WORLD INVESTMENT SERIES INC, 497, 1998-01-30

WORLD INVESTMENT SERIES INC
497, 1998-01-30

Previous: AFD EXCHANGE RESERVES, 485BPOS, 1998-01-30

Next: WORLD INVESTMENT SERIES INC, 497, 1998-01-30

FEDERATED INTERNATIONAL GROWTH FUND

(A Portfolio of World Investment Series, Inc.)

Class A Shares, Class B Shares, Class C Shares

PROSPECTUS

The shares of Federated International Growth Fund (the "Fund") represent
interests in a diversified investment portfolio of World Investment Series, Inc.
(the "Corporation"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide long-term growth of capital.
Any income received from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in shares of other mutual funds, the
portfolios of which consist primarily of equity securities of non-U.S. issuers.
The Fund's strategy of investing in other mutual funds may result in greater
aggregate expenses than if you directly purchased shares of those funds.

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 3

Financial Highlights -- Class B 4

Financial Highlights -- Class C 5

General Information 6
Calling the Fund 6

Investment Information 6
Investment Objective 6
Investment Policies 6
Investment Limitations 15
Portfolio Turnover 16
Hub and Spoke(registered trademark) Option 16

Net Asset Value 16

Investing in the Fund 16

Purchasing Shares 17
Purchasing Shares Through a Financial Intermediary 17
Purchasing Shares by Wire 17
Purchasing Shares by Check 18
Systematic Investment Program 18
Retirement Plans 18
Class A Shares 18
Class B Shares 18
Class C Shares 18

Redeeming and Exchanging Shares 19
Redeeming or Exchanging Shares
Through a Financial Intermediary 19
Redeeming or Exchanging Shares by Telephone 19
Redeeming or Exchanging Shares by Mail 19
Requirements for Redemption 19
Systematic Withdrawal Program 20
Contingent Deferred Sales Charge 20

Account and Share Information 20
Confirmations and Account Statements 20
Dividends and Distributions 20
Accounts with Low Balances 20

Corporation Information 21
Management of the Corporation 21
Distribution of Shares 22
Administration of the Fund 23
Expenses of the Fund and Class A Shares,
Class B Shares, and Class C Shares 23

Brokerage Transactions 24

Shareholder Information 24
Voting Rights 24

Tax Information 24
Federal Income Tax 24
State and Local Taxes 25

Performance Information 25

Appendix 26

SUMMARY OF FUND EXPENSES

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES

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

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)

Management Fee (2) 0.00% 0.00% 0.00%

Asset Allocation Fee (2) 0.00% 0.00% 0.00%

12b-1 Fee 0.00%(3) 0.75% 0.75%

Total Other Expenses (after expense reimbursement) 0.07% 0.07% 0.07%

Shareholder Services Fee (after waiver) (4) 0.00% 0.00% 0.00%

Total Operating Expenses (5) 0.07% 0.82% 0.82%

</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 management fee is contingent upon the grant of certain exemptive relief
from the SEC. If the Fund were paying or accruing the management fee, the
Fund would be able to pay up to 1.25% of its average daily net assets which
are invested in individual stocks, bonds or money market instruments, and
not on those assets invested in shares of the underlying funds. The Fund has
no present intention of paying or accruing the asset allocation fee during
the fiscal year ending November 30, 1998. If the Fund were paying or
accruing the asset allocation fee, the Fund would be able to pay up to 0.20%
of those average daily net assets invested in the underlying funds.

(3) The Class A Shares have no present intention of paying or accruing the 12b-1
fee during the fiscal year ending November 30, 1998. If the Class A Shares
were paying or accruing the 12b-1, the Class A Shares would be able to pay
up to 0.25% of its average daily net assets for the 12b-1 fee.

(4) The shareholder services fee has been reduced to reflect the voluntary
waiver 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%.

(5) The total Class A Shares, Class B Shares, and Class C Shares operating
expenses would have been 4.39%, 3.60%, and 3.51% respectively, absent the
voluntary waiver described in note 4 above and the voluntary reimbursement
of certain other operating expenses. Class B Shares convert to Class A
Shares (which pay lower ongoing expenses) approximately eight years after
purchase.

<TABLE>
<CAPTION>
PERCENTAGE
CLASS A OF PORTFOLIO'S
EXPENSE RATIO NET ASSETS
------------- --------------
<S> <C> <C>
Federated Asia Pacific Growth Fund 1.85 20%
Federated European Growth Fund 1.84 30
Federated Emerging Markets Fund 2.56 15
Federated International Small Company Fund 1.95 20
Federated Latin American Growth Fund 2.00 15
100%

</TABLE>

The Federated International Growth Fund will invest substantially all of its
assets in the Class A Shares of the five underlying Federated funds without a
sales charge. Based upon the expense ratios and anticipated allocations above,
the anticipated average weighted expense ratio for the underlying funds, for the
fiscal year ending November 30, 1998, is 1.99%. An investor in either the A, B
or C share classes of the Federated International Growth Fund would therefore
incur the 1.99% expenses of the underlying funds in addition to expenses of the
Federated International Growth Fund shown in the Annual Operating Expense Table.
These figures are only an approximation of the net expenses an investor in the
Federated International Growth Fund might expect to incur, since the assets of
the portfolio invested in each of the underlying funds will change over time.
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 "Corporation 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 $56 $66 $ 19
3 Years $57 $71 $ 26
5 Years $59 $70 $ 46
10 Years $64 $80 $101

You would pay the following expenses on the same investment, assuming no
redemption.
1 Year $56 $ 8 $ 8
3 Years $57 $26 $ 26
5 Years $59 $46 $ 46
10 Years $64 $80 $101

</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 Ernst & Young LLP, the Fund's
independent auditors. Their report, dated December 31, 1997, on the Fund's
financial statements for the period ended November 30, 1997, and on the
following table for the period presented, is included in the Annual Report,
which is incorporated by reference herein. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may be
obtained from the Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1997(A)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net operating loss (0.01)
- -----------------------------------------------------------------------------------
Net realized and unrealized loss on investments (1.26)
- ----------------------------------------------------------------------------------- ------
Total from investment operations (1.27)
- ----------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $ 8.73
- ----------------------------------------------------------------------------------- ------
TOTAL RETURN(B) (12.70%)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 0.07%*
- -----------------------------------------------------------------------------------
Net operating loss (0.01%)*
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement(c) 4.32%*
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $10,562
- -----------------------------------------------------------------------------------
Portfolio turnover 3%
- -----------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated November 30, 1997, which can be obtained free of charge.

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

<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1997(A)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net operating loss (0.01)
- -----------------------------------------------------------------------------------
Net realized and unrealized loss on investments (1.28)
- ----------------------------------------------------------------------------------- ------
Total from investment operations (1.29)
- ----------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $ 8.71
- ----------------------------------------------------------------------------------- ------
TOTAL RETURN(B) (12.90%)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 0.82%*
- -----------------------------------------------------------------------------------
Net operating loss (0.77%)*
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement(c) 2.78%*
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $5,036
- -----------------------------------------------------------------------------------
Portfolio turnover 3%
- -----------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from July 1, 1997 (date of initial public
offering) to November 30, 1997.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated November 30, 1997, which can be obtained free of charge.

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

<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1997(A)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net operating loss (0.01)
- -----------------------------------------------------------------------------------
Net realized and unrealized loss on investments (1.27)
- ----------------------------------------------------------------------------------- ------
Total from investment operations (1.28)
- ----------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $ 8.72
- ----------------------------------------------------------------------------------- ------
TOTAL RETURN(B) (12.80%)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 0.82%*
- -----------------------------------------------------------------------------------
Net operating loss (0.77%)*
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement(c) 2.69%*
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $680
- -----------------------------------------------------------------------------------
Portfolio turnover 3%
- -----------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from July 1, 1997 (date of initial public
offering) to November 30, 1997.

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

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated November 30, 1997, which can be obtained free of charge.

GENERAL INFORMATION

The Corporation was incorporated under the laws of the State of Maryland on
January 25, 1994. Class A Shares, Class B Shares and Class C Shares of the Fund
("Shares") are designed for individuals as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio of foreign equity
securities.

The Fund's current net asset value and offering price may 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 provide long-term growth of capital. Any income
received from the portfolio is incidental. The investment objective cannot be
changed without the approval of shareholders. 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.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing in shares of other
open-end management investment companies for which affiliates of Federated
Investors serve as investment adviser and principal underwriter (the "Federated
Funds," herein referred to as the "underlying funds") that invest primarily in
foreign equity securities. The underlying funds in which the Fund will invest
include, but are not limited to, Federated Asia Pacific Growth Fund, Federated
Emerging Markets Fund, Federated European Growth Fund, Federated International
Small Company Fund, and Federated Latin American Growth Fund.

The Fund's strategy of investing in the shares of other international equity
funds is designed (but not guaranteed) to reduce the risk associated with
investing in a single sector-or regional-specific underlying fund. Holding a
diversified portfolio of international equity funds also may provide access to a
wider range of companies, industries, countries, and markets than would be
available through any one underlying fund. International securities and markets
are subject to currency rate fluctuations and potentially greater price
volatility and liquidity considerations than U.S. securities. Investors have
historically sought to reduce these risks through multi-country diversification.
The Fund is designed to give shareholders a single investment that offers broad
international diversification.

Each of the underlying funds is a diversified portfolio which seeks to provide
long-term growth of capital. The Federated Asia Pacific Growth Fund pursues its
investment objective by investing primarily in equity securities of Asian and
Pacific Rim companies. The Federated European Growth Fund pursues its investment
objective by investing primarily in a professionally managed and diversified
portfolio of European companies. The Federated Emerging Markets Fund pursues its
investment objective by investing primarily in a professionally managed and
diversified portfolio of securities of issuers and companies located in
countries having emerging markets. The Federated International Small Company
Fund pursues its investment objective by investing primarily in a professionally
managed and diversified portfolio of equity securities of small foreign
companies. The Federated Latin American Growth Fund pursues its investment
objective by investing primarily in equity securities of Latin American
companies.

Under normal market conditions, and as an investment policy, the Fund will
invest at least 65% of its total assets in underlying funds that are
international equity funds. However, as an operational policy, the Fund
anticipates investing substantially all of its assets in international equity
funds. International equity funds are those which invest primarily in equity
securities of companies located in three or more countries
outside the United States. The fund's adviser, Federated Global Research Corp.
(the "Adviser"), will attempt to identify and select a varied portfolio of
international equity funds which presents the greatest long-term capital growth
potential based on the Adviser's analysis of many factors.

The Adviser will allocate the Fund's assets across the underlying funds such
that the Fund will be exposed to large and small capitalization stocks from both
developed and emerging markets outside of the United States. Small
capitalization companies are those companies that have a market capitalization
of $1.5 billion or less at the time of purchase. Large capitalization companies
are those companies that have a market capitalization of over $1.5 billion at
the time of purchase. Generally included in emerging markets are all countries
in the world except Australia, Canada, Japan, New Zealand, the United States,
and most western European countries. From time to time, the Adviser will alter
the allocation percentages of the underlying funds based on market risk,
economic fundamentals and unique market characteristics within the foreign
markets an asset classes in which the underlying funds invest. The Adviser will
first assess the relative attractiveness of geographic regions and individual
countries. After identifying the most and least attractive countries or regions,
consideration will be given to expected returns and risks before deciding which
areas, if any, to overweight or underweight. By rebalancing the Fund through
investment of the proceeds of new purchases into the Fund, by making purchases
and sales among the shares of the underlying funds, or a combination of the two,
the Adviser will continually manage the Fund's exposure to large and small
capitalization stocks from both developed and emerging markets.

Because the Fund and the underlying funds may invest in substantially similar
securities in a similar fashion, thereby incurring similar risks, all further
references to the Fund hereinafter include the underlying funds unless otherwise
indicated. Although many of the underlying funds may have the same or similar
investment policies as the Fund, they are not required to do so.

Assets not invested in international equity funds may be invested in underlying
funds other than international equity funds, such as global funds (funds that
invest primarily in securities of issuers throughout the world, including the
United States).

The Fund also may 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.

Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Directors (the "Directors") without approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective.

Were the Fund to receive certain exemptive relief from the SEC, the Fund would
also be permitted to invest directly in a professionally managed diversified
portfolio of equity securities of companies domiciled outside the United States
that the Adviser believes offer excellent opportunities for long-term growth.
Additionally, the Fund, for liquidity purposes, may maintain direct investments
in short-term money market securities rated A by one or more nationally
recognized statistical rating organizations or, if unrated, are of comparable
quality in the judgment of the Adviser. However, for temporary defensive
purposes, when the Adviser determines that market conditions warrant, the Fund
may invest up to 100% of its total assets in U.S. and foreign money market
instruments.

To the extent that the Fund's assets are invested in the underlying funds, its
investment performance will correspond directly to that of its proportionate
investment in those underlying funds. This strategy involves certain additional
expenses and certain tax results which would not be present in a direct
investment in mutual funds. See "Expenses of the Fund and Class A Shares, Class
B Shares and Class C Shares" and "Federal Income Tax." The Fund may purchase
shares of no-load funds available without a transaction fee and/or pay their own
distribution expenses. See "Additional Considerations of Investing in Other
Investment Companies." Each underlying fund provides a prospectus and other
disclosure documents to the Fund. These documents are also available to Fund
shareholders directly from the underlying fund.

ACCEPTABLE INVESTMENTS

The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics as
well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. 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 cash; and purchase
options and financial futures contracts.

COMMON AND PREFERRED STOCK

Stocks represent shares of ownership in a company. Generally, preferred stock
has a specified dividend and ranks after bonds and before common stocks in its
claim on income for dividend payments and on assets should the company be
liquidated. After other claims are satisfied, common stockholders participate in
company profits on a pro rata basis; profits may be paid out in dividends or
reinvested in the company to help it grow. Increases and decreases in earnings
are usually reflected in a company's stock price, so common stocks generally
have the greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, the Fund may purchase
preferred stock where the issuer has omitted, or is in danger of omitting,
payment of its dividend. Such investments would be made primarily for their
capital appreciation potential.

In selecting securities, the Adviser typically evaluates industry trends, a
company's financial strength, its competitive position in domestic and export
markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.

DEPOSITARY RECEIPTS

The Fund may invest in foreign issuers by purchasing sponsored or unsponsored
securities representing underlying international securities such as American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), Global
Depositary Certificates ("GDCs"), International Depositary Receipts ("IDRs"),
and Russian Depositary Certificates ("RDCs") or securities convertible into
foreign equity securities. ADRs and ADSs typically are issued by a United States
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation. EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), GDRs, GDCs, IDRs and RDCs 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. ADRs, ADSs, CDRs,
EDRs, GDRs, GDCs, IDRs, and RDCs are collectively known as "Depositary
Receipts." Depositary Receipts may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is established
jointly by the issuer of the security underlying the receipt and a depositary,
whereas an unsponsored facility may be established by a depositary without
participation by the issuer of the receipt's underlying security. Holders of an
unsponsored Depositary Receipt generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through to the holders of the receipts voting
rights with respect to the deposited securities.

DEBT SECURITIES

In pursuit of the Fund's objective of long-term growth of capital, the Fund may
invest up to 35% of its total assets in debt securities. Capital appreciation in
debt securities may arise as a result of favorable changes in the
creditworthiness of issuers, relative interest rate levels, or relative foreign
exchange rates. Any income received from debt securities will be incidental to
the Fund's objective of long-term growth of capital. These debt obligations
consist of U.S. and foreign government securities and corporate debt securities,
including, but not limited to, Samurai and Yankee bonds, Eurobonds and
Depositary Receipts. The issuers of such debt securities may or may not be
domiciled in emerging countries.

The debt securities in which the Fund may invest may be rated, at the time of
purchase, as low as C by Standard & Poor's Ratings Services ("S&P") or Fitch
Investors Service L.P. ("Fitch") or by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, are of comparable quality as determined by the
Adviser. Such debt securities are commonly known as "junk bonds." 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. The prices of fixed income
securities generally fluctuate inversely to the direction of interest rates.
Please refer to the Appendix in this prospectus for a description of these
ratings.

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.

Please see "Risk Factors Relating to Investing in High Yield
Securities".

RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Securities that can be traded without restrictions in
non-U.S. securities markets will not be treated as restricted, even if they
cannot be traded in U.S. securities markets without restriction. Restricted
securities may be issued by new and early stage companies which may include a
high degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund,
or less than what may be considered the fair value of such securities. Further,
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expense of registration. The Fund
will limit investments in illiquid securities, including certain restricted
securities not determined by the Directors to be liquid, over-the counter
options, swap agreements not determined to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.

REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer) to
repurchase the security at an agreed-upon price and specified future date. The
repurchase price reflects an agreed-upon interest rate for the time period of
the agreement. The Fund's risk is the inability of the seller to pay the agreed-
upon price on the delivery date. However, this risk is tempered by the ability
of the Fund to sell the security in the open market in the case of a default. In
such a case, the Fund may incur costs in disposing of the security which would
increase Fund expenses. The Adviser will monitor the creditworthiness of the
firms with which the Fund enters into repurchase agreements.

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 different times in the future. The seller's
failure to complete these transactions 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.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, 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 at all times.

TEMPORARY INVESTMENTS

For temporary defensive purposes, when the Adviser determines that market
conditions warrant (up to 100% of total assets) and to maintain liquidity (up to
35% of total assets), the Fund may invest in U.S. and foreign debt instruments
as well as cash or cash equivalents, including foreign and domestic money market
instruments, short-term government and corporate obligations, and repurchase
agreements.

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.

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. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations.
Cross-hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.

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
60 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 value of the Fund's assets
denominated in that currency at the time the contract was initiated, but as
consistent with their other investment policies and as not otherwise limited in
their ability to use this strategy.

OPTIONS

The Fund may deal in options on foreign currencies, securities, and securities
indices, and on futures contracts involving these items, which options may be
listed for trading on an international securities exchange or traded over-the-
counter. The Fund may use options to manage interest rate and currency risks.
The Fund may also write covered call options and secured put options to seek to
generate income or lock in gains.

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 the 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 nonperformance 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 with a wider range of expiration
dates and exercise prices, than are exchange traded options.

It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.

FUTURES AND OPTIONS ON FUTURES

The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide hedging
purposes. The Fund may also enter into such futures contracts or related options
for purposes other than bona fide hedging if the aggregate amount of initial
margin deposits exclusive of the margin needed for foreign currency hedging, on
the Fund's futures and related options positions would not exceed 5% of the net
liquidation value of the Fund's assets, provided further that in the case of an
option that is in-the-money at the time of the purchase, the in-the-money amount
may be excluded in calculating the 5% limitation. In addition, the Fund may not
sell futures contracts if the value of such futures contracts exceeds the total
market value of the Fund's portfolio securities. Futures contracts and options
thereon sold by the Fund are generally subject to segregation and coverage
requirements established by either the Commodities Futures Trading Commission
("CFTC") or the SEC, with the result that, if the Fund does not hold the
instrument underlying the futures contract or option, the Fund will be required
to segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.

The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An 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 differences 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.

The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, depending on market conditions, a futures position may be terminated
without the corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the Adviser believes such investment is
more efficient, liquid, or cost-effective than investing directly in the
securities underlying the index.

An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the Adviser believes such
investment is more efficient, liquid or cost-effective than investing directly
in the futures contract or in the securities underlying the index, or when the
futures contract or underlying securities are not available for investment upon
favorable terms.

The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the Adviser's ability to predict pertinent market movements; (2) there
might be imperfect correlation, or even no correlation, between the change in
market value of the securities held by the Fund and the prices of the futures
and options thereon relating to the securities purchased or sold by the Fund.
The use of futures and related options may reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements but they
can also reduce the opportunity for gain by offsetting the positive effect of
favorable price movements in positions. No assurance can be given that the
Adviser's judgment in this respect will be correct.

It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.

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.

RISKS OF FUTURES AND OPTIONS TRANSACTIONS

When the Fund uses futures and options on futures as hedging devices, there is a
risk that the prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the Adviser could
be incorrect in its expectations about the direction or extent of market factors
such as stock price movements. In these events, the Fund may lose money on the
futures contract or option.

SWAP AGREEMENTS

As one way of managing its exposure to different types of investments, the Fund
may enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of the Fund's
investments, its share price and yield.

Swap agreements are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude of risks assumed. As a result,
swaps can be highly volatile and may have a considerable impact on the Fund's
performance. Swap agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements to reduce its exposure through
offsetting transactions. When the Fund enters into a swap agreement, assets of
the Fund equal to the value of the swap agreement will be segregated by the
Fund.

RISK CHARACTERISTICS OF FOREIGN SECURITIES

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
which may include both developed and developing countries.

The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally 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 such as requiring payment for
securities before delivery. 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.

RISK CONSIDERATIONS IN EMERGING MARKETS

Investing in securities of issuers in emerging market countries involves
exposure to significantly higher risk than investing in countries with developed
markets. Emerging market countries may have economic structures that are
generally less diverse and mature and political systems that can be expected to
be less stable than those of developed countries.

Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties of
investing in lesser developed markets and economies. In particular, emerging
market countries may have relatively unstable governments, and may present the
risk of nationalization of businesses, expropriation, confiscatory taxation or,
in certain instances, reversion to closed market, centrally planned economies.
Such countries may also have restrictions on foreign ownership or prohibitions
on the repatriation of assets, and may have less protection of property rights
than developed countries.

The economies of emerging market countries may be predominantly based on only a
few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to changes
in local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. In addition, securities markets in emerging
market countries may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially resulting in a
lack of liquidity and in volatility in the price of securities traded on those
markets. Also, securities markets in emerging market countries typically offer
less regulatory protection for investors.

CURRENCY RISKS

Because the majority of 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 net asset value; the value of interest earned;
gains and losses realized on the sale of securities; and net investment income
and capital gain, if any, to be distributed to shareholders by the Fund. If the
value of a foreign currency rises against the U.S. dollar, the value of Fund
assets denominated in the 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 United States Internal
Revenue Code, (the "Code"), the Fund is required to separately account for the
foreign currency component of gains or losses, which will usually be viewed
under the Code as items of ordinary and distributable income or loss, thus
affecting the Fund's distributable income. (See "Federal Income Tax").

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

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.

DIVERSIFICATION

With respect to 75% of the value of total assets, the Fund will not invest more
than 5% in securities of any one issuer, other than cash, cash items, securities
of investment companies or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities and repurchase agreements
collateralized by U.S. government securities or acquire more than 10% of the
outstanding voting securities of any one issuer (for which purposes all
indebtedness of an issuer shall be deemed a single class and all preferred stock
of an issuer shall be deemed a single class, except that futures or option
contracts and securities of mutual funds shall not be subject to this
restriction). This policy cannot be changed without the approval of holders of a
majority of the Fund's shares.

NON-DIVERSIFICATION

The underlying funds in which the Fund invests may be non-diversified investment
companies. As such, there is no Investment Company Act of 1940 ("1940 Act")
limit on the percentage of assets which can be invested in any single issuer. An
investment in such funds, therefore, will entail greater risks than would exist
in diversified investment companies 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 of such issuer held by the fund will have
a greater impact on the total value of the fund's portfolio than would be the
case if the fund were diversified among more issuers.

However, it is anticipated that the underlying funds will comply with Subchapter
M of the Code. This requires that at the end of each quarter of the taxable
year, the aggregate value of all investments in any one issuer (except U.S.
government obligations, cash, cash items and other investment companies) which
exceed 5% of a fund's total assets shall not exceed 50% of the value of its
total assets, and, with respect to the remaining assets, no more than 25% of a
fund's assets shall be invested in a single issuer.

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES

The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for Moody's), but
are in the lower rating categories or are unrated, but are of comparable quality
and have speculative characteristics or are speculative. Lower-rated bonds or
unrated bonds are commonly referred to as "junk bonds." A description of the
rating categories is contained in the Appendix of this prospectus.

Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.

The Fund's Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments.

ADDITIONAL CONSIDERATIONS OF INVESTING IN OTHER INVESTMENT
COMPANIES

Any investment in a mutual fund involves risk and, although the Fund invests in
a number of underlying funds, this practice does not eliminate investment risk.

Under certain circumstances an underlying fund may determine to make payment of
a redemption by a Fund wholly or partly by a distribution in kind of securities
from its portfolio, in lieu of cash, in conformity with the rules of the SEC. In
such cases, the Fund may hold portfolio securities distributed by an underlying
fund until the Adviser determines that it is appropriate to dispose of such
securities.

The Fund may purchase shares of both load and no-load underlying funds
(including those with a contingent deferred sales charge). However, in most
cases, the Fund anticipates purchasing fund shares without a sales charge or
qualifying for a reduction or waiver of any sales charge because of the amount
it intends to invest in the underlying fund.

Under the 1940 Act, a mutual fund must sell its shares at the price (including
sales charge, if any) described in its prospectus, and current rules under the
1940 Act do not permit negotiation of sales charges. Therefore, the Fund
currently is not able to negotiate the level of the sales charges at which it
will purchase shares of load funds. Nevertheless, when appropriate, the Fund
will purchase such shares pursuant to (i) letters of intent, permitting it to
obtain reduced or no sales charges by aggregating its intended purchases over
time (generally 13 months from the initial purchase under the letter); (ii)
rights of accumulation, permitting it to obtain reduced or no sales charges as
it purchases additional shares of an underlying fund; and (iii) the right to
obtain reduced or no sales charges by aggregating its purchases of several funds
within a family of mutual funds.

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 its assets to secure such borrowings;
or

* with respect to 75% of its total assets, invest more than 5% of the value of
its total assets in securities of any one issuer (other than cash, cash items,
securities of other investment companies, or securities issued or guaranteed
by the U.S. government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10% of the
outstanding voting securities of any one issuer.

The above investment limitations cannot be changed without shareholder approval.

PORTFOLIO TURNOVER

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in the Fund's 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. Generally, a high portfolio turnover rate results in increased
transaction costs and higher taxes paid by the Fund's shareholders. In addition,
a high rate of portfolio turnover may result in the realization of a larger
amount of capital gains which, when distributed to the Fund's shareholders, are
taxable to them. Transactions for the Fund's portfolio will be based only upon
investment considerations and will not be limited by any other considerations
when the Fund's Adviser deems it appropriate to make changes in the Fund's
portfolio. There is no limit on the underlying funds' portfolio turnover rates.

HUB AND SPOKE(registered trademark) OPTION

If the Directors determine it to be in the best interest of the Fund and its
shareholders, the Fund may in the future seek to achieve its investment
objective by investing all of its assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to the Fund. It is expected that any such
investment company would be managed in substantially the same manner as the
Fund.

The initial shareholder of the Fund (who is an affiliate of Federated Global
Research) voted to vest authority to use this investment structure in the sole
discretion of the Directors. No further approval of shareholders is required.
Shareholders will receive at least 30 days prior notice of any such investment.

In making its determination, the Directors will consider, among other things,
the benefits to shareholders and/or the opportunity to reduce costs and achieve
operational efficiencies. Although it is expected that the Directors will not
approve an arrangement that is likely to result in higher costs, no assurance is
given that costs will remain the same or be materially reduced if this
investment structure is implemented.

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 Subsequent $1,500/$100 $1500/$100 $1500/$100
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 SALES DEALER
CHARGE CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
OFFERING AMOUNT 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 intermediary (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 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 fees for their services.

The financial intermediary which maintains 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 Individual
Retirement Accounts ("IRA"). 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.
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. Redemption proceeds will normally be sent the
following day. However, in order to protect shareholders of the Corporation 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. Dividends are paid up to the day
redemption proceeds are sent.

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. If
at any time the Fund shall determine it necessary to terminate or modify this
method of redemption, 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 by mailing a written request to: Federated
Shareholder Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston,
Massachusetts 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.

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

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.

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 Shares and
Class 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.

ELIMINATING THE 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 IRA or other retirement
plan to a shareholder who has attained the age of 70 1/2;

* 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 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.

CORPORATION 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.

ADVISER

Investment decisions for the Fund are made by Federated Global Research Corp.,
the Fund's Adviser, subject to direction by the 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

Because the Fund does not invest in individual securities at the present time,
it pays the Adviser no advisory fee.

The investment advisory fees of the underlying funds are not included in the
Fund's advisory fee. There are separate investment advisory fees paid by each
underlying fund. You would not incur the Fund's expenses if you were to invest
in the underlying funds directly.

ASSET ALLOCATION FEE

The Fund has no present intention of paying or accruing the asset allocation fee
during the fiscal year ending November 30, 1998. If an asset allocation fee were
to be charged to the Fund, it could range up to an annual fee of .20% of the
average daily net assets invested in the underlying funds. Before this fee would
be implemented, the Directors' approval would be required.

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 $110 billion invested across
more than 300 funds under management and/or administration by
its subsidiaries, as of December 31, 1996, Federated Investors
is one of the largest mutual fund investment managers in the
United States. With more than 2,000 employees, Federated
continues to be led by the management who founded the company in
1955. Federated Funds are presently at work in and through 4,500
financial institutions nationwide.

Drew J. Collins has been the Fund's portfolio manager since the
Fund's inception. 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.

Henry A. Frantzen has been the Fund's portfolio manager since
the Fund's inception. Mr. Frantzen joined Federated Investors in
1995 as an Executive Vice President of the Fund's Adviser. Mr.
Frantzen served as Chief Investment Officer of international
equities at Brown Brothers Harriman & Co. from 1992 until 1995.

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 Directors, and
could result in severe penalties.

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 may offer to pay financial institutions an amount equal 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.

The distributor will pay dealers an amount equal to 5.50% of the NAV 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.

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 in an amount
computed at an annual rate of up to 0.25% for Class A Shares and up to 0.75% for
Class B Shares and Class C Shares 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. The Fund does not currently
make payments to the distributor or charge a fee under the Distribution Plan for
Class A Shares, and shareholders of Class A Shares will be notified if the Fund
intends to charge a fee under 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 Class B 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 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 future payments made by Shares
under the 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 ("Shareholder
Services"). The fee paid by the Fund to Federated Shareholder Services will be
reduced to the extent that the Fund receives a fee from an underlying fund
pursuant to the underlying fund's Shareholder Services Agreement with Federated
Shareholder Services. 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.

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 sales services, distribution-related support
services, or shareholder services.

OTHER 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,
Federated Securities Corp. and Federated Shareholder Services may offer to pay a
fee from their own assets to financial institutions as financial assistance for
providing 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 Fund's Adviser or its affiliates.

ADMINISTRATION OF THE FUND

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:

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

EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND
CLASS C SHARES

Holders of Class A, Class B, and Class C Shares pay their allocable portion of
Corporation and portfolio expenses.

The Corporation expenses for which holders of Class A, Class B, and Class C
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Corporation and continuing its existence; registering the
Corporation with federal and state securities authorities; Directors' fees;
auditors' fees; the cost of meetings of Directors; legal fees of the
Corporation; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.

The portfolio expenses for which holders of Class A, Class B, and Class C Shares
pay their allocable portion include, but are not limited to: registering the
portfolio and Shares of the portfolio; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise from time to time.

At present, the only expenses which are allocated specifically to Class A, Class
B, and Class C Shares as classes are expenses under the Corporation's
Distribution Plan and fees for Shareholder Services. However, the Directors
reserve the right to allocate certain other expenses to holders of Class A,
Class B, and Class C Shares as it deems appropriate ("Class Expenses"). In any
case, Class Expenses would be limited to: distribution fees; transfer agent fees
as identified by the transfer agent as attributable to holders of Class A, Class
B, and Class C Shares; fees for Shareholder Services; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the SEC and registration fees paid to state securities commissions;
expenses related to administrative personnel and services as required to support
holders of Class A, Class B, and Class C Shares; legal fees relating solely to
Class A, Class B, and Class C Shares and Directors' fees incurred as a result of
issues relating solely to Class A, Class B, and Class C Shares.

An investor in the Fund should recognize that you may invest directly in
underlying funds and that, by investing in underlying funds indirectly through
the Fund, you will bear not only your proportionate share of the expenses of the
Fund and as described above, but also, indirectly, similar expenses of the
underlying funds. In addition, you will bear your proportionate share of
expenses, if any, related to the distribution of the Fund's shares, see
"Distribution of Shares," and also may indirectly bear expenses paid by an
underlying fund related to the distribution of its shares. You also will bear
your proportionate share of any sales charges incurred by the Fund related to
the purchase of shares of the underlying funds. However, in certain instances,
the Fund may be eligible to purchase underlying funds at a reduced or no sales
charge, whereas an individual investor would have to pay the full sales charge
if the investor directly invested in such underlying funds. In those instances,
it may be possible for an investor to bear greater transaction and operating
expenses by investing directly in the underlying funds than if the investor were
to invest indirectly through such underlying funds as a shareholder in the Fund
(even after aggregating the transaction and operating expenses of the Fund and
the underlying funds). Finally, you should recognize that, as a result of the
Fund's policies of investing in other mutual funds, you may receive taxable
capital gains distributions to a greater extent than would be the case if you
invested directly in the underlying funds. See "Dividends and Distributions" and
"Federal Income Tax."

BROKERAGE TRANSACTIONS

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

SHAREHOLDER INFORMATION

VOTING RIGHTS

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

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

Directors may be removed by the Directors or 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 Corporation's
outstanding Shares of all series entitled to vote.

When the Fund is asked to vote on matters relating to the underlying funds, the
Fund is required to either: seek voting instructions from its shareholders
regarding underlying fund proxies and to vote such proxies in accordance with
the instructions received; or to vote such proxies in the same proportion as the
vote of all other holders of the underlying fund securities.

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.

The Fund may invest in underlying funds with capital loss carry-forwards. If
such an underlying fund realizes capital gains, it will be able to offset the
gains to the extent of its loss carry-forwards in determining the amount of
capital gains which must be distributed to its shareholders. To the extent that
gains are offset in this manner, the Fund will not realize gains on the related
fund until such time as the underlying fund is sold.

STATE AND LOCAL TAXES

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.

APPENDIX

STANDARD AND POOR'S RATINGS SERVICES LONG TERM DEBT RATING
DEFINITIONS

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 repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

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

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

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

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

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

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

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

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

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

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

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

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

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

FITCH INVESTORS SERVICE, L.P.
LONG-TERM DEBT RATING DEFINITIONS

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

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

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

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

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

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

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

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

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

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

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

* Leading market positions in well established industries.

* High rates of return on funds employed.

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

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

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

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

STANDARD AND POOR'S RATINGS SERVICES COMMERCIAL PAPER RATINGS

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

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

FITCH INVESTORS SERVICE, L.P. COMMERCIAL PAPER RATING
DEFINITIONS

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

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

[LOGO OMITTED]

FEDERATED INTERNATIONAL GROWTH FUND

(A Portfolio of World Investment Series, Inc.)

Class A Shares,

Class B Shares,

Class C Shares

PROSPECTUS

JANUARY 31, 1998

An Open-End, Diversified Management Investment Company

FEDERATED INTERNATIONAL GROWTH 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
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. 8600

Boston, MA 02266-8600

INDEPENDENT AUDITORS

Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor

Federated Investors Tower
Pittsburgh, PA 15222-3779

1-800-341-7400

www.federatedinvestors.com

Cusip 981487739

Cusip 981487721

Cusip 981487713

G02118-01-ABC (1/98)

[RECYCLE LOGO]

FEDERATED INTERNATIONAL GROWTH FUND
A PORTFOLIO OF WORLD INVESTMENT 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 Growth Fund (the "Fund"), a portfolio of World
Investment 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.

FEDERATED INTERNATIONAL GROWTH FUND
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000

Statement dated January 31, 1998

[LOGO OMITTED]

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

Cusip 981487739
Cusip 981487721
Cusip 981487713
G02118-02-ABC (1/98)

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Convertible Securities 1
Investing in Securities of Other Investment Companies 1
When-Issued and Delayed Delivery Transactions 1
Lending of Portfolio Securities 2
Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 2
Futures Contracts 3
Put Options on Futures Contracts 3
Call Options on Futures Contracts 3
"Margin" in Futures Transactions 4
Regulatory Restrictions 4
Purchasing Put Options on Portfolio Securities 4
Writing Covered Call Options on Portfolio Securities 5
Over-the-Counter Options 5
Risks 5
Foreign Currency Transactions 7
Special Considerations Affecting Emerging Markets 9
Additional Risk Considerations 10
Portfolio Turnover 10
Investment Limitations 10
WORLD INVESTMENT SERIES, INC. MANAGEMENT 13
Fund Ownership 16
Directors Compensation 17
INVESTMENT ADVISORY SERVICES 17
Adviser to the Fund 17
Advisory Fees 17
BROKERAGE TRANSACTIONS 18
OTHER SERVICES 18
Fund Administration 18
Custodian and Portfolio Accountant 18
Transfer Agent 19
Independent Auditors 19
PURCHASING SHARES 19
Quality Discounts and Accumulated Purchases 19
Concurrent Purchases 19
Letter of Intent 19
Reinvestment Privilege 19
Conversion of Class B Shares 20
Distribution Plan and Shareholder Services Agreement 20
Purchases by Sales Representatives, Corporation Directors,
and Employees 21
DETERMINING NET ASSET VALUE 21
Determining Market Value of Securities 21
Trading in Foreign Securities 21
REDEEMING SHARES 22
Redemption in Kind 22
Contingent Deferred Sales Charge 22
TAX STATUS 23
The Fund's Tax Status 23
Shareholders' Tax Status 23
TOTAL RETURN 23
YIELD 24
PERFORMANCE COMPARISONS 24
Economic and Market Information 25
ABOUT FEDERATED INVESTORS 25
Mutual Fund Market 26
Institutional Clients 26
Bank Marketing 26
Broker/Dealers and Bank Broker/Dealer Subsidiaries 26
FINANCIAL STATEMENTS 26

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in World Investment Series, Inc. (the
"Corporation"), which was established under the laws of the State of
Maryland on January 25, 1994.

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. of the Fund.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to provide long-term growth of capital.
Any income realized from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in shares of other mutual funds, the
portfolios of which consist primarily of equity securities of non-U.S. issuers.
Additionally, pursuant to exemptive relief from the Securities and Exchange
Commission ("SEC"), the Fund may also invest directly in equity securities of
companies domiciled outside the United States. The investment objective cannot
be changed without approval of shareholders.

TYPES OF INVESTMENTS

The Fund invests primarily in shares of other open-end management investment
companies for which affiliates of Federated Investors serve as investment
adviser and principal underwriter (the "Federated Funds" and herein referred to
as the "underlying funds") that invest primarily in foreign equity securities.
To the extent that the Fund's assets are invested in underlying funds, its
investment experience will correspond directly with that of its proportionate
investment in those funds. The Fund may also invest in a diversified portfolio
composed of non-U.S. securities and directly in the securities held by the
underlying funds. Because the Fund and the underlying funds will have
substantially similar investment experiences and incur similar risks, all
further references to the Fund hereinafter include the underlying funds unless
otherwise indicated. Although many of the underlying funds have the same or
similar investment policies as the Fund, they are not required to do so.

A substantial portion of these instruments will be equity securities of
companies domiciled outside the United States. The Fund will invest 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 depositary receipts. The Fund may also enter into
forward commitments, repurchase agreements, foreign currency transactions and
maintain reserves in foreign or U.S.
money market instruments.

CONVERTIBLE SECURITIES

Dividend Enhanced 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.

Preferred Equity Redemption Cumulative Stock ("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.

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.

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.

LENDING OF 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.

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.

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. 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. 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 found by Federated Global
Research, the Fund's investment adviser (the "Adviser") to be creditworthy
pursuant to guidelines established by the Corporation's Board of Directors (the
"Directors").

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 Adviser (the "Adviser") to be creditworthy.

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, as amended (the "Rule").
The Rule is a non-exclusive safe-harbor for certain secondary market
transactions involving registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for resale
under the Rule. The Fund believes that the staff of the SEC has left the
question of determining the liquidity of all restricted securities to the
Directors. The Directors may 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.

Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction shall be
treated as illiquid securities by the Directors.

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 at all
times will 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.

RISKS

OPTIONS

Certain hedging vehicles have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the
extent the Adviser's view as to certain market movements is incorrect, the
risk that the use of such hedging strategies could result in losses greater
than if they had not been used. Use of put and call options may result in
losses to the Fund, force the sale or purchase of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number
of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of
the Fund creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Fund's position. In addition,
futures and options markets may both be liquid in all circumstances and
certain over-the-counter options may have not markets. As a result, in
certain markets, the Fund might not be able to close out a transaction
without incurring substantial losses, if at all. Although the use of futures
and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time
they tend to limit any potential gain which might result from an increase in
value of such position. Finally, the daily variation margin requirements for
futures contracts would create a greater ongoing potential financial risk
than would purchase of options, where the exposure is limited to the cost of
the initial premium. Losses resulting from the use of hedging strategies
would reduce net asset value, and possibly income, and such losses can be
greater than if the hedging strategies had not been utilized.

COMBINED TRANSACTIONS

The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transaction
(including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single hedging
strategy, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each
of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase
such risks or hinder achievement of the portfolio management objective.

SWAPS, CAPS, FLOORS AND COLLARS

Among the hedging strategies into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps,
floors, and collars. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The
Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may
be obligated to pay. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rating payments of fixed rate
payments with respect to a notional amount of principal. A currency swap is
an agreement to exchange cash flows on a notional amount of two or more
currencies based on the relative value differential among them and an index
swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index exceeds
a predetermined interest rate or amount. The purchase of a floor entitles
the purchaser to receive payments on a notional principal amount from the
party selling such floor to the extent that specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap
and a floor that preserves a certain return within a predetermined range of
interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these swaps,
caps, floors, and collars are entered into for good faith hedging purposes,
the Adviser and the Fund believe such obligations do not constitute senior
securities under the Investment Company Act of 1940, as amended, and,
accordingly, will not treat them as being subject to its borrowing
restrictions. There is no minimal acceptable rating for a swap, cap, floor,
or collar to be purchased or held in the Fund's portfolio. If there is a
default by the counterparty, the Fund may have contractual remedies pursuant
to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and agents utilizing standardized
swap documentation. As a result, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for which
standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

RISKS OF HEDGING STRATEGIES OUTSIDE THE U.S.

When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected
by: (i) other complex foreign political, legal and economic factors, (ii)
lesser availability than in the U.S. of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the U.S., (iv) the
imposition of different exercise and settlement terms and procedures and the
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS

Many hedging strategies, in addition to other requirements, require that the
Fund segregate liquid high grade assets with its custodian to the extent
Fund obligations are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency. In general, either
the full amount of any obligation by the Fund to pay or deliver securities
or assets must be covered at all times by the securities, instruments or
currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the Fund
will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option
sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.

Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, a currency contract
which obligates the Fund to buy or sell currency will generally require the
Fund to hold an amount of that currency or liquid securities denominated in
that currency equal to the Fund's obligations or to segregate liquid high
grade assets equal to the amount of the Fund's obligations.

OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OTC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a call
option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.

With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.

Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and hedging
strategies. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating assets if the Fund
held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than
the price of the contract held. Other hedging strategies may also be offset
in combinations. If the offsetting transaction terminates at the time of or
after the primary transaction no segregation is required, but if it
terminates prior to such time, assets equal to any remaining obligation
would need to be segregated.

The Fund's activities involving hedging strategies may be
limited by the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company. (See "Tax
Status")

FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS

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

The Fund will engage in foreign currency exchange transactions in connection
with its portfolio investments. 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.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Fund may enter into forward foreign currency exchange contracts in order
to protect 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.

The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
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 will 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 rises 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
was 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 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. To the extent that the U.S. option markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets until they reopen.

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 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 opinion of the Adviser, 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.

SPECIAL CONSIDERATIONS AFFECTING EMERGING MARKETS

Investing in equity securities of companies in emerging markets may entail
greater risks than investing in equity securities in developed countries. These
risks include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property. Investing in
the securities of companies in emerging markets, may entail special risks
relating to the potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment, convertibility of currencies into U.S. dollars and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by any country, the Fund could lose its
entire investment in any such country.

Settlement mechanisms in emerging markets may be less efficient and reliable
than in more developed markets. In such emerging securities markets there may be
share registration and delivery delays or failures.

Most Latin American countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
any may continue to have negative effects on the economies and securities
markets of certain Latin American countries.

POLITICAL, SOCIAL AND ECONOMIC RISKS

Even though opportunities for investment may exist in emerging markets, any
change in the leadership or policies of the governments of those countries
or in the leadership or policies of any other government which exercises a
significant influence over those countries, may halt the expansion of or
reverse the liberalization of foreign investment policies now occurring and
thereby eliminate any investment opportunities which may currently exist.

Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of Latin American countries previously
expropriated large quantities of real and personal property similar to the
property which will be represented by the securities purchased by the Fund.
The claims of property owners against those governments were never finally
settled. There can be no assurance that any property represented by
securities purchased by the Fund will not also be expropriated,
nationalized, or otherwise confiscated. If such confiscation were to occur,
the Fund could lose its entire investment in such countries. The Fund's
investments would similarly be adversely affected by exchange control
regulation in any of those countries.

Certain countries in which the Fund may invest may have groups that advocate
radical religious or revolutionary philosophies or support ethnic
independence. Any disturbance on the part of such individuals could carry
the potential for widespread destruction or confiscation of property owned
by individuals and entities foreign to such country and could cause the loss
of the Fund's investment in those countries. Instability may also result
from, among other things: (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extraconsititutional means; (ii) popular unrest
associated with demands for improved political, economic and social
conditions; and (iii) hostile relations with neighboring or other countries.
Such political, social and economic instability could disrupt the principal
financial markets in which the Fund invests and adversely affect the value
of the Fund's assets.

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 Fund's portfolio securities in foreign countries and/or with
securities depositories will be at the risk of shareholders. No assurance can be
given that the Directors' appraisal of the risks will always be correct or that
such exchange control restrictions or political acts of foreign governments
might not occur.

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Portfolio securities will be sold when the
Adviser believes it is appropriate, regardless of how long those securities have
been held. However, the underlying funds may experience much higher portfolio
turnover rates resulting in higher brokerage commissions, and taxable gains or
losses. It is estimated the rate of portfolio turnover will, generally, not
exceed 40%.

For the fiscal year ended November 30, 1997 and for the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Federated
Asia Pacific Growth Fund's portfolio turnover rate was 193% and 99%,
respectively.

For the fiscal year ended November 30, 1997 and for the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Federated
Emerging Markets Fund's portfolio turnover rate was 102% and 32%, respectively.

For the fiscal year ended November 30, 1997 and for the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Federated
European Growth Fund's portfolio turnover rate was 119% and 58%, respectively.

For the fiscal year ended November 30, 1997 and for the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Federated
International Small Company Fund's portfolio turnover rate was 286% and 174%,
respectively.

For the fiscal year ended November 30, 1997 and for the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Federated
Latin American Growth Fund's portfolio turnover rate was 79% and 38%,
respectively.

INVESTMENT LIMITATIONS

The following investment limitations are fundamental (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, as amended, or assets
exempted by the SEC) in an open-end investment company with substantially the
same investment objectives):

SELLING SHORT AND BUYING ON MARGIN

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

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts. The
Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put or
call options and the purchase of securities on a when-issued basis; and (b)
collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of the value of its total assets in any
one industry other than investment companies, except that the Fund may
invest 25% or more of the value of its total assets in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities.

INVESTING IN COMMODITIES

The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.

INVESTING IN REAL ESTATE

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

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.

DIVERSIFICATION OF INVESTMENTS

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

The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval (except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940, as amended, or assets exempted by the SEC) in an open-end
investment company with substantially the same investment objectives).
Shareholders will be notified before any material changes in these limitations
become effective.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits with maturities over seven days, over-the-counter options, swap
agreements not determined to be liquid, and certain restricted securities
not determined by the Directors to be liquid.

PURCHASING SECURITIES TO EXERCISE CONTROL

The Fund will not purchase securities of a company for the purpose of
exercising control or management.

INVESTING IN PUT OPTIONS

The Fund will not purchase put options on securities or futures contracts,
unless the securities or futures contracts are held in the Fund's portfolio
or unless the Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further payment.

WRITING COVERED CALL OPTIONS

The Fund will not write call options on securities unless the securities or
futures contracts are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.

The Fund has no present intent to borrow money, pledge securities, or invest in
reverse repurchase agreements in excess of 5% of the value of its total assets
in the coming fiscal year. In addition, the Fund expects to lend not more than
5% of its total assets in the coming fiscal year.

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

WORLD INVESTMENT SERIES, INC. MANAGEMENT

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

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA

Birthdate: July 28, 1924

Chairman and Director

Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

Thomas G. Bigley
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, Trustee, University of Pittsburgh; Director or Trustee of
the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL

Birthdate: June 23, 1937

Director

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

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA

Birthdate: July 4, 1918

Director

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

James E. Dowd
571 Hayward Mill Road
Concord, MA

Birthdate: May 18, 1922
Director

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

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA

Birthdate: October 11, 1932

Director

Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA

Birthdate: May 17, 1923

President and Director

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.

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 and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA

Birthdate: September 14, 1925

Director

Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, and U.S. Space Foundation and Czech
Management Center; President Emeritus, University of Pittsburgh; Founding
Chairman, National Advisory Council for Environmental Policy and Technology,
Federal Emergency Management Advisory Board and Czech Management Center, 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; , Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director
or Trustee of the Funds.

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 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.

* 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: FirstBlue & Company,
First Century Bank, Bluefield, West Virginia, owned approximately
164,498 Class A Shares (12.46%); Hudson United Bank, West Orange, New Jersey,
owned approximately 163,454 Class A Shares (12.38%); and Holiday Company,
Hollidaysburg
Trust Company, Hollidaysburg, Pennsylvania, owned approximately 148,527 Class A
Shares (11.25%).

As of January 7, 1998, no shareholders of record owned 5% or more of 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: Lincoln Trust Co., Denver, Colorado,
owned approximately 6,526 Class C Shares (6.26%); Bear Stearns Securities Corp.,
Brooklyn, New York, owned approximately 10,070 Class C Shares (9.66%);
BHC Securities, Philadelphia, Pennsylvania, owned approximately
5,672 Class C Shares (5.44%); BHC Securities, Philadelphia, Pennsylvania, owned
approximately
5,466 Class C Shares (5.24%); and Donaldson, Lufkin, Jenrette, Jersey City, New
Jersey, owned approximately 16,978 Class C Shares (16.28%).

DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>

AGGREGATE TOTAL COMPENSATION PAID
NAME , COMPENSATION TO DIRECTORS FROM
POSITION WITH FROM THE THE CORPORATION
THE CORPORATION CORPORATION *# AND FUND COMPLEX+
<S> <C> <C>
John F. Donahue, $-0- $0 for the Corporation and
Chairman and Director 56 other investment companies in the Complex
Thomas G. Bigley, $1,149 $111,222 for the Corporation and
Director 56 other investment companies in the Complex
John T. Conroy, Jr., $1,265 $122,362 for the Corporation and
Director 56 other investment companies in the Complex
William J. Copeland, $1,265 $122,362 for the Corporation and
Director 56 other investment companies in the Complex
James E. Dowd, $1,265 $122,362 for the Corporation and
Director 56 other investment companies in the Complex
Lawrence D. Ellis, M.D., $1,149 $111,222 for the Corporation and
Director 56 other investment companies in the Complex
Edward L. Flaherty, Jr. $1,265 $122,362 for the Corporation and
Director 56 other investment companies in the Complex
Peter E. Madden, $1,149 $111,222 for the Corporation and
Director 56 other investment companies in the Complex
John E. Murray, Jr. $1,149 $111,222 or the Corporation and
Director 56 other investment companies in the Complex
Wesley W. Posvar, $1,149 $111,222 for the Corporation and
Director 56 other investment companies in the Complex
Marjorie P. Smuts, $1,149 $111,222 for the Corporation and
Director 56 other investment companies in the Complex
</TABLE>
* Information is furnished for the fiscal year ended November 30, 1997.
# The aggregate compensation is provided for the Corporation which is
comprised of 8 portfolios.
+ The information is provided for the last calendar year.

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND

The Fund's 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

The Adviser receives an annual investment advisory fee equal to 1.25% of the
Fund's average daily net assets. This advisory fee applies only to individual
portfolio securities and not to investment in the underlying funds. 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.
For the period from July 1, 1997 (date of initial public investment) to November
30, 1997, the Adviser did not earn a fee.

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 period from July 1, 1997 (date of initial public investment) to November
30, 1997, the Fund paid $0, in brokerage commissions.

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. The distributor may assist in the execution of the Fund's portfolio
transactions to purchase underlying fund shares for which it may receive
distribution payments from the underlying funds or their underwriters in
accordance with the distribution plans of those funds. In providing execution
assistance, the distributor receives orders from the Adviser; places them with
the underlying fund's distributor, transfer agent or other person, as
appropriate; confirms the trade, price and number of shares purchased; and
assures prompt payment by the Fund and proper completion of the order.

With respect to purchases of load fund shares, the Adviser may direct
substantially all of the Fund's orders to the distributor, which may, in its
discretion, direct the order to other broker-dealers in consideration of sales
of the Fund's shares.

The distributor may retain brokerage commissions on portfolio transactions of
mutual funds held in the Fund's portfolio, including funds which have a policy
of considering sales of their shares in selecting broker-dealers for the
execution of their portfolio transactions. Payment of brokerage commissions to
the distributor is not a factor considered by the Adviser in selecting an
underlying fund for investment.

Under certain circumstances, a sales charge incurred by the Fund in acquiring
shares of an underlying fund may not be taken into account in determining the
gain or loss on the disposition of the shares acquired. If shares are disposed
of within 90 days from the date they were purchased and if shares of a new
underlying fund are subsequently acquired without imposition of a sales charge
or imposition of a reduced sales charge pursuant to a right granted to the Fund
to acquire shares without payment of a sales charge or with the payment of a
reduced charge, then the sales charge paid upon the purchase of the initial
shares will be treated as paid in connection with the acquisition of the new
underlying fund's shares rather than the initial shares.

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. For the period from July 1, 1997 (date of initial public investment)
to November 30, 1997, Federated Services Company earned $77,041.

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 AUDITORS

The independent auditors for the Fund are Ernst & Young 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 "Investing in the Fund" and "Purchasing Shares". For further
information on any of the programs listed below please contact your financial
intermediary.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

As described in the prospectuses, 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 combining concurrent purchases of the same
Shares class of two or more funds in the Federated Complex in calculating the
applicable sales charge,

To receive a sales charge reduction or 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 Class
A 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. The letter may be dated as of a prior date
to include any purchase made within the past 90 days. 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.

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 AGREEMENT

These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, 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 and services 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 Class A Shares,
Class B Shares, and Class C Shares of 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 objectives. By identifying potential investors whose
needs are served by the Fund's objectives, 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 period from July 1, 1997 (date of initial public investment) to November
30, 1997, the Fund's Class B Shares and Class C Shares paid $7,755, and $973,
respectively, in distribution service fees, none of which was waived. Class A
Shares have no present intention of paying or accruing distribution services
fees during the fiscal year ending November 30, 1998. In addition, for the
period from July 1, 1997 (date of initial public investment) to November 30,
1997, the Fund's Class A Shares, Class B Shares, and Class C Shares paid
shareholders services fees in the amounts of $6,913, $2,585, and $324,
respectively, all of which were waived.

Federated Investors and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third-party
financial providers who have advanced commissions to financial intermediaries.

PURCHASES BY SALES REPRESENTATIVES, CORPORATION 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, President's 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, is used);

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

* 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.

The underlying funds in which the Fund may invest value securities in their
portfolios for which market quotations are readily available at their current
market value (generally the last reported sale price) and all other securities
and assets at fair value pursuant to methods established in good faith by the
board of directors/trustees of the underlying fund.

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
Fund does not charge for telephone redemptions, it reserves the right to charge
a fee for the cost of wire- transferred redemptions of less than $5,000. Class B
Shares redeemed within six years of purchase and Class C Shares redeemed within
one year of purchase may be subject to a contingent deferred sales charge. The
amount of the contingent deferred sales charge is based upon the amount of the
administrative fee paid at the time of purchase by the distributor to the
financial institutions for services rendered, and the length of time the
investor remains a shareholder in the Fund. Should financial institutions elect
to receive an amount less than the administrative fee that is stated in the
prospectus for servicing a particular shareholder, the contingent deferred sales
charge and/or holding period for that particular shareholder will be reduced
accordingly.

Since portfolio securities of the Fund may be traded on foreign exchanges which
trade on Saturdays or on holidays on which the Fund will not make redemptions,
the net asset value of each class of Shares of the Fund may be significantly
affected on days when shareholders do not have an opportunity to redeem their
Shares.

REDEMPTION IN KIND

Although the Corporation intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price, in whole or in part, by
a distribution of securities from the Fund's portfolio.

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
in 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 12.00% 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.

Income the Fund receives from sources within various foreign countries may be
subject to foreign income taxes withheld at the source. If the Fund has at least
50% of its assets invested directly in foreign securities at the end of its
taxable year, it may elect to pass through the foreign tax credit to its
shareholders. It is expected that the Fund will not have more than 50% of the
value of its total assets at the close of its taxable year invested directly in
foreign securities, and therefore will not be permitted to make this election
and "pass through" to its shareholders. Each shareholder's respective pro rata
share of foreign taxes the Fund pays will, therefore, be netted against their
share of the Fund's gross income.

The Fund may invest in any non-U.S. corporations which could be treated as
passive foreign investment companies ("PFICs"). This could result in adverse tax
consequences upon the disposition of, or the receipt of "excess distributions"
with respect to, such equity investments. To the extent the Fund does invest in
PFICs, it may adopt certain tax strategies to reduce or eliminate the adverse
effects of certain federal tax provisions governing PFIC investments. Many
non-U.S. banks and insurance companies may not be treated as PFICs if they
satisfy certain technical requirements under the Code. To the extent that the
Fund does invest in foreign securities which are determined to be PFIC
securities and is required to pay a tax on such investments, a credit for this
tax would not be allowed to be passed through to its shareholders. Therefore,
the payment of this tax would reduce the Fund's economic return from its PFIC
shares, and excess distributions received with respect to such shares are
treated as ordinary income rather than capital gains.

An underlying fund may invest in non-U.S. corporations which would be treated as
a PFIC or become a PFIC under the Code. This could result in adverse tax
consequences upon the disposition of, or the receipt of "excess distributions"
with respect to, such equity investments. To the extent an underlying fund does
invest in PFICs, it may elect to treat the PFIC as a "qualified electing fund"
or mark-to-market its investments in PFICs annually. In either case, the
underlying fund may be required to distribute amounts in excess of its realized
income and gains. To the extent that the underlying fund itself is required to
pay a tax on income or gain from investment in PFICs, the payment of this tax
would reduce the Fund's economic return.

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 cumulative total returns based on offering price for the period from
July 1, 1997 (date of initial public investment) to November 30, 1997 were:

SHARE CLASS INCEPTION DATE SINCE INCEPTION
Class A July 1, 1997 (17.49%)
Class B July 1, 1997 (17.70%)
Class C July 1, 1997 (13.70%)

Cumulative total return reflects the Fund's total performance over a specified
period of time. This total return assumes and is reduced by the payment of the
maximum sales charge. The Fund's total return for Class A Shares, Class B, and
Class C Shares is reflective of only 5 months of Fund activity since the Fund's
date of initial public investment. The average annual total return for all
each 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 on Class A Shares, adjusted
over the period by any additional Shares, assuming the annual reinvestment of
all dividends and distributions. Any applicable contingent deferred sales charge
is deducted from the ending value of the investments based on the lesser of the
original purchase price or the offering price of Shares redeemed.

YIELD

The yield for all each classes of Shares of the Corporation is determined by
dividing the net investment income per Share (as defined by the SEC) earned by
any class of Shares the class over a thirty-day period by the maximum offering
price per Share of any class of Shares the Fund 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 twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by any the
class of Share 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 Fund, 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 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.

* MORGAN STANLEY CAPITAL INTERNATIONAL 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.

* MORGAN STANLEY CAPITAL INTERNATIONAL LATIN AMERICA EMERGING MARKET
INDICES, including the Morgan Stanley Emerging Markets Free Latin
America Index (which excludes Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley
Emerging Markets Global Latin America Index. Both indices include 60%
of the market capitalization of the following countries: Argentina,
Brazil, Chile, and Mexico. The indices are weighted by market
capitalization and are calculated without dividends reinvested.

* INTERNATIONAL FINANCE CORPORATION (IFC) EMERGING MARKETS DATA BASE, which
provides detailed statistics on stock and bond markets in developing
countries, including IFC market indices.

* FINANCIAL TIMES ACTUARIES/STANDARD AND POOR'S WORLD (EX U.S.)
MID/SMALL CAP INDICES, which is a total return, market cap-weighted
index of companies from 25 countries.

* FINANCIAL TIMES ACTUARIES INDICES, including the FTA-World Index (and
components thereof), which are based on stocks in major world equity markets.

* 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.

J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global 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.*
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.

* Source: Investment Company Institute

FINANCIAL STATEMENTS

The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1997 (File Nos. 33-52149 and 811-7141). A copy of the Annual Report for the
Fund may be obtained without charge by contacting the Fund.