Objective
5 Investment Policies 5 Portfolio Turnover 11 Investment Limitations 11 Net
Asset Value 11 Investing in the Fund 12 Purchasing Shares 12 Purchasing Shares
Through a Financial Intermediary 12 Purchasing Shares by Wire 13 Purchasing
Shares by Check 13 Systematic Investment Program 13 Retirement Plans 13 Class A
Shares 13 Class B Shares 14 Class C Shares 14 Redeeming and Exchanging Shares
14 Redeeming or Exchanging Shares Through a Financial Intermediary 14 Redeeming
or Exchanging Shares by Telephone 14 Redeeming or Exchanging Shares by Mail 14
Requirements for Redemption 15 Requirements for Exchange 15 Systematic
Withdrawal Program 15 Contingent Deferred Sales Charge 15 Account and Share
Information 16 Confirmations and Account Statements 16 Dividends and
Distributions 16 Accounts with Low Balances 16 International Series, Inc.
Information 16 Management of the Corporation 16 Distribution of Shares 17
Administration of the Fund 18 Shareholder Information 19 Voting Rights 19 Tax
Information 19 Federal Income Tax 19 State and Local Taxes 19 Performance
Information 20

SUMMARY OF FUND EXPENSES

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of 4.50% None None
offering price)
Maximum Sales Charge Imposed on Reinvested Dividends (as a None None None
percentage of offering price)
Contingent Deferred Sales Charge (as a percentage of original None 5.50% 1.00%
purchase price or redemption proceeds, as applicable)(1)
Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)
Exchange Fee None None None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)*
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.75% 0.75% 0.75%
12b-1 Fee 0.10(2) 0.75% 0.75%
Total Other Expenses 0.48% 0.55% 0.55%
Shareholder Services Fee 0.18%(3) 0.25% 0.25%
Total Operating Expenses(4) 1.33% 2.05%(5) 2.05%
</TABLE>
(1) For shareholders of Class B Shares, the contingent deferred sales charge 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 assessed is 1.00% of the lesser of the original purchase price or the net
asset value of Shares redeemed within one year of their purchase date. For a
more complete description, see "Contingent Deferred Sales Charge." (2) 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
the voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee
is 0.25%. (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 maximum shareholder services fee
is 0.25%. (4) The total operating expenses in the table above are based on
expenses expected during the fiscal year ending November 30, 1998. The total
Class A Shares operating expenses were 1.30% for the fiscal year ended November
30, 1997 and would have been 1.56% absent the voluntary waiver of a portions of
the 12b-1 fee and the shareholder services fee. The total Class B Shares and
Class C Shares operating expenses were 2.06% and 2.06% respectively, for the
fiscal year ended November 30, 1997. (5) Class B Shares convert to Class A
Shares (which pay lower ongoing expenses) approximately eight years after
purchase. * Total operating expenses are estimated based on average expenses
expected to be incurred during the period ending November 30, 1998. During the
course of this period, expenses may be more or less than the average amount
shown. The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Purchasing Shares" and "International Series, Inc. Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees. LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. EXAMPLE CLASS A CLASS B CLASS C You
would pay the following expenses on a $1,000 investment, assuming (1) 5% annual
return, (2) redemption at the end of each time period; and (3) payment of the
maximum sales charge. 1 Year $ 58 $ 77 $ 31 3 Years $ 85 $108 $ 64 5 Years $115
$133 $110 10 Years $198 $218 $238 You would pay the following expenses on the
same investment, assuming no redemption. 1 Year $ 58 $ 21 $ 21 3 Years $ 85 $ 64
$ 64 5 Years $115 $110 $110 10 Years $198 $218 $238 THE ABOVE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.92 $11.38 $10.52 $11.86 $10.47 $10.84 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.63** 0.74** 0.79 0.70 0.88 0.62 0.25
Net realized and unrealized gain (1.07) 0.67 0.84 (0.76) 1.40 (0.20) 0.75
(loss) on investments and foreign
currency
Total from investment operations (0.44) 1.41 1.63 (0.06) 2.28 0.42 1.00
LESS DISTRIBUTIONS
Distributions from net investment (0.83) (0.87) (0.77) (0.63) (0.75) (0.71) (0.16)
income
Distributions in excess of net -- -- -- -- -- (0.05) --
investment income(b)
Distributions from net realized gain -- -- -- (0.65) (0.14) (0.03) --
on investments and foreign currency
transactions
Total distributions (0.83) (0.87) (0.77) (1.28) (0.89) (0.79) (0.16)
NET ASSET VALUE, END OF PERIOD $10.65 $11.92 $11.38 $10.52 $11.86 $10.47 $10.84
TOTAL RETURN(C) (3.70%) 13.27% 16.12% (0.84%) 22.95% 3.82% 10.07%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.30% 1.30% 1.30% 1.30% 1.25% 0.99% 0.32%*
Net investment income 5.83% 6.58% 6.79% 6.67% 7.71% 5.83% 7.54%*
Expense waiver/reimbursement(d) 0.26% 0.34% 0.40% 0.20% 0.27% 0.62% 1.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 $180,415 $200,758 $173,905 $209,008 $220,602 $86,937 $23,465
omitted)
Portfolio turnover 67% 92% 41% 136% 189% 314% 35%
</TABLE>
* Computed on an annualized basis.
** Per share information presented is based upon the monthly average number of
shares outstanding. (a) Reflects operations for the period from June 4, 1991
(date of initial public investment) to November 30, 1991. For the period from
start of business, May 15, 1991, to June 3, 1991, the net investment income was
distributed to the Corporation's Adviser. (b) Distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These distributions do not represent a return of capital
for federal income tax purposes. (c) Based on net asset value, which does not
reflect the sales charge or contingent deferred sales charge, if applicable. (d)
This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above. FURTHER INFORMATION ABOUT THE FUND'S
PERFORMANCE IS CONTAINED IN THE FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED
NOVEMBER 30, 1997, WHICH CAN BE OBTAINED FREE OF CHARGE.

FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.89 $11.36 $10.48 $11.84 $10.23
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.56** 0.67** 0.60 0.58 0.41
Net realized and unrealized gain (loss) on investments (1.08) 0.64 0.95 (0.72) 1.58
and foreign currency
Total from investment operations (0.52) 1.31 1.55 (0.14) 1.99
LESS DISTRIBUTIONS
Distributions from net investment income (0.74) (0.78) (0.67) (0.57) (0.38)
Distributions from net realized gain on investments and -- -- -- (0.65) --
foreign currency transactions
Total distributions (0.74) (0.78) (0.67) (1.22) (0.38)
NET ASSET VALUE, END OF PERIOD $10.63 $11.89 $11.36 $10.48 $11.84
TOTAL RETURN(B) (4.42%) 12.31% 15.32% (1.54%) 19.67%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.06% 2.09% 2.06% 2.05% 2.05%*
Net investment income 5.10% 5.80% 5.96% 6.00% 5.39%*
Expense waiver/reimbursement(c) -- 0.04% 0.14% 0.10% 0.21%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,285 $14,976 $12,015 $8,098 $4,767
Portfolio turnover 67% 92% 41% 136% 189%
</TABLE>
* Computed on an annualized basis.
** Per share information presented is based upon the monthly average number of
shares outstanding. (a) Reflects operations for the period from March 31, 1993
(Start of business) to November 30, 1993. (b) Based on net asset value, which
does not reflect the sales charge or contingent deferred sales charge, if
applicable. (c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above. FURTHER INFORMATION ABOUT THE
FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S ANNUAL REPORT FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1997, WHICH CAN BE OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The Fund's objective is to seek a high level of current income in U.S. dollars
consistent with prudent investment risk. The Fund has a secondary investment
objective of capital appreciation. The investment objectives cannot be changed
without the approval of the shareholders. The Fund will pursue these objectives
by investing in high-quality debt securities denominated primarily in foreign
currencies. While there is no assurance that the Fund will achieve its
investment objectives, it endeavors to do so by following the investment
policies described in this prospectus. Unless indicated otherwise, the
investment policies of the Fund may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in the policies becomes effective. INVESTMENT POLICIES ACCEPTABLE INVESTMENTS
The Fund will invest primarily in high-quality debt securities denominated in
the currencies of the nations that are members of the Organization for Economic
Cooperation and Development. These nations include, but are not limited to, the
following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Luxembourg, Netherlands,
New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom,
and the United States. The Fund will invest at least 65%, and under normal
market conditions substantially all of its total assets in high-quality debt
securities denominated in foreign currencies of issuers located in at least
three countries outside of the United States. Additionally, investments may be
made in securities denominated in the European Currency Unit, a multinational
currency unit which represents specified amounts of the currencies of certain
member states of the European Union. The high-quality debt securities in which
the Fund will invest will possess a minimum credit rating of A as assigned by
Standard & Poor's Ratings Group ("S&P") or A by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, will be judged by Federated Global Research Corp.,
the Fund's investment adviser (the "Adviser") to be of comparable quality.
Because the average quality of the Fund's portfolio investments should remain
constantly between A and AAA, the Fund will seek to avoid the adverse
consequences that may arise for some debt securities in difficult economic
circumstances. Downgraded securities will be evaluated on a case by case basis
by the Adviser. The Adviser will determine whether or not the security continues
to be an acceptable investment. If not, the security will be sold. A description
of the ratings categories is contained in the Appendix to the Statement of
Additional Information.

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

FOREIGN GOVERNMENT SECURITIES

The foreign government securities in which the Fund may invest generally consist
of obligations supported by national, state, or provincial governments or
similar political subdivisions. Foreign government securities also include debt
obligations of supranational entities, which include international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction
and Development (the World Bank), the Asian Development Bank and the
Inter-American Development Bank. Foreign government securities also include debt
securities of "quasi-governmental agencies." Debt securities of
quasi-governmental agencies are either debt securities issued by entities which
are owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith and
credit and general taxing powers. Further, foreign government securities include
mortgage-related securities issued or guaranteed by national, state, or
provincial governmental instrumentalities, including quasi-governmental
agencies.

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete the transaction may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. The Fund may dispose of a commitment prior to
settlement if the Adviser deems it appropriate to do so. In addition, the Fund
may enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.

Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. ALLOCATION The
allocation of the Fund's assets in a particular market and currency will be
based on a fundamental assessment of the economic strength of each relevant
country combined with considerations of credit quality and currency and interest
rate trends. These factors are reviewed on a regular basis in order to derive
specific interest rate and currency forecasts, which are quantified in terms of
total return. The market and currency allocation of the Fund will vary to
achieve an optimal mix of investments to achieve the investment objectives of
the Fund. DURATION Duration measures the magnitude of the change in the price of
a debt security relative to a given change in the market rate of interest. The
duration of a debt security depends primarily upon the security's coupon rate,
maturity date, and level of market interest rates for similar debt securities.
There will be no limit on the duration of any one individual issue purchased by
the Fund, except that the purchase of an issue that has no final maturity date
shall not be permitted. The weighted average duration of the Fund shall not
exceed ten years and shall not be less than one year, but will normally fall
within a range of three to seven years. The Adviser regards that range as being
consistent with a prudent attitude towards risk. Shifts outside this range would
be made only under unusual circumstances. FOREIGN SECURITIES Investments in
foreign securities involve special risks that differ from those associated with
investments in domestic securities. The risks associated with investments in
foreign securities relate to political and economic developments abroad, as well
as those that result from the differences between the regulation of domestic
securities and issuers and foreign securities and issuers. These risks may
include, but are not limited to, expropriation, confiscatory taxation, currency
fluctuations, withholding taxes on interest, limitations on the use or transfer
of Fund assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual obligations
or obtain court judgments abroad than would be the case in the United States
because of differences in the legal systems. Moreover, individual foreign
economies may differ favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include:
* less publicly available information about foreign issuers; * credit risks
associated with certain foreign governments; * the lack of uniform
accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
* less readily available market quotations on foreign issues; * differences
in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
* differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
* the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that affect
the quality of securities;
* the likelihood that securities of foreign issuers may be less liquid or
more volatile;
* foreign brokerage commissions may be higher;
* unreliable mail service between countries;
* political or financial changes which adversely affect investments in
some countries;
* increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
* certain markets may require payment for securities before delivery; *
religious and ethnic instability; and * certain national policies which may
restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES
In the past, U.S. government policies have discouraged or restricted certain
investments abroad by investors such as the Fund. Investors are advised that
when such policies are instituted, the Fund will abide by them.
CURRENCY RISKS
Because the majority of the debt securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's NAV; the value of interest
earned; gains and losses realized on the sale of securities; and net investment
income and capital gain, if any, to be distributed to shareholders by the Fund.
If the value of a foreign currency rises against the U.S. dollar, the value of
Fund assets denominated in that currency will increase; correspondingly, if the
value of a foreign currency declines against the U.S. dollar, the value of Fund
assets denominated in that currency will decrease. Under the U.S. tax code, the
Fund is required to separately account for the foreign currency component of
gains or losses, which will usually be viewed under the U.S. tax code as items
of ordinary and distributable income or loss, thus affecting the Fund's
distributable income (See "Federal Income Tax"). The exchange rates between the
U.S. dollar and foreign currencies are a function of such factors as supply and
demand in the currency exchange markets, international balances of payments,
governmental interpretation, speculation and other economic and political
conditions. Although the Fund values its assets daily in U.S. dollars, the Fund
will not convert its holdings of foreign currencies to U.S. dollars daily. When
the Fund converts its holdings to another currency, it may incur conversion
costs. Foreign exchange dealers may realize a profit on the difference between
the price at which they buy and sell currencies.

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

The Adviser believes that active management of currency risks through a variety
of hedging vehicles and strategies can considerably limit the risk of capital
loss through movements in the foreign exchange markets, such as those described
above. The Adviser will not engage in hedging for speculative purposes. HEDGING
VEHICLES The Fund may use the following hedging vehicles in an attempt to manage
currency and interest rate risks:
* forward foreign currency exchange contracts; * options contracts; and *
futures contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers. When the Fund
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may want to establish the U.S. dollar cost or proceeds, as
the case may be. By entering into a forward contract in U.S. dollars for the
purchase or sale of the amount of foreign currency involved in an underlying
security transaction, the Fund is able to protect itself against a possible loss
between trade and settlement dates resulting from an adverse change in the
relationship between the U.S. dollar and such foreign currency. However, this
tends to limit potential gains which might result from a positive change in such
currency relationships. There is no limitation as to the percentage of the
Fund's assets that may be committed under forward foreign currency exchange
contracts. The Fund does not enter into such forward contracts or maintain a net
exposure in such contracts where the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency or, in the case of a
"cross-hedge" (see "Hedging Strategies" below), denominated in a currency or
currencies that the Adviser believes will reflect a high degree of correlation
with the currency with regard to price movements. The Fund generally does not
enter into a forward foreign currency exchange contract with a term longer than
one year. OPTIONS CONTRACTS The Fund may deal in options on foreign currencies,
foreign currency futures, securities, and securities indices, which options may
be listed for trading on a national securities exchange or traded
over-the-counter. The Fund may write covered call options and secured put
options on up to 25% of its net assets and may purchase put and call options
provided that no more than 5% of the fair market value of its net assets may be
invested in premiums on such options. A call option gives the purchaser the
right to buy, and the writer the obligation to sell, the underlying currency,
security or other asset at the exercise price during the option period. A put
option gives the purchaser the right to sell, and the writer the obligation to
buy, the underlying currency, security or other asset at the exercise price
during the option period. The writer of a covered call owns assets that are
acceptable for escrow and the writer of a secured put invests an amount not less
than the exercise price in eligible assets to the extent that it is obligated as
a writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying asset
over the exercise price plus the premium received. In writing puts, there is a
risk that the Fund may be required to take delivery of the underlying asset at a
disadvantageous price. Over-the-counter options ("OTC options") differ from
exchange traded options in several respects. They are transacted directly with
dealers and not with a clearing corporation, and there is a risk of
non-performance by the dealer as a result of the insolvency of such dealer or
otherwise, in which event the Fund may experience material losses. However, in
writing options the premium is paid in advance by the dealer. OTC options, which
may not be continuously liquid, are available for a greater variety of assets,
and a wider range of expiration dates and exercise prices, than are exchange
traded options. FUTURES CONTRACTS Futures contracts are contracts that obligate
the long or short holder to take or make delivery of a specified quantity of an
asset, such as a currency, a security, or the cash value of a securities index
at a specified future date at a specified price. The Fund may engage in futures
transactions, but will not participate in futures contracts if the sum of its
initial margin deposits on open contracts will exceed 5% of the fair market
value of the Fund's net assets. HEDGING STRATEGIES

CURRENCY HEDGING

When the Adviser believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell an amount of that foreign currency for a fixed U.S.
dollar amount approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency (i.e., "hedge"). The Fund may,
as an alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Adviser believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated (i.e., "cross-hedge"). A
cross hedge can be achieved not only by using a "proxy" currency in which Fund
securities are denominated, but also by using the Canadian dollar as a "proxy"
currency for the U.S. dollar. This strategy may be beneficial because the level
of divergence in the exchange rates of U.S. and Canadian currencies has
historically tended to be relatively small. For example, the Fund may invest in
securities denominated in a Western European currency, such as the French Franc,
and seek to hedge against the effect of an increase in the value of the U.S.
dollar against that currency by entering into a forward foreign currency
exchange contract to sell the lower yielding German Mark, which has historically
had price movements that tend to correlate closely with those of the French
Franc, thereby creating a hedge similar to the simple Dollar/Franc hedge, but at
a possibly lower cost. In addition, the Fund might arrange to sell those Marks
against Canadian Dollars in an effort to minimize hedging costs. INTEREST RATE
HEDGING The Fund may engage in futures transactions and may use options in an
attempt to hedge against the effects of fluctuations in interest rates and other
market conditions. For example, if the Fund owned long-term bonds and interest
rates were expected to rise, it could sell futures contracts or the cash value
of a securities index. If interest rates did increase, the value of the bonds in
the Fund would decline, but this decline would be offset in whole or in part by
an increase in the value of the Fund's futures contracts or the cash value of
the securities index. If, on the other hand, long-term interest rates were
expected to decline, the Fund could hold short-term debt securities and benefit
from the income earned by holding such securities, while at the same time the
Fund could purchase futures contracts on long-term bonds or the cash value of a
securities index. Thus, the Fund could take advantage of the anticipated rise in
the value of long-term bonds without actually buying them. The futures contracts
and short-term debt securities could then be liquidated and the cash proceeds
used to buy long-term bonds. GENERAL The Fund might not employ any of the
techniques or strategies described above, and there can be no assurance that any
technique or strategy (or combination thereof) used will succeed. The use of
these techniques and strategies involves certain risks, including:
* dependence on the Adviser's ability to predict movements in the prices of
assets being hedged or movements in interest rates and currency markets;
* imperfect correlation between the hedging instruments and the
securities or currencies being hedged;
* the fact that skills needed to use these instruments are different from
those needed to select the Fund's securities;
* the possible absence of a liquid secondary market for any particular
instrument at any particular time;
* possible impediments to effective portfolio management or the ability to
meet redemption requests or other short-term obligations because of the
percentage of the Fund's assets segregated to cover its obligations; and
* the possible need to defer closing out hedged positions to avoid adverse
tax consequences.
New futures contracts, options thereon and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified portfolio of securities because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the total
market value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio will
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers. The Fund intends to comply
with Subchapter M of the Internal Revenue Code (the "Code"). This undertaking
requires that at the end of each quarter of the taxable year, with regard to at
least 50% of the Fund's total assets, no more than 5% of its total assets are
invested in the securities of a single issuer; beyond that, no more than 25% of
its total assets are invested in the securities of a single issuer. PORTFOLIO
TURNOVER Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The Fund's rate of portfolio turnover may exceed that of certain
other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Adviser deems it appropriate to
make changes in the Fund's portfolio. INVESTMENT LIMITATIONS The Fund will not:
* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of those assets to secure such borrowings; nor
* sell securities short except under strict limitations. The above investment
limitations cannot be changed without shareholder approval. The following
limitation, however, may be changed by the Directors without shareholder
approval. Shareholders will be notified before any material changes in this
limitation becomes effective.
The Fund will not:
* invest more than 15% of the value of its net assets in illiquid securities,
including securities determined by the Directors not to be liquid,
repurchase agreements with maturities longer than seven days after notice
and certain OTC options.
NET ASSET VALUE

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. All purchases, redemptions and
exchanges are processed at the NAV next determined after the request in proper
form is received by the Fund. The NAV is determined as of the close of trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern time) every day the
New York Stock Exchange is open. INVESTING IN THE FUND This prospectus offers
three classes of Shares each with the characteristics described below.
CLASS A CLASS B CLASS C
Minimum and $1500/$100 $1500/$100 $1500/$100
Subsequent
Investment Amounts
Minimum and
Subsequent $250/$100 $250/$100 $250/$100
Investment Amount
for Retirement Plans
Maximum Sales Charge 5.50%* None None
Maximum Contingent None 5.50+ 1.00%#
Deferred Sales
Charge**
Conversion Feature No Yes++ No * Class A Shares are sold at NAV, plus a sales
charge as follows:
SALES CHARGE DEALER
AS A PERCENTAGE OF CONCESSION AS
PUBLIC NET A PERCENTAGE OF
OFFERING AMOUNT PUBLIC OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
+ The following contingent deferred sales charge schedule applies to Class B
Shares:
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
++ Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase. See "Conversion of Class
B Shares."
# The contingent deferred sales charge is assessed on Shares redeemed within one
year of their purchase date.
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors ("Federated Funds") may exchange their Shares
for Shares of the corresponding class of the Fund. The Fund reserves the right
to reject any purchase or exchange request. In connection with any sale
Federated Securities Corp., may, from time to time, offer certain items of
nominal value to any shareholder or investor. PURCHASING SHARES THROUGH A
FINANCIAL INTERMEDIARY Orders placed through a financial intermediary are
considered received when the Fund is notified of the purchase order or when
payment is converted into federal funds. Purchase orders through a broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be purchased at that day's price. Purchase orders through other
financial intermediaries must be received by the financial intermediary and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial intermediary's
responsibility to transmit orders promptly. Financial intermediaries may charge
additional fees for their services. The financial intermediary which maintain
investor accounts in Class B Shares or Class C Shares with the Fund must do so
on a fully disclosed basis unless it accounts for share ownership periods used
in calculating the contingent deferred sales charge (see "Contingent Deferred
Sales Charge"). In addition, advance payments made to financial intermediaries
may be subject to reclaim by the distributor for accounts transferred to
financial intermediaries which do not maintain investor accounts on a fully
disclosed basis and do not account for share ownership periods. PURCHASING
SHARES BY WIRE Shares may be purchased by Federal Reserve wire by calling the
Fund. All information needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by wire. Federal
funds should be wired as follows: Federated Shareholder Services Company, c/o
State Street Bank and Trust Company, Boston, MA 02266-8600; Attention: EDGEWIRE:
For Credit to: (Fund Name) (Fund Class); (Fund Number - this number can be found
on the account statement or by contacting the Fund); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. PURCHASING SHARES BY CHECK Shares may be
purchased by mailing a check made payable to the name of the Fund (designate
class of Shares and account number) to: Federated Shareholder Services Company,
P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received). SYSTEMATIC INVESTMENT PROGRAM Under this program,
funds in a minimum amount of $50 may be automatically withdrawn periodically
from the shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in the Fund. Shareholders should contact their financial
institution or the Fund to participate in this program. RETIREMENT PLANS Fund
Shares can be purchased as an investment for retirement plans or IRA accounts.
For further details, contact the Fund and consult a tax adviser. CLASS A SHARES
Class A Shares are sold at NAV, plus a sales charge. However: NO SALES CHARGE IS
IMPOSED FOR CLASS A SHARES PURCHASED:
* through financial intermediaries that do not receive sales charge
dealer concessions;
* by Federated Life Members; or
* through "wrap accounts" or similar programs under which clients pay a fee
for services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
* purchasing in quantity and accumulating purchases at the levels in the
table under "Investing in the Fund"; * combining concurrent purchases of
two or more funds; * signing a letter of intent to purchase a specific
quantity of shares
within 13 months; or
* using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase. DEALER
CONCESSION For sales of Class A Shares, a dealer will normally receive up to 90%
of the applicable sales charge. Any portion of the sales charge which is not
paid to a dealer will be retained by the distributor. However, the distributor
may offer to pay dealers up to 100% of the sales charge retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses to
attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end. The sales
charge for Shares sold other than through registered broker/dealers will be
retained by Federated Securities Corp. Federated Securities Corp. may pay fees
to banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
establishment of customer accounts and purchases of Shares. CLASS B SHARES Class
B Shares are sold at NAV. Under certain circumstances, a contingent deferred
sales charge will be assessed at the time of a redemption. Orders for $250,000
or more of Class B Shares will automatically be invested in Class A Shares.
CONVERSION OF CLASS B SHARES Class B Shares will automatically convert into
Class A Shares after eight full years from the purchase date. Such conversion
will be on the basis of the relative NAVs per Share, without the imposition of
any charges. Class B Shares acquired by exchange from Class B Shares of another
Federated Fund will convert into Class A Shares based on the time of the initial
purchase. CLASS C SHARES Class C Shares are sold at NAV. A contingent deferred
sales charge of 1.00% will be charged on assets redeemed within the first full
12 months following purchase. REDEEMING AND EXCHANGING SHARES Shares of the Fund
may be redeemed for cash or exchanged for Shares of the same class of other
Federated Funds on days on which the Fund computes its NAV. Shares are redeemed
at NAV less any applicable contingent deferred sales charge. Redemption proceeds
will normally be sent the following day. However, in order to protect
shareholders of the Fund from possible detrimental effects of redemptions, the
Adviser may cause a delay of two to seven days in sending redemption proceeds
during certain periods of market volatility or for certain shareholders.
Exchanges are made at NAV. Shareholders who desire to automatically exchange
Shares, of a like class, in a pre-determined amount on a monthly, quarterly, or
annual basis may take advantage of a systematic exchange privilege. Information
on this privilege is available from the Fund or your financial intermediary.
Depending upon the circumstances, a capital gain or loss may be realized when
Shares are redeemed or exchanged. REDEEMING OR EXCHANGING SHARES THROUGH A
FINANCIAL INTERMEDIARY Shares of the Fund may be redeemed or exchanged by
contacting your financial intermediary before 4:00 p.m. (Eastern time). In order
for these transactions to be processed at that day's NAV, financial
intermediaries (other than broker/dealers) must transmit the request to the Fund
before 4:00 p.m. (Eastern time), while broker/dealers must transmit the request
to the Fund before 5:00 p.m. (Eastern time). The financial intermediary is
responsible for promptly submitting transaction requests and providing proper
written instructions. Customary fees and commissions may be charged by the
financial intermediary for this service. Appropriate authorization forms for
these transactions must be on file with the Fund. REDEEMING OR EXCHANGING SHARES
BY TELEPHONE Shares acquired directly from the Fund may be redeemed in any
amount, or exchanged, by calling 1-800-341-7400. Appropriate authorization forms
for these transactions must be on file with the Fund. Shares held in certificate
form must first be returned to the Fund as described in the instructions under
"Redeeming or Exchanging Shares by Mail." Redemption proceeds will either be
mailed in the form of a check to the shareholder's address of record or
wire-transferred to the shareholder's account at a domestic commercial bank that
is a member of the Federal Reserve System. The minimum amount for a wire
transfer is $1,000. Proceeds from redeemed Shares purchased by check or through
ACH will not be wired until that method of payment has cleared. Telephone
instructions will be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions. In the event of drastic economic or market changes, a shareholder
may experience difficulty in redeeming by telephone. If this occurs, "Redeeming
or Exchanging Shares by Mail" should be considered. The telephone transaction
privilege may be modified or terminated at any time. Shareholders would be
promptly notified. REDEEMING OR EXCHANGING SHARES BY MAIL Shares may be redeemed
in any amount, or exchanged, by mailing a written request to: Federated
Shareholder Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they must accompany the
written request. It is recommended that certificates be sent unendorsed by
registered or certified mail. All written requests should state: Fund Name and
the Share Class name; the account name as registered with the Fund; the account
number; and the number of Shares to be redeemed or the dollar amount of the
transaction. An exchange request should also state the name of the Fund into
which the exchange is to be made. All owners of the account must sign the
request exactly as the Shares are registered. Dividends are paid up to and
including the day that a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION Shareholders requesting a redemption of any amount
to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record, must have their
signatures guaranteed by a commercial or savings bank, trust company or savings
association whose deposits are insured by an organization which is administered
by the Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; or any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed
by a notary public. REQUIREMENTS FOR EXCHANGE Shareholders must exchange Shares
having an NAV equal to the minimum investment requirements of the fund into
which the exchange is being made. Contact your financial intermediary directly
or the Fund for free information on and prospectuses for the Federated Funds
into which your Shares may be exchanged. Before the exchange, the shareholder
must receive a prospectus of the fund for which the exchange is being made. Upon
receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
shares of the other fund. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM Under this program, Shares are redeemed to provide
for periodic withdrawal payments in an amount directed by the shareholder of not
less than $100. To be eligible to participate in this program, a shareholder
must have an account value of at least $10,000, other than retirement accounts
subject to required minimum distributions. A shareholder may apply for
participation in this program through his financial intermediary or by calling
the Fund. Because participation in this program may reduce, and eventually
deplete the shareholder's investment in the Fund, payments under this program
should not be considered as yield or income. It is not advisable for
shareholders to continue to purchase Class A Shares subject to a sales charge
while participating in this program. A contingent deferred sales charge may be
imposed on Class B and C Shares. CONTINGENT DEFERRED SALES CHARGE The contingent
deferred sales charge will be deducted from the redemption proceeds otherwise
payable to the shareholder and will be retained by the distributor. Redemptions
will be processed in a manner intended to maximize the amount of redemption
which will not be subject to a contingent deferred sales charge. The contingent
deferred sales charge will not be imposed with respect to Shares acquired
through the reinvestment of dividends or distributions of long-term capital
gains. In determining the applicability of the contingent deferred sales charge,
the required holding period for your new Shares received through an exchange
will include the period for which your original Shares were held. ELIMINATION OF
CONTINGENT DEFERRED SALES CHARGE Upon written notification to Federated
Securities Corp. or the transfer agent, no contingent deferred sales charge 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;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 701o2;
* 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;
* which are reinvested in the Fund under the reinvestment privilege; * of
Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and
* of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, or
any other financial intermediary, to the extent that no payments were
advanced for purchases made through such entities.
For more information regarding the elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program, or any of the above provisions,
contact your financial intermediary or the Fund. The Fund reserves the right to
discontinue or modify these provisions. Shareholders will be notified of such
action. ACCOUNT AND SHARE INFORMATION CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates. DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining
accounts with low balances, the Fund may close an account by redeeming all
Shares and paying the proceeds to the shareholder if the account balance falls
below the applicable minimum investment amount. Retirement plan accounts and
accounts where the balance falls below the minimum due to NAV changes will not
be closed in this manner. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
INTERNATIONAL SERIES, INC. INFORMATION

MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Corporation's powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research Corp.,
the Fund's investment adviser, subject to direction by the Board of Directors.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.75% the Fund's
average daily net assets. The fees paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by many mutual funds with similar objectives and policies. The Adviser may
voluntarily waive a portion of its fees. The Adviser can terminate this
voluntary waiver at any time at its sole discretion.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to a
number of investment companies. With over $120 billion invested across more than
300 funds under management and/or administration by its subsidiaries, as of
December 31, 1997, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,000 financial
institutions nationwide.

Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of these codes are
subject to review by the Board of Directors, and could result in severe
penalties.
Henry A. Frantzen has been the Fund's portfolio manager since December 1995.
Mr. Frantzen joined Federated Investors in 1995 as an Executive Vice
President of the Fund's investment adviser. Mr. Frantzen served as Chief
Investment Officer of international equities at Brown Brothers Harriman &
Co. from 1992 to 1995. He was the Executive Vice President and Director of
Equities at Oppenheimer Management Corporation from 1989 to 1991.
Drew J. Collins has been the Fund's portfolio manager since December 1995.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President of
the Fund's investment adviser. Mr. Collins served as a Vice
President/Portfolio Manager of international equity portfolios at Arnhold
and Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant Vice
President/ Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the Wharton School
of The University of Pennsylvania.
Robert M. Kowit has been the Fund's portfolio manager since December 1995.
Mr. Kowit joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Mr. Kowit served as a Managing Partner of
Copernicus Global Asset Management from January 1995 through October 1995.
From 1990 to 1994, he served as Senior Vice President of International Fixed
Income and Foreign Exchange for John Hancock Advisers. Mr. Kowit received
his M.B.A. from Iona College with a concentration in finance.

Michael W. Casey, Ph.D. has been the Fund's portfolio manager since January
1997. Mr. Casey joined Federated Investors in 1996 as an Assistant Vice
President. Mr. Casey served as an International Economist and Portfolio
Strategist for Maria Fiorini Ramirez Inc. from 1990 to 1996. Mr. Casey
earned a Ph.D. concentrating in economics from The New School for Social
Research and a M.Sc. from the London School of Economics.

DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors. The distributor will pay dealers
an amount equal to 5.50% of the net asset vale of Class B Shares purchased by
their clients or customers. These payments will be made directly by the
distributor from its assets, and will not be made from the assets of the Fund.
Dealers may voluntarily waive receipt of all or any portion of these payments.
The distributor may pay a portion of the distribution fee discussed below to
financial institutions that waive all or any portion of the advance payments.
The distributor may offer to pay financial institutions an amount up to 1.00% of
the NAV of Class C Shares purchased by their clients or customers at the time of
purchase. These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee computed at
an annual rate of up to 0.25% of the average daily net assets for Class A Shares
and up to 0.75% of the average daily net assets for Class B Shares and Class C
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. For Class A Shares and Class C
Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor may
not exceed an annual rate of 0.75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales service and distribution-related support services
pursuant to the Distribution Plan.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to 0.50% of the NAV of Class A
Shares purchased by their clients or customers under certain qualified
retirement plans as approved by Federated Securities Corp. (Such payments are
subject to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase.) Furthermore, with respect to Class A
Shares, Class B Shares, and Class C Shares, in addition to payments made
pursuant to the Distribution Plan and Shareholder Services Agreement, Federated
Securities Corp. and Federated Shareholder Services, from their own assets, may
pay financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Adviser or its affiliates.

ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Corporation and the Fund. Federated
Services Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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 choose voluntarily to waive a portion of its
fee.
SHAREHOLDER INFORMATION
VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Corporation have equal voting rights, except that in matters
affecting only a particular portfolio or class, only Shares of that portfolio 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 shall be
called by the Directors upon the written request of shareholders owning at least
10% of the Fund's outstanding shares of all series entitled to vote. As of
January 7, 1998, the following shareholder of record owned 25% or more of the
outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith, for
the sole benefit of its customers, (as record owner holding Class C Shares for
its clients), owned approximately 207,079 Shares (27.57%) and, therefore, may
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.

TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Code, as amended, applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Corporation's other
portfolios, if any, will not be combined for tax purposes with those realized by
the Fund. Investment income received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The United
States has entered into tax treaties with many foreign countries that entitle
the Fund to reduced tax rates or exemptions on this income. The effective rate
of foreign tax cannot be predicted since the amount of Fund assets to be
invested within various countries is unknown. However, the Fund intends to
operate so as to qualify for treaty-reduced tax rates where applicable. Unless
otherwise exempt, shareholders are required to pay federal income tax on any
dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
Quarterly distributions from the Fund are based on estimates of book income for
the year. Tax basis income includes gains or losses attributable to currency
fluctuation, whereas book income generally consists solely of the coupon income
generated by the portfolio. Due to differences in the book and tax treatment of
fixed incomes securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
Shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts. If more than 50% of the value of the Fund's assets at the end of the tax
year is represented by stock or securities of foreign corporations, the Fund
intends to qualify for certain Code stipulations that would allow shareholders
to claim a foreign tax credit or deduction on their U.S. income tax returns. The
Code, as amended, may limit a shareholder's ability to claim a foreign tax
credit. Furthermore, shareholders who elect to deduct their portion of the
Fund's foreign taxes rather than take the foreign tax credit must itemize
deductions on their income tax returns. STATE AND LOCAL TAXES Shares are exempt
from personal property taxes imposed by counties, municipalities, and school
districts in Pennsylvania. Shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION From time to time, the Fund advertises the total return
and yield for each class of Shares. Total return represents the change, over a
specified period of time, in the value of an investment in each class of Shares
after reinvesting all income and capital gains distributions. It is calculated
by dividing that change by the initial investment and is expressed as a
percentage. The yield of each class of Shares is calculated by dividing the net
investment income per Share (as defined by the SEC) earned by each class of
Shares over a thirty-day period by the maximum offering price per Share of each
class of Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income
actually earned by each class of Shares and, therefore, may not correlate to the
dividends or other distributions paid to shareholders. The performance
information reflects the effect of non-recurring charges, such as the maximum
sales charge and contingent deferred sales charges, which, if excluded, would
increase the total return and yield. Total return and yield will be calculated
separately for Class A Shares, Class B Shares, and Class C Shares. Expense
differences between Class A Shares, Class B Shares and Class C Shares may affect
the performance of each class.

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

FEDERATED INTERNATIONAL INCOME 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

[Graphic]
Federated International Income Fund
(A Portfolio of International Series, Inc.)
Class A Shares, Class B Shares, Class C Shares

PROSPECTUS
JANUARY 31, 1998
A Non-Diversified Portfolio of International Series, Inc., an Open-End
Management Investment Company
[Graphic]
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

Cusip 46031P100
Cusip 46031P506
Cusip 46031P209
G00494-02-ABC (1/98)

FEDERATED INTERNATIONAL INCOME FUND

(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Federated International Income Fund (the "Fund"), a portfolio of International
Series, Inc. (the "Corporation") dated January 31, 1998. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement of Additional Information, if you have received it electronically,
free of charge by calling 1-800-341-7400.

INTERNATIONAL SERIES, INC.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000

Statement dated January 31, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 46031P100
Cusip 46031P506
Cusip 46031P209
1051602B (1/98)
[Graphic]

Table of Contents
GENERAL INFORMATION ABOUT THE FUND 1 INVESTMENT OBJECTIVE AND POLICIES 1 Types
of Investments and Investment Techniques 1 Regulatory Restrictions 5
When-Issued and Delayed Delivery Transactions 6 Repurchase Agreements 6 Reverse
Repurchase Agreements 6 Lending Portfolio Securities 6 Restricted and Illiquid
Securities 6 Duration 6 Additional Risk Considerations 7 Investing in
Securities of Other Investment Companies 7 Portfolio Turnover 7 INVESTMENT
LIMITATIONS 7 Acquiring Securities 7 Concentration of Investments 7 Borrowing 7
Pledging Securities 7 Buying on Margin 7 Issuing Senior Securities 8
Underwriting 8 Investing in Real Estate 8 Investing in Commodities 8 Lending
Cash or Securities 8 Investing in Minerals 8 Dealing in Puts and Calls 8
Selling Short 8 Purchasing Securities to Exercise Control 8 Investing in
Illiquid Securities 8 INTERNATIONAL SERIES, INC. MANAGEMENT 9 Fund Ownership 12
Directors' Compensation 13 INVESTMENT ADVISORY SERVICES 13 Adviser to the Fund
13 Advisory Fees 13 BROKERAGE TRANSACTIONS 14 OTHER SERVICES 14 Fund
Administration 14 Custodian and Portfolio Accountant 14 Transfer Agent 14
Independent Public Accountants 14 PURCHASING SHARES 14 Quantity Discounts and
Accumulated Purchases 15 Concurrent Purchases 15 Letter of Intent 15
Reinvestment Privilege 15 Conversion of Class B Shares 15 DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES 16 Conversion to Federal Funds 16 Purchases by Sales
Representatives, Fund Directors, and Employees16 DETERMINING NET ASSET VALUE 17
Determining Market Value of Securities 17 Trading in Foreign Securities 17
REDEEMING SHARES 17 Redemption in Kind 17 Contingent Deferred Sales Charge 18
TAX STATUS 18 The Fund's Tax Status 18 Foreign Taxes 18 Shareholders' Tax
Status 18 Capital Gains 18 TOTAL RETURN 19 YIELD 19 PERFORMANCE COMPARISONS 19
Economic and Market Information 20 ABOUT FEDERATED INVESTORS 20 Mutual Fund
Market 21 FINANCIAL STATEMENTS 21 APPENDIX 22

GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in International Series, Inc. (the "Corporation"), which
was established as FT International Trust, a Massachusetts business trust, under
a Declaration of Trust dated March 9, 1984, and reorganized as a corporation
under the laws of the state of Maryland on February 11, 1991. At a special
meeting of shareholders held on March 15, 1994, the shareholders of the
Corporation approved an amendment to the Articles of Incorporation to change the
name of the Corporation from FT Series, Inc., to International Series, Inc.
Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Statement of Additional Information
relates to all three classes of the above-mentioned Shares. INVESTMENT
OBJECTIVES AND POLICIES The Fund's investment objective is to seek a high level
of current income in U.S. dollars consistent with prudent investment risk. The
Fund has a secondary objective of capital appreciation. The investment
objectives of the Fund cannot be changed without the approval of the
shareholders. TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES GENERAL The Fund
will invest primarily in high-quality debt securities denominated in foreign
currencies in accordance with the Fund's investment objectives and policies. The
Fund intends to engage in forward contracts, futures and options transactions
whenever it appears to Federated Global Research Corp., the Fund's investment
adviser (the "Adviser") (a) to be advantageous to do so in pursuing the Fund's
investment objectives; (b) to hedge (i.e., protect) against foreign currency and
interest rate risks; and (c) to stabilize the value of the Fund's assets. The
Fund will not engage in such transactions for speculation. Up to 10% of the
Fund's total assets may be invested at any one time in commercial paper,
certificates of deposit, or repurchase agreements. The use of forward contracts,
futures and options, and the attendant benefits and possible risks of such
transactions, are discussed below along with certain other investment
information. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into
forward foreign currency exchange contracts in order to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and a foreign currency involved in an underlying transaction.
However, forward foreign currency exchange contracts may limit potential gains
which could result from a positive change in such currency relationships. The
Adviser believes that it is important to have the flexibility to enter into
forward foreign currency exchange contracts whenever it determines that it is in
the Fund's best interest to do so. The Fund will not speculate in foreign
currency exchange. There is no limitation as to the percentage of the Fund's
assets that may be committed to such contracts. The Fund does not enter into
forward foreign currency exchange contracts or maintain a net exposure in such
contracts when the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's portfolio securities or other
assets denominated in that currency or, in the case of a "cross-hedge"
denominated in a currency or currencies that the Adviser believes will tend to
be closely correlated with that currency with regard to price movements.
Generally, the Fund does not enter into a forward foreign currency exchange
contract with a term longer than one year. FOREIGN CURRENCY OPTIONS A foreign
currency option provides the option buyer with the right to buy or sell a stated
amount of foreign currency at the exercise price on a specified date or during
the option period. The owner of a call option has the right, but not the
obligation, to buy the currency. Conversely, the owner of a put option has the
right, but not the obligation to sell the currency. When the option is
exercised, the seller (i.e., writer) of the option is obligated to fulfill the
terms of the sold option. However, either the seller or the buyer may, in the
secondary market, close its position during the option period at any time prior
to expiration. A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign currency
generally falls in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect the Fund against an
adverse movement in the value of a foreign currency, the option will not limit
the movement in the value of such currency. For example, if the Fund were
holding securities denominated in a foreign currency that was appreciating and
had purchased a foreign currency put to hedge against a decline in the value of
the currency, the Fund would not have to exercise its put option. Likewise, if
the Fund were to enter into a contract to purchase a security denominated in
foreign currency and, in conjunction with that purchase, were to purchase a
foreign currency call option to hedge against a rise in value of the currency,
and if the value of the currency instead depreciated between the date of
purchase and the settlement date, the Fund would not have to exercise its call.
Instead, the Fund could acquire in the spot market the amount of foreign
currency needed for settlement. SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY
OPTIONS Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain additional
risks associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market. Although the Fund will not purchase or write such options unless and
until, in the opinion of the Adviser, the market for them has developed
sufficiently to ensure that the risks in connection with such options are not
greater than the risks in connection with the underlying currency, there can be
no assurance that a liquid secondary market will exist for a particular option
at any specific time. In addition, options on foreign currencies are affected by
all of those factors that influence foreign exchange rates and investments
generally. The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots. There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e. less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market
subject to significant price and rate movements. FUTURES CONTRACTS The Fund may
enter into contracts for the future delivery of a financial instrument such as
an amount of foreign currency, a security, or the cash value of a securities
index during a specified future period at a specified price. This investment
technique is designed primarily to hedge against anticipated future changes in
foreign exchange rates, interest rates, or market conditions, all of which might
otherwise have an adverse effect upon the value of securities or other assets
which the Fund holds or intends to purchase. A "sale" of a futures contract
means the undertaking of a contractual obligation to deliver the underlying
foreign currency, security, or cash value of a securities index called for by
the contract at a specified price during a specified delivery period. A
"purchase" of a futures contract means the undertaking of a contractual
obligation to acquire the underlying foreign currency, security, or cash value
of a securities index at a specified price during a specified delivery period.
At the time of delivery, in the case of fixed-income securities pursuant to the
contract, adjustments are made to recognize differences in value resulting from
the delivery of securities with a different interest rate than the rate
specified in the contract. In some cases, securities called for by a futures
contract may not have been issued at the time the contract was written. Although
some futures contracts by their terms call for the actual delivery or
acquisition of assets, in most cases a party will close out the contractual
commitment before delivery without having to make or take delivery of the
underlying assets by purchasing (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, if effected through a member of an exchange,
cancels the obligation to make or take delivery of the underlying assets. All
transactions in the futures market are made, offset, or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded.
Brokerage fees will be incurred by the Fund when it purchases or sells
contracts, and the Fund will be required to maintain margin deposits. At the
time the Fund enters into a futures contract, it is required to deposit with its
custodian, on behalf of the broker, a specified amount of cash or eligible
securities, called "initial margin." The initial margin required for a futures
contract is set by the exchange on which the contract is traded. Subsequent
payments, which are called "variation margin," to and from the broker are made
on a daily basis as the market price of the futures contract fluctuates. The
costs incurred in connection with futures transactions could reduce the Fund's
return. Futures contracts entail risks. If the Adviser's judgment about the
general direction of interest rates, markets, or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. An imperfect correlation may exist between movements in the prices of
futures contracts and portfolio assets being hedged. Further, the market prices
of futures contracts may be affected by certain factors. For example, the normal
relationship between the assets and futures markets could be distorted if
participants in the futures market were to elect to close out their contracts
through offsetting transactions rather than by meeting margin requirements.
Price distortions also could result if investors in futures contracts were to
decide to make or take delivery of underlying assets rather than engaging in
closing transactions because of the resultant liquidity of the futures market.
Further, increased participation by speculators in the futures market could
cause temporary price distortions because, as perceived by speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Because of the possibility of price distortions in the futures
market and the imperfect correlation between movements in the prices of
securities or other assets and movements in the prices of futures contracts, a
correct forecast of market trends by the Adviser still may not result in a
successful hedging transaction. If one of these events were to occur, the Fund
could lose money on the futures contracts as well as on its portfolio assets.
OPTIONS ON FUTURES CONTRACTS The Fund may purchase and write call and put
options on futures contracts. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified price at any time during the period of the
option. When the option is exercised, the writer of the option delivers the
futures contract to the holder at the exercise price. With regard to put and
call options on futures contracts written by the Fund, the Fund would be
required to deposit initial and maintenance margin with the custodian. Options
on futures contracts involve risks similar to those discussed above that relate
to transactions in futures contracts. Furthermore, an option on a futures
contract purchased by the Fund may expire worthless, which would cause the Fund
to lose the premium paid for the option. FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts, the
Fund may be able to achieve many of the same objectives as it would through the
use of forward foreign currency exchange contracts. The Fund may be able to
achieve these objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies,
as described above. Options on foreign currency futures contracts may involve
certain additional risks. Trading options on foreign currency futures contracts
is relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To reduce
this risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the Adviser's opinion, the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency futures contracts. Compared to the purchase or sale
of foreign currency futures contracts, the purchase of call or put options on
futures contracts involves less potential risk to the Fund because the maximum
amount at risk is the premium paid for the option (plus transaction costs).
However, there may be circumstances when the purchase of a call or put option on
a futures contract would result in a loss, such as when there is no movement in
the price of the underlying currency or futures contract. OPTIONS ON SECURITIES
The Fund may write (sell) covered call options on securities if it owns
securities that are acceptable for escrow purposes. Additionally, the Fund may
write secured put options on securities. When writing a secured put option, the
Fund will invest an amount not less than the exercise price of the put option in
eligible securities, so long as the Fund is obligated as a writer of a put
option. A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during the
option period. A put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying security at the exercise price
during the option period. The premium received for writing an option will
reflect such factors as the current market price of the underlying security, the
relationship of the exercise price to such market price, the option period,
supply and demand, and interest rates. The exercise price of an option may be
below, equal to, or above the current market value of the underlying security at
the time that the option is written. The Fund may also write or purchase spread
options. A spread option is an option for which the exercise price may be a
fixed dollar spread or yield spread between the security underlying the option
and another security that it does not own but uses as a bench mark. The purchase
of a put option by the owner of the related security protects the purchaser
against any decline in the related security's price below the exercise price
(less the amount paid for the option). The ability of the Fund to purchase put
options allows it to protect capital gains in an appreciated security without
actually requiring the Fund to sell the appreciated security. On occasion, the
Fund would like to establish a position in a security upon which call options
are available. The purchase of a call option enables the Fund to fix the cost of
acquiring the security, which would be the cost of the call plus the exercise
price of the option. In addition, this method of acquiring securities provides
some protection from an unexpected downturn in the market. This is because the
Fund is at risk only for the amount of the premium paid for the call option,
which it can let lapse if it so chooses. During the option period, the covered
call writer gives up the potential for capital appreciation above the exercise
price if the underlying asset rises in value, and the secured put writer retains
the risk of loss if the underlying asset declines in value. For the covered call
writer, substantial appreciation in the value of the underlying asset would
result in the asset being "called away." For the secured put writer, substantial
depreciation in the value of the underlying asset could result in the asset
being "put to" the writer. If a covered call option expired unexercised, the
writer of the call would realize a gain and the buyer would realize a loss in
the amount of the premium. If the covered call option writer had to sell the
underlying asset because of the exercise of the call option, it would realize a
gain or loss from the sale of the underlying asset, with the proceeds being
increased by the amount of the premium. If a secured put option expired
unexercised, the writer would realize a gain and the buyer would realize a loss
on the amount of the premium. If the secured put writer would have to buy the
underlying asset because of the exercise of the put option, the writer would
incur an unrealized loss to the extent that the current market value of the
underlying asset is less than the exercise price of the put option, less the
premium received. OVER-THE-COUNTER OPTIONS The Fund may deal in over-the-counter
traded options ("OTC options") in addition to exchange-traded options. OTC
options differ from exchange-traded options in several respects. First, they are
transacted with dealers rather than a clearing corporation. Second, a risk of
nonperformance by the dealer exists, whether as a result of the insolvency of
the dealer or otherwise, which could cause the Fund to experience material
losses; however, in writing OTC options, the premium is paid in advance by the
dealer. Third, in contrast to exchange traded options, OTC options are available
for a greater variety of securities and wider range of expiration dates and
exercise prices. Because there is no exchange in the case of OTC options,
pricing is normally done with reference to information from market makers, which
is carefully monitored by the Fund's investment adviser and verified in
appropriate cases. A writer or purchaser of a put or call option can terminate
it voluntarily only by entering into a closing transaction. In the case of OTC
options, there cannot be any assurance that a continuous liquid secondary market
will exist for any particular option at any given time. As a result, the Fund
may be able to realize the value of an OTC option it has purchased only by
exercising it or by entering into a closing sale transaction with the dealer
that issued it. Likewise, in cases where the Fund writes an OTC option, it
generally can close out that option prior to its expiration only by entering
into a closing purchase transaction with the dealer to whom the Fund wrote the
option. If a covered call option writer is unable to effect a closing
transaction, it cannot sell the underlying asset until the option either expires
or is exercised. Thus, a covered call option writer of an OTC option may not be
able to sell an underlying asset even though it might otherwise be advantageous
to do so. Moreover, a secured put writer of an OTC option may be unable to sell
the assets pledged to secure the put for other investment purposes so long as it
is obligated as a put writer, and a purchaser of the put or call option might
also find it difficult to terminate its position on a timely basis when no
secondary market exists. OPTIONS ON SECURITIES INDICES The Fund also may
purchase and write call and put options on securities indices in order to hedge
against market conditions which affect the values of securities that the Fund
owns or intends to purchase. The Fund will not purchase and write such options
for speculation. By writing and purchasing index options, the Fund may be able
to achieve many of the same objectives as through the purchasing and writing of
options on individual securities. Options on securities indices are similar to
options on individual securities. However, unlike an option on an individual
security, which gives the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder, upon
exercise, the right to receive an amount of cash if the closing level of the
securities index upon which the option is based exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option. Upon
exercise of the option, the amount of cash received by the holder is equal to
the difference between the closing price of the index and the exercise price of
the option. In consideration for the premium received, the writer of the option
has an obligation to make delivery of the amount of cash resulting from the
exercise of the option. Unlike options on individual securities, all settlements
are in cash, and the gain or loss depends upon price movements in the market
generally or in a segment of the market, rather than upon price movements in
individual securities. The Fund covers call options written on a securities
index through the ownership of securities whose changes in price, in the opinion
of the Adviser, are anticipated to be similar to the price changes of the index,
or in such other manner or may be in conformance with applicable laws,
regulations, and exchange rules. Any changes in the prices of the securities
owned by the Fund probably will not be perfectly correlated with the securities
index. The Fund will secure put options written on a securities index by means
of segregating liquid high-grade securities equal to the exercise price, or in
such other manner as may be in conformance with applicable laws, regulations,
and exchange rules. Upon writing an option on a securities index, the Fund will
be required to deposit with its custodian and mark to market, eligible
securities that are equal in value to at least 100% of the exercise price in the
case of a put or, in the case of a call, the value of the contract.
Additionally, if the Fund writes a call option on a securities index at a time
when the value of the contract is greater than the exercise price, the Fund will
segregate and mark to market, until such time as the option expires or is closed
out, cash or a cash equivalent equal in value to the excess of the contract
value. In addition, the Fund may purchase and write options on other appropriate
indices, as available (e.g., foreign currency indices). Index options involve
risks similar to those associated with transactions in futures contracts, as
described above. Also, an option purchased by the Fund may expire worthless. In
such case, the Fund could lose the premium paid for the option. REGULATORY
RESTRICTIONS To the extent required to comply with Securities and Exchange
Commission ("SEC") Release No. 10666, when purchasing a futures contract,
writing a put option, or entering into a delayed delivery purchase or forward
foreign currency exchange purchase, the Fund will establish and maintain a
segregated account consisting of cash or liquid high-grade securities equal to
the value of such contracts. To the extent required to comply with Commodity
Futures Trading Commission Regulation 4.5 and thereby avoid status as a
"commodity pool operator," the Fund will not enter into a futures contract, or
purchase an option thereon, if immediately thereafter the initial margin
deposits for futures contracts held by the Fund, plus premiums paid by it for
open options of futures, would exceed 5% of the total assets of the Fund. The
Fund will not engage in transactions in futures contracts or options thereon for
speculation, but only to attempt to hedge against changes in market conditions
affecting the values of assets which the Fund holds or intends to purchase. When
futures contracts or options thereon are purchased in order to protect against a
price increase on securities or other assets intended to be purchased later, it
is anticipated that at least 75% of such intended purchases will be completed.
When other futures contracts or options thereon are purchased, the underlying
value of such contracts will at all times not exceed the sum of (1) accrued
profit on such contracts held by the broker; (2) cash or high-quality money
market instruments set aside in an identifiable manner; and (3) cash proceeds
from investments due in 30 days or less. WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other than
normal transaction costs, are incurred. However, liquid assets of the Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
and are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets. REPURCHASE AGREEMENTS The Fund or its custodian will take possession of
the securities subject to repurchase agreements, and these securities will be
marked to market daily. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund might
be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers which are deemed by the Adviser
to be creditworthy pursuant to guidelines established by the Corporation's Board
of Directors (the "Directors"). REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate.

The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time. When effecting reverse repurchase agreements, liquid
assets of the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated on the Fund's records at the trade
date. These assets are marked to market daily and maintained until the
transaction is settled. LENDING PORTFOLIO SECURITIES The collateral received
when the Fund lends portfolio securities must be valued daily and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Fund or the
borrower. The Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. The Fund
does not have the right to vote securities on loan, but would terminate the loan
and regain the right to vote if that were considered important with respect to
the investment. RESTRICTED AND ILLIQUID SECURITIES

The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under an SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act of 1933. The Directors consider
the following criteria in determining the liquidity of certain restricted
securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealers' undertakings to make a market in the security; and * the nature of
the security and the nature of the marketplace trades.
DURATION
Duration is a measure of a debt security's price sensitivity expressed in years
and is a measure of the interest-rate risk of a debt security, taking into
consideration that there may be cash flows before the maturity date and that the
cash flows must be considered in terms of their present value. Duration is
similar to, but more precise than, average life. It is a measure of the number
of years until the average dollarin present value termsis received from coupon
and principal payments. As such, it is one measure of systematic risk. Average
life, on the other hand, is a measure of the time to receive a dollar of
principalit takes into consideration neither interest payments nor present
value. Duration is computed by multiplying each principal and interest payment
by its present value, summing these products, and dividing the sum by the full
price of the debt security. When a Fund invests in mortgage pass-through
securities, its duration will be calculated in a manner which requires
assumptions to be made regarding future principal prepayments. A more complete
description of this calculation is available upon request from the Fund.

ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith, or gross negligence on the part of the Adviser, any losses resulting from
the holding of the Funds' portfolio securities in foreign countries and/or with
securities depositories will be at the risk of shareholders. No assurance can be
given that the Directors' appraisal of the risks will always be correct or that
such exchange control restrictions or political acts of foreign governments
might not occur.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
PORTFOLIO TURNOVER

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objectives, without regard to the length of time a particular security may have
been held. The Adviser does not anticipate that portfolio turnover will result
in adverse tax consequences. For the fiscal years ended November 30, 1997 and
1996, the portfolio turnover rates were 67% and 92%, respectively.

INVESTMENT LIMITATIONS
ACQUIRING SECURITIES
The Fund will not acquire any securities of Fiduciary Trust Company
International or its affiliates.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of its total assets in securities of any
one government or supranational issuer.
BORROWING
The Fund will not borrow money except from banks or through reverse repurchase
agreements as a temporary measure for extraordinary or emergency purposes and
then only in amounts up to one-third of the value of its total assets, including
the amount borrowed, but entering into futures contracts shall not be considered
borrowing. This borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities would be inconvenient or
disadvantageous. The Fund will not purchase securities while outstanding
borrowings exceed 5% of the value of its total assets. PLEDGING SECURITIES The
Fund will not mortgage, pledge, or hypothecate securities, except when necessary
for permissible borrowings. In those cases, it may pledge assets having a value
of 15% of its assets taken at cost. For purposes of the limitation, (a) the
deposit of assets in escrow in connection with the writing of covered call and
secured put options, and (b) collateral arrangements with respect to (i) the
purchase and sale of options and (ii) initial or variation margins for futures
contracts, will not be deemed to be pledges of the Fund's assets. BUYING ON
MARGIN The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for clearance of purchases and sales of
securities, and except that the Fund may make margin deposits or payments in
connection with its use of options, futures contracts, and options on futures
contracts. ISSUING SENIOR SECURITIES The Fund will not issue senior securities
except in connection with transactions described in other investment limitations
or as required by forward commitments to purchase securities or currencies.
UNDERWRITING The Fund will not underwrite or participate in the marketing of
securities of other issuers, except as it may be deemed to be an underwriter
under federal securities law in connection with the disposition of its portfolio
securities. INVESTING IN REAL ESTATE The Fund will not invest in real estate,
including limited partnership interests, although it may invest in securities
secured by real estate or interests in real estate or issued by companies,
including real estate investment trusts, which invest in real estate or
interests therein. INVESTING IN COMMODITIES The Fund will not purchase or sell
commodities or commodity contracts, except that the Fund may purchase or sell
futures contracts and options thereon, provided that the sum of its initial
margin deposits on open contracts will not exceed 5% of the fair market value of
the Fund's net assets. Further, the Fund may engage in transactions in foreign
currencies and may purchase and sell options on foreign currencies and indices
for hedging purposes. LENDING CASH OR SECURITIES The Fund will not lend any
assets except portfolio securities. This shall not prevent the purchase or
holding of bonds, debentures, notes, certificates of indebtedness, or other debt
securities of an issuer, repurchase agreements, or other transactions which are
permitted by the Fund's investment objective and policies or its Articles of
Incorporation. INVESTING IN MINERALS The Fund will not invest in interests in
oil, gas, or other mineral exploration or development programs or leases.
DEALING IN PUTS AND CALLS The Fund may not write or purchase options, except
that the Fund may write covered call options and secured put options on up to
25% of its net assets and may purchase put and call options, provided that no
more than 5% of its net assets may be invested in premiums of such options.
SELLING SHORT The Fund will not sell securities short unless (1) it owns, or has
a right to acquire, an equal amount of such securities, or (2) it has segregated
an amount of its other assets equal to the lesser of the market value of the
securities sold short or the amount required to acquire such securities. The
segregated amount will not exceed 10% of the Fund's net assets. While in a short
position, the Fund will retain the securities, rights, or segregated assets.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Except as noted, shareholders will be
notified before any material change in these limitations becomes effective.
PURCHASING SECURITIES TO EXERCISE CONTROL The Fund will not purchase securities
of a company for the purpose of exercising control or management. INVESTING IN
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. Except with respect to borrowing money, if a
percentage limitation is adhered to at the time of investment, a later increase
or decrease in percentage resulting from any change in value or net assets will
not result in a violation of such restriction. The Fund did not borrow money,
invest in reverse repurchase agreements, pledge securities in excess of 5% of
the value of its total assets, or sell securities short in an amount exceeding
5% of its net assets during the past year and does not anticipate doing so
during the current fiscal year.

INTERNATIONAL SERIES, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with International Series, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director

Thomas G. Bigley

15 Old Timber Trail

Pittsburgh, PA
Birthdate: February 3, 1934
Director

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill
Road Concord, MA Birthdate: May 18, 1922 Director

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward
L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA
Birthdate: June 18, 1924 Director Attorney of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Director or Trustee of the Funds. Peter E.
Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16,
1942 Director Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust Company and
State Street Boston Corporation; Director or Trustee of the Funds. John E.
Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA
Birthdate: December 20, 1932 Director

President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director

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

Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President

Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp., and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate:
May 17, 1923 Vice President Executive Vice President and Trustee, Federated
Investors; Chairman and Director, Federated Securities Corp.; President or Vice
President of some of the Funds; Director or Trustee of some of the Funds. * This
Director is deemed to be an "interested person" as defined in the Investment
Company Act of 1940. @ Member of the Executive Committee. The Executive
Committee of the Board of Directors handles the responsibilities of the Board
between meetings of the Board.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Automated Government Money Trust;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II;
Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Obligations Trust II; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; Trust
for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; WCT Funds; and World Investment Series, Inc.

FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.

As of January 7, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the Fund: Jato, Minneapolis, Minnesota owned
approximately 2,299,623 (14.14%); Lacross & Co., Lacrosse, Wisconsin owned
approximately 2,229,467 (13.71%); Charles Schwab & Co., Inc., San Francisco,
California owned approximately 1,463,373 (9.00%); and Hawaiian Trust Company
Ltd., Honolulu, Hawaii owned approximately 1,097,328 (6.75%). As of January 7,
1998, the following shareholder of record owned 5% or more of the outstanding
Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith, Jacksonville,
Florida, for the sole benefit of its customers, owned approximately 93,016
(7.85%). As of January 7, 1998, the following shareholder of record owned 5% or
more of the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner
& Smith, Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 207,079 (27.57%). DIRECTORS' COMPENSATION

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

John F. Donahue $0 $0 for the Corporation and
Chairman and Director 56 other investment companies in
the Fund Complex
Thomas G. Bigley $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
John T. Conroy, Jr. $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
William J. Copeland $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
James E. Dowd $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Peter E. Madden $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
John E. Murray, Jr. $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Wesley W. Posvar $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex

* Information is furnished for the fiscal year ended November 30, 1997.

# The aggregate compensation is provided for the Corporation which is
comprised of two portfolios.

For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30, 1997,
1996, and for the period from September 1, 1995 to November 30, 1995, the
Adviser received $1,615,465, $1,476,050, and $353,494, respectively, none of
which were voluntarily waived. For the period from December 1, 1994 to August
31, 1995, Federated Management, the Fund's former investment adviser received
$1,105,820, none of which was voluntarily waived.

BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Directors. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. For the fiscal years
ended November 30, 1997, 1996, and 1995, the Fund did not pay any brokerage
commissions. Although investment decisions for the Fund are made independently
from those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the Adviser to be equitable
to each. In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund. OTHER
SERVICES FUND ADMINISTRATION

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services served as the Fund's administrator. Prior to March 1, 1994, Federated
Administrative Services, Inc. served as the Fund's administrator. Both former
administrators are subsidiaries of Federated Investors. For purposes of the
Statement of Additional Information, Federated Services Company, Federated
Administrative Services and Federated Administrative Services, Inc. may
hereinafter collectively be referred to as the "Administrators." For the fiscal
years ended November 30, 1997, 1996, and 1995, the Administrators earned
$185,000, $184,998, and $271,797, respectively.

Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value, plus a sales charge (for Class A Shares only), on days
the New York Stock Exchange ("NYSE") is open for business. The procedure for
purchasing Shares is explained in the prospectus under "How to Purchase Shares."
For further information on any of the programs listed below, please contact you
financial intermediary or Federated Securities Corp. QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES As described in the prospectus, larger purchases of the
same Share class reduce or eliminate the sales charge paid. For example, the
Fund will combine all Class A Shares purchases made on the same day, by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account. If an additional purchase into the
same Share class is made, the Fund will consider the previous purchases still
invested in the Fund. For example, if a shareholder already owns Class A Shares
having a current value at the public offering price of $90,000 and he purchases
$10,000 more at the current public offering price, the sales charge on the
additional purchase, according to the schedule now in effect, would be 3.75%,
not 4.50%. To receive the sales charge reduction, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial intermediary
at the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce or eliminate the sales charge
after it confirms the purchases. CONCURRENT PURCHASES Shareholders have the
privilege of combined concurrent purchases of the same Share class of two or
more funds in the Federated Complex in calculating the applicable sales charge.
To receive a sales charge reduction of elimination, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial intermediary
at the time the concurrent purchases are made. The Fund will reduce or eliminate
the sales charge after it confirms the purchases. LETTER OF INTENT A shareholder
can sign a letter of intent committing to purchase a certain amount of the same
Share class 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 the shareholder
completes the commitment, the escrowed Shares will be released to their account.
If the commitment is not completed within 13 months, the custodian will redeem
an appropriate number of escrowed Shares to pay for the applicable sales charge.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Funds, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted. REINVESTMENT PRIVILEGE The reinvestment privilege is available for
all Shares of the Fund within the same Share class. Class A shareholders who
redeem from the Fund may reinvest the redemption proceeds back into the same
Share class at the next determined net asset value without any sales charge. The
original shares must have been subject to a sales charge and the reinvestment
must be within 120 days. Similarly, Class C shareholders who redeem may reinvest
their redemption proceeds in the same Share class within 120 days. Class B
Shares also may be reinvested within 120 days of redemption, although such
reinvestment will be made into Class A Shares. Shareholders would not be
entitled to a reimbursement of the contingent deferred sales charge if paid at
the time of redemption on any Share class. However, reinvested Shares would not
be subject to a contingent deferred sales charge, if otherwise applicable, upon
later redemption. In addition, if Shares were reinvested through a financial
intermediary, the financial intermediary would not be entitled to an advanced
payment from Federated Securities Corp. on the reinvested Shares, if otherwise
applicable. Federated Securities Corp. must be notified by the shareholder in
writing or by his financial intermediary of the reinvestment in order to
eliminate a sales charge or a contingent deferred sales charge. If the
shareholder redeems Shares in the Fund, there may be tax consequences.
CONVERSION OF CLASS B SHARES Class B Shares will automatically convert into
Class A Shares on or around the 15th of the month eight full years from the
purchase date and will no longer be subject to a fee under the distribution
plan. For purposes of conversion to Class A Shares, Shares purchased through the
reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B Shares in
the shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to Class A
Shares is subject to the continuing availability of a ruling from the Internal
Revenue Service or an opinion of counsel that such conversions will not
constitute taxable events for federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
Shares to Class A Shares will not occur if such a ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities may include, but are not limited to, marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Distribution Plan, the Directors expect that the Fund will be able to achieve a
more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objective. By identifying potential investors whose
needs are served by the Fund's objective, and properly servicing these accounts,
it may be possible to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.

For the fiscal year ended November 30, 1997, the Class A Shares, Class B Shares,
and Class C Shares incurred $479,089, $80,964, and $97,233, respectively, in
distribution services fees, of which $311,106, $0, and $0, respectively were
waived. In addition, for the fiscal year ended November 30, 1997, the Class A
Shares, Class B Shares, and Class C Shares, paid shareholder services fees in
the amount of $479,089, $26,988, and $32,411, respectively, of which $186,763,
$0, and $0, respectively, were waived.

CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.

PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES The following
individuals and their immediate family members may buy Class A Shares at net
asset value without a sales charge:
* Directors, employees, and sales representatives of the Fund, Federated
Global Research Corp., and Federated Securities Corp. and its
affiliates;
* Federated Life Members (Class A Shares only);
* any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp.; and
* trusts, pensions, or profit-sharing plans for these individuals.

These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE

The Fund's net asset value per Share fluctuates and is based on the market value
of all securities and other assets of the Fund. The net asset value for each
class of Shares may differ due to the variance in daily net income realized by
each class. Net asset value is not determined on: (i) days on which there are
not sufficient changes in the value of the Fund's portfolio securities that its
net asset value might be materially affected; (ii) days during which no Shares
are tendered for redemption and no orders to purchase Shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.

DETERMINING MARKET VALUE OF SECURITIES
Market or appraised values of the Fund's portfolio securities are determined as
follows:
* according to the prices provided by an independent pricing service, if
available, or at fair value as determined in good faith by the Directors;
or
* for short-term obligations with remaining maturities of 60 days or less at
the time of purchase, at amortized cost, unless the Directors determine
that particular circumstances of the security indicate otherwise.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities; yield; quality; coupon rate; maturity; type of
issue; trading characteristics; and other market data.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange ("NYSE"). In computing the net asset
value, the Fund values foreign securities at the latest closing price on the
exchange on which they are traded immediately prior to the closing of the NYSE.
Certain foreign currency exchange rates may also be determined at the latest
rate prior to the closing of the NYSE. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at current rates. Occasionally,
events that affect these values and exchange rates may occur between the times
at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Directors,
although the actual calculation may be done by others.
REDEEMING SHARES

In computing the amount of the applicable Contingent Deferred Sales Charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
Shares held for more than six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares; (3) Shares held for fewer than six years with respect to Class B
Shares and for less than one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis. ELIMINATION OF THE CONTINGENT
DEFERRED SALES CHARGE--CLASS B SHARES To qualify for elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program, the
redemptions of Class B Shares must be from an account that is at least 12 months
old, has all Fund distributions reinvested in Fund Shares, and has an account
value of at least $10,000 when the Systematic Withdrawal Program is established.
Qualifying redemptions may not exceed 1.00% monthly of the account value as
periodically determined by the Fund. The amounts that a shareholder may withdraw
under a Systematic Withdrawal Program that qualify for elimination of the
Contingent Deferred Sales Charge may not exceed 12% annually with reference
initially to the value of the Class B Shares upon establishment of the
Systematic Withdrawal Program and then as calculated at the annual valuation
date. Redemptions on a qualifying Systematic Withdrawal Program can be made at a
rate of 1.00% monthly, 3.00% quarterly, or 6.00% semi-annually with reference to
the applicable account valuation amount. Amounts that exceed the 12.00% annual
limit for redemption, as described, may be subject to the Contingent Deferred
Sales Charge. To the extent that a shareholder exchanges Shares for Class B
Shares of other Federated Funds, the time for which the exchanged-for Shares are
to be held will be added to the time for which exchanged-from Shares were held
for purposes of satisfying the 12-month holding requirement. However, for
purposes of meeting the $10,000 minimum account value requirement, Class B Share
accounts will be not be aggregated. Any Shares purchased prior to the
termination of this program would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
* invest in securities within certain statutory limits; and * distribute to
its shareholders at least 90% of its net income earned
during the year.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. SHAREHOLDERS' TAX STATUS Shareholders are subject to federal
income tax on dividends and capital gains received as cash or additional Shares.
The Fund's dividends, and any short-term capital gains, are taxable as ordinary
income. CAPITAL GAINS Shareholders will pay federal tax at capital gains rates
on long-term capital gains distributed to them regardless of how long they have
held the Fund Shares. TOTAL RETURN

The Fund's average annual total returns based on offering price for the
following periods ended November 30, 1997, were: SHARE CLASS INCEPTION DATE
ONE-YEAR FIVE-YEARS TEN-YEARS SINCE INCEPTION Class A 06/04/91 (3.70%) 9.08% N/A
9.14% Class B 09/28/94 (4.43%) N/A N/A 7.79% Class C 04/01/93 (4.42%) N/A N/A
8.42% The average annual total returnfor all classes of Shares of the Fund is
the average compounded rate ofreturn for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of Shares owned at
the end of the period by the offering price per Share at the end of the period.
The number of Shares owned at the end of the period is based on the number of
Shares purchased at the beginning of the period with $1,000, less any applicable
sales charge, adjusted over the period by any additional Shares, a reinvestment
of all dividends, and distributions. Any applicable contingent deferred sales
charge is deducted from the ending value of the investment based on the lesser
of the original purchase price or the offering price of Shares redeemed.

YIELD

The Fund's yields for the thirty-day period ended November 30, 1997, were:
SHARE CLASS YIELD
Class A 4.19%
Class B 3.65%
Class C 3.65%

The yield for all classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by any class of
Shares over a thirty-day period by the maximum offering price per Share of any
class of Shares on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income generated
during the thirty-day period is assumed to be generated each month over a
12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by any class of Shares because of
certain adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders. To the extent that
financial institutions and broker/dealers charge fees in connection with
services provided in conjunction with an investment in any class of Shares, the
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS The Fund's performance of each class of Shares depends
upon such variables as:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested; * changes in
interest rates on money market instruments; * changes in the Fund's or a
class of Shares' expenses; and * various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of total return. Investors may
use financial publications and/or indices to obtain a more complete view of the
Fund's performance. When comparing performance, investors should consider all
relevant factors such as the composition of any index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
* Lipper Analytical Services, Inc., for example, makes comparative
calculations for one-month, three-month, one-year, and five-year periods
which assume the reinvestment of all capital gains distributions and income
dividends.
* Salomon Brothers High Grade Bond Index; Salomon Brothers World
Government Bond Index; and J.P. Morgan Government Bond Index.
* Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.

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

Advertisements and sales literature for all three classes of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time. Advertisements may quote performance information which does not
reflect the effect of the sales charge or contingent deferred sales charge, as
applicable. Advertising and other promotional literature may include charts,
graphs, and other illustrations using the Fund's returns, or returns in general,
that demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging, and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI, 27% of
American households are pursuing their financial goals through mutual funds.
These investors, as well as businesses and institutions, have entrusted over $3
trillion to the more than 5,500 funds available.

In the corporate bond sector, as of December 31, 1997, Federated Investors
managed 12 money market funds and 16 bond funds with assets approximating $22.5
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. J. Thomas Madden, Executive Vice
President, oversees Federated Investor's equity and high-yield corporate bond
management while William D. Dawson, Executive Vice President, oversees Federated
Investor's domestic fixed-income management. Henry A. Frantzen, Executive Vice
President, oversees the management of Federated Investor's international
portfolios.

MUTUAL FUND MARKET

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

Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by 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 rankings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended November 30, 1997, are
incorporated by reference to the Annual Report of the Fund dated November 30,
1997 (File Nox. 2-91776 and 811-3984). A copy of the Report may be obtained
without charge by contacting the Fund.

* Source: Investment Company Institute
APPENDIX

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

* Leading market positions in well-established industries;

* High rates of return on funds employed;
* Conservative capitalization structures with moderate reliance on debt
and ample asset protection;
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* Well-established access to a range of financial markets and assured sources
of alternate liquidity.

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

MOODY'S INVESTORS SERVICE, INC., LONG-TERM BOND RATING DEFINITIONS AAA--Bonds
which are rated AAA
are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues. AA--Bonds which are rated AA are judged to be of high
quality by all standards. Together with the AAA group, they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in AAA securities. A--Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.

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