President's Message
- -------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to
Shareholders for International Equity Fund (the "Fund"),
which covers the six-month period ended May 31, 1994. You
will find its design and investment charts make the
report easier to read and more informative. As is our
custom, the report begins with an interview with Margaret
Lindsay, Vice President of Fiduciary International, Inc.
and the Fund's Portfolio Manager. The report also
includes a complete listing of the Fund's holdings and
its financial statements. In addition, Financial
Highlights tables have been included for Class A Shares
and Class C Shares.
Over the period, the Fund's manager maintained a
traditionally high level of diversification within the
portfolio. As of May 31, 1994, holdings were spread
across 26 countries and more than 120 companies. The
Fund's largest holdings in the top 10 countries, in U.S.
dollar value, were:
<TABLE>
<S> <C>
Daiwa Securities (Japan) $3,952,833
Legrand (France) $2,465,571
Volvo (Sweden) $3,990,528
BBC Brown Boveri (Switzerland) $2,535,256
Reuters Holdings (United Kingdom) $2,321,698
Mannesmann AG (Germany) $2,647,880
Sun Hung Kai Properties (Hong Kong) $1,938,390
KNP BT (KON) NV (Netherlands) $2,670,907
Empresas La Moderna S.A. de C.V. ADR (Mexico) $1,836,250
Amcor (Australia) $2,192,690
</TABLE>
The Fund's positive performance during the
period--compared to the anemic performance of U.S.
stocks--shows why it is wise to diversify your stock
investments internationally, to countries whose markets
perform differently than our own.
The Fund's net asset value rose from $16.49 to $18.84
during the last six months. As a result, the Fund
achieved a total return of more than 14%.* The Fund also
ended the period with significantly higher
assets--totaling more than $248.7 million--compared to
its $195.7 million in assets at the beginning of the
period.
We're pleased to inform you of the Fund's positive
performance, and we look forward to communicating with
you about future developments. As always, we welcome your
comments and suggestions.
Sincerely,
Glen R. Johnson
President
July 6, 1994
* Performance quoted represents past performance.
Investment return and principal value will fluctuate,
so that an investor's shares, when redeemed, may be
more or less than their original cost.
Q_ WHAT GENERAL DEVELOPMENTS OCCURRED IN THE
INTERNATIONAL EQUITY MARKETS DURING THE PAST SIX
MONTHS?
A_ Following a strong December and a good start to
1994, many of the world's equity markets
experienced a correction in
sympathy with the reversal in the U.S. and
European bond markets.
Japan was one of the few markets to maintain the gains
-----
made early in the year. The Japanese rally was initially
sparked by the passage of an important political reform
bill in January. Foreign and domestic investors continued
to be enthusiastic buyers during much of the period under
review, as signs of an economic recovery became
increasingly evident. The difficulties encountered in the
U.S.-Japanese trade talks, now mostly resolved, gave the
market only momentary pause. Over the course of these
developments, the Japanese yen strengthened, adding
significantly to returns.
Continental Europe enjoyed the support of declining
------------------
interest rates and an improving earnings outlook early in
the year. However, bond market weakness in recent months
has led to profit taking and a correction in most
European equity markets. The U.K., which is ahead in the
European cycle and now well into a second year of
economic recovery, had a similar reversal.
The Far East experienced profit taking early in the year
------------
following the strong performance in 1993. Countries in
the region whose currencies are linked to the U.S. dollar
suffered further setbacks when U.S. interest rates rose.
The absence of new commitments on the part of foreign
investors also contributed to the decline, as many of the
markets are small and relatively less liquid.
Latin America moved ahead at the close of 1993, with the
-------------
successful passage of the North American Free Trade
Agreement (NAFTA) spurring renewed interest in the
region. Subsequently, adverse political developments in
Mexico and uncertainty over upcoming elections in several
other countries caused investors to take profits and
return to the sidelines.
- --------------------------------------------------------------------------------
Q_ WHAT OVERALL IMPACT DID THAT ENVIRONMENT HAVE ON
THE PERFORMANCE OF INTERNATIONAL EQUITY FUND?
A_ For the six-month period ended May 31, 1994, the
total return for Class A Shares was 14.70% (9.52%
after taking into
account the sales charge) and the total return
for Class C
Shares was 14.19% (13.22% after taking into account the
contingent deferred sales charge) versus the Europe,
Australia and Far East Index (EAFE), which rose by
14.21%.* Although the Fund continues to have a
substantial 30% commitment to Japan, which presently
accounts for 45% of EAFE, the underweighting resulted in
underperformance relative to this benchmark. On the other
hand, the Fund's Japanese exposure was significantly
higher than other similarly managed international funds
which contributed to relative outperformance against the
Lipper International Funds Category Average, which rose
10.56%, during the period.
Q_ WHAT WORLD REGIONS SEEM TO OFFER CONTINUED OR NEW
OPPORTUNITIES?
A_ We believe that opportunities can be found in
Europe and Japan, as well as parts of the Far
East which have returned to
more compelling valuations.
The European economies appear to be past the trough of
the current cycle with a recovery in place that is
expected to last over the next several years. Incoming
orders are rising and industrial production has bottomed.
Inflationary pressures remain conspicuously absent,
particularly in the Deutsche Mark bloc. We believe that
interest rates have further scope to decline. Company
earnings results have generally been ahead of
expectations, and forecasts are being revised upwards.
Restructuring is already leading to beneficial effects,
despite a still difficult economic environment.
The underlying economic fundamentals are now positive for
the Japanese equity market. Although we are not looking
for a sharp turnaround in the economy, earnings growth is
expected to be significant, because last year's levels
were highly depressed. Inflation is below 1%.
* Performance quoted represents past performance.
Investment returns and principal value will fluctuate,
so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Unlike a
mutual fund, the EAFE Index is unmanaged.
- --------------------------------------------------------------------------------
Although the strong Japanese yen has been detrimental to
exports, any weakening of the currency is expected to be
a boon to the market.
With the correction experienced during the first half of
1994, the Far Eastern markets again appear attractive.
The region's economic growth continues to be buoyant,
bolstered by increasing intraregional trade. Earnings
growth is expected to continue on a strong upward trend.
The interest rate outlook has appeared to stabilize.
Regional issues such as China's recently granted Most
Favored Nation (MFN) trading status are no longer
concerns, although other geopolitical matters, such as
the North Korean nuclear threat, remain as potential
destabilizing factors.
Q_ WHICH WORLD REGIONS REQUIRE CAUTION AND WHY?
A_ Countries in the Latin American region, although
offering longer term economic growth, could
continue to experience
volatility as political events unfold during the
course of the
year. Elsewhere in Europe, concerns over the prospects of
rising inflation in the U.K. may keep investors cautious.
Relative to other Continental-European markets, U.K.
corporate earnings growth will show relatively less
acceleration as the domestic recovery is already well
underway, with the remaining caveat being the consumer's
ability to absorb 1994 tax increases.
- --------------------------------------------------------------------------------
Q_ WHAT ADJUSTMENTS HAVE YOU MADE IN YOUR STRATEGY
FOR THE FUND BASED ON YOUR OUTLOOK FOR THE MAJOR
INTERNATIONAL
EQUITY MARKETS?
A_ The Fund's asset allocation is based, to a large
extent, on
stock selection. As opportunities present
themselves, the
exposure to Continental Europe and Japan is
likely to increase. The focus in Europe will
continue to be on sectors and stocks with sustainable
earnings recovery and the support of significant
restructuring programs. This approach favors markets such
as
Germany, Sweden and also France, which has recently
experienced a pullback to more attractive valuation
levels.
In Japan, the emphasis will increasingly be on
economically sensitive stocks in areas such as consumer
electronics, retailing and machinery. In the Far East, we
are finding particularly attractive opportunities in Hong
Kong. Singapore also offers companies with diversified
and visible earnings growth. Resource markets such as
Australia and New Zealand, now experiencing a recovery,
are also likely to perform relatively well.
Exposure to the U.K. will likely remain underweight
although the Fund has exposure to several attractive
sectors such as media stocks. We believe it is too early
to add substantial exposure to Latin America. Mexico is
likely to continue to represent less than half the
overall exposure to this region as new opportunities,
particularly privatizations, become available in other
markets with greater economic and political stability.
International Equity Fund
Portfolio Update
- --------------------------------------------------------------------------------
Top Ten Equity Holdings
<TABLE>
<CAPTION>
Companies Percentages
<S> <C>
Volvo 1.6%
Daiwa Securities 1.6%
DDI Corp. Murata Manufacturing 1.6%
NEC Corp. 1.5%
Japan Securities Finance 1.5%
Mazda Motor Corp. 1.4%
Mitsubishi Heavy Industries 1.3%
Tokio Marine & Fire 1.3%
Nippon Steel 1.2%
Kyocera Corp. 1.2%
</TABLE>
Industry Diversification
<TABLE>
<CAPTION>
Companies Amounts
<S> <C>
Daiwa Securities (Japan) $3,952,833
Legrand (France) 2,465,571
Volvo (Sweden) 3,990,528
BBC Brown Boveri (Switzerland) 2,535,256
Reuters Holdings (United Kingdom) 2,321,698
Mannesmann AG (Germany) 2,647,880
Sun Hung Kai Properties 1,938,390
(Hong Kong)
KNP BT (KON) NV (Netherlands) 2,670,907
Empresas La Moderna 1,836,250
S.A. de C.V. ADR (Mexico)
Amcor (Australia) 2,192,690
</TABLE>
Country Diversification
as of May 31, 1994
<TABLE>
<CAPTION>
Countries Percentages
<S> <C>
Japan 29.5%
France 7.5%
Sweden 6.4%
Switzerland 6.0%
United Kingdom 5.6%
Germany 5.5%
Hong Kong 5.3%
Netherlands 4.6%
Mexico 3.7%
Australia 3.4%
Ireland 2.3%
Chile 2.2%
Malaysia 2.2%
Singapore 2.1%
Korea 2.0%
Argentina 1.7%
New Zealand 1.7%
Brazil 0.9%
Philippines 0.8%
Indonesia 0.6%
Norway 0.5%
Thailand 0.5%
Taiwan 0.4%
Venezuela 0.4%
China 0.3%
</TABLE>
International Equity Fund
Serving a Wide Range of Investors
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND APPEALS TO A BROAD RANGE OF INVESTORS SEEKING TO
OBTAIN TOTAL RETURN ON ASSETS FROM A COMBINATION OF LONG-TERM CAPITAL GROWTH AND
INCOME.
The Fund's diversified portfolio invests primarily in equity securities of
non-U.S. issuers diversified across 26 countries. Fund shares are not
guaranteed, and the value of your investment may fluctuate in value. Mutual
funds involve risk, including possible loss of principal.
Some of the Fund's Major Shareholder Groups
<TABLE>
<S> <C>
IRAs $16,723,553
Individuals and Joint Tenants 11,278,302
Keogh/Profit-Sharing 7,630,299
Trusts 2,689,477
Corporations 1,862,048
Pension Plans 1,394,737
Custodians (under Uniform Gift to Minors Act) 776,342
Churches/Religious Organizations 246,141
Clubs/Fraternal Organizations 126,147
</TABLE>
International Equity Fund -- Hypothetical Investor Profile:
Investing for Long-Term Growth
- --------------------------------------------------------------------------------
Dan and Gigi Hardwick are a two-income suburban couple who, like many others,
want to be able to afford their present lifestyle after they retire.
\They decided an international stock fund, though possibly volatile in the short
term, offered excellent opportunities for long-term growth. They invested
$10,000 in International Equity Fund on 8/17/84 and--to take advantage of dollar
cost averaging--have invested $5,000 every August since.
By 5/31/94, they were pleased to see that their $55,000 investment had grown to
$109,699 for an average annual total return of 11.79%.* Gigi's already picturing
a long Mediterranean cruise to celebrate their retirement.
The couple is fictional, but the figures are real.
Graphic representation "A" omitted. See Appendix.
This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder.
* 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.
Two Ways You May Seek to Invest for Success in
International Equity Fund
-------------------------------------------------------------------------------
INITIAL INVESTMENT:
A $10,000 INVESTMENT (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$39,936.
If you had invested $10,000 in the Class A Shares of International Equity Fund
on
8/17/84, reinvested dividends and capital gains, and didn't redeem any shares,
your account would have been worth $39,936 on
5/31/94. You would have earned a 15.19%* average annual total return for the
10-year investment life span.
One key to investing wisely is to reinvest all distributions in Fund shares.
This increases the number of shares on which you can earn future dividends,
and you gain the benefit of compounding.
As of 6/30/94, the Class A Shares' average annual one-year, five-year and
since inception (8/17/84) total returns were 16.43%, 6.07%, and 14.97%,
respectively. Class C Shares' average annual one-year and since inception
(3/31/93) total returns were 19.73% and 20.34%, respectively.
Graphic representation "B" omitted. See Appendix.
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.5%
sales charge applicable to an initial investment in Class A Shares.
Data quoted represent past performance and do not guarantee 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.
International Equity Fund
- --------------------------------------------------------------------------------
Investing One Step at a Time:
$1,000 INVESTED EACH YEAR FOR 10 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $17,946.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
International Equity Fund on 8/17/84, reinvested your dividends and capital
gains and didn't redeem any shares, you would have invested only $10,000, but
your account would have reached a total value of $17,946 by 5/31/94. You would
have earned an average annual total return of 10.79%.*
A practical investment plan helps you pursue long-term capital growth through a
diversified portfolio primarily invested in equity securities of non-U.S.
issuers. 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!
Graphic representation "C" omitted. See Appendix.
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor. Because
such a plan involves continuous investment, regardless of changing price
levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
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.
International Equity Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1994
(unaudited)
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--96.1%
- -------------------------------------------------------------------------------------------------
ARGENTINA--1.7%
-----------------------------------------------------------------------------------
31,000 Central Puerto ADR $ 1,250,063
-----------------------------------------------------------------------------------
106,609 Ciadea 1,580,816
-----------------------------------------------------------------------------------
20,000 Telefonica de Argentina ADR 1,442,500
----------------------------------------------------------------------------------- --------------
Total 4,273,379
----------------------------------------------------------------------------------- --------------
AUSTRALIA--3.4%
-----------------------------------------------------------------------------------
309,028 Amcor Limited 2,192,690
-----------------------------------------------------------------------------------
148,000 Broken Hill Proprietary 2,024,389
-----------------------------------------------------------------------------------
166,502 National Australia Bank 1,451,581
-----------------------------------------------------------------------------------
220,788 News Corp. 1,472,137
-----------------------------------------------------------------------------------
266,000 Plutonic Resources 1,294,881
----------------------------------------------------------------------------------- --------------
Total 8,435,678
----------------------------------------------------------------------------------- --------------
BRAZIL--0.9%
-----------------------------------------------------------------------------------
105,000 Aracruz Celulose ADR** 1,023,750
-----------------------------------------------------------------------------------
30,000 Telecomunicacoes Brasileras ADR 1,179,048
----------------------------------------------------------------------------------- --------------
Total 2,202,798
----------------------------------------------------------------------------------- --------------
CHILE--2.2%
-----------------------------------------------------------------------------------
50,000 Compania Cervecerias Unidas ADR** 1,212,500
-----------------------------------------------------------------------------------
20,000 Compania de Telefonos de Chile ADR 1,820,000
-----------------------------------------------------------------------------------
55,000 Cristalerias de Chile ADR 1,113,750
-----------------------------------------------------------------------------------
40,000 Madeco ADR 1,190,000
----------------------------------------------------------------------------------- --------------
Total 5,336,250
----------------------------------------------------------------------------------- --------------
CHINA--0.3%
-----------------------------------------------------------------------------------
820,000 Tsingtao Brewery 764,173
----------------------------------------------------------------------------------- --------------
FRANCE--7.5%
-----------------------------------------------------------------------------------
7,150 Carrefour 2,372,110
-----------------------------------------------------------------------------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FRANCE--CONTINUED
-----------------------------------------------------------------------------------
11,473 Cetelem $ 2,356,782
-----------------------------------------------------------------------------------
12,800 Fives Lille 1,348,805
-----------------------------------------------------------------------------------
24,300 Imetal 2,439,716
-----------------------------------------------------------------------------------
30,480 Lafarge Coppee 2,226,083
-----------------------------------------------------------------------------------
2,220 Legrand 2,465,571
-----------------------------------------------------------------------------------
5,800 Sommer Allibert 1,958,241
-----------------------------------------------------------------------------------
50,500 Valeo 2,225,500
-----------------------------------------------------------------------------------
23,000 Vallourec 1,187,295
----------------------------------------------------------------------------------- --------------
Total 18,580,103
----------------------------------------------------------------------------------- --------------
GERMANY--5.5%
-----------------------------------------------------------------------------------
3,580 Buderus 1,347,990
-----------------------------------------------------------------------------------
7,600 Degussa 2,317,017
-----------------------------------------------------------------------------------
19,600 Krupp Fr Ag Hoesch 2,529,455
-----------------------------------------------------------------------------------
10,000 Mannesmann 2,647,880
-----------------------------------------------------------------------------------
9,035 Preussag 2,535,024
-----------------------------------------------------------------------------------
7,700 Veba 2,338,151
----------------------------------------------------------------------------------- --------------
Total 13,715,517
----------------------------------------------------------------------------------- --------------
HONG KONG--5.3%
-----------------------------------------------------------------------------------
232,000 China Light & Power 1,291,224
-----------------------------------------------------------------------------------
300,000 CITIC Pacific 869,790
-----------------------------------------------------------------------------------
71,100 Consolidated Electric Power Asia ADR 1,177,978
-----------------------------------------------------------------------------------
148,085 HSBC Holdings 1,705,872
-----------------------------------------------------------------------------------
495,000 Hong Kong Land Holdings 1,447,968
-----------------------------------------------------------------------------------
364,000 Hutchison Whampoa 1,601,864
-----------------------------------------------------------------------------------
1,750,000 Oriental Press Group 1,347,720
-----------------------------------------------------------------------------------
288,000 Sun Hung Kai Properties 1,938,390
-----------------------------------------------------------------------------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
HONG KONG--CONTINUED
-----------------------------------------------------------------------------------
225,000 Swire Pacific** $ 1,747,346
----------------------------------------------------------------------------------- --------------
Total 13,128,152
----------------------------------------------------------------------------------- --------------
INDONESIA--0.6%
-----------------------------------------------------------------------------------
568,400 Lippo Bank 1,470,736
----------------------------------------------------------------------------------- --------------
IRELAND--2.3%
-----------------------------------------------------------------------------------
451,893 Bank of Ireland 1,761,421
-----------------------------------------------------------------------------------
400,000 CRH 2,084,907
-----------------------------------------------------------------------------------
600,000 Irish Life 1,767,638
----------------------------------------------------------------------------------- --------------
Total 5,613,966
----------------------------------------------------------------------------------- --------------
JAPAN--29.5%
-----------------------------------------------------------------------------------
99,000 Canon Sales 3,119,301
-----------------------------------------------------------------------------------
180,000 Canon 2,990,404
-----------------------------------------------------------------------------------
230,000 Daiwa Securities 3,952,833
-----------------------------------------------------------------------------------
51 DDI 3,866,329
-----------------------------------------------------------------------------------
48,000 Ito Yokado 2,465,651
-----------------------------------------------------------------------------------
200,000 Japan Securities Finance 3,609,109
-----------------------------------------------------------------------------------
230,000 Kamigumi 2,766,983
-----------------------------------------------------------------------------------
45,000 Kyocera 2,904,473
-----------------------------------------------------------------------------------
40,000 Mabuchi Motor 2,891,106
-----------------------------------------------------------------------------------
650,000 Mazda Motor 3,556,117
-----------------------------------------------------------------------------------
105,000 Mitsubishi Bank 2,807,084
-----------------------------------------------------------------------------------
230,000 Mitsubishi Estate 2,723,063
-----------------------------------------------------------------------------------
450,000 Mitsubishi Heavy Industries 3,295,460
-----------------------------------------------------------------------------------
170,000 Mitsubishi Trust & Banking 2,743,114
-----------------------------------------------------------------------------------
110,000 Mitsumi Electric 2,058,529
-----------------------------------------------------------------------------------
60,000 Murata Manufacturing 2,681,052
-----------------------------------------------------------------------------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
JAPAN--CONTINUED
-----------------------------------------------------------------------------------
325,000 NEC $ 3,692,653
-----------------------------------------------------------------------------------
810,000 Nippon Steel 2,907,910
-----------------------------------------------------------------------------------
340 Nippon Telephone & Telegraph 2,808,039
-----------------------------------------------------------------------------------
105,000 Sanwa Bank 2,285,769
-----------------------------------------------------------------------------------
130,000 Sharp 2,234,210
-----------------------------------------------------------------------------------
60,000 Shimachu 2,549,291
-----------------------------------------------------------------------------------
40,000 Sony 2,375,519
-----------------------------------------------------------------------------------
200,000 Sumitomo Electric Industries 3,036,234
-----------------------------------------------------------------------------------
240,000 Tokio Marine & Fire 3,139,352
----------------------------------------------------------------------------------- --------------
Total 73,459,585
----------------------------------------------------------------------------------- --------------
KOREA--2.0%
-----------------------------------------------------------------------------------
46,500 Korea Asia Fund** 999,750
-----------------------------------------------------------------------------------
35,500 Korea Electric Power 1,211,379
-----------------------------------------------------------------------------------
24,202 Samsung Electronics GDR 1,567,080
-----------------------------------------------------------------------------------
23,000 Samsung Heavy Industries 1,192,952
----------------------------------------------------------------------------------- --------------
Total 4,971,161
----------------------------------------------------------------------------------- --------------
MALAYSIA--2.2%
-----------------------------------------------------------------------------------
126,000 Aokam Perdana 937,856
-----------------------------------------------------------------------------------
220,000 Genting Berhad 2,637,993
-----------------------------------------------------------------------------------
180,000 Malayan Banking 1,046,714
-----------------------------------------------------------------------------------
124,000 Telekom Malaysia 913,355
----------------------------------------------------------------------------------- --------------
Total 5,535,918
----------------------------------------------------------------------------------- --------------
MEXICO--3.7%
-----------------------------------------------------------------------------------
168,750 Cemex 1,247,084
-----------------------------------------------------------------------------------
150,000 Elektra 1,453,943
-----------------------------------------------------------------------------------
65,000 Empresas La Moderna ADR 1,836,250
-----------------------------------------------------------------------------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
MEXICO--CONTINUED
-----------------------------------------------------------------------------------
253,000 Farmacias Benavides $ 1,264,238
-----------------------------------------------------------------------------------
1,133,000 Grupo Financiero Probursa 948,145
-----------------------------------------------------------------------------------
45,000 Grupo Televisa L** 1,307,194
-----------------------------------------------------------------------------------
400,000 Telefonos de Mexico 1,240,216
----------------------------------------------------------------------------------- --------------
Total 9,297,070
----------------------------------------------------------------------------------- --------------
NETHERLANDS--4.6%
-----------------------------------------------------------------------------------
21,000 Akzo Nobel 2,364,660
-----------------------------------------------------------------------------------
50,750 Boskalis Westminster 1,195,120
-----------------------------------------------------------------------------------
28,900 Elsevier 2,623,717
-----------------------------------------------------------------------------------
103,000 KNP BT 2,670,907
-----------------------------------------------------------------------------------
62,000 Polygram 2,574,383
----------------------------------------------------------------------------------- --------------
Total 11,428,787
----------------------------------------------------------------------------------- --------------
NEW ZEALAND--1.7%
-----------------------------------------------------------------------------------
1,174,274 Carter Holt Harvey 2,716,739
-----------------------------------------------------------------------------------
1,141,881 Skellerup 1,595,943
----------------------------------------------------------------------------------- --------------
Total 4,312,682
----------------------------------------------------------------------------------- --------------
NORWAY--0.5%
-----------------------------------------------------------------------------------
90,000 Helikopter Service 1,185,355
----------------------------------------------------------------------------------- --------------
PHILIPPINES--0.8%
-----------------------------------------------------------------------------------
2,612,000 JG Summit Holdings 971,003
-----------------------------------------------------------------------------------
16,000 Philippine Long Distance 1,132,000
----------------------------------------------------------------------------------- --------------
Total 2,103,003
----------------------------------------------------------------------------------- --------------
SINGAPORE--2.1%
-----------------------------------------------------------------------------------
260,000 City Developments 1,330,075
-----------------------------------------------------------------------------------
202,750 Development Bank of Singapore 2,140,469
-----------------------------------------------------------------------------------
69,000 Fraser & Neave 827,370
-----------------------------------------------------------------------------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
SINGAPORE--CONTINUED
-----------------------------------------------------------------------------------
100,000 Sembawang Shipyard $ 834,148
----------------------------------------------------------------------------------- --------------
Total 5,132,062
----------------------------------------------------------------------------------- --------------
SPAIN--0.0%
-----------------------------------------------------------------------------------
1,125 Banco Pastor 51,278
----------------------------------------------------------------------------------- --------------
SWEDEN--6.4%
-----------------------------------------------------------------------------------
50,000 AutoLiv 1,153,107
-----------------------------------------------------------------------------------
258,000 Bylock and Nordsjofr 2,314,524
-----------------------------------------------------------------------------------
107,000 Hoganas 1,439,849
-----------------------------------------------------------------------------------
162,150 Sandvik 2,431,346
-----------------------------------------------------------------------------------
340,000 Skandanaviska Enskilda Banken 2,200,464
-----------------------------------------------------------------------------------
176,500 Stena Line 1,198,849
-----------------------------------------------------------------------------------
56,750 Svedala Industries 1,243,672
-----------------------------------------------------------------------------------
43,127 Volvo 3,990,528
----------------------------------------------------------------------------------- --------------
Total 15,972,339
----------------------------------------------------------------------------------- --------------
SWITZERLAND--6.0%
-----------------------------------------------------------------------------------
1,265 Baloise Holdings 2,229,968
-----------------------------------------------------------------------------------
2,825 BBC Brown Boveri 2,535,256
-----------------------------------------------------------------------------------
2,080 Landis & Gyr 1,311,111
-----------------------------------------------------------------------------------
980 Reiseburo Kuoni 1,570,513
-----------------------------------------------------------------------------------
1,045 Rieter Holdings 1,272,756
-----------------------------------------------------------------------------------
525 Roche Holding 2,509,081
-----------------------------------------------------------------------------------
803 SBSI Holding 1,158,173
-----------------------------------------------------------------------------------
3,475 Sulzer 2,239,939
----------------------------------------------------------------------------------- --------------
Total 14,826,797
----------------------------------------------------------------------------------- --------------
TAIWAN--0.4%
-----------------------------------------------------------------------------------
79,000 Tuntex Distinctive GDR 1,017,125
----------------------------------------------------------------------------------- --------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
THAILAND--0.5%
-----------------------------------------------------------------------------------
140,500 Bangkok Bank $ 1,181,984
----------------------------------------------------------------------------------- --------------
UNITED KINGDOM--5.6%
-----------------------------------------------------------------------------------
125,000 BAA 1,741,198
-----------------------------------------------------------------------------------
351,339 Cable and Wireless 2,311,650
-----------------------------------------------------------------------------------
303,629 English China Clay 1,944,987
-----------------------------------------------------------------------------------
220,000 Guinness 1,583,774
-----------------------------------------------------------------------------------
514,703 Hanson Trust 1,975,140
-----------------------------------------------------------------------------------
334,800 Reuters Holdings 2,321,698
-----------------------------------------------------------------------------------
138,609 Thorn Emi 2,149,602
----------------------------------------------------------------------------------- --------------
Total 14,028,049
----------------------------------------------------------------------------------- --------------
VENEZUELA--0.4%
-----------------------------------------------------------------------------------
133,333 Mavesa ADR 896,211
----------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $202,058,586) 238,920,158
----------------------------------------------------------------------------------- --------------
PREFERRED STOCKS--1.7%
- -------------------------------------------------------------------------------------------------
FINLAND--1.0%
-----------------------------------------------------------------------------------
34,350 Nokia 2,540,336
----------------------------------------------------------------------------------- --------------
GERMANY--0.7%
-----------------------------------------------------------------------------------
4,629 Fresenius 1,667,070
----------------------------------------------------------------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $3,016,935) 4,207,406
----------------------------------------------------------------------------------- --------------
TOTAL LONG-TERM SECURITIES (IDENTIFIED COST $205,075,521) 243,127,564
----------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENT--2.2%
- -------------------------------------------------------------------------------------------------
$ 5,430,000 J.P. Morgan Securities, Inc., 4.27%, dated 5/31/94, due 6/1/94 5,430,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $210,505,521) $ 248,557,564\
----------------------------------------------------------------------------------- --------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
\The cost for federal tax purposes amounts to $210,505,521. The net unrealized
appreciation of investments amounts to $38,052,043, which is comprised of
$42,315,458 appreciation and $4,263,415 depreciation at May 31, 1994.
*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.
The following abbreviations are used in this portfolio.
ADR--American Depository Receipts
GDR--Global Depository Receipts
Note: The categories of investments are shown as a percentage of net assets
($248,669,199) at May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1994
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost, $210,505,521)
(Notes 2A and 2B) $248,557,564
- ---------------------------------------------------------------------------------------------------
Cash 1,772,546
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 2,517,078
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 928,976
- ---------------------------------------------------------------------------------------------------
Receivable for capital stock sold 809,408
- --------------------------------------------------------------------------------------------------- -----------
Total assets 254,585,572
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased $5,396,889
- ---------------------------------------------------------------------------------------
Payable for capital stock redeemed 272,535
- ---------------------------------------------------------------------------------------
Dividend taxes withheld liability 119,951
- ---------------------------------------------------------------------------------------
Payable to shareholder 21,949
- ---------------------------------------------------------------------------------------
Accrued expenses and other liabilities 105,049
- --------------------------------------------------------------------------------------- ----------
Total liabilities 5,916,373
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 13,199,655 shares of capital stock outstanding $248,669,199
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $203,272,940
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and translation of assets
and liabilities in foreign currencies 38,052,043
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and foreign currency transactions 59,318,450
- ---------------------------------------------------------------------------------------------------
Distributions paid from capital gains (50,597,175)
- ---------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (Note 2C) (1,377,059)
- --------------------------------------------------------------------------------------------------- -----------
Total net assets $248,669,199
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE:
- ---------------------------------------------------------------------------------------------------
Class A Shares ($241,925,603 / 12,838,972 shares of capital stock outstanding) $18.84
- --------------------------------------------------------------------------------------------------- -----------
Class C Shares ($6,743,596 / 360,683 shares of capital stock outstanding) $18.70
- --------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares (100/95.5 of $18.84)* $19.73
- --------------------------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class C Shares (99/100 of $18.70)** $18.51
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "What Shares Cost" in the prospectus.
**Under certain limited conditions, a contingent deferred sales charge of 1.00%
is imposed. See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended May 31, 1994
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividend income (net of foreign taxes withheld of $196,265) $ 1,755,474
- ----------------------------------------------------------------------------------------------------
Interest income 230,727
- ---------------------------------------------------------------------------------------------------- ------------
Total income (Note 2C) 1,986,201
- ---------------------------------------------------------------------------------------------------- ------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 1,178,568
- ---------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 175,808
- ---------------------------------------------------------------------------------------
Custodian and portfolio accounting services and expenses 245,776
- ---------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses (Note 4) 89,434
- ---------------------------------------------------------------------------------------
Directors' fees 2,468
- ---------------------------------------------------------------------------------------
Auditing fees 37,548
- ---------------------------------------------------------------------------------------
Legal fees 12,800
- ---------------------------------------------------------------------------------------
Capital stock registration costs 42,663
- ---------------------------------------------------------------------------------------
Printing and postage 50,875
- ---------------------------------------------------------------------------------------
Insurance premiums 930
- ---------------------------------------------------------------------------------------
Taxes 16,650
- ---------------------------------------------------------------------------------------
Class A shareholder servicing fee (Note 4) 69,214
- ---------------------------------------------------------------------------------------
Class C shareholder servicing fee (Note 4) 6,247
- ---------------------------------------------------------------------------------------
Distribution services fee (Note 4) 18,740
- ---------------------------------------------------------------------------------------
Miscellaneous 972
- --------------------------------------------------------------------------------------- -----------
Total expenses 1,948,693
- ---------------------------------------------------------------------------------------
Deduct--waiver of investment advisory fee 38,338 1,910,355
- --------------------------------------------------------------------------------------- ----------- ------------
Net investment income 75,846
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment and foreign currency transactions
(identified cost basis) 9,871,837
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and foreign currency 18,362,057
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments and foreign currency 28,233,894
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 28,309,740
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994* 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------
Net investment income $ 75,846 $ 172,409
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions ($9,871,837 net gain and $5,764,462 net gain, respectively, as
computed for federal tax purposes) (Note 2E) 9,871,837 5,894,827
- ---------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments and translation
of assets and liabilities in foreign currencies 18,362,057 14,259,817
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 28,309,740 20,327,053
- --------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------------------------
Class A Shares (88,092) (644,382)
- ---------------------------------------------------------------------------------
Class C Shares -- --
- ---------------------------------------------------------------------------------
Distributions in excess of net investment income:
- ---------------------------------------------------------------------------------
Class A Shares (722,748) (747,020)
- ---------------------------------------------------------------------------------
Class C Shares (6,987) --
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets from distributions to shareholders (817,827) (1,391,402)
- --------------------------------------------------------------------------------- -------------- --------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ---------------------------------------------------------------------------------
Net proceeds from sale of shares 88,147,759 127,561,470
- ---------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock 324,522 623,074
- ---------------------------------------------------------------------------------
Cost of shares redeemed (63,006,686) (58,345,460)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets from capital stock transactions 25,465,595 69,839,084
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets 52,957,508 88,774,735
- ---------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------
Beginning of period 195,711,691 106,936,956
- --------------------------------------------------------------------------------- -------------- --------------
End of period $ 248,669,199 $ 195,711,691
- --------------------------------------------------------------------------------- -------------- --------------
</TABLE>
*Six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Financial Highlights -- Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994* 1993 1992 1991 1990 1989 1988 1987 1986
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59 $ 17.34 $ 19.99 $ 22.87 $ 14.62
- ------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------------
Net investment income 0.01 0.06 0.10 0.11 0.19 0.18 0.19 0.24 0.04
- ------------------------------
Net realized and unrealized
gain (loss) on investments 2.41 2.53 (0.37) 0.37 (1.16) 1.60 3.27 (0.72) 8.63
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 2.42 2.59 (0.27) 0.48 (0.97) 1.78 3.46 (0.48) 8.67
- ------------------------------
LESS DISTRIBUTIONS
- ------------------------------
Dividends to shareholders
from net investment income (0.01) (0.06) (0.08) (0.21) (0.20) (0.23) (0.23) (0.05) (0.08)
- ------------------------------
Distributions to
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 (a) (0.06) (0.13) -- -- -- -- -- -- --
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.07) (0.19) (0.08) (0.32) (2.34) (1.53) (6.11) (2.40) (0.42)
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 18.84 $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59 $ 17.34 $ 19.99 $ 22.87
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 14.70% 18.52% (1.86)% 3.49% (6.72)% 11.55% 24.33% (2.70)% 60.75%
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 1.60%(b) 1.60% 1.57% 1.52% 1.32% 1.01% 1.00% 1.00% 1.00%
- ------------------------------
Net investment income 0.07%(b) 0.13% 0.69% 0.78% 1.39% 1.04% 1.43% 0.93% 0.34%
- ------------------------------
Expense waiver/
reimbursement (c) 0.03%(b) 0.01% 0.02% 0.30% 0.25% 0.46% 0.28% 0.17% 0.19%
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $241,926 $192,860 $106,937 $101,980 $82,541 $65,560 $68,922 $85,860 $106,257
- ------------------------------
Portfolio turnover rate*** 47% 74% 91% 84% 114% 85% 98% 130% 70%
- ------------------------------
<CAPTION>
<S> <C>
1985
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.50
- ------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------------
Net investment income 0.09
- ------------------------------
Net realized and unrealized
gain (loss) on investments 5.04
- ------------------------------ ---------
Total from investment
operations 5.13
- ------------------------------
LESS DISTRIBUTIONS
- ------------------------------
Dividends to shareholders
from net investment income (0.01)
- ------------------------------
Distributions to
shareholders from net
realized gain on investment
transactions --
- ------------------------------
Distributions in excess of
net investment income (a) --
- ------------------------------ ---------
Total distributions (0.01)
- ------------------------------ ---------
NET ASSET VALUE, END OF PERIOD $ 14.62
- ------------------------------ ---------
TOTAL RETURN** 54.07%
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 1.00%
- ------------------------------
Net investment income 1.30%
- ------------------------------
Expense waiver/
reimbursement (c) 0.50%
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $34,209
- ------------------------------
Portfolio turnover rate*** 61%
- ------------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
*** Represents portfolio turnover rate for the entire fund.
(a) Distributions in excess of net investment income for the six months ended
May 31, 1994 and 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.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Financial Highlights -- Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
----------------------
1994* 1993**
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.41 $ 14.88
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income (0.01) (0.04)
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.34 1.57
- ------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 2.33 1.53
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income -- --
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain
on investment transactions -- --
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (a) (0.04) --
- ------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.04) --
- ------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 18.70 $ 16.41
- ------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN*** 14.19% 10.28%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 2.54%(b) 2.57%(b)
- -------------------------------------------------------------------------------------------
Net investment income (0.71) (b) (1.10)%(b)
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.03%(b) 0.01%(b)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,743 $2,852
- -------------------------------------------------------------------------------------------
Portfolio turnover rate**** 47% 74%
- -------------------------------------------------------------------------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** Reflects operations for the period from March 31, 1993 (date of initial
public offering) to November 30, 1993.
*** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
**** Represents portfolio turnover rate for the entire fund.
(a) Distributions in excess of net investment income for the six months ended
May 31, 1994 were a result of certain book and tax timing differences.
These distributions do not represent a return of capital for federal income
tax purposes.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
May 31, 1994
(unaudited)
(1) ORGANIZATION
International Series, Inc. (the "Corporation") (formerly, FT Series, Inc.) is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end, management investment company. The Corporation consists of two
portfolios, one diversified and one non-diversified. The financial statements
included herein are only those of the diversified portfolio, International
Equity Fund (the "Fund"). The financial statements of the other portfolio are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The Fund provides two classes of shares: Class A Shares and Class C Shares.
Class C Shares are subject to certain of the same expenses as Class A Shares;
however, Class C Shares are sold pursuant to a distribution plan ("Plan")
adopted in accordance with Investment Company Act Rule 12b-1. Class A Shares and
Class C Shares are also subject to certain sales and contingent deferred sales
charges.
Effective March 15, 1994, shareholders approved a change in the name of the
Corporation to International Series, Inc.
(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 the last
sales price reported on national securities exchanges. Unlisted securities
and short-term obligations (and private placement securities) are generally
valued at the prices provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be stated 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 agreement, 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 Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Directors ("Directors").
International Equity Fund
- --------------------------------------------------------------------------------
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. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount
if applicable, are amortized as required by the Internal Revenue Code
("Code"). Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principals.
These distributions do not represent a return of capital for federal income
tax purposes.
D. FOREIGN CURRENCY TRANSLATION--The accounting records of the fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at
the rate of exchange quoted on the respective date that such transactions
are recorded. Differences between income and expense amounts recorded and
collected or paid are adjusted when reported by the custodian bank.
E. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. However, federal
taxes may be imposed on the Fund upon the disposition of certain
investments in Passive Foreign Investment Companies. 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.
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 the year 2000 ($1,732,047).
F. FORWARD COMMITMENTS--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 May 31, 1994.
International Equity Fund
- --------------------------------------------------------------------------------
G. OPTION CONTRACTS--The Fund may write or purchase option contracts. 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 no outstanding option
contracts at May 31, 1994.
H. WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date 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 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 May 31, 1994 the portfolio was diversified within the following
industries:
<TABLE>
<S> <C> <C> <C>
Automotive Products 5.1% Industrial Products 14.9%
Banking 8.9 Media/Entertainment 5.6
Brewing 0.8 Metals 6.5
Chemicals 1.0 Other 4.8
Communications 7.8 Pharmaceuticals 1.7
Construction 6.3 Property Development 3.0
Consumer Products 3.9 Pulp/paper Products 2.1
Diversified Investment Companies 3.8 Repurchase Agreements 2.2
Diversified Products 5.2 Retailing 3.0
Finance/Insurance 6.3 Utilities 7.1
</TABLE>
J. OTHER--Investment transactions are accounted for on the trade date.
K. RECLASSIFICATION--During the year ended November 30, 1994, the Fund adopted
Statement of Position 93-2 Determination, Disclosure, and Financial
Statement Presentation of lncome, Capital Gain, and Return of Capital
Distributions by Investment Companies. Accordingly, permanent book and tax
differences have been reclassified to paid-in-capital. The Fund
reclassified $147,186 from accumulated net realized gain/loss to
paid-in-capital and $111,941 from paid-in-capital to undistributed net
investment income in accordance with SOP 93-2. Net investment income, net
realized gains, and net assets were not affected by this change.
International Equity Fund
- --------------------------------------------------------------------------------
(3) CAPITAL STOCK
At May 31, 1994, there were 500,000,000 shares of $.0001 par value capital stock
authorized for Class A Shares and Class C Shares respectively. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994* 1993
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,466,656 $ 83,763,740 7,840,247 $ 124,575,022
- ------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 18,065 320,105 45,118 623,074
- ------------------------------------------------------
Shares redeemed (3,342,032) (62,134,798) (3,779,897) (58,259,919)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from capital stock transactions 1,142,689 $ 21,949,047 4,105,468 $ 66,938,177
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
*Six months ended May 31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994* 1993**
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 234,417 $ 4,384,019 177,586 $ 2,986,448
- ------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 250 4,417 -- --
- ------------------------------------------------------
Shares redeemed (47,708) (871,888) (3,862) (85,541)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from capital stock transactions 186,959 $ 3,516,548 173,274 $ 2,900,907
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
*Six months ended May 31, 1994.
**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
ADVISORY FEE--On March 15, 1994, Federated Management became the Fund's
investment adviser ("Adviser"). Adviser receives for its services an annual
investment advisory fee equal to 1.00% of the Fund's average daily net assets.
Under the terms of a sub-advisory agreement between Federated Management and
Fiduciary International, Inc. (the "Sub-Adviser"), Sub-Adviser will receive an
annual fee from Federated Management equal to .50 of 1% of average daily net
assets of the Fund. Prior to March 15, 1994, Fiduciary International, Inc.
served as the Fund's investment adviser and received for its services an annual
investment advisory fee equal
International Equity Fund
- --------------------------------------------------------------------------------
to 1.00% of the Fund's average daily net assets. Prior to March 15, 1994,
Federated Management, under the terms of a sub-advisory agreement with Fiduciary
International, Inc., served as the Fund's sub-adviser and received an annual fee
from Fiduciary International, Inc. equal to .50 of 1% of average daily net
assets. Adviser may voluntarily choose to waive a portion of its fee. Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion. For the six months ended May 31, 1994, Federated Management in its
capacity of Sub-Adviser/Adviser earned $589,284 of which $19,169 was waived. For
the six months ended May 31, 1994, Fiduciary International, Inc., in its
capacity as Adviser/Sub-Adviser earned $589,284 of which $19,169 was waived.
ADMINISTRATIVE SERVICES--Federated Administrative Services ("FAS") provides the
Fund administrative personnel and services. Prior to March 1, 1994, these
services were provided at approximate cost. Effective March 1, 1994, the fee is
based on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the terms of the Plan, the Fund will compensate Federated Securities
Corp. ("FSC"), the principal distributor, from the net assets of the Fund to
finance activities intended to result in the sale of the Fund's Class C Shares.
The Plan provides that the Fund may incur distribution expenses up to 0.25 of 1%
of the average daily net assets of the Class C Shares, annually, to compensate
FSC. Under the terms of a shareholder services agreement with FSC, the Fund will
pay FSC up to 0.25 of 1% of average net assets for the Fund for the period. This
fee is to obtain certain personal services for shareholders and the maintenance
of shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The fee is based
on the size, type and number of accounts and transactions made by shareholders.
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
month period ended May 31, 1994 were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 138,578,209
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 103,704,153
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
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
David M. Taylor
Assistant Treasurer
Jeannette Fisher-Garber
Assistant Secretary
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.
[LOGO] INTERNATIONAL
EQUITY
FUND
9th SEMI-ANNUAL
REPORT
May 31, 1994
Established 1984
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
46031P308
46031P407
8070112 (7/94)
President's Message
- -------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to
Shareholders for International Income Fund (the "Fund"),
which covers the six-month period ended May 31, 1994. You
will find its design and investment charts make the
report easier to read and more informative. The report
begins with our customary interview with John Beck,
Assistant Director of Fiduciary Trust International
Limited and the Fund's Portfolio Manager. The report also
includes a complete listing of the Fund's bond holdings
and its financial statements. In addition, Financial
Highlights tables have been included for Class A Shares
and Class C Shares.
The Fund's high-quality bond portfolio was spread across
13 countries and 21 issuers. At the end of the period,
the top five bond holdings were as follows:
<TABLE>
<CAPTION>
ISSUER MOODY'S RATING U.S. $ VALUE
<S> <C> <C>
U.K. Treasury Aaa $45.5 million
New South Wales Treasury Corp. Aaa $24.9 million
New South Wales Treasury Corp. Aaa $12.9 million
Republic of Italy Aaa $12.3 million
Republic of Ireland Aaa $12.3 million
</TABLE>
On May 31, 1994, the Fund's assets increased to $243.4
million, compared to $225.4 million at the beginning of
the period. The net asset value decreased in response to
a short-term weakness in the international bond markets.
However, the Fund paid shareholders earned distributions
of more than $1.00 per share during the last six months.
As with all financial markets, international bonds are
subject to short-term fluctuations in value. In the
following interview, the portfolio manager explains
events that have weakened international bond prices, and
discusses his strategy for managing the Fund's portfolio.
We appreciate your participation in the Fund. As always,
your comments and suggestions are welcome.
Sincerely,
Glen R. Johnson
President
July 6, 1994
Q_ THE RECENT RISE IN U.S. INTEREST RATES SENT THE
DOMESTIC BOND MARKET REELING. HOW DID THE
INTERNATIONAL BOND MARKETS
REACT?
A_ The widely held assumption at the beginning of
the year was
that economic growth in the U.S. was running well
ahead of
growth in Europe, and this would cause the
Federal Reserve Board (the "Fed") to tighten
interest rates, but European interest rates had further
scope to fall. Accordingly, international bonds were
expected to remain strong. The outcome following the
tightening by the Fed proved somewhat different. Whereas
U.S. bond yields have risen by a little over 150 basis
points from the low in yields, international bond yields
have risen up to 300 basis points. Although this is
difficult to explain from an economic perspective, it
appears to have been driven by forced reductions in
liquidity. First, the hedge funds, which were running
positions in European bonds funded by U.S. borrowings,
were forced to sell portions of their holdings. Second,
the price declines generated by the hedge fund selling
caused banks to cut out leveraged positions held for
their own capital accounts. Finally, countries such as
Japan that traditionally have bought significant amounts
of foreign bonds with the proceeds of the large trade
account surplus, stopped buying due to problems at home.
The result was the sharp increase in yields and decline
in bond prices.
Q_ WHAT OTHER DEVELOPMENTS AFFECTED THE
INTERNATIONAL MARKETS?
A_ Governments in Europe have continued to run
deficits as a result of the weakness in their
economies, which has simulta-
neously reduced tax receipts and increased
transfer payments
to the unemployed. Government borrowing
requirements have increased towards, and in some
cases above, 5 percent of Gross Domestic Product ("GDP").
Their bonds have had to be financed at the clearing
market rate, and at a time when international investors'
demand for bonds was weak. Interest rates on European
bond yields have risen despite the positive economic
fundamentals.
- --------------------------------------------------------------------------------
Q_ HOW DID THOSE DEVELOPMENTS AFFECT THE PERFORMANCE
OF THE FUND?
A_ In this environment, the Fund performed
disappointingly over the six-month period. We had
invested the Fund based upon
the economic fundamentals which were deemed
positive at
the beginning of the year in anticipation of
lower interest rates. Since these assumptions
proved erroneous, the long duration of the Fund proved
negative for performance. The share price declined from
$11.86 to $10.53. However, $1.08788 per share was paid in
distributions to shareholders.
Q_ WHAT ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO
DURING THE REPORTING PERIOD?
A_ We made major adjustments in the two main market
weightings in response to market weakness. At the
beginning of the
year, the Fund held large positions in both
Denmark and
Italy. Denmark represented our holding in core
Europe. Our holding in Italy, which had performed
so well in 1993, was based on the expectation that
political uncertainty would continue to diminish. Both
positions were switched to other markets, Denmark in
favor of U.K. Gilts, and Italy in favor of Australia. The
sales of the positions did not reflect a deterioration of
fundamentals, but rather that the U.K. and Australian
markets appeared to have fallen too far. Both markets
have been plagued by association with the U.S. economy,
with commentators making the assumption that U.S. style
economic growth will result in inflationary threats to
the domestic bond markets. Since bonds had fallen by much
more than comparable markets, superior value was
perceived in the U.K. and Australian markets. At the same
time, although our positive view on European inflationary
fundamentals argues for the maintenance of long duration
in European bonds, the price action of the market caused
us to reduce overall duration to dampen overall
volatility.
- --------------------------------------------------------------------------------
Q_ WHAT IS YOUR CURRENT STRATEGY FOR THE FUND BASED
ON YOUR OUTLOOK FOR THE INTERNATIONAL BOND
MARKETS?
A_ The unexpected weakness of international bond
markets continues to require a degree of caution,
especially at a time that
the markets appear to be trading not on economic
fundamentals of low inflation, but on negative
investor psychology resulting in forced
liquidation of bonds. Nevertheless, a complete
restructuring of the Fund would seem an inappropriate
response to short-term volatility, even when levels of
volatility are so high. It would seem probable that
economic fundamentals will eventually reassert themselves
and bond markets should recover. The other question of
importance concerns the outlook for the U.S. currency,
where we continue to doubt the forecasts of many that the
dollar is set for a strong recovery. Too many doubts
persist about the trade deficit and the savings imbalance
to suggest significant dollar strength, although
significant falls in the dollar would cause us to
increase our current hedge ratio, since currency exposure
is currently exclusively outside the U.S. dollar.
International Income Fund
Portfolio Update
- --------------------------------------------------------------------------------
Rating of Fund Holdings as of May 31, 1994
<TABLE>
<S> <C>
AAA 78.8%
AA 16.0%
A 5.2%
</TABLE>
<TABLE>
<CAPTION>
Countries Percentages Countries Percentages
<S> <C> <C> <C>
Australia 25.4% France 4.7%
Great Britain 5.4% Germany 4.3%
Ireland 5.2% Finland 3.4%
Italy 5.2% Sweden 3.4%
Netherlands 4.9% Denmark 3.3%
New Zealand 4.8% Canada 3.0%
Spain 4.8%
</TABLE>
International Income Fund
Serving a Wide Range of Investors
- --------------------------------------------------------------------------------
INTERNATIONAL INCOME FUND APPEALS TO A BROAD RANGE OF INVESTORS SEEKING A HIGH
LEVEL OF CURRENT INCOME IN U.S. DOLLARS CONSISTENT WITH PRUDENT INVESTMENT RISK.
The Fund invests primarily in high-quality debt securities denominated primarily
in foreign currencies, currently diversified across 13 countries. Fund shares
are not guaranteed, and the value of your investment may fluctuate in value.
Mutual funds involve risk, including possible loss of principal.
Some of the Fund's Major Shareholder Groups
<TABLE>
<S> <C>
Individuals and Joint Tenants $6,502,171
IRAs 5,775,326
Trusts 4,449,847
Keogh/Profit-Sharing 2,350,566
Pension Plans 1,300,067
Corporations 1,294,235
Churches/Religious Organizations 559,856
Custodians (under Uniform Gift to Minors Act) 139,206
</TABLE>
International Income Fund -- Hypothetical Investor Profile:
Investing for a High Level of Income from Abroad
- --------------------------------------------------------------------------------
The Griffins--Bob, Nancy and Cal--are a single-income suburban family. Bob and
Nancy don't regard public schools very highly and are building a nest egg for
Cal's private-school education.
They've added $2,000 every January to their initial $10,000 investment in
International Income Fund made on 6/11/91, and as of
5/31/94, their account totaled $19,322, giving them an annual total return of
24.81%.*
Now they don't feel they need to worry about the quality of Cal's education, and
Bob figures his son will get to college even if he never does learn to catch a
football.
The couple is fictional, but the figures are real.
Graphic representation "D" omitted. See Appendix.
This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder.
*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.
Two Ways You May Seek to Invest for Success in
International Income Fund
-------------------------------------------------------------------------------
INITIAL INVESTMENT:
A $30,000 INVESTMENT (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$39,221.
If you had invested $30,000 in the Class A Shares of International Income Fund
on 6/11/91, reinvested dividends and capital gains, and didn't redeem any
shares, your account would have been worth $39,221 on 5/31/94. You would have
earned a 9.45%* average annual total return for the 3-year investment life
span. One key to investing wisely is to reinvest all distributions in Fund
shares. This increases the number of shares on which you can earn future
dividends, and you gain the benefit of compounding.
As of 6/30/94, the Class A Shares' average annual one-year and since inception
(6/11/91) total returns were (.06)%, and 8.46%, respectively. Class C Shares'
average annual one-year and since inception (3/31/93) total returns were 4.00%
and 11.68% respectively.
Graphic representation "E" omitted. See Appendix.
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.5%
sales charge applicable to an initial investment in Class A Shares.
Data quoted represent past performance and do not guarantee 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.
International Income Fund
- --------------------------------------------------------------------------------
Investing One Step at a Time:
$10,000 INVESTED EACH YEAR FOR 3 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $35,314.
With this approach, the key is consistency.
If you had started investing $10,000 annually in the Class A Shares of
International Income Fund on 6/11/91, reinvested your dividends and capital
gains and didn't redeem any shares, you would have invested only $30,000, but
your account would have reached a total value of $35,314 by 5/31/94. You would
have earned an average annual total return of 9.44%.*
A practical investment plan helps you pursue a high level of income by investing
in high-quality debt securities denominated primarily in foreign currencies.
Through systematic investing, you buy shares on a regular basis and reinvest all
earnings. An investment plan works for you when you invest only $10,000
annually. You can take it one step at a time. Put time and compounding to work!
Graphic representation "F" omitted. See Appendix.
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor. Because
such a plan involves continuous investment, regardless of changing price
levels, the investor should consider whether or not to continue purchases
through periods of low price levels. 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.
International Income Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1994
(unaudited)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY CREDIT VALUE
PAR RATING: IN U.S.
AMOUNT MOODY'S* DOLLARS
<C> <S> <C> <C>
BONDS--94.6%
- -----------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--24.9%
- -----------------------------------------------------------------------------------
AGENCY--20.1%
----------------------------------------------------------------
30,000,000 New South Wales Treasury Corp., 11.50%, 7/1/99 Aaa $ 24,946,600
----------------------------------------------------------------
15,000,000 New South Wales Treasury Corp., 12.00%, 12/1/2001 Aaa 12,987,646
----------------------------------------------------------------
18,500,000 New South Wales Treasury Corp., 6.50%, 5/1/2006 Aaa 11,003,666
---------------------------------------------------------------- --------------
Total 48,937,912
---------------------------------------------------------------- --------------
SUPRANATIONAL--4.8%
----------------------------------------------------------------
14,500,000 European Investment Bank, 10.25%, 10/1/2001 Aaa 11,677,377
---------------------------------------------------------------- --------------
TOTAL AUSTRALIAN DOLLAR 60,615,289
---------------------------------------------------------------- --------------
BRITISH POUND--24.0%
- -----------------------------------------------------------------------------------
CORPORATE--18.7%
----------------------------------------------------------------
10,500,000 UK Treasury, 8.75%, 8/25/2017 Aaa 16,383,934
----------------------------------------------------------------
20,000,000 UK Treasury 8.00%, 6/10/2003 Aaa 29,096,992
---------------------------------------------------------------- --------------
Total 45,480,926
---------------------------------------------------------------- --------------
SUPRANATIONAL--5.3%
----------------------------------------------------------------
4,000,000 African Development Bank, 11.25%, 7/23/2001 Aaa 6,745,732
----------------------------------------------------------------
4,000,000 World Bank, 9.25%, 7/20/2007 Aaa 6,243,390
---------------------------------------------------------------- --------------
Total 12,989,122
---------------------------------------------------------------- --------------
TOTAL BRITISH POUND 58,470,048
---------------------------------------------------------------- --------------
CANADIAN DOLLAR--3.0%
- -----------------------------------------------------------------------------------
AGENCY--3.0%
----------------------------------------------------------------
10,000,000 Ontario Hydro, 9.00%, 6/24/2002 Aa3 7,207,254
---------------------------------------------------------------- --------------
TOTAL CANADIAN DOLLAR 7,207,254
---------------------------------------------------------------- --------------
</Table
International Income Fund
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN
CURRENCY CREDIT VALUE
PAR RATING: IN U.S.
AMOUNT MOODY'S* DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
- -----------------------------------------------------------------------------------
DANISH KRONE--3.2%
- -----------------------------------------------------------------------------------
SOVEREIGN--3.2%
----------------------------------------------------------------
4,500,000 Kidder Peabody, Warrants on Denmark, 8.00%,
5/15/2003 (Expires 8/11/94)** Aaa $ 73,134(a)
----------------------------------------------------------------
50,000,000 Kingdom of Denmark, 8.00%, 5/15/2003 Aa1 7,723,741
---------------------------------------------------------------- --------------
TOTAL DANISH KRONE 7,796,875
---------------------------------------------------------------- --------------
DEUTSCHE MARK--4.2%
- -----------------------------------------------------------------------------------
SOVEREIGN--4.2%
----------------------------------------------------------------
16,000,000 Federal Republic of Germany, 8.00%, 7/22/2002 Aaa 10,227,135
---------------------------------------------------------------- --------------
TOTAL DEUTSCHE MARK 10,227,135
---------------------------------------------------------------- --------------
FINNISH MARKKA--3.4%
- -----------------------------------------------------------------------------------
SOVEREIGN--3.4%
----------------------------------------------------------------
42,000,000 Republic of Finland, 9.50%, 3/15/2004 Aa2 8,185,580
---------------------------------------------------------------- --------------
TOTAL FINNISH MARKKA 8,185,580
---------------------------------------------------------------- --------------
FRENCH FRANC--4.2%
- -----------------------------------------------------------------------------------
SOVEREIGN--4.2%
----------------------------------------------------------------
60,000,000 Government of France, 6.75%, 10/25/2003 Aaa 10,350,802
---------------------------------------------------------------- --------------
TOTAL FRENCH FRANC 10,350,802
---------------------------------------------------------------- --------------
IRISH PUNT--5.1%
- -----------------------------------------------------------------------------------
SOVEREIGN--5.1%
----------------------------------------------------------------
8,000,000 Republic of Ireland, 9.25%, 7/11/2003 Aaa 12,331,315
---------------------------------------------------------------- --------------
TOTAL IRISH PUNT 12,331,315
---------------------------------------------------------------- --------------
ITALIAN LIRA--5.1%
- -----------------------------------------------------------------------------------
SOVEREIGN--5.1%
----------------------------------------------------------------
149,000,000,000 Merrill Lynch, Call Option on BTP, 9.00%, 10/1/98 (Expires
11/8/94)*** A1 144,530(a)
----------------------------------------------------------------
</TABLE>
International Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY CREDIT VALUE
PAR RATING: IN U.S.
AMOUNT MOODY'S* DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
- -----------------------------------------------------------------------------------
ITALIAN LIRA--CONTINUED
- -----------------------------------------------------------------------------------
SOVEREIGN--CONTINUED
----------------------------------------------------------------
19,000,000,000 Republic of Italy, 11.00%, 6/1/2003 Aaa $ 12,357,790
---------------------------------------------------------------- --------------
TOTAL ITALIAN LIRA 12,502,320
---------------------------------------------------------------- --------------
NETHERLANDS GUILDER--4.8%
- -----------------------------------------------------------------------------------
SOVEREIGN--4.8%
----------------------------------------------------------------
22,000,000 Netherlands, 7.50%, 1/15/2023 Aaa 11,695,539
---------------------------------------------------------------- --------------
TOTAL NETHERLANDS GUILDER 11,695,539
---------------------------------------------------------------- --------------
NEW ZEALAND DOLLAR--4.7%
- -----------------------------------------------------------------------------------
SOVEREIGN--4.7%
----------------------------------------------------------------
18,000,000 New Zealand, 8.00%, 4/15/2004 Aa3 11,371,870
---------------------------------------------------------------- --------------
TOTAL NEW ZEALAND DOLLAR 11,371,870
---------------------------------------------------------------- --------------
SPANISH PESETA--4.7%
- -----------------------------------------------------------------------------------
SOVEREIGN--4.7%
----------------------------------------------------------------
1,750,000,000 Kingdom of Spain, 8.00%, 5/30/2004 Aa2 11,432,557
---------------------------------------------------------------- --------------
TOTAL SPANISH PESETA 11,432,557
---------------------------------------------------------------- --------------
SWEDISH KRONA--3.3%
- -----------------------------------------------------------------------------------
SOVEREIGN--3.3%
----------------------------------------------------------------
65,000,000 Kingdom of Sweden 9.00%, 4/20/2009 Aaa 8,067,316
----------------------------------------------------------------
358,000 Solomon, Inc., Warrants on Sweden, 11.00%, 1/25/99 (Expires
1/25/95)**** A3 21,480(a)
---------------------------------------------------------------- --------------
TOTAL SWEDISH KRONA 8,088,796
---------------------------------------------------------------- --------------
TOTAL BONDS (IDENTIFIED COST $246,965,604) 230,275,380
---------------------------------------------------------------- --------------
CURRENCY OPTION--0.2%
- -----------------------------------------------------------------------------------
85,000,000,000 Italian Lira Call Option into Deutsche Mark, Expires 8/12/94
(Strike price ITL980/DM)***** A1 368,050(a)
---------------------------------------------------------------- --------------
TOTAL CURRENCY OPTIONS (IDENTIFIED COST $1,252,367) 368,050
---------------------------------------------------------------- --------------
</TABLE>
International Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT VALUE
PAR RATING: IN U.S.
AMOUNT MOODY'S* DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
- -----------------------------------------------------------------------------------
\REPURCHASE AGREEMENT--2.1%
- -----------------------------------------------------------------------------------
$ 5,130,000 J.P. Morgan Securities, Inc., 4.27%, dated 5/31/94,
due 6/1/94 $ 5,130,000
---------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENT AT AMORTIZED COST 5,130,000
---------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $253,347,971) $ 235,773,430\
---------------------------------------------------------------- --------------
</TABLE>
*Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
**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 ITL 149,000,000,000 par value
of 9.00% Italian Government bonds due
10/1/98 (currently rated A1) 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 11.00% Swedish
Government bonds due 1/25/99 (currently rated Aaa) at a price of 102.47% of
par. The A3 rating shown is that of the rated senior obligations of
Salomon, Inc., the issuer of the warrant.
*****The rating shown is that of Morgan Stanley Group, the writer of the call
option. The ITL 85,000,000,000 represents the notional amount of the
option.
\The cost for federal tax purposes amounts to $253,347,971. The net unrealized
depreciation of investments amounts to $17,574,541, which is comprised of
$675,282 appreciation and $18,249,823 depreciation at May 31, 1994.
\\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 repuchase agreement is through participation in joint
accounts with other Federated accounts.
Note: The categories of investments are shown as a percentage of net assets
($243,431,629) at May 31, 1994.
(a) Non-income producing.
The following abbreviations are used in this portfolio.
BTP--Buono del Tesoro Poliennalo (Italian Government Bond)
DM--Deutsche Mark
ITL--Italian Lira
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1994
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost, $253,347,971) (Notes 2A and 2B) $235,773,430
- ---------------------------------------------------------------------------------------------------
Cash 451,927
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 78,947,618
- ---------------------------------------------------------------------------------------------------
Interest receivable 7,559,092
- ---------------------------------------------------------------------------------------------------
Receivable for capital stock sold 322,131
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of forward contracts (Note 2F) 170,228
- ---------------------------------------------------------------------------------------------------
Deferred expenses (Note 2J) 8,490
- --------------------------------------------------------------------------------------------------- -----------
Total assets 323,232,916
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased $79,175,733
- ---------------------------------------------------------------------------------------
Payable for capital stock redeemed 342,565
- ---------------------------------------------------------------------------------------
Tax withholding liability (Note 2E) 246,515
- ---------------------------------------------------------------------------------------
Accrued expenses 36,474
- --------------------------------------------------------------------------------------- ----------
Total liabilities 79,801,287
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 23,116,067 shares of capital stock outstanding $243,431,629
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $263,951,318
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and translation of assets
and liabilities in foreign currencies (16,450,944)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and foreign currency transactions (6,204,710)
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 2,135,965
- --------------------------------------------------------------------------------------------------- -----------
Total net assets $243,431,629
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE:
- ---------------------------------------------------------------------------------------------------
Class A Shares ($234,954,967 / 22,309,617 shares of capital stock outstanding) $10.53
- --------------------------------------------------------------------------------------------------- -----------
Class C Shares ($8,476,662 / 806,450 shares of capital stock outstanding) $10.51
- --------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares (100/95.5 of $10.53)* $11.03
- --------------------------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class C Shares (99/100 of $10.51)** $10.40
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** Under certain limited conditions, a contingent deferred sales charge of 1.00%
is imposed. See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended May 31, 1994
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest (net of foreign taxes withheld of $347,284) (Note 2E) $ 9,276,359
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 933,305
- ------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 183,164
- ------------------------------------------------------------------------------------
Custodian and portfolio accounting services and expenses 125,775
- ------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 36,597
- ------------------------------------------------------------------------------------
Directors' fees 4,920
- ------------------------------------------------------------------------------------
Auditing fees 18,548
- ------------------------------------------------------------------------------------
Legal fees 12,300
- ------------------------------------------------------------------------------------
Capital stock registration costs 33,377
- ------------------------------------------------------------------------------------
Printing and postage 48,000
- ------------------------------------------------------------------------------------
Insurance premiums 5,544
- ------------------------------------------------------------------------------------
Taxes 9,973
- ------------------------------------------------------------------------------------
Class A shareholder servicing fee (Note 4) 231,242
- ------------------------------------------------------------------------------------
Class C shareholder servicing fee (Note 4) 28,711
- ------------------------------------------------------------------------------------
Class A distribution services fee (Note 4) 70,287
- ------------------------------------------------------------------------------------
Class C distribution services fee (Note 4) 9,584
- ------------------------------------------------------------------------------------
Miscellaneous 8,078
- ------------------------------------------------------------------------------------ ------------
Total expenses 1,759,405
- ------------------------------------------------------------------------------------
Deduct--waiver of investment advisory fee (Note 4) 112,954 1,646,451
- ------------------------------------------------------------------------------------ ------------ --------------
Net investment income 7,629,908
- -------------------------------------------------------------------------------------------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment and foreign currency
transactions (identified cost basis) (6,203,807)
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments
and foreign currency (10,001,862)
- -------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized gain (loss) on investments and foreign currency (16,205,669)
- -------------------------------------------------------------------------------------------------- --------------
Change in net assets resulting from operations $ (8,575,761)
- -------------------------------------------------------------------------------------------------- --------------
</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,
1994* 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 7,629,908 $ 10,115,823
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions
($6,203,807 net loss and $12,707,324 net gain, respectively,
as computed for federal tax purposes) (Note 2E) (6,203,807) 14,622,033
- ----------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currencies (10,001,862) (1,145,113)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations (8,575,761) 23,592,743
- ---------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------------------
Class A Shares (9,035,212) (8,164,154)
- ----------------------------------------------------------------------------------
Class C Shares (230,031) (38,623)
- ----------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investments and
foreign currency transactions:
- ----------------------------------------------------------------------------------
Class A Shares (12,426,841) (1,189,069)
- ----------------------------------------------------------------------------------
Class C Shares (280,823) --
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (21,972,907) (9,391,846)
- ---------------------------------------------------------------------------------- -------------- --------------
CAPITAL STOCK TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------------------------
Net proceeds from sale of shares 136,042,820 172,701,876
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock 6,845,717 2,711,987
- ----------------------------------------------------------------------------------
Cost of shares redeemed (94,276,391) (51,183,603)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets from capital stock transactions 48,612,146 124,230,260
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets 18,063,478 138,431,157
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 225,368,151 86,936,994
- ---------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of
$2,135,965 and $1,485,988, respectively) $ 243,431,629 $ 225,368,151
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Financial Highlights -- Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994** 1993 1992 1991*
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.86 $ 10.47 $ 10.84 $ 10.00
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------
Net investment income 0.33 0.88 0.62 0.25
- -------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.57) 1.40 (0.20) 0.75
- ------------------------------------------------------------------- --------- --------- --------- ---------
Total from investment operations (0.24) 2.28 0.42 1.00
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Dividends to shareholders from net investment income (0.44) (0.75) (0.71) (0.16)
- -------------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (0.65) (0.14) (0.03) --
- -------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.05)%(b) --
- ------------------------------------------------------------------- --------- --------- --------- ---------
Total distributions (1.09) (0.89) (0.79) (0.16)
- ------------------------------------------------------------------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.53 $ 11.86 $ 10.47 $ 10.84
- ------------------------------------------------------------------- --------- --------- --------- ---------
TOTAL RETURN*** (2.56)% 22.95% 3.82% 10.07%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses 1.30%(a) 1.25% 0.99% 0.32%(a)
- -------------------------------------------------------------------
Net investment income 6.16%(a) 7.71% 5.83% 7.54%(a)
- -------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.09%(a) 0.27% 0.62% 1.18%(a)
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted) $234,955 $220,602 $86,937 $23,465
- -------------------------------------------------------------------
Portfolio turnover rate**** 65% 189% 314% 35%
- -------------------------------------------------------------------
</TABLE>
* Reflects operations for the period June 4, 1991 (date of initial public
investment) to November 30, 1991.
** Six months ended May 31, 1994 (unaudited).
*** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
**** 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) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Financial Highlights -- Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1994** 1993*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.84 $ 10.23
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.32 0.41
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.60) 1.58
- --------------------------------------------------------------------------------------------- ----------- ---------
Total from investment operations (0.28) 1.99
- --------------------------------------------------------------------------------------------- ----------- ---------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.40) (0.38)
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions (0.65) --
- --------------------------------------------------------------------------------------------- ----------- ---------
Total distributions (1.05) (0.38)
- --------------------------------------------------------------------------------------------- ----------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.51 $ 11.84
- --------------------------------------------------------------------------------------------- ----------- ---------
TOTAL RETURN*** (2.88)% 19.67%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 2.05%(a) 2.05%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 5.22%(a) 5.39%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursements (b) 0.09%(a) 0.21%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 8,476 $ 4,767
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate**** 65% 189%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from March 31, 1993 (date of initial
public offering) to November 30, 1993.
** Six months ended May 31, 1994 (unaudited).
*** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
**** Represents portfolio turnover for the entire fund.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
May 31, 1994
(unaudited)
(1) ORGANIZATION
International Series, Inc. (the "Corporation") (formerly, FT Series, Inc.) is
registered under the Investment Company Act of 1940, as amended, (the "Act") as
an open-end, management investment company. The Corporation consists of two
portfolios, one diversified and one non-diversified. The financial statements
included herein are only those of the non-diversified portfolio, International
Income Fund (the "Fund"). The financial statements of the other portfolio are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The Fund provides two classes of shares: Class A Shares and Class C Shares.
Class A Shares and Class C Shares are subject to certain of the same expenses;
however, Class A Shares and Class C Shares are subject to a 12b-1 fee of 0.25 of
1% and 0.75 of 1% respectively. Class A Shares and Class C Shares are also
subject to certain sales and contingent deferred sales charges.
Effective March 15, 1994, shareholders approved a change in the name of the
Corporation to International Series, Inc.
(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 corporate bonds (and other fixed income
securities/asset backed securities) are valued at the last sale price
reported on national securities exchanges. Unlisted bonds/securities and
short-term obligations are valued at the prices provided by an independent
pricing service. Short-term securities with remaining maturities of sixty
days or less at the time of purchase may be stated 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 agreement, including
accrued interest.
The Fund is also permitted to enter into reverse repurchase agreements, in
which the Fund sells U.S. government securities to financial institutions
and agrees to repurchase the securities at an agreed upon price and date.
International Income Fund
- --------------------------------------------------------------------------------
The Fund will only enter into repurchase and reverse repurchase agreements
with banks and other recognized financial institutions such as
broker/dealers which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Board of Directors ("Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of these agreements. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount are amortized as required by
the Internal Revenue Code (the "Code"). Distributions to shareholders are
recorded on the ex-dividend date.
D. FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FCs, currency gains or losses
realized between the trade and settlement dates on securities transactions,
the difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
E. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. However, federal
taxes may be imposed on the Fund upon the disposition of certain
investments in Passive Foreign Investment Companies. 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.
F. FORWARD COMMITMENTS--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
International Income Fund
- --------------------------------------------------------------------------------
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.
At May 31, 1994, the Fund had outstanding forward commitments set out
below:
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
TO DELIVER/ IN EXCHANGE APPRECIATION
SETTLEMENT DATE RECEIVE FOR (DEPRECIATION)
<S> <C> <C> <C>
SALES
Netherlands Guilder 18,434,000 $ 9,597,543 $ (252,836)
- -----------------------------------------------------------
German Deutsche Mark 7,000,000 4,056,560 (143,482)
- -----------------------------------------------------------
German Deutsche Mark 86,920,953 50,505,051 (2,260,563)
- -----------------------------------------------------------
PURCHASES
Canadian Dollars 34,648,125 $ 25,000,000 $ 2,257
- -----------------------------------------------------------
Italian Lira 85,000,000,000 50,505,051 2,824,852
- ----------------------------------------------------------- -----------------
Net Unrealized Appreciation/Depreciation
on Forward Commitments $ 170,228
- ----------------------------------------------------------- -----------------
</TABLE>
G. OPTION CONTRACTS--The Fund may write or purchase option contracts. 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. For the six months ended May 31,
1994 the Fund had a realized loss of $384,000 on written options.
At May 31, 1994, the Fund had the following outstanding options:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION EXERCISE NUMBER OF APPRECIATION MARKET
ISSUER TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley
Group Call 8/12/94 980 85,000,000,000 $ (884,317) 368,050
- ------------------------------ ----------------- -----------
Total $ (884,317) 368,050
- ------------------------------ ----------------- -----------
</TABLE>
H. WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make
International Income Fund
- --------------------------------------------------------------------------------
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--lnvestment transactions are accounted for on the trade date.
L. RECLASSIFICATION--During the year ended November 30, 1994, the Fund adopted
Statement of Position 93-2 Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. Accordingly, permanent book and tax
differences have been reclassified. The Fund reclassified $2,285,312 from
accumulated net realized gain/loss to undistributed net investment income
in accordance with SOP 93-2. Net investment income, net realized gains, and
net assets were not affected by this change.
(3) CAPITAL STOCK
At May 31, 1994, there were 500,000,000 shares of $.0001 par value capital stock
authorized for Class A Shares and Class C Shares respectively. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994* 1993
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 11,378,018 $ 129,987,427 14,494,139 $ 167,776,782
- -----------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 576,291 6,510,054 243,001 2,687,283
- -----------------------------------------------------
Shares redeemed (8,239,612) (92,561,908) (4,447,404) (50,982,677)
- ----------------------------------------------------- ------------ -------------- ------------ --------------
Net change resulting from capital stock
transactions 3,714,697 $ 43,935,573 10,289,736 $ 119,481,388
- ----------------------------------------------------- ------------ -------------- ------------ --------------
</TABLE>
*Six months ended May 31, 1994.
International Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994** 1993*
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 529,339 $ 6,055,393 409,680 $ 4,925,094
- ---------------------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 29,750 335,663 2,095 24,704
- ---------------------------------------------------------------
Shares redeemed (155,076) (1,714,483) (9,338) (200,926)
- --------------------------------------------------------------- --------- ----------- --------- ------------
Net change resulting from capital
stock transactions 404,013 $ 4,676,573 402,437 $ 4,748,872
- --------------------------------------------------------------- --------- ----------- --------- ------------
</TABLE>
* For the period from March 31, 1993 (date of initial public offering) to
November 30, 1993.
** Six months ended May 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE-- On March 15, 1994, Federated Management became the Fund's
investment adviser ("Adviser"). Adviser receives for its services an annual
investment advisory fee equal to 0.75 of 1% of the Fund's average daily net
assets. Under the terms of a sub-advisory agreement between Federated Management
and Fiduciary Trust International Limited (the "Sub-Adviser"), Sub-Adviser will
receive an annual fee from Federated Management equal to 0.375 of 1% of average
daily net assets of the Fund. Prior to March 15, 1994, Fiduciary Trust
International Limited served as the Fund's investment adviser and received for
its services an annual investment advisory fee equal to 0.75 of 1% of the Fund's
average daily net assets. Prior to March 15, 1994, Federated Management, under
the terms of a sub-advisory agreement with Fiduciary Trust International
Limited, served as the Fund's sub-adviser and received an annual fee from
Fiduciary Trust International Limited equal to 0.375 of 1% of average daily net
assets. Adviser may voluntarily choose to waive a portion of its fee. Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion. For the six months ended May 31, 1994, Federated Management in its
capacity of SubAdviser/Adviser earned $466,653 of which $56,477 was waived. For
the six months ended May 31, 1994, Fiduciary Trust International Limited, in its
capacity as Adviser/Sub-Adviser earned $466,652 of which $56,477 was waived.
ADMINISTRATIVE SERVICES-- Federated Administrative Services ("FAS") provides the
Fund administrative personnel and services. Prior to March 1, 1994, these
services were provided at approximate cost. Effective March 1, 1994, the fee is
based on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN-- The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the terms of
International Income Fund
- --------------------------------------------------------------------------------
the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the
principal distributor, from the net assets of the Fund to finance activities
intended to result in the sale of the Fund's Class A Shares and Class C Shares.
The Plan provides that the Fund may 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 compensate FSC. Under the terms of a
shareholder services agreement with FSC, the Fund will pay FSC up to 0.25 of 1%
of average net assets for the fund for the period. This fee is to obtain certain
personal services for shareholders and the maintenance of shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT-- Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The fee is based
on the size, type and number of accounts and transactions made by shareholders.
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
month period ended May 31, 1994 were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 187,539,920
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 155,893,771
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
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
David M. Taylor
Assistant Treasurer
Jeannette Fisher-Garber
Assistant Secretary
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.
[LOGO] INTERNATIONAL
INCOME
FUND
3rd SEMI-ANNUAL
REPORT
May 31, 1994
Established 1991
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
46031P100
46031P209
2061602 (7/94)
APPENDIX
A. The graphic presentation here displayed consists of
a legend in the upper left quadrant of the chart
indicating the components of the corresponding line
graph. The color-coded line graph is a visual
representation of the narrative text above it, which
shows that an initial investment of $10,000 in 1984 and
ten subsequent annual investments of $5,000 in
International Equity Fund would have grown to $109,699
by 1994. The "x" axis reflects the cost of the
investment, the "y" axis reflects computation periods
from 1984 through 1994, and the right margin of the
chart reflects a total investment range from $0 to
$120,000. The chart further indicates the ending value
attributable to principal, as well as the ending value
attributable to reinvested income.
B. The graphic presentation here displayed consists of
a legend in the upper left quadrant of the chart
indicating the components of the corresponding line
graph. The color-coded line graph is a visual
representation of the narrative text above it, which
shows that an initial investment of $10,000 in 1984 in
International Equity Fund would have grown to $39,936
by 1994. The "x" axis reflects the cost of the
investment, the "y" axis reflects computation periods
from 1984 through 1994, and the right margin of the
chart reflects a total investment range from $0 to
$40,000. The chart further indicates the ending value
attributable to principal, as well as the ending value
attributable to reinvested income.
C. The graphic presentation here displayed consists of
a legend in the upper left quadrant of the chart
indicating the components of the corresponding line
graph. The color-coded line graph is a visual
representation of the narrative text above it, which
shows that, beginning in 1984, ten annual investments
of $1,000 in International Equity Fund would have grown
to $17,946 by 1994. The "x" axis reflects the cost of
the investment, the "y" axis reflects computation
periods from 1984 through 1994, and the right margin of
the chart reflects a total investment range from $0 to
$20,000. The chart further indicates the ending value
attributable to principal, as well as the ending value
attributable to reinvested income.
D. The graphic presentation here displayed consists of
a legend in the upper left quadrant of the chart
indicating the components of the corresponding line
graph. The color-coded line graph is a visual
representation of the narrative text above it, which
shows that an initial investment of $10,000 in 1991 and
three subsequent annual investments of $2,000 in
International Income Fund would have grown to $19,322
by 1994. The "x" axis reflects the cost of the
investment, the "y" axis reflects computation periods
from 1991 through 1994, and the right margin of the
chart reflects a total investment range from $0 to
$25,000. The chart further indicates the ending value
attributable to principal, as well as the ending value
attributable to reinvested income.
E. The graphic presentation here displayed consists of
a legend in the upper left quadrant of the chart
indicating the components of the corresponding line
graph. The color-coded line graph is a visual
representation of the narrative text above it, which
shows that an initial investment of $30,000 in 1991 in
International Income Fund would have grown to $39,221
by 1994. The "x" axis reflects the cost of the
investment, the "y" axis reflects computation periods
from 1991 through 1994, and the right margin of the
chart reflects a total investment range from $0 to
$50,000. The chart further indicates the ending value
attributable to principal, as well as the ending value
attributable to reinvested income.
F. The graphic presentation here displayed consists of
a legend in the upper left quadrant of the chart
indicating the components of the corresponding line
graph. The color-coded line graph is a visual
representation of the narrative text above it, which
shows that, beginning in 1991, three annual investments
of $10,000 in International Income Fund would have
grown to $35,314 by 1994. The "x" axis reflects the
cost of the investment, the "y" axis reflects
computation periods from 1991 through 1994, and the
right margin of the chart reflects a total investment
range from $0 to $40,000. The chart further indicates
the ending value attributable to principal, as well as
the ending value attributable to reinvested income.
