FEDERATED INTERNATIONAL SERIES, INC.

485BPOS 1 fisiform.htm FEDERATED INTERNATIONAL SERIES, INC.



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

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933              X

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

    Post-Effective Amendment No.   42   ....................         X_

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940    _ X

    Amendment No.   37   ...................................        _X

                      FEDERATED INTERNATIONAL SERIES, INC.

               (Exact Name of Registrant as Specified in Charter)

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

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

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

It is proposed that this filing will become effective:

 X   immediately upon filing pursuant to paragraph (b)
    on _________________ pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a) (i)
    on pursuant to paragraph (a) (i)
    75 days after filing pursuant to paragraph (a)(ii)
    on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

                              Copies To:

Matthew G. Maloney, Esquire
Dickstein Shapiro  Morin & Oshinsky, LLP
2101 L Street, NW
Washington, DC  20037

Federated Investors
World-Class Investment Manager

Federated International Equity Fund

A Portfolio of Federated International Series, Inc.

PROSPECTUS

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January 31, 2004

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CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

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

As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 9

What are the Specific Risks of Investing in the Fund? 11

What Do Shares Cost? 14

How is the Fund Sold? 19

How to Purchase Shares 19

How to Redeem and Exchange Shares 22

Account and Share Information 26

Who Manages the Fund? 27

Legal Proceedings 29

Financial Information 30

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in equity securities of companies based outside the United States.

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The Fund's investment adviser (Adviser) uses a "bottom-up" approach to stock selection and selection of industry and country are secondary considerations. The Fund is not limited to investing according to any particular style, size of company or maintaining minimum allocations to any particular region or country. The Fund may invest up to 20% of its assets in foreign companies based in emerging markets.

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

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Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
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Risks of Foreign Investing. Because the Fund invests in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.
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Currency Risks. Because the exchange rates for currencies fluctuate daily, prices of the emerging market securities in which the Fund invests are more volatile than prices of securities traded exclusively in the United States.
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Emerging Markets Risks. Securities issued or traded in emerging markets generally entail greater risks than securities issued or traded in developed markets. 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.
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Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base and limited access to capital, they may be more likely to fail than larger companies.
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Liquidity Risks. Trading opportunities are more limited for equity securities that are not widely held. This may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell a security, sell other securities to raise cash or give up an investment opportunity, any of which could have a negative effect on the Fund's performance.
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Risks Related to Investing for Growth. The growth stocks in which the Fund may invest are typically more volatile than traditional value stocks and may depend more on price changes than dividend returns.
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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 or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

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Risk/Return Bar Chart and Table

The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

The total returns shown in the bar chart do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.

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Within the periods shown in the bar chart, the Fund's Class A Shares highest quarterly return was 55.35% (quarter ended December 31, 1999). Its lowest quarterly return was (21.42)% (quarter ended September 30, 2002).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class A, Class B and Class C Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for Class A Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Growth Index (MSCI-EAFE GI)¹ and the MSCI-EAFE,¹ both broad-based market indexes. The MSCI-EAFE GI is a subset of the MSCI Global Growth Index designed to measure developed market equity performance, excluding the United States and Canada. The MSCI-EAFE is an unmanaged market-capitalization weighted equity index comprised of 20 of the 48 countries in the MSCI universe and representing the developed world outside of North America. Each MSCI country index is created separately, then aggregated, without change, into regional MSCI indexes. Index returns do not reflect taxes, sales charge, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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(For the periods ended December 31, 2003)

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	<R>1 Year</R>	5 Years	10 Years	<R>Start of Performance²</R>
Class A Shares:
Return Before Taxes	<R>26.59%</R>	<R>(1.98)%</R>	<R>3.18%</R>	<R>--</R>
Return After Taxes on Distributions³	<R>26.77%</R>	<R>(3.09)%</R>	<R>1.76%</R>	<R>--</R>
Return After Taxes on Distributions and Sale of Fund Shares³	<R>17.49%</R>	<R>(2.03)%</R>	<R>2.15%</R>	<R>--</R>
Class B Shares:
Return Before Taxes	<R>27.46%</R>	<R>(1.95)%</R>	<R>--</R>	<R>2.54%</R>
Class C Shares:
Return Before Taxes	<R>30.55%</R>	<R>(1.78)%</R>	<R>2.84%</R>	<R>--</R>
<R>MSCI-EAFE¹</R>	<R>38.59%</R>	<R>(0.05)%</R>	<R>4.47%</R>	<R>--</R>
<R>MSCI-EAFE GI¹</R>	<R>31.99%</R>	<R>(3.95)%</R>	<R>2.07%</R>	<R>--</R>

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1 The Fund's Adviser changed its benchmark index to MSCI-EAFE GI from the MSCI-EAFE, because it is more reflective of the Fund's current investment strategy.

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2 The Fund's Class B Shares start of performance date was September 28, 1994.

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3 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all Shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns for Class B and Class C Shares will differ from those shown for Class A Shares. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

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What are the Fund's Fees and Expenses?

FEES AND EXPENSES

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

Shareholder Fees	Class A	Class B	Class C
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	0.00%	5.50%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None	None
Exchange Fee	None	None	None

Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee	1.00%	1.00%	1.00%
Distribution (12b-1) Fee	None	0.75%	0.75%
Shareholder Services Fee	0.25%	0.25%	0.25%
Other Expenses	0.54%	0.54%	0.54%
Total Actual Annual Fund Operating Expenses	1.79%	2.54%¹	2.54%

1 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class A, Class B and Class C Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A, Class B and Class C Shares operating expenses are as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	<R>$722</R>	<R>$ 1,082</R>	<R>$1,466</R>	<R>$2,539</R>

Expenses assuming no redemption	<R>$722</R>	<R>$ 1,082</R>	<R>$1,466</R>	<R>$2,539</R>

Class B:
Expenses assuming redemption	<R>$807</R>	<R>$ 1,191</R>	<R>$1,550</R>	<R>$2,692</R>

Expenses assuming no redemption	<R>$257</R>	<R>$ 791</R>	<R>$1,350</R>	<R>$2,692</R>

Class C:
Expenses assuming redemption	<R>$455</R>	<R>$ 883</R>	<R>$1,437</R>	<R>$2,947</R>

Expenses assuming no redemption	<R>$355</R>	<R>$ 883</R>	<R>$1,437</R>	<R>$2,947</R>

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing primarily in equity securities of companies based outside the United States.

The Adviser actively manages the Fund's portfolio. The Adviser's process for selecting investments is bottom-up. The Adviser emphasizes fundamental analysis of companies by skilled portfolio managers (bottom-up stock selection), instead of attempting to predict the impact of economic and market cycles (top-down), because it believes this approach provides a greater opportunity for the Adviser's expertise, experience and skill to create excess returns. The Adviser also considers the economic environment and outlook in making stock selection decisions, but those factors play a secondary role to bottom-up analysis.

The Adviser seeks to identify individual companies with the potential for investment return. The investment return could result from the Adviser's view that a company has strong earnings growth potential, that a company is undervalued, or based on generating income or the potential for income. The Fund is not limited to investing according to any particular style, size of company or maintaining minimum allocations to any particular region or country.

The Adviser selects stocks by attempting to evaluate the companies in the Fund's investment universe based on fundamental analysis of, and forecasting, their potential for future stock price appreciation. Key factors in this analysis are: evaluation of the quality of company management, industry position, financial strength, and expected future growth in earnings or cash flows. Before purchasing a stock, the Adviser weighs appreciation potential against market price to evaluate the stock's potential compared to its current price.

The Adviser attempts to manage the risk of relative underperformance of the stocks of the growth companies it selects in down markets by seeking to purchase growth stocks at reasonable prices. The Adviser manages the portfolio's exposure to random or unpredictable events that may adversely affect individual companies, or the risk that the Adviser is otherwise wrong in its analysis of any particular company, through portfolio diversification. There is no assurance these strategies will be successful in reducing portfolio risk. In addition, even if these strategies are successful, the Fund's portfolio is expected to have a relatively high price volatility.

While the Adviser does not take concentrated positions in individual stocks, the Adviser may emphasize business sectors or certain countries in the Fund's portfolio because they exhibit stronger growth potential, or appreciation potential, or both, or the Adviser believes it has greater skill (or fundamental analysis is more effective) in picking stocks in those sectors or countries.

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The Fund may purchase shares of exchange-traded funds (ETFs). The shares of ETFs are listed and traded on stock exchanges at market prices. The Fund may invest in ETFs in order to achieve exposure to a specific region, country, or market sector, or for other reasons consistent with its investment strategy.

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The Fund may not invest more than 20% of its assets in foreign companies based in emerging markets. Further, the Fund is not limited in the portion of its investments that are denominated in either foreign currency or in U.S. dollars. From time to time, the Fund may hedge a portion of its currency risk by using derivatives such as futures or forward contracts. Currency hedges can protect against price movements in a security that a fund owns that are attributable to changes in the value of the currency in which the security is denominated. Hedging may reduce gains or cause losses to the Fund if the hedged currency moves in a different manner than the Adviser anticipated or if the cost of the hedge outweighs its value. It is anticipated that the majority of the Fund's portfolio will not be hedged and will therefore remain subject to currency risk.

Because the Fund refers to equity investments in its name, it will notify shareholders at least 60 days in advance of any changes in its investment policies that would enable the Fund to normally invest less than 80% of its assets in equity investments.

PORTFOLIO TURNOVER

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

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

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

Common Stocks

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

Preferred Stocks

Preferred stocks have the right to receive specified dividends or distributions before the issuer makes payments on its common stock. Some preferred stocks also participate in dividends and distributions paid on common stock. Preferred stocks may also permit the issuer to redeem the stock.

Interests in Other Limited Liability Companies

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

Depositary Receipts

Depositary receipts represent interests in underlying securities issued by a foreign company. Depositary receipts are not traded in the same market as the underlying security. The foreign securities underlying American Depositary Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy shares of foreign-based companies in the United States rather than in overseas markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange transactions. The foreign securities underlying European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary Receipts (IDRs), are traded globally or outside the United States. Depositary receipts involve many of the same risks of investing directly in foreign securities, including currency risks and risks of foreign investing.

Foreign Securities

Foreign equity securities are equity securities of issuers based outside the United States. The Fund considers an issuer to be based outside the United States if:

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it is organized under the laws of, or has a principal office located in, another country;
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the principal trading market for its securities is in another country; or
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it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.
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Foreign equity securities are often denominated in foreign currencies. Along with the risks normally associated with domestic equity securities, foreign equity securities are subject to currency risks and risks of foreign investing. Trading in certain foreign markets is also subject to liquidity risks.

FOREIGN EXCHANGE CONTRACTS

In order to convert U.S. dollars into the currency needed to buy a foreign security, or to convert foreign currency received from the sale of a foreign security into U.S. dollars, the Fund may enter into spot currency trades. In a spot trade, the Fund agrees to exchange one currency for another at the current exchange rate. Although it has historically not done so, the Fund may also enter into derivative contracts in which a foreign currency is an underlying asset. The exchange rate for currency derivative contracts may be higher or lower than the spot exchange rate. Use of these derivative contracts may increase or decrease the Fund's exposure to currency risks.

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INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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The Fund may invest its assets in securities of other investment companies, including the securities of affiliated money market funds, as an efficient means of carrying out its investment policies and managing its uninvested cash.

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The Fund may also invest in ETFs as an efficient means of carrying out its investment strategies. As with traditional mutual funds, ETFs charge asset-based fees, although these fees tend to be relatively low. ETFs do not charge initial sales charges or redemption fees and investors pay only customary brokerage fees to buy and sell ETF shares.

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What are the Specific Risks of Investing in the Fund?

CURRENCY RISKS

Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of its Shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar. The combination of currency risk and market risks tends to make securities traded in foreign markets more volatile than securities traded exclusively in the United States.

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

STOCK MARKET RISKS

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

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

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RISKS RELATED TO INVESTING FOR GROWTH

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Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. For instance, the price of a growth stock may experience a larger decline on a forecast of lower earnings, a negative fundamental development, or an adverse market development. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. This means they depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks that pay higher dividends.

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RISKS OF FOREIGN INVESTING

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

Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than U.S. companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.

Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions that could adversely affect the liquidity of the Fund's investments.

Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries.

EMERGING MARKETS RISK

Securities issued or traded in emerging markets generally entail greater risks than securities issued or traded in developed markets. For example, their prices can be significantly more volatile than prices in developed countries. Emerging market economies may also experience more severe downturns (with corresponding currency devaluations) than developed economies.

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.

LIQUIDITY RISKS

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

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RISKS RELATED TO COMPANY SIZE

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Generally, the smaller the market capitalization of a company, the fewer the number of shares traded daily, the less liquid its stock and the more volatile its price. Market capitalization is determined by multiplying the number of its outstanding shares by the current market price per share.

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

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Smaller companies may lack depth of management. They may be unable to generate funds necessary for growth or development or they may be developing or marketing new products or services for which markets are not yet established and may never become established. Therefore, while smaller companies may offer greater opportunities for capital growth than larger, more established companies, they also involve greater risks and should be considered speculative.

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EXCHANGE-TRADED FUNDS

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An investment in an ETF generally presents the same primary risks as an investment in a conventional fund (i.e., one that is not exchange-traded) that has the same investment objectives, strategies, and policies. The price of an ETF can fluctuate up or down, and the Fund could lose money investing in an ETF if the prices of the securities owned by the ETF go down. In addition, ETFs may be subject to the following risks that do not apply to conventional funds: (i) the market price of an ETF's shares may trade above or below its net asset value; (ii) an active trading market for an ETF's shares may not develop or be maintained; or (iii) trading of an ETF's shares may be halted if the listing exchange's officials deem such action appropriate, the shares are delisted from the exchange, or the activation of market-wide "circuit breakers" (which are tied to large decreases in stock prices) halts stock trading generally.

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CUSTODIAL SERVICES AND RELATED INVESTMENT COSTS

Custodial services and other costs relating to investment in international securities markets are generally more expensive than in the United States. Such markets have settlement and clearance procedures that differ from those in the United States. 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. Inability of the Fund to make intended securities purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security caused by settlement problems could result in losses to the Fund due to a subsequent decline in value of the portfolio security. In addition, security settlement and clearance procedures in some emerging market countries may not fully protect the Fund against loss or theft of its assets.

What Do Shares Cost?

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If the Fund purchases foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market).

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Trading in foreign securities may be completed at times which vary from the closing of the NYSE. In computing its NAV, the Fund values foreign securities at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Occasionally, events that affect these values may occur between the times at which such values are determined and the closing of the NYSE. Such events may affect the value of an individual portfolio security or in certain cases may affect the values of foreign securities more broadly. If the Fund determines that such events have significantly affected the value of portfolio securities, these securities will be valued at their fair value as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors (the "Board").

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

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

	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	5.50%	0.00%
Class B	$1,500/$100	None	5.50%
Class C	$1,500/$100	1.00%	1.00%

1 The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively. The minimum subsequent investment amounts for Systematic Investment Programs (SIP) is $50. Investment professionals may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. Orders for $250,000 or more will be invested in Class A Shares instead of Class B Shares to maximize your return and minimize the sales charges and marketing fees. Accounts held in the name of an investment professional may be treated differently. After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. This conversion is a non-taxable event.

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2 Front-End Sales Charge is expressed as a percentage of public offering price. See "Sales Charge When You Purchase."

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3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $50,000	5.50%	5.82%
$50,000 but less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%

1 A contingent deferred sales charge of 0.75% may apply. See "Sales Charge When You Redeem."

<R>Class C Shares</R>
<R>Purchase Amount</R>	<R>Sales Charge as a Percentage of Public Offering Price</R>	<R>Sales Charge as a Percentage of NAV</R>
<R>All Purchases</R>	<R>1.00%</R>	<R>1.01%</R>

If your investment qualifies for a reduction or elimination of the sales charge as described below, you or your investment professional should notify the Fund's Distributor at the time of purchase. If the Distributor is not notified, you will receive the reduced sales charge only on additional purchases, and not retroactively on previous purchases.

<R>

The sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

</R>

purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
- <R>
- of the same share class of two or more Federated funds (other than money market funds);
- </R>
accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
<R>
signing a letter of intent to purchase a specific dollar amount of Shares within 13 months. (Call your investment professional or the Fund for more information.)
</R>

The sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
<R>
by exchanging shares from the same share class of another Federated fund (other than a money market fund);
</R>
through wrap accounts or other investment programs where you pay the investment professional directly for services;
through investment professionals that receive no portion of the sales charge;
<R>
as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;
</R>
as a Federated Life Member (Class A Shares only) and their immediate family members; or
as a Director or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.

SALES CHARGE WHEN YOU REDEEM

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

Class A Shares (Purchase amount of $1 million or greater):
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.

If your investment qualifies for a reduction or elimination of the CDSC as described below, you or your investment professional should notify the Distributor at the time of redemption. If the Distributor is not notified, the CDSC will apply.

You will not be charged a CDSC when redeeming Shares:

purchased with reinvested dividends or capital gains;
purchased within 120 days of redeeming Shares of an equal or lesser amount;
<R>
that you exchanged into the same share class of another Federated fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
</R>
purchased through investment professionals who did not receive advanced sales payments;
if, after you purchase Shares, you become disabled as defined by the IRS;
if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
if your redemption is a required retirement plan distribution; or
upon the death of the last surviving shareholder of the account. The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder of the account.

To keep the sales charge as low as possible, the Fund redeems your Shares in this order:

Shares that are not subject to a CDSC; and
<R>
Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).
</R>

<R>

The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

</R>

How is the Fund Sold?

<R>

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

</R>

The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to investors who wish to spread their investments beyond the United States and are prepared to accept the particular risks associated with these investments, directly or through investment professionals.

When the Distributor receives marketing fees and sales charges, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

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

How to Purchase Shares

<R>

You may purchase Shares through an investment professional, directly from the Fund, or through an exchange from another Federated fund. The Fund reserves the right to reject any request to purchase or exchange Shares. Where the Fund offers more than one Share class and you do not specify the class choice on your New Account Form or form of payment (e.g., Federal Reserve wire or check) you automatically will receive Class A Shares.

</R>

THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

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

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.

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

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are restricted.

By Check

<R>

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

</R>

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

<R>

If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

</R>

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

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

THROUGH AN EXCHANGE

<R>

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

</R>

BY SYSTEMATIC INVESTMENT PROGRAM

<R>

Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the SIP section of the New Account Form or by contacting the Fund or your investment professional.

</R>

BY AUTOMATED CLEARING HOUSE (ACH)

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

RETIREMENT INVESTMENTS

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

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

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

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

<R>

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

</R>

By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

<R>
Fund Name and Share Class, account number and account registration;
</R>
<R>
amount to be redeemed or exchanged;
</R>
<R>
signatures of all shareholders exactly as registered; and
</R>
<R>
if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.
</R>

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

Signature Guarantees

Signatures must be guaranteed if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

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

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGE

<R>

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

</R>

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

<R>

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

</R>

<R>

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

</R>

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

You may automatically redeem or exchange Shares in a minimum amount of $100 on a regular basis. Complete the appropriate section of the New Account Form or an Account Service Options Form or contact your investment professional or the Fund. Your account value must meet the minimum initial investment amount at the time the program is established. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income.

<R>

Generally, it is not advisable to continue to purchase Class A Shares or Class C Shares subject to a sales charge while redeeming Shares using this program.

</R>

<R>

Systematic Withdrawal Program (SWP) on Class B Shares

</R>

You will not be charged a CDSC on SWP redemptions if:

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

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

<R>

ADDITIONAL CONDITIONS

</R>

Telephone Transactions

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

Share Certificates

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

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

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

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.

<R>

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

</R>

ACCOUNTS WITH LOW BALANCES

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

TAX INFORMATION

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

<R>

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

</R>

Who Manages the Fund?

<R>

The Board governs the Fund. The Board selects and oversees the Adviser, Federated Global Investment Management Corp. The Adviser manages the Fund's assets, including buying and selling portfolio securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement and certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is 175 Water Street, New York, NY, 10038-4965 and Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

</R>

<R>

The Adviser and other subsidiaries of Federated advise approximately 136 mutual funds and a variety of separate accounts, which totaled approximately $198 billion in assets as of December 31, 2003. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,650 employees. More than 5,000 investment professionals make Federated funds available to their customers.

</R>

THE FUND'S PORTFOLIO MANAGERS ARE:

<R>

Uri D. Landesman

</R>

<R>

Uri. D. Landesman has been the Fund's Portfolio Manager since March 2003. Mr. Landesman joined Federated in February 2003 as a Senior Portfolio Manager and a Vice President of the Fund's Adviser. Mr. Landesman served as Principal/Portfolio Manager of Arlington Capital Management from July 2001 to February 2003, and as Principal/Chief Investment Officer of Aaron Fleck & Associates, LLC/A.F.A. Management Partners, L.P. from April 1999 through June 2001. Mr. Landesman was a Vice President, Lead Portfolio Manager with J.P. Morgan Investment Management from February 1997 through March 1999. He received his B.A. from Yeshiva College, Yeshiva University.

</R>

Richard Winkowski

Richard Winkowski has been the Fund's Portfolio Manager since January 2003. Mr. Winkowski joined Federated as a Senior Investment Analyst in April 1998. He became an Assistant Vice President of the Fund's Adviser in July 1999 and became a Vice President of the Fund's Adviser in July 2000. He served as a Senior Research Analyst with Union Bank of Switzerland from October 1997 through March 1998. He was employed with American Express Financial Corp. as a Statistical Analyst from 1994 through January 1995 and then as a Portfolio Manager Assistant until September 1997. Mr. Winkowski earned his B.A. from the University of Wisconsin.

ADVISORY FEES

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

<R>

Legal Proceedings

</R>

<R>

Like many other mutual fund companies, in September 2003, Federated, the parent company of the Federated funds' Adviser and distributor, received detailed requests for information on shareholder trading activities in the Federated funds from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Federated immediately retained the law firm of Reed Smith LLP to conduct an internal investigation, which is ongoing. Additionally, attorneys from the law firm of Dickstein Shapiro Morin & Oshinsky LLP, independent counsel to the Federated funds, are participating in the investigation and are reporting to the independent directors of the Federated funds on their progress.

</R>

<R>

The internal investigation is examining, among other things, circumstances in which it appears that a few Federated fund investors were granted exceptions to Federated's internal procedures for limiting frequent transactions, and that some of these investors made additional investments in other Federated funds. The investigation is also examining instances in which it appears that orders for Federated funds with variable NAVs were placed and accepted after the Federated funds' closing time at 4:00 p.m. Federated is taking steps to ensure that Federated fund shareholder trading policies are adhered to.

</R>

<R>

On October 22, 2003, Federated issued a press release that discusses these matters and announces that Federated is committed to taking remedial actions when and as appropriate, including compensating the Federated funds for any detrimental impact these transactions may have had on them. Based upon the progress of the investigation to date, Federated does not have sufficient information regarding these transactions to make a reasonable estimate of the amount, if any, by which the Federated funds have been impacted. The press release is available in the "About Us" section of Federated's website www.federatedinvestors.com, and any future press releases on this subject will also be posted there.

</R>

<R>

Shortly after the press release was issued, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Federated funds were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. Federated and the Federated funds are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. Although we do not believe that these lawsuits will have a material adverse effect on the Federated funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated fund redemptions, reduced sales of Federated fund shares, or other adverse consequences for the Federated funds.

</R>

Financial Information

<R>

FINANCIAL HIGHLIGHTS

</R>

The Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.

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

Financial Highlights--Class A Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,
	2003			2002			2001			2000			1999
Net Asset Value, Beginning of Period	$12.14			$14.92			$22.14			$29.16			$19.56
Income From Investment Operations:
Net investment income (loss)	0.04	¹		(0.01	)¹		0.02	¹		(0.03	)¹		(0.12	)¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	2.33			(2.77	)		(5.60	)		(3.58	)		11.20

TOTAL FROM INVESTMENT OPERATIONS	2.37			(2.78	)		(5.58	)		(3.61	)		11.08

Less Distributions:
Distributions from net realized gain on investments and foreign currency transactions	--			--			(1.64	)		(3.41	)		(1.48	)

Net Asset Value, End of Period	$14.51			$12.14			$14.92			$22.14			$29.16

Total Return²	19.52	%		(18.63	)%		(27.32	)%		(14.69	)%		61.10	%


Ratios to Average Net Assets:

Expenses	1.79	%³		1.72	%³		1.60	%		1.54	%		1.67	%

Net investment income (loss)	0.35	%		(0.05	)%		0.10	%		(0.11	)%		(0.57	)%

Expense waiver/reimbursement⁴	0.00	%⁵		0.00	%⁵		0.00	%⁵		0.00	%⁵		--

Supplemental Data:

Net assets, end of period (000 omitted)	$210,332		$264,843			$349,203			$486,558			$389,592

Portfolio turnover	150	%		103	%		225	%		283	%		297	%

1 Per share information is based on average outstanding shares.

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

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 1.79% and 1.72% for the years ended November 30, 2003 and November 30, 2002, respectively, after taking into account these expense reductions.

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

5 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

Financial Highlights--Class B Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,
	2003			2002			2001			2000			1999
Net Asset Value, Beginning of Period	$11.22			$13.89			$20.86			$27.87			$18.89
Income From Investment Operations:
Net investment income (loss)	(0.04	)¹		(0.10	)¹		(0.11	)¹		(0.22	)¹		(0.26	)¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	2.12			(2.57	)		(5.22	)		(3.38	)		10.72

TOTAL FROM INVESTMENT OPERATIONS	2.08			(2.67	)		(5.33	)		(3.60	)		10.46

Less Distributions:
Distributions from net realized gain on investments and foreign currency transactions	--			--			(1.64	)		(3.41	)		(1.48	)

Net Asset Value, End of Period	$13.30			$11.22			$13.89			$20.86			$27.87

Total Return²	18.54	%		(19.22	)%		(27.84	)%		(15.41	)%		59.90	%


Ratios to Average Net Assets:

Expenses	2.54	%³		2.47	%³		2.35	%		2.29	%		2.42	%

Net investment income (loss)	(0.40	)%		(0.79	)%		(0.64	)%		(0.85	)%		(1.28	)%

Expense waiver/reimbursement⁴	0.00	%⁵		0.00	%⁵		0.00	%⁵		0.00	%⁵		--

Supplemental Data:

Net assets, end of period (000 omitted)	$39,772		$41,084			$64,928			$97,339			$62,786

Portfolio turnover	150	%		103	%		225	%		283	%		297	%

1 Per share information is based on average outstanding shares.

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

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 2.54% and 2.47% for the years ended November 30, 2003 and November 30, 2002, respectively, after taking into account these expense reductions.

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

5 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

Financial Highlights--Class C Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,
	2003			2002			2001			2000			1999
Net Asset Value, Beginning of Period	$11.06			$13.70			$20.59			$27.50			$18.66
Income From Investment Operations:
Net investment income (loss)	(0.04	)¹		(0.10	)¹		(0.10	)¹		(0.21	)¹		(0.26	)¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	2.10			(2.54	)		(5.15	)		(3.29	)		10.58

TOTAL FROM INVESTMENT OPERATIONS	2.06			(2.64	)		(5.25	)		(3.50	)		10.32

Less Distributions:
Distributions from net realized gain on investments and foreign currency transactions	--			--			(1.64	)		(3.41	)		(1.48	)

Net Asset Value, End of Period	$13.12			$11.06			$13.70			$20.59			$27.50

Total Return²	18.63	%		(19.27	)%		(27.81	)%		(15.24	)%		59.89	%


Ratios to Average Net Assets:

Expenses	2.54	%³		2.47	%³		2.35	%		2.29	%		2.42	%

Net investment income (loss)	(0.40	)%		(0.79	)%		(0.64	)%		(0.82	)%		(1.27	)%

Expense waiver/reimbursement⁴	0.00	%⁵		0.00	%⁵		0.00	%⁵		0.00	%⁵		--

Supplemental Data:

Net assets, end of period (000 omitted)	$66,305		$56,214			$67,125			$73,717			$41,602

Portfolio turnover	150	%		103	%		225	%		283	%		297	%

1 Per share information is based on average outstanding shares.

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

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

5 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

<R>

A Statement of Additional Information (SAI) dated January 31, 2004, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

</R>

<R>

These documents, as well as additional information about the Fund (including portfolio holdings, performance and distributions), are also available on Federated's Internet site at www.federatedinvestors.com.

</R>

You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.

Federated Investors
World-Class Investment Manager

Federated International Equity Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Investment Company Act File No. 811-3984

Federated is a registered mark of Federated Investors, Inc. 2004 ©Federated Investors, Inc.

Cusip 31420G101
Cusip 31420G200
Cusip 31420G309

<R>

G00692-02-ABC (1/04)

</R>

FEDERATED INTERNATIONAL EQUITY FUND
A Portfolio of Federated International Series, Inc.

Statement of additional Information

<R>January 31, 2004

Class A Shares
Class B Shares
Class C Shares
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated International
Equity Fund (Fund), dated January 31, 2004.

This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-800-341-7400.

Contents
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to
the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
1010302B (1/04)</R>

HOW IS THE FUND ORGANIZED?

The Fund is a diversified portfolio of Federated International Series,
Inc. (Corporation). The Corporation is an open-end, management investment
company that was established under the laws of the State of Maryland on
March 9, 1984. The Corporation may offer separate series of shares
representing interests in separate portfolios of securities. The
Corporation changed its name from International Series, Inc. to Federated
International Series, Inc. on January 19, 2000.

The Board of Directors (the Board) has established three classes of shares
of the Fund, known as Class A Shares, Class B Shares and Class C Shares
(Shares). This SAI relates to all classes of Shares. The Fund's investment
adviser is Federated Global Investment Management Corp. (Adviser).

SECURITIES IN WHICH THE FUND INVESTS

<R>In pursuing its investment strategy, the Fund may invest in the
following securities, in addition to the securities listed in the
prospectus, for any purpose that is consistent with its investment
objective. </R>

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax
if they limit their operations and distribute most of their income. Such
tax requirements limit a REIT's ability to respond to changes in the
commercial real estate market.

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

<R>Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be a fixed percentage of the principal or
adjusted periodically. In addition, the issuer of a fixed income security
must repay the principal amount of the security, normally within a
specified time. Fixed income securities provide more regular income than
equity securities. However, the returns on fixed income securities are
limited and normally do not increase with the issuer's earnings. This
limits the potential appreciation of fixed income securities as compared
to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease
depending upon whether it costs less (a discount) or more (a premium) than
the principal amount. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security
may change based upon the probability of an early redemption. Securities
with higher risks generally have higher yields.
The following describes the types of fixed income securities in which
the Fund invests.

U.S. Treasury Securities
U.S. Treasury securities are direct obligations of the federal government
of the United States. U.S. Treasury securities are generally regarded as
having the lowest credit risks.

Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The
United States supports some GSEs with its full faith and credit. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
Agency securities are generally regarded as having low credit risks, but
not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it
does not reduce the market and prepayment risks of these mortgage backed
securities.

Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If
the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. The short maturity of commercial paper
reduces both the market and credit risks as compared to other debt
securities of the same issuer.

Convertible Securities
Convertible securities are fixed income securities that the Fund has the
option to exchange for equity securities at a specified conversion price.
The option allows the Fund to realize additional returns if the market
price of the equity securities exceeds the conversion price. For example,
the Fund may hold fixed income securities that are convertible into shares
of common stock at a conversion price of $10 per share. If the market
value of the shares of common stock reached $12, the Fund could realize an
additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity
securities. Thus, convertible securities may provide lower returns than
nonconvertible fixed income securities or equity securities depending upon
changes in the price of the underlying equity securities. However,
convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing
its initial investment.

Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, such as international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and
related government agencies. Examples of these include, but are not
limited to, the International Bank for Reconstruction and Development (the
World Bank), the Asian Development Bank, the European Investment Bank and
the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and
credit. Further, foreign government securities include mortgage-related
securities issued or guaranteed by national, state or provincial
governmental instrumentalities, including quasi-governmental agencies.

Brady Bonds
Brady Bonds are U.S. dollar denominated debt obligations that foreign
governments issue in exchange for commercial bank loans. The International
Monetary Fund (IMF) typically negotiates the exchange to cure or avoid a
default by restructuring the terms of the bank loans. The principal amount
of some Brady Bonds is collateralized by zero coupon U.S. Treasury
securities which have the same maturity as the Brady Bonds. However,
neither the U.S. government nor the IMF has guaranteed the repayment of
any Brady Bond.

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

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

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

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty.
OTC contracts do not necessarily have standard terms, so they cannot be
directly offset with other OTC contracts. In addition, OTC contracts with
more specialized terms may be more difficult to price than exchange traded
contracts.

Depending upon how the Fund uses derivative contracts and the
relationships between the market value of a derivative contract and the
underlying asset, derivative contracts may increase or decrease the Fund's
exposure to interest rate, stock market, currency and credit risks, and
may also expose the Fund to liquidity and leverage risks. OTC contracts
also expose the Fund to credit risks in the event that a counterparty
defaults on the contract.

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

Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying
asset is commonly referred to as buying a contract or holding a long
position in the asset. Entering into a contract to sell an underlying
asset is commonly referred to as selling a contract or holding a short
position in the asset. Futures contracts are considered to be commodity
contracts. The Fund has claimed an exclusion from the definition of the
term "commodity pool operator" under the Commodity Exchange Act and,
therefore, is not subject to registration or regulation as a commodity
pool operator under that Act. Futures contracts traded OTC are frequently
referred to as forward contracts.

The Fund may trade the following types of futures contracts: foreign
currency, financial futures, securities and securities indices.

Options
Options are rights to buy or sell an underlying asset or instrument for a
specified price (the exercise price) during, or at the end of, a specified
period. The seller (or writer) of the option receives a payment, or
premium, from the buyer, which the writer keeps regardless of whether the
buyer uses (or exercises) the option. Options can trade on exchanges or in
the OTC market and may be bought or sold on a wide variety of underlying
assets or instruments, including financial indices, individual securities,
and other derivative instruments, such as futures contracts. Options that
are written on futures contracts will be subject to margin requirements
similar to those applied to futures contracts.

The Fund may buy the following types of options:

Call Options

A call option gives the holder (buyer) the right to buy the underlying
asset from the seller (writer) of the option. The Fund may use call
options in the following ways:

Buy call options on indices, individual securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures in
anticipation of an increase in the value of the underlying asset or
instrument; and

Write call options on indices, portfolio securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures to
generate income from premiums, and in anticipation of a decrease or only
limited increase in the value of the underlying asset. If a call written
by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise
price plus the premium received.

Put Options

A put option gives the holder the right to sell the underlying asset
to the writer of the option. The Fund may use put options in the
following ways:

o Buy put options on indices, individual securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures in
anticipation of a decrease in the value of the underlying asset; and

o Write put options on indices, portfolio securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures to
generate income from premiums, and in anticipation of an increase or
only limited decrease in the value of the underlying asset. In writing
puts, there is a risk that the Fund may be required to take delivery of
the underlying asset when its current market price is lower than the
exercise price.

Swaps
Swaps are contracts in which two parties agree to pay each other (swap)
the returns derived from underlying assets with differing characteristics.
Most swaps do not involve the delivery of the underlying assets by either
party, and the parties might not own the assets underlying the swap. The
payments are usually made on a net basis so that, on any given day, the
Fund would receive (or pay) only the amount by which its payment under the
contract is less than (or exceeds) the amount of the other party's
payment. Swap agreements are sophisticated instruments that can take many
different forms, and are known by a variety of names including caps,
floors, and collars. Common swap agreements that the Fund may use include:
INTEREST RATE SWAPS
Interest rate swaps are contracts in which one party agrees to make
regular payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million London Interbank Offer Rate
(LIBOR) swap would require one party to pay the equivalent of the LIBOR of
interest (which fluctuates) on $10 million principal amount in exchange
for the right to receive the equivalent of a stated fixed rate of interest
on $10 million principal amount.
CURRENCY SWAPS
Currency swaps are contracts which provide for interest payments in
different currencies. The parties might agree to exchange the notional
principal amount as well.
CAPS AND FLOORS
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
TOTAL RETURN SWAPS
Total return swaps are contracts in which one party agrees to make
payments of the total return from the underlying asset during the
specified period, in return for payments equal to a fixed or floating rate
of interest or the total return from another underlying asset.

Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of
the interest or principal payable on a hybrid security is determined by
reference to changes in the price of an underlying asset or by reference
to another benchmark (such as interest rates, currency exchange rates or
indices). Hybrid instruments also include convertible securities with
conversion terms related to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and
depend upon the terms of the instrument. Thus, an investment in a hybrid
instrument may entail significant risks in addition to those associated
with traditional fixed income or convertible securities. Hybrid
instruments are also potentially more volatile and carry greater market
risks than traditional instruments. Moreover, depending on the structure
of the particular hybrid, it may expose the Fund to leverage risks or
carry liquidity risks.

</R>

SPECIAL TRANSACTIONS

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

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

Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund
is the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
repurchase agreements are subject to credit risks. In addition, reverse
repurchase agreements create leverage risks because the Fund must
repurchase the underlying security at a higher price, regardless of the
market value of the security at the time of repurchase.

Delayed Delivery Transactions
Delayed delivery securities, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with
payment and delivery of the securities scheduled for a future time. During
the period between purchase and settlement, no payment is made by the Fund
to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value
in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of
the securities bought may vary from the purchase prices. Therefore, when
issued transactions create market risks for the Fund. When issued
transactions also involve credit risks in the event of a counterparty
default.

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

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

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

Securities lending activities are subject to market risks and credit risks.

Hedging Transactions
Hedging transactions are intended to reduce specific risks. For example,
to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or sell
a derivative contract that would normally increase in value under the same
circumstances. The Fund may attempt to lower the cost of hedging by
entering into transactions that provide only limited protection, including
transactions that: (1) hedge only a portion of its portfolio; (2) use
derivatives contracts that cover a narrow range of circumstances; or (3)
involve the sale of derivatives contracts with different terms.
Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.

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

Inter-Fund Borrowing and Lending Arrangements
The Securities and Exchange Commission (SEC) has granted an exemption that
permits the Fund and all other funds advised by subsidiaries of Federated
Investors, Inc. (Federated funds) to lend and borrow money for certain
temporary purposes directly to and from other Federated funds.
Participation in this inter-fund lending program is voluntary or both
borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated Investors, Inc. (Federated)
administers the program according to procedures approved by the Fund's
Board, and the Board monitors the operation of the program. Any inter-fund
loan must comply with certain conditions set out in the exemption, which
are designed to assure fairness and protect all participating funds.

For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed"
trades. All inter-fund loans must be repaid in seven days or less. The
Fund's participation in this program must be consistent with its
investment policies and limitations, and must meet certain percentage
tests. Inter-fund loans may be made only when the rate of interest to be
charged is more attractive to the lending fund than market-competitive
rates on overnight repurchase agreements (Repo Rate) and more attractive
to the borrowing fund than the rate of interest that would be charged by
an unaffiliated bank for short-term borrowings (Bank Loan Rate), as
determined by the Board. The interest rate imposed on inter-fund loans is
the average of the Repo Rate and the Bank Loan Rate.

<R>INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment
companies, including the securities of affiliated money market funds, as
an efficient means of carrying out its investment policies and managing
its uninvested cash.

The Fund may also invest in ETFs. As with traditional mutual funds, ETFs
charge asset-based fees, although these fees tend to be relatively low.
ETFs do not charge initial sales charges or redemption fees and investors
pay only customary brokerage fees to buy and sell ETF shares. </R>

Investment Ratings for Investment Grade Securities

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

INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The
Fund's principal risks are described in its prospectus. Additional risk
factors are outlined below.

Risks Related to Investing for Growth
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks.
This means they depend more on price changes for returns and may be more
adversely affected in a down market compared to value stocks that pay
higher dividends.

<R>Emerging Market Risks
|X| Securities issued or traded in emerging markets generally entail
greater risks than securities issued or traded in developed markets. For
example, their prices can be significantly more volatile than prices in
developed countries. Emerging market economies may also experience more
severe downturns (with corresponding currency devaluations) than
developed economies.

|X| 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.

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

|X| Investments can have these same results if their returns are based
on a multiple of a specified index, security, or other benchmark.

Liquidity Risks
|X| Trading opportunities are more limited for fixed income securities
that have not received any credit ratings, have received ratings below
investment grade or are not widely held.

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

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

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

Risks of Investing in Derivatives Contracts and Hybrid Instruments
|X| The Fund's use of derivative contracts involves risks different
from, or possibly greater than, the risks associated with investing
directly in securities and other traditional investments. First,
changes in the value of the derivative contracts and hybrid instruments
in which the Fund invests may not be correlated with changes in the
value of the underlying asset or if they are correlated, may move in the
opposite direction than originally anticipated. Second, while some
strategies involving derivatives may reduce the risk of loss, they may
also reduce potential gains or, in some cases, result in losses by
offsetting favorable price movements in portfolio holdings. Third,
there is a risk that derivatives contracts and hybrid instruments may be
mispriced or improperly valued and, as a result, the Fund may need to
make increased cash payments to the counterparty. Finally, derivative
contracts and hybrid instruments may cause the Fund to realize increased
ordinary income or short-term capital gains (which are treated as
ordinary income for Federal income tax purposes) and, as a result, may
increase taxable distributions to shareholders. Derivative contracts
and hybrid instruments may also involve other risks described in the
prospectus or this SAI such as stock market, credit, liquidity and
leverage risks.

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

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

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

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

Interest Rate Risks
o Prices of fixed income securities rise and fall in response to
changes in the interest rate paid by similar securities. Generally,
when interest rates rise, prices of fixed income securities fall.
However, market factors, such as the demand for particular fixed income
securities, may cause the price of certain fixed income securities to
fall while the prices of other securities rise or remain unchanged.

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

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

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

Prepayment Risks
o Unlike traditional fixed income securities, which pay a fixed rate
of interest until maturity (when the entire principal amount is due)
payments on mortgage backed securities include both interest and a
partial payment of principal. Partial payment of principal may be
comprised of scheduled principal payments as well as unscheduled
payments from the voluntary prepayment , refinancing, or foreclosure of
the underlying loans. These unscheduled prepayments of principal
create risks that can adversely affect a Fund holding mortgage backed
securities.

o For example, when interest rates decline, the values of mortgage
backed securities generally rise. However, when interest rates
decline, unscheduled prepayments can be expected to accelerate, and the
Fund would be required to reinvest the proceeds of the prepayments at
the lower interest rates then available. Unscheduled prepayments would
also limit the potential for capital appreciation on mortgage backed
securities.

o Conversely, when interest rates rise, the values of mortgage backed
securities generally fall. Since rising interest rates typically
result in decreased prepayments, this could lengthen the average lives
of mortgage backed securities, and cause their value to decline more
than traditional fixed income securities.

o Generally, mortgage backed securities compensate for the increased
risk associated with prepayments by paying a higher yield. The
additional interest paid for risk is measured by the difference between
the yield of a mortgage backed security and the yield of a U.S.
Treasury security with a comparable maturity (the spread). An increase
in the spread will cause the price of the mortgage backed security to
decline. Spreads generally increase in response to adverse economic or
market conditions. Spreads may also increase if the security is
perceived to have an increased prepayment risk or is perceived to have
less market demand.

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

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

o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than
United States companies by market analysts and the financial press. In
addition, foreign countries may lack uniform accounting, auditing and
financial reporting standards or regulatory requirements comparable to
those applicable to U.S. companies. These factors may prevent the Fund
and its Adviser from obtaining information concerning foreign companies
that is as frequent, extensive and reliable as the information
available concerning companies in the United States.

o Foreign countries may have restrictions on foreign ownership of
securities or may impose exchange controls, capital flow restrictions
or repatriation restrictions which could adversely affect the liquidity
of the Fund's investments. </R>

FUNDAMENTAL INVESTMENT OBJECTIVE
The investment objective of the Fund is to obtain a total return on its
assets. The investment objective may not be changed by the Fund's Board
without shareholder approval.

INVESTMENT LIMITATIONS

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

Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the Investment Company
Act of 1940 (1940 Act).

Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this
restriction does not prevent the Fund from investing in issuers which
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein. The Fund may exercise its rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner.

Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the
Fund may purchase securities of companies that deal in commodities.

Underwriting
The Fund may not underwrite the securities of other issuers, except that
the Fund may engage in transactions involving the acquisition, disposition
or resale of its portfolio securities, under circumstances where it may be
considered to be an underwriter under the Securities Act of 1933.

Lending
The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into
repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments and
participation interests.

Concentration
The Fund will not make investments that will result in the concentration
of its investments in the securities of issuers primarily engaged in the
same industry. Government securities, municipal securities and bank
instruments will not be deemed to constitute an industry.

The above limitations cannot be changed unless authorized by the Board
and by the "vote of a majority of its outstanding voting securities," as
defined by the 1940 Act. The following limitations, however, may be
changed by the Board without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.

Purchases on Margin
The Fund will not purchase securities on margin, provided that the Fund
may obtain short-term credits necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments.

Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements in
connection with permissible activities.

Illiquid Securities
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if immediately after and as a
result, the value of such securities would exceed, in the aggregate, 15%
of the Fund's net assets.

In applying the concentration restriction: (a) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric and telephone will be considered a separate industry); (b)
financial service companies will be classified according to the end users
of their services (for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry); and (c)
asset backed securities will be classified according to the underlying
assets securing such securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a
matter of non-fundamental policy, the Fund will not exclude foreign bank
instruments from industry concentration limitation tests so long as the
policy of the SEC remains in effect. In addition, investments in bank
instruments, and investments in certain industrial development bonds
funded by activities in a single industry, will be deemed to constitute
investment in an industry, except when held for temporary defensive
purposes. Foreign securities will not be excluded from industry
concentration limits. The investment of more than 25% of the value of the
Fund's total assets in any one industry will constitute "concentration."
As a matter of non-fundamental operating policy, for purposes of the
commodities policy, investments in transactions involving futures
contracts and options, forward currency contracts, swap transactions and
other financial contracts that settle by payment of cash are not deemed to
be investments in commodities.
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.

PORTFOLIO TURNOVER
<R>The Fund will not attempt to set or meet a portfolio turnover
rate since any turnover would be incidental to transactions undertaken in
an attempt to achieve the Fund's investment objective. Portfolio
securities will be sold when the Adviser believes it is appropriate,
regardless of how long those securities have been held. For the fiscal
years ended November 30, 2003 and 2002, the portfolio turnover rates were
150% and 103%, respectively. </R>

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

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

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

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

o for fixed income securities, according to the mean between bid and
asked prices as furnished by an independent pricing service, except that
fixed income securities with remaining maturities of less than 60 days
at the time of purchase may be valued at amortized cost; and

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

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

<R>Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from
the closing of the NYSE. In computing its net asset value (NAV), the Fund
values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the NYSE.
Occasionally, events that affect these values may occur between the times
at which such values are determined and the closing of the NYSE. Such
events may affect the value of an individual portfolio security or in
certain cases may affect the values of foreign securities more broadly. If
the Fund determines that such events have significantly affected the value
of portfolio securities, these securities will be valued at their fair
value as determined in accordance with procedures established by and under
the general supervision of the Fund's Board. </R>

WHAT DO SHARES COST?

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

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

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

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

Accumulated Purchases (Class A Shares)

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

Concurrent Purchases (Class A Shares)

You can combine concurrent purchases of the same share class of two or
more Federated funds in calculating the applicable sales charge.

Letter of Intent (Class A Shares)
You can sign a Letter of Intent committing to purchase a certain amount of
the same class of Shares within a 13-month period to combine such
purchases in calculating the sales charge. The Fund's custodian will hold
Shares in escrow equal to the maximum applicable sales charge. If you
complete the Letter of Intent, the Custodian will release the Shares in
escrow to your account. If you do not fulfill the Letter of Intent, the
Custodian will redeem the appropriate amount from the Shares held in
escrow to pay the sales charges that were not applied to your purchases.

<R>Reorganizations (Class A Shares)
Class A Shares may be purchased without an initial sales charge by any
shareholder that originally became a shareholder of the Fund pursuant to
the terms of an agreement and plan or reorganization which permits
shareholders to acquire Shares at NAV. </R>

Reinvestment Privilege
You may reinvest, within 120 days, your Share redemption proceeds at the
next determined NAV without any sales charge.

Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy
Shares at NAV without any sales charge because there are nominal sales
efforts associated with their purchases:

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

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

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

Purchases Through Omnibus Accounts (Class C Shares)
Class C Shares may be purchased without an initial sales charge by any
investor who buys Class C Shares through an omnibus account with a
financial intermediary, such as a broker or a bank, that does not accept
or charge the initial sales charge.

Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:

o through the "Liberty Account," an account for Liberty Family of
Funds shareholders on February 28, 1987 (the Liberty Account and Liberty
Family of Funds are no longer marketed); or

o as Liberty Account shareholders by investing through an affinity
group prior to August 1, 1987.

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

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

o following the death or post-purchase disability, as defined in
Section 72(m)(7) of the Internal Revenue Code of 1986, of the last
surviving shareholder;

o representing minimum required distributions from an Individual
Retirement Account or other retirement plan to a shareholder who has
attained the age of 70 1/2;

o of Shares that represent a reinvestment within 120 days of a
previous redemption;

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

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

o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and

Class B Shares Only
o which are qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program;

To keep the sales charge as low as possible, the Fund redeems your Shares
in this order:

o Shares that are not subject to a CDSC; and

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

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

HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales.
The Distributor pays a portion of this charge to investment professionals
that are eligible to receive it (the "Dealer Reallowance") and retains any
remaining portion of the front-end sales charge.

When an investment professional's customer purchases Shares, the
investment professional may receive a Dealer Reallowance as follows:
<R>

Dealer
Reallowance as
a percentage of
Public Offering
Purchase Amount Price
Less than $50,000 5.00%
$50,000 but less than .00%
$100,000 4
$100,000 but less than .25%
$250,000 3
$250,000 but less than .25%
$500,000 2
$500,000 but less than $1 .80%
million 1
$1 million or greater 0.00%

---------------------------------------------------------------------------
Dealer Reallowance
as a Percentage of
Public Offering
Price
All Purchase Amounts 1.00%

ADVANCE COMMISSIONS
---------------------------------------------------------------------------
When an investment professional's customer purchases Shares, the
investment professional may receive an advance commission as follows:

Class A Shares (for purchases over $1 million)
Advance Commission
as a Percentage of
Public Offering
Purchase Amount Price
First $1 million - $5 0.75%
million
Next $5 million - $20 0.50%
million
Over $20 million 0.25%
Advance commissions are calculated on a year by year basis based on
amounts invested during that year. Accordingly, with respect to additional
purchase amounts, the advance commission breakpoint resets annually to the
first breakpoint on the anniversary of the first purchase.
---------------------------------------------------------------------------

Class A Share purchases under this program may be made by Letter of Intent
or by combining concurrent purchases. The above advance commission will be
paid only on those purchases that were not previously subject to a
front-end sales charge or dealer advance commission. Certain retirement
accounts may not be eligible for this program.

Class B Shares
Advance Commission
as a Percentage of
Public Offering
Price
All Purchase Amounts Up to 5.50%
Class C Shares
Advance Commission
as a Percentage of
Public Offering
Price
All Purchase Amounts 1.00%

</R>RULE 12B-1 PLAN (CLASS B Shares and class C shares)
---------------------------------------------------------------------------
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor for activities principally intended to result in the sale of
Shares such as advertising and marketing of Shares (including printing and
distributing prospectuses and sales literature to prospective shareholders
and financial institutions) and providing incentives to investment
professionals to sell Shares. The Rule 12b-1 Plan allows the Distributor
to contract with investment professionals to perform activities covered by
the Plan. The Rule 12b-1 Plan is expected to benefit the Fund in a number
of ways. For example, it is anticipated that the Plan will help the Fund
attract and retain assets, thus providing cash for orderly portfolio
management and Share redemptions and possibly helping to stabilize or
reduce other operating expenses.

In addition, the Plan is integral to the multiple class structure of the
Fund, which promotes the sale of Shares by providing a range of options to
investors. The Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

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

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

Federated and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third
parties who have provided the funds to make advance commission payments to
investment professionals.

SERVICE FEES
The Fund may pay fees not to exceed 0.25% of average daily net assets
(Service Fees) to investment professionals or to Federated Shareholder
Services Company (FSSC), a subsidiary of Federated, for providing services
to shareholders and maintaining shareholder accounts. Under certain
agreements, rather than paying investment professionals directly, the Fund
may pay Service Fees to FSSC and FSSC will use the fees to compensate
investment professionals.

SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees, in significant amounts, out of
the assets of the Distributor. These fees do not come out of Fund assets.
The Distributor may be reimbursed by the Adviser or its affiliates.

These supplemental payments may be based upon such factors as the number
or value of Shares the investment professional sells or may sell; the
value of client assets invested; and/or the type and nature of services,
sales support or marketing support furnished by the investment
professional. In addition to these supplemental payments, an investment
professional may also receive payments under the Rule 12b-1 Plan and/or
Service fees.

EXCHANGING SECURITIES FOR SHARES

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

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

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

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

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

EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into shares of the same class of
another Federated fund.

In an effort to deter shareholders from using repeated exchanges to take
advantage of short-term market movements (also known as "market timing"),
after July 30, 2001, Shares acquired through an exchange may not be
exchanged again (a "Subsequent Exchange") for a period of 15 days. The
Fund will not process any request for a Subsequent Exchange made during
the 15-day period. A shareholder who needs to effect a Subsequent Exchange
to avoid unreasonable hardship during the 15-day period should contact the
Fund's Distributor. The Distributor may, in its sole discretion, permit
the Subsequent Exchange if the Distributor finds that the Subsequent
Exchange will not harm the Fund or its shareholders and that the
requesting shareholder has not engaged in what the Distributor considers
to be a pattern of excessive trading. The rights of shareholders to redeem
their shares are not affected by this provision.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director
elections and other matters submitted to shareholders for vote.

All Shares of the Corporation have equal voting rights, except that in
matters affecting only a particular Fund or class, only Shares of that
Fund or class are entitled to vote.

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

<R>As of January 2, 2004, the following shareholders owned of
record, beneficially, or both, 5% or more of outstanding Shares:

Edward Jones & Co., Maryland Heights, MO, owned approximately
1,633,054 Class A Shares (11.43%);MLPF&S, Jacksonville, FL, owned
approximately 1,591,399 Class A Shares (11.14%); and the Provident Bank,
Cincinnati, OH, owned approximatley 825,232 Class A Shares (5.77%).
Edward Jones & Co., Maryland Heights, MO, owned approximately
274,572 Class B Shares (9.28%); and MLPF&S, Jacksonville, FL, owned
approximately 228,941 Class B Shares (7.74%).
HUBCO, Regions Finanical Corp., Birmingham, AL, owned approximatley
566,939 Class C Shares (11.30%); and MLPF&S, Jacksonville, FL, owned
approximately 2,774,165 Class C Shares (55.27%).
Shareholders owning 25% or more of outstanding Shares may be in control
and be able to affect the outcome of certain matters presented for a vote
of shareholders. </R>

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these
requirements are not met, it will not receive special tax treatment and
will be subject to federal corporate income tax.

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

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

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

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

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

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs
and for exercising all the Corporation's powers except those reserved for
the shareholders. The following tables give information about each Board
member and the senior officers of the Fund. Where required, the tables
separately list Board members who are "interested persons" of the Fund
(i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of each
person listed is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA. The Corporation comprises two portfolios and the
Federated Fund Complex consists of 44 investment companies (comprising 138
portfolios). Unless otherwise noted, each Officer is elected annually.
Unless otherwise noted, each Board member oversees all portfolios in the
Federated Fund Complex; serves for an indefinite term; and also serves as
a Board member of the following investment company complexes: Banknorth
Funds-four portfolios; Golden Oak(R) Family of Funds-seven portfolios and
WesMark Funds-five portfolios.

<R>As of January 2, 2004, the Fund's Board and Officers as a group
owned less than 1% of the Fund's outstanding Class A, B and C Shares.

INTERESTED DIRECTORS BACKGROUND AND COMPENSATION

Principal Occupations: Chairman and $0
John F. Donahue* Director or Trustee of the Federated Fund $0
Birth Date: July 28, 1924 Complex; Chairman and Director, Federated
CHAIRMAN AND DIRECTOR Investors, Inc.
Began serving: March 1984 -------------------------------------------

Previous Positions: Trustee, Federated
Investment Management Company and Chairman
and Director, Federated Investment
Counseling.

Principal Occupations: Principal Executive $0
J. Christopher Donahue* Officer and President of the Federated $0
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some
PRESIDENT AND DIRECTOR of the Funds in the Federated Fund
Began serving: January 2000 Complex; President, Chief Executive
Officer and Director, Federated Investors,
Inc.; Chairman and Trustee, Federated
Equity Management Company of Pennsylvania;
Trustee, Federated Investment Counseling;
Chairman and Director, Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.

Previous Positions: President, Federated
Investment Counseling; President and Chief
Executive Officer, Federated Investment
Management Company, Federated Global
Investment Management Corp. and Passport
Research, Ltd.

Principal Occupations: Director or Trustee $533.45
Lawrence D. Ellis, M.D.* of the Federated Fund Complex; Professor $148,500
Birth Date: October 11, 1932 of Medicine, University of Pittsburgh;
3471 Fifth Avenue Medical Director, University of Pittsburgh
Suite 1111 Medical Center Downtown; Hematologist,
Pittsburgh, PA Oncologist and Internist, University of
DIRECTOR Pittsburgh Medical Center.
Began serving: August 1987
Other Directorships Held: Member, National
Board of Trustees, Leukemia Society of
America.

Previous Positions: Trustee, University of
Pittsburgh; Director, University of
Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F.
Donahue is the father of J. Christopher Donahue; both are "interested" due
to the positions they hold with Federated and its subsidiaries. Lawrence
D. Ellis, M.D. is "interested" because his son-in-law is employed by the
Fund's principal underwriter, Federated Securities Corp.
---------------------------------------------------------------------------

INDEPENDENT DIRECTORS BACKGROUND AND COMPENSATION

Principal Occupation: Director or Trustee $586.82 $163,350
Thomas G. Bigley of the Federated Fund Complex.
Birth Date: February 3, 1934
15 Old Timber Trail Other Directorships Held: Director, Member
Pittsburgh, PA of Executive Committee, Children's
DIRECTOR Hospital of Pittsburgh; Director,
Began serving: November 1994 University of Pittsburgh.

Previous Position: Senior Partner, Ernst
& Young LLP.

Principal Occupations: Director or Trustee $586.82 $163,350
John T. Conroy, Jr. of the Federated Fund Complex; Chairman of
Birth Date: June 23, 1937 the Board, Investment Properties
Grubb & Ellis/Investment Corporation; Partner or Trustee in private
Properties Corporation real estate ventures in Southwest Florida.
3838 North Tamiami Trail
Suite 402 Previous Positions: President, Investment
Naples, FL Properties Corporation; Senior Vice
DIRECTOR President, John R. Wood and Associates,
Began serving: August 1991 Inc., Realtors; President, Naples Property
Management, Inc. and Northgate Village
Development Corporation.

Principal Occupation: Director or Trustee $586.82 $163,350
Nicholas P. Constantakis of the Federated Fund Complex.
Birth Date: September 3, 1939
175 Woodshire Drive Other Directorships Held: Director and
Pittsburgh, PA Member of the Audit Committee, Michael
DIRECTOR Baker Corporation (engineering and energy
Began serving: January 2000 services worldwide).

Previous Position: Partner, Anderson
Worldwide SC.

Principal Occupation: Director or Trustee $533.45 $148,500
John F. Cunningham of the Federated Fund Complex.
Birth Date: March 5, 1943
353 El Brillo Way Other Directorships Held: Chairman,
Palm Beach, FL President and Chief Executive Officer,
DIRECTOR Cunningham & Co., Inc. (strategic
Began serving: January 2000 business consulting); Trustee Associate,
Boston College.

Previous Positions: Director, Redgate
Communications and EMC Corporation
(computer storage systems); Chairman of
the Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo Computer,
Inc.

Principal Occupation: Director or Trustee $533.45 $148,500
Peter E. Madden of the Federated Fund Complex; Management
Birth Date: March 16, 1942 Consultant.
One Royal Palm Way
100 Royal Palm Way Other Directorships Held: Board of
Palm Beach, FL Overseers, Babson College.
DIRECTOR
Began serving: August 1991 Previous Positions: Representative,
Commonwealth of Massachusetts General
Court; President, State Street Bank and
Trust Company and State Street Corporation
(retired); Director, VISA USA and VISA
International; Chairman and Director,
Massachusetts Bankers Association;
Director, Depository Trust Corporation;
Director, The Boston Stock Exchange.

Principal Occupations: Director or Trustee $586.82 $163,350
Charles F. Mansfield, Jr. of the Federated Fund Complex; Management
Birth Date: April 10, 1945 Consultant; Executive Vice President, DVC
80 South Road Group, Inc. (marketing, communications and
Westhampton Beach, NY technology) (prior to 9/1/00).
DIRECTOR
Began serving: January 1999 Previous Positions: Chief Executive
Officer, PBTC International Bank; Partner,
Arthur Young & Company (now Ernst
& Young LLP); Chief Financial Officer
of Retail Banking Sector, Chase Manhattan
Bank; Senior Vice President, HSBC Bank USA
(formerly, Marine Midland Bank); Vice
President, Citibank; Assistant Professor
of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Principal Occupations: Director or Trustee $640.15 $178,200
Birth Date: December 20, 1932 of the Federated Fund Complex; Chancellor
Chancellor, Duquesne University and Law Professor, Duquesne University;
Pittsburgh, PA Partner, Murray, Hogue and Lannis.
DIRECTOR
Began serving: February 1995 Other Directorships Held: Director,
Michael Baker Corp. (engineering,
construction, operations and technical
services).

Previous Positions: President, Duquesne
University; Dean and Professor of Law,
University of Pittsburgh School of Law;
Dean and Professor of Law, Villanova
University School of Law.

Principal Occupations: Director or $533.45 $148,500
Marjorie P. Smuts Trustee of the Federated Fund Complex;
Birth Date: June 21, 1935 Public Relations/Marketing
4905 Bayard Street Consultant/Conference Coordinator.
Pittsburgh, PA
DIRECTOR Previous Positions: National Spokesperson,
Began serving: March 1984 Aluminum Company of America; television
producer; President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director or $ 533.45 $148,500
John S. Walsh Trustee of the Federated Fund Complex;
Birth Date: November 28, 1957 President and Director, Heat Wagon, Inc.
2604 William Drive (manufacturer of construction temporary
Valparaiso, IN heaters); President and Director,
DIRECTOR Manufacturers Products, Inc. (distributor
Began serving: January 1999 of portable construction heaters);
President, Portable Heater Parts, a
division of Manufacturers Products, Inc.

Previous Position: Vice President, Walsh
& Kelly, Inc.

OFFICERS**
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Name
Birth Date
Address
Positions Held with
Corporation
-----------------------------
Date Service Began Principal Occupation(s) and Previous Position(s)

Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT Inc.
AND SECRETARY
Began serving: March 1984 Previous Positions: Trustee, Federated Investment
Management Company and Federated Investment Counseling;
Director, Federated Global Investment Management Corp.,
Federated Services Company and Federated Securities
Corp.

Principal Occupations: Principal Financial Officer and
Richard J. Thomas Treasurer of the Federated Fund Complex; Senior Vice
Birth Date: June 17, 1954 President, Federated Administrative Services.
TREASURER
Began serving: November 1998 Previous Positions: Vice President, Federated
Administrative Services; held various management
positions within Funds Financial Services Division of
Federated Investors, Inc.

Principal Occupations: Vice Chairman or Vice President
Richard B. Fisher of some of the Funds in the Federated Fund Complex;
Birth Date: May 17, 1923 Vice Chairman, Federated Investors, Inc.; Chairman,
VICE PRESIDENT Federated Securities Corp.
Began serving: March 1984
Previous Positions: President and Director or Trustee
of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc. and
Director and Chief Executive Officer, Federated
Securities Corp.

Principal Occupations: Chief Investment Officer of this
Stephen F. Auth Fund and various other Funds in the Federated Fund
Birth Date: September 3, 1956 Complex; Executive Vice President, Federated Investment
CHIEF INVESTMENT OFFICER Counseling, Federated Global Investment Management
Began serving: January 2003 Corp., Federated Equity Management Company of
Pennsylvania, Passport Research, Ltd. and Passport
Research II, Ltd.
--------------------------------------------------------

Previous Positions: Senior Vice President, Global
Portfolio Management Services Division; Senior Vice
President, Federated Investment Management Company and
Passport Research, Ltd; Senior Managing Director and
Portfolio Manager, Prudential Investments.

Principal Occupations: Chief Investment Officer of this
William D. Dawson, III Fund and various other Funds in the Federated Fund
Birth Date: March 3, 1949 Complex; Executive Vice President, Federated Investment
CHIEF INVESTMENT OFFICER Counseling, Federated Global Investment Management
Began serving: November 2002 Corp., Federated Equity Management Company of
Pennsylvania, Passport Research, Ltd. and Passport
Research II, Ltd.

Previous Positions: Executive Vice President and Senior
Vice President, Federated Investment Counseling
Institutional Portfolio Management Services Division;
Senior Vice President, Federated Investment Management
Company and Passport Research, Ltd.

Robert M. Kowit is Vice President of the Corporation.
Robert M. Kowit Mr. Kowit joined Federated in 1995 as a Senior
Birth Date: June 27, 1945 Portfolio Manager and a Vice President of the Fund's
VICE PRESIDENT Adviser. Mr. Kowit served as a Managing Partner of
Began serving: November 1999 Copernicus Global Asset Management from January 1995
through October 1995. From 1990 to 1994, he served as
Senior Vice President/Portfolio Manager of
International Fixed Income and Foreign Exchange for
John Hancock Advisers. Mr. Kowit received his M.B.A.
from Iona College with a concentration in finance.
---------------------------------------------------------------------------------------
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Uri D. Landesman
----------------------------- Uri. D. Landesman is Vice President of the
Birth Date: November 23, 1961 Corporation. Mr. Landesman joined Federated in
----------------------------- February 2003 as a Senior Portfolio Manager and a Vice
VICE PRESIDENT President of the Fund's Adviser. Mr. Landesman served
Began serving: May 2003 as Principal/Portfolio Manager of Arlington Capital
Management from July 2001 to February 2003, and as
Principal/Chief Investment Officer of Aaron Fleck &
Associates, LLC/A.F.A. Management Partners, L.P. from
April 1999 through June 2001. Mr. Landesman was a Vice
President, Lead Portfolio Manager with J.P. Morgan
Investment Management from February 1997 through March
1999. He received his B.A. from Yeshiva College,
Yeshiva University.

</R>** Officers do not receive any compensation from the Fund.
Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and
Assistant Secretary of Federated and an officer of its various advisory
and underwriting subsidiaries, has served as a Term Member on the Board of
Directors of Duquesne University, Pittsburgh, Pennsylvania, since May 12,
2000. Mr. John E. Murray, Jr., an Independent Director of the Fund, served
as President of Duquesne from 1988 until his retirement from that position
in 2001, and became Chancellor of Duquesne on August 15, 2001. It should
be noted that Mr. Donahue abstains on any matter that comes before
Duquesne's Board that affects Mr. Murray personally.

COMMITTEES OF THE BOARD
Meetings
Held
During
Last
Board Committee Fiscal
Committee Members Committee Functions Year
Executive In between meetings of the full Board, One
John F. Donahue the Executive Committee generally may
John E. Murray, exercise all the powers of the full Board
Jr., J.D., S.J.D. in the management and direction of the
business and conduct of the affairs of
the Corporation in such manner as the
Executive Committee shall deem to be in
the best interests of the Corporation.
However, the Executive Committee cannot
elect or remove Board members, increase
or decrease the number of Directors,
elect or remove any Officer, declare
dividends, issue shares or recommend to
shareholders any action requiring
shareholder approval.

Audit The Audit Committee reviews and Four
Thomas G. Bigley recommends to the full Board the
John T. Conroy, independent auditors to be selected to
Jr. audit the Fund`s financial statements;
Nicholas P. meets with the independent auditors
Constantakis periodically to review the results of the
Charles F. audits and reports the results to the
Mansfield, Jr. full Board; evaluates the independence of
the auditors, reviews legal and
regulatory matters that may have a
material effect on the financial
statements, related compliance policies
and programs, and the related reports
received from regulators; reviews the
Fund`s internal audit function; reviews
compliance with the Fund`s code of
conduct/ethics; reviews valuation issues;
monitors inter-fund lending transactions;
reviews custody services and issues and
investigates any matters brought to the
Committee's attention that are within the
scope of its duties.

<R>Board ownership of shares in the fund and in the federated family
of Investment companies AS OF DECEMBER 31, 2003</R>
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Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund Investment Companies
John F. Donahue Over $100,000 Over $100,000
J. Christopher Donahue Over $100,000 Over $100,000
Lawrence D. Ellis, M.D. None Over $100,000

Independent
Board Member Name
Thomas G. Bigley None Over $100,000
John T. Conroy, Jr. None Over $100,000
Nicholas P. Constantakis None Over $100,000
John F. Cunningham None Over $100,000
Peter E. Madden $50,001 - $100,000 Over $100,000
Charles F. Mansfield, Jr. None $50,001 - $100,000
John E. Murray, Jr., J.D., S.J.D. None Over $100,000
Marjorie P. Smuts $1-$10,000 Over $100,000
John S. Walsh None Over $100,000

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

The Adviser is a wholly owned subsidiary of Federated.

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

As required by the 1940 Act, the Fund's Board has reviewed the Fund's
investment advisory contract. The Board's decision to approve the
contract reflects the exercise of its business judgment on whether to
continue the existing arrangements. During its review of the contract,
the Board considers many factors, among the most material of which are:
the Fund's investment objectives and long term performance; the Adviser's
management philosophy, personnel and processes; the preferences and
expectations of Fund shareholders and their relative sophistication; the
continuing state of competition in the mutual fund industry; comparable
fees in the mutual fund industry; the range and quality of services
provided to the Fund and its shareholders by the Federated organization in
addition to investment advisory services; and the Fund's relationship to
the Federated funds.

In assessing the Adviser's performance of its obligations, the Board also
considers whether there has occurred a circumstance or event that would
constitute a reason for it to not renew an advisory contract. In this
regard, the Board is mindful of the potential disruptions of the Fund's
operations and various risks, uncertainties and other effects that could
occur as a result of a decision to terminate or not renew an advisory
contract. In particular, the Board recognizes that most shareholders have
invested in the Fund on the strength of the Adviser's industry standing
and reputation and in the expectation that the Adviser will have a
continuing role in providing advisory services to the Fund.

The Board also considers the compensation and benefits received by the
Adviser. This includes fees received for services provided to the Fund by
other entities in the Federated organization and research services
received by the Adviser from brokers that execute fund trades, as well as
advisory fees. In this regard, the Board is aware that various courts
have interpreted provisions of the 1940 Act and have indicated in their
decisions that the following factors may be relevant to an Adviser's
compensation: the nature and quality of the services provided by the
Adviser, including the performance of the Fund; the Adviser's cost of
providing the services; the extent to which the Adviser may realize
"economies of scale" as the Fund grows larger; any indirect benefits that
may accrue to the Adviser and its affiliates as a result of the Adviser's
relationship with the Fund; performance and expenses of comparable funds;
and the extent to which the independent Board members are fully informed
about all facts bearing on the Adviser's service and fee. The Fund's
Board is aware of these factors and takes them into account in its review
of the Fund's advisory contract.

The Board considers and weighs these circumstances in light of its
substantial accumulated experience in governing the Fund and working with
Federated on matters relating to the Federated funds, and is assisted in
its deliberations by the advice of independent legal counsel. In this
regard, the Board requests and receives a significant amount of
information about the Fund and the Federated organization. Federated
provides much of this information at each regular meeting of the Board,
and furnishes additional reports in connection with the particular meeting
at which the Board's formal review of the advisory contracts occurs. In
between regularly scheduled meetings, the Board may receive information on
particular matters as the need arises. Thus, the Board's evaluation of an
advisory contract is informed by reports covering such matters as: the
Adviser's investment philosophy, personnel, and processes; the Fund's
short- and long-term performance (in absolute terms as well as in
relationship to its particular investment program and certain competitor
or "peer group" funds), and comments on the reasons for performance; the
Fund's expenses (including the advisory fee itself and the overall expense
structure of the Fund, both in absolute terms and relative to similar
and/or competing funds, with due regard for contractual or voluntary
expense limitations); the use and allocation of brokerage commissions
derived from trading the Fund's portfolio securities; the nature and
extent of the advisory and other services provided to the Fund by the
Adviser and its affiliates; compliance and audit reports concerning the
Federated funds and the Federated companies that service them; and
relevant developments in the mutual fund industry and how the Federated
funds and/or Federated are responding to them.

The Board also receives financial information about Federated, including
reports on the compensation and benefits Federated derives from its
relationships with the Federated funds. These reports cover not only the
fees under the advisory contracts, but also fees received by Federated's
subsidiaries for providing other services to the Federated funds under
separate contracts (e.g., for serving as the Federated funds'
administrator and transfer agent). The reports also discuss any indirect
benefit Federated may derive from its receipt of research services from
brokers who execute Federated fund trades.

<R>The Board bases its decision to approve an advisory contract on
the totality of the circumstances and relevant factors, and with a view to
past and future long-term considerations. Not all of the factors and
considerations identified above are relevant to every Federated fund, nor
does the Board consider any one of them to be determinative. Because the
totality of circumstances includes considering the relationship of each
Federated fund, the Board does not approach consideration of every
Federated fund's advisory contract as if that were the only Federated fund
offered by Federated.

Services Agreement
Federated Advisory Services Company, an affiliate of the Adviser, provides
research, quantitative analysis, equity trading and transaction settlement
and certain support services to the Adviser. The fee for these services
is paid by the Adviser and not by the Fund. </R>

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

Code of Ethics Restrictions on Personal Trading

As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities
of investment personnel, Fund Directors, and certain other employees.
Although they do permit these people to trade in securities, including
those that the Fund could buy, they also contain significant safeguards
designed to protect the Fund and its shareholders from abuses in this
area, such as requirements to obtain prior approval for, and to report,
particular transactions.

Voting Proxies on Fund Portfolio Securities
The Board has delegated to the Adviser authority to vote proxies on the
securities held in the Fund's portfolio. The Board has also approved the
Adviser's policies and procedures for voting the proxies, which are
described below.

Proxy Voting Policies
The Adviser's general policy is to cast proxy votes in favor of proposals
that the Adviser anticipates will enhance the long-term value of the
securities being voted. Generally, this will mean voting for proposals
that the Adviser believes will: improve the management of a company;
increase the rights or preferences of the voted securities; and/or
increase the chance that a premium offer would be made for the company or
for the voted securities.

The following examples illustrate how these general policies may apply to
proposals submitted by a company's board of directors. However, whether
the Adviser supports or opposes a proposal will always depend on the
specific circumstances described in the proxy statement and other
available information.

On matters of corporate governance, generally the Adviser will vote for
proposals to: require independent tabulation of proxies and/or
confidential voting by shareholders; reorganize in another jurisdiction
(unless it would reduce the rights or preferences of the securities being
voted); and repeal a shareholder rights plan (also known as a "poison
pill"). The Adviser will generally vote against the adoption of such a
plan (unless the plan is designed to facilitate, rather than prevent,
unsolicited offers for the company).

On matters of capital structure, generally the Adviser will vote: against
proposals to authorize or issue shares that are senior in priority or
voting rights to the securities being voted; for proposals to grant
preemptive rights to the securities being voted; and against proposals to
eliminate such preemptive rights.

On matters relating to management compensation, generally the Adviser will
vote: for stock incentive plans that align the recipients' interests with
the interests of shareholders without creating undue dilution; and against
proposals that would permit the amendment or replacement of outstanding
stock incentives with new stock incentives having more favorable terms.

On matters relating to corporate transactions, the Adviser will vote
proxies relating to proposed mergers, capital reorganizations, and similar
transactions in accordance with the general policy, based upon its
analysis of the proposed transaction. The Adviser will vote proxies in
contested elections of directors in accordance with the general policy,
based upon its analysis of the opposing slates and their respective
proposed business strategies. Some transactions may also involve proposed
changes to the company's corporate governance, capital structure or
management compensation. The Adviser will vote on such changes based on
its evaluation of the proposed transaction or contested election. In
these circumstances, the Adviser may vote in a manner contrary to the
general practice for similar proposals made outside the context of such a
proposed transaction or change in the board. For example, if the Adviser
decides to vote against a proposed transaction, it may vote for
anti-takeover measures reasonably designed to prevent the transaction,
even though the Adviser typically votes against such measures in other
contexts.

The Adviser generally votes against proposals submitted by shareholders
without the favorable recommendation of a company's board. The Adviser
believes that a company's board should manage its business and policies,
and that shareholders who seek specific changes should strive to convince
the board of their merits or seek direct representation on the board.

In addition, the Adviser will not vote if it determines that the
consequences or costs outweigh the potential benefit of voting. For
example, if a foreign market requires shareholders casting proxies to
retain the voted shares until the meeting date (thereby rendering the
shares "illiquid" for some period of time), the Adviser will not vote
proxies for such shares.

Proxy Voting Procedures
The Adviser has established a Proxy Voting Committee (Proxy Committee), to
exercise all voting discretion granted to the Adviser by the Board in
accordance with the proxy voting policies. The Adviser has hired Investor
Responsibility Research Center (IRRC) to obtain, vote, and record proxies
in accordance with the Proxy Committee's directions. The Proxy Committee
directs IRRC by means of Proxy Voting Guidelines, and IRRC may vote any
proxy as directed in the Proxy Voting Guidelines without further direction
from the Proxy Committee (and may make any determinations required to
implement the Proxy Voting Guidelines). However, if the Proxy Voting
Guidelines require case-by-case direction for a proposal, IRRC will
provide the Proxy Committee with all information that it has obtained
regarding the proposal and the Proxy Committee will provide specific
direction to IRRC. The Adviser's proxy voting procedures generally permit
the Proxy Committee to amend the Proxy Voting Guidelines, or override the
directions provided in such Guidelines, whenever necessary to comply with
the proxy voting policies.

Conflicts of Interest
The Adviser has adopted procedures to address situations where a matter on
which a proxy is sought may present a potential conflict between the
interests of the Fund (and its shareholders) and those of the Adviser or
Distributor. This may occur where a significant business relationship
exists between the Adviser (or its affiliates) and a company involved with
a proxy vote. A company that is a proponent, opponent, or the subject of
a proxy vote, and which to the knowledge of the Proxy Committee has this
type of significant business relationship, is referred to as an
"Interested Company."

The Adviser has implemented the following procedures in order to avoid
concerns that the conflicting interests of the Adviser have influenced
proxy votes. Any employee of the Adviser who is contacted by an
Interested Company regarding proxies to be voted by the Adviser must refer
the Interested Company to a member of the Proxy Committee, and must inform
the Interested Company that the Proxy Committee has exclusive authority to
determine how the Adviser will vote. Any Proxy Committee member contacted
by an Interested Company must report it to the full Proxy Committee and
provide a written summary of the communication. Under no circumstances
will the Proxy Committee or any member of the Proxy Committee make a
commitment to an Interested Company regarding the voting of proxies or
disclose to an Interested Company how the Proxy Committee has directed
such proxies to be voted. If the Proxy Voting Guidelines already provide
specific direction on the proposal in question, the Proxy Committee shall
not alter or amend such directions. If the Proxy Voting Guidelines
require the Proxy Committee to provide further direction, the Proxy
Committee shall do so in accordance with the proxy voting policies,
without regard for the interests of the Adviser with respect to the
Interested Company. If the Proxy Committee provides any direction as to
the voting of proxies relating to a proposal affecting an Interested
Company, it must disclose to the Fund's Board information regarding: the
significant business relationship; any material communication with the
Interested Company; the matter(s) voted on; and how, and why, the Adviser
voted as it did.

If the Fund holds shares of another investment company for which the
Adviser (or an affiliate) acts as an investment adviser, the Proxy
Committee will vote the Fund's proxies in the same proportion as the votes
cast by shareholders who are not clients of the Adviser at any
shareholders' meeting called by such investment company, unless otherwise
directed by the Board.

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

Investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser. Except as noted below, when the
Fund and one or more of those accounts invests in, or disposes of, the
same security, available investments or opportunities for sales will be
allocated among the Fund and the account(s) in a manner believed by the
Adviser to be equitable. While the coordination and ability to participate
in volume transactions may benefit the Fund, it is possible that this
procedure could adversely impact the price paid or received and/or the
position obtained or disposed of by the Fund. Investments for Federated
Kaufmann Fund and other accounts managed by that fund's portfolio managers
in initial public offerings ("IPO") are made independently from any other
accounts, and much of their non-IPO trading may also be conducted
independently from other accounts.

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

For the fiscal year ended, November 30, 2003, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $681,990,832 for
which the Fund paid $1,466,609 in brokerage commissions.

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

Maximum Average Aggregate Daily
Administrative Fee Net Assets of the
Federated Funds
0.150 of 1% on the first $5 billion
0.125 of 1% on the next $5 billion
0.100 of 1% on the next $10 billion
0.075 of 1% on assets over $20 billion
The administrative fee received during any fiscal year shall be at least
$150,000 per portfolio and $40,000 per each additional class of Shares.
FAS may voluntarily waive a portion of its fee and may reimburse the Fund
for expenses.
---------------------------------------------------------------------------

FAS also provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments for a fee based on Fund assets
plus out-of-pocket expenses. </R>

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

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

INDEPENDENT Auditors
The independent auditor for the Fund, Ernst & Young LLP, conducts its
audits in accordance with auditing standards generally accepted in the
United States of America, which require it to plan and perform its audits
to provide reasonable assurance about whether the Fund's financial
statements and financial highlights are free of material misstatement.

<R>FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
November 30, 2003 2003 2002 2001
Advisory Fee Earned $3,239,289 $4,174,627 $5,812,295
Advisory Fee Reduction $0 0 0
Advisory Fee Reimbursement $944 2,446 4,535
Brokerage Commissions $1,617,365 1,736,740 5,047,818
Administrative Fee $243,852 313,932 437,626
12b-1 Fee:
Class B Shares $270,712 -- --
Class C Shares $429,482 -- --
Shareholder Services Fee:
Class A Shares $576,424 -- --
Class B Shares $90,237 -- --
Class C Shares $143,161 -- --
</R>Fees are allocated among classes based on their pro rata share
of Fund assets, except for marketing (Rule 12b-1) fees and shareholder
services fees, which are borne only by the applicable class of Shares.
---------------------------------------------------------------------------

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the SEC's standard
methods for calculating performance applicable to all mutual funds. The
SEC also permits this standard performance information to be accompanied
by non-standard performance information.

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

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

Average Annual Total Returns and Yield
Total returns are given for the one-year, five-year, ten-year and Start of
Performance periods ended November 30, 2003.

<R>Yield is given for the 30-day period ended November 30, 2003.

1 Year 5 Years 10 Years
Class A Shares:
Total Return
Before Taxes 12.92% (1.70)% 3.61%
After Taxes on
Distributions 12.92% (3.13)% 2.26%
After Taxes on
Distributions
and Sale of Shares 8.40% (1.84)% 2.65%

---------------------------------------------------------------------------
Start of
Performance e on
1 Year 5 Years 9/28/1994
Class B Shares:
Total Return
Before Taxes 13.04% (1.64)% 1.88%
After Taxes on 0.35%
Distributions 13.04% (3.17)%
After Taxes on
Distributions -------------------
and Sale of Shares 8.47% (1.80)% - 1.07%

---------------------------------------------------------------------------
1 Year 5 Years 10 Years
Class C Shares:
Total Return
Before Taxes 16.47% (1.49)% 3.27%
After Taxes on
Distributions 16.47% (3.02)% 1.84%
After Taxes on
Distributions
and Sale of Shares 10.70% (1.68)% 2.34%

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

The average annual total return for Shares is the average compounded rate
of return for a given period that would equate a $10,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at
the end of the period by the NAV per Share at the end of the period. The
number of Shares owned at the end of the period is based on the number of
Shares purchased at the beginning of the period with $10,000, less any
applicable sales charge, adjusted over the period by any additional
Shares, assuming the annual reinvestment of all dividends and
distributions.

Total returns after taxes are calculated in a similar manner, but reflect
additional standard assumptions required by the SEC.

YIELD
The yield of Shares is calculated by dividing: (i) the net investment
income per Share earned by the Shares over a 30-day period; by (ii) the
maximum offering price per Share on the last day of the period. This
number is then annualized using semi-annual compounding. This means that
the amount of income generated during the 30-day period is assumed to be
generated each month over a 12-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by
Shares because of certain adjustments required by the SEC and, therefore,
may not correlate to the dividends or other distributions paid to
shareholders.

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

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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

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

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

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

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

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

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

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

MSCI Europe, Australasia, and Far East Index (MSCI-EAFE)
The MSCI-EAFE is an unmanaged market capitalization-weighted equity index
comprising 20 of the 48 countries in the MSCI universe and representing
the developed world outside of North America. Each MSCI country index is
created separately, then aggregated, without change, into regional MSCI
indices. MSCI-EAFE performance data is calculated in U.S. dollars and in
local currency.

<R>MSCI Europe, Australasia, and Far East Growth Index (MSCI-EAFE-GI)

The MSCI-EAFE GI is a standard, unmanaged foreign securities index
representing a subset of the MSCI Global Growth Index designed to measure
developed market equity performance, excluding the United States and
Canada. MSCI-EAFE-GI returns are denominated in U.S. dollars. </R>

Standard & Poor's 500 Index (S&P 500)
The S&P 500 is an unmanaged capitalization-weighted index of 500
stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing
all major industries.

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

WHO IS FEDERATED INVESTORS, INC.?

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

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

Federated Funds overview

<R>Municipal Funds
In the municipal sector, as of December 31, 2003, Federated managed 14
bond funds with approximately $3.8 billion in assets and 22 money market
funds with approximately $23.0 billion in total assets. In 1976, Federated
introduced one of the first municipal bond mutual funds in the industry
and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including
The Tax Foundation and the National Taxpayers Union regarding the tax
obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 32 years' experience. As of
December 31, 2003, Federated managed 36 equity funds totaling
approximately $25.6 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative
analysis and features a structured, computer-assisted composite modeling
system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 2003, Federated managed
11 money market funds and 4 bond funds with assets approximating $61.7
billion and $3.4 billion, respectively. Federated's corporate bond
decision making--based on intensive, diligent credit analysis--is backed
by over 30 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the
industry. In 1983, Federated was one of the first fund managers to
participate in the asset backed securities market, a market totaling more
than $209 billion.

Government Funds
In the government sector, as of December 31, 2003, Federated managed 7
mortgage backed, 3 multi-sector government funds, 4 government/agency and
19 government money market mutual funds, with assets approximating $4.9
billion, $0.9 billion, $2.9 billion and $56.2 billion, respectively.
Federated trades approximately $90.4 billion in U.S. government and
mortgage backed securities daily and places approximately $35 billion in
repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969.
Federated has been a major force in the short- and intermediate-term
government markets since 1982 and currently manages approximately $50
billion in government funds within these maturity ranges.

Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost
method of accounting for valuing shares of money market funds, a principal
means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market
fund. As of December 31, 2003, Federated managed $136.2 billion in assets
across 52 money market funds, including 19 government, 10 prime, 22
municipal and 1 euro-denominated with assets approximating $56.2 billion,
$59.4 billion, $20.6 billion and $173.9 million, respectively.

</R>The Chief Investment Officers responsible for oversight of the
various investment sectors within Federated are: Global Equity - Stephen
F. Auth is responsible for overseeing the management of Federated's
domestic and international equity products; Global Fixed Income - William
D. Dawson III is responsible for overseeing the management of Federated's
domestic and international fixed income and high yield products.

Mutual Fund Market
Forty-nine percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $6.2 trillion to the approximately 8,300
funds available, according to the Investment Company Institute.

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

Institutional Clients
Federated meets the needs of approximately 3,035 institutional clients
nationwide by managing and servicing separate accounts and mutual funds
for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisers.

Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients' portfolios.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--Federated has over 2,000 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement.

FINANCIAL INFORMATION

<R>The Financial Statements for the Fund for the fiscal year ended
November 30, 2003 are incorporated herein by reference to the Annual
Report to Shareholders of Federated International Equity Fund dated
November 30, 2003. </R>

INVESTMENT RATINGS

Standard and Poor's Long-Term Debt Rating Definitions
AAA--Highest credit quality. 'AAA' ratings denote the lowest expectation
of credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.

AA--Very high credit quality. 'AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.

A--High credit quality. 'A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for
higher ratings.

BBB--Good credit quality. 'BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.

BB--Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.

B--Highly speculative. 'B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial commitments
are currently being met; however, capacity for continued payment is
contingent upon a sustained, favourable business and economic environment.

CCC, CC, C--High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favourable
business or economic developments. A 'CC' rating indicates that default of
some kind appears probable. 'C' ratings signal imminent default.

Moody's Investors Service Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well established industries,
high rates of return on funds employed, conservative capitalization
structure with moderate reliance on debt and ample asset protection, broad
margins in earning coverage of fixed financial charges and high internal
cash generation, and well-established access to a range of financial
markets and assured sources of alternate liquidity.

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

Standard and Poor's Commercial Paper Ratings
A-1-- A short-term obligation rated 'A-1' is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations
is extremely strong.

A-2-- A short-term obligation rated 'A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.

Fitch Ratings Commercial Paper Rating Definitions
F-1--Indicates the strongest capacity for timely payment of financial
commitments relative to other issuers or issues in the same country. Under
their national rating scale, this rating is assigned to the "best" credit
risk relative to all others in the same country and is normally assigned
to all financial commitments issued or guaranteed by the sovereign state.
Where the credit risk is particularly strong, a "+" is added to the
assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial
commitments relative to other issuers or issues in the same country.
However, the margin of safety is not as great as in the case of the higher
ratings.

Addresses

Federated International Equity Fund
Class A Shares
Class B Shares
Class C Shares

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

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

Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965

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

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

Federated Investors
World-Class Investment Manager

Federated International Bond Fund

A Portfolio of Federated International Series, Inc.

PROSPECTUS

January 31, 2004

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

A mutual fund seeking to obtain a total return on its assets by investing primarily in fixed income securities of foreign governments and their agencies.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 8

What are the Specific Risks of Investing in the Fund? 11

What Do Shares Cost? 14

How is the Fund Sold? 18

How to Purchase Shares 19

How to Redeem and Exchange Shares 21

Account and Share Information 25

Who Manages the Fund? 26

Legal Proceedings 27

Financial Information 28

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to obtain a total return on its assets. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

<R>

The Fund pursues its investment objective by investing primarily in non-dollar denominated, investment-grade, fixed income securities of foreign governments and their agencies or foreign corporations. The Fund may invest in derivative contracts to implement its investment strategies as more fully described herein. The Fund will endeavor to maintain a dollar-weighted average credit rating of its portfolio securities of A. The Fund invests primarily in developed market countries.

</R>

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund.

The primary factors that may reduce the Fund's returns include:

fluctuations in the exchange rate between the U.S. dollar and foreign currencies;
a general rise in interest rates in a foreign market in which the Fund has invested. Generally, when interest rates rise, prices of fixed income securities fall. Interest rate changes have a greater effect on the price of fixed income securities with longer durations;
default in the timely payment of interest or principal by issuers of securities held by the Fund; and
<R>
Changes in the value of the derivative contracts and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Also, derivative contracts and hybrid instruments may increase taxable distributions to shareholders and may involve other risks described in this prospectus, such as bond market, credit, liquidity and leverage risks.
</R>

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

Risk/Return Bar Chart and Table

<R>

</R>

<R>

</R>

<R>

Within the periods shown in the bar chart, the Fund's Class A Shares highest quarterly return was 12.44% (quarter ended June 30, 2002). Its lowest quarterly return was (5.19)% (quarter ended March 31, 1997).

</R>

Average Annual Total Return Table

<R>

The Average Annual Total Returns for the Fund's Class A, Class B and Class C Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all Classes. In addition, Return After Taxes is shown for Class A Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the J.P. Morgan Global Government Bond non U.S. Index (JPMGXUS), a broad-based market index. The JPMGXUS is a total return, trade-weighted index of over 360 government and high-grade bonds in 12 developed countries. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

</R>

<R>

(For the periods ended December 31, 2003)

</R>

	<R>1 Year</R>	<R>5 Years</R>	<R>10 Years</R>	<R>Start of Performance¹</R>
<R>Class A Shares:</R>
<R>Return Before Taxes</R>	<R>15.93%</R>	<R>2.84%</R>	<R>4.51%</R>	<R>NA</R>
<R>Return After Taxes on Distributions²</R>	<R>13.38%</R>	<R>1.59%</R>	<R>2.60%</R>	<R>NA</R>
<R>Return After Taxes on Distributions and Sale of Fund Shares²</R>	<R>10.32%</R>	<R>1.64%</R>	<R>2.62%</R>	<R>NA</R>
<R>Class B Shares:</R>
<R>Return Before Taxes</R>	<R>14.96%</R>	<R>2.68%</R>	<R>NA</R>	<R>5.66%</R>
<R>Class C Shares:</R>
<R>Return Before Taxes</R>	<R>18.30%</R>	<R>2.85%</R>	<R>4.11%</R>	<R>NA</R>
<R>JPMGXUS</R>	<R>18.63%</R>	<R>5.02%</R>	<R>6.88%</R>	<R>NA</R>

<R>

1 The Fund's Class B Shares start of performance date was September 28, 1994.

</R>

<R>

2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all Shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns for Class B and Class C Shares will differ from those shown for Class A Shares. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

</R>

What are the Fund's Fees and Expenses?

FEDERATED INTERNATIONAL BOND FUND

FEES AND EXPENSES

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

Shareholder Fees	Class A	Class B	Class C
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	4.50%	None	1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	0.00%	5.50%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None	None
Exchange Fee	None	None	None

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.75%	0.75%	0.75%
Distribution (12b-1) Fee	0.25%³	0.75%	0.75%
Shareholder Services Fee	0.25%	0.25%	0.25%
Other Expenses⁴	0.49%	0.49%	0.49%
Total Annual Fund Operating Expenses	1.74%	2.24%⁵	2.24%

1 Although not contractually obligated to do so, the Adviser, administrator, transfer and dividend disbursing agent and distributor expect to waive certain amounts. These are shown below along with the net expenses the Fund expects to pay for the fiscal year ending November 30, 2004.
Total Waivers of Fund Expenses	0.84%	0.62%	0.62%
Total Actual Annual Fund Operating Expenses (after waivers)⁶	0.90%	1.62%	1.62%
2 The Adviser expects to voluntarily waive a portion of the management fee. The Adviser can terminate this anticipated voluntary waiver at any time. The management fee paid by the Fund (after the anticipated voluntary waiver) is expected to be 0.17% for the fiscal year ending November 30, 2004.
3 A portion of the distribution (12b-1) fee is expected to be voluntarily waived. This anticipated voluntary waiver can be terminated at any time. The distribution (12b-1) fee to be paid by the Fund's Class A Shares (after the anticipated voluntary waiver) is expected to be 0.03% for the fiscal year ending November 30, 2004.
4 The administrator and transfer and dividend disbursing agent expects to voluntarily waive certain operating expenses of the Fund. This anticipated voluntary waiver can be terminated at any time. Total other operating expenses paid by the Fund (after the anticipated voluntary waiver) was 0.45% for the fiscal year ending November 30, 2004.
5 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.
6 The Actual Annual Fund Operating Expenses (after waivers) were 1.25%, 1.97% and 1.97% for the Fund's Class A, Class B and Class C Shares, respectively, for the fiscal year ended November 30, 2003.

<R>

EXAMPLE

</R>

<R>

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

</R>

<R>

The Example assumes that you invest $10,000 in the Fund's Class A, Class B and Class C Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A, Class B and Class C Shares operating expenses are before waivers as estimated in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

</R>

<R>Share Class</R>	<R>1 Year</R>	<R>3 Years</R>	<R>5 Years</R>	<R>10 Years</R>
<R>Class A:</R>
<R>Expenses assuming redemption</R>	<R>$619</R>	<R>$973</R>	<R>$1,351</R>	<R>$2,409</R>

<R>Expenses assuming no redemption</R>	<R>$619</R>	<R>$973</R>	<R>$1,351</R>	<R>$2,409</R>

<R>Class B:</R>
<R>Expenses assuming redemption</R>	<R>$777</R>	<R>$1,100</R>	<R>$1,400</R>	<R>$2,449</R>

<R>Expenses assuming no redemption</R>	<R>$227</R>	<R>$ 700</R>	<R>$1,200</R>	<R>$2,449</R>

<R>Class C:</R>
<R>Expenses assuming redemption</R>	<R>$425</R>	<R>$ 793</R>	<R>$1,288</R>	<R>$2,649</R>

<R>Expenses assuming no redemption</R>	<R>$325</R>	<R>$ 793</R>	<R>$1,288</R>	<R>$2,649</R>

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing in an unhedged portfolio of non-dollar denominated, investment-grade, foreign fixed income securities. Foreign fixed income securities are debt securities issued by foreign governments or corporations. Historically, the performance of non-dollar denominated, investment grade foreign debt securities has had a low correlation to the performance of comparable quality domestic debt securities.

The Fund invests only in debt securities rated BBB or better at the time of purchase. The Fund maintains a dollar-weighted average portfolio credit rating of A.

The Fund's investment adviser (Adviser) expects that the Fund's portfolio will consist primarily of government securities of developed market countries and debt securities of corporations in developed market countries. Developed markets include, for example, certain of the countries that are members of the Organization for Economic Cooperation and Development (OECD). The OECD is an organization of member countries, which share the principles of the market economy and pluralist democracy. The countries included in the J.P. Morgan Government Bond Index (JPMGXUS) are developed markets. The Adviser expects that, normally, the Fund's portfolio securities will be denominated in foreign currencies; although the Fund is permitted to invest in debt securities denominated in either foreign currency or in U.S. dollars. The Adviser does not intend to hedge the Fund's investment returns from securities denominated in foreign currencies. A currency hedge is a transaction intended to remove the influence of currency fluctuations on investment returns.

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The Adviser actively manages the Fund's portfolio seeking to outperform the JPMGXUS. The Adviser's investment process is primarily concerned with selecting the currencies and countries in which portfolio securities are purchased and placement of those securities along the yield curves in their respective markets. Since the Fund invests in securities with relatively low credit risk, currency risks and bond market risks will be the primary determinants of the Fund's investment performance versus the JPMGXUS instead of credit risks. The prices of investment-grade, developed-market bonds will decline or rise more due to a rise or fall in market interest rates than due to deterioration or improvement in the issuer's credit quality. Similarly, currency gains and losses occur regardless of whether issuer credit quality changes. Under normal market conditions, the Fund will not invest more than 30% of its total assets in any one country, and the Fund's average portfolio duration will not deviate more than 25% from the duration of the JPMGXUS, which fluctuates daily, but at the present time, is 5.98 years. Duration measures the price sensitivity of a fixed income security to changes in market interest rates.

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The Adviser selects securities by, first, formulating its outlook for foreign exchange and interest rates in each developed market currency and country around the world. This outlook is based upon an analysis of a country's or region's general economic and financial condition. The Adviser attempts to identify countries with favorable characteristics, such as a strengthening economy, favorable inflation rate, and sound budget policy. The Adviser also considers how developments in other countries in the region or the world might affect these factors. The Adviser then analyzes the issuers of available securities in selected countries.

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The Adviser may invest in derivative contracts to efficiently implement the Fund's overall investment strategies. The following examples illustrate some, but not all, of the specific ways in which the Fund may use derivative contracts. First, the Fund may purchase currency forwards to gain exposure to a particular currency or in lieu of purchasing securities directly. Second, the Fund may purchase currency options to adjust its exposure to various currencies in the portfolio. Finally, the Adviser may buy (or sell) futures contracts to increase (or decrease) the Fund's average portfolio duration within the limitation described above (i.e., 25% of JPMGXUS). As earlier noted, the Adviser does not intend to hedge the Fund's investment returns from securities denominated in foreign currencies and, accordingly, does not intend to use derivative contracts to hedge its currency exposure into U.S. dollars.

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Because the Fund refers to fixed income investments in its name, it will notify shareholders at least 60 days in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its assets in fixed income investments.

PORTFOLIO TURNOVER

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

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

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

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

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

Foreign Government Securities

Foreign government securities generally consist of fixed income securities supported by national, state or provincial governments or similar political subdivisions. Foreign government securities also include debt obligations of supranational entities, such as international organizations designed or supported by governmental entities to promote economic reconstruction or development, international banking institutions and related government agencies. Examples of these include, but are not limited to, the International Bank for Reconstruction and Development (the World Bank), the Asian Development Bank, the European Investment Bank and the Inter-American Development Bank.

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

Foreign Corporate Debt Securities

Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Fund may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.

In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities.

FOREIGN EXCHANGE CONTRACTS

DERIVATIVE CONTRACTS

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

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

The Fund may also trade derivative contracts over-the-counter (OTC) in transactions negotiated directly between the Fund and the counterparty. OTC contracts do not necessarily have standard terms, so they cannot be directly offset with other OTC contracts. In addition, OTC contracts with more specialized terms may be more difficult to price than exchange traded contracts.

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Depending on how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset or instrument, derivative contracts may increase or decrease the Fund's exposure to bond market, currency and credit risks, and may also expose the Fund to liquidity and leverage risks. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.

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

Futures Contracts

Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date, and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts. The Fund can buy or sell financial futures, index futures and foreign currency forward contracts.

FORWARD CONTRACTS

A forward currency contract is an obligation to purchase or sell a specific currency at a future date, at a price set at the time of the contract and for a period agreed upon by the parties which may be either a window of time or a fixed number of days from the date of the contract. Forward currency contracts are highly volatile, with a relatively small price movement potentially resulting in substantial gains or losses to the Fund. Additionally, the Fund may lose money on forward currency transactions if changes in currency rates do not occur as anticipated or if the Fund's counterparty to the contract were to default.

Options

Options are rights to buy or sell an underlying asset or instrument for a specified price (the exercise price) during, or at the end of, a specified period. The seller (or writer) of the option receives a payment, or premium, from the buyer, which the writer keeps regardless of whether the buyer uses (or exercises) the option. A call option gives the holder (buyer) the right to buy the underlying asset from the seller (writer) of the option. A put option gives the holder the right to sell the underlying asset to the writer of the option. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of underlying assets or instruments, including financial indices, individual securities, and other derivative instruments, such as futures contracts.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

What are the Specific Risks of Investing in the Fund?

CURRENCY RISKS

EURO RISKS

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

BOND MARKET RISKS

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

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

CREDIT RISKS

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

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

After purchase by the Fund, a security may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event will require a sale of such security by the Fund. The Adviser will consider such an event in its determination of whether the Fund should continue to hold the security.

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

RISKS OF FOREIGN INVESTING

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

Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.

Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than U.S. companies by market analysts and the financial press. In addition, foreign countries may lack financial controls and reporting standards, or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.

Some countries are less well developed, overly reliant on particular industries, and more vulnerable to the cyclical nature of international trade. Some countries have histories of hyperinflation and currency devaluations versus the dollar (which may adversely affect returns to U.S. investors) and may be overly dependent on foreign capital.

LIQUIDITY RISKS

Liquidity risk refers to the possibility that the Fund may not be able to close out a derivative contract when it wants to. If this happens, the Fund will be required to continue to hold the security or keep the position open, and the Fund could incur losses. OTC derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

LEVERAGE RISKS

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

Investments can have these same results if their returns are based on a multiple of a specified index, security, or other benchmark.

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RISKS OF INVESTING IN DERIVATIVE CONTRACTS

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The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus, such as bond market, credit, liquidity and leverage risks.

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CUSTODIAL SERVICES AND RELATED INVESTMENT COSTS

Custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. Such markets have settlement and clearance procedures that differ from those in the United States. 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 securities purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security caused by settlement problems could result in losses to the Fund due to a subsequent decline in value of the portfolio security. In addition, security settlement and clearance procedures in some emerging countries may not fully protect the Fund against loss of its assets.

What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). If the Fund purchases foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. Trading in foreign securities may be completed at times which vary from the closing of the NYSE. In computing its NAV, the Fund values foreign securities at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Occasionally, events that affect these values may occur between the times at which such values are determined and the closing of the NYSE. Such events may affect the value of an individual portfolio security or in certain cases may affect the values of foreign securities more broadly. If the Fund determines that such events have significantly affected the value of portfolio securities, these securities will be valued at their fair value as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors (the "Board"). NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.

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The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.

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Foreign government securities and listed foreign corporate bonds are valued according to the last reported sale price on a recognized securities exchange, if available. If no sale on a recognized exchange is reported or if the security is traded OTC, a security is valued according to the last reported bid price.

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Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges. Options traded OTC are generally valued according to the mean between the last bid and the last asked price for the option as provided by an investment dealer or other financial institution that deals in the option.

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	4.50%	0.00%
Class B	$1,500/$100	None	5.50%
Class C	$1,500/$100	1.00%	1.00%

2 Front-End Sales Charge is expressed as a percentage of public offering price. See "Sales Charge When You Purchase."

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%

1 A contingent deferred sales charge of 0.75% may apply. See "Sales Charge When You Redeem."

Class C Shares
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
All Purchases	1.00%	1.01%

The sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
- of the same share class of two or more Federated funds (other than money market funds);
accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
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signing a letter of intent to purchase a specific dollar amount of Shares within 13 months. (Call your investment professional or the Fund for more information.)
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The sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
by exchanging shares from the same share class of another Federated fund (other than a money market fund);
through wrap accounts or other investment programs where you pay the investment professional directly for services;
through investment professionals that receive no portion of the sales charge;
as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;
as a Federated Life Member (Class A Shares only) and their immediate family members; or
as a Director or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.

SALES CHARGE WHEN YOU REDEEM

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

Class A Shares (Purchase amount of $1 million or greater):

A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.

You will not be charged a CDSC when redeeming Shares:

purchased with reinvested dividends or capital gains;
purchased within 120 days of redeeming Shares of an equal or lesser amount;
that you exchanged into the same share class of another Federated fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
purchased through investment professionals who did not receive advanced sales payments;
if, after you purchase Shares, you become disabled as defined by the IRS;
if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
if your redemption is a required retirement plan distribution; or
upon the death of the last surviving shareholder of the account. The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder of the account.

To keep the sales charge as low as possible, the Fund redeems your Shares in this order:

Shares that are not subject to a CDSC; and
Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).

The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

How is the Fund Sold?

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

RULE 12B-1 PLAN

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

How to Purchase Shares

Where the Fund offers more than one Share class and you do not specify the class choice on your New Account Form or form of payment (e.g., Federal Reserve wire or check) you automatically will receive Class A Shares.

THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

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

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

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

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are restricted.

By Check

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

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

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If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

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

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

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If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

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By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.

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

Signature Guarantees

Signatures must be guaranteed if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

PAYMENT METHODS FOR REDEMPTIONS

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGE

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

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

Generally, it is not advisable to continue to purchase Class A Shares or Class C Shares subject to a sales charge while redeeming Shares using this program.

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Systematic Withdrawal Program (SWP) on Class B Shares

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You will not be charged a CDSC on SWP redemptions if:

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

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ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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

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Who Manages the Fund?

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The Board governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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THE FUND'S PORTFOLIO MANAGERS ARE:

Robert M. Kowit

Robert M. Kowit has been a Portfolio Manager of the Fund since December 1995. Mr. Kowit joined Federated in 1995 as a Senior Portfolio Manager and a Vice President of the Fund's Adviser. Mr. Kowit served as a Managing Partner of Copernicus Global Asset Management from January 1995 through October 1995. From 1990 to 1994, he served as Senior Vice President/Portfolio Manager of International Fixed Income and Foreign Exchange for John Hancock Advisers. Mr. Kowit received his M.B.A. from Iona College with a concentration in finance.

Nick Ivanov

Nick Ivanov has been a Portfolio Manager of the Fund since January 2001. Mr. Ivanov joined Federated in March 1999 as a Senior Investment Analyst; he was named as Assistant Vice President of the Fund's Adviser in January 2000. Mr. Ivanov served as a Vice President with WestLB Securities Americas, Inc. from March 1997 to March 1999, and as a Senior Fixed Income Analyst with WestLB Research GmbH from October 1995 to March 1997. Mr. Ivanov earned an M.B.A. in finance from Columbia University Business School and an M.A. in philosophy from Sofia University.

Ihab Salib

Ihab Salib has been a Portfolio Manager of the Fund since July 2002. Mr. Salib joined Federated in April 1999 as a Senior Fixed Income Trader/Assistant Vice President of the Fund's Adviser. In July 2000, he was named a Vice President of the Fund's Adviser. He has served as a portfolio manager since January 2002. From January 1994 through March 1999, Mr. Salib was employed as a Senior Global Fixed Income Analyst with UBS Brinson, Inc. Mr. Salib received his B.A. with a major in economics from Stony Brook University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

Legal Proceedings

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Financial Information

FINANCIAL HIGHLIGHTS

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

Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended November 30	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$10.06		$ 8.97		$8.63		$9.68		$11.22
Income From Investment Operations:
Net investment income	0.31	¹	0.30	^1,2	0.34	¹	0.43	¹	0.55	¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	1.93		0.79	²	--		(1.30	)	(1.63	)

TOTAL FROM INVESTMENT OPERATIONS	2.24		1.09		0.34		(0.87	)	(1.08	)

Less Distributions:
Distributions from net investment income	(0.54	)	--		--		(0.02	)	(0.46	)
Distribution from paid in capital³	--		--		--		(0.16	)	--

TOTAL FROM DISTRIBUTIONS	(0.54	)	--		--		(0.18	)	(0.46	)

Net Asset Value, End of Period	$11.76		$10.06		$8.97		$8.63		$ 9.68

Total Return⁴	23.25	%	12.15	%	3.94	%	(9.15	)%	(9.87	)%


Ratios to Average Net Assets:

Expenses	1.25	%	1.73	%	1.58	%	1.55	%	1.46	%

Net investment income	2.80	%	3.27	%²	3.85	%	4.68	%	5.19	%

Expense waiver/reimbursement⁵	0.64	%	0.55	%	0.38	%	0.22	%	0.23	%

Supplemental Data:

Net assets, end of period (000 omitted)	$88,753		$33,663		$63,587		$72,867		$115,155

Portfolio turnover	126	%	208	%	436	%	116	%	52	%

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

2 Effective December 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants ("AICPA") Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. The effect of this change for the year ended November 30, 2002 was to decrease net investment income per share by $0.03, increase net realized and unrealized gain (loss) per share by $0.03, and decrease the ratio of net investment income to average net assets from 3.61% to 3.27%. Per share, ratios and supplemental data for periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

3 Represents a return of capital for federal income tax purposes.

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

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended November 30	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$ 9.86		$8.86		$8.58		$9.66		$11.19
Income From Investment Operations:
Net investment income	0.23	¹	0.24	^1,2	0.28	¹	0.35	¹	0.47	¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	1.90		0.76	²	--		(1.29	)	(1.62	)

TOTAL FROM INVESTMENT OPERATIONS	2.13		1.00		0.28		(0.94	)	(1.15	)

Less Distributions:
Distributions from net investment income	(0.48	)	--		--		(0.01	)	(0.38	)
Distribution from paid in capital³	--		--		--		(0.13	)	--

TOTAL FROM DISTRIBUTIONS	(0.48	)	--		--		(0.14	)	(0.38	)

Net Asset Value, End of Period	$11.51		$9.86		$8.86		$8.58		$ 9.66

Total Return⁴	22.43	%	11.29	%	3.26	%	(9.84	)%	(10.47	)%


Ratios to Average Net Assets:

Expenses	1.97	%	2.45	%	2.30	%	2.27	%	2.18	%

Net investment income	2.09	%	2.58	%²	3.14	%	3.90	%	4.47	%

Expense waiver/reimbursement⁵	0.42	%	0.33	%	0.16	%	--		0.01	%

Supplemental Data:

Net assets, end of period (000 omitted)	$16,051		$9,433		$6,952		$7,678		$10,702

Portfolio turnover	126	%	208	%	436	%	116	%	52	%

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

2 Effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. The effect of this change for the year ended November 30, 2002 was to decrease net investment income per share by $0.03, increase net realized and unrealized gain (loss) per share by $0.03, and decrease the ratio of net investment income to average net assets from 2.92% to 2.58%. Per share, ratios and supplemental data for periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

3 Represents a return of capital for federal income tax purposes.

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

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended November 30	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$ 9.86		$8.86		$8.58		$9.67		$11.20
Income From Investment Operations:
Net investment income	0.23	¹	0.24	^1,2	0.28	¹	0.35	¹	0.47	¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	1.90		0.76	²	--		(1.29	)	(1.62	)

TOTAL FROM INVESTMENT OPERATIONS	2.13		1.00		0.28		(0.94	)	(1.15	)

Less Distributions:
Distributions from net investment income	(0.49	)	--		--		(0.02	)	(0.38	)
Distribution from paid in capital³	--		--		--		(0.13	)	--

TOTAL FROM DISTRIBUTIONS	(0.49	)	--		--		(0.15	)	(0.38	)

Net Asset Value, End of Period	$11.50		$9.86		$8.86		$8.58		$ 9.67

Total Return⁴	22.51	%	11.29	%	3.26	%	(9.91	)%	(10.46	)%


Ratios to Average Net Assets:

Expenses	1.97	%	2.45	%	2.30	%	2.27	%	2.18	%

Net investment income	2.10	%	2.57	%²	3.14	%	3.91	%	4.47	%

Expense waiver/reimbursement⁵	0.42	%	0.33	%	0.16	%	--		0.01	%

Supplemental Data:

Net assets, end of period (000 omitted)	$23,051		$5,841		$2,675		$2,720		$4,281

Portfolio turnover	126	%	208	%	436	%	116	%	52	%

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

2 Effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. The effect of this change for the year ended November 30, 2002 was to decrease net investment income per share by $0.03, increase net realized and unrealized gain (loss) per share by $0.03, and decrease the ratio of net investment income to average net assets from 2.91% to 2.57%. Per share, ratios and supplemental data for periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

3 Represents a return of capital for federal income tax purposes.

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

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

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2003, which can be obtained free of charge.

<R>

</R>

Federated Investors
World-Class Investment Manager

Federated International Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Investment Company Act File No. 811-3984

Cusip 31420G408
Cusip 31420G507
Cusip 31420G606

G00494-02-ABC (1/04)

FEDERATED INTERNATIONAL BOND FUND
A Portfolio of Federated International Series, Inc.

Statement of additional Information

January 31, 2004

Class A Shares
Class B Shares
Class C Shares

This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in
conjunction with the prospectus for Federated International Bond Fund (Fund), dated
January 31, 2004.

This SAI incorporates by reference the Fund's Annual Report. Obtain the prospectus or
the Annual Report without charge by calling 1-800-341-7400.

Contents
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
1051602B (1/04)

HOW IS THE FUND ORGANIZED?

The Fund is a non-diversified portfolio of Federated International Series, Inc.
(Corporation). The Corporation is an open-end, management investment company that was
established under the laws of the State of Maryland on March 9, 1984. The Corporation
may offer separate series of shares representing interests in separate portfolios of
securities. The Corporation changed its name from International Series, Inc. to
Federated International Series, Inc. on January 19, 2000. On September 18, 2000, the
Fund changed its name from Federated International Income Fund to Federated
International Bond Fund.

<R>The Board of Directors (the Board) has established three classes of shares
of the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all classes of Shares. The Fund's investment adviser is Federated
Investment Management Company (Adviser). Prior to January 1, 2004, Federated Global
Investment Management Corp. was investment adviser to the Fund. Both the current
Adviser and the former Adviser are wholly owned subsidiaries of Federated Investors,
Inc. (Federated). </R>

SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

Non-Principal Investment Strategy
<R>While the Fund does not intend to hedge its foreign currency exposure into
U.S. dollars, however, it reserves the right to hedge any portion of its portfolio in
the future. Hedging transactions are intended to reduce specific risks. For example,
to protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The Fund
may attempt to lower the cost of hedging by entering into transactions that provide
only limited protection, including transactions that: (1) hedge only a portion of its
portfolio; (2) use derivatives contracts that cover a narrow range of circumstances;
or (3) involve the sale of derivatives contracts with different terms. Consequently,
hedging transactions will not eliminate risk even if they work as intended. In
addition, hedging strategies are not always successful, and could result in increased
expenses and losses to the Fund. </R>

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

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

Yields on short-, intermediate-, and long-term securities are dependent on a variety
of factors, including the general conditions of the money, bond and foreign exchange
markets, the size of a particular offering, the maturing of the obligation, and the
rating of the issue. Debt securities with longer maturities are generally subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities and lower yields.

The following describes additional types of fixed income securities in which the Fund
invests.

Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses. Notes,
bonds, debentures and commercial paper are the most prevalent types of corporate debt
securities. The Fund may also purchase interests in bank loans to companies. The
credit risks of corporate debt securities vary widely among issuers. The credit risk
of an issuer's debt security may also vary based on its priority for repayment. For
example, higher ranking (senior) debt securities have a higher priority than lower
ranking (subordinated) securities. This means that the issuer might not make payments
on subordinated securities while continuing to make payments on senior securities. In
addition, in the event of bankruptcy, holders of senior securities may receive
amounts otherwise payable to the holders of subordinated securities. Some
subordinated securities, such as trust preferred and capital securities notes, also
permit the issuer to defer payments under certain circumstances. For example,
insurance companies issue securities known as surplus notes that permit the insurance
company to defer any payment that would reduce its capital below regulatory
requirements.

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

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

Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an underlying pass-through certificate among
holders of different classes of mortgage backed securities. This creates different
prepayment and market risks for each CMO class. CMOs are offered in a variety of
structures. For example, in a sequential pay CMO, one class of CMOs receives all
principal payments and prepayments. The next class of CMOs receives all principal
payments after the first class is paid off. This process repeats for each sequential
class of CMO. As a result, each class of sequential pay CMOs reduces the prepayment
risks of subsequent classes.

The degree of increased or decreased prepayment risks depends upon the structure of
the CMOs. Certain CMO structures are among the most volatile investment grade fixed
income securities currently traded in the United States. However, the actual returns
on any type of mortgage backed security depends upon the performance of the
underlying pool of mortgages, which no one can predict and will vary among pools.

Asset Backed Securities
Asset backed securities are payable from pools of obligations other than mortgages.
Most asset backed securities involve consumer or commercial debts with maturities of
less than ten years. However, almost any type of fixed income assets (including other
fixed income securities) may be used to create an asset backed security. Asset backed
securities may take the form of commercial paper, notes, or pass-through
certificates. Asset backed securities may also resemble some types of CMOs, such as
Floaters, Inverse Floaters, IOs and POs.

Historically, borrowers are more likely to refinance their mortgage than any other
type of consumer or commercial debt. In addition, some asset backed securities use
prepayments to buy additional assets, rather than paying off the securities.
Therefore, while asset backed securities may have some prepayment risks, they
generally do not present the same degree of risk as mortgage backed securities.

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

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

Bank Instruments
Bank instruments are unsecured interest bearing deposits with banks. Bank instruments
include bank accounts, time deposits, certificates of deposit and banker's
acceptances. Yankee instruments are denominated in U.S. dollars and issued by U.S.
branches of foreign banks. Eurodollar instruments are denominated in U.S. dollars and
issued by non-U.S. branches of U.S. or foreign banks.

<R>Derivative Contracts

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

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

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

The Fund may also trade derivative contracts over-the-counter (OTC) in transactions
negotiated directly between the Fund and the counterparty. OTC contracts do not
necessarily have standard terms, so they cannot be directly offset with other OTC
contracts. In addition, OTC contracts with more specialized terms may be more
difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships between
the market value of a derivative contract and the underlying asset, derivative
contracts may increase or decrease the Fund's exposure to bond market, currency and
credit risks, and may also expose the Fund to liquidity and leverage risks. OTC
contracts also expose the Fund to credit risks in the event that a counterparty
defaults on the contract.

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

Futures Contracts

Futures contracts provide for the future sale by one party and purchase by another
party of a specified amount of an underlying asset at a specified price, date, and
time. Entering into a contract to buy an underlying asset is commonly referred to
as buying a contract or holding a long position in the asset. Entering into a
contract to sell an underlying asset is commonly referred to as selling a contract
or holding a short position in the asset. Futures contracts are considered to be
commodity contracts. The Fund has claimed an exclusion from the definition of the
term "commodity pool operator" under the Commodity Exchange Act and, therefore, is
not subject to registration or regulation as a commodity pool operator under that
Act. Futures contracts traded OTC are frequently referred to as forward
contracts. The Fund can buy or sell financial futures and foreign currency forward
contracts.

Options

Options are rights to buy or sell an underlying asset or instrument for a
specified price (the exercise price) during, or at the end of, a specified period.
The seller (or writer) of the option receives a payment, or premium, from the
buyer, which the writer keeps regardless of whether the buyer uses (or exercises)
the option. Options can trade on exchanges or in the OTC market and may be bought
or sold on a wide variety of underlying assets or instruments, including financial
indices, individual securities, and other derivative instruments, such as futures
contracts. Options that are written on futures contracts will be subject to
margin requirements similar to those applied to futures contracts.

The Fund may buy/sell the following types of options:

Call Options

A call option gives the holder (buyer) the right to buy the underlying asset from
the seller (writer) of the option. The Fund may use call options in the following
ways:

o Buy call options on foreign currencies, foreign currency futures, portfolio
securities and securities indices in anticipation of an increase in the value
of the underlying asset or instrument

Put Options

A put option gives the holder the right to sell the underlying asset to the writer
of the option. The Fund may use put options in the following ways:

o Buy put options on foreign currencies, foreign currency futures, portfolio
securities and securities indices in anticipation of a decrease in the value of
the underlying asset.

The Fund may also buy options, as needed, to close out existing option positions.
</R>

FORWARD CONTRACTS
The Fund may enter into foreign forward currency contracts to acquire exposure to
a specific currency, as a substitute for buying or selling securities or to settle
transactions in non-U.S. dollar dominated securities. A foreign forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, at a price set at the time of the contract and for a period agreed upon by
the parties which may be either a window of time or a fixed number of days from
the date of the contract. Purchased contracts are used to acquire exposure to
foreign currencies while contracts to sell are used to hedge the Fund's securities
against currency fluctuations. The cost to the Fund of engaging in foreign forward
currency transactions depends on such factors as the currency involved, the size
of the contract, the length of the contract and the prevailing market conditions.
Foreign forward currency contracts are highly volatile, with a relatively small
price movement potentially resulting in substantial gains or losses to the Fund.
Additionally, the Fund may lose money on forward currency transactions if changes
in currency rates do not occur as anticipated or if the Fund's counterparty to the
contract were to default.

Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular payments
equal to a fixed or floating interest rate times a stated principal amount of fixed
income securities, in return for payments equal to a different fixed or floating rate
times the same principal amount, for a specific period. For example, a $10 million
LIBOR swap would require one party to pay the equivalent of the London Interbank
Offer Rate of interest (which fluctuates) on $10 million principal amount in exchange
for the right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.

Currency Swaps
Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.

Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of another
security (typically a fixed income security). All or a portion of the interest or
principal payable on a hybrid security is determined by reference to changes in the
price of an underlying asset or by reference to another benchmark (such as interest
rates, currency exchange rates or indices). Hybrid instruments also include
convertible securities with conversion terms related to an underlying asset or
benchmark.
The risks of investing in hybrid instruments reflect a combination of the risks of
investing in securities, options, futures and currencies, and depend upon the terms
of the instrument. Thus, an investment in a hybrid instrument may entail significant
risks in addition to those associated with traditional fixed income or convertible
securities. Hybrid instruments are also potentially more volatile and carry greater
market risks than traditional instruments. Moreover, depending on the structure of
the particular hybrid, it may expose the Fund to leverage risks or carry liquidity
risks.

SPECIAL TRANSACTIONS

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

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

Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them at an
agreed upon time and price. A reverse repurchase agreement may be viewed as a type of
borrowing by the Fund. Reverse repurchase agreements are subject to credit risks. In
addition, reverse repurchase agreements create leverage risks because the Fund must
repurchase the underlying security at a higher price, regardless of the market value
of the security at the time of repurchase.

Delayed Delivery Transactions
Delayed delivery transactions, including when-issued transactions, are arrangements
in which the Fund buys securities for a set price, with payment and delivery of the
securities scheduled for a future time. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues to
the Fund. The Fund records the transaction when it agrees to buy the securities and
reflects their value in determining the price of its shares. Settlement dates may be
a month or more after entering into these transactions so that the market values of
the securities bought may vary from the purchase prices. Therefore, when- issued
transactions create market risks for the Fund. When-issued transactions also involve
credit risks in the event of a counterparty default.

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

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

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

Securities lending activities are subject to market risks and credit risks.

Inter-Fund Borrowing and Lending Arrangements
The Securities and Exchange Commission (SEC) has granted an exemption that permits
the Fund and all other funds advised by subsidiaries of Federated (Federated funds)
to lend and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary or
both borrowing and lending funds, and an inter-fund loan is only made if it benefits
each participating fund. Federated administers the program according to procedures
approved by the Fund's Board, and the Board monitors the operation of the program.
Any inter- fund loan must comply with certain conditions set out in the exemption,
which are designed to assure fairness and protect all participating funds.

For example, inter-fund lending is permitted only (a) to meet shareholder redemption
requests, and (b) to meet commitments arising from "failed" trades. All inter-fund
loans must be repaid in seven days or less. The Fund's participation in this program
must be consistent with its investment policies and limitations, and must meet
certain percentage tests. Inter-fund loans may be made only when the rate of interest
to be charged is more attractive to the lending fund than market-competitive rates on
overnight repurchase agreements (Repo Rate) and more attractive to the borrowing fund
than the rate of interest that would be charged by an unaffiliated bank for
short-term borrowings (Bank Loan Rate), as determined by the Board. The interest rate
imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.

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

INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are outlined
below.

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

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

Liquidity Risks
o Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment grade
or are not widely held. These features may make it more difficult to sell or
buy a security at a favorable price or time. Consequently, the Fund may have to
accept a lower price to sell a security, sell other securities to raise cash or
give up an investment opportunity, any of which could have a negative effect on
the Fund's performance. Infrequent trading may also lead to greater price
volatility.

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

Fundamental INVESTMENT Objective
The investment objective of the Fund is to obtain a total return on its assets. The
investment objective may not be changed by the Fund's Board without shareholder
approval.

INVESTMENT LIMITATIONS

Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior securities to the
maximum extent permitted under the Investment Company Act of 1940 (1940 Act).

Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction does
not prevent the Fund from investing in issuers which invest, deal, or otherwise
engage in transactions in real estate or interests therein, or investing in
securities that are secured by real estate or interests therein. The Fund may
exercise its rights under agreements relating to such securities, including the right
to enforce security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner.

Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund may
purchase securities of companies that deal in commodities.

Underwriting
The Fund may not underwrite the securities of other issuers, except that the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.

Lending
The Fund may not make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, lending its
assets to broker/dealers or institutional investors and investing in loans, including
assignments and participation interests.

Concentration
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be deemed
to constitute an industry.

The above limitations cannot be changed unless authorized by the Board and by a "vote
of a majority of its outstanding voting securities," as defined by the 1940 Act. The
following limitations, however, may be changed by the Board without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.

Purchases on Margin
The Fund will not purchase securities on margin, provided that the Fund may obtain
short-term credits necessary for the clearance of purchases and sales of securities,
and further provided that the Fund may make margin deposits in connection with its
use of financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.

Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any permissible
borrowing or to collateral arrangements in connection with permissible activities.

Illiquid Securities
The Fund will not purchase securities for which there is no readily available market,
or enter into repurchase agreements or purchase time deposits maturing in more than
seven days, if immediately after and as a result, the value of such securities would
exceed, in the aggregate, 15% of the Fund's net assets.

Convertible Securities
The Fund may invest in convertible securities.

Investing in Other Investment Companies
The Fund may invest its assets in securities of other investment companies, including
securities of affiliated investment companies, as an efficient means of carrying out
its investment policies and managing its uninvested cash.

In applying the Fund's concentration restriction: (a) utility companies will be
divided according to their services, for example, gas, gas transmission, electric and
telephone will be considered a separate industry; (b) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be considered a
separate industry; and (c) asset-backed securities will be classified according to
the underlying assets securing such securities.

To conform to the current view of the SEC staff that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limitation tests so long as the policy of the SEC remains in
effect. In addition, investments in bank instruments, and investments in certain
industrial development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for temporary
defensive purposes. Foreign securities will not be excluded from industry
concentration limits. The investment of more than 25% of the value of the Fund's
total assets in any one industry will constitute "concentration."

As a matter of non-fundamental operating policy, for purposes of the commodities
policy, investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle by
payment of cash are not deemed to be investments in commodities.

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.

PORTFOLIO TURNOVER
<R>Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the Adviser
believes it is appropriate to do so in light of the Fund's investment objectives,
without regard to the length of time a particular security may have been held. The
Adviser does not anticipate that portfolio turnover will result in adverse tax
consequences. For the fiscal years ended November 30, 2003 and 2002, the portfolio
turnover rates were 126% and 208%, respectively. </R>

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

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

|X| for fixed income securities, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that fixed income
securities with remaining maturities of less than 60 days at the time of purchase
may be valued at amortized cost; and

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

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

Trading in Foreign Securities
<R>Trading in foreign securities may be completed at times which vary from the
closing of the NYSE. In computing its net asset value (NAV), the Fund values foreign
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the NYSE. Occasionally, events that affect these
values may occur between the times at which such values are determined and the
closing of the NYSE. Such events may affect the value of an individual portfolio
security or in certain cases may affect the values of foreign securities more
broadly. If the Fund determines that such events have significantly affected the
value of portfolio securities, these securities will be valued at their fair value
as determined in accordance with procedures established by and under the general
supervision of the Fund's Board. </R>

WHAT DO SHARES COST?

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

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

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

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

Accumulated Purchases (Class A Shares)

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

Concurrent Purchases (Class A Shares)

You can combine concurrent purchases of the same share class of two or more Federated
funds in calculating the applicable sales charge.

Letter of Intent (Class A Shares)
You can sign a Letter of Intent committing to purchase a certain amount of the same
class of Shares within a 13-month period to combine such purchases in calculating the
sales charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete the Letter of Intent, the Custodian will
release the Shares in escrow to your account. If you do not fulfill the Letter of
Intent, the Custodian will redeem the appropriate amount from the Shares held in
escrow to pay the sales charges that were not applied to your purchases.

<R>Reorganizations (Class A Shares)
Class A Shares may be purchased without an initial sales charge by any shareholder
that originally became a shareholder of the Fund pursuant to the terms of an
agreement and plan or reorganization which permits shareholders to acquire Shares at
NAV. </R>

Reinvestment Privilege
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.

Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at NAV
without any sales charge because there are nominal sales efforts associated with
their purchases:

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

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

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

Purchases Through Omnibus Accounts (Class C Shares)
Class C Shares may be purchased without an initial sales charge by any investor who
buys Class C Shares through an omnibus account with a financial intermediary, such as
a broker or a bank, that does not accept or charge the initial sales charge.

Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from paying any
front-end sales charge. These shareholders joined the Fund originally:

o through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of Funds
are no longer marketed); or

o as Liberty Account shareholders by investing through an affinity group prior to
August 1, 1987.

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

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

o following the death or post-purchase disability, as defined in Section 72(m)(7)
of the Internal Revenue Code of 1986, of the last surviving shareholder;

o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of 70
1/2;

o of Shares that represent a reinvestment within 120 days of a previous
redemption;

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

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

o which are involuntary redemptions processed by the Fund because the accounts do
not meet the minimum balance requirements; and

Class B Shares Only
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.

To keep the sales charge as low as possible, the Fund redeems your Shares in this
order:

o Shares that are not subject to a CDSC; and

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

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

HOW IS THE FUND SOLD?

Under the Distributor's Contract with the Fund, the Distributor (Federated Securities
Corp.) offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor pays a portion of this charge to investment professionals that are
eligible to receive it (the "Dealer Reallowance") and retains any remaining portion
of the front-end sales charge.

When an investment professional's customer purchases Shares, the investment
professional may receive a Dealer Reallowance as follows:

Dealer
Reallowance
as a Percentage
of
Public Offering
Purchase Amount Price
Less than $100,000 4.00%
$100,000 but less than 3.25%
$250,000
$250,000 but less than 2.25%
$500,000
$500,000 but less than $1 1.80%
million
$1 million or greater 0.00%

Dealer Reallowance
as a Percentage of
Public Offering
Price
All Purchase Amounts 1.00%

ADVANCE COMMISSIONS
--------------------------------------------------------------------------------------
When an investment professional's customer purchases Shares, the investment
professional may receive an advance commission as follows:

Class A Shares (for purchases over $1 million)
Advance Commission
as a Percentage of
Public Offering
Purchase Amount Price
First $1 million - $5 0.75%
million
Next $5 million - $20 0.50%
million
Over $20 million 0.25%
Advance commissions are calculated on a year by year basis based on amounts invested
during that year. Accordingly, with respect to additional purchase amounts, the
advance commission breakpoint resets annually to the first breakpoint on the
anniversary of the first purchase.
--------------------------------------------------------------------------------------

Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance commission will be paid only on
those purchases that were not previously subject to a front-end sales charge or
dealer advance commission. Certain retirement accounts may not be eligible for this
program.

Class B Shares
Advance Commission
as a Percentage of
Public Offering
Price
All Purchase Amounts Up to 5.50%

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

Class C Shares
Advance Commission
as a Percentage of
Public Offering
Price
All Purchase Amounts 1.00%

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

RULE 12B-1 PLAN (CLASS A Shares, CLASS B Shares and class C shares)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the Distributor
for activities principally intended to result in the sale of Shares such as
advertising and marketing of Shares (including printing and distributing prospectuses
and sales literature to prospective shareholders and financial institutions) and
providing incentives to investment professionals to sell Shares. The Rule 12b-1 Plan
allows the Distributor to contract with investment professionals to perform
activities covered by the Plan. The Rule 12b-1 Plan is expected to benefit the Fund
in a number of ways. For example, it is anticipated that the Plan will help the Fund
attract and retain assets, thus providing cash for orderly portfolio management and
Share redemptions and possibly helping to stabilize or reduce other operating
expenses. In addition, the Plan is integral to the multiple class structure of the
Fund, which promotes the sale of Shares by providing a range of options to investors.
The Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets. In addition, the Plan is integral to the multiple class
structure of the Fund, which promotes the sale of Shares by providing a range of
options to investors. The Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

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

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

Federated and its subsidiaries may benefit from arrangements where the Rule 12b-1
Plan fees related to Class B Shares may be paid to third parties who have provided
the funds to make advance commission payments to investment professionals.

SERVICE FEES

The Fund may pay fees not to exceed 0.25% of average daily net assets (Service Fees)
to investment professionals or to Federated Shareholder Services Company (FSSC), a
subsidiary of Federated, for providing services to shareholders and maintaining
shareholder accounts. Under certain agreements, rather than paying investment
professionals directly, the Fund may pay Service Fees to FSSC and FSSC will use the
fees to compensate investment professionals.

SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees, in significant amounts, out of the assets
of the Distributor. These fees do not come out of Fund assets. The Distributor may be
reimbursed by the Adviser or its affiliates.

These supplemental payments may be based upon such factors as the number or value of
Shares the investment professional sells or may sell; the value of client assets
invested; and/or the type and nature of services, sales support or marketing support
furnished by the investment professional. In addition to these supplemental payments,
an investment professional may also receive payments under the Rule 12b-1 Plan and/or
Service fees.

EXCHANGING SECURITIES FOR SHARES

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

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

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

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

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote.

All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.

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

<R>As of January 2, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares:

LaCross & Co., LaCross, WI, owned approximately 1,135,650 Class A Shares
(13.09%); Citigroup Global Markets, Inc., New York, NY, owned approximatley 731,641
Class A Shares (8.43%); Charles Schwab & Co., San Francisco, CA, owned
approximately 658,318 Class A Shares (7.59%); and MLPF&S, Jacksonville, FL, owned
approximately 613,629 Class A Shares (7.07%).
Citigroup Global Markets, Inc., New York, NY, owned approximatley 170,948 Class B
Shares (11.31%); and MLPF&S, Jacksonville, FL, owned approximately 104,201 Class
B Shares (6.89%).
Citigroup Global Markets, Inc., New York,NY, owned approximatley 468,003 Class C
Shares (19.98%); and MLPF&S, Jacksonville, FL, owned approximately 779,303 Class
C Shares (33.23%).</R>
Shareholders owning 25% or more of outstanding Shares may be in control and be able
to affect the outcome of certain matters presented for a vote of shareholders.

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue Code
applicable to regulated investment companies. If these requirements are not met, it
will not receive special tax treatment and will be subject to federal corporate
income tax.

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

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

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

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

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

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the shareholders.
The following tables give information about each Board member and the senior officers
of the Fund. Where required, the tables separately list Board members who are
"interested persons" of the Fund (i.e., "Interested" Board members) and those who are
not (i.e., "Independent" Board members). Unless otherwise noted, the address of each
person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. The
Corporation comprises two portfolios and the Federated Fund Complex consists of 44
investment companies (comprising 138 portfolios). Unless otherwise noted, each
Officer is elected annually. Unless otherwise noted, each Board member oversees all
portfolios in the Federated Fund Complex; serves for an indefinite term; and also
serves as a Board member of the following investment company complexes: Banknorth
Funds-four portfolios; Golden Oak(R) Family of Funds-seven portfolios and WesMark
Funds-five portfolios.

<R>As of January 2, 2004, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Class A, B and C Shares.

INTERESTED DIRECTORS BACKGROUND AND COMPENSATION

Name Total
Birth Date Compensation
Address Aggregate From
Positions Held with Compensation Corporation and
--------------------------- Principal Occupation(s) for Past Five From Fund Federated Fund
Corporation Years, Other Directorships Held and (past fiscal Complex (past
Date Service Began Previous Position(s) year) calendar year)
Principal Occupations: Chairman and $0 $0
John F. Donahue* Director or Trustee of the Federated
Birth Date: July 28, 1924 Fund Complex; Chairman and Director,
CHAIRMAN AND DIRECTOR Federated Investors, Inc.
Began serving: March 1984 ----------------------------------------

Previous Positions: Trustee, Federated
Investment Management Company and
Chairman and Director, Federated
Investment Counseling.

Principal Occupations: Principal $0 $0
J. Christopher Donahue* Executive Officer and President of the
Birth Date: April 11, 1949 Federated Fund Complex; Director or
PRESIDENT AND DIRECTOR Trustee of some of the Funds in the
Began serving: January 2000 Federated Fund Complex; President,
Chief Executive Officer and Director,
Federated Investors, Inc.; Chairman and
Trustee, Federated Equity Management
Company of Pennsylvania; Trustee,
Federated Investment Counseling;
Chairman and Director, Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.

Previous Positions: President,
Federated Investment Counseling;
President and Chief Executive Officer,
Federated Investment Management
Company, Federated Global Investment
Management Corp. and Passport Research,
Ltd.

Principal Occupations: Director or $ 695.63
Lawrence D. Ellis, M.D.* Trustee of the Federated Fund Complex; $148,500
Birth Date: October 11, Professor of Medicine, University of
1932 Pittsburgh; Medical Director,
3471 Fifth Avenue University of Pittsburgh Medical Center
Suite 1111 Downtown; Hematologist, Oncologist and
Pittsburgh, PA Internist, University of Pittsburgh
DIRECTOR Medical Center.
Began serving: August 1987
Other Directorships Held: Member,
National Board of Trustees, Leukemia
Society of America.

Previous Positions: Trustee, University
of Pittsburgh; Director, University of
Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F. Donahue is the
father of J. Christopher Donahue; both are "interested" due to the positions they
hold with Federated and its subsidiaries. Lawrence D. Ellis, M.D. is "interested"
because his son-in-law is employed by the Fund's principal underwriter, Federated
Securities Corp.
--------------------------------------------------------------------------------------

INDEPENDENT DIRECTORS BACKGROUND AND COMPENSATION

Name Principal Occupation(s) for Past Five Aggregate Total
Birth Date Years, Other Directorships Held and Compensation Compensation
Address Previous Position(s) From Fund From
Positions Held with past fiscal Corporation and
Corporation (Year) Federated Fund
--------------------------- Complex (past
Date Service Began calendar year)
Principal Occupation: Director or $ 765.18 $163,350
Thomas G. Bigley Trustee of the Federated Fund Complex.
Birth Date: February 3,
1934 Other Directorships Held: Director,
15 Old Timber Trail Member of Executive Committee,
Pittsburgh, PA Children's Hospital of Pittsburgh;
DIRECTOR Director, University of Pittsburgh.
Began serving: November
1994 Previous Position: Senior Partner,
Ernst & Young LLP.

Principal Occupations: Director or $ 765.18 $163,350
John T. Conroy, Jr. Trustee of the Federated Fund Complex;
Birth Date: June 23, 1937 Chairman of the Board, Investment
Grubb & Properties Corporation; Partner or
Ellis/Investment Trustee in private real estate ventures
Properties Corporation in Southwest Florida.
3838 North Tamiami Trail
Suite 402 Previous Positions: President,
Naples, FL Investment Properties Corporation;
DIRECTOR Senior Vice President, John R. Wood and
Began serving: August 1991 Associates, Inc., Realtors; President,
Naples Property Management, Inc. and
Northgate Village Development
Corporation.

Principal Occupation: Director or $ 765.18 $163,350
Nicholas P. Constantakis Trustee of the Federated Fund Complex.
Birth Date: September 3,
1939 Other Directorships Held: Director and
175 Woodshire Drive Member of the Audit Committee, Michael
Pittsburgh, PA Baker Corporation (engineering and
DIRECTOR energy services worldwide).
Began serving: January 2000
Previous Position: Partner, Anderson
Worldwide SC.

Principal Occupation: Director or $695.63 $148,500
John F. Cunningham Trustee of the Federated Fund Complex.
Birth Date: March 5, 1943
353 El Brillo Way Other Directorships Held: Chairman,
Palm Beach, FL President and Chief Executive Officer,
DIRECTOR Cunningham & Co., Inc. (strategic
Began serving: January 2000 business consulting); Trustee
Associate, Boston College.

Principal Occupation: Director or $695.63 $148,500
Peter E. Madden Trustee of the Federated Fund Complex;
Birth Date: March 16, 1942 Management Consultant.
One Royal Palm Way
100 Royal Palm Way Other Directorships Held: Board of
Palm Beach, FL Overseers, Babson College.
DIRECTOR
Began serving: August 1991 Previous Positions: Representative,
Commonwealth of Massachusetts General
Court; President, State Street Bank and
Trust Company and State Street
Corporation (retired); Director, VISA
USA and VISA International; Chairman
and Director, Massachusetts Bankers
Association; Director, Depository Trust
Corporation; Director, The Boston Stock
Exchange.

Principal Occupations: Director or $ 765.18 $163,350
Charles F. Mansfield, Jr. Trustee of the Federated Fund Complex;
Birth Date: April 10, 1945 Management Consultant; Executive Vice
80 South Road President, DVC Group, Inc. (marketing,
Westhampton Beach, NY communications and technology) (prior
DIRECTOR to 9/1/00).
Began serving: January 1999
Previous Positions: Chief Executive
Officer, PBTC International Bank;
Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, HSBC Bank USA
(formerly, Marine Midland Bank); Vice
President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.

John E. Murray, Jr., J.D., Principal Occupations: Director or $834.73 $178,200
S.J.D. Trustee of the Federated Fund Complex;
Birth Date: December 20, Chancellor and Law Professor, Duquesne
1932 University; Partner, Murray, Hogue and
Chancellor, Duquesne Lannis.
University
Pittsburgh, PA Other Directorships Held: Director,
DIRECTOR Michael Baker Corp. (engineering,
Began serving: February construction, operations and technical
1995 services).

Previous Positions: President, Duquesne
University; Dean and Professor of Law,
University of Pittsburgh School of Law;
Dean and Professor of Law, Villanova
University School of Law.

Principal Occupations: Director or $695.63 $148,500
Marjorie P. Smuts Trustee of the Federated Fund Complex;
Birth Date: June 21, 1935 Public Relations/Marketing
4905 Bayard Street Consultant/Conference Coordinator.
Pittsburgh, PA
DIRECTOR Previous Positions: National
Began serving: March 1984 Spokesperson, Aluminum Company of
America; television producer;
President, Marj Palmer Assoc.; Owner,
Scandia Bord.

Principal Occupations: Director or $695.63 $148,500
John S. Walsh Trustee of the Federated Fund Complex;
Birth Date: November 28, President and Director, Heat Wagon,
1957 Inc. (manufacturer of construction
2604 William Drive temporary heaters); President and
Valparaiso, IN Director, Manufacturers Products, Inc.
DIRECTOR (distributor of portable construction
Began serving: January 1999 heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.

Previous Position: Vice President,
Walsh & Kelly, Inc.

OFFICERS**
--------------------------------------------------------------------------------------

Name
Birth Date
Address
Positions Held with
Corporation
-----------------------------
Date Service Began Principal Occupation(s) and Previous Position(s)

** Officers do not receive any compensation from the Fund.
Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and Assistant
Secretary of Federated and an officer of its various advisory and underwriting
subsidiaries, has served as a Term Member on the Board of Directors of Duquesne
University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an
Independent Director of the Fund, served as President of Duquesne from 1988 until his
retirement from that position in 2001, and became Chancellor of Duquesne on August
15, 2001. It should be noted that Mr. Donahue abstains on any matter that comes
before Duquesne's Board that affects Mr. Murray personally.

Board ownership of shares in the fund and in the federated family of Investment
companies AS OF dECEMBER 31, 2003
--------------------------------------------------------------------------------------
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund Investment Companies
John F. Donahue Over $100,000 Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. None Over $100,000

Independent
Board Member Name
Thomas G. Bigley None Over $100,000
John T. Conroy, Jr. None Over $100,000
Nicholas P. Constantakis None Over $100,000
John F. Cunningham None Over $100,000
Peter E. Madden None Over $100,000
Charles F. Mansfield, Jr. None $50,001 - $100,000
John E. Murray, Jr., J.D., S.J.D. None Over $100,000
Marjorie P. Smuts $1-$10,000 Over $100,000
John S. Walsh None Over $100,000

</R>INVESTMENT ADVISER
--------------------------------------------------------------------------------------
The Adviser conducts investment research and makes investment decisions for the Fund.

The Adviser is a wholly owned subsidiary of Federated.

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

As required by the 1940 Act, the Fund's Board has reviewed the Fund's investment
advisory contract. The Board's decision to approve the contract reflects the exercise
of its business judgment on whether to continue the existing arrangements. During
its review of the contract, the Board considers many factors, among the most material
of which are: the Fund's investment objectives and long term performance; the
Adviser's management philosophy, personnel and processes; the preferences and
expectations of Fund shareholders and their relative sophistication; the continuing
state of competition in the mutual fund industry; comparable fees in the mutual fund
industry; the range and quality of services provided to the Fund and its shareholders
by the Federated organization in addition to investment advisory services; and the
Fund's relationship to the Federated funds.

In assessing the Adviser's performance of its obligations, the Board also considers
whether there has occurred a circumstance or event that would constitute a reason for
it to not renew an advisory contract. In this regard, the Board is mindful of the
potential disruptions of the Fund's operations and various risks, uncertainties and
other effects that could occur as a result of a decision to terminate or not renew an
advisory contract. In particular, the Board recognizes that most shareholders have
invested in the Fund on the strength of the Adviser's industry standing and
reputation and in the expectation that the Adviser will have a continuing role in
providing advisory services to the Fund.

The Board also considers the compensation and benefits received by the Adviser. This
includes fees received for services provided to the Fund by other entities in the
Federated organization and research services received by the Adviser from brokers
that execute fund trades, as well as advisory fees. In this regard, the Board is
aware that various courts have interpreted provisions of the 1940 Act and have
indicated in their decisions that the following factors may be relevant to an
Adviser's compensation: the nature and quality of the services provided by the
Adviser, including the performance of the Fund; the Adviser's cost of providing the
services; the extent to which the Adviser may realize "economies of scale" as the
Fund grows larger; any indirect benefits that may accrue to the Adviser and its
affiliates as a result of the Adviser's relationship with the Fund; performance and
expenses of comparable funds; and the extent to which the independent Board members
are fully informed about all facts bearing on the Adviser's service and fee. The
Fund's Board is aware of these factors and takes them into account in its review of
the Fund's advisory contract.

The Board considers and weighs these circumstances in light of its substantial
accumulated experience in governing the Fund and working with Federated on matters
relating to the Federated funds, and is assisted in its deliberations by the advice
of independent legal counsel. In this regard, the Board requests and receives a
significant amount of information about the Fund and the Federated organization.
Federated provides much of this information at each regular meeting of the Board, and
furnishes additional reports in connection with the particular meeting at which the
Board's formal review of the advisory contracts occurs. In between regularly
scheduled meetings, the Board may receive information on particular matters as the
need arises. Thus, the Board's evaluation of an advisory contract is informed by
reports covering such matters as: the Adviser's investment philosophy, personnel, and
processes; the Fund's short- and long-term performance (in absolute terms as well as
in relationship to its particular investment program and certain competitor or "peer
group" funds), and comments on the reasons for performance; the Fund's expenses
(including the advisory fee itself and the overall expense structure of the Fund,
both in absolute terms and relative to similar and/or competing funds, with due
regard for contractual or voluntary expense limitations); the use and allocation of
brokerage commissions derived from trading the Fund's portfolio securities; the
nature and extent of the advisory and other services provided to the Fund by the
Adviser and its affiliates; compliance and audit reports concerning the Federated
funds and the Federated companies that service them; and relevant developments in the
mutual fund industry and how the Federated funds and/or Federated are responding to
them.

The Board also receives financial information about Federated, including reports on
the compensation and benefits Federated derives from its relationships with the
Federated funds. These reports cover not only the fees under the advisory contracts,
but also fees received by Federated's subsidiaries for providing other services to
the Federated funds under separate contracts (e.g., for serving as the Federated
funds' administrator and transfer agent). The reports also discuss any indirect
benefit Federated may derive from its receipt of research services from brokers who
execute Federated fund trades.

The Board bases its decision to approve an advisory contract on the totality of the
circumstances and relevant factors, and with a view to past and future long-term
considerations. Not all of the factors and considerations identified above are
relevant to every Federated fund, nor does the Board consider any one of them to be
determinative. Because the totality of circumstances includes considering the
relationship of each Federated fund, the Board does not approach consideration of
every Federated fund's advisory contract as if that were the only Federated fund
offered by Federated.

<R>Services Agreement
Federated Advisory Services Company, an affiliate of the Adviser, provides research,
quantitative analysis, equity trading and transaction settlement and certain support
services to the Adviser. The fee for these services is paid by the Adviser and not
by the Fund. </R>

Other Related Services

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

Code of Ethics Restrictions on Personal Trading
As required by SEC rules, the Fund, its Adviser, and its Distributor have adopted
codes of ethics. These codes govern securities trading activities of investment
personnel, Fund Directors, and certain other employees. Although they do permit
these people to trade in securities, including those that the Fund could buy, they
also contain significant safeguards designed to protect the Fund and its shareholders
from abuses in this area, such as requirements to obtain prior approval for, and to
report, particular transactions.

Voting Proxies on Fund Portfolio Securities
The Board has delegated to the Adviser authority to vote proxies on the securities
held in the Fund's portfolio. The Board has also approved the Adviser's policies and
procedures for voting the proxies, which are described below.

Proxy Voting Policies
The Adviser's general policy is to cast proxy votes in favor of proposals that the
Adviser anticipates will enhance the long-term value of the securities being voted.
Generally, this will mean voting for proposals that the Adviser believes will:
improve the management of a company; increase the rights or preferences of the voted
securities; and/or increase the chance that a premium offer would be made for the
company or for the voted securities.

The following examples illustrate how these general policies may apply to proposals
submitted by a company's board of directors. However, whether the Adviser supports
or opposes a proposal will always depend on the specific circumstances described in
the proxy statement and other available information.

On matters of corporate governance, generally the Adviser will vote for proposals to:
require independent tabulation of proxies and/or confidential voting by shareholders;
reorganize in another jurisdiction (unless it would reduce the rights or preferences
of the securities being voted); and repeal a shareholder rights plan (also known as a
"poison pill"). The Adviser will generally vote against the adoption of such a plan
(unless the plan is designed to facilitate, rather than prevent, unsolicited offers
for the company).

On matters of capital structure, generally the Adviser will vote: against proposals
to authorize or issue shares that are senior in priority or voting rights to the
securities being voted; for proposals to grant preemptive rights to the securities
being voted; and against proposals to eliminate such preemptive rights.

On matters relating to management compensation, generally the Adviser will vote: for
stock incentive plans that align the recipients' interests with the interests of
shareholders without creating undue dilution; and against proposals that would permit
the amendment or replacement of outstanding stock incentives with new stock
incentives having more favorable terms.

On matters relating to corporate transactions, the Adviser will vote proxies relating
to proposed mergers, capital reorganizations, and similar transactions in accordance
with the general policy, based upon its analysis of the proposed transaction. The
Adviser will vote proxies in contested elections of directors in accordance with the
general policy, based upon its analysis of the opposing slates and their respective
proposed business strategies. Some transactions may also involve proposed changes to
the company's corporate governance, capital structure or management compensation.
The Adviser will vote on such changes based on its evaluation of the proposed
transaction or contested election. In these circumstances, the Adviser may vote in a
manner contrary to the general practice for similar proposals made outside the
context of such a proposed transaction or change in the board. For example, if the
Adviser decides to vote against a proposed transaction, it may vote for anti-takeover
measures reasonably designed to prevent the transaction, even though the Adviser
typically votes against such measures in other contexts.

The Adviser generally votes against proposals submitted by shareholders without the
favorable recommendation of a company's board. The Adviser believes that a company's
board should manage its business and policies, and that shareholders who seek
specific changes should strive to convince the board of their merits or seek direct
representation on the board.

In addition, the Adviser will not vote if it determines that the consequences or
costs outweigh the potential benefit of voting. For example, if a foreign market
requires shareholders casting proxies to retain the voted shares until the meeting
date (thereby rendering the shares "illiquid" for some period of time), the Adviser
will not vote proxies for such shares.

Proxy Voting Procedures
The Adviser has established a Proxy Voting Committee (Proxy Committee), to exercise
all voting discretion granted to the Adviser by the Board in accordance with the
proxy voting policies. The Adviser has hired Investor Responsibility Research Center
(IRRC) to obtain, vote, and record proxies in accordance with the Proxy Committee's
directions. The Proxy Committee directs IRRC by means of Proxy Voting Guidelines,
and IRRC may vote any proxy as directed in the Proxy Voting Guidelines without
further direction from the Proxy Committee (and may make any determinations required
to implement the Proxy Voting Guidelines). However, if the Proxy Voting Guidelines
require case-by-case direction for a proposal, IRRC will provide the Proxy Committee
with all information that it has obtained regarding the proposal and the Proxy
Committee will provide specific direction to IRRC. The Adviser's proxy voting
procedures generally permit the Proxy Committee to amend the Proxy Voting Guidelines,
or override the directions provided in such Guidelines, whenever necessary to comply
with the proxy voting policies.

Conflicts of Interest
The Adviser has adopted procedures to address situations where a matter on which a
proxy is sought may present a potential conflict between the interests of the Fund
(and its shareholders) and those of the Adviser or Distributor. This may occur where
a significant business relationship exists between the Adviser (or its affiliates)
and a company involved with a proxy vote. A company that is a proponent, opponent,
or the subject of a proxy vote, and which to the knowledge of the Proxy Committee has
this type of significant business relationship, is referred to as an "Interested
Company."

The Adviser has implemented the following procedures in order to avoid concerns that
the conflicting interests of the Adviser have influenced proxy votes. Any employee
of the Adviser who is contacted by an Interested Company regarding proxies to be
voted by the Adviser must refer the Interested Company to a member of the Proxy
Committee, and must inform the Interested Company that the Proxy Committee has
exclusive authority to determine how the Adviser will vote. Any Proxy Committee
member contacted by an Interested Company must report it to the full Proxy Committee
and provide a written summary of the communication. Under no circumstances will the
Proxy Committee or any member of the Proxy Committee make a commitment to an
Interested Company regarding the voting of proxies or disclose to an Interested
Company how the Proxy Committee has directed such proxies to be voted. If the Proxy
Voting Guidelines already provide specific direction on the proposal in question, the
Proxy Committee shall not alter or amend such directions. If the Proxy Voting
Guidelines require the Proxy Committee to provide further direction, the Proxy
Committee shall do so in accordance with the proxy voting policies, without regard
for the interests of the Adviser with respect to the Interested Company. If the
Proxy Committee provides any direction as to the voting of proxies relating to a
proposal affecting an Interested Company, it must disclose to the Fund's Board
information regarding: the significant business relationship; any material
communication with the Interested Company; the matter(s) voted on; and how, and why,
the Adviser voted as it did.

If the Fund holds shares of another investment company for which the Adviser (or an
affiliate) acts as an investment adviser, the Proxy Committee will vote the Fund's
proxies in the same proportion as the votes cast by shareholders who are not clients
of the Adviser at any shareholders' meeting called by such investment company, unless
otherwise directed by the Board.

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

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

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

Maximum Average Aggregate Daily
Administrative Fee Net Assets of the
Federated Funds
0.150 of 1% on the first $5 billion
0.125 of 1% on the next $5 billion
0.100 of 1% on the next $10 billion
0.075 of 1% on assets over $20 billion
The administrative fee received during any fiscal year shall be at least $150,000 per
portfolio and $40,000 per each additional class of Shares. FAS may voluntarily waive
a portion of its fee and may reimburse the Fund for expenses.
--------------------------------------------------------------------------------------

FAS also provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments for a fee based on Fund assets plus out-of-pocket
expenses. </R>

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

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

INDEPENDENT Auditors
The independent auditor for the Fund, Ernst & Young LLP, conducts its audits in
accordance with auditing standards generally accepted in the United States of
America, which require it to plan and perform its audits to provide reasonable
assurance about whether the Fund's financial statements and financial highlights are
free of material misstatement.

<R>FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
November 30 2003 2002 2001
Advisory Fee Earned $642,897 $389,180 $566,340
Advisory Fee Reduction 355,974 170,656 119,715
Advisory Fee Reimbursement 258 59 55
Administrative Fee 185,000 185,000 185,000
12b-1 Fee:
Class A Shares 17,491 -- --
Class B Shares 99,837 -- --
Class C Shares 105,789 -- --
Shareholder Services Fee:
Class A Shares 145,757 -- --
Class B Shares 33,279 -- --
Class C Shares 35,263 -- --
</R>
--------------------------------------------------------------------------------------
Fees are allocated among classes based on their pro rata share of Fund assets, except
for marketing (Rule 12b-1) fees and shareholder services fees, which are borne only
by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the SEC's standard methods for
calculating performance applicable to all mutual funds. The SEC also permits this
standard performance information to be accompanied by non-standard performance
information.

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

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

Average Annual Total Returns and Yield
Total returns are given for the one-year, five-year, ten-year and Start of
Performance periods ended November 30, 2003.

<R>Yield is given for the 30-day period ended November 30, 2003.

30-Day Period 1 Year 5 Years 10 Years
Class A Shares:
Total Return
Before Taxes N/A 17.75% 2.35% 4.51%
After Taxes on
Distributions N/A 15.41% 1.49% 2.53%
After Taxes on
Distributions
and Sale of Shares N/A 11.11% 1.42% 2.55%
Yield 2.34% N/A N/A N/A
-------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------
30-Day Period 1 Year 5 Years Start of
Performance on
9/28/1994
Class B Shares:
Total Return
Before Taxes N/A 16.93% 2.21% 5.17%
After Taxes on 3.65%
Distributions N/A 14.73% 1.45%
After Taxes on
Distributions 1.37% --------------
and Sale of Shares N/A 10.61% - 3.45%
Yield 1.74% N/A N/A N/A
-----------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------
30-Day Period 1 Year 5 Years 10 Years
Class C Shares:
Total Return
Before Taxes N/A 20.29% 2.38% 4.13%
After Taxes on
Distributions N/A 18.05% 1.62% 2.36%
After Taxes on
Distributions
and Sale of Shares N/A 12.79% 1.52% 2.37%
Yield 1.75% N/A N/A N/A
--------------------------------------------------------------------------------------------------

</R>
--------------------------------------------------------------------------------------

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

The average annual total return for Shares is the average compounded rate of return
for a given period that would equate a $10,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed by
multiplying the number of Shares owned at the end of the period by the NAV per Share
at the end of the period. The number of Shares owned at the end of the period is
based on the number of Shares purchased at the beginning of the period with $10,000,
less any applicable sales charge, adjusted over the period by any additional Shares,
assuming the annual reinvestment of all dividends and distributions. Total returns
after taxes are calculated in a similar manner, but reflect additional standard
assumptions required by the SEC.

Total returns after taxes are calculated in a similar manner, but reflect additional
standard assumptions required by the SEC.

YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering price
per Share on the last day of the period. This number is then annualized using
semi-annual compounding. This means that the amount of income generated during the
30-day period is assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect income actually
earned by Shares because of certain adjustments required by the SEC and, therefore,
may not correlate to the dividends or other distributions paid to shareholders.

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

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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

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

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

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

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

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

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

J.P. Morgan Global Government Bond non-U.S. Index
J.P. Morgan Global Government Bond non-U.S. Index is a total return, trade-weighted
index of over 360 government and high- grade bonds in 121 developed countries.

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

Salomon Brothers High Grade Bond Index
Salomon Brothers High Grade Bond Index calculates total returns of approximately 775
issues which include long-term, high grade domestic corporate taxable bonds, rated
AAA-AA, with maturities of 12 years or more; it also includes companies in industry,
public utilities, and finance.

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

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

WHO IS FEDERATED INVESTORS, INC.?

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

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

Federated Funds overview

Municipal Funds

<R>Municipal Funds
In the municipal sector, as of December 31, 2003, Federated managed 14 bond funds
with approximately $3.8 billion in assets and 22 money market funds with
approximately $23.0 billion in total assets. In 1976, Federated introduced one of the
first municipal bond mutual funds in the industry and is now one of the largest
institutional buyers of municipal securities. The Funds may quote statistics from
organizations including The Tax Foundation and the National Taxpayers Union regarding
the tax obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 32 years' experience. As of December
31, 2003, Federated managed 36 equity funds totaling approximately $25.6 billion in
assets across growth, value, equity income, international, index and sector (i.e.
utility) styles. Federated's value-oriented management style combines quantitative
and qualitative analysis and features a structured, computer-assisted composite
modeling system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 2003, Federated managed 11 money
market funds and 4 bond funds with assets approximating $61.7 billion and $3.4
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 30 years of experience in the
corporate bond sector. In 1972, Federated introduced one of the first high-yield bond
funds in the industry. In 1983, Federated was one of the first fund managers to
participate in the asset backed securities market, a market totaling more than $209
billion.

Government Funds
In the government sector, as of December 31, 2003, Federated managed 7 mortgage
backed, 3 multi-sector government funds, 4 government/agency and 19 government money
market mutual funds, with assets approximating $4.9 billion, $0.9 billion, $2.9
billion and $56.2 billion, respectively. Federated trades approximately $90.4 billion
in U.S. government and mortgage backed securities daily and places approximately $35
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated has
been a major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $50 billion in government funds within these
maturity ranges.

Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund industry
in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by money
managers today to value money market fund shares. Other innovations include the first
institutional tax-free money market fund. As of December 31, 2003, Federated managed
$136.2 billion in assets across 52 money market funds, including 19 government, 10
prime, 22 municipal and 1 euro-denominated with assets approximating $56.2 billion,
$59.4 billion, $20.6 billion and $173.9 million, respectively.

The Chief Investment Officers responsible for oversight of the various investment
sectors within Federated are: Global Equity - Stephen F. Auth is responsible for
overseeing the management of Federated's domestic and international equity products;
Global Fixed Income - William D. Dawson III is responsible for overseeing the
management of Federated's domestic and international fixed income and high yield
products. </R>

Mutual Fund Market
Forty-nine percent of American households are pursuing their financial goals through
mutual funds. These investors, as well as businesses and institutions, have entrusted
over $6.2 trillion to the approximately 8,300 funds available, according to the
Investment Company Institute.

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

Institutional Clients
Federated meets the needs of approximately 3,035 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of purposes,
including defined benefit and defined contribution programs, cash management, and
asset/liability management. Institutional clients include corporations, pension
funds, tax exempt entities, foundations/endowments, insurance companies, and
investment and financial advisers.

Bank Marketing
Other institutional clients include more than 1,600 banks and trust organizations.
Virtually all of the trust divisions of the top 100 bank holding companies use
Federated funds in their clients' portfolios.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--Federated has over 2,000 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other mutual
fund distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended November 30, 2003,
are incorporated herein by reference to the Annual Report to Shareholders of
Federated International Bond Fund dated November 30, 2003.

INVESTMENT RATINGS

Standard and Poor's Long-Term Debt Rating Definitions
AAA--Highest credit quality. 'AAA' ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.

AA--Very high credit quality. 'AA' ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.

A--High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

BBB--Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

BB--Speculative. 'BB' ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time; however,
business or financial alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment grade.

B--Highly speculative. 'B' ratings indicate that significant credit risk is present,
but a limited margin of safety remains. Financial commitments are currently being
met; however, capacity for continued payment is contingent upon a sustained,
favourable business and economic environment.

CCC, CC, C--High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon sustained, favourable business or
economic developments. A 'CC' rating indicates that default of some kind appears
probable. 'C' ratings signal imminent default.

Moody's Investors Service Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics: leading market positions
in well established industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample asset protection,
broad margins in earning coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets and assured
sources of alternate liquidity.

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

Standard and Poor's Commercial Paper Ratings
A-1-- A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated with a
plus sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.

A-2-- A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.

Fitch Ratings Commercial Paper Rating Definitions
F-1--Indicates the strongest capacity for timely payment of financial commitments
relative to other issuers or issues in the same country. Under their national rating
scale, this rating is assigned to the "best" credit risk relative to all others in
the same country and is normally assigned to all financial commitments issued or
guaranteed by the sovereign state. Where the credit risk is particularly strong, a
"+" is added to the assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial commitments
relative to other issuers or issues in the same country. However, the margin of
safety is not as great as in the case of the higher ratings.

Addresses

federated international bond fund

Class A Shares

Class B Shares

Class C Shares

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

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

Investment Adviser
<R>Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779</R>

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

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072



PART C.    OTHER INFORMATION

Item 23.    Exhibits:

            (a)   (i)         Conformed copy of the Articles of Incorporation of
                              the Registrant; (10)
                  (ii)        Conformed copy of Amendment Nos. 3-8 to the
                              Articles of Incorporation of Registrant; (23)
                  (iii)       Conformed copy of Amendment No. 9 to the Articles
                              of Incorporation of the Registrant; (26)
            (b)   (i)         Copy of the By-Laws of the Registrant; (10)
                  (ii)        Copies of Amendment Nos. 1-4 to the By-Laws of
                              the Registrant; (21)
(iii) Copy of Amendment No. 5 to the By-Laws of the Registrant; (27)
(iv)  Copy of Amendment No. 6 to the By-Laws of the Registrant; (28)
            (c)               Copy of Specimen Certificate for Shares of Common
                              Stock for Class A Shares, Class B Shares, and
                              Class C Shares of International Equity Fund and
                              International Income Fund; (14)
            (d)   (i)         Conformed copy of Investment Advisory Contract of the
                              Registrant; (15)
                  (ii)        Conformed copy of Assignment of Investment
                              Advisory Contract; (16)
(iii) Conformed copy of Amendment to Investment Advisory Contract between Federated
                              International Series, Inc. and Federated Global
                              Investment Management Corp.; (27)
(iv)  Conformed copy of Assignment of Investment Advisory Contract to Federated
                              Investment Management Company for Federated
                              International Bond Fund; +
            (e)   (i)         Conformed copy of Distributor's Contract of the
                              Registrant, through and including Exhibit E; (14)
                  (ii)        Conformed copy of Exhibit F to the Distributor's
                              Contract of the Registrant; (16)
                  (iii)       The Registrant hereby incorporates the conformed
                              copy of the specimen Mutual Funds and Service
                              Agreement; Mutual Funds Service Agreement; and
                              Plan Trustee/Mutual Funds Service Agreement from
                              Item 24(b)(6) of the Cash Trust Series II
                              Registration Statement on Form N-1A filed with
                              the Commission on July 24, 1995. (File Nos.
                              33-38550 and 811-6269);
                  (iv)        Conformed copy of Distributor's Contract on
                              behalf of the Registrant (Class B Shares); (20)
(v)   Conformed copy of Amendment to Distributor's Contract between the Registrant
                              and Federated Securities Corp. (Class B Shares);
                              (26)
(vi)  Conformed copy of Amendment to Distributor's Contract; (28)
            (f)               Not applicable;
            (g)   (i)         Conformed copy of the Custodian Contract  of the
                              Registrant (14);
                  (ii)        Conformed copy of Fee Schedule for Custodian
                              Contract; (19)

            (h)   (i)         Conformed copy of Amended and Restated Agreement
                              for Fund Accounting Services, Administrative
                              Services, Transfer Agency Services, and Custody
                              Services Procurement; (21)
                  (ii)        Conformed copy of Amendment to Agreement for Fund
                              Accounting Services, Administrative Services,
                              Transfer Agency Services, and Custody Services
                              Procurement; (26)
                  (iii)       The responses described in Item 23(e)(iii) are
                              hereby incorporated by reference;
                  (iv)        The Registrant hereby incorporates the conformed
                              copy of the Second Amended and Restated Services
                              Agreement from Item (h)(v) of the Investment
                              Series Funds, Inc. Registration Statement on Form
                              N-1A, filed with the Commission on January 23,
                              2002. (File Nos. 33-48847 and 811-07021)
                  (v)         Conformed copy of Principal Shareholder
                              Servicer's Agreement of the Registrant (Class B
                              Shares); (20)
                  (vi)        Conformed copy of Shareholder Services Agreement
                              of the Registrant (Class B Shares); (20)
(vii) Conformed copy of the Opinion and Consent of Counsel as to legality of shares
                              being registered; (17)
                  (viii)      The Registrant hereby incorporates the conformed
                              copy of the Agreement for Administrative Services
                              from Item (h)(ix) of the Federated Index Trust
                              Registration Statement on Form N-1A filed with
                              the Commission on December 30, 2003. (File Nos.
                              33-33852 and 811-6061)
            (j)               Conformed copy of Consent of Independent
                              Auditors; +
            (k)               Not applicable;
            (l)               Copy of Initial Capital Understanding; (2)
            (m)   (i)         Conformed copy of Rule 12b-1 Plan of the
                              Registrant, through and including Exhibit B; (14)
                  (ii)        Conformed copy of Exhibit C to Rule 12b-1 Plan of
                              the Registrant; (16)
                  (iii)       The responses described in Item 23(e)(iii) are
                              hereby incorporated by reference;
(n)   The Registrant hereby incorporates the conformed copy of the Multiple Class
                              Plan from Item (n) of the Federated Income
                              Securities Trust Registration Statement on Form
                              N-1A, filed with the Commission on June 30, 2003.
                              (File Nos. 33-3164 and 811-4577).
(o)   (i)   Conformed copy of Power of Attorney of the Registrant; (25)
                  (ii)        Conformed copy of Power of Attorney of Chief
                              Investment Officer of the Registrant; (27)
            (p)               The Registrant hereby incorporates the conformed
                              copy of the Code of Ethics for Access Persons
                              from Item 23(p) of the Federated Institutional
                              Trust Registration Statement on Form N-1A filed
                              with the Commission on September 30, 2003. (File
                              Nos. 33-54445 and 811-7193).

Item 24.    Persons Controlled By or Under Common Control with the Funds:

            None

Item 25.    Indemnification: (13)


--------------------------------------------------------------------------------
+     All Exhibits have been filed electronically.

2.    Response is incorporated by reference to Registrant's Pre-Effective
      Amendment No. 1 on Form N-1 filed August 17, 1984 (File Nos. 2-91776 and
      811-3984).
10.   Response is incorporated by reference to Registrant's Post-Effective Amendment
      No. 13 on Form N-1A filed February 13, 1991 (File Nos. 2-91776 and
      811-3984).
13.   Response is incorporated by reference to Registrant's Post-Effective Amendment
      No. 17 on Form N-1A filed February 2, 1993 (File Nos. 2- 91776 and 811-3984).
14.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 20 on Form N-1A filed July 29, 1994   (File Nos. 2-91776
      and 811-3984).
15.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 23 on Form N-1A filed February 9, 1995 (File Nos. 2-91776
      and 811-3984).
16.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 27 on Form N-1A filed January 31, 1996 (File Nos. 2-91776
      and 811-3984).
17.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 28 on Form N-1A filed April 25, 1996  (File Nos. 2-91776
      and 811-3984).
19.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 31 on Form N-1A filed November 24, 1997 (File Nos. 2-91776
      and 811-3984).
20.   Response is  incorporated  by  reference  to  Registrant's  Post-Effective
      Amendment  No. 32 on Form N-1A filed  January 28, 1998 (File Nos.  2-91776
      and 811-3984).
21.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 33 on Form N-1A filed November 30, 1998  (File Nos. 2-91776
      and 811-3984).
23.   Response is  incorporated  by  reference  to  Registrant's  Post-Effective
      Amendment No. 36 on Form N-1A filed March 30, 2000 (File Nos.  2-91776 and
      811-3984).
25.   Response is  incorporated  by  reference  to  Registrant's  Post-Effective
      Amendment  No. 38 on Form N-1A filed  January 29, 2001 (File Nos.  2-91776
      and 811-3984).
26.   Response is incorporated by reference to Registrant's  Post-Effective  Amendment
      No.  39 on Form N-1A  filed  January  28,  2002  (File  Nos.  2-91776  and
      811-3984).
27.   Response is incorporated by reference to Registrant's  Post-Effective  Amendment
      No.  40 on Form N-1A  filed  January  28,  2003  (File  Nos.  2-91776  and
      811-3984).
28.   Response is  incorporated  by  reference  to  Registrant's  Post-Effective
      Amendment No. 41 on Form N-1A filed  November 26, 2003 (File Nos.  2-91776
      and 811-3984).

Item 26.    Business and Other Connections of Investment Adviser:

            For a description of the other business of the investment adviser, see
            the section entitled "Who Manages the Fund?" in Part A. The affiliations
            with the Registrant of four of the Trustees and one of the Officers of
            the investment adviser are included in Part B of this Registration
            Statement under "Who Manages and Provides Services to the Fund?"  The
            remaining Trustees of the investment adviser and, in parentheses, their
            principal occupations are:  Thomas R. Donahue, (Chief Financial Officer,
            Federated Investors, Inc.), 1001 Liberty Avenue, Pittsburgh, PA,
            15222-3779 and Mark D. Olson (a principal of the firm, Mark D. Olson &
            Company, L.L.C. and Partner, Wilson, Halbrook & Bayard, P.A.), 800
            Delaware Avenue, P.O. Box 2305, Wilmington, DE  19899-2305.

The remaining Officers of the Federated Investment Management Company are:

President/ Chief Executive Officer
and Trustee:                                    Keith M. Schappert

Executive Vice President:                       William D. Dawson, III

Senior Vice Presidents:                         Joseph M. Balestrino
                                                Jonathan C. Conley
                                                Deborah A. Cunningham,
                                                Mark E. Durbiano
                                                Robert M. Kowit
                                                Jeffrey A. Kozemchak
                                                Susan M. Nason
                                                Mary Jo Ochson
                                                Robert J. Ostrowski
                                                Richard Tito

Vice Presidents:                                Todd A. Abraham
                                                J. Scott Albrecht
                                                Randall S. Bauer
                                                Nancy J.Belz
                                                G. Andrew Bonnewell
                                                Lee R. Cunningham, II
                                                Anthony Delserone, Jr.
                                                Donald T. Ellenberger
                                                Eamonn G. Folan
                                                John T. Gentry
                                                Patricia L. Heagy
                                                Susan R. Hill
                                                Nikola A. Ivanov
                                                William R. Jamison
                                                Nathan H. Kehm
                                                John C. Kerber
                                                J. Andrew Kirschler
                                                Steven Lehman
                                                Marian R. Marinack
                                                Natalie F. Metz
                                                Thomas J. Mitchell
                                                Joseph M. Natoli
                                                Mary Kay Pavuk
                                                Jeffrey A. Petro
                                                Ihab L. Salib
                                                Roberto Sanchez-Dahl, Sr.
                                                John Sidawi
                                                Michael W. Sirianni, Jr.
                                                Christopher Smith
                                                Timothy G. Trebilcock
                                                Stephen J. Wagner
                                                Paige M. Wilhelm
                                                George B. Wright

Assistant Vice Presidents:                      Lori Andrews
                                                Hanan Callas
                                                Jerome Conner
                                                James R. Crea, Jr.
                                                Karol M. Crummie
                                                Richard Cumberledge
                                                Richard J. Gallo
                                                Kathyrn P. Glass
                                                James Grant
                                                Tracey L. Lusk
                                                Ann Manley
                                                Karl Mocharko
                                                Teri Lynn Moore
                                                Bob Nolte
                                                Rae Ann Rice
                                                Brian Ruffner
                                                Kyle D. Stewart
                                                Mary Ellen Tesla
                                                Nichlas S. Tripodes

Secretary:                                      G. Andrew Bonnewell

Treasurer:                                      Thomas R. Donahue

Assistant Secretaries:                          Jay S. Neuman


Assistant Treasurer:                            Denis McAuley, III

            The business address of each of the Officers of Federated Investment
            Management Company is Federated Investors Tower, 1001 Liberty Avenue,
            Pittsburgh, Pennsylvania 15222-3779.  These individuals are also officers
            of a majority of the investment advisers to the investment companies in
            the Federated Fund Complex described in Part B of this Registration
            Statement.


The remaining Officers of Federated Global Investment Management Corp. are:

President/ Chief Executive Officer
and Trustee:                                    Keith M. Schappert

Executive Vice President:                       Stephen F. Auth

Senior Vice Presidents:                         Philip J. Orlando
                                                Frank Semack


Vice Presidents:                                G. Anrew Bonnewell
                                                Regina Chi
                                                Marc Halperin
                                                Uri D. Landesman
                                                Aash M. Shah
                                                Namish Shah
                                                Leornardo A. Vila
                                                Richard A. Winkowski Jr.

Assistant Vice Presidents:                      Anthony Han


Secretary:                                      G. Andrew Bonnewell

Treasurer:                                      Thomas R. Donahue

Assistant Secretaries:                          Jay S. Neuman


Assistant Treasurer:                            Denis McAuley, III

            The business address of each of the Officers of Federated Global
            Investment Management Corp. is 175 Water Street, New York, New York
            10038-4965.  These individuals are also officers of a majority of the
            investment advisers to the investment companies in the Federated Fund
            Complex described in Part B of this Registration Statement.


Item 27.    Principal Underwriters:

            (a)   Federated Securities Corp. the Distributor for shares of the
                  Registrant, acts as principal underwriter for the following
                  open-end investment companies, including the Registrant:

                  Cash Trust Series, Inc.; Cash Trust Series II; Edward Jones
                  Money Market Fund; Federated Adjustable Rate Securities Fund;
                  Federated American Leaders Fund, Inc.; Federated Core Trust;
                  Federated Core Trust II, L.P.; Federated Equity Funds;
                  Federated Equity Income Fund, Inc.; Federated Fixed Income
                  Securities, Inc.; Federated GNMA Trust; Federated Government
                  Income Securities, Inc.; 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 International Series, Inc.; Federated Investment
                  Series Funds, Inc.; Federated Limited Duration Government
                  Fund, Inc.; Federated Managed Allocation Portfolios;
                  Federated Municipal Opportunities Fund, Inc.; Federated
                  Municipal Securities Fund, Inc.; Federated Municipal
                  Securities Income Trust; Federated Premier Intermediate
                  Municipal Income Fund; Federated Premier Municipal Income
                  Fund; Federated Short-Term Municipal Trust; Federated Stock
                  and Bond Fund, Inc.; Federated Stock Trust; Federated Total
                  Return Government Bond Fund; 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 World
                  Investment Series, Inc.; Intermediate Municipal Trust; Money
                  Market Obligations Trust; MTB Group of Funds; Regions Morgan
                  Keegan Select Funds and SouthTrust Funds.

         (b)

         (1)                        (2)                        (3)
Positions and Offices                                 Positions and Offices
  With Distributor                  Name                 With Registrant
_____________________         _________________       ______________________

Chairman:                     Richard B. Fisher       Vice President

Director:                     Arthur L. Cherry

President-Institutional
Sales and Director:           John B. Fisher

Executive Vice
Vice President, Assistant
Secretary and Director:       Thomas R. Donahue

President-Broker/Dealer
And Director:                 James F. Getz

Senior Vice Presidents:       Mark W. Bloss
                              Richard W. Boyd
                              Laura M. Deger
                              Peter W. Eisenbrandt
                              Theodore Fadool, Jr.
                              Christopher Fives
                              James S. Hamilton
                              James M. Heaton
                              H. Joseph Kennedy
                              Amy Michaliszyn
                              Keith Nixon
                              Solon A. Person, IV
                              Ronald M. Petnuch
                              Thomas E. Territ
                              Robert F. Tousignant

Vice Presidents:              Irving Anderson
                              John B. Bohnet
                              Edward R. Bozek
                              Jane E. Broeren-Lambesis
                              Craig Burness
                              David J. Callahan
                              Mark Carroll
                              Dan Casey
                              Scott Charlton
                              Steven R. Cohen
                              Mary J. Combs
                              R. Edmond Connell, Jr.
                              Kevin J. Crenny
                              Daniel T. Culbertson
                              G. Michael Cullen
                              Marc C. Danile
                              Rick A. DiBernardo
                              Robert J. Deuberry
                              Ron Dorman
                              William C. Doyle
                              Donald C. Edwards
                              Lee England
                              Timothy Franklin
                              Peter J. Germain
                              Joseph D. Gibbons
                              G. Tad Gullickson
                              Scott Gundersen
                              Dayna C. Haferkamp
                              Raymond J. Hanley
                              Vincent L. Harper, Jr.
                              Bruce E. Hastings
                              Teresa M. Johnson
                              Christopher L. Johnston
                              Stephen Kittel
                              Michael W. Koenig
                              Ed Koontz
                              Christopher A. Layton
                              Michael H. Liss
                              Michael R. Manning
                              Martin J. McCaffrey
                              Mary A. McCaffrey
                              Richard C. Mihm
                              Vincent T. Morrow
                              Alec H. Neilly
                              Rebecca Nelson
                              James E. Ostrowski
                              Thomas A. Peter III
                              Raleigh Peters
                              Robert F. Phillips
                              Richard A. Recker
                              Christopher Renwick
                              Brian S. Ronayne
                              Timothy A. Rosewicz
                              Thomas S. Schinabeck
                              Edward J. Segura
                              Peter Siconolfi
                              Edward L. Smith
                              David W. Spears
                              John A. Staley
                              Colin B. Starks
                              Jeffrey A. Stewart
                              Kevin Stutz
                              Greg Spralding
                              William C. Tustin
                              Paul A. Uhlman
                              G. Walter Whalen
                              Stephen White
                              Patrick M. Wiethorn
                              Edward J. Wojnarowski
                              Michael P. Wolff


Assistant Vice Presidents:    Lisa A. Toma
                              Robert W. Bauman
                              Charles L. Davis, Jr.
                              Beth C. Dell
                              Jennifer Fetteroff
                              John T. Glickson
                              William Rose

Treasurer:                    Denis McAuley, III

Secretary:                    Stephen A. Keen

Assistant Secretaries:        Thomas R. Donahue
                              Peter J. Germain

The business address of each of the Officers of Federated Securities Corp. is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779.

         (c)     Not applicable

Item 28.    Location of Accounts and Records:

All  accounts  and records  required to be  maintained  by Section  31(a) of the
Investment  Company  Act of 1940  and  Rules  31a-1  through  31a-3  promulgated
thereunder are maintained at one of the following locations:

Federated International       Reed Smith LLP
Series, Inc. ("Registrant")   Investment Management
                              Group (IMG)
                              Federated Investors Tower
                              12th Floor
                              1001 Liberty Avenue
                              Pittsburgh, PA  15222-3779
                              (Notices should be sent to the Agent for Service at above
                              address)

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

Federated Shareholder Services Company    P.O. Box 8600
("Transfer Agent and Dividend             Boston, MA 02266-8600
Disbursing Agent")

Federated Services Company                Federated Investors Tower
("Administrator")                         1001 Liberty Avenue
                                          Pittsburgh, PA 15222-3779

Federated Global Investment
Management Corp.                          175 Water Street
("Adviser")                               New York, NY 10038-4965

Federated Investment Management Company   Federated Investors Tower
("Adviser")                               1001 Liberty Avenue
                                          Pittsburgh, PA 15222-3779

State Street Bank and Trust Company       P.O. Box 8600
("Custodian")                             Boston, MA 02266-8600

Item 29.    Management Services:          Not applicable.

Item 30.    Undertakings:

            Registrant  hereby  undertakes  to  comply  with the  provisions  of
            Section 16(c)  of the  1940  Act  with  respect  to the  removal  of
            Directors  and  the  calling  of  special  shareholder  meetings  by
            shareholders.

                                   SIGNATURES
    Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED INTERNATIONAL SERIES,
INC., certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in
the City of Pittsburgh and Commonwealth of Pennsylvania, on this 2nd day of
February 2004.

                      FEDERATED INTERNATIONAL SERIES, INC.

                  BY: /s/ Andrew Cross
                  Andrew Cross, Assistant Secretary
                  February 2, 2004

    Pursuant to the  requirements  of the Securities Act of 1933, this Amendment
to its  Registration  Statement has been signed below by the following person in
the capacity and on the date indicated:

    NAME                            TITLE                   DATE


By: /s/ Andrew Cross                Attorney in Fact     February 2, 2004
Andrew Cross                        for the Persons
ASSISTANT SECRETARY                 Listed Below

    NAME                               TITLE

John F. Donahue*                    Chairman and Director

J. Christopher Donahue*             President and Director
                                    (Principal Executive Officer)

Richard J. Thomas*                  Treasurer
                                    (Principal Financial Officer)

William D. Dawson III*              Chief Investment Officer

Stephen F. Auth*                    Chief Investment Officer

Thomas G. Bigley*                   Director

John T. Conroy, Jr.*                Director

Nicholas P. Constantakis*           Director

John F. Cunningham*                 Director

Lawrence D. Ellis, M.D.*            Director

Peter E. Madden*                    Director

Charles F. Mansfield, Jr.*          Director

John E. Murray, Jr., J.D., S.J.D.*  Director

Marjorie P. Smuts*                  Director

John S. Walsh*                      Director

* By Power of Attorney

Federated International Equity Fund

PROSPECTUS

CLASS A SHARES CLASS B SHARES CLASS C SHARES

CONTENTS

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

Risk/Return Bar Chart and Table

Average Annual Total Return Table

(For the periods ended December 31, 2003)

What are the Fund's Fees and Expenses?

FEES AND EXPENSES

EXAMPLE

What are the Fund's Investment Strategies?

PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

Preferred Stocks

Interests in Other Limited Liability Companies

Depositary Receipts

Foreign Securities

FOREIGN EXCHANGE CONTRACTS

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

What are the Specific Risks of Investing in the Fund?

CURRENCY RISKS

STOCK MARKET RISKS

RISKS RELATED TO INVESTING FOR GROWTH

RISKS OF FOREIGN INVESTING

EMERGING MARKETS RISK

LIQUIDITY RISKS

RISKS RELATED TO COMPANY SIZE

EXCHANGE-TRADED FUNDS

CUSTODIAL SERVICES AND RELATED INVESTMENT COSTS

What Do Shares Cost?

SALES CHARGE WHEN YOU PURCHASE

SALES CHARGE WHEN YOU REDEEM

How is the Fund Sold?

RULE 12B-1 PLAN

How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Wire

By Check

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

How to Redeem and Exchange Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

By Mail

Signature Guarantees

PAYMENT METHODS FOR REDEMPTIONS

Redemption in Kind

LIMITATIONS ON REDEMPTION PROCEEDS

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGE

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

Systematic Withdrawal Program (SWP) on Class B Shares

ADDITIONAL CONDITIONS

Telephone Transactions

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

Uri D. Landesman

Richard Winkowski

ADVISORY FEES

Legal Proceedings

Financial Information

FINANCIAL HIGHLIGHTS

Financial Highlights--Class A Shares

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES