INTERNATIONAL
INCOME
FUND
ANNUAL REPORT
November 30, 1993
Established 1991
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3010401 1/94
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the second Annual Report of the International Income
Fund. This Report covers the period of December 1, 1992 to November 30, 1993.
The report contains a listing of the Fund's high-quality international bonds and
the Fund's financial statements. John W. Beck, Vice President of Fiduciary Trust
International and the Fund's portfolio manager answers a few pertinent questions
on the international bond market, the Fund's performance and his outlook on
international bond rates.
The Fund invests in high-quality bonds spanning 14 countries, and they are
diversified in 22 issues. The Fund's major bond commitments are to the Kingdom
of Denmark (22.5% of Fund assets), Republic of Italy (19.4% of Fund assets), and
the U.K. (11.2% of Fund assets).
From December 1, 1992 to November 30, 1993, the Fund's total assets increased
from $87 million to $225 million. The Fund's share price increased from $10.45
to $11.86, an increase of 13.8%. The Fund's dividends paid $0.75 per share
income for Class A Shares, and capital gains distributions totaled $0.1415 per
share for Class A Shares.
In 1993, international bond funds benefited from lower interest rates on
government bonds throughout the world. In the months ahead, we expect further
declines in high-quality international bonds. Declines in interest rates occur
as various countries' economies slow and the demand for borrowing is not
execessive.
The public's perception of international investing continues to be favorably
buoyed by the performance of both international stocks and bonds. The television
stations of the world bring international news of financial events, the
military, and economic conditions right into our home. The world has become
smaller and certainly more visible. American investors continue to invest more
of their dollars in the world around us. There is no question that there are
many investment opportunies, and there are investment risks. Professional
management is a must for investing a portion of your wealth abroad.
If at any time you have questions concerning the Fund or your account, please do
not hesitate to write.
Very sincerely yours,
Glen R. Johnson
President
January 15, 1994
INVESTMENT REVIEW
JOHN W. BECK
ASSISTANT DIRECTOR, FIDUCIARY TRUST INTERNATIONAL LIMITED
LONDON OFFICE
- --------------------------------------------------------------------------------
Q In the summer months of 1993, the European Exchange Rate Mechanism
collapsed, which caused rates on European bonds to fall. Can you comment
on this development and its effect on the Fund's performance?
A The ERM in its latter days acted as an inefficient means for its members
to keep their currencies and interest rates at unnecessarily high levels.
In particular, France and Denmark were, and still are, in the depths of
recession, yet they were forced to keep their interest rates higher than their
economies justified due to the strict confines of the system. Eventually the
strain on virtually all the members of the ERM became too great. To avoid
further pain after "speculators" (many people now call them liberators however)
had pushed the currencies to the limit of their ranges, the trading bands were
extended to 15%--effectively resulting in a breakdown in the ERM. At that
time--the end of July--the International Income Fund was fully hedged out of
those currencies which were most likely to suffer from a collapse. At the same
time, the Fund held bonds in most European markets with a long duration, as well
as several leveraged positions via warrants, which meant that when interest
rates came down sharply, the Fund's performance was impressive--a near 5% rise
in the net asset value in just one week.
Q How has the International Income Fund performed as compared to the J.P.
Morgan Global Government (Traded) Bond (excluding U.S.) Index?
A The International Income Fund has performed very well and was especially
well-positioned for the breakup in the European Exchange Rate Mechanism
(ERM) over the summer, and we have had overweight positions in certain
markets such as Italy which performed well and which enabled the Fund to
substantially outperform its index of the J.P. Morgan Global Government (Traded)
Bond (excluding U.S.) Index. In terms of total return, the Index, which is
unmanaged, was up 2.33% in the six months to the end of November, but the Fund's
total return was up by 13.60%.*
Q As a result of the European Rate Mechanism debacle, how have you
structured the Fund's European holdings?
A Interest rates in Europe have fallen considerably since July, but there
are still expectations of more cuts in rates following Germany's lead as
recession persists. Hence, we still have most of
our holdings in European bonds with a relatively long duration. Inflation keeps
surprising the forecasters, especially after the recent falls in the price of
oil, which has led to longer term yields reaching record lows. In Italy, our
holdings are in five-year bonds, as we see short rates falling, but have not
wanted to take any unnecessary risks during recent elections and political
uncertainty. Currency has been an important factor in Fund management, and we
presently have a majority of our European currency exposure hedged back into the
U.S. Dollar as we see the Dollar gradually strengthening in coming months.
Q What is your outlook for other major international bond markets?
A The Fund actively invests in only three bond markets outside of Europe:
Australia, New Zealand and Canada, which collectively account for around
15% of the whole portfolio. All three have had strong bond markets on the
back of the strong U.S. bond market which reached record levels in the past six
months. Additionally, spreads have narrowed which resulted in some
outperformance of U.S. bonds. Their currencies have been somewhat volatile due
to political considerations although the breakthrough on GATT has been positive
for the Autralian and New Zealand currencies, but we do continue to like these
bond markets as core inflation remains subdued. However, the biggest gains for
the coming year are, we expect, to still be found within Europe.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 PURCHASE IN
INTERNATIONAL INCOME FUND (CLASS A SHARES) AND
J.P. MORGAN GLOBAL GOVERNMENT BOND INDEX EX-U.S.\
Graphic Presentation Omitted. See Appendix A.
Past Performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Reflects performance of International Income Fund (Class A Shares)
from 6/11/91 through 11/30/93.
**Represents a hypothetical investment of $10,000 in International
Income Fund (Class A Shares), after deducting the maximum sales
charge of 4.50% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all
dividends and distributions. The J.P. Morgan Global Government Bond
Index ex-U.S. is not adjusted to reflect reinvestment of income
earned on securities in the index.
\The J.P. Morgan Global Government Bond Index ex-U.S. is not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance.
\\Returns reflect maximum applicable fees.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 PURCHASE IN
INTERNATIONAL INCOME FUND (CLASS C SHARES) AND
J.P. MORGAN GLOBAL GOVERNMENT BOND INDEX EX-U.S.\
Graphic Presentation Omitted. See Appendix B.
Past Performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Reflects performance of International Income Fund (Class C Shares) from
3/31/93 through 11/30/93 on a
cumulative basis.
**Represents a hypothetical investment of $10,000 in International
Income Fund (Class C Shares). The ending value of the Fund reflects
a redemption fee of 1% on any redemption less than 1 year from the
purchase date. The Fund's performance assumes the reinvestment of
all dividends and distributions. The J.P. Morgan Global Government
Bond Index ex-U.S. is not adjusted to reflect reinvestment of income
earned on securities in the index.
\The J.P. Morgan Global Government Bond Index ex-U.S. is not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance.
\\Returns reflect maximum applicable fees.
INTERNATIONAL INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN CREDIT
CURRENCY RATING:
PAR MOODY'S*
AMOUNT (NOTE 8) VALUE
<C> <S> <C> <C>
- -------------------- ------------------------------------------------------------ ------------ ---------------
BONDS--95.7%
- ----------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--8.1%
- ----------------------------------------------------------------------------------
AGENCY-4.6%
------------------------------------------------------------
16,500,000 New South Wales Treasury Corp., 6.50%, 5/1/2006 Aaa $ 10,276,493
------------------------------------------------------------ ---------------
SUPRANATIONAL--3.5%
------------------------------------------------------------
10,000,000 European Investment Bank, 10.25% 10/1/2001 Aaa 7,973,200
------------------------------------------------------------ ---------------
TOTAL AUSTRALIAN DOLLAR 18,249,693
------------------------------------------------------------ ---------------
BRITISH POUND--11.2%
- ----------------------------------------------------------------------------------
CORPORATE--4.8%
------------------------------------------------------------
7,000,000 Abbey National Treasury, 8.00%, 4/2/2003 Aa2 10,953,742
------------------------------------------------------------ ---------------
SUPRANATIONAL--6.4%
------------------------------------------------------------
4,000,000 African Development Bank, 11.25%, 7/23/2001 Aaa 7,376,745
------------------------------------------------------------
4,000,000 World Bank, 9.25%, 7/20/2007 Aaa 6,972,082
------------------------------------------------------------ ---------------
TOTAL 14,348,827
------------------------------------------------------------ ---------------
TOTAL BRITISH POUND 25,302,569
------------------------------------------------------------ ---------------
CANADIAN DOLLAR--3.6%
- ----------------------------------------------------------------------------------
AGENCY--3.6%
------------------------------------------------------------
10,000,000 Ontario Hydro, 9.00%, 6/24/2002 Aa2 8,230,801
------------------------------------------------------------ ---------------
TOTAL CANADIAN DOLLAR 8,230,801
------------------------------------------------------------ ---------------
DANISH KRONE--22.5%
- ----------------------------------------------------------------------------------
SOVEREIGN--22.5%
------------------------------------------------------------
4,500,000 Kidder Peabody, Warrant on Denmark, 8.00%,
5/15/2003 (Expires 8/11/94)** Aaa 2,356,542(a)
------------------------------------------------------------
295,000,000 Kingdom of Denmark, 8.00%, 5/15/2003 Aa1 48,325,342
------------------------------------------------------------ ---------------
TOTAL DANISH KRONE 50,681,884
------------------------------------------------------------ ---------------
DEUTSCHE MARK--1.5%
- ----------------------------------------------------------------------------------
SOVEREIGN--1.5%
------------------------------------------------------------
5,000,000 Federal Republic of Germany, 8.00%, 7/22/2002 Aaa $ 3,320,315
------------------------------------------------------------ ---------------
TOTAL DEUTSCHE MARK 3,320,315
------------------------------------------------------------ ---------------
FINNISH MARKKA--3.6%
- ----------------------------------------------------------------------------------
SOVEREIGN--3.6%
------------------------------------------------------------
6,000,000 Republic of Finland, 11.00%, 1/15/99 Aa2 1,228,657
------------------------------------------------------------
35,000,000 Republic of Finland, 9.50%, 3/15/2004 Aa2 6,933,901
------------------------------------------------------------ ---------------
TOTAL FINNISH MARKKA 8,162,558
------------------------------------------------------------ ---------------
FRENCH FRANC--5.1%
- ----------------------------------------------------------------------------------
SOVEREIGN--5.1%
------------------------------------------------------------
142,116,420 Government of France, 0.00%, 10/25/2005 Aaa 11,411,525
------------------------------------------------------------ ---------------
TOTAL FRENCH FRANC 11,411,525
------------------------------------------------------------ ---------------
IRISH POUND--4.5%
- ----------------------------------------------------------------------------------
SOVEREIGN--4.5%
------------------------------------------------------------
6,000,000 Republic of Ireland, 9.25%, 7/11/2003 Aaa 10,042,391
------------------------------------------------------------ ---------------
TOTAL IRISH POUND 10,042,391
------------------------------------------------------------ ---------------
ITALIAN LIRA--19.4%
- ----------------------------------------------------------------------------------
SOVEREIGN--19.4%
------------------------------------------------------------
149,000,000,000 Merrill Lynch, Call option on BTP, 9.00%, 10/1/98
(Expires 11/8/94)*** A1 1,259,050(a)
------------------------------------------------------------
71,000,000,000 Republic of Italy, 10.00%, 8/1/98 Aa3 42,479,300
------------------------------------------------------------ ---------------
TOTAL ITALIAN LIRA 43,738,350
------------------------------------------------------------ ---------------
NETHERLANDS GUILDER--4.2%
- ----------------------------------------------------------------------------------
SOVEREIGN--4.2%
------------------------------------------------------------
16,000,000 Netherlands, 7.50%, 1/15/2023 Aaa $ 9,526,781
------------------------------------------------------------ ---------------
TOTAL NETHERLANDS GUILDER 9,526,781
------------------------------------------------------------ ---------------
NEW ZEALAND DOLLAR--3.5%
- ----------------------------------------------------------------------------------
SOVEREIGN--3.5%
------------------------------------------------------------
13,000,000 New Zealand, 8.00%, 4/15/2004 Aa3 7,955,281
------------------------------------------------------------ ---------------
TOTAL NEW ZEALAND DOLLAR 7,955,281
------------------------------------------------------------ ---------------
SPANISH PESETA--3.9%
- ----------------------------------------------------------------------------------
SOVEREIGN--3.9%
------------------------------------------------------------
1,100,000,000 Kingdom of Spain, 11.45%, 8/30/98 Aa2 8,807,029
------------------------------------------------------------ ---------------
TOTAL SPANISH PESETA 8,807,029
------------------------------------------------------------ ---------------
SWEDISH KRONA--4.6%
- ----------------------------------------------------------------------------------
SOVEREIGN--4.6%
------------------------------------------------------------
30,000,000 Kingdom of Sweden, 13.00%, 6/15/2001 Aaa 4,673,759
------------------------------------------------------------
30,000,000 Kingdom of Sweden, 9.00%, 4/20/2009 Aaa 3,884,089
------------------------------------------------------------
137,000 Salomon, Inc., Warrant on Sweden, 10.25%,
5/1/2003 (Expires 9/9/94)**** A3 1,774,150(a)
------------------------------------------------------------ ---------------
TOTAL SWEDISH KRONA 10,331,998
------------------------------------------------------------ ---------------
TOTAL BONDS (IDENTIFIED COST $222,001,520) 215,761,175
------------------------------------------------------------ ---------------
CURRENCY OPTION--0.4%
- ----------------------------------------------------------------------------------
60,000,000 Morgan Stanley, U.S. Dollar Call Option, Strike price DM
1.7400/US$, 2/10/94***** A1 $ 918,000
------------------------------------------------------------ ---------------
TOTAL CURRENCY OPTION (IDENTIFIED COST $960,000) 918,000
------------------------------------------------------------ ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $222,961,520) $ 216,679,175\
------------------------------------------------------------ ---------------
</TABLE>
* See Notes to Portfolio of Investments on page 10.
** Each warrant is exercisable into Dkr 1,000 par value of 8.00% Danish
Government bonds due
5/15/2003 (currently rated Aa1) at a price of 108.85% of par. The Aaa
rating shown is that of the rated senior obligations of Kidder, Peabody & Co.,
the issuer of the warrant.
*** This call option position is exercisable into Lit 149,000,000,000 par
value of 9.00% Italian Government bonds due 10/1/98 (currently rated Aa3)
at a price of 102.6% of par. The A1 rating shown is that of the rated
senior obligations of Merrill Lynch & Co., the writer of the call option.
**** Each warrant is exercisable into Skr 1,000 par value of 10.25% Swedish
Government bonds due
5/1/2003 (currently rated Aaa) at a price of 120.02% of par. The A3 rating
shown is that of the rated senior obligations of Salomon, Inc., the issuer of
the warrant.
***** The A1 rating shown is that of Morgan Stanley, the writer of the call
option. The 60,000,000 represents the notional amount of the option.
\ The cost for federal tax purposes amounts to $222,770,003. The net unrealized
depreciation of investments amounts to $6,090,828, which is comprised of
$2,648,961 appreciation and $8,739,789 depreciation at November 30, 1993.
Note: The categories of investments are shown as a percentage of net assets
($225,368,151) at
November 30, 1993.
(a) Non-income producing.
The following abbreviations are used in this portfolio.
BTP--Buono del Tesoro Poliennalo (Italian Government Bond)
DM--Deutsche Mark
(See Notes which are an integral part of the financial statements)
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
The bonds rated by Moody's Investors Service, Inc. ("Moody's") in which the Fund
may invest are Aaa, Aa and A. Bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to bonds which are of "high quality by
all standards," but as to which margins of protection or other elements make
long-term risks appear somewhat larger than Aaa-rated bonds. The Aaa and
Aa-rated bonds comprise what are generally known as "high-grade bonds." Bonds
which are rated A by Moody's possess many favorable investment attributes and
are considered "upper medium grade obligations." Factors giving security to
principal and interest of A-rated bonds are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. The
letter ratings carry numerical modifiers with 1 indicating the higher end of the
rating category, 2 indicating the mid-range and 3 indicating the lower end of
the rating category.
Standard & Poor's Corporation's ("Standard & Poor's") highest rating for
commercial paper is A-1. Short-term commercial paper rated A-1 is of the best
quality. The capacity for timely payment on issues with an A-2 designation is
strong. The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issues rated Prime-2 (P-2) have a strong capacity for repayment of
short-term promissory obligations.
The bonds rated by Standard & Poor's in which the Fund may invest are AAA, AA
and A. Bonds rated AAA are "obligations of the highest quality." The rating AA
is accorded to issues with investment characteristics "only slightly less marked
than those of the prime quality issues." The category of A describes "the third
strongest capacity for payment of debt service". Principal and interest payments
on bonds in this category are regarded as safe. It differs from the two higher
ratings because, with respect to general obligation bonds, there is some
weakness, either in the local economic base, in debt burden, in the balance
between revenues and expenditures, or in quality of management. Under certain
adverse circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date. With respect to revenue
bonds, debt service coverage is good, but not exceptional. Stability of the
pledge revenues could show some variations because of increased competition or
economic influences on revenues. Basic security provisions, while satisfactory,
are less stringent. These ratings may be modified by the addition of a plus or
minus sign to show relative standing with the major rating categories.
NR indicates the bonds are not currently rated by Moody's or Standard & Poor's.
However, management considers them to be of equivalent quality to the rated
securities it purchases.
Bonds for which the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally.
INTERNATIONAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $222,961,520; tax cost $222,770,003) (Note 2A) $216,679,175
- ---------------------------------------------------------------------------------------------------
Cash 81,937
- ---------------------------------------------------------------------------------------------------
Interest receivable 6,941,549
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 4,093,905
- ---------------------------------------------------------------------------------------------------
Receivable for capital stock sold 782,918
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of forward contracts (Notes 2F and 6) 39,775
- ---------------------------------------------------------------------------------------------------
Deferred expenses (Note 2J) 9,801
- --------------------------------------------------------------------------------------------------- ------------
Total assets 228,629,060
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable to Bank $2,062,438
- ---------------------------------------------------------------------------------------
Payable for capital stock redeemed 522,870
- ---------------------------------------------------------------------------------------
Options written, at value (premiums received, $408,000) 384,000
- ---------------------------------------------------------------------------------------
Tax withholding liability (Note 2L) 152,561
- ---------------------------------------------------------------------------------------
Payable to distributor 3,668
- ---------------------------------------------------------------------------------------
Payable for shareholder expense 1,522
- ---------------------------------------------------------------------------------------
Accrued expenses 133,850
- --------------------------------------------------------------------------------------- ----------
Total liabilities 3,260,909
- --------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 18,997,357 shares of capital stock outstanding $225,368,151
- --------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $215,339,173
- ---------------------------------------------------------------------------------------------------
Unrealized depreciation of investments (6,449,083)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 14,992,073
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 1,485,988
- --------------------------------------------------------------------------------------------------- ------------
Total $225,368,151
- --------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE:
- ---------------------------------------------------------------------------------------------------
Class A ($220,601,546 / 18,594,920 shares of capital stock outstanding) $11.86
- --------------------------------------------------------------------------------------------------- ------------
Class C ($4,766,605 / 402,437 shares of capital stock outstanding) $11.84
- --------------------------------------------------------------------------------------------------- ------------
Computation of Offering Price:
- ---------------------------------------------------------------------------------------------------
Class A Offering Price Per Share (100/95.5 of $11.86)* $12.42
- --------------------------------------------------------------------------------------------------- ------------
Computation of Proceeds on Redemption:
- ---------------------------------------------------------------------------------------------------
Class A Redemption Proceeds Per Share (99.5/100 of $11.86)** $11.80
- --------------------------------------------------------------------------------------------------- ------------
Class C Redemption Proceeds Per Share (99/100 of $11.84)*** $11.72
- --------------------------------------------------------------------------------------------------- ------------
</TABLE>
*There is no sales charge for purchases of $2 million or more as stated under
item "What Shares Cost" in the prospectus.
**Under certain circumstances, the redemption fee of .50 of 1% is not imposed.
See "Redemption Fee" in the prospectus.
***Under certain circumstances the redemption fee of 1% is not imposed. See
"Redemption Fee" in the prospectus.
(See Notes which are an integral part of the financial statements)
INTERNATIONAL INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest (net of foreign taxes withheld of $305,636) (Note 2L) $ 11,770,648
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 986,055
- -------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 197,211
- -------------------------------------------------------------------------------------
Custodian, transfer agent and dividend disbursing agent fees and expenses 136,858
- -------------------------------------------------------------------------------------
Directors' fees 4,864
- -------------------------------------------------------------------------------------
Auditing fees 35,519
- -------------------------------------------------------------------------------------
Legal fees 19,073
- -------------------------------------------------------------------------------------
Capital stock registration costs 94,311
- -------------------------------------------------------------------------------------
Printing and postage 83,101
- -------------------------------------------------------------------------------------
Insurance premiums 5,088
- -------------------------------------------------------------------------------------
Taxes 16,938
- -------------------------------------------------------------------------------------
Shareholder services fees (Note 5) 78,233
- -------------------------------------------------------------------------------------
Distribution services fees (Note 5) 333,519
- -------------------------------------------------------------------------------------
Miscellaneous 11,581
- ------------------------------------------------------------------------------------- -----------
Total expenses 2,002,351
- -------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 271,710
- -------------------------------------------------------------------------
Waiver of Distribution services fees (Note 5) 75,816 347,526
- ------------------------------------------------------------------------- ---------- -----------
Net expenses 1,654,825
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 10,115,823
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Realized gain on investment transactions (identified cost basis)--
- --------------------------------------------------------------------------------------------------
Net realized gain on investments 14,622,033
- --------------------------------------------------------------------------------------------------
Unrealized appreciation/(depreciation) of investments--
- --------------------------------------------------------------------------------------------------
Change in unrealized depreciation (1,145,113)
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain/(loss) on investments 13,476,920
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 23,592,743
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the financial statements)
INTERNATIONAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
1993 1992
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 10,115,823 $ 4,103,623
- -----------------------------------------------------------------------------
Net realized gain/(loss) on investment transactions
($12,707,324 net gain and $1,213,281 net gain,
respectively, as computed for federal tax purposes) 14,622,033 1,559,371
- -----------------------------------------------------------------------------
Change in unrealized appreciation/(depreciation) (1,145,113) (5,695,976)
- ----------------------------------------------------------------------------- --------------- --------------
Change in net assets resulting from operations 23,592,743 (32,982)
- ----------------------------------------------------------------------------- --------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Class A Dividends to shareholders from net investment income (8,164,154) (4,294,932)
- -----------------------------------------------------------------------------
Class A Distributions to shareholders from net realized gain on investment
transactions (1,189,069) (116,010)
- -----------------------------------------------------------------------------
Class A Distributions in excess of net investment income -- (427,058)
- -----------------------------------------------------------------------------
Class C Distributions to shareholders from net investment income (38,623) --
- ----------------------------------------------------------------------------- --------------- --------------
Change in net assets resulting from distributions to shareholders (9,391,846) (4,838,000)
- ----------------------------------------------------------------------------- --------------- --------------
CAPITAL STOCK TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Net proceeds from sale of shares 172,701,876 99,357,612
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing
to receive payment of dividends in capital stock 2,711,987 896,609
- -----------------------------------------------------------------------------
Cost of shares redeemed (51,183,603) (31,911,318)
- ----------------------------------------------------------------------------- --------------- --------------
Change in net assets resulting from capital stock transactions 124,230,260 68,342,903
- ----------------------------------------------------------------------------- --------------- --------------
Change in net assets 138,431,157 63,471,921
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 86,936,994 23,465,073
- ----------------------------------------------------------------------------- --------------- --------------
End of period (including undistributed net investment
income of $1,485,988 and $0, respectively) $ 225,368,151 $ 86,936,994
- ----------------------------------------------------------------------------- --------------- --------------
</TABLE>
(See Notes which are an integral part of the financial statements)
INTERNATIONAL INCOME FUND
CLASS A SHARES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C> <C>
1993 1992 1991**
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.47 $ 10.84 $ 10.00
- ------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income 0.88 0.62 0.25
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.40 (0.20) 0.75
- ------------------------------------------------------------------------------------ --------- --------- ---------
Total from investment operations 2.28 0.42 1.00
- ------------------------------------------------------------------------------------ --------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.75) (0.71) (0.16)
- ------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions (0.14) (0.03) --
- ------------------------------------------------------------------------------------
Distributions in excess of net investment income -- (0.05)(b) --
- ------------------------------------------------------------------------------------ --------- --------- ---------
TOTAL DISTRIBUTIONS (0.89) (0.79) (0.16)
- ------------------------------------------------------------------------------------ --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.86 $ 10.47 $ 10.84
- ------------------------------------------------------------------------------------ --------- --------- ---------
TOTAL RETURN* 22.95% 3.82% 10.07%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------
Expenses 1.25% 0.99% 0.32%(a)
- ------------------------------------------------------------------------------------
Net investment income 7.71% 5.83% 7.54%(a)
- ------------------------------------------------------------------------------------
Expense waiver/reimbursements (c) 0.27% 0.62% 1.18%(a)
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) 220,602 86,937 23,465
- ------------------------------------------------------------------------------------
Portfolio turnover rate*** 189% 314% 35%
- ------------------------------------------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
** Reflects operations for the period June 4, 1991 (date of initial public
investment) to November 30, 1991.
*** Represents portfolio turnover for the entire fund.
(a) Computed on an annualized basis.
(b) Distributions in excess of net investment income for the year ended
November 30, 1992 were a result of certain book and tax timing differences.
These distributions do not represent a return of capital for federal income
tax purposes.
(c) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(See Notes which are an integral part of the financial statements)
INTERNATIONAL INCOME FUND
CLASS C SHARES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993**
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.23
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.41
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.58
- ----------------------------------------------------------------------------------------------- -----------------
Total from investment operations 1.99
- ----------------------------------------------------------------------------------------------- -----------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.38)
- ----------------------------------------------------------------------------------------------- -----------------
TOTAL DISTRIBUTIONS (0.38)
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, END OF PERIOD (000 OMITTED) $ 11.84
- ----------------------------------------------------------------------------------------------- -----------------
TOTAL RETURN* 19.67%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 2.05%(a)
- -----------------------------------------------------------------------------------------------
Net investment income 5.39%(a)
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursements (b) 0.21%(a)
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) 4,767
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate*** 189%
- -----------------------------------------------------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
** Reflects operations for the period from March 31, 1993 (date of initial
public offering) to November 30, 1993.
*** Represents portfolio turnover for the entire fund.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(See Notes which are an integral part of the financial statements)
INTERNATIONAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
FT Series, Inc. (the "Corporation") is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company with two
portfolios. The financial statements included herein present only those of the
non-diversified International Income Fund (the "Fund"). The Fund provides two
classes of shares ("Class A Shares" and "Class C Shares"). Class A Shares and
Class C Shares are sold pursuant to a distribution plan ("Plan") adopted in
accordance with Investment Company Act Rule 12b-1. The financial statements of
the other portfolio (International Equity Fund) are presented separately. The
assets of each portfolio of FT Series, Inc. are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at last sale
price reported on national securities exchanges. Unlisted securities or
listed securities in which there were no sales on the valuation date are
valued at the mean between bid and asked prices. Listed corporate bonds and
other fixed income securities are valued at the last sale price reported on
a national securities exchange on that day, if available. Unlisted bonds
and other fixed income securities are valued at the mean between bid and
asked prices provided by an independent pricing service. Short-term
obligations are generally valued at the mean between bid and asked prices
as furnished by an independent pricing service. Short-term obligations with
maturities of sixty days or less are valued at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure the value at
least equals the principal amount of the repurchase transaction, including
accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed
by the Corporation's adviser to be creditworthy pursuant to guidelines
established by the Directors. Risks may arise from the potential inability
of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis and includes
discount earned, less any premium on short-term obligations, and original
issue discount on all other debt securities.
D. CURRENCY TRANSLATION--Foreign currency amounts are converted into U.S.
dollars at the current rate of such currencies against U.S. dollars as
follows: assets and liabilities at the rate of exchange at the end of the
respective period; purchases and sales of securities and income and
expenses at the rate of exchange prevailing on the dates of such
transactions. It is not practicable to isolate that portion of the results
of operations arising from changes in the exchange rates from the portion
arising from changes in the market prices of investment securities.
E. FEDERAL TAXES--It is the Fund's policy to continue to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute to shareholders each year substantially all of
its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal tax is necessary. However, federal
taxes may be imposed on the Fund upon the disposition of certain
investments in Passive Foreign Investment Companies. (See Note 2L for
Foreign Taxes)
F. FUTURES CONTRACTS--The Fund may enter into forward commitments for the
delayed delivery of securities or forward foreign currency exchange
contracts which are based upon financial indices at a fixed price or
exchange rate at a future date. Risks may arise upon entering these
contracts from the potential inability of counterparts to meet the terms of
their contracts and from unanticipated movements in security prices or
foreign exchange rates. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any
gains or losses are recorded for financial statement purposes as unrealized
until the contract settlement date (See Note 6).
G. OPTION CONTRACTS--The Fund may write or purchase option contracts.
Purchased options are accounted for as investment securities. A written
option obligates the Fund to deliver (a call), or to receive (a put), the
contract amount of foreign currency upon exercise by the holder of the
option. The value of the option contract is recorded as a liability and
unrealized gain or loss is measured by the difference between the current
value and the premium received. The Fund had one written option outstanding
at November 30, 1993. The written put is for a notional amount of
60,000,000 Deutsche Mark at a strike price of 1.66 per USD, and expires
2/10/94.
H. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund will record
when-issued securities and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
I. CONCENTRATION OF CREDIT RISK--The Fund invests in fixed income securities
of non-U.S. issuers. The political or economic developments within a
particular country or region may have an adverse effect on the ability of
domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
J. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
K. OTHER--Investment transactions are accounted for on the date of the
transaction.
L. FOREIGN TAXES--Withholding taxes on foreign dividends have been provided
for in accordance with the Fund's understanding of the applicable country's
tax rules and rates.
(3) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid quarterly.
Distributions of any net realized capital gains will be made at least once every
twelve months. Dividends and capital gain distributions are automatically
reinvested in additional shares on the payment date, at the ex-dividend date net
asset value without a sales charge, unless cash payments are requested.
The amounts shown in the financial statements for net investment income for the
years ended November 30, 1993 and 1992 differ from those determined for tax
purposes because of certain timing differences. This resulted in distributions
to shareholders in excess of net investment income for the year ended November
30, 1992. This distribution does not represent a return of capital for federal
income tax purposes.
(4) CAPITAL STOCK
At November 30, 1993, there were 500,000,000 shares of $.0001 par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
CLASS A SHARES 1993 1992
- -------------------------------------------------------------------------------- ------------- ------------
Shares outstanding, beginning of period 8,305,184 2,164,397
- --------------------------------------------------------------------------------
Shares sold 14,494,139 8,977,384
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment
of dividends declared 243,001 82,720
- --------------------------------------------------------------------------------
Shares redeemed (4,447,404) (2,919,317)
- -------------------------------------------------------------------------------- ------------- ------------
Shares outstanding, end of period 18,594,920 8,305,184
- -------------------------------------------------------------------------------- ------------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C>
CLASS C SHARES 1993**
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------------------------
Shares sold 409,680
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders in payment
of dividends declared 2,095
- -----------------------------------------------------------------------------------------------
Shares redeemed (9,338)
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, end of period 402,437
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
** For the period from March 31, 1993 (date of initial public offering) to
November 30, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Fiduciary International Inc., the Fund's investment adviser (the "Adviser"),
receives for its services an annual investment advisory fee equal to 0.75% of
the Fund's average daily net assets. The Adviser may voluntarily waive all or a
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion. Under the terms of a sub-advisory agreement
between Fiduciary International, Inc. and Federated Management, (the
"Sub-Adviser"), Federated Management will receive an annual fee from Fiduciary
International, Inc. equal to .375 of 1% of average daily net assets of the Fund.
For the year ended November 30, 1993, the Adviser earned an investment adivsory
fee of $986,055 of which $271,710 was voluntarily waived. The Sub-Adviser
received from the Adviser $493,028 for sub-advisory services and voluntarily
agreed to waive $135,855.
Administrative personnel and services are provided by Federated Administrative
Services ("FAS") at an annual rate of .15 of 1% on the first $250 million of
average aggregate daily net assets of the Corporation, .125 of 1% on the next
$250 million, .10 of 1% on the next $250 million, and .075 of 1% on the average
aggregate daily net assets in excess of $750 million. For the year ended
November 30, 1993 FAS earned $197,211. Certain Officers and Directors of the
Corporation are Officers and Directors of the above corporations.
Organizational expenses ($32,825) were borne initially by FAS. The Fund has
agreed to reimburse FAS, at an annual rate of .005 of 1% of average daily net
assets, until expenses borne by FAS are fully reimbursed, or the expiration of
five years after June 4, 1991, (date the Fund's portfolio first became
effective) whichever occurs earlier. For the year ended November 30, 1993 the
Fund paid $5,937 in organization expenses.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund, for fees which relate to the distribution and administration
of the Fund's Class A Shares and Class C Shares. The Plan provides that the Fund
will incur distribution expenses up to 0.25 of 1% and 0.75 of 1% of the average
daily net assets of the Class A Shares and Class C Shares, respectively,
annually, to pay commissions, maintenance fees and to compensate FSC. For the
year ended November 30, 1993, FSC earned $326,268 and voluntarily waived $75,816
for Class A Shares and earned $7,251 for Class C Shares.
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to Class A and Class C Shares. The Fund will reimburse Federated
Securities Corp. ("FSC"), from the net assets of the Fund for fees the Fund paid
which relate to administrative support services of the Class A and Class C
Shares. The Services Plan provides that the Fund may incur Shareholder services
expenses up to 0.25 of 1% of the average daily net assets of the Class A and
Class C Shares. For the year ended November 30, 1993, FSC earned $78,233.
(6) FORWARD CONTRACTS
At November 30, 1993 the Fund had outstanding forward contracts as set out
below.
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
CONTRACTS UNREALIZED
TO DELIVER/ IN EXCHANGE APPRECIATION
SETTLEMENT DATE RECEIVE FOR (DEPRECIATION)
SALES
<S> <C> <C> <C>
Deutsche Mark 14,021,867 $ 8,233,930 $ 58,868
Danish Krone 238,345,000 35,034,500 (21,391)
Spanish Peseta 1,273,590,000 9,000,000 (42,173)
French Franc 79,598,000 13,350,926 (67,483)
Pound Sterling 17,277,589 25,536,276 (128,591)
Irish Pound 7,442,907 10,415,778 (86,419)
Italian Lira 16,600,000,000 9,968,772 261,170
Netherlands Guilder 18,434,000 9,691,903 65,794
--------------- -----------------
$ 121,232,085 $ 39,775
--------------- -----------------
<CAPTION>
PURCHASES
<S> <C> <C> <C>
None
Net Unrealized Appreciation on Forward Contracts $ 39,775
-----------------
</TABLE>
(7) INVESTMENT TRANSACTIONS
Purchases, and sales of investments, excluding short-term securities, for the
fiscal year ended November 30, 1993 were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES $ 361,838,827
- ------------------------------------------------------------------------------------------------- ---------------
SALES AND MATURITIES $ 234,273,700
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(8) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
FT SERIES, INC., (International Income Fund):
We have audited the accompanying statement of assets and liabilities of
International Income Fund (an investment portfolio of FT Series, Inc., a
Maryland Corporation), including the schedule of portfolio investments, as of
November 30, 1993, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended and financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
November 30, 1993 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
International Income Fund, an investment portfolio of FT Series, Inc., as of
November 30, 1993 and the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
financial highlights for each of the periods presented in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
January 21, 1994
DIRECTORS OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Glen R. Johnson
James E. Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Edward L. Flaherty, Jr. Vice President
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
Wesley W. Posvar Edward C. Gonzales
Marjorie P. Smuts Vice President and Treasurer
Joseph S. Machi
Vice President and Assistant Treasurer
John W. McGonigle
Vice President and Secretary
John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
Jeannette Fisher-Garber
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
DOCUMENT DESCRIPTION
DOCUMENT TYPE
COUNT 28
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the 9th Annual Report of the International Equity Fund.
This report covers the period of December 1, 1992 to November 30, 1993. The
report contains a listing of the Fund's holdings and the Fund's Financial
Statements.
The International Equity Fund net assets of $195.7 million are invested in 30
different countries and in over 150 issues. Margaret Lindsay, Vice President of
Fiduciary Trust International and portfolio manager of the Fund discusses in
detail the financial effects of the General Agreement of Tariff and Trade and
NAFTA, which will give you an insight into the complexity of international
investing in managing the Fund's portfolio.
In the past twelve months, individuals and institutions in the United States
substantially increased their holdings in international and global funds.
According to the Investment Company Institute, in the international arena now,
there are $57 billion in fund assets. In 1993 alone, over $18 billion was
invested in global and international equity funds, and there are almost 100
international equity funds. More institutions and individuals are placing a
portion of their wealth in funds that invest outside of the United States.
Many countries around the world are privatizing a number of their industries.
Capitalism seems to be taking a hold in these countries, and free market forces
are projecting emerging market securities to investors throughout the world.
There are probably more stock exchanges in more countries today than ever
before, and more listed securities are being offered to investors.
Indeed, it is for these reasons that investors are utilizing the mutual fund
concept. There are great opportunities for investment, but it does take
knowledgeable and experienced people to select and follow the stocks and bonds
being issued today at record rates.
We strongly believe in broad diversification by country and by issuer. As of
November 30, 1993, the top holding in each of the ten largest country
commitments were:
<TABLE>
<CAPTION>
Country Market Value % of Net Assets
------- ------------ ---------------
<S> <C> <C>
Japan
Murata Manufacturing $2,566,923 1.3%
United Kingdom
Cable & Wireless $1,768,035 0.9%
France
Valeo $1,562,315 0.8%
Hong Kong
Sun Hung Kai Properties $1,913,786 1.0%
Switzerland
Baloise Holdings $2,144,927 1.1%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Country Market Value % of Net Assets
------- ------------ ---------------
<S> <C> <C>
Mexico
Cifra $1,407,759 0.7%
Netherlands
Polygram $1,532,228 0.8%
Germany
Deutsche Bank $1,957,654 1.0%
Malaysia
Genting $2,311,445 1.2%
Sweden
Svenska Handelsbanken $1,845,916 0.9%
</TABLE>
During the report period, the fund's share price increased from $14.09 to
$16.49, or 17.0%.
In the coming twelve months, we anticipate lower interest rates throughout the
world, and improving international equity markets. We are optimistic about the
international markets.
I urge you to add to your account, and if you have any questions, please do not
hesitate to write.
Very sincerely yours,
Glen R. Johnson President
LOGO
January 15, 1994
INVESTMENT REVIEW
MARGARET LINDSAY SENIOR VICE PRESIDENT, FIDUCIARY TRUST INTERNATIONAL
- --------------------------------------------------------------------------------
Q Recently, the General Agreement on Tariffs and Trade, or GATT, has been
front-page news. What is the potential impact of this Agreement between Eu-
rope and the U.S. on the European stock markets? As a result, how have you
structured the Fund's European holdings?
A Although a number of unresolved issues remain, the GATT talks were
concluded in mid-December with a fairly comprehensive agreement, thus
removing the risk of an outright trade war. A trade war would have been
negative for the European markets, with investors resorting to profit taking as
they perceived greater political risk. Separately from GATT, the development of
a regional trading bloc has been underway for quite some time culminating most
recently in the "Single Market", which has been in place for more than a year
now. Despite the difficulties encountered by the Maastricht Treaty and
questions over the feasibility of a single currency, we believe that
developments on the corporate level remain on track.
For example, corporate restructuring remains an important theme in the Fund's
European portfolio. As trade barriers fall, companies are moving into new
markets. As competition increases, the need for restructuring has become more
important to maintain efficiency and ensure adequate return. In many cases,
cost-cutting measures are already starting to produce results despite the
difficult economic environment. Holdings have recently been increased in Valeo
(a French-based leading European supplier of auto components). New positions
include Macintosh (a Dutch retailer looking to better margins) and Kuoni (a
Swiss-based travel agency with a recently acquired German partner which
increased opportunities for both).
The financial sector is a second important theme in the European portfolio.
Holdings have been increased in Creditanstalt (an Austrian bank), AXA (a French
insurance company which owns 49% of U.S. Equitable), Deutsche Bank, Aegon (a
Dutch insurer active in the U.S.) and Svenska Handelsbanken (a Swedish bank). A
second insurance company, Baloise, has been purchased in Switzerland. We
believe all these stocks offer good value and are clear beneficiaries of lower
interest rates as well as the positive effects rising markets are likely to
have on their investment portfolios.
Infrastructure is a third area in which the portfolio is well represented. The
Fund owns Wienerberger, an Austrian brick producer with important markets in
eastern Europe, and, in Germany, Siemens, active in telecommunications,
railways and power engineering, and Weru, the leading supplier of doors and
window frames currently enjoying a booming business in the east. A new position
has been added in Buderus, a German technology company benefitting from new
environmental laws. The holding in Schindler, the Swiss elevator company, has
been increased.
Continental Europe represents 26% of the Fund's total investments. The U.K. has
been maintained at 10%, including several Irish stocks that were added earlier
this year. In these two markets, recovery remains the investment theme. We ex-
pect financials like Barclays Bank and the telecom stock, Cable and Wireless,
to continue to do well in the U.K. Ireland is recovering quickly and is ex-
pected to be one of the strongest economies in Europe in the 1993-94 period.
The construction materials company, CRH, and the Bank of Ireland, both held by
the Fund, are expected to benefit from the Irish economy's turnaround.
Q Let's turn to the NAFTA agreement, a major recent development in U.S. and
Mexico trade relations. How significant will the resulting opportunities be
for the Mexican market, and how is the Fund's portfolio positioned to respond?
A The long-awaited passage of NAFTA is highly positive for Mexico and the
rest of Latin America. The effects are both political and economic and, we
believe, will allow investors to view this equity market favorably over the
longer term. We expect a higher market price-to-earnings multiple now that a
great deal of the "country risk" associated with Mexico has been removed. A
continuation of the government's centrist policies seems assured with the
recent appointment of President Salinas' close associate, Mr. Colosio, as the
ruling party's presidential candidate for next year's election. The passage of
NAFTA removes the necessity of defending the Mexican peso with high interest
rates, which would have been the case if the treaty had been rejected. An
increasing inflow of foreign investment should keep the currency strong. As
interest rates come down, economic growth should pick up significantly in 1994,
with subsequent corporate earnings growth.
The combination of accelerating growth and lower interest rates should help
retail companies and construction firms in Mexico. The Fund has been well
positioned in these areas with holdings in Cifra, a retailer and Cemex, a
cement company. Several new names have been added to the Mexican portfolio
since the NAFTA vote. These include Casa Autrey, a wholesale distributor of
pharmaceuticals and consumer goods and Elektra, a retailer. Consumer spending
and infrastructure development are likely to remain the major investment themes
for the Latin American region overall. Mexico currently accounts for half of
the Fund's 10% exposure to Latin America. As NAFTA helps to build a foundation
for sustainable long term growth in the region, we expect to increase our
investments further as attractive opportunities and new issues become
available.
Q Japan's markets remained depressed during the reporting period. Just how
negative is the situation there, and what kind of position are you
currently maintaining in Japan?
A Japan continued to have political and economic difficulties during the
period under review with additional technical factors burdening the equity
market. As a result, investors stayed largely on the sidelines. However, some
progress has now been made on political reform with important new legislation
passed by the lower house of Parliament in early December. The coalition
government only came to power in July this year after decades of a single
ruling party. They have had a number of issues to work through which,
apparently, have delayed further action on Japan's dismal economy. Official
growth forecasts were reduced in early November, and were thus more in line
with those of private observers. Nevertheless, the subsequent third quarter GNP
figures were surprisingly better than expected.We believe these recent
developments have, to a large extent, been discounted by the market. The
outlook, we feel, is improving for a number of reasons. The falling oil price
should help keep inflation at low levels. Interest rates are at record lows
that will help industry as well as encouraging new housing starts.
Infrastrucure orders, resulting from the government's earlier stimulus
measures, are now being placed and should stimulate demand for equipment as
well as create new jobs. We expect a further supplementary budget, including an
income tax cut, to be announced early in 1994. Japan's economy appears to be at
or near its low point.
Japan accounts for 27% of the Fund's total investments. Our portfolio reflects
the following expectations: a weaker yen that will benefit the exporters, the
likelihood of even lower interest rates which will support the financial sector
and an eventual economic recovery which can be played through consumer stocks.
Overlying these themes is corporate restructuring and cost cutting that will
produce visible gains in productivity once the recovery arrives. The Japanese
yen reached historic highs against both the U.S. dollar and the European
currencies in 1993. As a result, Japan's exporting sector has been depressed.
Recently, this trend has reversed itself as the yen has begun to weaken against
the U.S. dollar. Stocks such as Sharp, Sony and Canon have benefitted as the
outlook has improved. A weaker yen will make these companies' products more
competitive abroad. While the timing and extent of economic recovery is still
difficult to call in Japan, housing starts have improved. Consumer confidence,
however, remains at low levels, raising expectations that an income tax cut may
help revive this sector. The Fund owns selected consumer stocks such as Ito
Yokado in anticipation of this recovery. The sluggish economy also suggests
further cuts in interest rates. We have maintained our exposure to the
financial sector through Mitsubishi Bank and Daiwa Securities, among others.
Finally, the corporate restructuring theme is best illustrated with Mitsumi
Electric and Murata, companies that have made considerable progress in cost-
cutting and the resourcing of production to countries such as China and even
the U.S. We continue to believe a selective approach is appropriate in this
market.
Q Can you comment on the Fund's positions in other Far East markets?
A Most of the Far Eastern markets performed well and reached new highs during
the period under review. We continue to believe the outlook is attractive.
To help capture this region's dynamic growth, the Fund has focussed on two
predominant themes in its investment strategy. One is the continued development
of infrastructure systems in countries that are climbing the ladder of economic
development. Such developments include telecommunications, power projects, and
transportation systems to name a few. Without expansion in this particular
area, countries such as Malaysia, Thailand and China could not continue their
rapid economic growth. In the Fund, specific names for this investment theme
include Telecom Asia, China Light & Power and Korea Electric Power Company.
The other theme in the portfolio is consumer spending. As the region expands
economically, wealth is created. This leads to an emerging middle class in many
countries that previously lacked such a social strata. In countries with
expanding manufacturing and service bases, middle managers are needed by the
growing number of businesses. As their incomes increase, they are buying homes,
cars, and consumer products for the first time. The Fund is positioned to
benefit from the expected emergence of a consumer society through its holdings
in Tsingtao Brewery in China, Samsung Electronics in Korea and Genting Berhad
(leisure) in Malaysia. In addition, many regional banks, including HSBC
Holdings in Hong Kong and Bangkok Bank in Thailand, are good proxies for this
dynamic spending as consumers borrow to finance their major purchases.
Infrastructural development and consumer spending will continue to be major
themes for the Fund as the Far Eastern region develops. The total Far Eastern
exposure is 19%. Our largest country weighting continues to be Hong Kong, with
5% of the Fund invested there.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 PURCHASE
IN INTERNATIONAL EQUITY FUND (CLASS A SHARES)
AND MORGAN STANLEY, EUROPE-AUSTRALIA-FAR EAST INDEX.
Graphic Presentation Omitted. See Appendix C.
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Reflects performance of International Equity Fund (Class A Shares)
from 8/17/84 through 11/30/93.
**Represents a hypothetical investment of $10,000 in International
Equity Fund (Class A Shares), after deducting the maximum sales
charge of 4.5% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all
dividends and distributions. The Morgan Stanley Europe-Australia-Far
East Index is adjusted to reflect reinvestment of dividends on
securities in the index.
The Morgan Stanley Europe-Australia-Far East Index IS not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance.
Returns reflect maximum applicable fees.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 PURCHASE
IN INTERNATIONAL EQUITY FUND (CLASS C SHARES)
AND MORGAN STANLEY, EUROPE-AUSTRALIA-FAR EAST INDEX.
Graphic Presentation Omitted. See Appendix D.
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Reflects performance of International Equity Fund (Class C Shares)
from 3/31/93 through 11/30/93, on a cumulative basis.
**Represents a hypothetical investment of $10,000 in International
Equity Fund (Class C Shares). The ending value of the Fund reflects
a redemption fee of 1% on any redemption less than 1 year from the
purchase date. The Morgan Stanley Europe-Australia-Far East Index is
adjusted to reflect reinvestment of dividends on securities in the
index.
The Morgan Stanley Europe-Australia-Far East Index IS not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance.
Returns reflect maximum applicable fees.
INTERNATIONAL EQUITY FUND
Opportunities for Long-Term Capital Growth and Income
Through International Securities
If you invested $10,000 initially and
reinvested all dividends
and capital gains . . .
Graphic Presentation Omitted. See Appendix E.
As this illustration shows, an investment of $10,000 in the Class A
Shares of International Equity Fund, Inc. on the Fund's inception
date of 8/17/84, with dividends and capital gains reinvested and no
redemption of shares, would be worth $34,817 on 11/30/93. This
reflects an attractive 14.44%* average annual total return for the
9-year investment.
ONE KEY TO INVESTING IS TO HAVE ALL DISTRIBUTIONS REINVESTED IN FUND
SHARES. BY REINVESTING IN FUND SHARES, YOU BUY MORE SHARES EACH YEAR
AND GAIN THE BENEFIT OF COMPOUNDING.
*Total return represents the change in the value of an investment
after reinvesting all income and capital gains, and taking into
account the 4.5% sales charge on the initial investment applicable
to Class A Shares. Data quoted represent past performance and are
not indicative of future results. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE SO AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AS OF 12/31/93, THE CLASS A SHARES' AVERAGE ANNUALIZED ONE-YEAR, FIVE-YEAR, AND
SINCE INCEPTION TOTAL RETURNS WERE 25.34%, 5.84%, AND 15.56%, RESPECTIVELY, AND
THE CLASS C SHARES' TOTAL RETURN SINCE INCEPTION (3/31/93) WAS 21.15%. THIS
FIGURE REPRESENTS ONLY 9 MONTHS' PERFORMANCE AND MAY NOT BE A FAIR
REPRESENTATION OF THE CLASS C SHARES' LONG-TERM PERFORMANCE.
Investing in International Equity Fund
ONE STEP AT A TIME . . . $1,000 invested each year for
9 years (1984 to 1993)
---------------------------------------------------------------------
$10,000 invested with all dividends and capital gains
reinvested is valued at $15,646 today
Graphic Presentation Omitted. See Appendix F.
WHEN IT COMES TO INVESTING, THE KEY IS CONSISTENCY.
Through systematic investing, you buy shares on a regular basis and
reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. YOU CAN TAKE IT ONE STEP AT A TIME. Put
time and compounding to work!
This graph illustrates the investment growth you would have enjoyed
if you started investing $1,000 annually in Class A Shares of
International Equity Fund, Inc. on 8/17/84, reinvested your dividends
and capital gains, and did not redeem any shares. As of 11/30/93,
your investment account would have reached a total value of
$15,646.** This works out to an average annual total return of 9.07%.
*The difference from this ending figure and the actual reinvested
figure is due to the increase in the share value of the shares
purchased by the reinvestment of the dividends and capital gains.
**No method of investing can guarantee a profit or protect against
loss in down markets. All accumulated shares have the ability to
pay income to the investor.
INTERNATIONAL EQUITY FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS--90.0%
------------------------------------------
ARGENTINA--0.9%
------------------------------
8,000 Central Puerto $ 228,000
------------------------------
30,000 Telefonica de Argentina 1,627,500
------------------------------ ------------
Total 1,855,500
------------------------------ ------------
AUSTRALIA--2.2%
------------------------------
167,463 Amcor 1,024,563
------------------------------
160,000 National Australia Bank 1,265,823
------------------------------
220,045 News Corp. 1,436,211
------------------------------
200,000 West Australia News 507,648
------------------------------ ------------
Total 4,234,245
------------------------------ ------------
AUSTRIA--0.5%
------------------------------
2,960 Weinerberger Baustellung 938,845
------------------------------ ------------
BRAZIL--1.2%
------------------------------
70,000 Aracruz Celulose** 700,000
------------------------------
46,500 Telebras 1,627,500
------------------------------ ------------
Total 2,327,500
------------------------------ ------------
CHILE--2.0%
------------------------------
37,000 Compania Cervecerias Unidas** 994,375
------------------------------
25,000 Compania de Telefonos de Chile 2,100,000
------------------------------
40,000 Madeco 855,000
------------------------------ ------------
Total 3,949,375
------------------------------ ------------
CHINA--1.5%
------------------------------
350,000 Citic Pacific Ltd. 915,210
------------------------------
7,200 Ek Chor China Motorcycle Corp. 198,900
------------------------------
33,000 Shanghai Petrochemical Corp. 1,072,500
------------------------------
700,000 Tsingtao Brewery 647,896
------------------------------ ------------
Total 2,834,506
------------------------------ ------------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
---------------------------------------------
COLOMBIA--1.0%
---------------------------------
46,000 Banco Ganadero $ 828,000
---------------------------------
70,000 Corporacion Financiera del Valle 1,155,000
--------------------------------- ------------
Total 1,983,000
--------------------------------- ------------
FRANCE--5.8%
---------------------------------
5,980 AXA 1,498,658
---------------------------------
1,820 Carrefour 1,157,330
---------------------------------
3,893 Cetelem 783,133
---------------------------------
10,700 Ecco 993,165
---------------------------------
12,100 Imetal 1,061,851
---------------------------------
4,820 L'Oreal 949,277
---------------------------------
1,360 Legrand 1,122,336
---------------------------------
9,637 Rexel 935,157
---------------------------------
15,850 TV Francaise 1,377,563
---------------------------------
8,050 Valeo 1,562,315
--------------------------------- ------------
Total 11,440,785
--------------------------------- ------------
GERMANY--3.7%
---------------------------------
2,880 Buderus 1,011,484
---------------------------------
3,965 Deutsche Bank 1,957,654
---------------------------------
5,650 Preussag 1,364,168
---------------------------------
4,635 Siemens 1,952,077
---------------------------------
1,171 Weru 938,575
--------------------------------- ------------
Total 7,223,958
--------------------------------- ------------
HONG KONG--5.6%
---------------------------------
252,000 China Light & Power 1,484,272
---------------------------------
1,152,050 Consolidated Electric Power--Asia 1,152,050
---------------------------------
500,000 Hang Lung Development Co. 899,676
---------------------------------
495,000 Hong Kong Land Holdings 1,211,067
---------------------------------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ----------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
-----------------------------------
HONG KONG--CONTINUED
-----------------------
146,576 HSBC Holdings $ 1,622,297
-----------------------
194,000 Hutchison Whampoa 778,511
-----------------------
1,000,000 Oriental Press Group 757,281
-----------------------
308,000 Sun Hung Kai Properties 1,913,786
-----------------------
100,000 Swire Pacific** 692,557
-----------------------
102,000 Television Broadcasting 355,184
----------------------- ------------
Total 10,866,681
----------------------- ------------
INDONESIA--0.4%
-----------------------
88,400 Kabelmetal Indonesia 346,832
-----------------------
188,400 Lippo Bank 531,846
----------------------- ------------
Total 878,678
----------------------- ------------
IRELAND--1.9%
-----------------------
150,000 Bank of Ireland 613,677
-----------------------
258,960 CRH 1,269,035
-----------------------
160,000 Greencore 731,809
-----------------------
375,000 Irish Life 1,175,007
----------------------- ------------
Total 3,789,528
----------------------- ------------
ITALY--0.4%
-----------------------
457,000 SIP 823,134
----------------------- ------------
JAPAN--26.8%
-----------------------
180,000 Amada Co. 1,475,247
-----------------------
80,000 Asahi Bank 792,079
-----------------------
90,000 Canon Sales Co., Inc. 2,252,475
-----------------------
180,000 Canon, Inc. 2,260,726
-----------------------
180,000 Chugoku Marine Paints 782,178
-----------------------
180,000 Daiwa Securities 1,881,188
-----------------------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ---------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
----------------------------------------
JAPAN--CONTINUED
----------------------------
32 DDI Corp. $ 1,628,163
----------------------------
33,000 Fuji Photo Film 683,718
----------------------------
86,000 Horiba 1,379,721
----------------------------
48,000 Ito Yokado Co. 2,319,032
----------------------------
140,000 Japan Securities Finance 1,732,673
----------------------------
120,000 Kaken Pharmaceuticals 1,606,161
----------------------------
200,000 Kamigumi 1,943,528
----------------------------
25,000 Kyocera 1,161,991
----------------------------
16,000 Mabuchi Motor 903,557
----------------------------
75,000 Mitsubishi Bank 1,787,679
----------------------------
305,000 Mitsubishi Heavy Industries 1,674,872
----------------------------
165,000 Mitsui Fudosan Co. 1,588,284
----------------------------
160,000 Mitsumi Electric 2,493,583
----------------------------
80,000 Murata Manufacturing 2,566,923
----------------------------
250,000 NEC Corp. 1,773,927
----------------------------
21,800 Nintendo 1,269,069
----------------------------
510,000 Nippon Steel Corp. 1,407,315
----------------------------
235 Nippon Telephone & Telegraph 1,473,597
----------------------------
140,000 Sharp Corp. 1,745,508
----------------------------
26,000 Shimachu 941,511
----------------------------
55,000 Sony Corp. 2,354,694
----------------------------
150,000 Suzuki Motor Corp. 1,320,132
----------------------------
125,000 Taisei Prefab Construction 1,650,165
----------------------------
127,000 Takashimaya Co. 1,187,569
----------------------------
165,000 Tokio Marine & Fire 1,679,043
----------------------------
65,000 Tokyo Style 989,182
----------------------------
167,000 Toyo Engineering 949,211
----------------------------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
-------------------------------------
JAPAN--CONTINUED
-------------------------
28,000 Uniden Corp. $ 734,140
------------------------- ------------
Total 52,388,841
------------------------- ------------
KOREA--1.1%
-------------------------
66,500 Korea Asia Fund** 1,155,770
-------------------------
20,000 Korea Electric Power 482,733
-------------------------
15,202 Samsung Electronics 508,995
------------------------- ------------
Total 2,147,498
------------------------- ------------
MALAYSIA--3.1%
-------------------------
90,000 Aokam Perdana 879,765
-------------------------
200,000 Berjaya Sports 449,658
-------------------------
90,000 Edaran Otomobil 503,226
-------------------------
220,000 Genting 2,311,445
-------------------------
120,000 Malayan Banking 858,651
-------------------------
225,000 Pilecon Engineering 453,079
-------------------------
74,000 Telekom Malaysia 555,542
------------------------- ------------
Total 6,011,366
------------------------- ------------
MEXICO--4.5%
-------------------------
50,000 Cemex 1,322,639
-------------------------
500,000 Cifra 1,407,759
-------------------------
40,000 Consorcio Grupo Dina 880,000
-------------------------
253,000 Farmacias Benavides 1,258,995
-------------------------
19,700 Banamex 140,760
-------------------------
930,000 Grupo Financiero Probursa 989,523
-------------------------
10,000 Grupo Televisa GDR** 593,818
-------------------------
25,000 Grupo Televisa L** 752,987
-------------------------
300,000 Herdez 307,415
-------------------------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ---------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
----------------------------------------
MEXICO--CONTINUED
----------------------------
400,000 Telefonos de Mexico $ 1,131,445
---------------------------- ------------
Total 8,785,341
---------------------------- ------------
NETHERLANDS--4.1%
----------------------------
29,000 Aegon 1,530,681
----------------------------
17,800 Elsevier 1,446,771
----------------------------
47,700 IHC Caland 982,278
----------------------------
72,500 KNP BT 1,508,060
----------------------------
34,965 Macintosh 990,948
----------------------------
39,550 Polygram 1,532,228
---------------------------- ------------
Total 7,990,966
---------------------------- ------------
NEW ZEALAND--0.6%
----------------------------
265,876 Carter Holt Harvey 497,466
----------------------------
112,500 Independent News 441,850
----------------------------
150,000 Telecom Corp. of NZ 318,296
---------------------------- ------------
Total 1,257,612
---------------------------- ------------
NORWAY--1.0%
----------------------------
65,850 Dyno Industrier 994,112
----------------------------
28,900 Orkla 1,023,833
---------------------------- ------------
Total 2,017,945
---------------------------- ------------
PHILIPPINES--0.8%
----------------------------
1,112,000 JG Summit Holdings, Inc. 426,753
----------------------------
9,500 Philippine Long Distance 579,500
----------------------------
93,600 San Miguel Corp. 632,895
---------------------------- ------------
Total 1,639,148
---------------------------- ------------
SINGAPORE--1.8%
----------------------------
180,000 City Developments 737,336
----------------------------
18,000 City Develoments Warrants 40,525
----------------------------
113,750 Develoment Bank of Singapore 1,045,732
----------------------------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ----------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
-----------------------------------------
SINGAPORE--CONTINUED
-----------------------------
100,000 Sembawang Shipyard $ 838,024
-----------------------------
101,250 United Overseas Bank 785,178
----------------------------- ------------
Total 3,446,795
----------------------------- ------------
SPAIN--0.4%
-----------------------------
15,100 Banco Pastor 749,097
----------------------------- ------------
SWEDEN--2.9%
-----------------------------
114,000 Bylock and Nordsjofr 909,574
-----------------------------
31,610 Electrolux 1,083,558
-----------------------------
65,150 Sandvik AB 862,506
-----------------------------
58,500 Svedala Industries 926,596
-----------------------------
147,325 Svenska Handelsbanken 1,845,916
----------------------------- ------------
Total 5,628,150
----------------------------- ------------
SWITZERLAND--5.4%
-----------------------------
1,265 Baloise Holdings 2,144,927
-----------------------------
980 Reiseburo Kuoni 1,125,234
-----------------------------
475 Roche Holding 1,907,293
-----------------------------
330 Schindler Holding 1,514,519
-----------------------------
1,780 Swiss Bank Corp. 1,560,174
-----------------------------
1,725 Sulzer 842,924
-----------------------------
585 Swiss Re 1,423,448
----------------------------- ------------
Total 10,518,519
----------------------------- ------------
TAIWAN--0.7%
-----------------------------
52,000 Taiwan Fund, Inc. 1,397,500
----------------------------- ------------
THAILAND--0.8%
-----------------------------
140,500 Bangkok Bank 1,132,438
-----------------------------
15,000 TelecomAsia Corp. Public Ltd. 328,050
----------------------------- ------------
Total 1,460,488
----------------------------- ------------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
---------------------------------------------------------------
TURKEY--0.6%
---------------------------------------------------
173,300 Turkiye Garanti Bankasi $ 1,213,100
--------------------------------------------------- ------------
UNITED KINGDOM--7.9%
---------------------------------------------------
75,000 BAA 1,024,651
---------------------------------------------------
153,468 Barclays Bank 1,333,216
---------------------------------------------------
253,318 Cable and Wireless 1,768,035
---------------------------------------------------
228,629 English China Clay 1,442,936
---------------------------------------------------
150,000 Guinness 1,042,471
---------------------------------------------------
406,214 Hanson Trust 1,711,660
---------------------------------------------------
548,927 Ladbroke Group 1,397,995
---------------------------------------------------
500,000 Lasmo 835,313
---------------------------------------------------
400,000 London International Group 825,661
---------------------------------------------------
275,000 Royal Insurance 1,204,707
---------------------------------------------------
182,700 Takare 577,890
---------------------------------------------------
77,415 Thorn EMI 1,084,661
---------------------------------------------------
356,231 Tomkins 1,232,578
--------------------------------------------------- ------------
Total 15,481,774
--------------------------------------------------- ------------
VENEZUELA--0.4%
---------------------------------------------------
100,000 Mavesa 837,000
--------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST $156,543,664) 176,116,875
--------------------------------------------------- ------------
PREFERRED STOCKS--1.8%
---------------------------------------------------------------
AUSTRIA --0.7%
---------------------------------------------------
21,830 Creditanstalt Bankverein 1,348,592
--------------------------------------------------- ------------
FINLAND--0.4%
---------------------------------------------------
18,000 Nokia 861,259
--------------------------------------------------- ------------
GERMANY--0.4%
---------------------------------------------------
2,650 Fresenius 777,004
--------------------------------------------------- ------------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
----------- ------------------------------------------------- ------------
<C> <S> <C>
PREFERRED STOCKS--CONTINUED
-------------------------------------------------------------
HONG KONG--0.3%
-------------------------------------------------
500,000 Amoy Properties $ 525,000
------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST 3,511,855
$3,472,581) ------------
-------------------------------------------------
CONVERTIBLE BONDS--0.2%
-------------------------------------------------------------
CHINA--0.2%
-------------------------------------------------
300,000 Guangdong Province, 4.50%, 10/7/98 382,500
------------------------------------------------- ------------
*REPURCHASE AGREEMENT--8.5%
-------------------------------------------------------------
$16,690,000 J. P. Morgan Securities, Inc., 3.24%, dated 16,690,000
11/30/93, due 12/1/93 ------------
-------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST $177,006,245) $196,701,230+
------------------------------------------------- ------------
</TABLE>
The cost for federal tax purposes amounts to $177,430,215. The net unrealized
appreciation of investments amounts to $19,271,015, which is comprised of
$28,178,708 appreciation and $8,907,693 depreciation at November 30, 1993.
*Repurchase agreement is fully collateralized by U.S. government and/or agency
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in joint
accounts with other Federated accounts.
**Non-income producing.
Note: The categories of investments are shown as a percentage of net assets
($195,711,691) at November 30, 1993.
(See Notes which are an integral part of the financial statements)
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------
Investments, in repurchase agreements, at amor-
tized cost and value (Note 2B) $ 16,690,000
- ------------------------------------------------
Investments in other securities, at value 180,011,230
- ------------------------------------------------ -------------
Total investments (Note 2A) (identified cost $177,006,245
and tax cost, $177,430,215) $196,701,230
- --------------------------------------------------------------
Cash 52,401
- --------------------------------------------------------------
Receivable for investments sold 802,618
- --------------------------------------------------------------
Dividends and interest receivable 547,762
- --------------------------------------------------------------
Receivable for capital stock sold 319,774
- -------------------------------------------------------------- ------------
Total assets 198,423,785
- --------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------
Payable for investments purchased 2,251,724
- ------------------------------------------------
Payable for capital stock redeemed 260,471
- ------------------------------------------------
Dividend taxes withheld liability 78,996
- ------------------------------------------------
Accrued expenses and other liabilities 120,903
- ------------------------------------------------ -------------
Total liabilities 2,712,094
- -------------------------------------------------------------- ------------
NET ASSETS for 11,870,007 shares of capital stock outstanding $195,711,691
- -------------------------------------------------------------- ------------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------
Paid-in capital $177,772,100
- --------------------------------------------------------------
Unrealized appreciation of investments 19,694,985
- --------------------------------------------------------------
Accumulated net realized gain on investments 49,588,801
- --------------------------------------------------------------
Distributions paid from capital gains (50,597,175)
- --------------------------------------------------------------
Distributions in excess of net investment income (747,020)
- -------------------------------------------------------------- ------------
Total $195,711,691
- -------------------------------------------------------------- ------------
NET ASSET VALUE,
- --------------------------------------------------------------
Class A ($192,860,132 / 11,696,283 shares of capital stock $16.49
outstanding) ------------
- --------------------------------------------------------------
Class C ($2,851,559 / 173,724 shares of capital stock $16.41
outstanding) ------------
- --------------------------------------------------------------
Computation of Offering Price:
- --------------------------------------------------------------
Class A Offering Price Per Share (100/95.5 of $16.49)* $17.27
- -------------------------------------------------------------- ------------
Computation of Proceeds on Redemption:
- --------------------------------------------------------------
Class A Redemption Proceeds Per Share (99.5/100 of $16.49)** $16.41
- -------------------------------------------------------------- ------------
Class C Redemption Proceeds Per Share (99/100 of $16.41)** $16.25
- -------------------------------------------------------------- ------------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redemption Fee" in the prospectus.
(See Notes which are an integral part of the financial statements)
INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------
Dividends (net of foreign taxes withheld of $102,843) $ 2,003,755
- ---------------------------------------------------------------
Interest 395,850
- --------------------------------------------------------------- -----------
Total investment income 2,399,605
- ---------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------
Investment advisory fee (Note 4) $1,387,617
- ---------------------------------------------------
Administrative personnel and services fee (Note 4) 208,142
- ---------------------------------------------------
Custodian, transfer and dividend disbursing agent
fees and expenses 381,495
- ---------------------------------------------------
Directors' fees 4,780
- ---------------------------------------------------
Auditing fees 35,414
- ---------------------------------------------------
Legal fees 19,075
- ---------------------------------------------------
Capital stock registration costs 35,181
- ---------------------------------------------------
Printing and postage 89,568
- ---------------------------------------------------
Insurance premiums 14,533
- ---------------------------------------------------
Taxes 19,886
- ---------------------------------------------------
Miscellaneous 6,868
- ---------------------------------------------------
Shareholder service fee (Note 4) 36,462
- ---------------------------------------------------
Distribution fee (Note 4) 4,735
- --------------------------------------------------- -----------
Total expenses 2,243,756
- ---------------------------------------------------
Deduct--waiver of investment advisory fee (Note 4) 16,560 2,227,196
- --------------------------------------------------- ----------- -----------
Net investment income 172,409
- --------------------------------------------------------------- -----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------
Realized gain on investment transactions (identified cost ba-
sis)--
- ---------------------------------------------------------------
Net realized gain on investments 5,894,827
- ---------------------------------------------------------------
Unrealized appreciation of investments--
- ---------------------------------------------------------------
Change in unrealized appreciation 14,259,817
- --------------------------------------------------------------- -----------
Net realized and unrealized gain/(loss) on investments 20,154,644
- --------------------------------------------------------------- -----------
Change in net assets resulting from operations $20,327,053
- --------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the financial statements)
INTERNATIONAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1993 1992
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------
OPERATIONS--
- --------------------------------------------------
Net investment income $ 172,409 $ 750,899
- --------------------------------------------------
Net realized gain/(loss) on investment and forward
contract transactions ($5,764,462 net gain and
$4,340,919 net loss, respectively, as computed for
federal tax purposes) 5,894,827 (6,099,858)
- --------------------------------------------------
Change in unrealized appreciation 14,259,817 2,917,308
- -------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 20,327,053 (2,431,651)
- -------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- --------------------------------------------------
Class A Dividends to shareholders from net invest-
ment income (644,382) (608,619)
- --------------------------------------------------
Distributions in excess of net investment income (747,020) --
- -------------------------------------------------- ------------ ------------
Change in net assets resulting from distributions (1,391,402) (608,619)
to shareholders ------------ ------------
- --------------------------------------------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- --------------------------------------------------
Net proceeds from sale of shares 127,561,470 49,389,141
- --------------------------------------------------
Net asset value of shares issued to shareholders
electing to receive payment of dividends in
capital stock 623,074 269,188
- --------------------------------------------------
Cost of shares redeemed (58,345,460) (41,660,594)
- -------------------------------------------------- ------------ ------------
Change in net assets from capital stock transac- 69,839,084 7,997,735
tions ------------ ------------
- --------------------------------------------------
Change in net assets 88,774,735 4,957,465
- --------------------------------------------------
NET ASSETS:
- --------------------------------------------------
Beginning of period 106,936,956 101,979,491
- -------------------------------------------------- ------------ ------------
End of period (including undistributed net
investment $195,711,691 $106,936,956
income of $0 and $471,973 respectively) ------------ ------------
- --------------------------------------------------
</TABLE>
(See Notes which are an integral part of the financial statements)
INTERNATIONAL EQUITY FUND
CLASS A SHARES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984**
- ------------------------ -------- -------- -------- ------- ------- ------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $14.09 $14.44 $14.28 $17.59 $17.34 $19.99 $22.87 $14.62 $ 9.50 $10.00
- ------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------
Net investment income 0.06 0.10 0.11 0.19 0.18 0.19 0.24 0.04 0.09 0.02
- ------------------------
Net realized and
unrealized gain (loss)
on investments 2.53 (0.37) 0.37 (1.16) 1.60 3.27 (0.72) 8.63 5.04 (0.52)
- ------------------------ -------- -------- -------- ------- ------- ------- ------- -------- ------- ------
Total from investment
operations 2.59 (.27) 0.48 (.97) 1.78 3.46 (0.48) 8.67 5.13 (0.50)
- ------------------------
LESS DISTRIBUTIONS
- ------------------------
Dividends to sharehold-
ers from net investment
income (0.06) (0.08) (0.21) (0.20) (0.23) (0.23) (0.05) (0.08) (0.01) --
- ------------------------
Distributions for
shareholders from net
realized gain on
investment transactions -- -- (0.11) (2.14) (1.30) (5.88) (2.35) (0.34) -- --
- ------------------------
Distributions in excess
of net investment
income (0.13)(b)
- ------------------------ -------- -------- -------- ------- ------- ------- ------- -------- ------- ------
TOTAL DISTRIBUTIONS (0.19) (0.08) (0.32) (2.34) (1.53) (6.11) (2.40) (0.42) (0.01) --
- ------------------------ -------- -------- -------- ------- ------- ------- ------- -------- ------- ------
NET ASSET VALUE, END OF $16.49 $14.09 $14.44 $14.28 $17.59 $17.34 $19.99 $22.87 $14.62 $ 9.50
PERIOD -------- -------- -------- ------- ------- ------- ------- -------- ------- ------
- ------------------------
TOTAL RETURN* 18.52% (1.86%) 3.49% (6.72)% 11.55% 24.33% (2.70%) 60.75% 54.07% (2.86)%
- ------------------------
RATIOS TO AVERAGE NET
ASSETS
- ------------------------
Expenses 1.60% 1.57% 1.52% 1.32% 1.01% 1.00% 1.00% 1.00% 1.00% 0.56%(a)
- ------------------------
Net investment income 0.13% 0.69% 0.78% 1.39% 1.04% 1.43% 0.93% 0.34% 1.30% 2.89%(a)
- ------------------------
Expense
waiver/reimbursement(c) 0.01% 0.02% 0.30% 0.25% 0.46% 0.28% 0.17% 0.19% 0.50% 0.74%(a)
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
Net assets, end of pe-
riod
(000 omitted) $192,860 $106,937 $101,980 $82,541 $65,560 $68,922 $85,860 $106,257 $34,209 $6,439
- ------------------------
Portfolio turnover
rate*** 74% 91% 84% 114% 85% 98% 130% 70% 61% 6%
- ------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
** Reflects operations from August 17, 1984 to November 30, 1984. For the
period from the start of business, March 12, 1984 to August 16, 1984, net
investment income aggregating $0.274 per share ($27,229) was distributed to
the Fund's former sub-adviser. Such distribution represented substantially
all of the net income of the Fund prior to the initial public offering of
Fund shares which commenced on August 17, 1984.
***Represents portfolio turnover rate for the entire fund.
(a) Computed on an annualized basis.
(b) Distributions in excess of net investment income for the year ended
November 30, 1993 were a result of certain book and tax timing differences.
These distributions do not represent a return of capital for federal income
tax purposes.
(c) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 4).
(See Notes which are an integral part of the financial statements)
INTERNATIONAL EQUITY FUND
CLASS C SHARES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993**
- ------------------------------------------------------------- ------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.88
- -------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------
Net investment income (0.04)
- -------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.57
- ------------------------------------------------------------- ------
Total from investment operations 1.53
- -------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------
Dividends to shareholders from net investment income --
- -------------------------------------------------------------
Distributions for shareholders from net realized gain on in- --
vestment transactions ------
- -------------------------------------------------------------
TOTAL DISTRIBUTIONS --
- ------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $16.41
- ------------------------------------------------------------- ------
TOTAL RETURN* 10.28%
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------
Expenses 2.57%(b)
- -------------------------------------------------------------
Net investment income (1.10%)(b)
- -------------------------------------------------------------
Expense waiver/reimbursement(a) .01%(b)
- -------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------
Net assets, end of period (000 omitted) $2,852
- -------------------------------------------------------------
Portfolio turnover rate*** 74%
- -------------------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
** Reflects operations for the period from March 31, 1993 (date of initial
public offering) to November 30, 1993.
***Represents portfolio turnover rate for the entire fund.
(a) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the financial statements)
INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1993
- -------------------------------------------------------------------------------
(1) ORGANIZATION
FT Series, Inc. (the "Corporation") is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company with
two portfolios. The financial statements included herein present only those of
the diversified portfolio International Equity Fund (the "Fund"). The Fund
provides two classes of shares ("Class A Shares" and "Class C Shares"). Class
C Shares are identical in all respects to Class A Shares except that Class C
Shares are sold pursuant to a distribution plan adopted in accordance with
Investment Company Act Rule 12b-1. The financial statements of the other
portfolio (International Income Fund) are presented separately. The assets of
each portfolio of FT Series, Inc. are segregated and a shareholder's interest
is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A.INVESTMENTS VALUATIONS--Securities for which market quotations are readily
available are valued at that price which most nearly represents the market
value of the particular security (the last reported sale price, or, if no
sale price is reported, the mean between bid and asked prices, and in the
case of securities traded over-the-counter, the last reported bid price) as
furnished by an independent pricing service. Short-term obligations are
ordinarily valued at the mean between bid and asked prices as furnished by
an independent pricing service. However, short-term obligations with
maturities of sixty days or less are valued at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor on a daily basis, the market value of
each repurchase agreement's underlying securities to ensure the existence
of a proper level of collateral.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed
by the Corporation's adviser to be creditworthy pursuant to guidelines
established by the Directors. Risks may arise from the potential inability
of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
C. INCOME--Dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Interest income includes interest
and discount earned (net or premium) on short-term obligations, and
interest earned on all other debt securities including original issue
discount as
required by the Internal Revenue Code. Dividends to shareholders and capital
gain distributions, if any, are recorded on the ex-dividend date.
The amounts shown in the financial statements for net investment income for
the year ended November 30, 1993 differ from those determined for tax
purposes because of certain timing differences. This resulted in
distributions to shareholders in excess of net investment income which were
recorded for financial statement purposes only. This distribution does not
represent a return of capital for federal income tax purposes.
D. CURRENCY TRANSLATION--Foreign currency amounts are converted into U.S.
dollars at the current rate of such currencies against U.S. dollars as
follows: assets and liabilities at the rate of exchange at the end of the
respective period; purchases and sales of securities and income and expenses
at the rate of exchange prevailing on the dates of such transactions. It is
not practicable to isolate that portion of the results of operations arising
from changes in the exchange rates from the portion arising from changes in
the market prices of investment securities.
E. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code (the "Code") applicable to investment companies and to
distribute to shareholders each year all of its taxable income, including
any net realized gain on investments. Accordingly, no provision for federal
income tax is necessary. However, federal taxes may be imposed on the Fund
upon the disposition of certain investments in Passive Foreign Investment
Companies. At November 30, 1993, the Fund, for federal tax purposes, had a
capital loss carryforward of $1,732,047 which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire in 2000 ($1,732,047). (See Note 2J for
foreign taxes)
F. FUTURES CONTRACTS--The Fund may enter into forward commitments for the
delayed delivery of securities or forward foreign currency exchange
contracts which are based upon financial indices at a fixed price or
exchange rate at a future date. Risks may arise upon entering these
contracts from the potential inability of counterparts to meet the terms of
their contracts and from unanticipated movements in security prices or
foreign exchange rates. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded for financial statement purposes as unrealized until
the contract settlement date. The Fund had no forward foreign currency
exchange contracts outstanding at November 30, 1993.
G.OPTION CONTRACTS--The Fund may write or purchase currency option contracts.
Purchased options are accounted for as Investment Securities. A written
currency option obligates the Fund to deliver (a call), or to receive (a
put) the contract amount of foreign currency upon exercise by the holder of
the option. The value of the option contract is recorded as a liability and
unrealized gain or loss is measured by the difference between the current
value and the premium received. The Fund had no written options outstanding
at November 30, 1993.
H.CONCENTRATION OF CREDIT RISK--The Fund invests in equity and fixed income
securities of non-U.S. issuers. Although the Fund maintains a diversified
investment portfolio, the political or economic developments within a
particular country or region may have an adverse effect on the ability of
domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At November 30, 1993 the portfolio was diversified within the following
industries:
<TABLE>
<S> <C> <C> <C>
Automotive Products 2.7% Industrial Products 9.1%
Banking 10.8 Media/Entertainment 5.9
Brewing 1.4 Metals 1.7
Chemicals 1.0 Other 7.6
Communications 7.5 Pharmaceuticals 1.6
Construction 3.4 Property Development 7.9
Consumer Products 9.1 Pulp/Paper Products 1.3
Diversified Investment Companies 4.8 Repurchase Agreement 8.5
Diversified Products 2.2 Retailing 3.1
Finance/Insurance 8.7 Utilities 1.7
</TABLE>
I.OTHER--Investment transactions are accounted for on the date of the
transaction.
J.FOREIGN TAXES--Withholding taxes on foreign dividends and interest have been
provided for in accordance with the Fund's understanding of the applicable
country's tax rules and rates.
(3) CAPITAL STOCK
At November 30, 1993 there were 500,000,000 shares of $.0001 par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
----------------------
CLASS A SHARES 1993 1992
- ------------------------------------------------------ ---------- ----------
<S> <C> <C>
Shares outstanding, beginning of period 7,590,815 7,061,146
- ------------------------------------------------------
Shares sold 7,840,247 3,282,124
- ------------------------------------------------------
Shares issued to shareholders electing to receive pay-
ment
of dividends in capital stock 45,118 18,279
- ------------------------------------------------------
Shares redeemed (3,779,897) (2,770,734)
- ------------------------------------------------------ ---------- ----------
Shares outstanding, end of period 11,696,283 7,590,815
- ------------------------------------------------------ ---------- ----------
</TABLE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
---------------
CLASS C SHARES* 1993 1992
- --------------------------------------------------------- ------- ------
<S> <C> <C>
Shares outstanding, beginning of period -- --
- ---------------------------------------------------------
Shares sold 177,586 --
- ---------------------------------------------------------
Shares issued to shareholders electing to receive payment
of dividends in capital stock -- --
- ---------------------------------------------------------
Shares redeemed (3,862) --
- --------------------------------------------------------- ------- ------
Shares outstanding, end of period 173,724 --
- --------------------------------------------------------- ------- ------
</TABLE>
* For the period from March 31, 1993 (date of initial public offering) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Fiduciary International Inc., the Fund's investment adviser (the "Adviser")
receives for its services an annual investment advisory fee equal to 1.00% of
the Fund's average daily net assets. The Adviser may voluntarily waive all or a
portion of its fee and may terminate this voluntary waiver at any time. Under
the terms of a sub-advisory agreement between Fiduciary International, Inc. and
Federated Management, (the "Sub-Adviser"), Federated Management will receive an
annual fee from Fiduciary International, Inc. equal to .50 of 1% of average
daily net assets of the Fund. For the year ended November 30, 1993, the Adviser
earned an investment advisory fee of $1,387,617, of which $16,560 was
voluntarily waived. The Sub-Adviser received from the Adviser $693,809 for sub-
advisory services and voluntarily agreed to waiver $8,280.
Administrative personnel and services are provided by Federated Administrative
Services ("FAS") at an annual rate of .15 of 1% on the first $250 million of
average aggregate daily net assets of the Corporation, .125 of 1% on the next
$250 million, .10 of 1% on the next $250 million, and to .075 of 1% on average
aggregate daily net assets in excess of $750 million. For the year ended
November 30, 1993, FAS earned $208,142.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor from the net assets of the
Class C Shares of the Fund, for fees which relate to the distribution and
administration of the Fund's Class C Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Class C Shares, annually, to pay commissions, maintenance fees and to
compensate FSC. For the year ended November 30, 1993, FSC earned $4,735 in
distribution service fees. Certain Officers and Directors of the Corporation
are Officers and Directors of the above corporations.
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to Class A and Class C Shares. The Fund will reimburse Federated
Securities Corp. ("FSC"), from the net assets of the Fund for fees the Fund
paid which relate to administrative support services of the Class A and Class C
Shares. The Services Plan provides that the Fund may incur Shareholder services
expenses up to .25 of 1% of the average daily net assets of the Class A and
Class C Shares. For the year ended November 30, 1993, FSC earned $36,462.
(5) INVESTMENT TRANSACTIONS
Purchases, and sales and maturities, of investments, excluding securities
subject to repurchase agreements, for the year ended November 30, 1993, were as
follows:
- -----------------------------------------------------------------
<TABLE>
<S> <C>
PURCHASES $165,915,275
- -------------------- ------------
SALES AND MATURITIES $ 94,882,395
- -------------------- ------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of FT SERIES, INC., (International
Equity Fund):
We have audited the accompanying statement of assets and liabilities of
International Equity Fund (an investment portfolio of FT Series, Inc., a
Maryland Corporation), including the schedule of portfolio investments, as of
November 30, 1993, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
November 30, 1993, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmation from brokers
and, when replies were not received, we carried out other alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
International Equity Fund, an investment portfolio of FT Series, Inc., as of
November 30, 1993, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended;
and financial highlights for each of the periods presented in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
January 21, 1994
DIRECTORS OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue
John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Glen R. Johnson
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Richard B. Fisher
Peter E. Madden Vice President
Gregor F. Meyer Edward C. Gonzales
Wesley W. Posvar Vice President and Treasurer
Marjorie P. Smuts Joseph S. Machi
Vice President and Assistant Treasurer
John W. McGonigle
Vice President and Secretary
John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
Jeannette Fisher-Garber
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are they
insuredby the federal government or any of its agencies. Investment in these
sharesinvolves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
precededor accompanied by the Fund's prospectus, which contains facts
concerning itsobjective and policies, management fees, expenses and other
information.
Appendix A
The graphic presentation displayed here consists of a boxed
legend in the bottom center indicating the components of the
corresponding line graph. International Income Fund Class A
Shares is represented by a solid black line. The J.P.
Morgan Global Government Bond (ex-U.S.) Index (the "Index")
is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the Index.
The X axis of the graph represents time and the Y axis
represents the value of the investment. The ending value of
the Fund is $13,418, and the ending value of the Index is
$13,960. There is also a box in the upper left quadrant of
the graphic presentation which indicates the Average Annual
Total Return for the lifetime of the Fund, and for the one
year period ended November 30, 1993. The average annual
return for the one year period was 17.46%. The average
annual return for the life of the Fund (since June 11, 1991)
was 12.66%.
Appendix B
The graphic presentation displayed here consists of a boxed
legend in the bottom center indicating the components of the
corresponding line graph. International Income Fund Class C
Shares is represented by a solid black line. The J.P.
Morgan Global Government Bond (ex-U.S.) Index (the "Index")
is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the Index.
The X axis of the graph represents time and the Y axis
represents the value of the investment. The ending value of
the Fund is $11,866, and the ending value of the Index is
$10,682. There is also a box in the upper left quadrant of
the graphic presentation which indicates the Average Annual
Total Return for the lifetime of the Fund (since March 31,
1993) which was 18.66%.
Appendix C
The graphic presentation displayed here consists of a boxed
legend in the bottom center indicating the components of the
corresponding line graph. International Equity Fund Class A
Shares is represented by a solid black line. The Morgan
Stanley Europe-Australia-Far East Index (the "Index") is
represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the Index.
The X axis of the graph represents time and the Y axis
represents the value of the investment. The ending value of
the Fund is $34,814, and the ending value of the Index is
$39,090. There is also a box in the lower right quadrant of
the graphic presentation which indicates the Average Annual
Total Return for the lifetime of the Fund, and for the one
year and five year periods ended November 30, 1993. The
average annual return for the one year period was 13.22%.
The average annual return for the five year period was
3.65%. The average annual return for the life of the Fund
was 14.44%.
Appendix D
The graphic presentation displayed here consists of a boxed
legend in the bottom center indicating the components of the
corresponding line graph. International Equity Fund Class C
Shares is represented by a solid black line. The Morgan
Stanley Europe-Australia-Far East Index (the "Index") is
represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the Index.
The X axis of the graph represents time and the Y axis
represents the value of the investment. The ending value of
the Fund is $10,927, and the ending value of the Index is
$10,930. There is also a box in the upper left quadrant of
the graphic presentation which indicates the Average Annual
Total Return of the Fund since March 31, 1993, the Fund's
start of business, which was 9.27%.
Appendix E
The graphic presentation displayed here consists of a
mountain chart displaying the return of the International
Equity Fund if all dividends and capital gains distributed
since August 17, 1984 (the Fund's start of business) were
reinvested. The Initial Net Asset Value is shown as a black
area on the far right of the chart. The principal value of
the investment is shown as a gray region of the chart, and
the capital gains and reinvested dividends are shown as a
white area of the chart. The ending value with capital
gains and dividends reinvested as of November 30, 1993, was
$34,817.
Appendix F
The graphic presentation here consists of a bar graph
displaying the total value of a hypothetical account into
which $1,000 dollars was invested annually since the start
of business of the Fund in 1984. Each bar of the chart
represents the value of the account at the end of each year
since 1984. In each bar there is a gray area representing
the principal value of the account, and a white area
representing the value of capital gains and reinvested
dividends. The total value of the account as of November
30, 1993 was $15,646.
