1933 Act File No. 2-91776
1940 Act File No. 811-3984
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 23 _
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _ X
Amendment No. 20 _
INTERNATIONAL SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on January 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
Registrant has filed with the Securities and Exchange Commission a
declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
X filed the Notice required by that Rule on January 17, 1995; or
intends to file the Notice required by that Rule on or about
____________;
or
during the most recent fiscal year did not sell any securities
pursuant to
Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of INTERNATIONAL
SERIES, INC.
(formerly, FT Series, Inc.), which is comprised of two portfolios: (1)
International Equity Fund consisting of three classes of shares, (a)
Class A
Shares, (b) Class C Shares, and (c) Class B Shares; and (2)
International
Income Fund consisting of three classes of shares, (a) Class A Shares,
(b) Class C Shares, and (c) Class B Shares, and is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-2) Cover Page.
Item 2. Synopsis (1-2) Summary of Fund
Expenses.
Item 3. Condensed Financial
Information (1-2) Performance Information;
(1a, 1b, 2a, 2b) Financial
Highlights.
Item 4. General Description of
Registrant (1-2) General Information; (1-
2)
Liberty Family of Funds; (1a,
2a,
1b, 2b) Liberty Family
Retirement
Program; (1-2) Investment
Information; (1-2) Investment
Objective; (1-2) Investment
Policies; (1) Risks Associated
with
Financial Futures Contracts
and
Options on Financial Futures
Contracts; (2) Hedging
Vehicles and
Strategies; (2) Hedging
Strategies;
(1-2) Investment Limitations.
Item 5. Management of the Fund (1-2) International Series,
Inc.
Information; (1-2) Management
of the
Corporation; (1a, 2a)
Distribution
of Class A Shares; (1b, 2b)
Distribution of Class C
Shares; (1c,
2c) Distribution of Class B
Shares;
(1-2) Administration of the
Fund;
(1c, 2c) Expenses of the Fund
and
Class B Shares; (1-2)
Brokerage
Transactions.
Item 6. Capital Stock and Other
Securities (1-2) Dividends; Capital
Gains;
Shareholder Information;
Voting
Rights; Tax Information;
Federal
Income Tax; Pennsylvania
Corporate
and Personal Property Taxes;
Other
Classes of Shares.
Item 7. Purchase of Securities Being
Offered (1-2) Net Asset Value; (1a,
2a)
Investing in Class A Shares;
(1b,
2b) Investing in Class C
Shares;
(1c, 2c) Investing in Class B
Shares; (1-2) Share Purchases;
Minimum Investment Required;
What
Shares Cost; (1a, 2a)
Eliminating or
Reducing the Sales Charge;
(1c, 2c)
Conversion of Class B Shares;
(1-2)
Systematic Investment Program;
Certificates and
Confirmations;
Retirement Plans; (1-2)
Exchange
Privilege; (1a, 2a) Eliminated
or
Reduced Sales Charge; (1-2)
Requirements for Exchange; Tax
Consequences; Making an
Exchange.
Item 8. Redemption or Repurchase (1a, 2a) Redeeming Class A
Shares;
(1b, 2b) Redeeming Class C
Shares;
(1c, 2c) Redeeming Class B
Shares;
(1-2) Through a Financial
Institution; (1-2) Directly
from the
Fund; (1b, 1c, 2b, 2c)
Contingent
Deferred Sales Charge; (1-2)
Systematic Withdrawal Program;
Accounts with Low Balances;
(1b, 2b)
Reinvestment Privilege; (1b,
2b)
Elimination of Contingent
Deferred
Sales Charge.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page (1-2) Cover Page.
Item 11. Table of Contents (1-2) Table of Contents.
Item 12. General Information and
History (1-2) General Information
About the
Fund.
Item 13. Investment Objectives and
Policies (1-2) Investment Objectives
and
Policies.
Item 14. Management of the
Corporation (1-2) Filed in Part A,
Management of
the Corporation.
Item 15. Control Persons and Principal
Holders of Securities Fund Ownership.
Item 16. Investment Advisory and Other
Services (1-2) Investment Advisory
Services;
Administrative Services;
Transfer
Agent and Dividend Disbursing
Agent.
Item 17. Brokerage Allocation (1-2) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered (1-2) Purchasing Shares;
Determining
Net Asset Value; Redeeming
Shares.
Item 20. Tax Status (1-2) Tax Status.
Item 21. Underwriters (1-2) Distribution and
Shareholder
Services Plans.
Item 22. Calculation of Performance
Data (1) Yield; (1-2) Total Return;
Performance Comparisons.
Item 23. Financial Statements (1-2) Filed in Part A.
INTERNATIONAL EQUITY FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
(FORMERLY, FT SERIES, INC.)
CLASS A SHARES
PROSPECTUS
The Class A Shares of International Equity Fund (the "Fund") offered by
this
prospectus represent interests in the Fund, which is a diversified
investment
portfolio in International Series, Inc. (formerly, FT Series, Inc.) (the
"Corporation"), an open-end, management investment company (a mutual
fund).
The Fund's objective is to obtain a total return on its assets. The Fund
pursues
this objective through a diversified portfolio primarily invested in
equity
securities of non-U.S. issuers.
THE CLASS A SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A SHARES INVOLVES
INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you
invest in Class A Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Class
A Shares, Class B Shares, and Class C Shares dated January 31, 1995,
with the
Securities and Exchange Commission. The information contained in the
Combined
Statement of Additional Information is incorporated by reference into
this
prospectus. You may request a copy of the Combined Statement of
Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the
address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1995
TABLE OF CONTENTS
- ------------------------------------------------------------------------
- --------
SUMMARY OF FUND EXPENSES
1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
2
- ------------------------------------------------------
GENERAL INFORMATION
3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS
3
- ------------------------------------------------------
LIBERTY FAMILY RETIREMENT PROGRAM
5
- ------------------------------------------------------
INVESTMENT INFORMATION
5
- ------------------------------------------------------
Investment Objective
5
Investment Policies
5
Risks Associated with Financial
Futures Contracts and Options
on Financial Futures Contracts
12
Investment Limitations
13
NET ASSET VALUE
13
- ------------------------------------------------------
INVESTING IN CLASS A SHARES
14
- ------------------------------------------------------
Share Purchases
14
Minimum Investment Required
15
What Shares Cost
15
Subaccounting Services
16
Eliminating or Reducing the Sales Load
16
Systematic Investment Program
18
Certificates and Confirmations
18
Dividends
18
Capital Gains
18
Retirement Plans
19
EXCHANGE PRIVILEGE
19
- ------------------------------------------------------
Eliminated or Reduced the Sales Load
19
Requirements for Exchange
19
Tax Consequences
19
Making an Exchange
20
REDEEMING CLASS A SHARES
20
- ------------------------------------------------------
Through a Financial Institution
20
Directly from the Fund
21
Systematic Withdrawal Program
22
Accounts with Low Balances
22
INTERNATIONAL SERIES, INC. INFORMATION
22
- ------------------------------------------------------
Management of the Corporation
22
Distribution of Class A Shares
29
Administration of the Fund
29
Brokerage Transactions
30
SHAREHOLDER INFORMATION
30
- ------------------------------------------------------
Voting Rights
30
TAX INFORMATION
31
- ------------------------------------------------------
Federal Income Tax
31
Pennsylvania Corporate and
Personal Property Taxes
32
PERFORMANCE INFORMATION
32
- ------------------------------------------------------
OTHER CLASSES OF SHARES
32
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
34
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
35
- ------------------------------------------------------
FINANCIAL STATEMENTS
36
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
54
- ------------------------------------------------------
ADDRESSES
55
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................... 5.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering
price).........................................................
0.00%
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as
applicable)................................................
None
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................ None
Exchange
Fee.....................................................................
............. None
ANNUAL CLASS A SHARES
OPERATING EXPENSES
(As a percentage of average
net assets)
Management
Fee.....................................................................
........... 1.00%
12b-1
Fee.....................................................................
................ None
Total Other
Expenses................................................................
.......... 0.61%
Shareholder Services Fee (after waiver)
(1).............................................. 0.06%
Total Class A Shares Operating
Expenses.............................................
1.61%
</TABLE>
(1) The maximum shareholder services fee is 0.25%.
The purpose of this table is to assist an investor in understanding
the
various costs and expenses that a shareholder of the Class A Shares of
the Fund
will bear, either directly or indirectly. For more complete descriptions
of the
various costs and expenses, see "Investing in Class A Shares" and
"International
Series, Inc. Information." Wire-transferred redemptions of less than
$5,000 may
be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
1 year 3 years 5 years 10 years
<S>
<C> <C> <C> <C>
- --------- --------- --------- ----------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period................................................................
$70 $103 $138 $236
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The information set forth in the foregoing table and example
relates only
to Class A Shares of the Fund. The Fund also offers two additional
classes of
shares called Class C Shares and Class B Shares. Class A Shares, Class C
Shares
and Class B Shares are subject to certain of the same expenses. However,
Class C
Shares are subject to a 12b-1 fee of 0.75% and a contingent deferred
sales
charge of 1.00% but are not subject to a sales load. Class B Shares are
subject
to a 12b-1 fee of 0.75% and a contingent deferred sales charge of up to
5.50%,
and are not subject to a sales load. See "Other Classes of Shares."
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants page
54.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994 1993 1992 1991
1990 1989 1988 1987 1986
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
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 0.15 0.06 0.10
0.11 0.19 0.18 0.19 0.24 0.04
- ------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions 1.96 2.53 (0.37)
0.37 (1.16) 1.60 3.27 (0.72) 8.63
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
Total from investment
operations 2.11 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 (0.07) (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 -- (0.13)(a) -- --
- -- -- -- -- --
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
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 $ 18.53 $ 16.49 $ 14.09 $
14.44 $ 14.28 $ 17.59 $ 17.34 $ 19.99 $ 22.87
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
TOTAL RETURN* 12.82% 18.52% (1.86)%
3.49% (6.72)% 11.55% 24.33% (2.70)% 60.75%
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 1.61% 1.60% 1.57%
1.52% 1.32% 1.01% 1.00% 1.00% 1.00%
- ------------------------------
Net investment income -- 0.13% 0.69%
0.78% 1.39% 1.04% 1.43% 0.93% 0.34%
- ------------------------------
Expense waiver/
reimbursement (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) $261,178 $192,860 $106,937
$101,980 $82,541 $65,560 $68,922 $85,860 $106,257
- ------------------------------
Portfolio turnover rate 73% 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
and foreign currency
transactions 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 --
- ------------------------------ ---------
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 (b) 0.50%
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $34,209
- ------------------------------
Portfolio turnover rate 61%
- ------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption
fee, if applicable.
(a) Distributions are determined in accordance with income tax
regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal
income tax
purposes.
(b) The voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
GENERAL INFORMATION
- ------------------------------------------------------------------------
- --------
The Corporation was established as FT International Trust, a
Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under
the
laws of the state of Maryland on February 11, 1991. At a special meeting
of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the
name of the
Corporation to International Series, Inc. The Corporation's address is
Liberty
Center, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
The
Articles of Incorporation permit the Corporation to offer separate
series of
shares representing interests in separate portfolios of securities. The
shares
in any one portfolio may be offered in separate classes. With respect to
this
Fund, as of the date of this prospectus, the Board of Directors of the
Corporation (the "Directors") has established three classes of shares
known as
Class A Shares, Class B Shares, and Class C Shares. This prospectus
relates only
to Class A Shares (the "Shares") of the Corporation's portfolio known as
International Equity Fund.
Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended
to
provide a complete investment program for an investor. In general,
Shares are
sold at net asset value plus an applicable sales load and are redeemed
at net
asset value. For a more complete description, see "Investing in Class A
Shares"
and "Redeeming Class A Shares." A minimum initial investment of $500 is
required, unless the investment is in a retirement account, in which
case the
minimum investment is $50.
The Fund's current net asset value and offering price can be found in
the mutual
funds section of local newspapers under "Federated Liberty."
LIBERTY FAMILY OF FUNDS
- ------------------------------------------------------------------------
- --------
This Fund is a member of a family of mutual funds, collectively known as
the
Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
. American Leaders Fund, Inc., providing growth of capital and
income
through high-quality stocks;
. Capital Growth Fund, providing appreciation of capital primarily
through
equity securities;
. Fund for U.S. Government Securities, Inc., providing current
income
through long-term U.S. government securities;
. International Income Fund, providing a high level of current
income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
. Liberty Equity Income Fund, Inc., providing above-average income
and
capital appreciation through income producing equity securities;
. Liberty High Income Bond Fund, Inc., providing high current
income
through high-yielding, lower-rated, corporate bonds;
. Liberty Municipal Securities Fund, Inc., providing a high level
of
current income exempt from federal regular income tax through
municipal
bonds;
. Liberty U.S. Government Money Market Trust, providing current
income
consistent with stability of principal through high-quality U.S.
government securities;
. Liberty Utility Fund, Inc., providing current income and long-
term growth
of income, primarily through electric, gas, and communications
utilities;
. Limited Term Fund, providing a high level of current income
consistent
with minimum fluctuation in principal through investment grade
securities;
. Limited Term Municipal Fund, providing a high level of current
income
exempt from federal regular income tax consistent with the
preservation
of principal, primarily limited to municipal securities;
. Michigan Intermediate Municipal Trust, providing current income
exempt
from federal regular income tax and personal income taxes imposed
by the
state of Michigan and Michigan municipalities, primarily through
Michigan
municipal securities;
. Pennsylvania Municipal Income Fund, providing current income
exempt from
federal regular income tax and the personal income taxes imposed
by the
Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal
securities;
. Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt
obligations;
. Tax-Free Instruments Trust, providing current income consistent
with the
stability of principal and exempt from federal income tax,
through
high-quality, short-term municipal securities; and
. World Utility Fund, providing total return primarily through
securities
issued by domestic and foreign companies in the utilities
industries.
Prospectuses for these funds are available by writing to Federated
Securities
Corp.
Each of the funds may also invest in certain other types of securities
as
described in each fund's prospectus. The Liberty Family of Funds
provides
flexibility and diversification for an investor's long-term investment
planning.
It enables an investor to meet the challenges of changing market
conditions by
offering convenient exchange privileges which give access to various
investment
vehicles and by providing the investment services of proven,
professional
investment advisers.
Shareholders of Class A Shares participating in the Liberty Account are
designated as Liberty Life Members. Liberty Life Members are exempt from
sales
loads on future purchases in and exchanges between the Class A Shares of
any
funds in the Liberty Family of Funds, as long as they maintain a $500
balance in
one of the Liberty Funds.
LIBERTY FAMILY RETIREMENT PROGRAM
- ------------------------------------------------------------------------
- --------
The Fund is also a member of the Liberty Family Retirement Program
("Program"),
an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit
and
savings plans. Under the Program, employers or plan trustees may select
a group
of investment options to be offered in a plan which also uses the
Program for
recordkeeping and administrative services. Additional fees are charged
to the
plan for these services. As part of the Program, exchanges may readily
be made
between investment options selected by the employer or a plan trustee.
The other funds participating in the Liberty Family Retirement Program
are:
American Leaders Fund, Inc.; Capital Growth Fund; Capital Preservation
Fund;
Fund for U.S. Government Securities, Inc.; International Income Fund;
Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Utility
Fund, Inc.; Prime Cash Series; and Strategic Income Fund.
INVESTMENT INFORMATION
- ------------------------------------------------------------------------
- --------
INVESTMENT OBJECTIVE
The Fund's objective is to obtain a total return on its assets. The
objective is
based on the premise that investing in non-U.S. securities provides
three
potential benefits over investing solely in U.S. securities:
. the opportunity to invest in non-U.S. companies believed to have
superior
growth potential;
. the opportunity to invest in foreign countries with economic
policies or
business cycles different from those of the United States; and
. the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not
move in
harmony.
While there is no assurance that the Fund will achieve its investment
objective,
it endeavors to do so by following the investment policies described in
this
prospectus. The investment objective and policies may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any
material change in the objective or policies becomes effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund invests primarily in non-U.S.
securities. A
substantial portion of these will be equity securities of established
companies
in economically developed countries. The Fund will invest at least 65%,
and
under normal market conditions substantially all of its total assets, in
equity
securities denominated in foreign currencies, including European
Currency Units,
of issuers located in at least three countries outside of the United
States and
sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs"),
collectively, "Depositary Receipts." The Fund may also purchase
corporate and
government fixed income securities denominated in currencies other than
U.S.
Dollars; enter into forward commitments, repurchase agreements, and
foreign
currency transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
EQUITY AND FIXED INCOME SECURITIES. At the date of this
prospectus, the
Fund has committed its assets primarily to dividend-paying equity
securities of established companies that appear to have growth
potential.
However, as a temporary defensive position, the Fund may shift its
emphasis
to fixed income securities, warrants, or other obligations of
foreign
companies or governments, if they appear to offer potential higher
return.
Fixed income securities include preferred stock, convertible
securities,
bonds, notes, or other debt securities which are investment grade
or
higher. However, in no event will the Fund invest more than 25% of
its
total assets in the debt securities of any one foreign country.
The high-quality debt securities in which the Fund will invest will
possess
a minimum credit rating of A as assigned by Standard & Poor's
Ratings Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if
unrated, will be judged by Federated Management, the Fund's
investment
adviser (the "Adviser"), or Fiduciary International, Inc., the
Fund's
investment sub-adviser (the "sub-adviser"), to be of comparable
quality.
Because the average quality of the Fund's portfolio investments
should
remain constantly between A and AAA, the Fund will seek to avoid
the
adverse consequences that may arise for some debt securities in
difficult
economic circumstances. Downgraded securities will be evaluated on
a case
by case basis by the Adviser. The Adviser will determine whether or
not the
security continues to be an acceptable investment. If not, the
security
will be sold. A description of the ratings categories is contained
in the
Appendix to the Statement of Additional Information.
The prices of fixed income securities generally fluctuate inversely
to the
direction of interest rates.
DEPOSITARY RECEIPTS. The Fund may invest in foreign issuers by
purchasing
sponsored or unsponsored ADRs, GDRs, and EDRs. ADRs are depositary
receipts
typically issued by a United States bank or trust company which
evidence
ownership of underlying securities issued by a foreign corporation.
EDRs
and GDRs are typically issued by foreign banks or trust companies,
although
they also may be issued by United States banks or trust companies,
and
evidence ownership of underlying securities issued by either a
foreign or a
United States corporation. Generally, Depositary Receipts in
registered
form are designed for use in the United States securities market
and
Depositary Receipts in bearer form are designed for use in
securities
markets outside the United States. Depositary Receipts may not
necessarily
be denominated in the same currency as the underlying securities
into which
they may be converted. Ownership of unsponsored Depositary Receipts
may not
entitle the Fund to financial or other reports from the issuer of
the
underlying security, to which it would be entitled as the owner of
sponsored Depositary Receipts.
FORWARD COMMITMENTS. Forward commitments are contracts to purchase
securities for a fixed price at a date beyond customary settlement
time.
The Fund may enter into these contracts if liquid securities in
amounts
sufficient to meet the purchase price are segregated on the Fund's
records
at the trade date and maintained until the transaction has been
settled.
Risk
is involved if the value of the security declines before
settlement.
Although the Fund enters into forward commitments with the
intention of
acquiring the security, it may dispose of the commitment prior to
settlement and realize short-term profit or loss.
MONEY MARKET INSTRUMENTS. The Fund may invest in U.S. and foreign
short-term money market instruments, including interest-bearing
call
deposits with banks, government obligations, certificates of
deposit,
bankers' acceptances, commercial paper, short-term corporate debt
securities, and repurchase agreements. The commercial paper in
which the
Fund invests will be rated A-1 by S&P or P-1 by Moody's. These
investments
may be used to temporarily invest cash received from the sale of
Fund
Shares, to establish and maintain reserves for temporary defensive
purposes, or to take advantage of market opportunities. Investments
in the
World Bank, Asian Development Bank, or Inter-American Development
Bank are
not anticipated.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in
which
banks, broker/ dealers, and other recognized financial institutions
sell
securities to the Fund and agree at the time of sale to repurchase
them at
a mutually agreed upon time and price. To the extent that the
original
seller does not repurchase the securities from the Fund, the Fund
could
receive less than the repurchase price on any sale of such
securities.
OPTIONS AND FINANCIAL FUTURES CONTRACTS. The Fund may purchase put
and
call options, financial futures contracts, and options on financial
futures
contracts. In addition, the Fund may write (sell) put and call
options with
respect to securities in the Fund's portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities
on a when-issued or delayed delivery basis. These transactions are
arrangements
in which the Fund purchases securities with payment and delivery
scheduled for a
future time. The seller's failure to complete the transaction may cause
the Fund
to miss a price or yield considered to be advantageous. Settlement dates
may be
a month or more after entering into these transactions, and the market
values of
the securities purchased may vary from the purchase prices. Accordingly,
the
Fund may pay more/less than the market value of the securities on the
settlement
date.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it
appropriate to do so. In addition, the Fund may enter into transactions
to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities
at later
dates. The Fund may realize short-term profits or losses upon the sale
of such
commitments.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign
currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or
cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect
Fund
assets against adverse changes in foreign currency exchange rates or
exchange
control regulations. Such changes could unfavorably affect the value of
Fund
assets which are denominated in foreign currencies, such as foreign
securities
or funds deposited in foreign banks, as measured in U.S. Dollars.
Although
foreign currency exchanges may be used by the Fund to protect against a
decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value
of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or
sell an
amount of a particular currency at a specific price and on a future date
agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time
the Fund
enters into a forward contract, Fund assets with a value equal to the
Fund's
obligation under the forward contract are segregated on the Fund's
records and
are maintained until the contract has been settled. The Fund will not
enter into
a forward contract with a term of more than one year. The Fund will
generally
enter into a forward contract to provide the proper currency to settle a
securities transaction at the time the transaction occurs ("trade
date"). The
period between the trade date and settlement date will vary between 24
hours and
30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets
denominated in
that currency ("hedging"). The success of this type of short-term
hedging
strategy is highly uncertain due to the difficulties of predicting short-
term
currency market movements and of precisely matching forward contract
amounts and
the constantly changing value of the securities involved. Although the
Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be
able to
enter into forward contracts when it believes the interests of the Fund
will be
served. The Fund will not enter into forward contracts for hedging
purposes in a
particular currency in an amount in excess of the Fund's assets
denominated in
that currency. No more than 30% of the Fund's assets will be committed
to
forward contracts for hedging purposes at any time. (This restriction
does not
include forward contracts entered into to settle securities
transactions.)
PUT AND CALL OPTIONS WITH RESPECT TO EQUITY SECURITIES. The Fund may
purchase
put and call options on its portfolio of securities. Put and call
options will
be used as a hedge to attempt to protect securities which the Fund
holds, or
will be purchasing, against decreases or increases in value. The Fund is
also
authorized to write (sell) put and call options on all or any portion of
its
portfolio of securities to generate income. The Fund may write call
options on
securities either held in its portfolio or which it has the right to
obtain
without payment of further consideration or for which it has segregated
cash in
the amount of any additional consideration. In the case of put options
written
by the Fund, the Corporation's custodian will segregate cash, U.S.
Treasury
obligations, or highly liquid debt securities with a value equal to or
greater
than the exercise price of the underlying securities.
The Fund is authorized to invest in put and call options that are traded
on
securities exchanges. The Fund may also purchase and write over-the-
counter
options ("OTC options") on portfolio securities in negotiated
transactions with
the buyers or writers of the options since options on some of the
portfolio
securities held by the Fund are not traded on an exchange. The Fund will
purchase and write OTC options only with investment dealers and other
financial
institutions (such as commercial banks or savings and loan associations)
deemed
creditworthy by the Adviser.
OTC options are two-party contracts with price and terms negotiated
between
buyer and seller. In contrast, exchange-traded options are third-party
contracts
with standardized strike prices and expiration dates and are purchased
from a
clearing corporation. Exchange-traded options have a continuous liquid
market
while OTC options may not. Prior to exercise or expiration, an option
position
can only be terminated by entering into a closing purchase or sale
transaction.
This requires a secondary market on an exchange which may or may not
exist for
any particular call or put option at any specific time. The absence of a
liquid
secondary market also may limit the Fund's ability to dispose of the
securities
underlying an option. The inability to close options also could have an
adverse
impact on the Fund's ability to effectively hedge its portfolio.
FINANCIAL FUTURES AND OPTIONS ON FINANCIAL FUTURES. The Fund may
purchase and
sell financial futures contracts to hedge all or a portion of its
portfolio
securities against changes in interest rates or securities prices.
Financial
futures contracts on securities call for the delivery of particular
securities
at a certain time in the future. The seller of the contract agrees to
make
delivery of the type of instrument called for in the contract, and the
buyer
agrees to take delivery of the instrument at the specified future time.
A
financial futures contract on a securities index does not involve the
actual
delivery of securities, but merely requires the payment of a cash
settlement
based on changes in the securities index.
The Fund may also write call options and purchase put options on
financial
futures contracts as a hedge to attempt to protect securities in its
portfolio
against decreases in value resulting from anticipated increases in
market
interest rates or broad declines in securities prices. When the Fund
writes a
call option on a financial futures contract, it is undertaking the
obligation of
selling the financial futures contract at a fixed price at any time
during a
specified period if the option is exercised. Conversely, as a purchaser
of a put
option on a financial futures contract, the Fund is entitled (but not
obligated)
to sell a financial futures contract at the fixed price during the life
of the
option.
The Fund may also write put options and purchase call options on
financial
futures contracts as a hedge against rising purchase prices of
securities
eligible for purchase by the Fund. The Fund will use these transactions
to
attempt to protect its ability to purchase securities in the future at
price
levels existing at the time it enters into the transactions. When the
Fund
writes a put option on a futures contract, it is undertaking to buy a
particular
futures contract at a fixed price at any time during a specified period
if the
option is exercised. As a purchaser of a call option on a futures
contract, the
Fund is entitled (but not obligated) to purchase a futures contract at a
fixed
price at any time during the life of the option.
The Fund may not purchase or sell financial futures contracts or options
on
financial futures contracts if, immediately thereafter, the sum of the
amount of
initial margin deposits on the Fund's existing financial futures
positions and
premiums paid for related options would exceed 5% of the fair market
value of
the Fund's total assets, after taking into account the unrealized
profits and
losses on those contracts it has entered into. When the Fund purchases
financial
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the financial futures contracts (less any
related
margin deposits), will be deposited in a segregated account with the
Fund's
custodian to collateralize the position and, thereby, insure that the
use of
such financial futures contracts is unleveraged.
RISK CONSIDERATIONS. Investing in non-U.S. securities carries
substantial risks
in addition to those associated with domestic investments. In an attempt
to
reduce some of these risks, the Fund diversifies its investments broadly
among
foreign countries, including both developed and developing countries. At
least
three different countries will always be represented. As of November 30,
1994,
the portfolio contained securities from issuers located primarily in
Germany,
Japan, the United Kingdom, France, Hong Kong, Switzerland, and Mexico.
There are
also investments in several other countries.
The Fund occasionally takes advantage of the unusual opportunities for
higher
returns available from investing in developing countries. As discussed
in the
Statement of Additional Information, however, these investments carry
considerably more volatility and risk because they are associated with
less
mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in
such
respects as growth of gross domestic product, rate of inflation,
currency
depreciation, capital reinvestment, resource self-sufficiency, and
balance of
payments position. Further, the economies of developing countries
generally are
heavily dependent on international trade and, accordingly, have been,
and may
continue to be, adversely affected by trade barriers, exchange controls,
managed
adjustments in relative currency values, and other protectionist
measures
imposed or negotiated by the countries with which they trade. These
economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required
under
certain circumstances in some countries, and the extent of foreign
investment in
certain debt securities and domestic companies may be subject to
limitation.
Foreign ownership limitations also may be imposed by the charters of
individual
companies to prevent, among other concerns, violation of foreign
investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a
refusal to
grant, any required governmental registration or approval for such
repatriation.
Any investment subject to such repatriation controls will be considered
illiquid
if it appears reasonably likely that this process will take more than
seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political
changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or
the value of the Fund's investments in those countries. In addition, it
may be
difficult to obtain and enforce a judgment in a court outside of the
U.S.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may
have different clearance and settlement procedures and in certain
markets there
have been times when settlements have been unable to keep pace with the
volume
of securities transactions, making it difficult to conduct such
transactions.
The inability of the Fund to make intended security purchases due to
settlement
problems could cause the Fund to miss attractive investment
opportunities.
Inability to dispose of a portfolio security due to settlement problems
could
result either in losses to the Fund due to subsequent declines in value
of the
portfolio security or, if the Fund has entered into a contract to sell
the
security, could result in possible liability to the purchaser.
CURRENCY RISKS. Because the majority of the securities purchased
by the
Fund are denominated in currencies other than the U.S. Dollar,
changes in
foreign currency exchange rates will affect the Fund's net asset
value; the
value of interest earned; gains and losses realized on the sales of
securities; and net investment income and capital gain, if any, to
be
distributed to shareholders by the Fund. If the value of a foreign
currency
rises against the U.S. Dollar, the value of the Fund assets
denominated in
that currency will increase; correspondingly, if the value of a
foreign
currency declines against the U.S. Dollar, the value of Fund assets
denominated in that currency will decrease.
The exchange rates between the U.S. Dollar and foreign currencies
are a
function of such factors as supply and demand in the currency
exchange
markets, international balances of payments, governmental
interpretation,
speculation and other economic and political conditions. Although
the Fund
values its assets daily in U.S. Dollars, the Fund will not convert
its
holdings of foreign currencies to U.S. Dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion
costs.
Foreign exchange dealers may realize a profit on the difference
between the
price at which they buy and sell currencies.
EXCHANGE RATES. Foreign securities are denominated in foreign
currencies.
Therefore, the value in U.S. Dollars of the Fund's assets and
income may be
affected by changes in exchange rates and regulations. Although the
Fund
values its assets daily in U.S. Dollars, it will not convert its
holding of
foreign currencies to U.S. Dollars daily. When the Fund converts
its
holdings to another currency, it may incur conversion costs.
Foreign
exchange dealers realize a profit on the difference between the
prices at
which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign
and U.S.
companies include:
. less publicly available information about foreign companies;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to
those
applicable to U.S. companies;
. less readily available market quotations on foreign companies;
. differences in government regulation and supervision of foreign
stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to
enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited
trading
volume in issuers compared to the volume of trading in U.S.
securities
could cause prices to be erratic for reasons apart from factors
that
affect the quality of securities;
. the likelihood that foreign securities may be less liquid or more
volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments
in some
countries;
. increased risk of delayed settlements of portfolio transactions
or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before
delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's
investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies
have
discouraged or restricted certain investments abroad by investors
such as
the Fund. Investors are advised that when such policies are
instituted, the
Fund will abide by them.
SHORT SALES. The Fund intends to sell securities short from time
to time,
subject to certain restrictions. A short sale occurs when a
borrowed
security is sold in anticipation of a decline in its price. If the
decline
occurs, shares equal in number to those sold short can be purchased
at the
lower price. If the price increases, the higher price must be paid.
The
purchased shares are then returned to the original lender. Risk
arises
because no loss limit can be placed on the transaction. When the
Fund
enters into a short sale, assets, equal to the market price of the
securities sold short or any lesser price at which the Fund can
obtain such
securities, are segregated on the Fund's records and maintained
until the
Fund meets its obligations under the short sale.
RISKS ASSOCIATED WITH FINANCIAL FUTURES CONTRACTS
AND OPTIONS ON FINANCIAL FUTURES CONTRACTS
Financial futures contracts and options on financial futures contracts
can be
highly volatile and could result in a reduction of the Fund's total
return. The
Fund's attempt to use such investment devices for hedging purposes may
not be
successful. Successful futures strategies require the ability to predict
future
movements in securities prices, interest rates and other economic
factors. When
the Fund uses financial futures contracts and options on financial
futures
contracts as hedging devices, there is a risk that the prices of the
securities
subject to the financial futures contracts and options on financial
futures
contracts may not correlate perfectly with the prices of the securities
in the
Fund. This may cause the financial futures contract and any related
options to
react to market changes differently than the portfolio securities. In
addition,
the Adviser could be incorrect in its expectations about the direction
or extent
of market factors, such as interest rate, securities price movements,
and other
economic factors. In these events, the Fund may lose money on the
financial
futures contract or the options on financial futures contracts. It is
not
certain that a secondary market for positions in financial futures
contracts or
for options on financial futures contracts will exist at all times.
Although the
Adviser will consider liquidity before entering into financial futures
contracts
or options on financial futures contracts transactions, there is no
assurance
that a liquid secondary market on an exchange will exist for any
particular
financial futures contract or option on a financial futures contract at
any
particular time. The Fund's ability to establish and close out financial
futures
contracts and options on financial futures contract positions depends on
this
secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the losses to the Fund
could be
significant.
INVESTMENT LIMITATIONS
The Fund will not:
. with respect to 75% of the value of its total assets, invest more
than 5%
of the value of its total assets in the securities (other than
securities
issued or guaranteed by the government of the United States or
its
agencies or instrumentalities) of any one issuer;
. acquire more than 10% of the outstanding voting securities of any
one
issuer, or acquire any securities of Fiduciary Trust Company
International or its affiliates;
. sell securities short except under strict limitations;
. borrow money or pledge securities except, under certain
circumstances,
the Fund may borrow up to one-third of the value of its total
assets and
pledge up to 15% of the value of those assets to secure such
borrowings;
nor
. permit margin deposits for financial futures contracts held by
the Fund,
plus premiums paid by it for open options on financial futures
contracts,
to exceed 5% of the fair market value of the Fund's total assets,
after
taking into account the unrealized profits and losses on those
contracts.
The above investment limitations cannot be changed without shareholder
approval.
The following limitations, however, may be changed by the Directors
without
shareholder approval. Shareholders will be notified before any material
change
in these limitations becomes effective.
The Fund will not:
. invest more than 5% of its assets in warrants;
. own securities of open-end or closed-end investment companies,
except
under certain circumstances and subject to certain limitations
not
exceeding 10% of its total assets (the Fund will indirectly bear
its
proportionate share of any fees and expenses paid by other
investment
companies, in addition to the fees and expenses payable directly
by the
Fund.);
. invest more than 5% of its total assets in securities of issuers
that
have records of less than three years of continuous operations;
. invest more than 15% of the value of its net assets in illiquid
securities, including securities not determined by the Directors
to be
liquid, including repurchase agreements with maturities longer
than seven
days after notice and certain OTC options; nor
. purchase put options on securities unless the securities or an
offsetting
call option is held in the Fund's portfolio.
NET ASSET VALUE
- ------------------------------------------------------------------------
- --------
The Fund's net asset value per Class A Share fluctuates. The net asset
value for
Class A Shares is determined by adding the interest of the Class A
Shares in the
market value of all securities and other assets of the Fund, less
liabilities of
the Fund attributable to Class A Shares, and dividing the remainder by
the total
number of Class A Shares outstanding. The net asset value for Class A
Shares may
differ from that of Class B Shares and Class C Shares due to the
variance in
daily net income realized by each class. Such variance will reflect only
accrued
net income to which the shareholders of a particular class are entitled.
INVESTING IN CLASS A SHARES
- ------------------------------------------------------------------------
- --------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open.
Shares may
be purchased through a financial institution which has a sales agreement
with
the distributor or directly from the distributor, Federated Securities
Corp.,
once an account has been established. In connection with the sale of
Shares,
Federated Securities Corp., may, from time to time, offer certain items
of
nominal value to any shareholder or investor. The Fund reserves the
right to
reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall
purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution
(such as a bank or an investment dealer) to place an order to purchase
Shares.
Orders placed through a financial institution are considered received
when the
Fund is notified of the purchase order. It is the financial
institution's
responsibility to transmit orders promptly. Purchase orders through a
registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern
time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern
time) in
order for Shares to be purchased at that day's price. Purchase orders
through
other financial institutions must be received by the financial
institution and
transmitted to the Fund before 4:00 P.M. (Eastern time) in order for
Shares to
be purchased at that day's price.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to
purchase
Shares directly from the distributor once an account has been
established. To do
so:
. complete and sign the new account form available from the Fund;
. enclose a check made payable to International Equity Fund--Class
A
Shares; and
. mail both to Federated Services Company, P.O. Box 8604, Boston,
MA
02266-8604.
Orders by mail are considered received after payment by check is
converted
by the transfer agent's bank, State Street Bank and Trust Company
("State
Street Bank"), into federal funds. This is generally the next
business day
after State Street Bank receives the check.
BY WIRE. To purchase Shares directly from the distributor by wire,
call
the Fund. All information needed will be taken over the telephone,
and the
order is considered received when the transfer agent's bank, State
Street
Bank, receives payment by wire. Federal funds should be wired as
follows:
Federated Services Company, c/o State Street Bank and Trust
Company,
Boston, Massachusetts; Attention: Mutual Fund Servicing Division;
For
Credit to: International Equity Fund--Class A Shares; Fund Number
(this
number can be found on the account statement or by contacting the
Fund);
Group Number or Order Number; Nominee or Institution Name; ABA
Number
011000028. Shares cannot be purchased by wire on Columbus Day,
Veterans'
Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $500 unless the investment
is in a
retirement plan, in which case the minimum initial investment is $50.
Subsequent
investments must be in amounts of at least $100, except for retirement
plans,
which must be in amounts of at least $50. (Other minimum investment
requirements
may apply to investments through the Liberty Family Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order
is
received, plus a sales load as follows:
<TABLE>
<CAPTION>
SALES LOAD AS SALES
LOAD AS DEALER CONCESSION
A PERCENTAGE OF A
PERCENTAGE OF AS A PERCENTAGE OF
AMOUNT OF PUBLIC OFFERING NET
AMOUNT PUBLIC OFFERING
TRANSACTION PRICE
INVESTED PRICE
<S> <C> <C>
<C>
Less than $50,000 5.50%
5.82% 5.00%
$50,000 but less than 4.50%
4.71% 4.00%
$100,000
$100,000 but less than 3.75%
3.90% 3.25%
$250,000
$250,000 but less than 2.50%
2.56% 2.25%
$500,000
$500,000 but less than 2.00%
2.04% 1.80%
$1,000,000
$1,000,000 or greater 0.00%
0.00% 0.25%*
</TABLE>
* See sub-section entitled "Dealer Concession" below.
The net asset value is determined at 4:00 P.M. (Eastern time) or at the
close of
the New York Stock Exchange, Monday through Friday, except on: (i) days
on which
there are not sufficient changes in the value of the Fund's portfolio
securities
that its net asset value might be materially affected; (ii) days during
which no
Shares are tendered for redemption and no orders to purchase Shares are
received; or (iii) the following holidays: New Year's Day, Presidents'
Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Shareholders designated as Liberty Life Members may purchase additional
Shares
at net asset value, without a sales load, except that a sales load will
be
imposed when the Shares are acquired in exchange for shares of another
fund in
the Liberty Family of Funds.
No sales load is imposed for Shares purchased through bank trust
departments,
investment advisers registered under the Investment Advisers Act of
1940, as
amended, or retirement plans where the third party administrator has
entered
into certain arrangements with Federated Securities Corp. or its
affiliates. In
addition, certain institutions such as insurance companies and certain
associations are exempt from the sales load for purchases of Shares.
However,
investors who purchase
Shares through a trust department or investment adviser or retirement
plan may
be charged an additional service fee by that institution.
Shareholders of record in the Fund on September 30, 1989, may purchase
additional Shares at net asset value, without a sales load, except that
a sales
load will be imposed when the Shares are acquired in exchange for shares
of
another fund in the Liberty Family of Funds.
No sales load is imposed on purchases made by qualified retirement plans
with
over $1 million invested in funds available in the Liberty Family
Retirement
Program.
DEALER CONCESSION. In addition to the dealer concession as noted on the
previous page, the distributor, in its sole discretion, may uniformly
offer to
pay all dealers selling Shares additional amounts, all or a portion of
which may
be paid from the sales load it normally retains or any other source
available to
it. Such payments may take the form of cash or promotional incentives,
such as
payment of certain expenses of qualified employees and their spouses to
attend
informational meetings about the Fund, or other special events at
recreational-type facilities, or of items of material value. In some
instances,
these incentives will be made available only to dealers whose employees
have
sold or may sell a significant amount of Shares. On purchases of $1
million or
more, the investor pays no sales load; however, the distributor will
make twelve
monthly payments to the dealer totaling 0.25% of the public offering
price over
the first year following the purchase. Such payments are based on the
original
purchase price of Shares outstanding at each month end.
The sales load for Shares sold other than through registered
broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may
pay
fees to banks out of the sales load in exchange for sales and/or
administrative
services performed on behalf of the bank's customers in connection with
the
initiation of customer accounts and purchases of Shares.
Effective June 1, 1994, and until further notice, the entire amount of
the
applicable sales load will be reallowed to dealers. In addition, the
distributor
will pay dealers additional bonus payments in an amount equal to 0.50%
of the
public offering price of the Shares sold, with the exception of any
transaction
in which no sales load is paid at all.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However,
certain
institutions may wish to use the transfer agent's subaccounting system
to
minimize their internal recordkeeping requirements. Institutions holding
Shares
in a fiduciary, agency, custodial, or similar capacity may charge or
pass
through subaccounting fees as part of or in addition to normal trust or
agency
account fees. They may also charge fees for other services provided
which may be
related to the ownership of Shares. This prospectus should, therefore,
be read
together with any agreement between the customer and the institution
with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
ELIMINATING OR REDUCING THE SALES LOAD
The sales load can be eliminated or reduced on the purchase of Shares
through:
. quantity discounts and accumulated purchases;
. signing a 13-month letter of intent;
. using the reinvestment privilege;
. purchases with proceeds from redemptions of unaffiliated mutual
fund
shares; or
. concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on
page 15,
larger purchases may eliminate or reduce the sales load paid. The Fund
will
combine purchases of Shares made on the same day by the investor, the
investor's
spouse, and the investor's children under age 21 when it calculates the
sales
load. In addition, the sales load, if applicable, is eliminated or
reduced for
purchases made at one time by a trustee or fiduciary for a single trust
estate
or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the
previous
purchases still invested in the Fund. For example, if a shareholder
already owns
Shares having a current value at the public offering price of $90,000
and he
purchases $10,000 more at the current public offering price, the sales
load as a
percentage of public offering price on the additional purchase according
to the
schedule now in effect would be 3.75%, not 4.50%.
To receive the sales load elimination or reduction, Federated Securities
Corp.
must be notified by the shareholder in writing or by his financial
institution
at the time the purchase is made that Shares are already owned or that
purchases
are being combined. The Fund will eliminate or reduce the sales load
after it
confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000
of
shares in the funds in the Liberty Family of Funds over the next 13
months, the
sales load may be reduced by signing a letter of intent to that effect.
This
letter of intent includes a provision for a sales load adjustment
depending on
the amount actually purchased within the 13-month period, and a
provision for
the custodian to hold 5.50% of the total amount intended to be purchased
in
escrow (in Shares) until such purchase is completed.
The 5.50% held in escrow will be applied to the shareholder's account at
the end
of the 13-month period unless the amount specified in the letter of
intent is
not purchased. In this event, an appropriate number of escrowed Shares
may be
redeemed in order to realize the difference in the sales load.
This letter of intent will not obligate the shareholder to purchase
Shares, but
if he does, each purchase during the period will be at the sales load
applicable
to the total amount intended to be purchased. This letter may be dated
as of a
prior date to include any purchases made within the past 90 days toward
the
dollar fulfillment of the letter of intent. Prior trade prices will not
be
adjusted.
REINVESTMENT PRIVILEGE. If Shares in the Fund have been redeemed, the
shareholder has a one-time right, within 120 days, to reinvest the
redemption
proceeds at the next-determined net asset value without any sales load.
Federated Securities Corp. must be notified by the shareholder in
writing or by
his financial institution of the reinvestment in order to eliminate a
sales
load. If the shareholder redeems his Shares in the Fund, there may be
tax
consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED MUTUAL FUND
SHARES.
Investors may purchase Shares at net asset value, without a sales load,
with
the proceeds from the redemption of shares of a mutual fund which was
sold with
a sales load or commission and was not distributed by Federated
Securities Corp.
(This does not include shares which were or would be subject to a
contingent
deferred sales charge upon redemption.) The purchase must be made within
60 days
of the redemption, and Federated Securities Corp. must be notified by
the
investor in writing or by his financial institution at the time the
purchase is
made.
CONCURRENT PURCHASES. For purposes of qualifying for a sales load
elimination
or reduction, a shareholder has the privilege of combining concurrent
purchases
of two or more funds in the Liberty Family of Funds, the purchase price
of which
includes a sales load. For example, if a shareholder concurrently
invested
$30,000 in one of the other Liberty Funds with a sales load, and $20,000
in this
Fund, the sales load would be reduced.
To receive this sales load elimination or reduction, Federated
Securities Corp.
must be notified by the shareholder in writing or by his financial
institution
at the time the concurrent purchases are made. The Fund will eliminate
or reduce
the sales load after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on
a regular basis in a minimum amount of $100. Under this program, funds
may be
automatically withdrawn periodically from the shareholder's checking
account and
invested in Shares at the net asset value next determined after an order
is
received by the transfer agent, plus the applicable sales load. A
shareholder
may apply for participation in this program through his financial
institution or
directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share
account for each shareholder. Share certificates are not issued unless
requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid
during the
year.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the
Fund on the record date. Dividends are automatically reinvested in
additional
Shares on the payment date, at the ex-dividend date net asset value
without a
sales load, unless shareholders request cash payments on the new account
form or
by writing to the transfer agent. All shareholders on the record date
are
entitled to the dividend. If Shares are redeemed or exchanged prior to
the
record date, or purchased after the record date, those Shares are not
entitled
to that year's dividend.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least
once
every twelve months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement
plans or for
IRA accounts. For further details, contact Federated Securities Corp.
and
consult a tax adviser.
EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------
- --------
In order to provide greater flexibility to Fund shareholders whose
investment
objectives have changed, Class A shareholders may exchange all or some
of their
Shares for Class A Shares in other funds in the Liberty Family of Funds.
Shareholders of Class A Shares may also exchange into certain other
funds for
which affiliates of Federated Investors serve as investment adviser or
principal
underwriter ("Federated Funds") which are sold with a sales load
different from
that of the Fund's or with no sales load, and which are advised by
subsidiaries
or affiliates of Federated Investors. These exchanges are made at net
asset
value plus the difference between the Fund's sales load and any sales
load of
the fund into which the Shares are to be exchanged, if higher. Neither
the Fund
nor any of the funds in the Liberty Family of Funds imposes any
additional fees
on exchanges. Shareholders in certain other Federated Funds may exchange
their
shares in the Federated Funds for Class A Shares. Participants in a plan
under
the Liberty Family Retirement Program may exchange all or some of their
Shares
for Class A Shares of other funds offered under the plan at net asset
value.
ELIMINATED OR REDUCED THE SALES LOAD
If a shareholder making such an exchange qualifies for an elimination or
reduction of the sales load, Federated Securities Corp. must be notified
in
writing by the shareholder or by his financial institution.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net
asset value
equal to the minimum investment requirements of the fund into which the
exchange
is being made. Before the exchange, the shareholder must receive a
prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in
which the
fund shares being acquired may be sold. Upon receipt of proper
instructions and
required supporting documents, Shares submitted for exchange are
redeemed and
the proceeds invested in shares of the other fund. The exchange
privilege may be
modified or terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty
Family of Funds or certain Federated Funds are available by contacting
the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income
tax purposes. Depending on the circumstances, a short-term or long-term
capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds and certain
Federated
Funds may be given in writing or by telephone. Written instructions may
require
a signature guarantee. Shareholders of the Fund may have difficulty in
making
exchanges by telephone through brokers and other financial institutions
during
times of drastic economic or market changes. If a shareholder cannot
contact his
broker or financial institution by telephone, it is recommended that an
exchange
request be made in writing and sent by overnight mail to Federated
Services
Company, 500 Victory Road--2nd Floor, Quincy, Massachusetts 02171.
Instructions for exchanges for the Liberty Family Retirement Program
should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may
be
carried out only if a telephone authorization form completed by the
investor is
on file with the transfer agent. If the instructions are given by a
broker, a
telephone authorization form completed by the broker must be on file
with the
transfer agent. Shares may be exchanged between two funds by telephone
only if
the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be
forwarded to Federated Services Company, P.O. Box 8604, Boston,
Massachusetts
02266-8604, and deposited to the shareholder's account before being
exchanged.
Telephone exchange instructions may be recorded and will be binding upon
the
shareholder. Such instructions will be processed as of 4:00 P.M.
(Eastern time)
and must be received by the transfer agent before that time for Shares
to be
exchanged the same day. Shareholders exchanging into a fund will not
receive any
dividend that is payable to shareholders of record on that date. This
privilege
may be modified or terminated at any time.
REDEEMING CLASS A SHARES
- ------------------------------------------------------------------------
- --------
The Fund redeems Shares at their net asset value, next determined after
the
transfer agent receives the redemption request. Redemptions will be made
on days
on which the Fund computes its net asset value. Redemptions can be made
through
a financial institution or directly from the Fund. Redemption requests
must be
received in proper form. Redemptions of Shares held through the Liberty
Family
Retirement Program will be governed by the requirements of the
respective plans.
THROUGH A FINANCIAL INSTITUTION
Shareholders may redeem Shares by calling their financial institution
(such as a
bank or an investment dealer) to request the redemption. Shares will be
redeemed
at the net asset value, next determined after the Fund receives the
redemption
request from the financial institution. Redemption requests through a
registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern
time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern
time) in
order for Shares to be redeemed at that day's net asset value.
Redemption
requests through other financial institutions must be received by the
financial
institution and transmitted to the Fund before 4:00 P.M. (Eastern time)
in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests
and
providing proper written redemption instructions to the Fund. The
financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The
proceeds will
be mailed to the shareholder's address of record or wire transferred to
the
shareholder's account at a domestic commercial bank that is a member of
the
Federal Reserve System, normally within one business day, but in no
event longer
than seven days after the request. The minimum amount for a wire
transfer is
$1,000. If at any time the Fund shall determine it necessary to
terminate or
modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Fund to accept telephone requests
must
first be completed. Authorization forms and information on this service
are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may
experience
difficulty in redeeming by telephone. If such a case should occur,
another
method of redemption, such as redeeming by mail, should be considered.
Telephone redemption instructions may be recorded. If reasonable
procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or
fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request
to
Federated Services Company, c/o State Street Bank and Trust Company,
P.O. Box
8604, Boston, Massachusetts 02266-8604. The written request should
include the
shareholder's name, the Fund name and class of Shares name, the account
number,
and the Share or dollar amount requested and should be signed exactly as
the
Shares are registered.
If Share certificates have been issued, they must be properly endorsed
and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on
record with
the Fund, or a redemption payable other than to the shareholder of
record must
have signatures on written redemption requests guaranteed by:
. a trust company or commercial bank whose deposits are insured by
the Bank
Insurance Fund ("BIF"), which is administered by the Federal
Deposit
Insurance Corporation ("FDIC");
. a member of the New York, American, Boston, Midwest, or Pacific
Stock
Exchanges;
. a savings bank or savings and loan association whose deposits are
insured
by the Savings Association Insurance Fund ("SAIF"), which is
administered
by the FDIC; or
. any other "eligible guarantor institution," as defined in the
Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature
guarantees from the above institutions. The Fund may elect in the future
to
limit eligible signature guarantors to institutions that are members of
a
signature guarantee program. The Fund and its transfer agent reserve the
right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day,
but in no
event more than seven days, after receipt of a proper written redemption
request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount
not less
than $100 may take advantage of the Systematic Withdrawal Program. Under
this
program, Shares are redeemed to provide for periodic withdrawal payments
in an
amount directed by the shareholder. Depending upon the amount of the
withdrawal
payments, the amount of dividends paid and capital gains distributions
with
respect to Shares, and the fluctuation of the net asset value of Shares
redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Shares. For this reason, payments under this
program
should not be considered as yield or income on the shareholder's
investment in
Shares. To be eligible to participate in this program, a shareholder
must have
an account value of at least $10,000. A shareholder may apply for
participation
in this program through his financial institution. Due to the fact that
Shares
are sold with a sales load, it is not advisable for shareholders to be
purchasing Shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may
redeem Shares in any account, except retirement plans, and pay the
proceeds to
the shareholder if the account balance falls below the required minimum
value of
$500. This requirement does not apply, however, if the balance falls
below $500
because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is
notified in
writing and allowed 30 days to purchase additional Shares to meet the
minimum
requirement.
INTERNATIONAL SERIES, INC. INFORMATION
- ------------------------------------------------------------------------
- --------
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Corporation is managed by a Board of Directors.
The
Directors are responsible for managing the Corporation's business
affairs and
for exercising all the Corporation's powers except those reserved for
the
shareholders. An Executive Committee of the Board of Directors handles
the
Board's responsibilities between meetings of the Board.
OFFICERS AND DIRECTORS. _Officers and Directors are listed with their
addresses,
present positions with International Series, Inc., and principal
occupations,
including those with Federated Management, its affiliates, and the
"Funds"
described in the Statement of Additional Information.
- ------------------------------------------------------------------------
- --------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research
Corp.; Chairman, Passport Research, Ltd.; Director, tna Life and
Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing
General
Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Vice
President of the Company.
- ------------------------------------------------------------------------
- --------
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
- ------------------------------------------------------------------------
- --------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Director
President, Investment Properties Corporation; Senior Vice-President,
John R.
Wood and Associates, Inc., Realtors; President, Northgate Village
Development
Corporation; Partner or Trustee in private real estate ventures in
Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly,
President, Naples Property Management, Inc.
- ------------------------------------------------------------------------
- --------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
- ------------------------------------------------------------------------
- --------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross
of
Massachusetts, Inc.
- ------------------------------------------------------------------------
- --------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Director
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director,
Trustee, or
Managing General Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Edward L. Flaherty, Jr.+
Two Gateway Center-Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Peter E. Madden
225 Franklin Street
Boston, MA
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State
Street Bank and Trust Company and State Street Boston Corporation and
Trustee,
Lahey Clinic Foundation, Inc.
- ------------------------------------------------------------------------
- --------
Gregor F. Meyer
Two Gateway Center-Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment
for International Peace, RAND Corporation, Online Computer Library
Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center;
Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council
for
Environmental Policy and Technology.
- ------------------------------------------------------------------------
- --------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General
Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds;
staff member, Federated Securities Corp. and Federated Administrative
Services.
- ------------------------------------------------------------------------
- --------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated
Management, and Federated Research; President and Director, Federated
Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative
Services, Federated Services Company, and Federated Shareholder
Services;
President or Vice President of the Funds; Director, Trustee, or Managing
General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Director of the Corporation.
- ------------------------------------------------------------------------
- --------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated
Research Corp.; Chairman and Director, Federated Securities Corp.;
President or
Vice President of some of the Funds; Director or Trustee of some of the
Funds.
- ------------------------------------------------------------------------
- --------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice
President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated
Services
Company and Federated Shareholder Services; Chairman, Treasurer, and
Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds;
Vice President and Treasurer of the Funds.
- ------------------------------------------------------------------------
- --------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary,
Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services
Company;
Executive Vice President, Secretary, and Trustee, Federated
Administrative
Services; Secretary and Trustee, Federated Shareholder Services;
Executive Vice
President and Director, Federated Securities Corp.; Vice President and
Secretary
of the Funds.
- ------------------------------------------------------------------------
- --------
_*This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940 as amended.
+Member of the Executive Committee. The Executive Committee of the Board
of
Directors handles the responsibilities of the Board of Directors
between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by
Federated
Management, the Fund's investment adviser (the "Adviser"), subject to
direction
by the Board of Directors. The Adviser continually conducts investment
research
and supervision for the Fund and is responsible for the purchase or sale
of
portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory
fee
equal to 1.00% of the Fund's average daily net assets. The fee paid
by the
Fund, while higher than the advisory fee paid by other mutual funds
in
general, is comparable to fees paid by many mutual funds with
similar
objectives and policies. The Adviser may voluntarily waive a
portion of its
fee. The Adviser can terminate this voluntary waiver at any time at
its
sole discretion. The Adviser has also undertaken to reimburse the
Fund for
operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business
trust
organized on April 11, 1989, is a registered investment adviser
under the
Investment Advisers Act of 1940. It is a subsidiary of Federated
Investors.
All of the Class A (voting) shares of Federated Investors are owned
by a
trust, the trustees of which are John F. Donahue, Chairman and
Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative
services
to a number of investment companies. Total assets under management
or
administration by these and other subsidiaries of Federated
Investors are
approximately $70 billion. Federated Investors, which was founded
in 1956
as Federated Investors, Inc., develops and manages mutual funds
primarily
for the financial industry.
Federated Investors' track record of competitive performance and
its
disciplined, risk averse investment philosophy serve approximately
3,500
client institutions nationwide. Through these same client
institutions,
individual shareholders also have access to this same level of
investment
expertise.
Randall S. Bauer is the Fund's portfolio manager. He has
contributed toward
the management of the Fund's portfolio of investments since
December 1,
1990, when Federated Management served as the Fund's sub-adviser,
and
continued in that capacity through March 15, 1994, when, pursuant
to
shareholder approval, Federated Management was appointed the Fund's
investment adviser. Mr. Bauer joined Federated Investors in 1989 as
an
Assistant Vice President of Federated Management. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a
Chartered
Financial Analyst and received his M.B.A. in Finance from
Pennsylvania
State University.
SUB-ADVISER. Under the terms of a Sub-Advisory Agreement between
Federated
Management and Fiduciary International, Inc., Fiduciary International,
Inc. will
furnish to Federated Management such investment advice, statistical and
other
factual information as may, from time to time, be reasonably requested
by
Federated Management.
SUB-ADVISORY FEES. For its services under the Sub-Advisory
Agreement, the
sub-adviser receives an annual fee from the Adviser equal to .50 of
1% of
average daily net assets of the Fund. The sub-advisory fee is
accrued and
paid daily. In the event that the fee due from the Fund to the
Adviser is
reduced in order to meet expense limitations imposed on the Fund by
state
securities laws or regulations, the sub-advisory fee will be
reduced by
one-half of said reduction in the fee due from the Fund to the
Adviser.
Notwithstanding any other provision in the Sub-Advisory Agreement,
the
sub-adviser may, from time to time, and for such periods as it
deems
appropriate, reduce its compensation (and, if appropriate, assume
expenses
of the Fund) to the extent that the Fund's expenses exceed such
lower
expense limitations as the sub-adviser may, by notice to the Fund,
voluntarily declare to be effective.
SUB-ADVISER'S BACKGROUND. Fiduciary International, Inc. is a New
York
corporation that was organized in 1982 as Fir Tree Advisers, Inc.
Fiduciary
International, Inc. is a wholly-owned subsidiary of Fiduciary
Investment
Corporation, which, in turn, is a wholly-owned subsidiary of
Fiduciary
Trust Company International. Fiduciary Trust Company International
has more
than 30 years of experience in managing funds which invest in the
international markets. As of December 31, 1994, Fiduciary Trust
Company
International had total assets of approximately $375 million, and
total
assets under management of approximately $30 billion.
Margaret Lindsay has been the Fund's portfolio manager since mid-
1992, when
Fiduciary International, Inc. was the Fund's investment adviser.
Ms.
Lindsay joined Fiduciary International, Inc. in 1991 as a Vice
President.
From 1987 through 1991, Ms. Lindsay worked in international
strategy,
analysis, and sales at S.G. Warburg Securities.
Fiduciary International, Inc. is a registered investment adviser
under the
Investment Advisers Act of 1940. The Adviser and sub-adviser, their
officers, affiliates, and employees may act as investment managers
for
parties other than the Fund, including other investment companies.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of
the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is
the
principal distributor for a number of investment companies. Federated
Securities
Corp. is a subsidiary of Federated Investors.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.
will pay
dealers an amount equal to .50 of 1% of the net asset value of Shares
purchased
by their clients or customers under the Liberty Family Retirement
Program. (Such
payments are subject to a reclaim from the dealer should the assets
leave the
Program within 12 months after purchase.) These payments will be made
directly
by the distributor and will not be made from the assets of the Fund or
by the
assessment of a sales load on Shares.
Furthermore, the distributor may offer to pay a fee from its own assets
to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize
the
attributes of the Fund. Such assistance will be predicated upon the
amount of
Shares the financial institution sells or may sell, and/or upon the type
and
nature of sales or marketing support furnished by the financial
institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser
or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a
subsidiary of
Federated Investors, provides administrative personnel and services
(including
certain legal and financial reporting services) necessary to operate the
Corporation and the Fund. Federated Administrative Services provides
these at an
annual rate which relates to the average aggregate daily net assets of
all funds
advised by subsidiaries of Federated Investors (the "Federated Funds")
as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<C> <S>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a
portion of
its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services
Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1%
of the
average daily net asset value of Shares to obtain certain personal
services for
shareholders and for the maintenance of shareholder accounts
("shareholder
services"). The Fund has entered into a Shareholder Services Agreement
with
Federated Shareholder Services, a subsidiary of Federated Investors,
under which
Federated Shareholder Services will either perform shareholder services
directly
or will select financial institutions to perform shareholder services.
Financial
institutions will receive fees based upon Shares owned by their clients
or
customers. The schedules of such fees and the basis upon which such fees
will be
paid will be determined from time to time by the Fund and Federated
Shareholder
Services.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial
bank or a savings and loan association) from being an underwriter or
distributor
of most securities. In the event the Glass-Steagall Act is deemed to
prohibit
depository institutions from acting in the capacities described above or
should
Congress relax current restrictions on depository institutions, the
Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions
to act as
underwriters or distributors of securities may differ from
interpretations given
to the Glass-Steagall Act and, therefore, banks and financial
institutions may
be required to register as dealers pursuant to state laws.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of
the Fund.
Foreign instruments purchased by the Fund are held by foreign banks
participating in a network coordinated by State Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services
Company,
Pittsburgh, Pennsylvania, with offices in Boston, Massachusetts, is
transfer
agent for the Shares of the Fund and dividend disbursing agent for the
Fund.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for
the Fund
are Arthur Andersen LLP, 2100 One PPG Place, Pittsburgh, Pennsylvania
15222.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio
instruments, the Adviser looks for prompt execution of the order at a
favorable
price. In working with dealers, the Adviser will generally utilize those
who are
recognized dealers in specific portfolio instruments, except when a
better price
and execution of the order can be obtained elsewhere. In selecting among
firms
believed to meet this criteria, the Adviser may give consideration to
those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review
by the
Directors.
SHAREHOLDER INFORMATION
- ------------------------------------------------------------------------
- --------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and
other
matters submitted to shareholders for vote. All shares of each portfolio
or
class in the Corporation have equal voting rights, except that in
matters
affecting only a particular Fund or class, only shares of that
particular Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold
annual
shareholder meetings. Shareholder approval will be sought only for
certain
changes in the Fund's operation and for the election of Directors under
certain
circumstances.
Directors may be removed by a two-thirds vote of the number of Directors
prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. The Directors shall call a special meeting of shareholders upon
the
written request of shareholders owning at least 10% of the Corporation's
outstanding shares entitled to vote.
TAX INFORMATION
- ------------------------------------------------------------------------
- --------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements
of the Internal Revenue Code, as amended (the "Code"), applicable to
regulated
investment companies and to receive the special tax treatment afforded
to such
companies. However, the Fund may invest in the stock of certain foreign
corporations which would constitute a Passive Foreign Investment Company
("PFIC"). Federal income taxes may be imposed on the Fund upon
disposition of
PFIC investments.
The Fund will be treated as a single, separate entity for federal income
tax
purposes so that income (including capital gains) and losses realized by
the
Corporation's other portfolios, if any, will not be combined for tax
purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may
be subject to foreign taxes withheld at the source. The United States
has
entered into tax treaties with many foreign countries that entitle the
Fund to
reduced tax rates or exemptions on this income. The effective rate of
foreign
tax cannot be predicted since the amount of Fund assets to be invested
within
various countries is unknown. However, the Fund intends to operate so as
to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on
any dividends and other distributions, including capital gains
distributions,
received. This applies whether dividends and distributions are received
in cash
or as additional Shares. Distributions representing long-term capital
gains, if
any, will be taxable to shareholders as long-term capital gains no
matter how
long the shareholders have held the Shares. No federal income tax is due
on any
dividends earned in an IRA or qualified retirement plan until
distributed.
If more than 50% of the value of the Fund's assets at the end of the tax
year is
represented by stock or securities of foreign corporations, the Fund
intends to
qualify for certain Code stipulations that would allow shareholders to
claim a
foreign tax credit or deduction on their U.S. income tax returns. The
Code may
limit a shareholder's ability to claim a foreign tax credit.
Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign
taxes
rather than take the foreign tax credit must itemize deductions on their
income
tax returns.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
The Fund is not subject to Pennsylvania corporate or personal property
taxes.
Fund Shares may be subject to personal property taxes imposed by
counties,
municipalities, and school districts in Pennsylvania to the extent that
the
portfolio securities in the Fund would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------
- --------
From time to time, the Fund advertises the total return for Class A
Shares.
Total return represents the change, over a specified period of time, in
the
value of an investment in Class A Shares after reinvesting all income
and
capital gains distributions. It is calculated by dividing that change by
the
initial investment and is expressed as a percentage.
The performance information reflects the effect of the maximum sales
load,
which, if excluded, would increase the total return.
Total return will be calculated separately for Class A Shares, Class B
Shares,
and Class C Shares. Because Class A Shares may be subject to a front-end
sales
load, the total return for Class B Shares and Class C Shares, for the
same
period, may exceed that of Class A Shares. Depending on the dollar
amount
invested and the time period for which any class of shares is held, the
total
return for any particular class will likely exceed that of another.
From time to time, the Fund may advertise the performance of Class A
Shares
using certain financial publications and/or compare the performance of
Class A
Shares to certain indices.
OTHER CLASSES OF SHARES
- ------------------------------------------------------------------------
- --------
Class B Shares are sold primarily to customers of financial
institutions,
subject to a maximum contingent deferred sales charge of 5.50% and a
Rule 12b-1
fee of up .75 of 1%. In addition, Class B Shares are subject to a
shareholder
services fee of up to .25% of 1% of the Class B Shares' average daily
net
assets. Investments in Class B Shares are subject to a minimum initial
investment of $1,500, unless the investment is in a retirement account,
in which
case the minimum investment is $50.
Class C Shares are sold primarily to customers of financial institutions
at net
asset value with no initial sales load. Class C Shares are distributed
pursuant
to a Rule 12b-1 Plan adopted by the Fund, whereby, the distributor is
paid a fee
of up to .75 of 1%. Class C Shares are also subject to a shareholder
services
fee of up to .25 of 1% of the Class C Shares' average daily net assets.
In
addition, Class C Shares may be subject to certain contingent deferred
sales
charges. Investments in Class C Shares are subject to a minimum initial
investment of $1,500, unless the investment is in a retirement account,
in which
case the minimum investment is $50.
The amount of dividends payable to Class A Shares will generally exceed
that
payable to Class B Shares and Class C Shares by the difference between
Class
Expenses and distribution and shareholder service expenses borne by
shares of
each respective class.
The stated advisory fee is the same for all classes of shares.
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS B SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 54.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1994**
<S>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 19.61
- ------------------------------------------------------------------------
- -----------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- -----------------------
Net investment income
(0.01)
- ------------------------------------------------------------------------
- -----------------------
Net realized and unrealized gain (loss) on investments and foreign
currency transactions (1.10)
- ------------------------------------------------------------------------
- ----------------------- -------
Total from investment operations
(1.11)
- ------------------------------------------------------------------------
- -----------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- -----------------------
Dividends to shareholders from net investment income
- --
- ------------------------------------------------------------------------
- -----------------------
Distributions for shareholders from net realized gain on investment
transactions --
- ------------------------------------------------------------------------
- ----------------------- -------
TOTAL DISTRIBUTIONS
- --
- ------------------------------------------------------------------------
- ----------------------- -------
NET ASSET VALUE, END OF PERIOD
$ 18.50
- ------------------------------------------------------------------------
- ----------------------- -------
TOTAL RETURN*
(5.27%)
- ------------------------------------------------------------------------
- -----------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- -----------------------
Expenses
2.59%(a)
- ------------------------------------------------------------------------
- -----------------------
Net investment income
(0.88%)(a)
- ------------------------------------------------------------------------
- -----------------------
Expense waiver/reimbursement
- --
- ------------------------------------------------------------------------
- -----------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- -----------------------
Net assets, end of period (000 omitted)
$ 1,214
- ------------------------------------------------------------------------
- -----------------------
Portfolio turnover rate
73%
- ------------------------------------------------------------------------
- -----------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption fee, if applicable.
** Reflects operations for the period from September 19, 1994 (start
of
business) to November 30, 1994.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report dated November 30, 1994, which can be obtained free of
charge.
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 54.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
<S>
<C> <C>
- ----------------------
<CAPTION>
1994 1993**
<S>
<C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 16.41 $ 14.88
- ------------------------------------------------------------------------
- ---------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- ---------------------
Net investment income
(0.05) (0.04)
- ------------------------------------------------------------------------
- ---------------------
Net realized and unrealized gain (loss) on investments and foreign
currency transactions
1.98 1.57
- ------------------------------------------------------------------------
- --------------------- --------- -----------
Total from investment operations
1.93 1.53
- ------------------------------------------------------------------------
- ---------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- ---------------------
Dividends to shareholders from net investment income
- -- --
- ------------------------------------------------------------------------
- ---------------------
Distributions in excess of net investment income
(0.04)(a) --
- ------------------------------------------------------------------------
- --------------------- --------- -----------
TOTAL DISTRIBUTIONS
(0.04) --
- ------------------------------------------------------------------------
- --------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD
$ 18.30 $ 16.41
- ------------------------------------------------------------------------
- --------------------- --------- -----------
TOTAL RETURN*
11.75% 10.28%
- ------------------------------------------------------------------------
- ---------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- ---------------------
Expenses
2.55% 2.57%(c)
- ------------------------------------------------------------------------
- ---------------------
Net investment income
(0.91%) (1.10%)(c)
- ------------------------------------------------------------------------
- ---------------------
Expense waiver/reimbursement (b)
- -- 0.01%(c)
- ------------------------------------------------------------------------
- ---------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- ---------------------
Net assets, end of period (000 omitted)
$8,836 $2,852
- ------------------------------------------------------------------------
- ---------------------
Portfolio turnover rate
73% 74 %
- ------------------------------------------------------------------------
- ---------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption
fee, if applicable.
** Reflects operations for the period from March 31, 1993 (start of
business)
to November 30, 1993.
(a) Distributions are determined in accordance with income tax
regulations
which may differ from generally accepted accounting principles.
These
distributions do not represent a return of capital for federal
income tax
purposes.
(b) The voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES
DOLLARS
<C> <S>
<C>
- ------------- ---------------------------------------------------------
- ------------------------- --------------
COMMON STOCKS--92.3%
- ------------------------------------------------------------------------
- -------------------------
ARGENTINA--1.7%
---------------------------------------------------------
- -------------------------
126,609 Ciadea
$ 1,407,048
---------------------------------------------------------
- -------------------------
215,000 **Migor
1,666,250
---------------------------------------------------------
- -------------------------
25,000 Telefonica de Argentina ADR
1,390,625
---------------------------------------------------------
- ------------------------- --------------
Total
4,463,923
---------------------------------------------------------
- ------------------------- --------------
AUSTRALIA--2.9%
---------------------------------------------------------
- -------------------------
309,028 Amcor Limited
2,042,454
---------------------------------------------------------
- -------------------------
212,875 Broken Hill Proprietary
3,056,029
---------------------------------------------------------
- -------------------------
172,226 National Australia Bank
1,395,068
---------------------------------------------------------
- -------------------------
260,000 Western Mining Corporation Holdings
1,478,635
---------------------------------------------------------
- ------------------------- --------------
Total
7,972,186
---------------------------------------------------------
- ------------------------- --------------
BRAZIL--1.0%
---------------------------------------------------------
- -------------------------
105,000 **Aracruz Celulose ADR
1,325,625
---------------------------------------------------------
- -------------------------
30,000 Telecomunicacoes Brasileras ADR
1,436,991
---------------------------------------------------------
- ------------------------- --------------
Total
2,762,616
---------------------------------------------------------
- ------------------------- --------------
CHILE--2.1%
---------------------------------------------------------
- -------------------------
60,000 Compania Cervecerias Unidas ADR
1,560,000
---------------------------------------------------------
- -------------------------
15,000 Compania de Telefonos de Chile ADR
1,290,000
---------------------------------------------------------
- -------------------------
75,000 Cristalerias de Chile ADR
1,396,875
---------------------------------------------------------
- -------------------------
50,000 Madeco ADR
1,450,000
---------------------------------------------------------
- ------------------------- --------------
Total
5,696,875
---------------------------------------------------------
- ------------------------- --------------
FRANCE--7.9%
---------------------------------------------------------
- -------------------------
7,250 Carrefour
3,011,806
---------------------------------------------------------
- -------------------------
11,473 Cetelem
2,172,231
---------------------------------------------------------
- -------------------------
6,800 Colas
$ 1,123,383
---------------------------------------------------------
- -------------------------
12,800 Compagnie de Fives-Lille
1,117,888
---------------------------------------------------------
- -------------------------
37,000 Credit Local de France
2,851,595
---------------------------------------------------------
- -------------------------
2,220 Legrand
2,760,938
---------------------------------------------------------
- -------------------------
27,000 SEB
2,666,271
---------------------------------------------------------
- -------------------------
21,500 Ugine
1,632,265
---------------------------------------------------------
- -------------------------
75,500 Valeo
4,022,145
---------------------------------------------------------
- ------------------------- --------------
Total
21,358,522
---------------------------------------------------------
- ------------------------- --------------
GERMANY--6.0%
---------------------------------------------------------
- -------------------------
3,580 Buderus
1,583,768
---------------------------------------------------------
- -------------------------
19,600 Krupp Fr Ag Hoesch
2,482,750
---------------------------------------------------------
- -------------------------
12,150 Kaufhof Holding
3,387,460
---------------------------------------------------------
- -------------------------
10,000 Mannesmann
2,609,803
---------------------------------------------------------
- -------------------------
9,035 Preussag
2,490,232
---------------------------------------------------------
- -------------------------
11,600 Veba
3,817,441
---------------------------------------------------------
- ------------------------- --------------
Total
16,371,454
---------------------------------------------------------
- ------------------------- --------------
HONG KONG--5.9%
---------------------------------------------------------
- -------------------------
272,000 China Light & Power
1,171,186
---------------------------------------------------------
- -------------------------
600,000 CITIC Pacific
1,520,617
---------------------------------------------------------
- -------------------------
71,100 Consolidated Electric Power Asia ADR
1,539,933
---------------------------------------------------------
- -------------------------
2,600,000 First Pacific Co.
1,798,622
---------------------------------------------------------
- -------------------------
502,064 Hong Kong Land Holdings
1,041,950
---------------------------------------------------------
- -------------------------
185,027 HSBC Holdings
2,045,568
---------------------------------------------------------
- -------------------------
444,000 Hutchison Whampoa
1,768,261
---------------------------------------------------------
- -------------------------
308,000 Sun Hung Kai Properties
1,979,337
---------------------------------------------------------
- -------------------------
250,000 Swire Pacific
$ 1,664,792
---------------------------------------------------------
- -------------------------
350,000 Television Broadcasting
1,402,951
---------------------------------------------------------
- ------------------------- --------------
Total
15,933,217
---------------------------------------------------------
- ------------------------- --------------
INDONESIA--0.5%
---------------------------------------------------------
- -------------------------
752,600 Lippo Bank
1,299,790
---------------------------------------------------------
- ------------------------- --------------
IRELAND--2.2%
---------------------------------------------------------
- -------------------------
463,491 Bank of Ireland
2,068,510
---------------------------------------------------------
- -------------------------
400,000 CRH
2,135,923
---------------------------------------------------------
- -------------------------
600,000 Irish Life
1,719,386
---------------------------------------------------------
- ------------------------- --------------
Total
5,923,819
---------------------------------------------------------
- ------------------------- --------------
JAPAN--25.3%
---------------------------------------------------------
- -------------------------
150,000 Amway Japan Ltd., ADR
2,400,000
---------------------------------------------------------
- -------------------------
99,000 Canon Sales
2,960,748
---------------------------------------------------------
- -------------------------
180,000 Canon
3,109,876
---------------------------------------------------------
- -------------------------
230,000 Daiwa Securities
2,997,727
---------------------------------------------------------
- -------------------------
517 DDI
4,544,481
---------------------------------------------------------
- -------------------------
66,000 Ito Yokado
3,500,884
---------------------------------------------------------
- -------------------------
200,000 Japan Securities Finance
2,990,654
---------------------------------------------------------
- -------------------------
45,000 Kyocera
3,337,206
---------------------------------------------------------
- -------------------------
105,000 Mitsubishi Bank
2,344,531
---------------------------------------------------------
- -------------------------
230,000 Mitsubishi Estate
2,532,963
---------------------------------------------------------
- -------------------------
450,000 Mitsubishi Heavy Industries
3,337,206
---------------------------------------------------------
- -------------------------
170,000 Mitsubishi Trust & Banking
2,404,648
---------------------------------------------------------
- -------------------------
100,000 Mori Seiki Co.
2,364,233
---------------------------------------------------------
- -------------------------
325,000 NEC
3,776,206
---------------------------------------------------------
- -------------------------
960,000 Nippon Steel
$ 3,724,577
---------------------------------------------------------
- -------------------------
340 Nippon Telephone & Telegraph
2,885,577
---------------------------------------------------------
- -------------------------
184,000 Sharp
3,197,575
---------------------------------------------------------
- -------------------------
90,000 Shimachu
2,837,080
---------------------------------------------------------
- -------------------------
200,000 Sumitomo Electric Industries
2,788,583
---------------------------------------------------------
- -------------------------
650,000 Tokuyama Corp.
3,848,447
---------------------------------------------------------
- -------------------------
700,000 Tosoh Corp.
2,906,795
---------------------------------------------------------
- -------------------------
680,000 Yaskawa Electric Corp.
3,751,250
---------------------------------------------------------
- ------------------------- --------------
Total
68,541,247
---------------------------------------------------------
- ------------------------- --------------
KOREA--1.4%
---------------------------------------------------------
- -------------------------
37,000 Korea Electric Power
1,341,052
---------------------------------------------------------
- -------------------------
33,000 Pohang Iron and Steel Ltd., ADR
1,047,750
---------------------------------------------------------
- -------------------------
17,000 **Samsung Electric Co.
922,250
---------------------------------------------------------
- -------------------------
8,001 **Samsung Electronics Ltd., GDR
428,054
---------------------------------------------------------
- -------------------------
202 **Samsung Electronics Ltd., GDR
10,656
---------------------------------------------------------
- ------------------------- --------------
Total
3,749,762
---------------------------------------------------------
- ------------------------- --------------
MALAYSIA--2.7%
---------------------------------------------------------
- -------------------------
36,000 Aokam Perdana
247,917
---------------------------------------------------------
- -------------------------
220,000 Aokam Perdana
1,626,951
---------------------------------------------------------
- -------------------------
330,000 Genting Berhad
2,613,861
---------------------------------------------------------
- -------------------------
230,000 Malayan Banking
1,493,916
---------------------------------------------------------
- -------------------------
173,000 Telekom Malaysia
1,272,606
---------------------------------------------------------
- ------------------------- --------------
Total
7,255,251
---------------------------------------------------------
- ------------------------- --------------
MEXICO--4.5%
---------------------------------------------------------
- -------------------------
196,750 Cemex
1,886,606
---------------------------------------------------------
- -------------------------
650,000 Cifra
$ 1,775,389
---------------------------------------------------------
- -------------------------
190,000 **Elektra
2,070,318
---------------------------------------------------------
- -------------------------
413,000 Farmacias Benavides
1,452,070
---------------------------------------------------------
- -------------------------
93,000 **Grupo Industrial Durango, ADR
1,697,250
---------------------------------------------------------
- -------------------------
80,500 **Grupo Televisa L
1,826,834
---------------------------------------------------------
- -------------------------
550,000 Telefonos de Mexico
1,483,074
---------------------------------------------------------
- ------------------------- --------------
Total
12,191,541
---------------------------------------------------------
- ------------------------- --------------
NETHERLANDS--5.2%
---------------------------------------------------------
- -------------------------
32,000 Akzo Nobel
3,547,470
---------------------------------------------------------
- -------------------------
114,965 Boskalis Westminster
2,326,750
---------------------------------------------------------
- -------------------------
289,000 Elsevier
2,875,213
---------------------------------------------------------
- -------------------------
103,000 KNP BT
2,822,399
---------------------------------------------------------
- -------------------------
62,000 Polygram
2,615,350
---------------------------------------------------------
- ------------------------- --------------
Total
14,187,182
---------------------------------------------------------
- ------------------------- --------------
NEW ZEALAND--1.6%
---------------------------------------------------------
- -------------------------
1,174,274 Carter Holt Harvey
2,606,708
---------------------------------------------------------
- -------------------------
1,163,056 Skellerup
1,623,685
---------------------------------------------------------
- ------------------------- --------------
Total
4,230,393
---------------------------------------------------------
- ------------------------- --------------
PHILIPPINES--1.3%
---------------------------------------------------------
- -------------------------
3,312,000 JG Summit Holdings
1,208,151
---------------------------------------------------------
- -------------------------
7,800 Metro Bank and Trust Co.
32,704
---------------------------------------------------------
- -------------------------
39,000 Metro Bank and Trust Co.
1,144,654
---------------------------------------------------------
- -------------------------
1,400,000 **Petron Corp.
1,247,379
---------------------------------------------------------
- ------------------------- --------------
Total
3,632,888
---------------------------------------------------------
- ------------------------- --------------
SINGAPORE--2.2%
---------------------------------------------------------
- -------------------------
312,000 City Developments
$ 1,651,075
---------------------------------------------------------
- -------------------------
202,750 Development Bank of Singapore
2,021,270
---------------------------------------------------------
- -------------------------
120,000 Fraser & Neave
1,335,610
---------------------------------------------------------
- -------------------------
140,000 Sembawang Shipyard
1,003,756
---------------------------------------------------------
- ------------------------- --------------
Total
6,011,711
---------------------------------------------------------
- ------------------------- --------------
SWEDEN--5.2%
---------------------------------------------------------
- -------------------------
50,000 **AutoLiv
1,751,337
---------------------------------------------------------
- -------------------------
320,500 Bylock and Nordsjofr
2,487,595
---------------------------------------------------------
- -------------------------
107,000 **Hoganas
1,703,573
---------------------------------------------------------
- -------------------------
162,150 Sandvik
2,753,738
---------------------------------------------------------
- -------------------------
57,000 SSAB
2,514,561
---------------------------------------------------------
- -------------------------
152,635 Volvo
2,936,418
---------------------------------------------------------
- ------------------------- --------------
Total
14,147,222
---------------------------------------------------------
- ------------------------- --------------
SWITZERLAND--5.1%
---------------------------------------------------------
- -------------------------
5,550 Alusuisse Lonza Holding
2,719,646
---------------------------------------------------------
- -------------------------
2,825 BBC Brown Boveri
2,366,748
---------------------------------------------------------
- -------------------------
5,125 Danzas Holding
1,010,726
---------------------------------------------------------
- -------------------------
980 Reiseburo Kuoni
1,305,683
---------------------------------------------------------
- -------------------------
1,045 Rieter Holdings
1,313,624
---------------------------------------------------------
- -------------------------
4,950 Swiss Reinsurance
2,902,559
---------------------------------------------------------
- -------------------------
3,475 Sulzer
2,335,849
---------------------------------------------------------
- ------------------------- --------------
Total
13,954,835
---------------------------------------------------------
- ------------------------- --------------
TAIWAN--0.5%
---------------------------------------------------------
- -------------------------
122,138 **Tuntex Distinctive GDR
1,312,984
---------------------------------------------------------
- ------------------------- --------------
THAILAND--0.8%
---------------------------------------------------------
- -------------------------
230,500 Bangkok Bank
$ 2,281,586
---------------------------------------------------------
- ------------------------- --------------
UNITED KINGDOM--5.9%
---------------------------------------------------------
- -------------------------
250,000 BAA
1,970,130
---------------------------------------------------------
- -------------------------
150,000 Carlton Communication
2,058,800
---------------------------------------------------------
- -------------------------
300,000 Guinness
2,146,884
---------------------------------------------------------
- -------------------------
527,319 Hanson Trust
1,940,494
---------------------------------------------------------
- -------------------------
164,800 Reuters Holdings
1,269,677
---------------------------------------------------------
- -------------------------
210,000 Siebe
1,831,663
---------------------------------------------------------
- -------------------------
141,943 Thorn EMI
2,229,390
---------------------------------------------------------
- -------------------------
810,000 Vodafone Group
2,574,850
---------------------------------------------------------
- ------------------------- --------------
Total
16,021,888
---------------------------------------------------------
- ------------------------- --------------
VENEZUELA--0.4%
---------------------------------------------------------
- -------------------------
200,000 Mavesa ADR
1,036,100
---------------------------------------------------------
- ------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $226,259,472)
250,336,992
---------------------------------------------------------
- ------------------------- --------------
PREFERRED STOCKS--2.5%
- ------------------------------------------------------------------------
- -------------------------
AUSTRALIA--0.6%
---------------------------------------------------------
- -------------------------
463,189 News Corporation Ltd.
1,608,989
---------------------------------------------------------
- ------------------------- --------------
FINLAND--1.1%
---------------------------------------------------------
- -------------------------
22,000 Nokia
3,001,641
---------------------------------------------------------
- ------------------------- --------------
GERMANY--0.8%
---------------------------------------------------------
- -------------------------
4,629 Fresenius
2,180,433
---------------------------------------------------------
- ------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,072,886)
6,791,063
---------------------------------------------------------
- ------------------------- --------------
TOTAL LONG-TERM SECURITIES (IDENTIFIED COST $230,332,358)
257,128,055
---------------------------------------------------------
- ------------------------- --------------
<CAPTION>
VALUE
PRINCIPAL
IN U.S.
AMOUNT
DOLLARS
<C> <S>
<C>
- ------------- ---------------------------------------------------------
- ------------------------- --------------
*REPURCHASE AGREEMENT--4.6%
- ------------------------------------------------------------------------
- -------------------------
$ 12,470,000 J.P. Morgan Securities, Inc., 5.77%, dated 11/30/94, due
12/5/94 (at amortized
cost)
$ 12,470,000
---------------------------------------------------------
- ------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $242,802,358)
$ 269,598,055+
---------------------------------------------------------
- ------------------------- --------------
</TABLE>
+The cost for federal tax purposes amounts to $242,108,509. The net
unrealized
appreciation of investments amounts to $27,489,546, which is comprised
of
$35,163,846 appreciation and $7,674,300 depreciation at November 30,
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
($271,228,225) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
ASSETS:
- ------------------------------------------------------------------------
- ---------------------------
Investments, in repurchase agreements at amortized cost and value
$12,470,000
- ------------------------------------------------------------------------
- --------------
Investments in other securities, at value
257,128,055
- ------------------------------------------------------------------------
- -------------- -----------
Total investments (identified cost $242,802,358 and tax cost,
$242,108,509) $269,598,055
- ------------------------------------------------------------------------
- ---------------------------
Dividends and interest receivable
656,990
- ------------------------------------------------------------------------
- ---------------------------
Receivable for investments sold
1,608,292
- ------------------------------------------------------------------------
- ---------------------------
Receivable for foreign currency sold
465,588
- ------------------------------------------------------------------------
- ---------------------------
Receivable for capital stock sold
483,083
- ------------------------------------------------------------------------
- --------------------------- -----------
Total assets
272,812,008
- ------------------------------------------------------------------------
- ---------------------------
LIABILITIES:
- ------------------------------------------------------------------------
- ---------------------------
Payable for investments purchased
$ 684,035
- ------------------------------------------------------------------------
- --------------
Payable for foreign currency purchased
465,588
- ------------------------------------------------------------------------
- --------------
Payable for capital stock redeemed
120,297
- ------------------------------------------------------------------------
- --------------
Dividend taxes withheld liability
76,034
- ------------------------------------------------------------------------
- --------------
Payable to bank
18,308
- ------------------------------------------------------------------------
- --------------
Accrued expenses
219,521
- ------------------------------------------------------------------------
- -------------- -----------
Total liabilities
1,583,783
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS for 14,645,830 shares of capital stock outstanding
$271,228,225
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------
- ---------------------------
Paid-in capital
$231,241,120
- ------------------------------------------------------------------------
- ---------------------------
Unrealized appreciation (depreciation) of investments
26,801,876
- ------------------------------------------------------------------------
- ---------------------------
Accumulated net realized gain on investments and foreign currency
transactions 63,509,324
- ------------------------------------------------------------------------
- ---------------------------
Distributions paid from capital gains
(50,597,175)
- ------------------------------------------------------------------------
- ---------------------------
Undistributed net investment income
273,080
- ------------------------------------------------------------------------
- --------------------------- -----------
Total
$271,228,225
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSET VALUE:
- ------------------------------------------------------------------------
- ---------------------------
Class A ($261,178,232 / 14,097,247 shares of capital stock outstanding)
$18.53
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B ($1,214,109 / 65,634 shares of capital stock outstanding)
$18.50
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares ($8,835,884 / 482,949 shares of capital stock
outstanding) $18.30
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF OFFERING PRICE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares (100/94.5 of $18.53)*
$19.61
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares
$18.50
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares
$18.30
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF PROCEEDS ON REDEMPTION:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares
$18.53
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares (94.5/100 of $18.50)**
$17.48
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares (99/100 of $18.30)**
$18.12
- ------------------------------------------------------------------------
- --------------------------- -----------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------
- ----------------------------
Dividends (net of foreign taxes withheld of $406,845)
$ 3,518,584
- ------------------------------------------------------------------------
- ----------------------------
Interest
557,853
- ------------------------------------------------------------------------
- ---------------------------- ------------
Total investment income
4,076,437
- ------------------------------------------------------------------------
- ----------------------------
EXPENSES:
- ------------------------------------------------------------------------
- ----------------------------
Investment advisory fee
$ 2,529,458
- ------------------------------------------------------------------------
- ---------------
Administrative personnel and services fees
349,224
- ------------------------------------------------------------------------
- ---------------
Custodian and recordkeeping fees
483,132
- ------------------------------------------------------------------------
- ---------------
Transfer agent and dividend disbursing agent fees
184,688
- ------------------------------------------------------------------------
- ---------------
Directors' fees
4,976
- ------------------------------------------------------------------------
- ---------------
Auditing fees
39,749
- ------------------------------------------------------------------------
- ---------------
Legal fees
18,982
- ------------------------------------------------------------------------
- ---------------
Capital stock registration costs
119,672
- ------------------------------------------------------------------------
- ---------------
Printing and postage
128,711
- ------------------------------------------------------------------------
- ---------------
Insurance premiums
9,390
- ------------------------------------------------------------------------
- ---------------
Taxes
29,060
- ------------------------------------------------------------------------
- ---------------
Miscellaneous
13,632
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class A
152,547
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class B
220
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class C
16,570
- ------------------------------------------------------------------------
- ---------------
Distribution fee--Class B
662
- ------------------------------------------------------------------------
- ---------------
Distribution fee--Class C
50,203
- ------------------------------------------------------------------------
- --------------- -----------
Total expenses
4,130,876
- ------------------------------------------------------------------------
- ---------------------------- ------------
Net investment income
(54,439)
- ------------------------------------------------------------------------
- ---------------------------- ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------
- ----------------------------
Realized gain on investment transactions (identified cost basis)--
- ------------------------------------------------------------------------
- ----------------------------
Net realized gain on investments and foreign currency transactions
15,659,072
- ------------------------------------------------------------------------
- ----------------------------
Unrealized appreciation of investments--
- ------------------------------------------------------------------------
- ----------------------------
Change in unrealized appreciation
7,122,265
- ------------------------------------------------------------------------
- ---------------------------- ------------
Net realized and unrealized gain/(loss) on investments
22,781,337
- ------------------------------------------------------------------------
- ---------------------------- ------------
Change in net assets resulting from operations
$ 22,726,898
- ------------------------------------------------------------------------
- ---------------------------- ------------
</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
$ (54,439) $ 172,409
- ------------------------------------------------------------------------
- ---------
Net realized gain/(loss) on investment and forward contract
transactions (14,870,196 net gain and $5,764,462 net loss, respectively,
as
computed for federal tax purposes)
15,659,072 5,894,827
- ------------------------------------------------------------------------
- ---------
Change in unrealized appreciation
7,122,265 14,259,817
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from operations
22,726,898 20,327,053
- ------------------------------------------------------------------------
- --------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
- ---------
Class A Dividends to shareholders from net investment income
(7,180) (644,382)
- ------------------------------------------------------------------------
- ---------
Distributions in excess of net investment income--Class A shares
(803,651) (747,020)
- ------------------------------------------------------------------------
- ---------
Distributions in excess of net investment income--Class C shares
(6,995) --
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from distributions to shareholders
(817,826) (1,391,402)
- ------------------------------------------------------------------------
- --------- -------------- --------------
CAPITAL STOCK TRANSACTIONS--
- ------------------------------------------------------------------------
- ---------
Net proceeds from sale of shares
158,071,765 127,561,470
- ------------------------------------------------------------------------
- ---------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock
324,527 623,074
- ------------------------------------------------------------------------
- ---------
Cost of shares redeemed
(104,788,830) (58,345,460)
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from capital stock transactions
53,607,462 69,839,084
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets
75,516,534 88,774,735
- ------------------------------------------------------------------------
- ---------
NET ASSETS:
- ------------------------------------------------------------------------
- ---------
Beginning of period
195,711,691 106,936,956
- ------------------------------------------------------------------------
- --------- -------------- --------------
End of period (including undistributed net investment income of $273,080
and $0,
respectively)
$ 271,228,225 $ 195,711,691
- ------------------------------------------------------------------------
- --------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
(1) ORGANIZATION
International Series, Inc. (the "Corporation") (formerly FT Series,
Inc.) is
registered under the Investment Company Act of 1940, as amended, 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.
Effective September 27, 1994 (Effective date of Class B Shares) the Fund
provides three classes of shares: Class A Shares, Class B Shares, and
Class C
Shares.
Effective March 15, 1994, the Corporation changed its name from FT
Series, Inc.
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 sale
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 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 that
the value
of collateral 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 the guidelines
established by the Board of Directors (the "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--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, as
amended (the "Code"). Distributions are determined in accordance
with
income tax regulations which may differ from generally accepted
accounting
principles. These distributions do not represent a return of
capital for
federal income tax purposes.
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. FOREIGN CURRENCY COMMITMENTS--The Fund may enter into foreign
currency
commitments for the delayed delivery of securities or forward
foreign
currency exchange transactions. Risks may arise upon entering these
transactions from the potential inability of counterparts to meet
the terms
of their transactions and from unanticipated movements in security
prices
or foreign exchanges rates. The forward foreign currency exchange
transactions 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 settlement date.
At November 30, 1994, the Fund had outstanding foreign currency
commitments set
out below:
<TABLE>
<CAPTION>
COMMITMENTS
UNREALIZED
TO DELIVER/
IN EXCHANGE APPRECIATION
SETTLEMENT DATE RECEIVE
FOR (DEPRECIATION)
<S> <C>
<C> <C>
UNSETTLED TRANSACTIONS
12/1/94
Indonesian Rupiah 9,881,200
$ 4,532.66 (3.02)
12/2/94
Mexican Peso 384,873.36
$ 112,012.04 97.72
12/5/94
Australian Dollar 457,162.47
$ 349,043.55 2,484.69
</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. The Fund had no written
options
outstanding at November 30, 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.
J. CONCENTRATION OF CREDIT RISK--The Fund invests in equity and fixed
income
securities of non-U.S. issuers. Although the Fund maintains a
diversified
investment portfolio the political or economic developments within
a
particular country or region may have an adverse effect on the
ability of
domiciled issuers to meet their obligations. Additionally,
political or
economic developments may have an effect on the liquidity and
volatility of
portfolio securities and currency holdings.
At November 30, 1994 the Portfolio was diversified with the
following
industries:
<TABLE>
<S> <C> <C>
<C>
Automotive 3.7% Energy
1.4%
Banking 8.5 Finance &
Insurance 2.7
Beverage & Tobacco 1.9 Pharmaceuticals
1.1
Media & Entertainment 4.5 Forest Products
2.8
Diversified Investment Companies 2.5 Industrial
Products 1.7
Building & Development 4.5 Manufacturing
3.2
Business & Equipment 5.6 Machinery
5.6
Capital Goods 0.5 Metals
1.7
Chemical 2.6 Other
6.8
Diversified Products 7.9 Retailers
5.7
Consumer Durables 2.1 Steel
4.4
Ecological Services 0.9 Technology
Services 0.5
Utilities 2.5 Telecommunications
4.2
Electronics & Electrical Equipment 8.7 Transportation
1.8
</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 Income, Capital Gain, and Return of
Capital
Distributions by Investment Companies. Accordingly, permanent book
and tax
differences have been reclassified. Amounts as of November 30,
1994, have
been reclassified to reflect a decrease in paid in capital of
$138,442, an
increase in undistributed net investment income $1,886,989, and a
decrease
in accumulated net realized gain/loss of $1,748,547. Net investment
income,
net realized gains, and net assets were not affected by this
change.
(3) CAPITAL STOCK
At November 30, 1994, there were 500,000,000 shares of $.0001 par value
capital
stock authorized for Class A Shares, Class B 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 7,830,629 $
148,658,669 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 (5,447,729)
(102,494,771) (3,779,897) (58,259,919)
- ----------------------------------------------- ----------- ----------
- ----- ----------- --------------
Net change resulting from capital stock
transactions 2,400,965 $
46,484,003 4,105,468 $ 66,938,177
- ----------------------------------------------- ----------- ----------
- ----- ----------- --------------
<CAPTION>
YEAR ENDED NOVEMBER
30,
1994**
CLASS B SHARES SHARES AMOUNT
<S> <C> <C>
- ----------------------------------------------- ----------- ----------
- -----
Shares sold 66,837 $
1,290,771
- -----------------------------------------------
Shares issued to shareholders in payment of
dividends declared --
- --
- -----------------------------------------------
Shares redeemed (1,202)
(23,249)
- ----------------------------------------------- ----------- ----------
- -----
Net change resulting from capital stock
transactions 65,635 $
1,267,522
- ----------------------------------------------- ----------- ----------
- -----
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994 1993*
CLASS C SHARES SHARES
AMOUNT SHARES AMOUNT
<S> <C>
<C> <C> <C>
- ----------------------------------------------------------- ---------
- ------------- --------- ------------
Shares sold 429,959
$ 8,122,325 177,586 $ 2,986,448
- -----------------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 250
4,422
- -----------------------------------------------------------
Shares redeemed (120,985)
(2,270,810) (3,862) (85,541)
- ----------------------------------------------------------- ---------
- ------------- --------- ------------
Net change resulting from capital stock
transactions 309,224
$ 5,855,937 173,724 $ 2,900,907
- ----------------------------------------------------------- ---------
- ------------- --------- ------------
</TABLE>
* For the period from March 31, 1993 (start of business) to November
30, 1993.
** For the period from September 19, 1994 (start of business) to
November 30,
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 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 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
0.50% of
1% of average daily net assets.
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
FAS 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 SERVICES FEES--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 B
Shares
and Class C Shares. The Plan provides that the Fund may incur
distribution
expenses up to 0.75 of 1% of the average daily net assets of the Class B
Shares
and Class C Shares, annually, to compensate FSC. Under the terms of a
Shareholder Services agreement with FSC, the Fund will pay FSC up to .25
of 1%
of average net assets of the Class A, Class B, and Class C Shares for
the
period. This fee is to obtain certain personal services for shareholders
and to
maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company
("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ
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
fiscal year ended
November 30, 1994 were as follows:
<TABLE>
<S>
<C>
PURCHASES
$ 228,447,062
- ------------------------------------------------------------------------
- -------------------------- --------------
SALES
$ 173,028,760
- ------------------------------------------------------------------------
- -------------------------- --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------
- --------
To the Shareholders and Board of Directors of
INTERNATIONAL SERIES, INC. (formerly FT SERIES, INC.)
(International Equity Fund):
We have audited the accompanying statement of assets and liabilities of
International Equity Fund (an investment portfolio of International
Series,
Inc., formerly FT Series, Inc., a Maryland Corporation), including the
schedule
of portfolio investments, as of November 30, 1994, the related statement
of
operations for the year then ended, the statements of changes in net
assets for
each of the two years in the period then ended and financial highlights
for each
of the periods presented. These financial statements and financial
highlights
are the responsibility of the Fund's management. Our responsibility is
to
express an opinion on these financial statements and financial
highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and
financial
highlights are free of material misstatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. Our procedures included confirmation of securities owned as
of
November 30, 1994, by correspondence with the custodian and broker. An
audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable basis for
our
opinion.
In our opinion, the financial statements and financial highlights
referred to
above present fairly, in all material respects, the financial position
of
International Equity Fund, an investment portfolio of International
Series,
Inc., as of November 30, 1994, and the results of its operations for the
year
then ended, the changes in its net assets for each of the two years in
the
period then ended and financial highlights for each of the periods
presented in
conformity with generally accepted accounting principles.
ARTHUR
ANDERSEN LLP
Pittsburgh, Pennsylvania
January 13, 1995
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S> <C>
<C>
International Equity Fund
Federated Investors Tower
Class A Shares
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Distributor
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Sub-Adviser
Fiduciary International, Inc.
Two World Trade Center
New York, New York 10048
- ------------------------------------------------------------------------
- ---------------------------------------------
Custodian
State Street Bank and
P.O. Box 8604
Trust Company
Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------
- ---------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Independent Public Accountants
Arthur Andersen, LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------
- ---------------------------------------------
</TABLE>
INTERNATIONAL EQUITY FUND
CLASS A SHARES
PROSPECTUS
A Diversified Portfolio of
International Series, Inc.
An Open-End
Management Investment Company
January 31, 1995
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
46031P308
1010302A-A (1/95)
INTERNATIONAL EQUITY FUND
A PORTFOLIO OF INTERNATIONAL SERIES, INC.
(FORMERLY, FT SERIES, INC.)
CLASS B SHARES
PROSPECTUS
The Class B Shares of International Equity Fund (the "Fund") offered by
this
prospectus represent interests in the Fund, which is a diversified
investment
portfolio in International Series, Inc. (formerly, FT Series, Inc.) (the
"Corporation"), an open-end, management investment company (a mutual
fund).
The Fund's objective is to obtain a total return on its assets. The Fund
pursues
this objective through a diversified portfolio primarily invested in
equity
securities of non-U.S. issuers.
THE CLASS B SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS B SHARES INVOLVES
INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you
invest in Class B Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Class
A Shares, Class B Shares, and Class C Shares dated January 31, 1995,
with the
Securities and Exchange Commission. The information contained in the
Combined
Statement of Additional Information is incorporated by reference into
this
prospectus. You may request a copy of the Combined Statement of
Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the
address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1995
TABLE OF CONTENTS
- ------------------------------------------------------------------------
- --------
SUMMARY OF FUND EXPENSES
1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
2
- ------------------------------------------------------
GENERAL INFORMATION
3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS
3
- ------------------------------------------------------
INVESTMENT INFORMATION
4
- ------------------------------------------------------
Investment Objective
4
Investment Policies
5
Risks Associated with Financial
Futures Contracts and Options on
Financial Futures Contracts
12
Investment Limitations
12
NET ASSET VALUE
13
- ------------------------------------------------------
INVESTING IN CLASS B SHARES
13
- ------------------------------------------------------
Share Purchases
13
Minimum Investment Required
14
What Shares Cost
14
Conversion of Class B Shares
15
Systematic Investment Program
15
Certificates and Confirmations
15
Dividends
15
Capital Gains
16
Retirement Plans
16
EXCHANGE PRIVILEGE
16
- ------------------------------------------------------
Requirements for Exchange
16
Tax Consequences
16
Making an Exchange
17
REDEEMING CLASS B SHARES
17
- ------------------------------------------------------
Through a Financial Institution
17
Directly from the Fund
18
Contingent Deferred Sales Charge
19
Elimination of Contingent
Deferred Sales Charge
19
Systematic Withdrawal Program
20
Reinvestment Privilege
20
Accounts with Low Balances
20
INTERNATIONAL SERIES, INC., INFORMATION
21
- ------------------------------------------------------
Management of the Corporation
21
Distribution of Class B Shares
27
Administration of the Fund
28
Brokerage Transactions
29
Expenses of the Fund and Class B Shares
29
SHAREHOLDER INFORMATION
30
- ------------------------------------------------------
Voting Rights
30
TAX INFORMATION
30
- ------------------------------------------------------
Federal Income Tax
30
Pennsylvania Corporate and Personal
Property Taxes
31
PERFORMANCE INFORMATION
31
- ------------------------------------------------------
OTHER CLASSES OF SHARES
32
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
33
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
34
- ------------------------------------------------------
FINANCIAL STATEMENTS
35
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
53
- ------------------------------------------------------
ADDRESSES
54
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering
price)..........................................................
None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)
(1)............................................. 5.50%
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................. None
Exchange
Fee.....................................................................
.............. None
ANNUAL CLASS B SHARES
OPERATING EXPENSES
(As a percentage of average
net assets)
Management
Fee.....................................................................
............ 1.00%
12b-1
Fee.....................................................................
................. 0.75%
Total Other
Expenses................................................................
........... 0.84%
Shareholder Services
Fee...................................................................
0.25%
Total Class B Shares Operating
Expenses...............................................
2.59%
</TABLE>
- ------------
(1) The contingent deferred sales charge assessed is 5.50% in the first
year
declining to 1.00% in the sixth year and 0.00% thereafter. (See
"Contingent
Deferred Sales Charge").
The purpose of this table is to assist an investor in understanding
the
various costs and expenses that a shareholder of the Class B Shares of
the Fund
will bear, either directly or indirectly. For more complete descriptions
of the
various costs and expenses, see "Investing in Class B Shares" and
"International
Series, Inc. Information." Wire-transferred redemptions of less than
$5,000 may
be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of
the
maximum front-end sales charges permitted under the rules of the
National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE
1 year 3 years
<S>
<C> <C>
- --------- ---------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and
(2) redemption at the end of each time
period.................................................. $83
$124
You would pay the following expenses on the same investment assuming
no
redemption..............................................................
.................... $26 $81
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The information set forth in the foregoing table and example relates
only to
Class B Shares of the Fund. The Fund also offers two additional classes
of
shares called Class A Shares and Class C Shares. Class B Shares, Class A
Shares
and Class C Shares are subject to certain of the same expenses. However,
Class A
Shares are subject to a maximum sales load of 5.50%, but are not subject
to a
12b-1 fee, however, may be subject to a contingent deferred sales
charge. Class
C Shares are subject to a 12b-1 fee of 0.75% and a contingent deferred
sales
charge of up to 1.00%, and are not subject to a sales load. See "Other
Classes
of Shares."
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS B SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 53.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1994**
<S>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 19.61
- ------------------------------------------------------------------------
- -----------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- -----------------------
Net investment income
(0.01)
- ------------------------------------------------------------------------
- -----------------------
Net realized and unrealized gain (loss) on investments and foreign
currency transactions (1.10)
- ------------------------------------------------------------------------
- ----------------------- -------
Total from investment operations
(1.11)
- ------------------------------------------------------------------------
- -----------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- -----------------------
Dividends to shareholders from net investment income
- --
- ------------------------------------------------------------------------
- -----------------------
Distributions for shareholders from net realized gain on investment
transactions --
- ------------------------------------------------------------------------
- ----------------------- -------
TOTAL DISTRIBUTIONS
- --
- ------------------------------------------------------------------------
- ----------------------- -------
NET ASSET VALUE, END OF PERIOD
$ 18.50
- ------------------------------------------------------------------------
- ----------------------- -------
TOTAL RETURN*
(5.27%)
- ------------------------------------------------------------------------
- -----------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- -----------------------
Expenses
2.59%(a)
- ------------------------------------------------------------------------
- -----------------------
Net investment income
(0.88%)(a)
- ------------------------------------------------------------------------
- -----------------------
Expense waiver/reimbursement
- --
- ------------------------------------------------------------------------
- -----------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- -----------------------
Net assets, end of period (000 omitted)
$ 1,214
- ------------------------------------------------------------------------
- -----------------------
Portfolio turnover rate
73%
- ------------------------------------------------------------------------
- -----------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption
fee, if applicable.
** Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report dated November 30, 1994, which can be obtained free of
charge.
GENERAL INFORMATION
- ------------------------------------------------------------------------
- --------
The Corporation was established as FT International Trust, a
Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under
the
laws of the state of Maryland on February 11, 1991. At a special meeting
of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the
name of the
Corporation to International Series, Inc. The Corporation's address is
Liberty
Center, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
The
Articles of Incorporation permit the Corporation to offer separate
series of
shares representing interests in separate portfolios of securities. The
shares
in any one portfolio may be offered in separate classes. With respect to
this
Fund, as of the date of this prospectus, the Board of Directors of the
Corporation (the "Directors") has established three classes of shares
known as
Class A Shares, Class B Shares, and Class C Shares. This prospectus
relates only
to Class B Shares (the "Shares") of the Corporation's portfolio known as
International Equity Fund.
Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended
to
provide a complete investment program for an investor. For a more
complete
description, see "Investing in Class C Shares" and "Redeeming Class C
Shares." A
minimum initial investment of $1,500 is required, unless the investment
is in a
retirement account, in which case the minimum investment is $50.
Except as otherwise noted in this prospectus, Shares are sold at net
asset value
and redeemed at net asset value. However, a contingent deferred sales
charge
("CDSC") is imposed on certain Shares of the Fund which are redeemed
within six
full years of the date of purchase.
The Fund's current net asset value and offering price can be found in
the mutual
funds section of local newspapers under "Federated Liberty."
LIBERTY FAMILY OF FUNDS
- ------------------------------------------------------------------------
- --------
This Fund is a member of a family of mutual funds, collectively known as
the
Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
. American Leaders Fund, Inc., providing growth of capital and
income
through high-quality stocks;
. Capital Growth Fund, providing appreciation of capital primarily
through
equity securities;
. Fund for U.S. Government Securities, Inc., providing current
income
through long-term U.S. government securities;
. International Income Fund, providing a high level of current
income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
. Liberty Equity Income Fund, Inc., providing above-average income
and
capital appreciation through income producing equity securities;
. Liberty High Income Bond Fund, Inc., providing high current
income
through high-yielding, lower-rated, corporate bonds;
. Liberty Municipal Securities Fund, Inc., providing a high level
of
current income exempt from federal regular income tax through
municipal
bonds;
. Liberty U.S. Government Money Market Trust, providing current
income
consistent with stability of principal through high-quality U.S.
government securities;
. Liberty Utility Fund, Inc., providing current income and long-
term growth
of income, primarily through electric, gas, and communications
utilities;
. Limited Term Fund, providing a high level of current income
consistent
with minimum fluctuation in principal through investment grade
securities;
. Limited Term Municipal Fund, providing a high level of current
income
exempt from federal regular income tax consistent with the
preservation
of principal, primarily limited to municipal securities;
. Michigan Intermediate Municipal Trust, providing current income
exempt
from federal regular income tax and personal income taxes imposed
by the
state of Michigan and Michigan municipalities, primarily through
Michigan
municipal securities;
. Pennsylvania Municipal Income Fund, providing current income
exempt from
federal regular income tax and the personal income taxes imposed
by the
Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal
securities;
. Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt
obligations;
. Tax-Free Instruments Trust, providing current income consistent
with the
stability of principal and exempt from federal income tax,
through
high-quality, short-term municipal securities; and
. World Utility Fund, providing total return primarily through
securities
issued by domestic and foreign companies in the utilities
industries.
Prospectuses for these funds are available by writing to Federated
Securities
Corp.
Each of the funds may also invest in certain other types of securities
as
described in each fund's prospectus. The Liberty Family of Funds
provides
flexibility and diversification for an investor's long-term investment
planning.
It enables an investor to meet the challenges of changing market
conditions by
offering convenient exchange privileges which give access to various
investment
vehicles and by providing the investment services of proven,
professional
investment advisers.
INVESTMENT INFORMATION
- ------------------------------------------------------------------------
- --------
INVESTMENT OBJECTIVE
The Fund's objective is to obtain a total return on its assets. The
objective is
based on the premise that investing in non-U.S. securities provides
three
potential benefits over investing solely in U.S. securities:
. the opportunity to invest in non-U.S. companies believed to have
superior
growth potential;
. the opportunity to invest in foreign countries with economic
policies or
business cycles different from those of the United States; and
. the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not
move in
harmony.
While there is no assurance that the Fund will achieve its investment
objective,
it endeavors to do so by following the investment policies described in
this
prospectus. The investment objective and policies may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any
material change in the objective or policies becomes effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund invests primarily in non-U.S.
securities. A
substantial portion of these will be equity securities of established
companies
in economically developed countries. The Fund will invest at least 65%,
and
under normal market conditions substantially all of its total assets, in
equity
securities denominated in foreign currencies, including European
Currency Units,
of issuers located in at least three countries outside of the United
States and
sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs"),
collectively, "Depositary Receipts." The Fund may also purchase
corporate and
government fixed income securities denominated in currencies other than
U.S.
Dollars; enter into forward commitments, repurchase agreements, and
foreign
currency transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
EQUITY AND FIXED INCOME SECURITIES. At the date of this
prospectus, the
Fund has committed its assets primarily to dividend-paying equity
securities of established companies that appear to have growth
potential.
However, as a temporary defensive position, the Fund may shift its
emphasis
to fixed income securities, warrants, or other obligations of
foreign
companies or governments, if they appear to offer potential higher
return.
Fixed income securities include preferred stock, convertible
securities,
bonds, notes, or other debt securities which are investment grade
or
higher. However, in no event will the Fund invest more than 25% of
its
total assets in the debt securities of any one foreign country.
The high-quality debt securities in which the Fund will invest will
possess
a minimum credit rating of A as assigned by Standard & Poor's
Ratings Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if
unrated, will be judged by Federated Management, the Fund's
investment
adviser (the "Adviser"), or Fiduciary International, Inc., the
Fund's
investment sub-adviser (the "sub-adviser"), to be of comparable
quality.
Because the average quality of the Fund's portfolio investments
should
remain constantly between A and AAA, the Fund will seek to avoid
the
adverse consequences that may arise for some debt securities in
difficult
economic circumstances. Downgraded securities will be evaluated on
a
case-by-case basis by the Adviser. The Adviser will determine
whether or
not the security continues to be an acceptable investment. If not,
the
security will be sold. A description of the ratings categories is
contained
in the Appendix to the Statement of Additional Information.
The prices of fixed income securities generally fluctuate inversely
to the
direction of interest rates.
DEPOSITARY RECEIPTS. The Fund may invest in foreign issuers by
purchasing
sponsored or unsponsored ADRs, GDRs, and EDRs. ADRs are depositary
receipts
typically issued by a United States bank or trust company which
evidence
ownership of underlying securities issued by a foreign corporation.
EDRs
and GDRs are typically issued by foreign banks or trust companies,
although
they also may be issued by United States banks or trust companies,
and
evidence ownership of underlying securities issued by either a
foreign or a
United States corporation. Generally, Depositary Receipts in
registered
form are designed for use in the United States securities market
and
Depositary Receipts in bearer form are designed for use in
securities
markets outside the United States. Depositary Receipts may not
necessarily
be denominated in the same currency as the underlying securities
into which
they may be converted. Ownership of unsponsored Depositary Receipts
may not
entitle the Fund to financial or other reports from the issuer of
the
underlying security, to which it would be entitled as the owner of
sponsored Depositary Receipts.
FORWARD COMMITMENTS. Forward commitments are contracts to purchase
securities for a fixed price at a date beyond customary settlement
time.
The Fund may enter into these contracts if liquid securities in
amounts
sufficient to meet the purchase price are segregated on the Fund's
records
at the trade date and maintained until the transaction has been
settled.
Risk is involved if the value of the security declines before
settlement.
Although the Fund enters into forward commitments with the
intention of
acquiring the security, it may dispose of the commitment prior to
settlement and realize short-term profit or loss.
MONEY MARKET INSTRUMENTS. The Fund may invest in U.S. and foreign
short-term money market instruments, including interest-bearing
call
deposits with banks, government obligations, certificates of
deposit,
bankers' acceptances, commercial paper, short-term corporate debt
securities, and repurchase agreements. The commercial paper in
which the
Fund invests will be rated A-1 by S&P or P-1 by Moody's. These
investments
may be used to temporarily invest cash received from the sale of
Fund
Shares, to establish and maintain reserves for temporary defensive
purposes, or to take advantage of market opportunities. Investments
in the
World Bank, Asian Development Bank, or Inter-American Development
Bank are
not anticipated.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in
which
banks, broker/dealers, and other recognized financial institutions
sell
securities to the Fund and agree at the time of sale to repurchase
them at
a mutually agreed upon time and price. To the extent that the
original
seller does not repurchase the securities from the Fund, the Fund
could
receive less than the repurchase price on any sale of such
securities.
OPTIONS AND FINANCIAL FUTURES CONTRACTS. The Fund may purchase put
and
call options, financial futures contracts, and options on financial
futures
contracts. In addition, the Fund may write (sell) put and call
options with
respect to securities in the Fund's portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These
transactions are
arrangements in which the Fund purchases securities with payment and
delivery
scheduled for a future time. The seller's failure to complete the
transaction
may cause the Fund to miss a price or yield considered to be
advantageous.
Settlement dates may be a month or more after entering into these
transactions,
and the market values of the securities purchased may vary from the
purchase
prices. Accordingly, the Fund may pay more/less than the market value of
the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it
appropriate to do so. In addition, the Fund may enter into transactions
to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities
at later
dates. The Fund may realize short-term profits or losses upon the sale
of such
commitments.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign
currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or
cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect
Fund
assets against adverse changes in foreign currency exchange rates or
exchange
control regulations. Such changes could unfavorably affect the value of
Fund
assets which are denominated in foreign currencies, such as foreign
securities
or funds deposited in foreign banks, as measured in U.S. Dollars.
Although
foreign currency exchanges may be used by the Fund to protect against a
decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value
of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or
sell an
amount of a particular currency at a specific price and on a future date
agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time
the Fund
enters into a forward contract, Fund assets with a value equal to the
Fund's
obligation under the forward contract are segregated on the Fund's
records and
are maintained until the contract has been settled. The Fund will not
enter into
a forward contract with a term of more than one year. The Fund will
generally
enter into a forward contract to provide the proper currency to settle a
securities transaction at the time the transaction occurs ("trade
date"). The
period between the trade date and settlement date will vary between 24
hours and
30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets
denominated in
that currency ("hedging"). The success of this type of short-term
hedging
strategy is highly uncertain due to the difficulties of predicting short-
term
currency market movements and of precisely matching forward contract
amounts
and the constantly changing value of the securities involved. Although
the
Adviser will consider the likelihood of changes in currency values when
making
investment decisions, the Adviser believes that it is important to be
able to
enter into forward contracts when it believes the interests of the Fund
will be
served. The Fund will not enter into forward contracts for hedging
purposes in
a particular currency in an amount in excess of the Fund's assets
denominated
in that currency. No more than 30% of the Fund's assets will be
committed to
forward contracts for hedging purposes at any time. (This restriction
does not
include forward contracts entered into to settle securities
transactions.)
PUT AND CALL OPTIONS WITH RESPECT TO EQUITY SECURITIES. The Fund may
purchase
put and call options on its portfolio of securities. Put and call
options will
be used as a hedge to attempt to protect securities which the Fund
holds, or
will be purchasing, against decreases or increases in value. The Fund is
also
authorized to write (sell) put and call options on all or any portion of
its
portfolio of securities to generate income. The Fund may write call
options on
securities either held in its portfolio or which it has the right to
obtain
without payment of further consideration or for which it has segregated
cash in
the amount of any additional consideration. In the case of put options
written
by the Fund, the Corporation's custodian will segregate cash, U.S.
Treasury
obligations, or highly liquid debt securities with a value equal to or
greater
than the exercise price of the underlying securities.
The Fund is authorized to invest in put and call options that are traded
on
securities exchanges. The Fund may also purchase and write over-the-
counter
("OTC options") on portfolio securities in negotiated transactions with
the
buyers or writers of the options since options on some of the portfolio
securities held by the Fund are not traded on an exchange. The Fund will
purchase and write OTC options only with investment dealers and other
financial
institutions (such as commercial banks or savings and loan associations)
deemed
creditworthy by the Adviser.
OTC options are two-party contracts with price and terms negotiated
between
buyer and seller. In contrast, exchange-traded options are third-party
contracts
with standardized strike prices and expiration dates and are purchased
from a
clearing corporation. Exchange-traded options have a continuous liquid
market
while OTC options may not. Prior to exercise or expiration, an option
position
can only be terminated by entering into a closing purchase or sale
transaction.
This requires a secondary market on an exchange which may or may not
exist for
any particular call or put option at any specific time. The absence of a
liquid
secondary market also may limit the Fund's ability to dispose of the
securities
underlying an option. The inability to close options also could have an
adverse
impact on the Fund's ability to effectively hedge its portfolio.
FINANCIAL FUTURES AND OPTIONS ON FINANCIAL FUTURES. The Fund may
purchase and
sell financial futures contracts to hedge all or a portion of its
portfolio
securities against changes in interest rates or securities prices.
Financial
futures contracts on securities call for the delivery of particular
securities
at a certain time in the future. The seller of the contract agrees to
make
delivery of the type of instrument called for in the contract, and the
buyer
agrees to take delivery of the instrument at the specified future time.
A
financial futures contract on a securities index does not involve the
actual
delivery of securities, but merely requires the payment of a cash
settlement
based on changes in the securities index.
The Fund may also write call options and purchase put options on
financial
futures contracts as a hedge to attempt to protect securities in its
portfolio
against decreases in value resulting from anticipated increases in
market
interest rates or broad declines in securities prices. When the Fund
writes a
call option on a financial futures contract, it is undertaking the
obligation
of selling the financial futures contract at a fixed price at any time
during a
specified period if the option is exercised. Conversely, as a purchaser
of a
put option on a financial futures contract, the Fund is entitled (but
not
obligated) to sell a financial futures contract at the fixed price
during the
life of the option.
The Fund may also write put options and purchase call options on
financial
futures contracts as a hedge against rising purchase prices of
securities
eligible for purchase by the Fund. The Fund will use these transactions
to
attempt to protect its ability to purchase securities in the future at
price
levels existing at the time it enters into the transactions. When the
Fund
writes a put option on a futures contract, it is undertaking to buy a
particular
futures contract at a fixed price at any time during a specified period
if the
option is exercised. As a purchaser of a call option on a futures
contract, the
Fund is entitled (but not obligated) to purchase a futures contract at a
fixed
price at any time during the life of the option.
The Fund may not purchase or sell financial futures contracts or options
on
financial futures contracts if, immediately thereafter, the sum of the
amount of
initial margin deposits on the Fund's existing financial futures
positions and
premiums paid for related options would exceed 5% of the fair market
value of
the Fund's total assets, after taking into account the unrealized
profits and
losses on those contracts it has entered into. When the Fund purchases
financial
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the financial futures contracts (less any
related
margin deposits), will be deposited in a segregated account with the
Fund's
custodian to collateralize the position and, thereby, insure that the
use of
such financial futures contracts is unleveraged.
RISK CONSIDERATIONS. Investing in non-U.S. securities carries
substantial risks
in addition to those associated with domestic investments. In an attempt
to
reduce some of these risks, the Fund diversifies its investments broadly
among
foreign countries, including both developed and developing countries. At
least
three different countries will always be represented. As of November 30,
1994,
the portfolio contained securities from issuers located primarily in
Germany,
Japan, the United Kingdom, France, Hong Kong, Switzerland, and Mexico.
There are
also investments in several other countries.
The Fund occasionally takes advantage of the unusual opportunities for
higher
returns available from investing in developing countries. As discussed
in the
Statement of Additional Information, however, these investments carry
considerably more volatility and risk because they are associated with
less
mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in
such
respects as growth of gross domestic product, rate of inflation,
currency
depreciation, capital reinvestment, resource self-sufficiency, and
balance of
payments position. Further, the economies of developing countries
generally are
heavily dependent on international trade and, accordingly, have been,
and may
continue to be, adversely affected by trade barriers, exchange controls,
managed
adjustments in relative currency values, and other protectionist
measures
imposed or negotiated by the countries with which they trade. These
economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required
under
certain circumstances in some countries, and the extent of foreign
investment
in certain debt securities and domestic companies may be subject to
limitation.
Foreign ownership limitations also may be imposed by the charters of
individual
companies to prevent, among other concerns, violation of foreign
investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a
refusal to
grant, any required governmental registration or approval for such
repatriation.
Any investment subject to such repatriation controls will be considered
illiquid
if it appears reasonably likely that this process will take more than
seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political
changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or
the value of the Fund's investments in those countries. In addition, it
may be
difficult to obtain and enforce a judgment in a court outside of the
U.S.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may
have different clearance and settlement procedures and in certain
markets there
have been times when settlements have been unable to keep pace with the
volume
of securities transactions, making it difficult to conduct such
transactions.
The inability of the Fund to make intended security purchases due to
settlement
problems could cause the Fund to miss attractive investment
opportunities.
Inability to dispose of a portfolio security due to settlement problems
could
result either in losses to the Fund due to subsequent declines in value
of the
portfolio security or, if the Fund has entered into a contract to sell
the
security, could result in possible liability to the purchaser.
CURRENCY RISKS. Because the majority of the securities purchased
by the
Fund are denominated in currencies other than the U.S. Dollar,
changes in
foreign currency exchange rates will affect the Fund's net asset
value; the
value of interest earned; gains and losses realized on the sales of
securities; and net investment income and capital gain, if any, to
be
distributed to shareholders by the Fund. If the value of a foreign
currency
rises against the U.S. Dollar, the value of the Fund assets
denominated in
that currency will increase; correspondingly, if the value of a
foreign
currency declines against the U.S. Dollar, the value of Fund assets
denominated in that currency will decrease.
The exchange rates between the U.S. Dollar and foreign currencies
are a
function of such factors as supply and demand in the currency
exchange
markets, international balances of payments, governmental
interpretation,
speculation and other economic and political conditions. Although
the Fund
values its assets daily in U.S. Dollars, the Fund will not convert
its
holdings of foreign currencies to U.S. Dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion
costs.
Foreign exchange dealers may realize a profit on the difference
between the
price at which they buy and sell currencies.
EXCHANGE RATES. Foreign securities are denominated in foreign
currencies.
Therefore, the value in U.S. Dollars of the Fund's assets and
income may
be affected by changes in exchange rates and regulations. Although
the
Fund values its assets daily in U.S. Dollars, it will not convert
its
holding of foreign currencies to U.S. Dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion
costs.
Foreign exchange dealers realize a profit on the difference between
the
prices at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign
and
U.S. companies include:
. less publicly available information about foreign companies;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to
those
applicable to U.S. companies;
. less readily available market quotations on foreign companies;
. differences in government regulation and supervision of foreign
stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to
enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited
trading
volume in issuers compared to the volume of trading in U.S.
securities
could cause prices to be erratic for reasons apart from factors
that
affect the quality of securities;
. the likelihood that foreign securities may be less liquid or more
volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments
in some
countries;
. increased risk of delayed settlements of portfolio transactions
or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before
delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's
investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies
have
discouraged or restricted certain investments abroad by investors
such as
the Fund. Investors are advised that, when such policies are
instituted,
the Fund will abide by them.
SHORT SALES. The Fund intends to sell securities short from time
to time,
subject to certain restrictions. A short sale occurs when a
borrowed
security is sold in anticipation of a decline in its price. If the
decline
occurs, shares equal in number to those sold short can be purchased
at the
lower price. If the price increases, the higher price must be paid.
The
purchased shares are then returned to the original lender. Risk
arises
because no loss limit can be placed on the transaction. When the
Fund
enters into a short sale, assets, equal to the market price of the
securities sold short or any lesser price at which the Fund can
obtain such
securities, are segregated on the Fund's records and maintained
until the
Fund meets its obligations under the short sale.
RISKS ASSOCIATED WITH FINANCIAL FUTURES CONTRACTS AND OPTIONS ON
FINANCIAL
FUTURES CONTRACTS
Financial futures contracts and options on financial futures contracts
can be
highly volatile and could result in a reduction of the Fund's total
return. The
Fund's attempt to use such investment devices for hedging purposes may
not be
successful. Successful futures strategies require the ability to predict
future
movements in securities prices, interest rates and other economic
factors. When
the Fund uses financial futures contracts and options on financial
futures
contracts as hedging devices, there is a risk that the prices of the
securities
subject to the financial futures contracts and options on financial
futures
contracts may not correlate perfectly with the prices of the securities
in the
Fund. This may cause the financial futures contract and any related
options to
react to market changes differently than the portfolio securities. In
addition,
the Adviser could be incorrect in its expectations about the direction
or extent
of market factors, such as interest rate, securities price movements,
and other
economic factors. In these events, the Fund may lose money on the
financial
futures contract or the options on financial futures contracts. It is
not
certain that a secondary market for positions in financial futures
contracts or
for options on financial futures contracts will exist at all times.
Although the
Adviser will consider liquidity before entering into financial futures
contracts
or options on financial futures contracts transactions, there is no
assurance
that a liquid secondary market on an exchange will exist for any
particular
financial futures contract or option on a financial futures contract at
any
particular time. The Fund's ability to establish and close out financial
futures
contracts and options on financial futures contract positions depends on
this
secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the losses to the Fund
could be
significant.
INVESTMENT LIMITATIONS
The Fund will not:
. with respect to 75% of the value of its total assets, invest more
than 5%
of the value of its total assets in the securities (other than
securities
issued or guaranteed by the government of the United States or
its
agencies or instrumentalities) of any one issuer;
. acquire more than 10% of the outstanding voting securities of any
one
issuer, or acquire any securities of Fiduciary Trust Company
International or its affiliates;
. sell securities short except under strict limitations;
. borrow money or pledge securities except, under certain
circumstances,
the Fund may borrow up to one-third of the value of its total
assets and
pledge up to 15% of the value of those assets to secure such
borrowings;
nor
. permit margin deposits for financial futures contracts held by
the Fund,
plus premiums paid by it for open options on financial futures
contracts,
to exceed 5% of the fair market value of the Fund's total assets,
after
taking into account the unrealized profits and losses on those
contracts.
The above investment limitations cannot be changed without shareholder
approval.
The following limitations, however, may be changed by the Directors
without
shareholder approval. Shareholders will be notified before any material
change
in these limitations becomes effective.
The Fund will not:
. invest more than 5% of its assets in warrants;
. own securities of open-end or closed-end investment companies,
except
under certain circumstances and subject to certain limitations
not
exceeding 10% of its total assets (the Fund will indirectly bear
its
proportionate share of any fees and expenses paid by other
investment
companies, in addition to the fees and expenses payable directly
by the
Fund.);
. invest more than 5% of its total assets in securities of issuers
that
have records of less than three years of continuous operations;
. invest more than 15% of the value of its net assets in illiquid
securities, including securities not determined by the Directors
to be
liquid, including repurchase agreements with maturities longer
than seven
days after notice and certain OTC options; nor
. purchase put options on securities unless the securities or an
offsetting
call option is held in the Fund's portfolio.
NET ASSET VALUE
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The Fund's net asset value per Class B Share fluctuates. The net asset
value for
Class B Shares is determined by adding the interest of the Class B
Shares in the
market value of all securities and other assets of the Fund, less
liabilities of
the Fund attributable to Class B Shares, and dividing the remainder by
the total
number of Class B Shares outstanding. The net asset value for Class B
Shares may
differ from that of Class A Shares and Class C Shares due to the
variance in
daily net income realized by each class. Such variance will reflect only
accrued
net income to which the shareholders of a particular class are entitled.
INVESTING IN CLASS B SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open.
Shares may
be purchased through a financial institution which has a sales agreement
with
the distributor or directly from the distributor, Federated Securities
Corp.,
once an account has been established. In connection with the sale of
Shares,
Federated Securities Corp. may, from time to time, offer certain items
of
nominal value to any shareholder or investor. The Fund reserves the
right to
reject any purchase request.
Orders for $250,000 or more of Class B Shares will normally be invested
in Class
A Shares. (See "Other Classes of Shares.")
THROUGH A FINANCIAL INSTITUTION. Investors may call their financial
institution (such as a bank or an investment dealer) to place an order
to
purchase Shares. Orders placed through a financial institution are
considered
received when the Fund is notified of the purchase order or when
converted into
federal funds. It is the financial institution's responsibility to
transmit
orders promptly. Purchase orders through a registered broker/dealer must
be
received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in order for
Shares
to be purchased at that day's price. Purchase orders through other
financial
institutions must be received by the financial institution and
transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be
purchased at
that day's price.
The financial institution which maintains investor accounts with the
Fund must
do so on a fully disclosed basis unless it accounts for share ownership
periods
used in calculating the CDSC (see "Contingent Deferred Sales Charge.")
In
addition, advance payments made to financial institutions may be subject
to
reclaim by the distributor for accounts transferred to financial
institutions
which do not maintain investor accounts on a fully disclosed basis and
do not
account for share ownership periods (see "Other Payments to Financial
Institutions.")
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to
purchase
Shares directly from the distributor once an account has been
established. To do
so:
. complete and sign the new account form available from the Fund;
. enclose a check made payable to International Equity Fund--Class
B
Shares; and
. mail both to Federated Services Company, P.O. Box 8604, Boston,
MA
02266-8604.
Orders by mail are considered received after payment by check is
converted
by the transfer agent's bank, State Street Bank and Trust Company
("State
Street Bank"), into federal funds. This is generally the next
business day
after State Street Bank receives the check.
BY WIRE. To purchase Shares directly from the distributor by wire
once an
account has been established, call the Fund. All information needed
will be
taken over the telephone, and the order is considered received when
State
Street Bank receives payment by wire. Federal funds should be wired
as
follows: Federated Services Company, c/o State Street Bank and
Trust
Company, Boston, Massachusetts 02105; Attention: Mutual Fund
Servicing
Division; For Credit to: International Equity Fund--Class B Shares;
Fund
Number (this number can be found on the account statement or by
contacting
the Fund); Group Number or Order Number; Nominee or Institution
Name; and
ABA Number 011000028. Shares cannot be purchased by wire on days on
which
the New York Stock Exchange is closed and on federal holidays
restricting
wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500 unless the investment
is in a
retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts, which must be in amounts of at least $50.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order
is
received.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday
through
Friday, except on: (i) days on which there are not sufficient changes in
the
value of the Fund's portfolio securities that its net asset value might
be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances described under "Redeeming Class B Shares,"
shareholders may be charged a CDSC by the distributor at the time Shares
are
redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on the
fifteenth
day of the month, eight years after the purchase date, except as noted
below,
and will no longer be subject to a distribution fee (see "Other Classes
of
Shares.") Such conversion will be on the basis of the relative net asset
values
per share, without the imposition of any sales load, fee, or other
charge. Class
B Shares acquired by exchange from Class B Shares of another fund in the
Liberty
Family of Funds will convert into Class A Shares based on the time of
the
initial purchase. For purposes of conversion to Class A Shares, Class B
Shares
purchased through the reinvestment of dividends and distributions paid
on Class
B Shares will be considered to be held in a separate sub-account. Each
time any
Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the
Class B
Shares in the sub-account will also convert to Class A Shares. The
availability
of the conversion feature is subject to the granting of an exemptive
order by
the Securities and Exchange Commission or the adoption of a rule
permitting such
conversion. In the event that the exemptive order or rule ultimately
issued by
the Securities and Exchange Commission requires any conditions
additional to
those described in this prospectus, shareholders will be notified. The
conversion of Class B Shares to Class A Shares is subject to the
continuing
availability of a ruling from the Internal Revenue Service or an opinion
of
counsel that such conversions will not constitute taxable events for
federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B Shares to Class A Shares will
not occur
if such ruling or opinion is not available. In such event, Class B
Shares would
continue to be subject to higher expenses than Class A Shares for an
indefinite
period.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on
a regular basis in a minimum amount of $100. Under this program, funds
may be
automatically withdrawn periodically from the shareholder's checking
account and
invested in Shares at the net asset value next determined after an order
is
received by the Fund. Shareholders may apply for participation in this
program
through their financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share
account for each shareholder. Share certificates are not issued unless
requested
in writing to the Fund.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid
during the
year.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the
Fund on the record date. Dividends are automatically reinvested in
additional
Shares on the payment date at the ex-dividend date net asset value,
unless
shareholders request cash payments on the new account form or by writing
to the
Fund. All shareholders on the record date are entitled to the dividend.
If
Shares are redeemed or exchanged prior to the record date or purchased
after
the record date, those Shares are not entitled to that year's dividend.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least
once
every twelve months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement
plans or for
IRA accounts. For further details, contact Federated Securities Corp.
and
consult a tax adviser.
EXCHANGE PRIVILEGE
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- --------
In order to provide greater flexibility to Fund shareholders whose
investment
objectives have changed, Class B shareholders may exchange all or some
of their
Shares for Class B Shares of other funds in the Liberty Family of Funds
at net
asset value without being assessed a CDSC on the exchanged Shares. (Not
all
funds in the Liberty Family of Funds currently offer Class B Shares.
Contact
your financial institution regarding the availability of other Class B
Shares in
the Liberty Family of Funds.) To the extent that a shareholder exchanges
Shares
for Class B Shares in other funds in the Liberty Family of Funds, the
time for
which the exchanged-for shares were held will be added, or tacked, to
the time
for which the exchanged-from Shares were held for purposes of satisfying
the
applicable holding period.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net
asset value
equal to the minimum investment requirements of the fund into which the
exchange
is being made. Before the exchange, the shareholder must receive a
prospectus of
the fund into which the exchange is being made.
This privilege is available to shareholders resident in any state in
which the
fund shares being acquired may be sold. Upon receipt of proper
instructions and
required supporting documents, Shares submitted for exchange are
redeemed and
the proceeds invested in Class B Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will
be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty
Family of Funds or funds advised by subsidiaries of Federated Investors
("Federated Funds") are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income
tax purposes. Depending on the circumstances, a short-term or long-term
capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain
Federated
Funds may be given in writing or by telephone. Written instructions may
require
a signature guarantee. Shareholders of the Fund may have difficulty in
making
exchanges by telephone through brokers and other financial institutions
during
times of drastic economic or market changes. If shareholders cannot
contact
their broker or financial institution by telephone, it is recommended
that an
exchange request be made in writing and sent by overnight mail to
Federated
Services Company, 500 Victory Road--2nd Floor, Quincy, Massachusetts
02171.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may
be
carried out only if a telephone authorization form completed by the
investor is
on file with the Fund. If the instructions are given by a broker, a
telephone
authorization form completed by the broker must be on file with the
Fund. Shares
may be exchanged between two funds by telephone only if the two funds
have
identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be
forwarded to Federated Services Company, c/o State Street Bank and Trust
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604, and deposited
to the
shareholder's account before being exchanged. Telephone exchange
instructions
may be recorded. Such instructions will be processed as of 4:00 p.m.
(Eastern
time) and must be received by the Fund before that time for Shares to be
exchanged the same day. Shareholders exchanging into a fund will not
receive any
dividend that is payable to shareholders of record on that date. This
privilege
may be modified or terminated at any time.
If reasonable procedures are not followed by the Fund, it may be liable
for
losses due to unauthorized or fraudulent telephone instructions.
REDEEMING CLASS B SHARES
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- --------
The Fund redeems Shares at their net asset value next determined after
the Fund
receives the redemption request, less any applicable CDSC (see
"Contingent
Deferred Sales Charge.") Redemptions will be made on days on which the
Fund
computes its net asset value. Redemptions can be made through a
financial
institution or directly from the Fund. Redemption requests must be
received in
proper form.
THROUGH A FINANCIAL INSTITUTION
Shareholders may redeem Shares by calling their financial institution
(such as
a bank or an investment dealer) to request the redemption. Shares will
be
redeemed at their net asset value, less any applicable CDSC, next
determined
after the Fund receives the redemption request from the financial
institution.
Redemption requests through a registered broker/dealer must be received
by the
broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to
the Fund before 5:00 p.m. (Eastern time) in order for Shares to be
redeemed at
that day's net asset value. Redemption requests through other financial
institutions must be received by the financial institution and
transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be
redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written
redemption
instructions to the Fund. The financial institution may charge customary
fees
and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The
proceeds will
be mailed to the shareholder's address of record or wire transferred to
the
shareholder's account at a domestic commercial bank that is a member of
the
Federal Reserve System, normally within one business day, but in no
event longer
than seven days after the request. The minimum amount for a wire
transfer is
$1,000. If at any time the Fund shall determine it necessary to
terminate or
modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Fund to accept telephone requests
must
first be completed. Authorization forms and information on this service
are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may
experience
difficulty in redeeming by telephone. If such a case should occur,
another
method of redemption, such as redeeming by mail, should be considered.
Telephone redemption instructions may be recorded. If reasonable
procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or
fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request
to
Federated Services Company, c/o State Street Bank and Trust Company,
P.O. Box
8604, Boston, Massachusetts 02266-8604. The written request should
include the
shareholder's name, the Fund name and class designation, the account
number, and
the Share or dollar amount requested, and should be signed exactly as
the Shares
are registered.
If Share certificates have been issued, they must be properly endorsed
and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on
record with
the Fund, or a redemption payable other than to the shareholder of
record must
have signatures on written redemption requests guaranteed by:
. a trust company or commercial bank whose deposits are insured by
the Bank
Insurance Fund ("BIF"), which is administered by the Federal
Deposit
Insurance Corporation ("FDIC");
. a member of the New York, American, Boston, Midwest, or Pacific
Stock
Exchanges;
. a savings bank or savings and loan association whose deposits are
insured
by the Savings Association Insurance Fund ("SAIF"), which is
administered
by the FDIC; or
. any other "eligible guarantor institution," as defined in the
Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature
guarantees from the above institutions. The Fund may elect in the future
to
limit eligible signature guarantors to institutions that are members of
a
signature guarantee program. The Fund and its transfer agent reserve the
right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day,
but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming Shares from their Fund accounts within six full
years of
the purchase date of those Shares will be charged a CDSC by the Fund's
distributor. Any applicable CDSC will be imposed on the lesser of the
net asset
value of the redeemed Shares at the time of purchase or the net asset
value of
the redeemed Shares at the time of redemption in accordance with the
following
schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SHARES HELD SALES CHARGE
<S> <C>
One full year or less 5.50%
Two full years or less 4.75%
Three full years or less 4.00%
Four full years or less 3.00%
Five full years or less 2.00%
Six full years or less 1.00%
Seven years and thereafter 0.00%
</TABLE>
The CDSC will be deducted from the redemption proceeds otherwise payable
to the
shareholder and will be retained by the distributor. The CDSC will not
be
imposed with respect to: (1) Shares acquired through the reinvestment of
dividends or distributions of long-term capital gains; and/or (2) Shares
held
for more than six full years from the date of purchase. Redemptions will
be
processed in a manner intended to maximize the amount of redemption
which will
not be subject to a CDSC. In computing the amount of the applicable
CDSC,
redemptions are deemed to have occurred in the following order: (1)
Shares
acquired through the reinvestment of dividends and long-term capital
gains; (2)
Shares held for more than six full years from the date of purchase; and
(3)
Shares held for six years or less on a first-in, first-out basis.
A CDSC is not assessed in connection with an exchange of Fund Shares for
shares
of other Class B Shares of funds in the Liberty Family of Funds (see
"Exchange
Privilege.") Any CDSC imposed at the time the exchanged-for shares are
redeemed
is calculated as if the shareholder had held the shares from the date on
which
the investor became a shareholder of the exchanged-from Shares.
Moreover, the
CDSC will be eliminated with respect to certain redemptions (see
"Elimination of
Contingent Deferred Sales Charge.")
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The CDSC will be eliminated with respect to the following redemptions:
(1)
redemptions following the death or disability, as defined in Section
72(m)(7)
of the Internal Revenue Code of 1986, of a shareholder; (2) redemptions
representing minimum required distributions from an Individual
Retirement
Account or other qualified retirement plan to a shareholder who has
attained
the age of 70-1/2; and (3) involuntary redemptions by the Fund of Shares
in
shareholder accounts that do not comply with the minimum balance
requirements.
In addition, to the extent that the distributor does not make advance
payments
to certain financial institutions for purchases made by their clients,
no CDSC
will be imposed on redemptions of Shares held by Directors, employees
and sales
representatives of the Fund, the distributor, or affiliates of the Fund
or
distributor; employees of any financial institution that sells Shares of
the
Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
CDSC
will be imposed on the redemption of Shares originally purchased through
a bank
trust department, an investment adviser registered under the Investment
Advisers Act of 1940, as amended, or a retirement plan where the third-
party
administrator has entered into certain arrangements with Federated
Securities
Corp. or its affiliates, or any other financial institution, to the
extent that
no payments were advanced for purchases made through or by such
entities.
The Directors reserve the right to discontinue elimination of the CDSC.
Shareholders will be notified of such elimination. Any Shares purchased
prior to
the termination of such waiver would have the CDSC eliminated as
provided in the
Fund's prospectus at the time of the purchase of the Shares. If a
shareholder
making a redemption qualifies for an elimination of the CDSC, the
shareholder
must notify Federated Securities Corp. or the Fund in writing that said
shareholder is entitled to such elimination.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount
not less
than $100 may take advantage of the Systematic Withdrawal Program. Under
this
program, Shares are redeemed to provide for periodic withdrawal payments
in an
amount directed by the shareholder. Depending upon the amount of the
withdrawal
payments, the amount of dividends paid and capital gains distributions
with
respect to Shares, and the fluctuation of the net asset value of Shares
redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Shares. For this reason, payments under this
program
should not be considered as yield or income on the shareholder's
investment in
Shares. To be eligible to participate in this program, a shareholder
must have
an account value of at least $10,000. Shareholders may apply for
participation
in this program through their financial institution. A CDSC will be
imposed on
Shares redeemed within six full years of their purchase date (see
"Contingent
Deferred Sales Charge.")
REINVESTMENT PRIVILEGE
If Shares have been redeemed, the shareholder has a one-time right,
within 120
days, to reinvest the redemption proceeds into Class A Shares at the
next-determined net asset value without a sales load (see "Other Classes
of
Shares.") Federated Securities Corp. must be notified by the shareholder
in
writing or by his or her financial institution of the reinvestment in
order to
receive this privilege. If the shareholder redeems his or her Shares,
there may
be tax consequences.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may
redeem Shares in any account, except retirement plans, and pay the
proceeds to
the shareholder if the account balance falls below the required minimum
value
of $1,500. This requirement does not apply, however, if the balance
falls below
$1,500 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is
notified in
writing and allowed 30 days to purchase additional Shares to meet the
minimum
requirement.
INTERNATIONAL SERIES, INC., INFORMATION
- ------------------------------------------------------------------------
- --------
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Corporation is managed by a Board of Directors.
The
Directors are responsible for managing the Corporation's business
affairs and
for exercising all the Corporation's powers except those reserved for
the
shareholders. An Executive Committee of the Board of Directors handles
the
Board's responsibilities between meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their
addresses, present positions with International Series, Inc., and
principal
occupations, including those with Federated Management, its affiliates,
and the
"Funds" described in the Statement of Additional Information.
- ------------------------------------------------------------------------
- --------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research
Corp.; Chairman, Passport Research, Ltd.; Director, tna Life and
Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing
General
Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Vice
President of the Company.
- ------------------------------------------------------------------------
- --------
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
- ------------------------------------------------------------------------
- --------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Director
President, Investment Properties Corporation; Senior Vice-President,
John R.
Wood and Associates, Inc., Realtors; President, Northgate Village
Development
Corporation; Partner or Trustee in private real estate ventures in
Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly,
President, Naples Property Management, Inc.
- ------------------------------------------------------------------------
- --------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
- ------------------------------------------------------------------------
- --------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross
of
Massachusetts, Inc.
- ------------------------------------------------------------------------
- --------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Director
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director,
Trustee, or
Managing General Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Edward L. Flaherty, Jr.+
Two Gateway Center-Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Peter E. Madden
225 Franklin Street
Boston, MA
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State
Street Bank and Trust Company and State Street Boston Corporation and
Trustee,
Lahey Clinic Foundation, Inc.
- ------------------------------------------------------------------------
- --------
Gregor F. Meyer
Two Gateway Center-Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment
for International Peace, RAND Corporation, Online Computer Library
Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center;
Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council
for
Environmental Policy and Technology.
- ------------------------------------------------------------------------
- --------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General
Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds;
staff member, Federated Securities Corp. and Federated Administrative
Services.
- ------------------------------------------------------------------------
- --------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated
Management, and Federated Research; President and Director, Federated
Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative
Services, Federated Services Company, and Federated Shareholder
Services;
President or Vice President of the Funds; Director, Trustee, or Managing
General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Director of the Corporation.
- ------------------------------------------------------------------------
- --------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated
Research Corp.; Chairman and Director, Federated Securities Corp.;
President or
Vice President of some of the Funds; Director or Trustee of some of the
Funds.
- ------------------------------------------------------------------------
- --------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice
President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated
Services
Company and Federated Shareholder Services; Chairman, Treasurer, and
Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds;
Vice President and Treasurer of the Funds.
- ------------------------------------------------------------------------
- --------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary,
Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services
Company;
Executive Vice President, Secretary, and Trustee, Federated
Administrative
Services; Secretary and Trustee, Federated Shareholder Services;
Executive Vice
President and Director, Federated Securities Corp.; Vice President and
Secretary
of the Funds.
- ------------------------------------------------------------------------
- --------
*This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940 as amended.
+Member of the Executive Committee. The Executive Committee of the Board
of
Directors handles the responsibilities of the Board of Directors
between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by
Federated
Management, the Fund's investment adviser (the "Adviser"), subject to
direction
by the Directors. The Adviser continually conducts investment research
and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory
fee
equal to 1.00% of the Fund's average daily net assets. The fee paid
by the
Fund, while higher than the advisory fee paid by other mutual funds
in
general, is comparable to fees paid by many mutual funds with
similar
objectives and policies. The Adviser may voluntarily choose to
waive a
portion of its fee. The Adviser can terminate this voluntary waiver
at any
time at its sole discretion. The Adviser has also undertaken to
reimburse
the Fund for operating expenses in excess of limitations
established by
certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business
trust
organized on April 11, 1989, is a registered investment adviser
under the
Investment Advisers Act of 1940. It is a subsidiary of Federated
Investors.
All of the Class A (voting) shares of Federated Investors are owned
by a
trust, the trustees of which are John F. Donahue, Chairman and
Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative
services
to a number of investment companies. Total assets under management
or
administration by these and other subsidiaries of Federated
Investors are
approximately $70 billion. Federated Investors, which was founded
in 1956
as Federated Investors, Inc., develops and manages mutual funds
primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions
nationwide.
Through these same client institutions, individual shareholders
also have
access to this same level of investment expertise.
Randall S. Bauer is the Fund's portfolio manager. He has
contributed toward
the management of the Fund's portfolio of investments since
December 1,
1990, when Federated Management served as the Fund's sub-adviser,
and
continued in that capacity through March 15, 1994, when, pursuant
to
shareholder approval, Federated Management was appointed the Fund's
investment adviser. Mr. Bauer joined Federated Investors in 1989 as
an
Assistant Vice President of Federated Management. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a
Chartered
Financial Analyst and received his M.B.A. in Finance from
Pennsylvania
State University.
SUB-ADVISER. Under the terms of a Sub-Advisory Agreement between
Federated
Management and Fiduciary International, Inc., Fiduciary International,
Inc.,
will furnish to Federated Management such investment advice, statistical
information, and other factual information as may, from time to time, be
reasonably requested by Federated Management.
SUB-ADVISORY FEES. For its services under the Sub-Advisory
Agreement, the
sub-adviser receives an annual fee from the Adviser equal to .50 of
1% of
average daily net assets of the Fund. The sub-advisory fee is
accrued and
paid daily. In the event that the fee due from the Fund to the
Adviser is
reduced in order to meet expense limitations imposed on the Fund by
state
securities laws or regulations, the sub-advisory fee will be
reduced by
one-half of said reduction in the fee due from the Fund to the
Adviser.
Notwithstanding any other provision in the Sub-Advisory Agreement,
the
sub-adviser may, from time to time, and for such periods as it
deems
appropriate, reduce its compensation (and, if appropriate, assume
expenses
of the Fund) to the extent that the Fund's expenses exceed such
lower
expense limitations as the sub-adviser may, by notice to the Fund,
voluntarily declare to be effective.
SUB-ADVISER'S BACKGROUND. Fiduciary International, Inc., is a New
York
corporation that was organized in 1982 as Fir Tree Advisers, Inc.
Fiduciary
International, Inc., is a wholly-owned subsidiary of Fiduciary
Investment
Corporation, which, in turn, is a wholly-owned subsidiary
of Fiduciary Trust Company International. Fiduciary Trust Company
International has more than 30 years of experience in managing
funds which
invest in the international markets. As of December 31, 1994,
Fiduciary
Trust Company International had total assets of approximately $375
million,
and total assets under management of approximately $30 billion.
Margaret Lindsay has been the Fund's portfolio manager since mid-
1992, when
Fiduciary International, Inc., was the Fund's investment adviser.
Ms.
Lindsay joined Fiduciary International, Inc., in 1991 as a Vice
President.
From 1987 through 1991, Ms. Lindsay worked in international
strategy,
analysis, and sales at S.G. Warburg Securities.
Fiduciary International, Inc., is a registered investment adviser
under the
Investment Advisers Act of 1940. The Adviser and sub-adviser, their
officers, affiliates, and employees may act as investment managers
for
parties other than the Fund, including other investment companies.
DISTRIBUTION OF CLASS B SHARES
Federated Securities Corp. is the principal distributor for Shares of
the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is
the
principal distributor for a number of investment companies. Federated
Securities
Corp. is a subsidiary of Federated Investors.
The distributor will pay financial institutions an amount equal to 5.50%
of the
net asset value of Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and
will not
be made from the assets of the Fund. Dealers may voluntarily waive
receipt of
all or any portion of these payments.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan
adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution
Plan"),
the Class B Shares will pay to the distributor an amount, computed at an
annual
rate of up to 0.75 of 1% of the average daily net assets of Class B
Shares, to
finance any activity which is principally intended to result in the sale
of
Shares subject to the Distribution Plan. The distributor may pay a
portion of
this amount to financial institutions that waive all or any portion of
the
payments discussed in the preceding paragraph. Because distribution fees
to be
paid by the Fund to the distributor may not exceed an annual rate of
0.75 of 1%
of the Shares' average daily net assets, it will take the distributor a
number
of years to recoup the expenses it has incurred for its distribution and
distribution-related services pursuant to the Distribution Plan.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no
payments to the distributor except as described above. Except as set
forth in
the next paragraph, the Fund does not pay for unreimbursed expenses of
the
distributor, including amounts expended by the distributor in excess of
amounts
received by it from the Fund, interest, carrying or other financing
charges in
connection with excess amounts expended, or the distributor's overhead
expenses.
However, the distributor may be able to recover such amounts or may earn
a
profit from future payments made by the Class B Shares under the
Distribution
Plan.
The distributor may sell, assign, or pledge its right to receive Rule
12b-1
fees and CDSCs to finance payments made to brokers in connection with
the sale
of Class B Shares. Fiduciary Trust Company International, parent of the
sub-adviser, or one of its subsidiaries, including the sub-adviser,
expects to
participate in this financing program by purchasing 50% of the Rule 12b-
1 fees
and CDSCs assigned by the distributor. Actual distribution expenses for
Class B
Shares at any given time may exceed the Rule 12b-1 fees and payments
received
pursuant to CDSCs. These unrecovered amounts, plus interest thereon,
will be
carried forward and paid from future Rule 12b-1 fees and payments
received
through CDSCs. If the Distribution Plan were terminated or not
continued, the
Fund would not be contractually obligated to pay for any expenses not
previously reimbursed by the Fund or recovered through CDSCs.
In addition, the Fund has adopted a Shareholder Services Plan (the
"Services
Plan") under which it may make payments up to 0.25 of 1% of the average
daily
net asset value of Class B Shares to obtain certain personal services
for
shareholders and for the maintenance of shareholder accounts
("shareholder
services"). The Fund has entered into a Shareholder Services Agreement
with
Federated Shareholder Services, a subsidiary of Federated Investors,
under which
Federated Shareholder Services will either perform shareholder services
directly
or will select financial institutions to perform shareholder services.
Financial
institutions will receive fees based upon Shares owned by their clients
or
customers. The schedules of such fees and the basis upon which such fees
will be
paid will be determined from time to time by the Fund and Federated
Shareholder
Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may offer to
pay a
fee from its own assets to financial institutions as financial
assistance for
providing substantial marketing and sales support. The support may
include
sponsoring sales, educational and training seminars at recreational-type
facilities, providing sales literature, and engineering computer
software
programs that emphasize the attributes of the Fund. Such assistance will
be
predicated upon the amount of Shares the financial institution sells or
may sell
and/or upon the nature and type of sales or marketing support furnished
by the
financial institution. Any payments made by the distributor may be
reimbursed by
the Fund's investment adviser or its affiliates.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial
bank or a savings and loan association) from being an underwriter or
distributor
of most securities. In the event the Glass-Steagall Act is deemed to
prohibit
depository institutions from acting in the capacities described above or
should
Congress relax current restrictions on depository institutions, the
Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions
to act as
underwriters or distributors of securities may differ from
interpretations given
to the Glass-Steagall Act and, therefore, banks and financial
institutions may
be required to register as dealers pursuant to state law.
The distributor may, from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Distribution
Plan.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a
subsidiary of
Federated Investors, provides administrative personnel and services
(including
certain legal and financial reporting services) necessary to operate the
Fund.
Federated Administrative Services provides these at an annual rate which
relates
to the average aggregate daily net assets of all funds advised by
subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a
portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts,
is
custodian for the securities and cash of the Fund. Foreign instruments
purchased
by the Fund are held by foreign banks participating in a network
coordinated by
State Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services
Company,
Pittsburgh, Pennsylvania, is transfer agent for Shares of the Fund and
dividend
disbursing agent for the Fund.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for
the Fund
are Arthur Andersen LLP, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio
instruments, the Adviser looks for prompt execution of the order at a
favorable
price. In working with dealers, the Adviser will generally utilize those
who are
recognized dealers in specific portfolio instruments, except when a
better price
and execution of the order can be obtained elsewhere. In selecting among
firms
believed to meet this criteria, the Adviser may give consideration to
those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review
by the
Directors.
EXPENSES OF THE FUND AND CLASS B SHARES
Holders of Shares pay their allocable portion of Fund and Corporation
expenses.
The Corporation expenses for which holders of Shares pay their allocable
portion
include, but are not limited to: the cost of organizing the Corporation
and
continuing its existence; registering the Corporation with federal and
state
securities authorities; Directors' fees; auditors' fees; the cost of
meetings of
Directors; legal fees of the Corporation; association membership dues;
and such
non-recurring and extraordinary items as may arise from time to time.
The Fund expenses for which holders of Shares pay their allocable
portion
include, but are not limited to: registering the Fund and Shares of the
Fund;
investment advisory services; taxes and commissions; custodian fees;
insurance
premiums; auditors' fees; and such non-recurring and extraordinary items
as may
arise from time to time.
At present, the only expenses which are allocated specifically to Class
B
Shares as a class are expenses under the Fund's Services Plan and
Distribution
Plan. However, the Directors reserve the right to allocate certain other
expenses to holders of Shares as they deem appropriate ("Class
Expenses"). In
any case, Class Expenses would be limited to: distribution fees;
transfer agent
fees as identified by the transfer agent as attributable to holders of
Shares;
fees under the Fund's Services Plan; printing and postage expenses
related to
preparing and distributing materials such as shareholder reports,
prospectuses,
and proxies to current shareholders; registration fees paid to the
Securities
and Exchange Commission and to state securities commissions; expenses
related
to administrative personnel and services as required to support holders
of
Shares; legal fees relating solely to Shares; and Directors' fees
incurred as a
result of issues relating solely to Shares.
SHAREHOLDER INFORMATION
- ------------------------------------------------------------------------
- --------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and
other
matters submitted to shareholders for vote. All shares of each portfolio
or
class in the Corporation have equal voting rights, except that, in
matters
affecting only a particular Fund or class, only shares of that
particular Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold
annual
shareholder meetings. Shareholder approval will be sought only for
certain
changes in the Fund's operation and for the election of Directors under
certain
circumstances.
Directors may be removed by a two-thirds vote of the number of Directors
prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. The Directors shall call a special meeting of shareholders upon
the
written request of shareholders owning at least 10% of the Corporation's
outstanding shares entitled to vote.
TAX INFORMATION
- ------------------------------------------------------------------------
- --------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements
of the Internal Revenue Code, as amended (the "Code"), applicable to
regulated
investment companies and to receive the special tax treatment afforded
to such
companies. However, the Fund may invest in the stock of certain foreign
corporations which would constitute a Passive Foreign Investment Company
("PFIC"). Federal income taxes may be imposed on the Fund upon
disposition of
PFIC investments.
The Fund will be treated as a single, separate entity for federal income
tax
purposes so that income (including capital gains) and losses realized by
the
Corporation's other portfolios, if any, will not be combined for tax
purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries
may be subject to foreign taxes withheld at the source. The United
States has
entered into tax treaties with many foreign countries that entitle the
Fund to
reduced tax rates or exemptions on this income. The effective rate of
foreign
tax cannot be predicted since the amount of Fund assets to be invested
within
various countries is unknown. However, the Fund intends to operate so as
to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on
any dividends and other distributions, including capital gains
distributions,
received. This applies whether dividends and distributions are received
in cash
or as additional Shares. Distributions representing long-term capital
gains, if
any, will be taxable to shareholders as long-term capital gains no
matter how
long the shareholders have held the Shares. No federal income tax is due
on any
dividends earned in an IRA or qualified retirement plan until
distributed.
If more than 50% of the value of the Fund's assets at the end of the tax
year is
represented by stock or securities of foreign corporations, the Fund
intends to
qualify for certain Code stipulations that would allow shareholders to
claim a
foreign tax credit or deduction on their U.S. income tax returns. The
Code, may
limit a shareholder's ability to claim a foreign tax credit.
Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign
taxes
rather than take the foreign tax credit must itemize deductions on their
income
tax returns.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
The Fund is not subject to Pennsylvania corporate or personal property
taxes.
Fund Shares may be subject to personal property taxes imposed by
counties,
municipalities, and school districts in Pennsylvania to the extent that
the
portfolio securities in the Fund would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------
- --------
From time to time, the Fund advertises the total return for Class B
Shares.
Total return represents the change, over a specific period of time, in
the value
of an investment in Class B Shares after reinvesting all income and
capital
gains distributions. It is calculated by dividing that change by the
initial
investment and is expressed as a percentage.
The performance information reflects the effect of non-recurring
charges, such
as the CDSC, which, if excluded, would increase the total return.
Total return will be calculated separately for Class A Shares, Class B
Shares,
and Class C Shares. Because Class A Shares may be subject to a front-end
sales
load, the total return for Class B Shares and Class C Shares, for the
same
period, may exceed that of Class A Shares. Depending on the dollar
amount
invested and the time period for which any class of shares is held, the
total
return for any particular class may exceed that of another.
From time to time, the Fund may advertise the performance of Shares
using
certain financial publications and/or compare the performance of Shares
to
certain indices.
OTHER CLASSES OF SHARES
- ------------------------------------------------------------------------
- --------
Class A Shares are sold primarily to customers of financial institutions
subject
to a front-end sales load of up to 5.50%. Under certain circumstances,
investors
may qualify for reduced sales loads on purchases of Class A Shares.
Class A
Shares are subject to a shareholder services fee of up to 0.25 of 1% of
the
Class A Shares' average daily net assets. Investments in Class A Shares
are
subject to a minimum initial investment of $500, unless the investment
is in a
retirement account, in which case the minimum investment is $50.
Class C Shares are sold primarily to customers of financial institutions
at net
asset value with no initial sales load. Class C Shares are distributed
pursuant
to a Rule 12b-1 Plan adopted by the Fund, whereby, the distributor is
paid a fee
of up to .75 of 1%. Class C Shares are also subject to a shareholder
services
fee of up to .25 of 1% of the Class C Shares' average daily net assets.
In
addition, Class C Shares may be subject to certain CDSCs. Investments in
Class C
Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum
investment is
$50.
The amount of dividends payable to Class A Shares will generally exceed
that
payable to Class B Shares and Class C Shares by the difference between
Class
Expenses and distribution and shareholder service expenses borne by
shares of
each respective class.
The stated advisory fee is the same for all classes of shares.
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants page
53.
<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 0.15 0.06 0.10
0.11 0.19 0.18 0.19 0.24 0.04
- ------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions 1.96 2.53 (0.37)
0.37 (1.16) 1.60 3.27 (0.72) 8.63
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
Total from investment
operations 2.11 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 (0.07) (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 -- (0.13)(a) -- --
- -- -- -- -- --
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
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 $ 18.53 $ 16.49 $ 14.09 $
14.44 $ 14.28 $ 17.59 $ 17.34 $ 19.99 $ 22.87
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
TOTAL RETURN* 12.82% 18.52% (1.86)%
3.49% (6.72)% 11.55% 24.33% (2.70)% 60.75%
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 1.61% 1.60% 1.57%
1.52% 1.32% 1.01% 1.00% 1.00% 1.00%
- ------------------------------
Net investment income -- 0.13% 0.69%
0.78% 1.39% 1.04% 1.43% 0.93% 0.34%
- ------------------------------
Expense waiver/
reimbursement (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) $261,178 $192,860 $106,937
$101,980 $82,541 $65,560 $68,922 $85,860 $106,257
- ------------------------------
Portfolio turnover rate 73% 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
and foreign currency
transactions 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 --
- ------------------------------ ---------
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 (b) 0.50%
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $34,209
- ------------------------------
Portfolio turnover rate 61%
- ------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption
fee, if applicable.
(a) Distributions are determined in accordance with income tax
regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal
income tax
purposes.
(b) The voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 53.
<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
(0.05) (0.04)
- ------------------------------------------------------------------------
- -------------------
Net realized and unrealized gain (loss) on investments and foreign
currency transactions
1.98 1.57
- ------------------------------------------------------------------------
- ------------------- --------- -----------
Total from investment operations
1.93 1.53
- ------------------------------------------------------------------------
- -------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- -------------------
Dividends to shareholders from net investment income
- -- --
- ------------------------------------------------------------------------
- -------------------
Distributions in excess of net investment income
(0.04)(a) --
- ------------------------------------------------------------------------
- ------------------- --------- -----------
TOTAL DISTRIBUTIONS
(0.04) --
- ------------------------------------------------------------------------
- ------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD
$ 18.30 $ 16.41
- ------------------------------------------------------------------------
- ------------------- --------- -----------
TOTAL RETURN*
11.75% 10.28%
- ------------------------------------------------------------------------
- -------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- -------------------
Expenses
2.55% 2.57% (c)
- ------------------------------------------------------------------------
- -------------------
Net investment income
(0.91%) (1.10%)(c)
- ------------------------------------------------------------------------
- -------------------
Expense waiver/reimbursement (b)
- -- 0.01% (c)
- ------------------------------------------------------------------------
- -------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- -------------------
Net assets, end of period (000 omitted)
$8,836 $2,852
- ------------------------------------------------------------------------
- -------------------
Portfolio turnover rate
73% 74 %
- ------------------------------------------------------------------------
- -------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption
fee, if applicable.
** Reflects operations for the period from March 31, 1993 (start of
business)
to November 30, 1993.
(a) Distributions are determined in accordance with income tax
regulations
which may differ from generally accepted accounting principles.
These
distributions do not represent a return of capital for federal
income tax
purposes.
(b) The voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES
DOLLARS
<C> <S>
<C>
- ------------- ---------------------------------------------------------
- ------------------------- --------------
COMMON STOCKS--92.3%
- ------------------------------------------------------------------------
- -------------------------
ARGENTINA--1.7%
---------------------------------------------------------
- -------------------------
126,609 Ciadea
$ 1,407,048
---------------------------------------------------------
- -------------------------
215,000 **Migor
1,666,250
---------------------------------------------------------
- -------------------------
25,000 Telefonica de Argentina ADR
1,390,625
---------------------------------------------------------
- ------------------------- --------------
Total
4,463,923
---------------------------------------------------------
- ------------------------- --------------
AUSTRALIA--2.9%
---------------------------------------------------------
- -------------------------
309,028 Amcor Limited
2,042,454
---------------------------------------------------------
- -------------------------
212,875 Broken Hill Proprietary
3,056,029
---------------------------------------------------------
- -------------------------
172,226 National Australia Bank
1,395,068
---------------------------------------------------------
- -------------------------
260,000 Western Mining Corporation Holdings
1,478,635
---------------------------------------------------------
- ------------------------- --------------
Total
7,972,186
---------------------------------------------------------
- ------------------------- --------------
BRAZIL--1.0%
---------------------------------------------------------
- -------------------------
105,000 **Aracruz Celulose ADR
1,325,625
---------------------------------------------------------
- -------------------------
30,000 Telecomunicacoes Brasileras ADR
1,436,991
---------------------------------------------------------
- ------------------------- --------------
Total
2,762,616
---------------------------------------------------------
- ------------------------- --------------
CHILE--2.1%
---------------------------------------------------------
- -------------------------
60,000 Compania Cervecerias Unidas ADR
1,560,000
---------------------------------------------------------
- -------------------------
15,000 Compania de Telefonos de Chile ADR
1,290,000
---------------------------------------------------------
- -------------------------
75,000 Cristalerias de Chile ADR
1,396,875
---------------------------------------------------------
- -------------------------
50,000 Madeco ADR
1,450,000
---------------------------------------------------------
- ------------------------- --------------
Total
5,696,875
---------------------------------------------------------
- ------------------------- --------------
FRANCE--7.9%
---------------------------------------------------------
- -------------------------
7,250 Carrefour
3,011,806
---------------------------------------------------------
- -------------------------
11,473 Cetelem
2,172,231
---------------------------------------------------------
- -------------------------
6,800 Colas
$ 1,123,383
---------------------------------------------------------
- -------------------------
12,800 Compagnie de Fives-Lille
1,117,888
---------------------------------------------------------
- -------------------------
37,000 Credit Local de France
2,851,595
---------------------------------------------------------
- -------------------------
2,220 Legrand
2,760,938
---------------------------------------------------------
- -------------------------
27,000 SEB
2,666,271
---------------------------------------------------------
- -------------------------
21,500 Ugine
1,632,265
---------------------------------------------------------
- -------------------------
75,500 Valeo
4,022,145
---------------------------------------------------------
- ------------------------- --------------
Total
21,358,522
---------------------------------------------------------
- ------------------------- --------------
GERMANY--6.0%
---------------------------------------------------------
- -------------------------
3,580 Buderus
1,583,768
---------------------------------------------------------
- -------------------------
19,600 Krupp Fr Ag Hoesch
2,482,750
---------------------------------------------------------
- -------------------------
12,150 Kaufhof Holding
3,387,460
---------------------------------------------------------
- -------------------------
10,000 Mannesmann
2,609,803
---------------------------------------------------------
- -------------------------
9,035 Preussag
2,490,232
---------------------------------------------------------
- -------------------------
11,600 Veba
3,817,441
---------------------------------------------------------
- ------------------------- --------------
Total
16,371,454
---------------------------------------------------------
- ------------------------- --------------
HONG KONG--5.9%
---------------------------------------------------------
- -------------------------
272,000 China Light & Power
1,171,186
---------------------------------------------------------
- -------------------------
600,000 CITIC Pacific
1,520,617
---------------------------------------------------------
- -------------------------
71,100 Consolidated Electric Power Asia ADR
1,539,933
---------------------------------------------------------
- -------------------------
2,600,000 First Pacific Co.
1,798,622
---------------------------------------------------------
- -------------------------
502,064 Hong Kong Land Holdings
1,041,950
---------------------------------------------------------
- -------------------------
185,027 HSBC Holdings
2,045,568
---------------------------------------------------------
- -------------------------
444,000 Hutchison Whampoa
1,768,261
---------------------------------------------------------
- -------------------------
308,000 Sun Hung Kai Properties
1,979,337
---------------------------------------------------------
- -------------------------
250,000 Swire Pacific
$ 1,664,792
---------------------------------------------------------
- -------------------------
350,000 Television Broadcasting
1,402,951
---------------------------------------------------------
- ------------------------- --------------
Total
15,933,217
---------------------------------------------------------
- ------------------------- --------------
INDONESIA--0.5%
---------------------------------------------------------
- -------------------------
752,600 Lippo Bank
1,299,790
---------------------------------------------------------
- ------------------------- --------------
IRELAND--2.2%
---------------------------------------------------------
- -------------------------
463,491 Bank of Ireland
2,068,510
---------------------------------------------------------
- -------------------------
400,000 CRH
2,135,923
---------------------------------------------------------
- -------------------------
600,000 Irish Life
1,719,386
---------------------------------------------------------
- ------------------------- --------------
Total
5,923,819
---------------------------------------------------------
- ------------------------- --------------
JAPAN--25.3%
---------------------------------------------------------
- -------------------------
150,000 Amway Japan Ltd., ADR
2,400,000
---------------------------------------------------------
- -------------------------
99,000 Canon Sales
2,960,748
---------------------------------------------------------
- -------------------------
180,000 Canon
3,109,876
---------------------------------------------------------
- -------------------------
230,000 Daiwa Securities
2,997,727
---------------------------------------------------------
- -------------------------
517 DDI
4,544,481
---------------------------------------------------------
- -------------------------
66,000 Ito Yokado
3,500,884
---------------------------------------------------------
- -------------------------
200,000 Japan Securities Finance
2,990,654
---------------------------------------------------------
- -------------------------
45,000 Kyocera
3,337,206
---------------------------------------------------------
- -------------------------
105,000 Mitsubishi Bank
2,344,531
---------------------------------------------------------
- -------------------------
230,000 Mitsubishi Estate
2,532,963
---------------------------------------------------------
- -------------------------
450,000 Mitsubishi Heavy Industries
3,337,206
---------------------------------------------------------
- -------------------------
170,000 Mitsubishi Trust & Banking
2,404,648
---------------------------------------------------------
- -------------------------
100,000 Mori Seiki Co.
2,364,233
---------------------------------------------------------
- -------------------------
325,000 NEC
3,776,206
---------------------------------------------------------
- -------------------------
960,000 Nippon Steel
$ 3,724,577
---------------------------------------------------------
- -------------------------
340 Nippon Telephone & Telegraph
2,885,577
---------------------------------------------------------
- -------------------------
184,000 Sharp
3,197,575
---------------------------------------------------------
- -------------------------
90,000 Shimachu
2,837,080
---------------------------------------------------------
- -------------------------
200,000 Sumitomo Electric Industries
2,788,583
---------------------------------------------------------
- -------------------------
650,000 Tokuyama Corp.
3,848,447
---------------------------------------------------------
- -------------------------
700,000 Tosoh Corp.
2,906,795
---------------------------------------------------------
- -------------------------
680,000 Yaskawa Electric Corp.
3,751,250
---------------------------------------------------------
- ------------------------- --------------
Total
68,541,247
---------------------------------------------------------
- ------------------------- --------------
KOREA--1.4%
---------------------------------------------------------
- -------------------------
37,000 Korea Electric Power
1,341,052
---------------------------------------------------------
- -------------------------
33,000 Pohang Iron and Steel Ltd., ADR
1,047,750
---------------------------------------------------------
- -------------------------
17,000 **Samsung Electric Co.
922,250
---------------------------------------------------------
- -------------------------
8,001 **Samsung Electronics Ltd., GDR
428,054
---------------------------------------------------------
- -------------------------
202 **Samsung Electronics Ltd., GDR
10,656
---------------------------------------------------------
- ------------------------- --------------
Total
3,749,762
---------------------------------------------------------
- ------------------------- --------------
MALAYSIA--2.7%
---------------------------------------------------------
- -------------------------
36,000 Aokam Perdana
247,917
---------------------------------------------------------
- -------------------------
220,000 Aokam Perdana
1,626,951
---------------------------------------------------------
- -------------------------
330,000 Genting Berhad
2,613,861
---------------------------------------------------------
- -------------------------
230,000 Malayan Banking
1,493,916
---------------------------------------------------------
- -------------------------
173,000 Telekom Malaysia
1,272,606
---------------------------------------------------------
- ------------------------- --------------
Total
7,255,251
---------------------------------------------------------
- ------------------------- --------------
MEXICO--4.5%
---------------------------------------------------------
- -------------------------
196,750 Cemex
1,886,606
---------------------------------------------------------
- -------------------------
650,000 Cifra
$ 1,775,389
---------------------------------------------------------
- -------------------------
190,000 **Elektra
2,070,318
---------------------------------------------------------
- -------------------------
413,000 Farmacias Benavides
1,452,070
---------------------------------------------------------
- -------------------------
93,000 **Grupo Industrial Durango, ADR
1,697,250
---------------------------------------------------------
- -------------------------
80,500 **Grupo Televisa L
1,826,834
---------------------------------------------------------
- -------------------------
550,000 Telefonos de Mexico
1,483,074
---------------------------------------------------------
- ------------------------- --------------
Total
12,191,541
---------------------------------------------------------
- ------------------------- --------------
NETHERLANDS--5.2%
---------------------------------------------------------
- -------------------------
32,000 Akzo Nobel
3,547,470
---------------------------------------------------------
- -------------------------
114,965 Boskalis Westminster
2,326,750
---------------------------------------------------------
- -------------------------
289,000 Elsevier
2,875,213
---------------------------------------------------------
- -------------------------
103,000 KNP BT
2,822,399
---------------------------------------------------------
- -------------------------
62,000 Polygram
2,615,350
---------------------------------------------------------
- ------------------------- --------------
Total
14,187,182
---------------------------------------------------------
- ------------------------- --------------
NEW ZEALAND--1.6%
---------------------------------------------------------
- -------------------------
1,174,274 Carter Holt Harvey
2,606,708
---------------------------------------------------------
- -------------------------
1,163,056 Skellerup
1,623,685
---------------------------------------------------------
- ------------------------- --------------
Total
4,230,393
---------------------------------------------------------
- ------------------------- --------------
PHILIPPINES--1.3%
---------------------------------------------------------
- -------------------------
3,312,000 JG Summit Holdings
1,208,151
---------------------------------------------------------
- -------------------------
7,800 Metro Bank and Trust Co.
32,704
---------------------------------------------------------
- -------------------------
39,000 Metro Bank and Trust Co.
1,144,654
---------------------------------------------------------
- -------------------------
1,400,000 **Petron Corp.
1,247,379
---------------------------------------------------------
- ------------------------- --------------
Total
3,632,888
---------------------------------------------------------
- ------------------------- --------------
SINGAPORE--2.2%
---------------------------------------------------------
- -------------------------
312,000 City Developments
$ 1,651,075
---------------------------------------------------------
- -------------------------
202,750 Development Bank of Singapore
2,021,270
---------------------------------------------------------
- -------------------------
120,000 Fraser & Neave
1,335,610
---------------------------------------------------------
- -------------------------
140,000 Sembawang Shipyard
1,003,756
---------------------------------------------------------
- ------------------------- --------------
Total
6,011,711
---------------------------------------------------------
- ------------------------- --------------
SWEDEN--5.2%
---------------------------------------------------------
- -------------------------
50,000 **AutoLiv
1,751,337
---------------------------------------------------------
- -------------------------
320,500 Bylock and Nordsjofr
2,487,595
---------------------------------------------------------
- -------------------------
107,000 **Hoganas
1,703,573
---------------------------------------------------------
- -------------------------
162,150 Sandvik
2,753,738
---------------------------------------------------------
- -------------------------
57,000 SSAB
2,514,561
---------------------------------------------------------
- -------------------------
152,635 Volvo
2,936,418
---------------------------------------------------------
- ------------------------- --------------
Total
14,147,222
---------------------------------------------------------
- ------------------------- --------------
SWITZERLAND--5.1%
---------------------------------------------------------
- -------------------------
5,550 Alusuisse Lonza Holding
2,719,646
---------------------------------------------------------
- -------------------------
2,825 BBC Brown Boveri
2,366,748
---------------------------------------------------------
- -------------------------
5,125 Danzas Holding
1,010,726
---------------------------------------------------------
- -------------------------
980 Reiseburo Kuoni
1,305,683
---------------------------------------------------------
- -------------------------
1,045 Rieter Holdings
1,313,624
---------------------------------------------------------
- -------------------------
4,950 Swiss Reinsurance
2,902,559
---------------------------------------------------------
- -------------------------
3,475 Sulzer
2,335,849
---------------------------------------------------------
- ------------------------- --------------
Total
13,954,835
---------------------------------------------------------
- ------------------------- --------------
TAIWAN--0.5%
---------------------------------------------------------
- -------------------------
122,138 **Tuntex Distinctive GDR
1,312,984
---------------------------------------------------------
- ------------------------- --------------
THAILAND--0.8%
---------------------------------------------------------
- -------------------------
230,500 Bangkok Bank
$ 2,281,586
---------------------------------------------------------
- ------------------------- --------------
UNITED KINGDOM--5.9%
---------------------------------------------------------
- -------------------------
250,000 BAA
1,970,130
---------------------------------------------------------
- -------------------------
150,000 Carlton Communication
2,058,800
---------------------------------------------------------
- -------------------------
300,000 Guinness
2,146,884
---------------------------------------------------------
- -------------------------
527,319 Hanson Trust
1,940,494
---------------------------------------------------------
- -------------------------
164,800 Reuters Holdings
1,269,677
---------------------------------------------------------
- -------------------------
210,000 Siebe
1,831,663
---------------------------------------------------------
- -------------------------
141,943 Thorn EMI
2,229,390
---------------------------------------------------------
- -------------------------
810,000 Vodafone Group
2,574,850
---------------------------------------------------------
- ------------------------- --------------
Total
16,021,888
---------------------------------------------------------
- ------------------------- --------------
VENEZUELA--0.4%
---------------------------------------------------------
- -------------------------
200,000 Mavesa ADR
1,036,100
---------------------------------------------------------
- ------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $226,259,472)
250,336,992
---------------------------------------------------------
- ------------------------- --------------
PREFERRED STOCKS--2.5%
- ------------------------------------------------------------------------
- -------------------------
AUSTRALIA--0.6%
---------------------------------------------------------
- -------------------------
463,189 News Corporation Ltd.
1,608,989
---------------------------------------------------------
- ------------------------- --------------
FINLAND--1.1%
---------------------------------------------------------
- -------------------------
22,000 Nokia
3,001,641
---------------------------------------------------------
- ------------------------- --------------
GERMANY--0.8%
---------------------------------------------------------
- -------------------------
4,629 Fresenius
2,180,433
---------------------------------------------------------
- ------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,072,886)
6,791,063
---------------------------------------------------------
- ------------------------- --------------
TOTAL LONG-TERM SECURITIES (IDENTIFIED COST $230,332,358)
257,128,055
---------------------------------------------------------
- ------------------------- --------------
<CAPTION>
VALUE
PRINCIPAL
IN U.S.
AMOUNT
DOLLARS
<C> <S>
<C>
- ------------- ---------------------------------------------------------
- ------------------------- --------------
*REPURCHASE AGREEMENT--4.6%
- ------------------------------------------------------------------------
- -------------------------
$ 12,470,000 J.P. Morgan Securities, Inc., 5.77%, dated 11/30/94, due
12/5/94 (at amortized
cost)
$ 12,470,000
---------------------------------------------------------
- ------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $242,802,358)
$ 269,598,055+
---------------------------------------------------------
- ------------------------- --------------
</TABLE>
+The cost for federal tax purposes amounts to $242,108,509. The net
unrealized
appreciation of investments amounts to $26,006,805, which is comprised
of
$35,163,846 appreciation and $7,674,300 depreciation at November 30,
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
($271,228,225) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
ASSETS:
- ------------------------------------------------------------------------
- ---------------------------
Investments, in repurchase agreements at amortized cost and value
$12,470,000
- ------------------------------------------------------------------------
- --------------
Investments in other securities, at value
257,128,055
- ------------------------------------------------------------------------
- -------------- -----------
Total investments (identified cost $242,802,358 and tax cost,
$242,108,509) $269,598,055
- ------------------------------------------------------------------------
- ---------------------------
Dividends and interest receivable
656,990
- ------------------------------------------------------------------------
- ---------------------------
Receivable for investments sold
1,608,292
- ------------------------------------------------------------------------
- ---------------------------
Receivable for foreign currency sold
465,588
- ------------------------------------------------------------------------
- ---------------------------
Receivable for capital stock sold
483,083
- ------------------------------------------------------------------------
- --------------------------- -----------
Total assets
272,812,008
- ------------------------------------------------------------------------
- ---------------------------
LIABILITIES:
- ------------------------------------------------------------------------
- ---------------------------
Payable for investments purchased
$ 684,035
- ------------------------------------------------------------------------
- --------------
Payable for foreign currency purchased
465,588
- ------------------------------------------------------------------------
- --------------
Payable for capital stock redeemed
120,297
- ------------------------------------------------------------------------
- --------------
Dividend taxes withheld liability
76,034
- ------------------------------------------------------------------------
- --------------
Payable to bank
18,308
- ------------------------------------------------------------------------
- --------------
Accrued expenses
219,521
- ------------------------------------------------------------------------
- -------------- -----------
Total liabilities
1,583,783
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS for 14,645,830 shares of capital stock outstanding
$271,228,225
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------
- ---------------------------
Paid-in capital
$231,241,120
- ------------------------------------------------------------------------
- ---------------------------
Unrealized appreciation (depreciation) of investments
26,801,876
- ------------------------------------------------------------------------
- ---------------------------
Accumulated net realized gain on investments and foreign currency
transactions 63,509,324
- ------------------------------------------------------------------------
- ---------------------------
Distributions paid from capital gains
(50,597,175)
- ------------------------------------------------------------------------
- ---------------------------
Undistributed net investment income
273,080
- ------------------------------------------------------------------------
- --------------------------- -----------
Total
$271,228,225
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSET VALUE:
- ------------------------------------------------------------------------
- ---------------------------
Class A ($261,178,232 / 14,097,247 shares of capital stock outstanding)
$18.53
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B ($1,214,109 / 65,634 shares of capital stock outstanding)
$18.50
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares ($8,835,884 / 482,949 shares of capital stock
outstanding) $18.30
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF OFFERING PRICE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares (100/94.5 of $18.53)*
$19.61
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares
$18.50
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares
$18.30
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF PROCEEDS ON REDEMPTION:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares
$18.53
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares (94.5/100 of $18.50)**
$17.48
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares (99/100 of $18.30)**
$18.12
- ------------------------------------------------------------------------
- --------------------------- -----------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------
- ----------------------------
Dividends (net of foreign taxes withheld of $406,845)
$ 3,518,584
- ------------------------------------------------------------------------
- ----------------------------
Interest
557,853
- ------------------------------------------------------------------------
- ---------------------------- ------------
Total investment income
4,076,437
- ------------------------------------------------------------------------
- ----------------------------
EXPENSES:
- ------------------------------------------------------------------------
- ----------------------------
Investment advisory fee
$ 2,529,458
- ------------------------------------------------------------------------
- ---------------
Administrative personnel and services fees
349,224
- ------------------------------------------------------------------------
- ---------------
Custodian and recordkeeping fees
483,132
- ------------------------------------------------------------------------
- ---------------
Transfer agent and dividend disbursing agent fees
184,688
- ------------------------------------------------------------------------
- ---------------
Directors' fees
4,976
- ------------------------------------------------------------------------
- ---------------
Auditing fees
39,749
- ------------------------------------------------------------------------
- ---------------
Legal fees
18,982
- ------------------------------------------------------------------------
- ---------------
Capital stock registration costs
119,672
- ------------------------------------------------------------------------
- ---------------
Printing and postage
128,711
- ------------------------------------------------------------------------
- ---------------
Insurance premiums
9,390
- ------------------------------------------------------------------------
- ---------------
Taxes
29,060
- ------------------------------------------------------------------------
- ---------------
Miscellaneous
13,632
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class A
152,547
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class B
220
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class C
16,570
- ------------------------------------------------------------------------
- ---------------
Distribution fee--Class B
662
- ------------------------------------------------------------------------
- ---------------
Distribution fee--Class C
50,203
- ------------------------------------------------------------------------
- --------------- -----------
Total expenses
4,130,876
- ------------------------------------------------------------------------
- ---------------------------- ------------
Net investment income
(54,439)
- ------------------------------------------------------------------------
- ---------------------------- ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------
- ----------------------------
Realized gain on investment transactions (identified cost basis)--
- ------------------------------------------------------------------------
- ----------------------------
Net realized gain on investments and foreign currency transactions
15,659,072
- ------------------------------------------------------------------------
- ----------------------------
Unrealized appreciation of investments--
- ------------------------------------------------------------------------
- ----------------------------
Change in unrealized appreciation
7,122,265
- ------------------------------------------------------------------------
- ---------------------------- ------------
Net realized and unrealized gain/(loss) on investments
22,781,337
- ------------------------------------------------------------------------
- ---------------------------- ------------
Change in net assets resulting from operations
$ 22,726,898
- ------------------------------------------------------------------------
- ---------------------------- ------------
</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,
<S>
<C> <C>
1994 1993
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
- ---------
OPERATIONS--
- ------------------------------------------------------------------------
- ---------
Net investment income
$ (54,439) $ 172,409
- ------------------------------------------------------------------------
- ---------
Net realized gain/(loss) on investment and forward contract
transactions (14,870,196 net gain and $5,764,462 net loss, respectively,
as
computed for federal tax purposes)
15,659,072 5,894,827
- ------------------------------------------------------------------------
- ---------
Change in unrealized appreciation
7,122,265 14,259,817
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from operations
22,726,898 20,327,053
- ------------------------------------------------------------------------
- --------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
- ---------
Class A Dividends to shareholders from net investment income
(7,180) (644,382)
- ------------------------------------------------------------------------
- ---------
Distributions in excess of net investment income--Class A shares
(803,651) (747,020)
- ------------------------------------------------------------------------
- ---------
Distributions in excess of net investment income--Class C shares
(6,995) --
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from distributions to shareholders
(817,826) (1,391,402)
- ------------------------------------------------------------------------
- --------- -------------- --------------
CAPITAL STOCK TRANSACTIONS--
- ------------------------------------------------------------------------
- ---------
Net proceeds from sale of shares
158,071,765 127,561,470
- ------------------------------------------------------------------------
- ---------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock
324,527 623,074
- ------------------------------------------------------------------------
- ---------
Cost of shares redeemed
(104,788,830) (58,345,460)
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from capital stock transactions
53,607,462 69,839,084
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets
75,516,534 88,774,735
- ------------------------------------------------------------------------
- ---------
NET ASSETS:
- ------------------------------------------------------------------------
- ---------
Beginning of period
195,711,691 106,936,956
- ------------------------------------------------------------------------
- --------- -------------- --------------
End of period (including undistributed net investment income of $273,080
and $0,
respectively)
$ 271,228,225 $ 195,711,691
- ------------------------------------------------------------------------
- --------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
(1) ORGANIZATION
International Series, Inc. (the "Corporation") (formerly FT Series,
Inc.) is
registered under the Investment Company Act of 1940, as amended, 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.
Effective September 27, 1994 (Effective date of Class B Shares) the Fund
provides three classes of shares: Class A Shares, Class B Shares, and
Class C
Shares.
Effective March 15, 1994, the Corporation changed its name from FT
Series, Inc.
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 sale
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 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 that
the value
of collateral 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 the guidelines
established by the Board of Directors (the "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--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, as
amended (the "Code"). Distributions are determined in accordance
with
income tax regulations which may differ from generally accepted
accounting
principles. These distributions do not represent a return of
capital for
federal income tax purposes.
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. FOREIGN CURRENCY COMMITMENTS--The Fund may enter into foreign
currency
commitments for the delayed delivery of securities or forward
foreign
currency exchange transactions. Risks may arise upon entering these
transactions from the potential inability of counterparts to meet
the terms
of their transactions and from unanticipated movements in security
prices
or foreign exchanges rates. The forward foreign currency exchange
transactions 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 settlement date.
At November 30, 1994, the Fund had outstanding foreign currency
commitments set
out below:
<TABLE>
<CAPTION>
COMMITMENTS
UNREALIZED
TO DELIVER/
IN EXCHANGE APPRECIATION
SETTLEMENT DATE RECEIVE
FOR (DEPRECIATION)
<S> <C>
<C> <C>
UNSETTLED TRANSACTIONS
12/1/94
Indonesian Rupiah 9,881,200
$ 4,532.66 (3.02)
12/2/94
Mexican Peso 384,873.36
$ 112,012.04 97.72
12/5/94
Australian Dollar 457,162.47
$ 349,043.55 2,484.69
- -----------------
</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. The Fund had no written
options
outstanding at November 30, 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.
J. CONCENTRATION OF CREDIT RISK--The Fund invests in equity and fixed
income
securities of non-U.S. issuers. Although the Fund maintains a
diversified
investment portfolio the political or economic developments within
a
particular country or region may have an adverse effect on the
ability of
domiciled issuers to meet their obligations. Additionally,
political or
economic developments may have an effect on the liquidity and
volatility of
portfolio securities and currency holdings.
At November 30, 1994 the Portfolio was diversified with the
following
industries:
<TABLE>
<S> <C> <C>
<C>
Automotive 3.7% Energy
1.4%
Banking 8.5 Finance &
Insurance 2.7
Beverage & Tobacco 1.9 Pharmaceuticals
1.1
Media & Entertainment 4.5 Forest Products
2.8
Diversified Investment Companies 2.5 Industrial
Products 1.7
Building & Development 4.5 Manufacturing
3.2
Business & Equipment 5.6 Machinery
5.6
Capital Goods 0.5 Metals
1.7
Chemical 2.6 Other
6.8
Diversified Products 7.9 Retailers
5.7
Consumer Durables 2.1 Steel
4.4
Ecological Services 0.9 Technology
Services 0.5
Utilities 2.5 Telecommunications
4.2
Electronics & Electrical Equipment 8.7 Transportation
1.8
</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 Income, Capital Gain, and Return of
Capital
Distributions by Investment Companies. Accordingly, permanent book
and tax
differences have been reclassified. Accordingly, amounts as of
November 30,
1994, have been reclassified to reflect a decrease in paid in
capital of
$138,442, an increase in undistributed net investment income of
$1,886,989,
and a decrease in accumulated net realized gain/loss of $1,748,547.
Net
investment income, net realized gains, and net assets were not
affected by
this change.
(3) CAPITAL STOCK
At November 30, 1994, there were 500,000,000 shares of $.0001 par value
capital
stock authorized for Class A Shares, Class B 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 7,830,629 $
148,658,669 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 (5,447,729)
(102,494,771) (3,779,897) (58,259,919)
- -------------------------------------------------- ----------- -------
- -------- ----------- --------------
Net change resulting from capital stock
transactions 2,400,965 $
46,484,003 4,105,468 $ 66,938,177
- -------------------------------------------------- ----------- -------
- -------- ----------- --------------
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1994**
CLASS B SHARES SHARES
AMOUNT
<S> <C> <C>
- -------------------------------------------------- ----------- -------
- --------
Shares sold 66,837 $
1,290,771
- --------------------------------------------------
Shares issued to shareholders in payment of
dividends declared --
- --
- --------------------------------------------------
Shares redeemed (1,202)
(23,249)
- -------------------------------------------------- ----------- -------
- --------
Net change resulting from capital stock
transactions 65,635 $
1,267,522
- -------------------------------------------------- ----------- -------
- --------
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994 1993*
CLASS C SHARES SHARES
AMOUNT SHARES AMOUNT
<S> <C>
<C> <C> <C>
- ----------------------------------------------------------- ---------
- ------------- --------- ------------
Shares sold 429,959
$ 8,122,325 177,586 $ 2,986,448
- -----------------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 250
4,422
- -----------------------------------------------------------
Shares redeemed (120,985)
(2,270,810) (3,862) (85,541)
- ----------------------------------------------------------- ---------
- ------------- --------- ------------
Net change resulting from capital stock
transactions 309,224
$ 5,855,937 173,724 $ 2,900,907
- ----------------------------------------------------------- ---------
- ------------- --------- ------------
</TABLE>
* For the period from March 31, 1993 (start of business) to November
30, 1993.
** For the period from September 19, 1994 (start of business) to
November 30,
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 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 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
0.50% of
1% of average daily net assets.
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
FAS 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 SERVICES FEES--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 B
Shares
and Class C Shares. The Plan provides that the Fund may incur
distribution
expenses up to 0.75 of 1% of the average daily net assets of the Class B
Shares
and Class C Shares, annually, to compensate FSC. Under the terms of a
Shareholder Services agreement with FSC, the Fund will pay FSC up to .25
of 1%
of average net assets of the Class A, Class B, and Class C Shares for
the
period. This fee is to obtain certain personal services for shareholders
and to
maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company
("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ
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.
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------
- --------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for
the
fiscal year ended
November 30, 1994 were as follows:
<TABLE>
<S>
<C>
PURCHASES
$ 228,447,062
- ------------------------------------------------------------------------
- -------------------------- --------------
SALES
$ 173,028,760
- ------------------------------------------------------------------------
- -------------------------- --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------
- --------
To the Shareholders and Board of Directors of
INTERNATIONAL SERIES, INC. (formerly FT SERIES, INC.)
(International Equity Fund):
We have audited the accompanying statement of assets and liabilities of
International Equity Fund (an investment portfolio of International
Series,
Inc., formerly FT Series, Inc., a Maryland Corporation), including the
schedule
of portfolio investments, as of November 30, 1994, the related statement
of
operations for the year then ended, the statements of changes in net
assets for
each of the two years in the period then ended and financial highlights
for each
of the periods presented. These financial statements and financial
highlights
are the responsibility of the Fund's management. Our responsibility is
to
express an opinion on these financial statements and financial
highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and
financial
highlights are free of material misstatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. Our procedures included confirmation of the securities owned
as of
November 30, 1994, by correspondence with the custodian and broker. An
audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable basis for
our
opinion.
In our opinion, the financial statements and financial highlights
referred to
above present fairly, in all material respects, the financial position
of
International Equity Fund, an investment portfolio of International
Series,
Inc., as of November 30, 1994, and the results of its operations for the
year
then ended, the changes in its net assets for each of the two years in
the
period then ended and financial highlights for each of the periods
presented in
conformity with generally accepted accounting principles.
ARTHUR
ANDERSEN LLP
Pittsburgh, Pennsylvania
January 13, 1995
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S> <C>
<C>
International Equity Fund
Class B Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Distributor
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Sub-Adviser
Fiduciary International, Inc.
Two World Trade Center
New York, New York 10048
- ------------------------------------------------------------------------
- ---------------------------------------------
Custodian
State Street Bank and
P.O. Box 8604
Trust Company
Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------
- ---------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Independent Public Accountants
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------
- ---------------------------------------------
</TABLE>
INTERNATIONAL EQUITY
FUND
CLASS B SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
Prospectus dated January 31, 1995
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
46031P605
1010302A-B (1/95)
INTERNATIONAL EQUITY FUND
A PORTFOLIO OF INTERNATIONAL SERIES, INC.
(FORMERLY, FT SERIES, INC.)
CLASS C SHARES
PROSPECTUS
The Class C Shares of International Equity Fund (the "Fund") offered by
this
prospectus represent interests in the Fund, which is a diversified
investment
portfolio in International Series, Inc. (formerly, FT Series, Inc.) (the
"Corporation"), an open-end, management investment company (a mutual
fund).
The Fund's objective is to obtain a total return on its assets. The Fund
pursues
this objective through a diversified portfolio primarily invested in
equity
securities of non-U.S. issuers.
THE CLASS C SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER
GOVERNMENT AGENCY. INVESTMENT IN CLASS C SHARES INVOLVES INVESTMENT
RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you
invest in Class C Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Class
A Shares, Class B Shares, and Class Cormation for Class A Shares dated
January
31, 1995, with the Securities and Exchange Commission. The information
contained
in the Combined Statement of Additional Information is incorporated by
reference
into this prospectus. You may request a copy of the Combined Statement
of
Additional Information free of charge by calling 1-800-235-4669. To
obtain other
information or to make inquiries about the Fund, contact the Fund at the
address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1995
TABLE OF CONTENTS
- ------------------------------------------------------------------------
- --------
SUMMARY OF FUND EXPENSES
1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
2
- ------------------------------------------------------
GENERAL INFORMATION
3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS
3
- ------------------------------------------------------
LIBERTY FAMILY RETIREMENT PROGRAM
4
- ------------------------------------------------------
INVESTMENT INFORMATION
5
- ------------------------------------------------------
Investment Objective
5
Investment Policies
5
Risks Associated with Financial
Futures Contracts and Options
on Financial Futures Contracts
12
Investment Limitations
13
NET ASSET VALUE
13
- ------------------------------------------------------
INVESTING IN CLASS C SHARES
14
- ------------------------------------------------------
Share Purchases
14
Minimum Investment Required
15
What Shares Cost
15
Systematic Investment Program
15
Certificates and Confirmations
15
Dividends
15
Capital Gains
16
Retirement Plans
16
EXCHANGE PRIVILEGE
16
- ------------------------------------------------------
Requirements for Exchange
16
Tax Consequences
16
Making an Exchange
16
REDEEMING CLASS C SHARES
17
- ------------------------------------------------------
Through a Financial Institution
17
Directly from the Fund
18
Contingent Deferred Sales Charge
19
Systematic Withdrawal Program
19
Accounts with Low Balances
20
INTERNATIONAL SERIES, INC. INFORMATION
20
- ------------------------------------------------------
Management of the Corporation
20
Distribution of Class C Shares
26
Administration of the Fund
27
Brokerage Transactions
28
SHAREHOLDER INFORMATION
28
- ------------------------------------------------------
Voting Rights
28
TAX INFORMATION
28
- ------------------------------------------------------
Federal Income Tax
28
Pennsylvania Corporate and
Personal Property Taxes
29
PERFORMANCE INFORMATION
29
- ------------------------------------------------------
OTHER CLASSES OF SHARES
30
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
31
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
32
- ------------------------------------------------------
FINANCIAL STATEMENTS
33
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
50
- ------------------------------------------------------
ADDRESSES
51
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering
price)..........................................................
None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)
(1)............................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................. None
Exchange
Fee.....................................................................
.............. None
ANNUAL CLASS C SHARES
OPERATING EXPENSES
(As a percentage of average
net assets)
Management Fee (after
waiver).................................................................
. 1.00%
12b-1
Fee.....................................................................
................. 0.75%
Total Other
Expenses................................................................
........... 0.80%
Shareholder Services
Fee...................................................................
0.25%
Total Class C Shares Operating
Expenses...............................................
2.55%
</TABLE>
- ------------
(1) The contingent deferred sales charge assessed is 1.00% of the lesser
of the
original purchase price or the net asset value of shares redeemed
within one
year of their purchase date. For a more complete description, see
"Redeeming
Class C Shares."
The purpose of this table is to assist an investor in understanding
the
various costs and expenses that a shareholder of the Class C Shares of
the Fund
will bear, either directly or indirectly. For more complete descriptions
of the
various costs and expenses, see "Investing in Class C Shares" and
"International
Series, Inc. Information." Wire-transferred redemptions of less than
$5,000 may
be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of
the
maximum front-end sales charges permitted under the rules of the
National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE
1 year 3 years 5 years 10 years
<S>
<C> <C> <C> <C>
- --------- --------- --------- ---------
You would pay the following expenses on a $1,000 investment, assuming
(1)
5% annual return and (2) redemption at the end of each time
period....... $36 $79 $136 $289
You would pay the following expenses on the same investment assuming no
redemption..............................................................
. $26 $79 $136 $289
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The information set forth in the foregoing table and example relates
only to
Class C Shares of the Fund. The Fund also offers two additional classes
of
shares called Class A Shares and Class B Shares. Class C Shares, Class A
Shares
and Class B Shares are subject to certain of the same expenses. However,
Class A
Shares are subject to a maximum sales load of 5.50%, but are not subject
to a
12b-1 fee, however, may be subject to a contingent deferred sales
charge. Class
B Shares are subject to a 12b-1 fee of 0.75% and a contingent deferred
sales
charge of up to 5.50%, and are not subject to a sales load. See "Other
Classes
of Shares."
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 50.
<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
(0.05) (0.04)
- ------------------------------------------------------------------------
- -------------------
Net realized and unrealized gain (loss) on investments and foreign
currency transactions
1.98 1.57
- ------------------------------------------------------------------------
- ------------------- --------- -----------
Total from investment operations
1.93 1.53
- ------------------------------------------------------------------------
- -------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- -------------------
Dividends to shareholders from net investment income
- -- --
- ------------------------------------------------------------------------
- -------------------
Distributions in excess of net investment income
(0.04)(a) --
- ------------------------------------------------------------------------
- ------------------- --------- -----------
TOTAL DISTRIBUTIONS
(0.04) --
- ------------------------------------------------------------------------
- ------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD
$ 18.30 $ 16.41
- ------------------------------------------------------------------------
- ------------------- --------- -----------
TOTAL RETURN*
11.75% 10.28%
- ------------------------------------------------------------------------
- -------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- -------------------
Expenses
2.55% 2.57%(c)
- ------------------------------------------------------------------------
- -------------------
Net investment income
(0.91%) (1.10%)(c)
- ------------------------------------------------------------------------
- -------------------
Expense waiver/reimbursement (b)
- -- 0.01%(c)
- ------------------------------------------------------------------------
- -------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- -------------------
Net assets, end of period (000 omitted)
$8,836 $2,852
- ------------------------------------------------------------------------
- -------------------
Portfolio turnover rate
73% 74 %
- ------------------------------------------------------------------------
- -------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption
fee, if applicable.
** Reflects operations for the period from March 31, 1993 (start of
business)
to November 30, 1993.
(a) Distributions are determined in accordance with income tax
regulations
which may differ from generally accepted accounting principles.
These
distributions do not represent a return of capital for federal
income tax
purposes.
(b) The voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
GENERAL INFORMATION
- ------------------------------------------------------------------------
- --------
The Corporation was established as FT International Trust, a
Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under
the
laws of the state of Maryland on February 11, 1991. At a special meeting
of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the
name of the
Corporation to International Series, Inc. The Corporation's address is
Liberty
Center, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
The
Articles of Incorporation permit the Corporation to offer separate
series of
shares representing interests in separate portfolios of securities. The
shares
in any one portfolio may be offered in separate classes. With respect to
this
Fund, as of the date of this prospectus, the Board of Directors of the
Corporation (the "Directors") has established three classes of shares
known as
Class A Shares, Class B Shares, and Class C Shares. This prospectus
relates only
to Class C Shares (the "Shares") of the Corporation's portfolio known as
International Equity Fund.
Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended
to
provide a complete investment program for an investor. Shares are sold
at net
asset value and are redeemed at net asset value. However, a contingent
deferred
sales charge ("CDSC") of 1.00% will be charged on assets redeemed within
the
first twelve months following purchase. For a more complete description,
see
"Investing in Class C Shares" and "Redeeming Class C Shares." A minimum
initial
investment of $1,500 is required, unless the investment is in a
retirement
account, in which case the minimum investment is $50.
The Fund's current net asset value can be found in the mutual funds
section of
local newspapers under "Federated Liberty."
LIBERTY FAMILY OF FUNDS
- ------------------------------------------------------------------------
- --------
This Fund is a member of a family of mutual funds, collectively known as
the
Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
. American Leaders Fund, Inc., providing growth of capital and
income
through high-quality stocks;
. Capital Growth Fund, providing appreciation of capital primarily
through
equity securities;
. Fund for U.S. Government Securities, Inc., providing current
income
through long-term U.S. government securities;
. International Income Fund, providing a high level of current
income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
. Liberty Equity Income Fund, Inc., providing above-average income
and
capital appreciation through income producing equity securities;
. Liberty High Income Bond Fund, Inc., providing high current
income
through high-yielding, lower-rated, corporate bonds;
. Liberty Municipal Securities Fund, Inc., providing a high level
of
current income exempt from federal regular income tax through
municipal
bonds;
. Liberty U.S. Government Money Market Trust, providing current
income
consistent with stability of principal through high-quality U.S.
government securities;
. Liberty Utility Fund, Inc., providing current income and long-
term growth
of income, primarily through electric, gas, and communications
utilities;
. Limited Term Fund, providing a high level of current income
consistent
with minimum fluctuation in principal through investment grade
securities;
. Limited Term Municipal Fund, providing a high level of current
income
exempt from federal regular income tax consistent with the
preservation
of principal, primarily limited to municipal securities;
. Michigan Intermediate Municipal Trust, providing current income
exempt
from federal regular income tax and personal income taxes imposed
by the
state of Michigan and Michigan municipalities, primarily through
Michigan
municipal securities;
. Pennsylvania Municipal Income Fund, providing current income
exempt from
federal regular income tax and the personal income taxes imposed
by the
Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal
securities;
. Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt
obligations;
. Tax-Free Instruments Trust, providing current income consistent
with the
stability of principal and exempt from federal income tax,
through
high-quality, short-term municipal securities; and
. World Utility Fund, providing total return primarily through
securities
issued by domestic and foreign companies in the utilities
industries.
Prospectuses for these funds are available by writing to Federated
Securities
Corp.
Each of the funds may also invest in certain other types of securities
as
described in each fund's prospectus. The Liberty Family of Funds
provides
flexibility and diversification for an investor's long-term investment
planning.
It enables an investor to meet the challenges of changing market
conditions by
offering convenient exchange privileges which give access to various
investment
vehicles and by providing the investment services of proven,
professional
investment advisers.
LIBERTY FAMILY RETIREMENT PROGRAM
- ------------------------------------------------------------------------
- --------
The Fund is also a member of the Liberty Family Retirement Program
("Program"),
an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit
and
savings plans. Under the Program, employers or plan trustees may select
a group
of investment options to be offered in a plan which also uses the
Program for
recordkeeping and administrative services. Additional fees are charged
to the
plan for these services. As part of the Program, exchanges may readily
be made
between investment options selected by the employer or plan trustee.
The other funds participating in the Liberty Family Retirement Program
are:
American Leaders Fund, Inc.; Capital Growth Fund; Capital Preservation
Fund;
Fund for U.S. Government Securities, Inc.; International Income Fund;
Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Utility
Fund, Inc.; Prime Cash Series; and Strategic Income Fund.
INVESTMENT INFORMATION
- ------------------------------------------------------------------------
- --------
INVESTMENT OBJECTIVE
The Fund's objective is to obtain a total return on its assets. The
objective is
based on the premise that investing in non-U.S. securities provides
three
potential benefits over investing solely in U.S. securities:
. the opportunity to invest in non-U.S. companies believed to have
superior
growth potential;
. the opportunity to invest in foreign countries with economic
policies or
business cycles different from those of the United States; and
. the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not
move in
harmony.
While there is no assurance that the Fund will achieve its investment
objective,
it endeavors to do so by following the investment policies described in
this
prospectus. The investment objective and policies may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any
material change in the objective or policies becomes effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund invests primarily in non-U.S.
securities. A
substantial portion of these will be equity securities of established
companies
in economically developed countries. The Fund will invest at least 65%,
and
under normal market conditions substantially all of its total assets, in
equity
securities denominated in foreign currencies, including European
Currency Units,
of issuers located in at least three countries outside of the United
States and
sponsored or unsponsored American Depository Receipts ("ADRs"), Global
Depository Receipts ("GDRs"), and European Depository Receipts ("EDRs"),
collectively, "Depository Receipts." The Fund may also purchase
corporate and
government fixed income securities denominated in currencies other than
U.S.
Dollars; enter into forward commitments, repurchase agreements, and
foreign
currency transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
EQUITY AND FIXED INCOME SECURITIES. At the date of this
prospectus, the
Fund has committed its assets primarily to dividend-paying equity
securities of established companies that appear to have growth
potential.
However, as a temporary defensive position, the Fund may shift its
emphasis
to fixed income securities, warrants, or other obligations of
foreign
companies or governments, if they appear to offer potential higher
return.
Fixed income securities include preferred stock, convertible
securities,
bonds, notes, or other debt securities which are investment grade
or
higher. However, in no event will the Fund invest more than 25% of
its
total assets in the debt securities of any one foreign country.
The high-quality debt securities in which the Fund will invest will
possess
a minimum credit rating of A as assigned by Standard & Poor's
Ratings Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if
unrated, will be judged by Federated Management, the Fund's
investment
adviser (the "Adviser"), or Fiduciary International, Inc., the
Fund's
investment sub-adviser (the "sub-adviser"), to be of comparable
quality.
Because the average quality of the Fund's portfolio investments
should
remain constantly between A and AAA, the Fund will seek to avoid
the
adverse consequences that may arise for some debt securities in
difficult
economic circumstances. Downgraded securities will be evaluated on
a case
by case basis by the Adviser. The Adviser will determine whether or
not the
security continues to be an acceptable investment. If not, the
security
will be sold. A description of the ratings categories is contained
in the
Appendix to the Statement of Additional Information.
The prices of fixed income securities generally fluctuate inversely
to the
direction of interest rates.
DEPOSITORY RECEIPTS. The Fund may invest in foreign issuers by
purchasing
sponsored or unsponsored ADRs, GDRs, and EDRs. ADRs are depository
receipts
typically issued by a United States bank or trust company which
evidence
ownership of underlying securities issued by a foreign corporation.
EDRs
and GDRs are typically issued by foreign banks or trust companies,
although
they also may be issued by United States banks or trust companies,
and
evidence ownership of underlying securities issued by either a
foreign or a
United States corporation. Generally, Depository Receipts in
registered
form are designed for use in the United States securities market
and
Depository Receipts in bearer form are designed for use in
securities
markets outside the United States. Depository Receipts may not
necessarily
be denominated in the same currency as the underlying securities
into which
they may be converted. Ownership of unsponsored Depository Receipts
may not
entitle the Fund to financial or other reports from the issuer of
the
underlying security, to which it would be entitled as the owner of
sponsored Depository Receipts.
FORWARD COMMITMENTS. Forward commitments are contracts to purchase
securities for a fixed price at a date beyond customary settlement
time.
The Fund may enter into these contracts if liquid securities in
amounts
sufficient to meet the purchase price are segregated on the Fund's
records
at the trade date and maintained until the transaction has been
settled.
Risk is involved if the value of the security declines before
settlement.
Although the Fund enters into forward commitments with the
intention of
acquiring the security, it may dispose of the commitment prior to
settlement and realize short-term profit or loss.
MONEY MARKET INSTRUMENTS. The Fund may invest in U.S. and foreign
short-term money market instruments, including interest-bearing
call
deposits with banks, government obligations, certificates of
deposit,
bankers' acceptances, commercial paper, short-term corporate debt
securities, and repurchase agreements. The commercial paper in
which the
Fund invests will be rated A-1 by S&P or P-1 by Moody's. These
investments
may be used to temporarily invest cash received from the sale of
Fund
Shares, to establish and maintain reserves for temporary defensive
purposes, or to take advantage of market opportunities. Investments
in the
World Bank, Asian Development Bank, or Inter-American Development
Bank are
not anticipated.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in
which
banks, broker/ dealers, and other recognized financial institutions
sell
securities to the Fund and agree at the time of sale to repurchase
them at
a mutually agreed upon time and price. To the extent that the
original
seller does not repurchase the securities from the Fund, the Fund
could
receive less than the repurchase price on any sale of such
securities.
OPTIONS AND FINANCIAL FUTURES CONTRACTS. The Fund may purchase put
and
call options, financial futures contracts, and options on financial
futures
contracts. In addition, the Fund may write (sell) put and call
options with
respect to securities in the Fund's portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities
on a when-issued or delayed delivery basis. These transactions are
arrangements
in which the Fund purchases securities with payment and delivery
scheduled for a
future time. The seller's failure to complete the transaction may cause
the Fund
to miss a price or yield considered to be advantageous. Settlement dates
may be
a month or more after entering into these transactions, and the market
values of
the securities purchased may vary from the purchase prices. Accordingly,
the
Fund may pay more/less than the market value of the securities on the
settlement
date.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it
appropriate to do so. In addition, the Fund may enter into transactions
to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities
at later
dates. The Fund may realize short-term profits or losses upon the sale
of such
commitments.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign
currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or
cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect
Fund
assets against adverse changes in foreign currency exchange rates or
exchange
control regulations. Such changes could unfavorably affect the value of
Fund
assets which are denominated in foreign currencies, such as foreign
securities
or funds deposited in foreign banks, as measured in U.S. Dollars.
Although
foreign currency exchanges may be used by the Fund to protect against a
decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value
of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or
sell an
amount of a particular currency at a specific price and on a future date
agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time
the Fund
enters into a forward contract, Fund assets with a value equal to the
Fund's
obligation under the forward contract are segregated on the Fund's
records and
are maintained until the contract has been settled. The Fund will not
enter
into a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency
to
settle a securities transaction at the time the transaction occurs
("trade
date"). The period between the trade date and settlement date will vary
between
24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets
denominated in
that currency ("hedging"). The success of this type of short-term
hedging
strategy is highly uncertain due to the difficulties of predicting short-
term
currency market movements and of precisely matching forward contract
amounts and
the constantly changing value of the securities involved. Although the
Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be
able to
enter into forward contracts when it believes the interests of the Fund
will be
served. The Fund will not enter into forward contracts for hedging
purposes in a
particular currency in an amount in excess of the Fund's assets
denominated in
that currency. No more than 30% of the Fund's assets will be committed
to
forward contracts for hedging purposes at any time. (This restriction
does not
include forward contracts entered into to settle securities
transactions.)
PUT AND CALL OPTIONS WITH RESPECT TO EQUITY SECURITIES. The Fund may
purchase
put and call options on its portfolio of securities. Put and call
options will
be used as a hedge to attempt to protect securities which the Fund
holds, or
will be purchasing, against decreases or increases in value. The Fund is
also
authorized to write (sell) put and call options on all or any portion of
its
portfolio of securities to generate income. The Fund may write call
options on
securities either held in its portfolio or which it has the right to
obtain
without payment of further consideration or for which it has segregated
cash in
the amount of any additional consideration. In the case of put options
written
by the Fund, the Corporation's custodian will segregate cash, U.S.
Treasury
obligations, or highly liquid debt securities with a value equal to or
greater
than the exercise price of the underlying securities.
The Fund is authorized to invest in put and call options that are traded
on
securities exchanges. The Fund may also purchase and write over-the-
counter
("OTC options") on portfolio securities in negotiated transactions with
the
buyers or writers of the options since options on some of the portfolio
securities held by the Fund are not traded on an exchange. The Fund will
purchase and write OTC options only with investment dealers and other
financial
institutions (such as commercial banks or savings and loan associations)
deemed
creditworthy by the Adviser.
OTC options are two-party contracts with price and terms negotiated
between
buyer and seller. In contrast, exchange-traded options are third-party
contracts
with standardized strike prices and expiration dates and are purchased
from a
clearing corporation. Exchange-traded options have a continuous liquid
market
while OTC options may not. Prior to exercise or expiration, an option
position
can only be terminated by entering into a closing purchase or sale
transaction.
This requires a secondary market on an exchange which may or may not
exist for
any particular call or put option at any specific time. The absence of a
liquid
secondary market also may limit the Fund's ability to dispose of the
securities
underlying an option. The inability to close options also could have an
adverse
impact on the Fund's ability to effectively hedge its portfolio.
FINANCIAL FUTURES AND OPTIONS ON FINANCIAL FUTURES. The Fund may
purchase and
sell financial futures contracts to hedge all or a portion of its
portfolio
securities against changes in interest rates or securities prices.
Financial
futures contracts on securities call for the delivery of particular
securities
at a certain time in the future. The seller of the contract agrees to
make
delivery of the type of instrument called for in the contract, and the
buyer
agrees to take delivery of the instrument at the specified future time.
A
financial futures contract on a securities index does not involve the
actual
delivery of securities, but merely requires the payment of a cash
settlement
based on changes in the securities index.
The Fund may also write call options and purchase put options on
financial
futures contracts as a hedge to attempt to protect securities in its
portfolio
against decreases in value resulting from anticipated increases in
market
interest rates or broad declines in securities prices. When the Fund
writes a
call option on a financial futures contract, it is undertaking the
obligation of
selling the financial futures contract at a fixed price at any time
during a
specified period if the option is exercised. Conversely, as a purchaser
of a put
option on a financial futures contract, the Fund is entitled (but not
obligated)
to sell a financial futures contract at the fixed price during the life
of the
option.
The Fund may also write put options and purchase call options on
financial
futures contracts as a hedge against rising purchase prices of
securities
eligible for purchase by the Fund. The Fund will use these transactions
to
attempt to protect its ability to purchase securities in the future at
price
levels existing at the time it enters into the transactions. When the
Fund
writes a put option on a futures contract, it is undertaking to buy a
particular
futures contract at a fixed price at any time during a specified period
if the
option is exercised. As a purchaser of a call option on a futures
contract, the
Fund is entitled (but not obligated) to purchase a futures contract at a
fixed
price at any time during the life of the option.
The Fund may not purchase or sell financial futures contracts or options
on
financial futures contracts if, immediately thereafter, the sum of the
amount of
initial margin deposits on the Fund's existing financial futures
positions and
premiums paid for related options would exceed 5% of the fair market
value of
the Fund's total assets, after taking into account the unrealized
profits and
losses on those contracts it has entered into. When the Fund purchases
financial
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the financial futures contracts (less any
related
margin deposits), will be deposited in a segregated account with the
Fund's
custodian to collateralize the position and, thereby, insure that the
use of
such financial futures contracts is unleveraged.
RISK CONSIDERATIONS. Investing in non-U.S. securities carries
substantial risks
in addition to those associated with domestic investments. In an attempt
to
reduce some of these risks, the Fund diversifies its investments broadly
among
foreign countries, including both developed and developing countries. At
least
three different countries will always be represented. As of November 30,
1994,
the portfolio contained securities from issuers located primarily in
Germany,
Japan, the United Kingdom, France, Hong Kong, Switzerland, and Mexico.
There are
also investments in several other countries.
The Fund occasionally takes advantage of the unusual opportunities for
higher
returns available from investing in developing countries. As discussed
in the
Statement of Additional Information, however, these investments carry
considerably more volatility and risk because they are associated with
less
mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in
such
respects as growth of gross domestic product, rate of inflation,
currency
depreciation, capital reinvestment, resource self-sufficiency, and
balance of
payments position. Further, the economies of developing countries
generally are
heavily dependent on international trade and, accordingly, have been,
and may
continue to be, adversely affected by trade barriers, exchange controls,
managed
adjustments in relative currency values, and other protectionist
measures
imposed or negotiated by the countries with which they trade. These
economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required
under
certain circumstances in some countries, and the extent of foreign
investment in
certain debt securities and domestic companies may be subject to
limitation.
Foreign ownership limitations also may be imposed by the charters of
individual
companies to prevent, among other concerns, violation of foreign
investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a
refusal to
grant, any required governmental registration or approval for such
repatriation.
Any investment subject to such repatriation controls will be considered
illiquid
if it appears reasonably likely that this process will take more than
seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political
changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or
the value of the Fund's investments in those countries. In addition, it
may be
difficult to obtain and enforce a judgment in a court outside of the
U.S.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may
have different clearance and settlement procedures and in certain
markets there
have been times when settlements have been unable to keep pace with the
volume
of securities transactions, making it difficult to conduct such
transactions.
The inability of the Fund to make intended security purchases due to
settlement
problems could cause the Fund to miss attractive investment
opportunities.
Inability to dispose of a portfolio security due to settlement problems
could
result either in losses to the Fund due to subsequent declines in value
of the
portfolio security or, if the Fund has entered into a contract to sell
the
security, could result in possible liability to the purchaser.
CURRENCY RISKS. Because the majority of the securities purchased
by the
Fund are denominated in currencies other than the U.S. Dollar,
changes in
foreign currency exchange rates will affect the Fund's net asset
value; the
value of interest earned; gains and losses realized on the sales of
securities; and net investment income and capital gain, if any, to
be
distributed to shareholders by the Fund. If the value of a foreign
currency
rises against the U.S. Dollar, the
value of the Fund assets denominated in that currency will
increase;
correspondingly, if the value of a foreign currency declines
against the
U.S. Dollar, the value of Fund assets denominated in that currency
will
decrease.
The exchange rates between the U.S. Dollar and foreign currencies
are a
function of such factors as supply and demand in the currency
exchange
markets, international balances of payments, governmental
interpretation,
speculation and other economic and political conditions. Although
the Fund
values its assets daily in U.S. Dollars, the Fund will not convert
its
holdings of foreign currencies to U.S. Dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion
costs.
Foreign exchange dealers may realize a profit on the difference
between the
price at which they buy and sell currencies.
EXCHANGE RATES. Foreign securities are denominated in foreign
currencies.
Therefore, the value in U.S. Dollars of the Fund's assets and
income may be
affected by changes in exchange rates and regulations. Although the
Fund
values its assets daily in U.S. Dollars, it will not convert its
holding of
foreign currencies to U.S. Dollars daily. When the Fund converts
its
holdings to another currency, it may incur conversion costs.
Foreign
exchange dealers realize a profit on the difference between the
prices at
which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign
and U.S.
companies include:
. less publicly available information about foreign companies;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to
those
applicable to U.S. companies;
. less readily available market quotations on foreign companies;
. differences in government regulation and supervision of foreign
stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to
enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited
trading
volume in issuers compared to the volume of trading in U.S.
securities
could cause prices to be erratic for reasons apart from factors
that
affect the quality of securities;
. the likelihood that foreign securities may be less liquid or more
volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments
in some
countries;
. increased risk of delayed settlements of portfolio transactions
or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before
delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's
investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies
have
discouraged or restricted certain investments abroad by investors
such as
the Fund. Investors are advised that when such policies are
instituted, the
Fund will abide by them.
SHORT SALES. The Fund intends to sell securities short from time
to time,
subject to certain restrictions. A short sale occurs when a
borrowed
security is sold in anticipation of a decline in its price. If the
decline
occurs, shares equal in number to those sold short can be purchased
at the
lower price. If the price increases, the higher price must be paid.
The
purchased shares are then returned to the original lender. Risk
arises
because no loss limit can be placed on the transaction. When the
Fund
enters into a short sale, assets, equal to the market price of the
securities sold short or any lesser price at which the Fund can
obtain such
securities, are segregated on the Fund's records and maintained
until the
Fund meets its obligations under the short sale.
RISKS ASSOCIATED WITH FINANCIAL FUTURES CONTRACTS
AND OPTIONS ON FINANCIAL FUTURES CONTRACTS
Financial futures contracts and options on financial futures contracts
can be
highly volatile and could result in a reduction of the Fund's total
return. The
Fund's attempt to use such investment devices for hedging purposes may
not be
successful. Successful futures strategies require the ability to predict
future
movements in securities prices, interest rates and other economic
factors. When
the Fund uses financial futures contracts and options on financial
futures
contracts as hedging devices, there is a risk that the prices of the
securities
subject to the financial futures contracts and options on financial
futures
contracts may not correlate perfectly with the prices of the securities
in the
Fund. This may cause the financial futures contract and any related
options to
react to market changes differently than the portfolio securities. In
addition,
the Adviser could be incorrect in its expectations about the direction
or extent
of market factors, such as interest rate, securities price movements,
and other
economic factors. In these events, the Fund may lose money on the
financial
futures contract or the options on financial futures contracts. It is
not
certain that a secondary market for positions in financial futures
contracts or
for options on financial futures contracts will exist at all times.
Although the
Adviser will consider liquidity before entering into financial futures
contracts
or options on financial futures contracts transactions, there is no
assurance
that a liquid secondary market on an exchange will exist for any
particular
financial futures contract or option on a financial futures contract at
any
particular time. The Fund's ability to establish and close out financial
futures
contracts and options on financial futures contract positions depends on
this
secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the losses to the Fund
could be
significant.
INVESTMENT LIMITATIONS
The Fund will not:
. with respect to 75% of the value of its total assets, invest more
than 5%
of the value of its total assets in the securities (other than
securities
issued or guaranteed by the government of the United States or
its
agencies or instrumentalities) of any one issuer;
. acquire more than 10% of the outstanding voting securities of any
one
issuer, or acquire any securities of Fiduciary Trust Company
International or its affiliates;
. sell securities short except under strict limitations;
. borrow money or pledge securities except, under certain
circumstances,
the Fund may borrow up to one-third of the value of its total
assets and
pledge up to 15% of the value of those assets to secure such
borrowings;
nor
. permit margin deposits for financial futures contracts held by
the Fund,
plus premiums paid by it for open options on financial futures
contracts,
to exceed 5% of the fair market value of the Fund's total assets,
after
taking into account the unrealized profits and losses on those
contracts.
The above investment limitations cannot be changed without shareholder
approval.
The following limitations, however, may be changed by the Directors
without
shareholder approval. Shareholders will be notified before any material
change
in these limitations becomes effective.
The Fund will not:
. invest more than 5% of its assets in warrants;
. own securities of open-end or closed-end investment companies,
except
under certain circumstances and subject to certain limitations
not
exceeding 10% of its total assets (the Fund will indirectly bear
its
proportionate share of any fees and expenses paid by other
investment
companies, in addition to the fees and expenses payable directly
by the
Fund.);
. invest more than 5% of its total assets in securities of issuers
that
have records of less than three years of continuous operations;
. invest more than 15% of the value of its net assets in illiquid
securities, including securities not determined by the Board of
Directors
to be liquid, including repurchase agreements with maturities
longer than
seven days after notice and certain OTC options; nor
. purchase put options on securities unless the securities or an
offsetting
call option is held in the Fund's portfolio.
NET ASSET VALUE
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The Fund's net asset value per Class C Share fluctuates. The net asset
value for
Class C Shares is determined by adding the interest of the Class C
Shares in the
market value of all securities and other assets of the Fund, less
liabilities of
the Fund attributable to Class C Shares, and dividing the remainder by
total the
number of Class C Shares outstanding. The net asset value for Class C
Shares may
differ from that of Class A Shares and Class B Shares due to the
variance in
daily net income realized by each class. Such variance will reflect only
accrued
net income to which the shareholders of a particular class are entitled.
INVESTING IN CLASS C SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open.
Shares may
be purchased through a financial institution which has a sales agreement
with
the distributor or directly from the distributor, Federated Securities
Corp.
once an account has been established. In connection with the sale of
Shares,
Federated Securities Corp. may, from time to time, offer certain items
of
nominal value to any shareholder or investor. The Fund reserves the
right to
reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall
purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution
(such as a bank or an investment dealer) to place an order to purchase
Shares.
Orders placed through a financial institution are considered received
when the
Fund is notified of the purchase order. It is the financial
institution's
responsibility to transmit orders promptly. Purchase orders through a
registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern
time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern
time) in
order for Shares to be purchased at that day's price. Purchase orders
through
other financial institutions must be received by the financial
institution and
transmitted to the Fund before 4:00 P.M. (Eastern time) in order for
Shares to
be purchased at that day's price.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to
purchase
Shares directly from the distributor once an account has been
established. To do
so:
. complete and sign the new account form available from the Fund;
. enclose a check made payable to International Equity Fund-Class C
Shares;
and
. mail both to Federated Services Company, P.O. Box 8604, Boston,
MA
02266-8604.
Orders by mail are considered received after payment by check is
converted
by the transfer agent's bank, State Street Bank and Trust Company
("State
Street Bank"), into federal funds. This is generally the next
business day
after State Street Bank receives the check.
BY WIRE. To purchase Shares directly from the distributor by wire,
call
the Fund. All information needed will be taken over the telephone,
and the
order is considered received when the transfer agent's bank, State
Street
Bank, receives payment by wire. Federal funds should be wired as
follows:
Federated Services Company, c/o State Street Bank and Trust
Company,
Boston, Massachusetts; Attention: Mutual Fund Servicing Division;
For
Credit to: International Equity Fund--Class C Shares; Fund Number
(this
number can be found on the account statement or by contacting the
Fund);
Group Number or Order Number; Nominee or Institution Name; ABA
Number
011000028. Shares cannot be purchased by wire on Columbus Day,
Veterans'
Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500 unless the investment
is in a
retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts, which must be in amounts of at least $50. (Other
minimum
investment requirements may apply to investments through the Liberty
Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order
is
received.
The net asset value is determined at 4:00 P.M. (Eastern time) or at the
close of
the New York Stock Exchange, Monday through Friday, except on: (i) days
on which
there are not sufficient changes in the value of the Fund's portfolio
securities
that its net asset value might be materially affected;
(ii) days during which no Shares are tendered for redemption and no
orders to
purchase Shares are received; or (iii) the following holidays: New
Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Under certain circumstances described under "Redeeming Class B Shares,"
shareholders may be charged a CDSC by the distributor at the time Shares
are
redeemed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on
a regular basis in a minimum amount of $100. Under this program, funds
may be
automatically withdrawn periodically from the shareholder's checking
account and
invested in Shares at the net asset value next determined after an order
is
received by the transfer agent. A shareholder may apply for
participation in
this program through his financial institution or directly through the
Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share
account for each shareholder. Share certificates are not issued unless
requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid
during the
year.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the
Fund on the record date. Dividends are automatically reinvested in
additional
Shares on the payment date at the ex-dividend date net asset value,
unless
shareholders request cash payments on the new account form or by writing
to the
transfer agent. All shareholders on the record date are entitled to the
dividend. If Shares are redeemed or exchanged prior to the record date
or
purchased after the record date, those Shares are not entitled to that
year's
dividend.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least
once
every twelve months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement
plans or for
IRA accounts. For further details, contact Federated Securities Corp.
and
consult a tax adviser.
EXCHANGE PRIVILEGE
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- --------
In order to provide greater flexibility to Fund shareholders whose
investment
objectives have changed, Class C shareholders may exchange all or some
of their
Shares for Class C Shares in other funds in the Liberty Family of Funds
at net
asset value without a CDSC. Participants in a plan under the Liberty
Family
Retirement Program may exchange some or all of their Shares for Class C
Shares
of other funds offered under their plan at net asset value without a
CDSC. Any
CDSC charged at the time exchanged-for Shares are redeemed is calculated
as if
the shareholder has held the Shares from the date on which he or she
became a
shareholder of the exchanged-from Shares. For more information, see
"Contingent
Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net
asset value
equal to the minimum investment requirements of the fund into which the
exchange
is being made. Before the exchange, the shareholder must receive a
prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in
which the
fund shares being acquired may be sold. Upon receipt of proper
instructions and
required supporting documents, Shares submitted for exchange are
redeemed and
the proceeds invested in Class C Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will
be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty
Family of Funds or funds advised by subsidiaries of Federated Investors
("Federated Funds") are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income
tax purposes. Depending on the circumstances, a short-term or long-term
capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds and certain
Federated
Funds may be given in writing or by telephone. Written instructions may
require
a signature guarantee. Shareholders of the Fund may have difficulty in
making
exchanges by telephone through brokers and other financial institutions
during
times of drastic economic or market changes. If a shareholder cannot
contact his
broker or financial institution by telephone, it is recommended that an
exchange
request be made in writing and sent by overnight mail to Federated
Services
Company, 500 Victory Road--2nd Floor, Quincy, Massachusetts 02171.
Instructions for exchanges for the Liberty Family Retirement Program
should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may
be
carried out only if a telephone authorization form completed by the
investor is
on file with the transfer agent. If the instructions are given by a
broker, a
telephone authorization form completed by the broker must be on file
with the
transfer agent. Shares may be exchanged between two funds by telephone
only if
the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be
forwarded to Federated Services Company, P.O. Box 8604, Boston,
Massachusetts
02266-8604, and deposited to the shareholder's account before being
exchanged.
Telephone exchange instructions may be recorded and will be binding upon
the
shareholder. Such instructions will be processed as of 4:00 P.M.
(Eastern time)
and must be received by the transfer agent before that time for Shares
to be
exchanged the same day. Shareholders exchanging into a fund will not
receive any
dividend that is payable to shareholders of record on that date. This
privilege
may be modified or terminated at any time.
REDEEMING CLASS C SHARES
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- --------
The Fund redeems Shares at their net asset value, less any applicable
CDSC, next
determined after the transfer agent receives the redemption request.
Redemptions
will be made on days on which the Fund computes its net asset value.
Redemptions
can be made through a financial institution or directly from the Fund.
Redemption requests must be received in proper form. Redemptions of
Shares held
through the Liberty Family Retirement Program will be governed by the
requirements of the respective plans.
THROUGH A FINANCIAL INSTITUTION
Shareholders may redeem Shares by calling their financial institution
(such as a
bank or an investment dealer) to request the redemption. Shares will be
redeemed
at the net asset value, less any applicable CDSC, next determined after
the Fund
receives the redemption request from the financial institution.
Redemption
requests through a registered broker/dealer must be received by the
broker
before 4:00 P.M. (Eastern time) and must be transmitted by the broker to
the
Fund before 5:00 P.M. (Eastern time) in order for Shares to be redeemed
at that
day's net asset value. Redemption requests through other financial
institutions
must be received by the financial institution and transmitted to the
Fund before
4:00 P.M. (Eastern time) in order for Shares to be redeemed at that
day's net
asset value. The financial institution is responsible for promptly
submitting
redemption requests and providing proper written redemption instructions
to the
Fund. The financial institution may charge customary fees and
commissions for
this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The
proceeds will
be mailed to the shareholder's address of record or wire transferred to
the
shareholder's account at a domestic commercial bank that is a member of
the
Federal Reserve System, normally within one business day, but in no
event
longer than seven days after the request. The minimum amount for a wire
transfer is $1,000. If at any time the Fund shall determine it necessary
to
terminate or modify this method of redemption, shareholders would be
promptly
notified.
An authorization form permitting the Fund to accept telephone requests
must
first be completed. Authorization forms and information on this service
are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may
experience
difficulty in redeeming by telephone. If such a case should occur,
another
method of redemption, such as redeeming by mail, should be considered.
Telephone redemption instructions may be recorded. If reasonable
procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or
fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request
to
Federated Services Company, c/o State Street Bank and Trust Company,
P.O. Box
8604, Boston, Massachusetts 02266-8604. The written request should
include the
shareholder's name, the Fund name and class of Shares' name, the account
number,
and the Share or dollar amount requested and should be signed exactly as
the
Shares are registered.
If Share certificates have been issued, they must be properly endorsed
and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or
more, a
redemption of any amount to be sent to an address other than that
on record
with the Fund, or a redemption payable other than to the
shareholder of
record must have signatures on written redemption requests
guaranteed by:
. a trust company or commercial bank whose deposits are insured by
the Bank
Insurance Fund ("BIF"), which is administered by the Federal
Deposit
Insurance Corporation ("FDIC");
. a member of the New York, American, Boston, Midwest, or Pacific
Stock
Exchanges;
. a savings bank or savings and loan association whose deposits are
insured
by the Savings Association Insurance Fund ("SAIF"), which is
administered
by the FDIC; or
. any other "eligible guarantor institution," as defined in the
Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature
guarantees from the above institutions. The Fund may elect in the future
to
limit eligible signature guarantors to institutions that are members of
a
signature guarantee program. The Fund and its transfer agent reserve the
right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day,
but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Class C Shares will be charged a CDSC by
Federated
Securities Corp. of 1.00% for redemptions of those Shares made within
one year
from the date of purchase. To the extent that a shareholder exchanges
between or
among Class C Shares in other funds in the Liberty Family of Funds, the
time for
which the exchanged-for shares were held will be added, or "tacked," to
the time
for which the exchanged-from Shares were held for purposes of satisfying
the
one-year holding period. The CDSC will be calculated based upon the
lesser of
the original purchase price of the Shares or the net asset value of the
Shares
when redeemed.
The CDSC will not be imposed on Shares acquired through reinvestment of
dividends or distribution of short-term or long-term capital gains.
Redemptions
are deemed to have occurred in the following order: 1) Shares acquired
through
the reinvestment of dividends and long-term capital gains, 2) purchases
of
Shares occurring more than one year before the date of redemption, and
3)
purchases of Shares within the previous year.
The CDSC will not be imposed when a redemption results from a tax-free
return
under the following circumstances: (i) a total or partial distribution
from a
qualified plan, other than an IRA, Keogh Plan, or a custodial account,
following
retirement; (ii) a total or partial distribution from an IRA, Keogh
Plan, or a
custodial account, after the beneficial owner attains age 59-1/2; or
(iii) from
the death or permanent and total disability of the beneficial owner. The
exemption from the CDSC for qualified plans, an IRA, Keogh Plan, or a
custodial
account does not extend to account transfers, rollovers, and other
redemptions
made for purposes of reinvestment.
A CDSC will not be charged in connection with exchanges of Shares for
Class C
Shares in other Liberty Family Funds or Liberty Family Retirement
Program funds
or in connection with redemptions by the Fund of accounts with low
balances. No
CDSC will be charged for redemptions from the Liberty Family Retirement
Program.
For additional information, see "Other Payments to Financial
Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount
not less
than $100 may take advantage of the Systematic Withdrawal Program. Under
this
program, Shares are redeemed to provide for periodic withdrawal payments
in an
amount directed by the shareholder. Depending upon the amount of the
withdrawal
payments, the amount of dividends paid and capital gains distributions
with
respect to Shares, and the fluctuation of the net asset value of Shares
redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Shares. For this reason, payments under this
program
should not be considered as yield or income on the shareholder's
investment in
Shares. To be eligible to participate in this program, a shareholder
must have
an account value of at least $10,000. A shareholder may apply for
participation
in this program through his financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may
redeem Shares in any account, except retirement plans, and pay the
proceeds to
the shareholder if the account balance falls below the required minimum
value
of $1,500. This requirement does not apply, however, if the balance
falls below
$1,500 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is
notified in
writing and allowed 30 days to purchase additional Shares to meet the
minimum
requirement.
INTERNATIONAL SERIES, INC. INFORMATION
- ------------------------------------------------------------------------
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MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Corporation is managed by a Board of Directors.
The
Directors are responsible for managing the Corporation's business
affairs and
for exercising all the Corporation's powers except those reserved for
the
shareholders. An Executive Committee of the Board of Directors handles
the
Board's responsibilities between meetings of the Board.
OFFICERS AND DIRECTORS. _Officers and Directors are listed with their
addresses,
present positions with International Series, Inc., and principal
occupations,
including those with Federated Management, its affiliates, and the
"Funds"
described in the Statement of Additional Information.
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- --------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research
Corp.; Chairman, Passport Research, Ltd.; Director, tna Life and
Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing
General
Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Vice
President of the Company.
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- --------
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
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- --------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Director
President, Investment Properties Corporation; Senior Vice-President,
John R.
Wood and Associates, Inc., Realtors; President, Northgate Village
Development
Corporation; Partner or Trustee in private real estate ventures in
Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly,
President, Naples Property Management, Inc.
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- --------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
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- --------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross
of
Massachusetts, Inc.
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- --------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Director
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director,
Trustee, or
Managing General Partner of the Funds.
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- --------
- ------------------------------------------------------------------------
- --------
Edward L. Flaherty, Jr.+
Two Gateway Center-Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
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- --------
Peter E. Madden
225 Franklin Street
Boston, MA
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State
Street Bank and Trust Company and State Street Boston Corporation and
Trustee,
Lahey Clinic Foundation, Inc.
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- --------
Gregor F. Meyer
Two Gateway Center-Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
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- --------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment
for International Peace, RAND Corporation, Online Computer Library
Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center;
Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council
for
Environmental Policy and Technology.
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- --------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General
Partner of the Funds.
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- --------
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds;
staff member, Federated Securities Corp. and Federated Administrative
Services.
- ------------------------------------------------------------------------
- --------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated
Management, and Federated Research; President and Director, Federated
Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative
Services, Federated Services Company, and Federated Shareholder
Services;
President or Vice President of the Funds; Director, Trustee, or Managing
General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Director of the Corporation.
- ------------------------------------------------------------------------
- --------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated
Research Corp.; Chairman and Director, Federated Securities Corp.;
President or
Vice President of some of the Funds; Director or Trustee of some of the
Funds.
- ------------------------------------------------------------------------
- --------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice
President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated
Services
Company and Federated Shareholder Services; Chairman, Treasurer, and
Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds;
Vice President and Treasurer of the Funds.
- ------------------------------------------------------------------------
- --------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary,
Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services
Company;
Executive Vice President, Secretary, and Trustee, Federated
Administrative
Services; Secretary and Trustee, Federated Shareholder Services;
Executive Vice
President and Director, Federated Securities Corp.; Vice President and
Secretary
of the Funds.
- ------------------------------------------------------------------------
- --------
*This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940 as amended.
+Member of the Executive Committee. The Executive Committee of the Board
of
Directors handles the responsibilities of the Board of Directors
between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by
Federated
Management, the Fund's investment adviser (the "Adviser"), subject to
direction
by the Directors. The Adviser continually conducts investment research
and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory
fee
equal to 1.00% of the Fund's average daily net assets. The fee paid
by the
Fund, while higher than the advisory fee paid by other mutual funds
in
general, is comparable to fees paid by many mutual funds with
similar
objectives and policies. The Adviser may voluntarily waive a
portion of its
fee. The Adviser can terminate this voluntary waiver at any time at
its
sole discretion. The Adviser has also undertaken to reimburse the
Fund for
operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business
trust
organized on April 11, 1989, is a registered investment adviser
under the
Investment Advisers Act of 1940. It is a subsidiary of Federated
Investors.
All of the Class A (voting) shares of Federated Investors are owned
by a
trust, the trustees of which are John F. Donahue, Chairman and
Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative
services
to a number of investment companies. Total assets under management
or
administration by these and other subsidiaries of Federated
Investors is
approximately $70 billion. Federated Investors, which was founded
in 1956
as Federated Investors, Inc., develops and manages mutual funds
primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions
nationwide.
Through these same client institutions, individual shareholders
also have
access to this same level of investment expertise.
Randall S. Bauer is the Fund's portfolio manager. He has
contributed toward
the management of the Fund's portfolio of investments since
December 1,
1990, when Federated Management served as the Fund's sub-adviser,
and
continued in that capacity through March 15, 1994, when, pursuant
to
shareholder approval, Federated Management was appointed the Fund's
investment adviser. Mr. Bauer joined Federated Investors in 1989 as
an
Assistant Vice President of Federated Management. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a
Chartered
Financial Analyst and received his M.B.A. in Finance from
Pennsylvania
State University.
SUB-ADVISER. Under the terms of a Sub-Advisory Agreement between
Federated
Management and Fiduciary International, Inc., Fiduciary International ,
Inc.
will furnish to Federated Management such investment advice, statistical
and
other factual information as may, from time to time, be reasonably
requested by
Federated Management.
SUB-ADVISORY FEES. For its services under the Sub-Advisory
Agreement, the
sub-adviser receives an annual fee from the Adviser equal to .50 of
1% of
average daily net assets of the Fund. The sub-advisory fee is
accrued and
paid daily. In the event that the fee due from the Fund to the
Adviser is
reduced in order to meet expense limitations imposed on the Fund by
state
securities laws or regulations, the sub-advisory fee will be
reduced by
one-half of said reduction in the fee due from the Fund to the
Adviser.
Notwithstanding any other provision in the Sub-Advisory Agreement,
the
sub-adviser may, from time to time, and for such periods as it
deems
appropriate, reduce its compensation (and, if appropriate, assume
expenses
of the Fund) to the extent that the Fund's expenses exceed such
lower
expense limitations as the sub-adviser may, by notice to the Fund,
voluntarily declare to be effective.
SUB-ADVISER'S BACKGROUND. Fiduciary International, Inc. is a New
York
corporation that was organized in 1982 as Fir Tree Advisers, Inc.
Fiduciary
International, Inc. is a wholly-owned subsidiary of Fiduciary
Investment
Corporation, which, in turn, is a wholly-owned subsidiary
of Fiduciary Trust Company International. Fiduciary Trust Company
International has more than 30 years of experience in managing
funds which
invest in the international markets. As of December 31, 1994,
Fiduciary
Trust Company International had total assets of approximately $375
million,
and total assets under management of approximately $30 billion.
Margaret Lindsay has been the Fund's portfolio manager since mid-
1992, when
Fiduciary International, Inc. was the Fund's investment adviser.
Ms.
Lindsay joined Fiduciary International, Inc. in 1991 as a Vice
President.
From 1987 through 1991, Ms. Lindsay worked in international
strategy,
analysis, and sales at S.G. Warburg Securities.
Fiduciary International, Inc. is a registered investment adviser
under the
Investment Advisers Act of 1940. The Adviser and sub-adviser, their
officers, affiliates, and employees may act as investment managers
for
parties other than the Fund, including other investment companies.
DISTRIBUTION OF CLASS C SHARES
Federated Securities Corp. is the principal distributor for Shares of
the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is
the
principal distributor for a number of investment companies. Federated
Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan
adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution
Plan"),
the Fund may pay to the distributor an amount, computed at an annual
rate of up
to 0.75 of 1% of the average daily net asset value of Shares to finance
any
activity which is principally intended to result in the sale of Shares
subject
to the Distribution Plan. The distributor may select financial
institutions such
as banks, fiduciaries, custodians for public funds, investment advisers,
and
broker/dealers to provide sales support services as agents for their
clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no
payments to the distributor except as described above. Therefore, the
Fund does
not pay for unreimbursed expenses of the distributor, including amounts
expended
by the distributor in excess of amounts received by it from the Fund,
interest,
carrying or other financing charges in connection with excess amounts
expended,
or the distributor's overhead expenses. However, the distributor may be
able to
recover such amount or may earn a profit from future payments made by
the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the
"Services
Plan") under which it may make payments up to 0.25 of 1% of the average
daily
net asset value of Shares to obtain certain personal services for
shareholders
and for the maintenance of shareholder accounts ("shareholder
services"). The
Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which
Federated
Shareholder Services will either perform shareholder services directly
or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients
or
customers. The schedules of such fees and the basis upon which such fees
will be
paid will be determined from time to time by the Fund and Federated
Shareholder
Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic
payments
under the Plan, Federated Securities Corp. will pay financial
institutions an
amount equal to 1% of the net asset value of Shares purchased by their
clients
or customers at the time of purchase (except for participants in the
Liberty
Family Retirement Program).
The Glass-Steagall Act prohibits a depository institution (such as a
commercial
bank or a savings and loan association) from being an underwriter or
distributor
of most securities. In the event the Glass-Steagall Act is deemed to
prohibit
depository institutions from acting in the capacities described above or
should
Congress relax current restrictions on depository institutions, the
Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions
to act as
underwriters or distributors of securities may differ from
interpretations given
to the Glass-Steagall Act and, therefore, banks and financial
institutions may
be required to register as dealers pursuant to state law.
The distributor may, from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a
subsidiary of
Federated Investors, provides administrative personnel and services
(including
certain legal and financial reporting services) necessary to operate the
Corporation and the Fund. Federated Administrative Services provides
these at an
annual rate which relates to the average aggregate daily net assets of
all funds
advised by subsidiaries of Federated Investors (the "Federated Funds")
as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<C> <S>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a
portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of
the Fund.
Foreign instruments purchased by the Fund are held by foreign banks
participating in a network coordinated by State Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services
Company,
Pittsburgh, Pennsylvania, with offices in Boston, Massachusetts, is
transfer
agent for the Shares of the Fund and dividend disbursing agent for the
Fund.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for
the Fund
are Arthur Andersen LLP, 2100 One PPG Place, Pittsburgh, Pennsylvania
15222.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio
instruments, the Adviser looks for prompt execution of the order at a
favorable
price. In working with dealers, the Adviser will generally utilize those
who are
recognized dealers in specific portfolio instruments, except when a
better price
and execution of the order can be obtained elsewhere. In selecting among
firms
believed to meet this criteria, the Adviser may give consideration to
those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review
by the
Directors.
SHAREHOLDER INFORMATION
- ------------------------------------------------------------------------
- --------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and
other
matters submitted to shareholders for vote. All shares of each portfolio
or
class in the Corporation have equal voting rights, except that in
matters
affecting only a particular Fund or class, only shares of that
particular Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold
annual
shareholder meetings. Shareholder approval will be sought only for
certain
changes in the Fund's operation and for the election of Directors under
certain
circumstances.
Directors may be removed by a two-thirds vote of the number of Directors
prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. The Directors shall call a special meeting of shareholders upon
the
written request of shareholders owning at least 10% of the Corporation's
outstanding shares entitled to vote.
TAX INFORMATION
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- --------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements
of the Internal Revenue Code, as amended (the "Code"), applicable to
regulated
investment companies and to receive the special tax treatment afforded
to such
companies. However, the Fund may invest in the stock of certain foreign
corporations which would constitute a Passive Foreign Investment Company
("PFIC"). Federal income taxes may be imposed on the Fund upon
disposition of
PFIC investments.
The Fund will be treated as a single, separate entity for federal income
tax
purposes so that income (including capital gains) and losses realized by
the
Corporation's other portfolios, if any, will not be combined for tax
purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries
may be subject to foreign taxes withheld at the source. The United
States has
entered into tax treaties with many foreign countries that entitle the
Fund to
reduced tax rates or exemptions on this income. The effective rate of
foreign
tax cannot be predicted since the amount of Fund assets to be invested
within
various countries is unknown. However, the Fund intends to operate so as
to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on
any dividends and other distributions, including capital gains
distributions,
received. This applies whether dividends and distributions are received
in cash
or as additional Shares. Distributions representing long-term capital
gains, if
any, will be taxable to shareholders as long-term capital gains no
matter how
long the shareholders have held the Shares. No federal income tax is due
on any
dividends earned in an IRA or qualified retirement plan until
distributed.
If more than 50% of the value of the Fund's assets at the end of the tax
year is
represented by stock or securities of foreign corporations, the Fund
intends to
qualify for certain Code stipulations that would allow shareholders to
claim a
foreign tax credit or deduction on their U.S. income tax returns. The
Code may
limit a shareholder's ability to claim a foreign tax credit.
Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign
taxes
rather than take the foreign tax credit must itemize deductions on their
income
tax returns.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
The Fund is not subject to Pennsylvania corporate or personal property
taxes.
Fund Shares may be subject to personal property taxes imposed by
counties,
municipalities, and school districts in Pennsylvania to the extent that
the
portfolio securities in the Fund would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
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- --------
From time to time, the Fund advertises the total return for Class C
Shares.
Total return represents the change, over a specified period of time, in
the
value of an investment in Class C Shares after reinvesting all income
and
capital gains distributions. It is calculated by dividing that change by
the
initial investment and is expressed as a percentage.
The performance information reflects the effect of non-recurring
charges, such
as the CDSC, which, if excluded, would increase the total return.
Total return will be calculated separately for Class A Shares, Class B
Shares,
and Class C Shares. Because Class A Shares may be subject to a front-end
sales
load, the total return for Class B Shares and Class C Shares, for the
same
period, may exceed that of Class A Shares. Depending on the dollar
amount
invested and the time period for which any class of shares is held, the
total
return for any particular class will likely exceed that of another.
From time to time, the Fund may advertise the performance of Class C
Shares
using certain financial publications and/or compare the performance of
Class C
Shares to certain indices.
OTHER CLASSES OF SHARES
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- --------
Class A Shares are sold primarily to customers of financial institutions
subject
to a front-end sales load of up to 5.50%. Under certain circumstances,
investors
may qualify for reduced sales loads on purchases of Class A Shares.
Class A
Shares are subject to a shareholder services fee of up to 0.25 of 1% of
the
Class A Shares' average daily net assets. Investments in Class A Shares
are
subject to a minimum initial investment of $500, unless the investment
is in a
retirement account, in which case the minimum investment is $50.
Class B Shares are sold primarily to customers of financial
institutions,
subject to a maximum contingent deferred sales charge of 5.50% and a
Rule 12b-1
fee of up .75 of 1%. In addition, Class B Shares are subject to a
shareholder
services fee of up to .25% of 1% of the Class B Shares' average daily
net
assets. Investments in Class B Shares are subject to a minimum initial
investment of $1,500, unless the investment is in a retirement account,
in which
case the minimum investment is $50.
The amount of dividends payable to Class A Shares will generally exceed
that
payable to Class B Shares and Class C Shares by the difference between
Class
Expenses and distribution and shareholder service expenses borne by
shares of
each respective class.
The stated advisory fee is the same for all classes of shares.
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants page
50.
<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 0.15 0.06 0.10
0.11 0.19 0.18 0.19 0.24 0.04
- ------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions 1.96 2.53 (0.37)
0.37 (1.16) 1.60 3.27 (0.72) 8.63
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
Total from investment
operations 2.11 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 (0.07) (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 (0.13)(a) -- --
- -- -- -- -- --
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
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 $ 18.53 $ 16.49 $ 14.09 $
14.44 $ 14.28 $ 17.59 $ 17.34 $ 19.99 $ 22.87
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
TOTAL RETURN* 12.82% 18.52% (1.86)%
3.49% (6.72)% 11.55% 24.33% (2.70)% 60.75%
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 1.61% 1.60% 1.57%
1.52% 1.32% 1.01% 1.00% 1.00% 1.00%
- ------------------------------
Net investment income -- 0.13% 0.69%
0.78% 1.39% 1.04% 1.43% 0.93% 0.34%
- ------------------------------
Expense waiver/
reimbursement (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) $261,178 $192,860 $106,937
$101,980 $82,541 $65,560 $68,922 $85,860 $106,257
- ------------------------------
Portfolio turnover rate 73% 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
and foreign currency
transactions 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 --
- ------------------------------ ---------
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 (b) 0.50%
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $34,209
- ------------------------------
Portfolio turnover rate 61%
- ------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption
fee, if applicable.
(a) Distributions are determined in accordance with income tax
regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal
income tax
purposes.
(b) The voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS--CLASS B SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 50.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1994**
<S>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 19.61
- ------------------------------------------------------------------------
- -----------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- -----------------------
Net investment income
(0.01)
- ------------------------------------------------------------------------
- -----------------------
Net realized and unrealized gain (loss) on investments and foreign
currency transactions (1.10)
- ------------------------------------------------------------------------
- ----------------------- -------
Total from investment operations
(1.11)
- ------------------------------------------------------------------------
- -----------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- -----------------------
Dividends to shareholders from net investment income
- --
- ------------------------------------------------------------------------
- -----------------------
Distributions for shareholders from net realized gain on investment
transactions --
- ------------------------------------------------------------------------
- ----------------------- -------
TOTAL DISTRIBUTIONS
- --
- ------------------------------------------------------------------------
- ----------------------- -------
NET ASSET VALUE, END OF PERIOD
$ 18.50
- ------------------------------------------------------------------------
- ----------------------- -------
TOTAL RETURN*
(5.27%)
- ------------------------------------------------------------------------
- -----------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- -----------------------
Expenses
2.59%(a)
- ------------------------------------------------------------------------
- -----------------------
Net investment income
(0.88%)(a)
- ------------------------------------------------------------------------
- -----------------------
Expense waiver/reimbursement
- --
- ------------------------------------------------------------------------
- -----------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- -----------------------
Net assets, end of period (000 omitted)
$ 1,214
- ------------------------------------------------------------------------
- -----------------------
Portfolio turnover rate
73%
- ------------------------------------------------------------------------
- -----------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or
redemption
fee, if applicable.
** Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report dated November 30, 1994, which can be obtained free of
charge.
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES
DOLLARS
<C> <S>
<C>
- ------------- ---------------------------------------------------------
- ------------------------- --------------
COMMON STOCKS--92.3%
- ------------------------------------------------------------------------
- -------------------------
ARGENTINA--1.7%
---------------------------------------------------------
- -------------------------
126,609 Ciadea
$ 1,407,048
---------------------------------------------------------
- -------------------------
215,000 **Migor
1,666,250
---------------------------------------------------------
- -------------------------
25,000 Telefonica de Argentina ADR
1,390,625
---------------------------------------------------------
- ------------------------- --------------
Total
4,463,923
---------------------------------------------------------
- ------------------------- --------------
AUSTRALIA--2.9%
---------------------------------------------------------
- -------------------------
309,028 Amcor Limited
2,042,454
---------------------------------------------------------
- -------------------------
212,875 Broken Hill Proprietary
3,056,029
---------------------------------------------------------
- -------------------------
172,226 National Australia Bank
1,395,068
---------------------------------------------------------
- -------------------------
260,000 Western Mining Corporation Holdings
1,478,635
---------------------------------------------------------
- ------------------------- --------------
Total
7,972,186
---------------------------------------------------------
- ------------------------- --------------
BRAZIL--1.0%
---------------------------------------------------------
- -------------------------
105,000 **Aracruz Celulose ADR
1,325,625
---------------------------------------------------------
- -------------------------
30,000 Telecomunicacoes Brasileras ADR
1,436,991
---------------------------------------------------------
- ------------------------- --------------
Total
2,762,616
---------------------------------------------------------
- ------------------------- --------------
CHILE--2.1%
---------------------------------------------------------
- -------------------------
60,000 Compania Cervecerias Unidas ADR
1,560,000
---------------------------------------------------------
- -------------------------
15,000 Compania de Telefonos de Chile ADR
1,290,000
---------------------------------------------------------
- -------------------------
75,000 Cristalerias de Chile ADR
1,396,875
---------------------------------------------------------
- -------------------------
50,000 Madeco ADR
1,450,000
---------------------------------------------------------
- ------------------------- --------------
Total
5,696,875
---------------------------------------------------------
- ------------------------- --------------
FRANCE--7.9%
---------------------------------------------------------
- -------------------------
7,250 Carrefour
3,011,806
---------------------------------------------------------
- -------------------------
11,473 Cetelem
2,172,231
---------------------------------------------------------
- -------------------------
6,800 Colas
$ 1,123,383
---------------------------------------------------------
- -------------------------
12,800 Compagnie de Fives-Lille
1,117,888
---------------------------------------------------------
- -------------------------
37,000 Credit Local de France
2,851,595
---------------------------------------------------------
- -------------------------
2,220 Legrand
2,760,938
---------------------------------------------------------
- -------------------------
27,000 SEB
2,666,271
---------------------------------------------------------
- -------------------------
21,500 Ugine
1,632,265
---------------------------------------------------------
- -------------------------
75,500 Valeo
4,022,145
---------------------------------------------------------
- ------------------------- --------------
Total
21,358,522
---------------------------------------------------------
- ------------------------- --------------
GERMANY--6.0%
---------------------------------------------------------
- -------------------------
3,580 Buderus
1,583,768
---------------------------------------------------------
- -------------------------
19,600 Krupp Fr Ag Hoesch
2,482,750
---------------------------------------------------------
- -------------------------
12,150 Kaufhof Holding
3,387,460
---------------------------------------------------------
- -------------------------
10,000 Mannesmann
2,609,803
---------------------------------------------------------
- -------------------------
9,035 Preussag
2,490,232
---------------------------------------------------------
- -------------------------
11,600 Veba
3,817,441
---------------------------------------------------------
- ------------------------- --------------
Total
16,371,454
---------------------------------------------------------
- ------------------------- --------------
HONG KONG--5.9%
---------------------------------------------------------
- -------------------------
272,000 China Light & Power
1,171,186
---------------------------------------------------------
- -------------------------
600,000 CITIC Pacific
1,520,617
---------------------------------------------------------
- -------------------------
71,100 Consolidated Electric Power Asia ADR
1,539,933
---------------------------------------------------------
- -------------------------
2,600,000 First Pacific Co.
1,798,622
---------------------------------------------------------
- -------------------------
502,064 Hong Kong Land Holdings
1,041,950
---------------------------------------------------------
- -------------------------
185,027 HSBC Holdings
2,045,568
---------------------------------------------------------
- -------------------------
444,000 Hutchison Whampoa
1,768,261
---------------------------------------------------------
- -------------------------
308,000 Sun Hung Kai Properties
1,979,337
---------------------------------------------------------
- -------------------------
250,000 Swire Pacific
$ 1,664,792
---------------------------------------------------------
- -------------------------
350,000 Television Broadcasting
1,402,951
---------------------------------------------------------
- ------------------------- --------------
Total
15,933,217
---------------------------------------------------------
- ------------------------- --------------
INDONESIA--0.5%
---------------------------------------------------------
- -------------------------
752,600 Lippo Bank
1,299,790
---------------------------------------------------------
- ------------------------- --------------
IRELAND--2.2%
---------------------------------------------------------
- -------------------------
463,491 Bank of Ireland
2,068,510
---------------------------------------------------------
- -------------------------
400,000 CRH
2,135,923
---------------------------------------------------------
- -------------------------
600,000 Irish Life
1,719,386
---------------------------------------------------------
- ------------------------- --------------
Total
5,923,819
---------------------------------------------------------
- ------------------------- --------------
JAPAN--25.3%
---------------------------------------------------------
- -------------------------
150,000 Amway Japan Ltd., ADR
2,400,000
---------------------------------------------------------
- -------------------------
99,000 Canon Sales
2,960,748
---------------------------------------------------------
- -------------------------
180,000 Canon
3,109,876
---------------------------------------------------------
- -------------------------
230,000 Daiwa Securities
2,997,727
---------------------------------------------------------
- -------------------------
517 DDI
4,544,481
---------------------------------------------------------
- -------------------------
66,000 Ito Yokado
3,500,884
---------------------------------------------------------
- -------------------------
200,000 Japan Securities Finance
2,990,654
---------------------------------------------------------
- -------------------------
45,000 Kyocera
3,337,206
---------------------------------------------------------
- -------------------------
105,000 Mitsubishi Bank
2,344,531
---------------------------------------------------------
- -------------------------
230,000 Mitsubishi Estate
2,532,963
---------------------------------------------------------
- -------------------------
450,000 Mitsubishi Heavy Industries
3,337,206
---------------------------------------------------------
- -------------------------
170,000 Mitsubishi Trust & Banking
2,404,648
---------------------------------------------------------
- -------------------------
100,000 Mori Seiki Co.
2,364,233
---------------------------------------------------------
- -------------------------
325,000 NEC
3,776,206
---------------------------------------------------------
- -------------------------
960,000 Nippon Steel
$ 3,724,577
---------------------------------------------------------
- -------------------------
340 Nippon Telephone & Telegraph
2,885,577
---------------------------------------------------------
- -------------------------
184,000 Sharp
3,197,575
---------------------------------------------------------
- -------------------------
90,000 Shimachu
2,837,080
---------------------------------------------------------
- -------------------------
200,000 Sumitomo Electric Industries
2,788,583
---------------------------------------------------------
- -------------------------
650,000 Tokuyama Corp.
3,848,447
---------------------------------------------------------
- -------------------------
700,000 Tosoh Corp.
2,906,795
---------------------------------------------------------
- -------------------------
680,000 Yaskawa Electric Corp.
3,751,250
---------------------------------------------------------
- ------------------------- --------------
Total
68,541,247
---------------------------------------------------------
- ------------------------- --------------
KOREA--1.4%
---------------------------------------------------------
- -------------------------
37,000 Korea Electric Power
1,341,052
---------------------------------------------------------
- -------------------------
33,000 Pohang Iron and Steel Ltd., ADR
1,047,750
---------------------------------------------------------
- -------------------------
17,000 **Samsung Electric Co.
922,250
---------------------------------------------------------
- -------------------------
8,001 **Samsung Electronics Ltd., GDR
428,054
---------------------------------------------------------
- -------------------------
202 **Samsung Electronics Ltd., GDR
10,656
---------------------------------------------------------
- ------------------------- --------------
Total
3,749,762
---------------------------------------------------------
- ------------------------- --------------
MALAYSIA--2.7%
---------------------------------------------------------
- -------------------------
36,000 Aokam Perdana
247,917
---------------------------------------------------------
- -------------------------
220,000 Aokam Perdana
1,626,951
---------------------------------------------------------
- -------------------------
330,000 Genting Berhad
2,613,861
---------------------------------------------------------
- -------------------------
230,000 Malayan Banking
1,493,916
---------------------------------------------------------
- -------------------------
173,000 Telekom Malaysia
1,272,606
---------------------------------------------------------
- ------------------------- --------------
Total
7,255,251
---------------------------------------------------------
- ------------------------- --------------
MEXICO--4.5%
---------------------------------------------------------
- -------------------------
196,750 Cemex
1,886,606
---------------------------------------------------------
- -------------------------
650,000 Cifra
$ 1,775,389
---------------------------------------------------------
- -------------------------
190,000 **Elektra
2,070,318
---------------------------------------------------------
- -------------------------
413,000 Farmacias Benavides
1,452,070
---------------------------------------------------------
- -------------------------
93,000 **Grupo Industrial Durango, ADR
1,697,250
---------------------------------------------------------
- -------------------------
80,500 **Grupo Televisa L
1,826,834
---------------------------------------------------------
- -------------------------
550,000 Telefonos de Mexico
1,483,074
---------------------------------------------------------
- ------------------------- --------------
Total
12,191,541
---------------------------------------------------------
- ------------------------- --------------
NETHERLANDS--5.2%
---------------------------------------------------------
- -------------------------
32,000 Akzo Nobel
3,547,470
---------------------------------------------------------
- -------------------------
114,965 Boskalis Westminster
2,326,750
---------------------------------------------------------
- -------------------------
289,000 Elsevier
2,875,213
---------------------------------------------------------
- -------------------------
103,000 KNP BT
2,822,399
---------------------------------------------------------
- -------------------------
62,000 Polygram
2,615,350
---------------------------------------------------------
- ------------------------- --------------
Total
14,187,182
---------------------------------------------------------
- ------------------------- --------------
NEW ZEALAND--1.6%
---------------------------------------------------------
- -------------------------
1,174,274 Carter Holt Harvey
2,606,708
---------------------------------------------------------
- -------------------------
1,163,056 Skellerup
1,623,685
---------------------------------------------------------
- ------------------------- --------------
Total
4,230,393
---------------------------------------------------------
- ------------------------- --------------
PHILIPPINES--1.3%
---------------------------------------------------------
- -------------------------
3,312,000 JG Summit Holdings
1,208,151
---------------------------------------------------------
- -------------------------
7,800 Metro Bank and Trust Co.
32,704
---------------------------------------------------------
- -------------------------
39,000 Metro Bank and Trust Co.
1,144,654
---------------------------------------------------------
- -------------------------
1,400,000 **Petron Corp.
1,247,379
---------------------------------------------------------
- ------------------------- --------------
Total
3,632,888
---------------------------------------------------------
- ------------------------- --------------
SINGAPORE--2.2%
---------------------------------------------------------
- -------------------------
312,000 City Developments
$ 1,651,075
---------------------------------------------------------
- -------------------------
202,750 Development Bank of Singapore
2,021,270
---------------------------------------------------------
- -------------------------
120,000 Fraser & Neave
1,335,610
---------------------------------------------------------
- -------------------------
140,000 Sembawang Shipyard
1,003,756
---------------------------------------------------------
- ------------------------- --------------
Total
6,011,711
---------------------------------------------------------
- ------------------------- --------------
SWEDEN--5.2%
---------------------------------------------------------
- -------------------------
50,000 **AutoLiv
1,751,337
---------------------------------------------------------
- -------------------------
320,500 Bylock and Nordsjofr
2,487,595
---------------------------------------------------------
- -------------------------
107,000 **Hoganas
1,703,573
---------------------------------------------------------
- -------------------------
162,150 Sandvik
2,753,738
---------------------------------------------------------
- -------------------------
57,000 SSAB
2,514,561
---------------------------------------------------------
- -------------------------
152,635 Volvo
2,936,418
---------------------------------------------------------
- ------------------------- --------------
Total
14,147,222
---------------------------------------------------------
- ------------------------- --------------
SWITZERLAND--5.1%
---------------------------------------------------------
- -------------------------
5,550 Alusuisse Lonza Holding
2,719,646
---------------------------------------------------------
- -------------------------
2,825 BBC Brown Boveri
2,366,748
---------------------------------------------------------
- -------------------------
5,125 Danzas Holding
1,010,726
---------------------------------------------------------
- -------------------------
980 Reiseburo Kuoni
1,305,683
---------------------------------------------------------
- -------------------------
1,045 Rieter Holdings
1,313,624
---------------------------------------------------------
- -------------------------
4,950 Swiss Reinsurance
2,902,559
---------------------------------------------------------
- -------------------------
3,475 Sulzer
2,335,849
---------------------------------------------------------
- ------------------------- --------------
Total
13,954,835
---------------------------------------------------------
- ------------------------- --------------
TAIWAN--0.5%
---------------------------------------------------------
- -------------------------
122,138 **Tuntex Distinctive GDR
1,312,984
---------------------------------------------------------
- ------------------------- --------------
THAILAND--0.8%
---------------------------------------------------------
- -------------------------
230,500 Bangkok Bank
$ 2,281,586
---------------------------------------------------------
- ------------------------- --------------
UNITED KINGDOM--5.9%
---------------------------------------------------------
- -------------------------
250,000 BAA
1,970,130
---------------------------------------------------------
- -------------------------
150,000 Carlton Communication
2,058,800
---------------------------------------------------------
- -------------------------
300,000 Guinness
2,146,884
---------------------------------------------------------
- -------------------------
527,319 Hanson Trust
1,940,494
---------------------------------------------------------
- -------------------------
164,800 Reuters Holdings
1,269,677
---------------------------------------------------------
- -------------------------
210,000 Siebe
1,831,663
---------------------------------------------------------
- -------------------------
141,943 Thorn EMI
2,229,390
---------------------------------------------------------
- -------------------------
810,000 Vodafone Group
2,574,850
---------------------------------------------------------
- ------------------------- --------------
Total
16,021,888
---------------------------------------------------------
- ------------------------- --------------
VENEZUELA--0.4%
---------------------------------------------------------
- -------------------------
200,000 Mavesa ADR
1,036,100
---------------------------------------------------------
- ------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $226,259,472)
250,336,992
---------------------------------------------------------
- ------------------------- --------------
PREFERRED STOCKS--2.5%
- ------------------------------------------------------------------------
- -------------------------
AUSTRALIA--0.6%
---------------------------------------------------------
- -------------------------
463,189 News Corporation Ltd.
1,608,989
---------------------------------------------------------
- ------------------------- --------------
FINLAND--1.1%
---------------------------------------------------------
- -------------------------
22,000 Nokia
3,001,641
---------------------------------------------------------
- ------------------------- --------------
GERMANY--0.8%
---------------------------------------------------------
- -------------------------
4,629 Fresenius
2,180,433
---------------------------------------------------------
- ------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,072,886)
6,791,063
---------------------------------------------------------
- ------------------------- --------------
TOTAL LONG-TERM SECURITIES (IDENTIFIED COST $230,332,358)
257,128,055
---------------------------------------------------------
- ------------------------- --------------
<CAPTION>
VALUE
PRINCIPAL
IN U.S.
AMOUNT
DOLLARS
<C> <S>
<C>
- ------------- ---------------------------------------------------------
- ------------------------- --------------
*REPURCHASE AGREEMENT--4.6%
- ------------------------------------------------------------------------
- -------------------------
$ 12,470,000 J.P. Morgan Securities, Inc., 5.77%, dated 11/30/94, due
12/5/94 (at amortized
cost)
$ 12,470,000
---------------------------------------------------------
- ------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $242,802,358)
$ 269,598,055+
---------------------------------------------------------
- ------------------------- --------------
</TABLE>
+The cost for federal tax purposes amounts to $242,108,509. The net
unrealized
appreciation of investments amounts to $27,489,546, which is comprised
of
$35,163,846 appreciation and $7,674,300 depreciation at November 30,
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
($271,228,225) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
ASSETS:
- ------------------------------------------------------------------------
- ---------------------------
Investments, in repurchase agreements at amortized cost and value
$12,470,000
- ------------------------------------------------------------------------
- --------------
Investments in other securities, at value
257,128,055
- ------------------------------------------------------------------------
- -------------- -----------
Total investments (identified cost $242,802,358 and tax cost,
$242,108,509) $269,598,055
- ------------------------------------------------------------------------
- ---------------------------
Dividends and interest receivable
656,990
- ------------------------------------------------------------------------
- ---------------------------
Receivable for investments sold
1,608,292
- ------------------------------------------------------------------------
- ---------------------------
Receivable for foreign currency sold
465,588
- ------------------------------------------------------------------------
- ---------------------------
Receivable for capital stock sold
483,083
- ------------------------------------------------------------------------
- --------------------------- -----------
Total assets
272,812,008
- ------------------------------------------------------------------------
- ---------------------------
LIABILITIES:
- ------------------------------------------------------------------------
- ---------------------------
Payable for investments purchased
$ 684,035
- ------------------------------------------------------------------------
- --------------
Payable for foreign currency purchased
465,588
- ------------------------------------------------------------------------
- --------------
Payable for capital stock redeemed
120,297
- ------------------------------------------------------------------------
- --------------
Dividend taxes withheld liability
76,034
- ------------------------------------------------------------------------
- --------------
Payable to bank
18,308
- ------------------------------------------------------------------------
- --------------
Accrued expenses
219,521
- ------------------------------------------------------------------------
- -------------- -----------
Total liabilities
1,583,783
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS for 14,645,830 shares of capital stock outstanding
$271,228,225
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------
- ---------------------------
Paid-in capital
$231,241,120
- ------------------------------------------------------------------------
- ---------------------------
Unrealized appreciation (depreciation) of investments
26,801,876
- ------------------------------------------------------------------------
- ---------------------------
Accumulated net realized gain on investments and foreign currency
transactions 63,509,324
- ------------------------------------------------------------------------
- ---------------------------
Distributions paid from capital gains
(50,597,175)
- ------------------------------------------------------------------------
- ---------------------------
Undistributed net investment income
273,080
- ------------------------------------------------------------------------
- --------------------------- -----------
Total
$271,228,225
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSET VALUE:
- ------------------------------------------------------------------------
- ---------------------------
Class A ($261,178,232 / 14,097,247 shares of capital stock outstanding)
$18.53
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B ($1,214,109 / 65,634 shares of capital stock outstanding)
$18.50
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares ($8,835,884 / 482,949 shares of capital stock
outstanding) $18.30
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF OFFERING PRICE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares (100/94.5 of $18.53)*
$19.61
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares
$18.50
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares
$18.30
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF PROCEEDS ON REDEMPTION:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares
$18.53
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares (94.5/100 of $18.50)**
$17.48
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares (99/100 of $18.30)**
$18.12
- ------------------------------------------------------------------------
- --------------------------- -----------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------
- ----------------------------
Dividends (net of foreign taxes withheld of $406,845)
$ 3,518,584
- ------------------------------------------------------------------------
- ----------------------------
Interest
557,853
- ------------------------------------------------------------------------
- ---------------------------- ------------
Total investment income
4,076,437
- ------------------------------------------------------------------------
- ----------------------------
EXPENSES:
- ------------------------------------------------------------------------
- ----------------------------
Investment advisory fee
$ 2,529,458
- ------------------------------------------------------------------------
- ---------------
Administrative personnel and services fees
349,224
- ------------------------------------------------------------------------
- ---------------
Custodian and recordkeeping fees
483,132
- ------------------------------------------------------------------------
- ---------------
Transfer agent and dividend disbursing agent fees
184,688
- ------------------------------------------------------------------------
- ---------------
Directors' fees
4,976
- ------------------------------------------------------------------------
- ---------------
Auditing fees
39,749
- ------------------------------------------------------------------------
- ---------------
Legal fees
18,982
- ------------------------------------------------------------------------
- ---------------
Capital stock registration costs
119,672
- ------------------------------------------------------------------------
- ---------------
Printing and postage
128,711
- ------------------------------------------------------------------------
- ---------------
Insurance premiums
9,390
- ------------------------------------------------------------------------
- ---------------
Taxes
29,060
- ------------------------------------------------------------------------
- ---------------
Miscellaneous
13,632
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class A
152,547
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class B
220
- ------------------------------------------------------------------------
- ---------------
Shareholder service fee--Class C
16,570
- ------------------------------------------------------------------------
- ---------------
Distribution fee--Class B
662
- ------------------------------------------------------------------------
- ---------------
Distribution fee--Class C
50,203
- ------------------------------------------------------------------------
- --------------- -----------
Total expenses
4,130,876
- ------------------------------------------------------------------------
- ---------------------------- ------------
Net investment income
(54,439)
- ------------------------------------------------------------------------
- ---------------------------- ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------
- ----------------------------
Realized gain on investment transactions (identified cost basis)--
- ------------------------------------------------------------------------
- ----------------------------
Net realized gain on investments and foreign currency transactions
15,659,072
- ------------------------------------------------------------------------
- ----------------------------
Unrealized appreciation of investments--
- ------------------------------------------------------------------------
- ----------------------------
Change in unrealized appreciation
7,122,265
- ------------------------------------------------------------------------
- ---------------------------- ------------
Net realized and unrealized gain/(loss) on investments
22,781,337
- ------------------------------------------------------------------------
- ---------------------------- ------------
Change in net assets resulting from operations
$ 22,726,898
- ------------------------------------------------------------------------
- ---------------------------- ------------
</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,
<S>
<C> <C>
1994 1993
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
- ---------
OPERATIONS--
- ------------------------------------------------------------------------
- ---------
Net investment income
$ (54,439) $ 172,409
- ------------------------------------------------------------------------
- ---------
Net realized gain/(loss) on investment and forward contract
transactions (14,870,196 net gain and $5,764,462 net loss, respectively,
as
computed for federal tax purposes)
15,659,072 5,894,827
- ------------------------------------------------------------------------
- ---------
Change in unrealized appreciation
7,122,265 14,259,817
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from operations
22,726,898 20,327,053
- ------------------------------------------------------------------------
- --------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
- ---------
Class A Dividends to shareholders from net investment income
(7,180) (644,382)
- ------------------------------------------------------------------------
- ---------
Distributions in excess of net investment income--Class A shares
(803,651) (747,020)
- ------------------------------------------------------------------------
- ---------
Distributions in excess of net investment income--Class C shares
(6,995) --
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from distributions to shareholders
(817,826) (1,391,402)
- ------------------------------------------------------------------------
- --------- -------------- --------------
CAPITAL STOCK TRANSACTIONS--
- ------------------------------------------------------------------------
- ---------
Net proceeds from sale of shares
158,071,765 127,561,470
- ------------------------------------------------------------------------
- ---------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock
324,527 623,074
- ------------------------------------------------------------------------
- ---------
Cost of shares redeemed
(104,788,830) (58,345,460)
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from capital stock transactions
53,607,462 69,839,084
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets
75,516,534 88,774,735
- ------------------------------------------------------------------------
- ---------
NET ASSETS:
- ------------------------------------------------------------------------
- ---------
Beginning of period
195,711,691 106,936,956
- ------------------------------------------------------------------------
- --------- -------------- --------------
End of period (including undistributed net investment income of $273,080
and $0,
respectively)
$ 271,228,225 $ 195,711,691
- ------------------------------------------------------------------------
- --------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
(1) ORGANIZATION
International Series, Inc. (the "Corporation") (formerly FT Series,
Inc.) is
registered under the Investment Company Act of 1940, as amended, 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.
Effective September 27, 1994 (Effective date of Class B Shares) the Fund
provides three classes of shares: Class A Shares, Class B Shares, and
Class C
Shares.
Effective March 15, 1994, the Corporation changed its name from FT
Series, Inc.
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 sale
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 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 of
collateral 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 the guidelines
established by the Board of Directors (the "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--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, as
amended (the "Code"). Distributions are determined in accordance
with
income tax regulations which may differ from generally accepted
accounting
principles. These distributions do not represent a return of
capital for
federal income tax purposes.
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. FOREIGN CURRENCY COMMITMENTS--The Fund may enter into foreign
currency
commitments for the delayed delivery of securities or forward
foreign
currency exchange transactions. Risks may arise upon entering these
transactions from the potential inability of counterparts to meet
the terms
of their transactions and from unanticipated movements in security
prices
or foreign exchanges rates. The forward foreign currency exchange
transactions 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 settlement date.
At November 30, 1994, the Fund had outstanding foreign currency
commitments
set out below:
<TABLE>
<CAPTION>
COMMITMENTS
UNREALIZED
TO DELIVER/
IN EXCHANGE APPRECIATION
SETTLEMENT DATE RECEIVE
FOR (DEPRECIATION)
<S> <C>
<C> <C>
UNSETTLED TRANSACTIONS
12/1/94
Indonesian Rupiah 9,881,200
$ 4,532.66 (3.02)
12/2/94
Mexican Peso 384,873.36
$ 112,012.04 97.72
12/5/94
Australian Dollar 457,162.47
$ 349,043.55 2,484.69
- -----------------
</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. The Fund had no written
options
outstanding at November 30, 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.
J. CONCENTRATION OF CREDIT RISK--The Fund invests in equity and fixed
income
securities of non-U.S. issuers. Although the Fund maintains a
diversified
investment portfolio the political or economic developments within
a
particular country or region may have an adverse effect on the
ability of
domiciled issuers to meet their obligations. Additionally,
political or
economic developments may have an effect on the liquidity and
volatility of
portfolio securities and currency holdings.
At November 30, 1994 the Portfolio was diversified with the
following
industries:
<TABLE>
<S> <C> <C>
<C>
Automotive 3.7% Energy
1.4%
Banking 8.5 Finance &
Insurance 2.7
Beverage & Tobacco 1.9 Pharmaceuticals
1.1
Media & Entertainment 4.5 Forest Products
2.8
Diversified Investment Companies 2.5 Industrial
Products 1.7
Building & Development 4.5 Manufacturing
3.2
Business & Equipment 5.6 Machinery
5.6
Capital Goods 0.5 Metals
1.7
Chemical 2.6 Other
6.8
Diversified Products 7.9 Retailers
5.7
Consumer Durables 2.1 Steel
4.4
Ecological Services 0.9 Technology
Services 0.5
Utilities 2.5 Telecommunications
4.2
Electronics & Electrical Equipment 8.7 Transportation
1.8
</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 Income, Capital Gain, and Return of
Capital
Distributions by Investment Companies. Accordingly, permanent book
and tax
differences have been reclassified. Accordingly, amounts as of
November 30,
1994, have been reclassified to reflect a decrease in paid in
capital of
$138,442, an increase in undistributed net investment income of
$1,886,989,
and a decrease in accumulated net realized gain/loss of $1,748,547.
Net
investment income, net realized gains, and net assets were not
affected by
this change.
(3) CAPITAL STOCK
At November 30, 1994, there were 500,000,000 shares of $.0001 par value
capital
stock authorized for Class A Shares, Class B 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 7,830,629 $
148,658,669 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 (5,447,729)
(102,494,771) (3,779,897) (58,259,919)
- -------------------------------------------------- ----------- -------
- -------- ----------- --------------
Net change resulting from capital stock
transactions 2,400,965 $
46,484,003 4,105,468 $ 66,938,177
- -------------------------------------------------- ----------- -------
- -------- ----------- --------------
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1994**
CLASS B SHARES SHARES
AMOUNT
<S> <C> <C>
- -------------------------------------------------- ----------- -------
- --------
Shares sold 66,837 $
1,290,771
- --------------------------------------------------
Shares issued to shareholders in payment of
dividends declared --
- --
- --------------------------------------------------
Shares redeemed (1,202)
(23,249)
- -------------------------------------------------- ----------- -------
- --------
Net change resulting from capital stock
transactions 65,635 $
1,267,522
- -------------------------------------------------- ----------- -------
- --------
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994
1993*
CLASS C SHARES SHARES
AMOUNT SHARES AMOUNT
<S> <C> <C>
<C> <C>
- -------------------------------------------------- ----------- -------
- -------- ----------- --------------
Shares sold 429,959 $
8,122,325 177,586 $ 2,986,448
- --------------------------------------------------
Shares issued to shareholders in payment
of dividends declared 250
4,422
- --------------------------------------------------
Shares redeemed (120,985)
(2,270,810) (3,862) (85,541)
- -------------------------------------------------- ----------- -------
- -------- ----------- --------------
Net change resulting from capital
stock transactions 309,224 $
5,855,937 173,724 $ 2,900,907
- -------------------------------------------------- ----------- -------
- -------- ----------- --------------
</TABLE>
* For the period from March 31, 1993 (start of business) to November
30, 1993.
** For the period from September 19, 1994 (start of business) to
November 30,
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 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 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
0.50% of
1% of average daily net assets.
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
FAS 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 SERVICES FEES--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 B
Shares
and Class C Shares. The Plan provides that the Fund may incur
distribution
expenses up to 0.75 of 1% of the average daily net assets of the Class B
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 .25 of
1% of average net assets of the Class A, Class B, and Class C Shares for
the
period. This fee is to obtain certain personal services for shareholders
and to
maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company
("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ
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
fiscal year ended
November 30, 1994 were as follows:
<TABLE>
<S>
<C>
PURCHASES
$ 228,447,062
- ------------------------------------------------------------------------
- -------------------------- --------------
SALES
$ 173,028,760
- ------------------------------------------------------------------------
- -------------------------- --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------
- --------
To the Shareholders and Board of Directors of
INTERNATIONAL SERIES, INC. (formerly FT SERIES, INC.)
(International Equity Fund):
We have audited the accompanying statement of assets and liabilities of
International Equity Fund (an investment portfolio of International
Series,
Inc., formerly FT Series, Inc., a Maryland Corporation), including the
schedule
of portfolio investments, as of November 30, 1994, the related statement
of
operations for the year then ended, the statements of changes in net
assets for
each of the two years in the period then ended and financial highlights
for each
of the periods presented. These financial statements and financial
highlights
are the responsibility of the Fund's management. Our responsibility is
to
express an opinion on these financial statements and financial
highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and
financial
highlights are free of material misstatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. Our procedures included confirmation of the securities owned
as of
November 30, 1994, by correspondence with the custodian and broker. An
audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable basis for
our
opinion.
In our opinion, the financial statements and financial highlights
referred to
above present fairly, in all material respects, the financial position
of
International Equity Fund, an investment portfolio of International
Series,
Inc., as of November 30, 1994, and the results of its operations for the
year
then ended, the changes in its net assets for each of the two years in
the
period then ended and financial highlights for each of the periods
presented in
conformity with generally accepted accounting principles.
ARTHUR
ANDERSEN LLP
Pittsburgh, Pennsylvania
January 13, 1995
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S> <C>
<C>
International Equity Fund
Class C Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- -------------------------------------------
Distributor
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- -------------------------------------------
Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- -------------------------------------------
Sub-Adviser
Fiduciary International, Inc.
Two World Trade Center
New York, New York 10048
- ------------------------------------------------------------------------
- -------------------------------------------
Custodian
State Street Bank and
P.O. Box 8604
Trust Company
Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------
- -------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- -------------------------------------------
Independent Public Accountants
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------
- -------------------------------------------
</TABLE>
INTERNATIONAL EQUITY FUND
CLASS C SHARES
PROSPECTUS
A Diversified Portfolio of
International Series, Inc.,
(formerly, FT Series, Inc.)
An Open-End Management
Investment Company
Prospectus dated January 31, 1995
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
46031P407
1010302A-C (1/95)
International Equity Fund
A Portfolio of International Series, Inc.
(formerly, FT Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Statement of Additional Information
This Combined Statement of Additional Information should be read
with the respective prospectuses for Class A Shares, Class B
Shares, and Class C Shares of International Equity Fund (the
"Fund"). This Statement is not a prospectus itself. To receive a
copy of any of the prospectuses, write or call the Fund.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of
FEDERATED INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Repurchase Agreements 1
Lending Portfolio Securities 1
Restricted and Illiquid
Securities 2
Futures and Options
Transactions 2
Futures Contracts 2
Put Options on Futures
Contracts 3
Call Options on Futures
Contracts 3
"Margin" in Futures
Transactions 4
Regulatory Restrictions 4
Purchasing Put Options on
Portfolio Securities 4
Writing Covered Call Options
on Portfolio Securities 4
Over-the-Counter Options 4
Warrants 4
Additional Risk Considerations 5
Portfolio Turnover 5
Investment Limitations 5
The Funds 11
Fund Ownership 11
Investment Advisory Services 11
Adviser to the Fund 11
Sub-Adviser 11
Advisory Fees 12
Sub-Advisory Fees 12
Other Related Services 12
Transfer Agent and Dividend
Disbursing Agent 13
Brokerage Transactions 13
Purchasing Shares 13
Distribution and Shareholder
Services Plans 13
Conversion to Federal Funds 14
Purchases by Sales
Representatives, Directors
of the Corporation, and
Employees 14
Determining Net Asset Value 14
Determining Market Value of
Securities 14
Trading in Foreign Securities 15
Redeeming Shares 15
Redemption in Kind 15
Tax Status 15
The Fund's Tax Status 15
Foreign Taxes 16
Shareholders' Tax Status 16
Total Return 16
Performance Comparisons 16
Appendix 18
General Information About the Fund
The Fund is a portfolio in International Series, Inc. (the
"Corporation"), which was established as FT International Trust, a
Massachusetts business trust, under a Declaration of Trust dated March
9, 1984, and reorganized as a corporation under the laws of the state of
Maryland on February 11, 1991. At a special meeting of shareholders held
on March 15, 1994, the shareholders of the Corporation approved an
amendment to the Articles of Incorporation to change the name of the
Corporation from FT Series, Inc., to International Series, Inc.
Shares of the Fund are offered in three classes, known as Class A
Shares, Class B Shares, and Class C Shares (individually and
collectively referred to as "Shares" as the context may require). This
Combined Statement of Additional Information relates to all three
classes of the above-mentioned Shares.
Investment Objective and Policies
The Fund's investment objective is to obtain a total return on its
assets. The objective is based on the premise that investing in non-U.S.
securities provides three potential benefits over investing solely in
U.S. securities:
- - the opportunity to invest in non-U.S. companies believed to have
superior growth potential;
- - the opportunity to invest in foreign countries with economic policies
or business cycles different from those of the United States; and
- - the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not move in
harmony.
Types of Investments
The Fund invests in a diversified portfolio composed primarily of non-
U.S. securities. A substantial portion of these instruments will be
equity securities of established companies in economically developed
countries. The Fund will invest at least 65%, and under normal market
conditions, substantially all of its total assets, in equity securities
denominated in foreign currencies, including European Currency Units, of
issuers located in at least three countries outside of the United States
and sponsored or unsponsored American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs"), and European Depositary Receipts
("EDRs"), collectively, "Depositary Receipts." The Fund may also
purchase investment grade fixed income securities and foreign government
securities; enter into forward commitments, repurchase agreements, and
foreign currency transactions; and maintain reserves in foreign or U.S.
money market instruments.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market
daily. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers, which are deemed by Federated Management, the Fund's
investment adviser (the "Adviser") to be creditworthy.
Lending Portfolio Securities
In order to generate additional income, the Fund may lend its portfolio
securities to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the Adviser has
determined are creditworthy under guidelines established by the
Corporation's Board of Directors (the "Directors") and will receive
collateral equal to at least 100% of the value of the securities loaned.
The Fund did not lend portfolio securities during the last fiscal year
and has no present intent to do so in the current fiscal year.
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on
the cash or equivalent collateral to the borrower or placing broker. The
Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Restricted and Illiquid Securities
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission ("SEC") Staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a
non-exclusive, safe-harbor for certain secondary market transactions
involving securities subject to restrictions on resale under federal
securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under Rule 144A. The
Fund believes that the staff of the SEC has left the question of
determining the liquidity of all restricted securities (eligible for
resale under Rule 144A) to the Directors. The Directors consider the
following criteria in determining the liquidity of certain restricted
securities:
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security and
the
number of other potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
When the Fund invests in certain restricted securities determined by the
Directors to be liquid, such investments could have the effect of
increasing the level of Fund illiquidity to the extent that the buyers
in the secondary market for such securities (whether in Rule 144A
resales or other exempt transactions) become, for a time, uninterested
in purchasing these securities.
Futures and Options Transactions
The Fund may engage in futures and options hedging transactions. In an
effort to reduce fluctuations in the net asset value of Shares, the Fund
may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call
options on futures contracts. The Fund may also write covered call
options on portfolio securities to attempt to increase its current
income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options
are exercised, closed, or have expired. An option position on financial
futures contracts may be closed out only on the exchange on which the
position was established.
Futures Contracts
The Fund may engage in transactions in futures contracts. A futures
contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future. However, a
stock index futures contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last
trading day of the contract and the price at which the index contract
was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund
is to protect the Fund from fluctuations in the value of its securities
caused by anticipated changes in interest rates or market conditions
without necessarily buying or selling the securities. For example, in
the fixed income securities market, price generally moves inversely to
interest rates. A rise in rates generally means a drop in price.
Conversely, a drop in rates generally means a rise in price. In order to
hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect itself
against the possibility that the prices of its fixed income securities
may decline during the anticipated holding period. The Fund would "go
long" (i.e., agree to purchase securities in the future at a
predetermined price) to hedge against a decline in market interest
rates.
Put Options on Futures Contracts
The Fund may engage in transactions in put options on futures contracts.
The Fund may purchase listed put options on futures contracts. Unlike
entering directly into a futures contract, which requires the purchaser
to buy a financial instrument on a set date at a specified price, the
purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. The Fund would purchase
put options on futures contracts to protect portfolio securities against
decreases in value resulting from market factors, such as an anticipated
increase in interest rates.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option may be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities. Alternatively, the Fund may exercise its put
option to close out the position. To do so, it would simultaneously
enter into a futures contract of the type underlying the option (for a
price less than the strike price of the option) and exercise the option.
The Fund would then deliver the futures contract in return for payment
of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option
contract, and only the premium paid for the contract will be lost.
When the Fund sells a put on a futures contract, it receives a cash
premium which can be used in whatever way is deemed most advantageous to
the Fund. In exchange for such premium, the Fund grants to the purchaser
of the put the right to receive from the Fund, at the strike price, a
short position in such futures contract, even though the strike price
upon exercise of the option is greater than the value of the futures
position received by such holder. If the value of the underlying futures
position is not such that exercise of the option would be profitable to
the option holder, the option will generally expire without being
exercised. The Fund has no obligation to return premiums paid to it
whether or not the option is exercised. It will generally be the policy
of the Fund, in order to avoid the exercise of an option sold by it, to
cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the
Fund's interest to deliver the underlying futures position. A closing
purchase transaction consists of the purchase by the Fund of an option
having the same term as the option sold by the Fund, and has the effect
of canceling the Fund's position as a seller. The premium which the Fund
will pay in executing a closing purchase transaction may be higher than
the premium received when the option was sold, depending in large part
upon the relative price of the underlying futures position at the time
of each transaction.
Call Options on Futures Contracts
The Fund may engage in transactions in call options on futures
contracts. In addition to purchasing put options on futures, the Fund
may write listed call options on futures contracts to hedge its
portfolio against, for example, an increase in market interest rates.
When the Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position (selling
a futures contract) at the fixed strike price at any time during the
life of the option if the option is exercised. As market interest rates
rise or as stock prices fall, causing the prices of futures to go down,
the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call
option position to increase. In other words, as the underlying future's
price goes down below the strike price, the buyer of the option has no
reason to exercise the call, so that the Fund keeps the premium received
for the option. This premium can help substantially to offset the drop
in value of the Fund's portfolio securities. Prior to the expiration of
a call written by the Fund, or exercise of it by the buyer, the Fund may
close out the option by buying an identical option. If the hedge is
successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of
the Fund will then help offset the decrease in value of the hedged
securities.
When the Fund purchases a call on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but
not the obligation, to enter into the underlying futures contract at a
strike price determined at the time the call was purchased, regardless
of the comparative market value of such futures position at the time the
option is exercised. The holder of a call option has the right to
receive a long (or buyer's) position in the underlying futures contract.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio (including cash or
cash equivalents) plus or minus the unrealized gain or loss on those
open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and
options positions within this limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with the custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contracts initial margin does not involve a borrowing by the Fund to
finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark to
market its open futures positions. The Fund is also required to deposit
and maintain margin when it writes call options on futures contracts.
Regulatory Restrictions
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid status as a "commodity pool
operator," the Fund will not enter into a futures contract, or purchase
an option thereon, if immediately thereafter the initial margin deposits
for futures contracts held by it, plus premiums paid by it for open
options on futures, would exceed 5% of the total assets of the Fund. The
Fund will not engage in transactions in futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the value of assets which the Fund holds or
intends to purchase. When futures contracts or options thereon are
purchased in order to protect against a price increase on securities or
other assets intended to be purchased later, it is anticipated that at
least 75% of such intended purchases will be completed. When other
futures contracts or options thereon are purchased, the underlying value
of such contracts will at all times not exceed the sum of (1) accrued
profit on such contracts held by the broker; (2) cash or high-quality
money market instruments set aside in an identifiable manner; and (3)
cash proceeds from investments due in 30 days or less.
Purchasing Put Options on Portfolio Securities
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option.
Writing Covered Call Options on Portfolio Securities
The Fund may write covered call options to generate income. As a writer
of a call option, the Fund has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. The Fund may only sell call options
either on securities held in its portfolio or on securities which it has
the right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration).
Over-the-Counter Options
The Fund may purchase and write over-the-counter options ("OTC options")
on portfolio securities in negotiated transactions with the buyers or
writers of the options for those options on portfolio securities held by
the Fund and not traded on an exchange.
OTC options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-
party contracts with standardized strike prices and expiration dates and
are purchased from a clearing corporation. Exchange-traded options have
a continuous liquid market while over-the-counter options may not.
Warrants
The Fund may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above
the market value of the optioned common stock at issuance) valid for a
specific period of time. Warrants may have a life ranging from less than
a year to twenty years or may be perpetual. However, most warrants have
expiration dates after which they are worthless. In addition, if the
market price of the common stock does not exceed the warrant's exercise
price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in the
market price of the optioned common stock.
Additional Risk Considerations
The Directors consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions
which would affect the liquidity of the Fund's assets maintained with
custodians in foreign countries, as well as the degree of risk from
political acts of foreign governments to which such assets may be
exposed. The Directors also consider the degree of risk involved through
the holding of portfolio securities in domestic and foreign securities
depositories. However, in the absence of willful misfeasance, bad faith
or gross negligence on the part of the Adviser, any losses resulting
from the holding of the Funds' portfolio securities in foreign countries
and/or with securities depositories will be at the risk of shareholders.
No assurance can be given that the Directors' appraisal of the risks
will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
Portfolio Turnover
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an
attempt to achieve the Fund's investment objective. Portfolio securities
will be sold when the Adviser believes it is appropriate, regardless of
how long those securities have been held. For the fiscal years ended
November 30, 1994, and 1993, the portfolio turnover rates were 73% and
91%, respectively.
Investment Limitations
Diversification of Investments
With respect to 75% of the value of its total assets, the Fund
will not purchase securities of any one issuer (other than
securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities) if as a result more
than 5% of the value of its total assets would be invested in the
securities of that issuer. To comply with certain state
restrictions, the Fund will not purchase securities of any issuer
if as a result more than 5% of its total assets would be invested
in securities of that issuer. (If state restrictions change, this
latter restriction may be revised without shareholder approval or
notification.)
Acquiring Securities
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer, or acquire any securities of
Fiduciary Trust Company International or its affiliates.
Concentration of Investments
The Fund will not invest more than 25% of its total assets in
securities having their principal business activities in the same
industry.
Borrowing
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts up to
one-third of the value of its total assets, including the amount
borrowed. The Fund will not purchase securities while outstanding
borrowings exceed 5% of the value of its total assets. (This
borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio
securities would be inconvenient or disadvantageous. )
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate assets, except
when necessary for permissible borrowings. In those cases, it may
pledge assets having a value of 15% of its assets taken at cost.
Neither the deposit of underlying securities or other assets in
escrow in connection with the writing of put or call options or
the purchase of securities on a when-issued basis, nor margin
deposits for the purchase and sale of financial futures contracts
and related options are deemed to be a pledge.
Buying on Margin
The Fund will not purchase any securities on margin, but may
obtain such short-term credits as are necessary for clearance of
transactions, except that the Fund may make margin payments in
connection with its use of financial futures contracts or related
options and transactions.
Issuing Senior Securities
The Fund will not issue senior securities except in connection
with transactions described in other investment limitations or as
required by forward commitments to purchase securities or
currencies.
Underwriting
The Fund will not underwrite or participate in the marketing of
securities of other issuers, except as it may be deemed to be an
underwriter under federal securities law in connection with the
disposition of its portfolio securities.
Investing in Real Estate
The Fund will not invest in real estate, although it may invest in
securities secured by real estate or interests in real estate or
issued by companies, including real estate investment trusts,
which invest in real estate or interests therein.
Investing in Commodities
The Fund will not purchase or sell commodities or commodity
contracts, except that the Fund may purchase and sell financial
futures contracts and options on financial futures contracts,
provided that the sum of its initial margin deposits for financial
futures contracts held by the Fund, plus premiums paid by it for
open options on financial futures contracts, may not exceed 5% of
the fair market value of the Fund's total assets, after taking
into account the unrealized profits and losses on those contracts.
Further, the Fund may engage in foreign currency transactions and
purchase or sell forward contracts with respect to foreign
currencies and related options.
Lending Cash or Securities
The Fund will not lend any assets except portfolio securities.
This shall not prevent the purchase or holding of bonds,
debentures, notes, certificates of indebtedness, or other debt
securities of an issuer, repurchase agreements or other
transactions which are permitted by the Fund's investment
objective and policies or its Articles of Incorporation.
Investing in Minerals
The Fund will not invest in interests in oil, gas, or other
mineral exploration or development programs, other than debentures
or equity stock interests.
Selling Short
The Fund will not sell securities short unless (1) it owns, or has
a right to acquire, an equal amount of such securities, or (2) it
has segregated an amount of its other assets equal to the lesser
of the market value of the securities sold short or the amount
required to acquire such securities. The segregated amount will
not exceed 10% of the Fund's net assets. While in a short
position, the Fund will retain the securities, rights, or
segregated assets.
Except as noted, the above investment limitations cannot be changed
without shareholder approval. The following limitations, however, may be
changed by the Directors without shareholder approval. Except as noted,
shareholders will be notified before any material change in these
limitations becomes effective.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for the purpose
of exercising control or management.
Investing in Warrants
The Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities.
To comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on recognized stock
exchanges to 2% of its total assets. (If state restrictions
change, this latter restriction may be revised without notice to
shareholders.) For purposes of this investment restriction,
warrants acquired by the Fund in units or attached to securities
may be deemed to be without value.
Investing in Securities of Other Investment Companies
The Fund will not own securities of open-end investment companies,
own more than 3% of the total outstanding voting stock of any
closed-end investment company, invest more than 5% of its total
assets in any closed-end investment company, or invest more than
10% of its total assets in closed-end investment companies in
general. The Fund will purchase securities of closed-end
investment companies only in open-market transactions involving
only customary broker's commissions. However, these limitations
are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. The Fund
will indirectly bear its proportionate share of any fees and
expenses paid by other investment companies, in addition to the
fees and expenses payable directly by the Fund.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total
assets in securities of issuers which have records of less than
three years of continuous operations, including the operation of
any predecessor.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including securities not determined
by the Directors to be liquid, repurchase agreements with
maturities longer than seven days after notice, and certain over-
the-counter options.
Dealing in Puts and Calls
The Fund will not write call options or put options on securities,
except hat the Fund may write covered call options and secured put
options on all or any portion of its portfolio, provided the
securities are held in the Fund's portfolio or the Fund is
entitled to them in deliverable form without further payment or
the Fund has segregated cash in the amount of any further
payments. The Fund will not purchase put options on securities
unless the securities or an offsetting call option is held in the
Fund's portfolio. The Fund may also purchase, hold or sell (i)
contracts for future delivery of securities or currencies and (ii)
warrants granted by the issuer of the underlying securities. The
Fund will not purchase put or call options on securities or
futures contracts if more than 5% of the value of the Fund's total
assets would be invested in premiums on open option positions.
Investing in Issuers Whose Securities are Owned by Officers and
Directors of the Corporation
The Fund will not purchase or retain the securities of any issuer
if the officers and Directors of the Corporation or the Fund's
investment adviser or sub-adviser owning individually more than
1/2 of 1% of the issuer's securities together own more than 5% of
the issuer's securities.
Arbitrage Transactions
To comply with certain state restrictions, the Fund will not enter
into transactions for the purpose of engaging in arbitrage. If
state requirements change, this restriction may be revised without
shareholder notification.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
To comply with registration requirements in certain states, the Fund (1)
will limit short sales of securities of any class of any one issuer to
the lesser of 2% of the Fund's net assets or 2% of the securities of
that class, (2) will make short sales only on securities listed on
recognized stock exchanges. The latter restrictions, however, do not
apply to short sales of securities the Fund holds or has a right to
acquire without the payment of any further consideration, and (3) will
not invest more than 5% of its total assets in restricted securities.
(If state requirements change, these restrictions may be revised without
shareholder notification.)
The Fund did not borrow money or pledge securities in excess of 5% of
the value of its total assets during the last fiscal year and has no
present intent to do so in the coming fiscal year.
The Funds
"The Funds" and "Funds" mean the following investment companies:
American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds;
Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth
Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. -
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; The Medalist Funds: Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark
Funds; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; World Investment Series, Inc.
Fund Ownership
Officers and Directors own less than 1% of the Fund's outstanding
Shares.
As of January 10, 1995, the following shareholders of record owned 5% or
more of the outstanding Class A Shares of the Fund: Clooney & Co., New
York, New York, owned approximately 1,164,827 Class A Shares (7.00%);
and Bozworth Company, Little Rock, Arkansas, owned approximately
1,039,050 Class A Shares (6.25%).
Also as of January 10, 1995, the following shareholder of record owned
5% or more of the outstanding Class B Shares of the Fund: Merrill Lynch
Pierce Fenner & Smith (as record owner holding Class B Shares for its
clients), Jacksonville, Florida, owned approximately 15,520 Class B
Shares (14.63%).
Also as of January 10, 1995, the following shareholder of record owned
5% or more of the outstanding Class C Shares of the Fund: Merrill Lynch
Pierce Fenner & Smith (as record owner holding Class C Shares for its
clients), Jacksonville, Florida, owned approximately 156,925 Class C
Shares (31.94%).
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Management. It is a
subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund, the Corporation, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
upon it by its contract with the Corporation.
Sub-Adviser
Fiduciary International, Inc. is the sub-adviser to the Fund (the "sub-
adviser") under the terms of a Sub-Advisory Agreement between Federated
Management and the sub-adviser. All of the directors, officers, and
employees of the sub-adviser also serve as directors, officers and
employees of Fiduciary Trust Company International. However, no
director, officer, or employee of either the sub-adviser or Fiduciary
Trust Company International serves as a director, officer, or employee
of the Corporation.
Fiduciary Trust Company International was founded in 1931 and is a New
York state-chartered bank. It has focused primarily on the management of
the investments and financial affairs of its customers, and has chosen
to minimize its commercial banking activities. As of December 31, 1993,
Fiduciary Trust Company International had total assets of approximately
$335 million, and total assets under management of over $29 billion, of
which in excess of $10 billion is invested in foreign securities. The
sub-adviser is a wholly-owned subsidiary of Fiduciary Investment
Corporation, which, in turn, is a wholly-owned subsidiary of Fiduciary
Trust Company International. Fiduciary Investment Corporation is a
corporation organized under Article XII of the New York Banking Law. Its
primary activity is to act as an intermediate parent of several
Fiduciary Trust Company International subsidiaries.
Advisory Fees
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectuses. For the period
from March 15, 1994 to November 30, 1994, Federated Management received
$1,872,710. For the period from December 1, 1993 to March 15, 1994,
Fiduciary International, Inc., the Fund's former investment adviser,
received $656,740. For the fiscal years ended November 30, 1993, and
1992, Fiduciary International, Inc. received $1,387,617 and $1,092,369,
respectively, which were reduced by $16,560 and $21,055, respectively,
because of undertakings to limit the Fund's expenses.
Sub-Advisory Fees
For its sub-advisory services, Fiduciary International, Inc., receives
an annual sub-advisory fee as described in the prospectuses. Federated
Management became the Fund's sub-adviser December 1, 1990, and served in
that capacity until March 15, 1994. For the period from March 15, 1994
to November 30, 1994, Fiduciary Trust International Limited received
$936,355. For the period from December 1, 1993 to March 15, 1994,
Federated Management, in its former capacity as sub-adviser to the Fund
received $328,374, For the fiscal years ended November 30, 1993, and
1992, Federated Management received $693,809 and $546,184, respectively.
State Expense Limitations
The Adviser and sub-adviser have undertaken to comply with the
expense limitations established by certain states for investment
companies whose shares are registered for sale in those states. If
the Fund's normal operating expenses (including the investment
advisory and sub-advisory fees, but not including brokerage
commissions, interest, taxes, and extraordinary expenses) exceed 2-
1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2%
per year of the remaining average net assets, the Adviser and sub-
adviser will reimburse the Fund for their expenses over the
limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory and sub-advisory fees paid
will be reduced by the amounts of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amounts to
be reimbursed by the Adviser and sub-adviser will be limited, in
any single fiscal year, by the amounts of the investment advisory
and sub-advisory fees.
This arrangement is not part of the advisory contract or sub-
advisory agreement and may be amended or rescinded in the future.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated
Securities Corp.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal years ended November 30,
1994, and 1993, and prior to the creation of separate classes of Shares,
November 30, 1992, Federated Administrative Services earned $349,224,
$208,142, and $163,855. Dr. Henry J. Gailliot, an officer of Federated
Management, the Adviser to the Fund, holds approximately 20% of the
outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Fund. The fee paid for this service is based on
the size, type and number of accounts and transactions made by
shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund
or to the Adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising certain other accounts. To
the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses.
Investment decisions for the Fund will be made independently from those
of any fiduciary or other accounts that may be managed by Fiduciary
Trust Company International or its subsidiaries. If, however, such
accounts and the Fund are simultaneously engaged in transactions
involving the same securities, the transactions may be combined and
allocated to each account. This system may adversely affect the price
the Fund pays or receives, or the size of the position it obtains.
The Adviser may engage in other non-U.S. transactions that may have
adverse effects on the market for securities in the Fund's portfolio.
The Adviser is not obligated to obtain any material non-public
("inside") information about any securities issuer, or to base purchase
or sale recommendations on such information.
For the fiscal years ended November 30, 1994, 1993, and 1992, the Fund
paid $1,256,110, $1,072,963, and $848,720, respectively, in brokerage
commissions on brokerage transactions.
Purchasing Shares
Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value, plus a sales
load (for Class A Shares only) on days the New York Stock Exchange is
open for business. The procedure for purchasing Shares is explained in
the respective prospectuses under "Investing in Class A Shares,"
"Investing in Class B Shares," or "Investing in Class C Shares."
Distribution and Shareholder Services Plans
As explained in the respective prospectuses, with respect to the Shares
of the Fund, the Fund has adopted a Shareholder Services Plan and, with
respect to Class B Shares and Class C Shares, the Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 of the Investment Company Act
of 1940, as amended. These arrangements permit the payment of fees to
financial institutions, the distributor, and Federated Shareholder
Services to stimulate distribution activities and to cause services to
be provided to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to, marketing efforts;
providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund
will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in pursuing its investment
objective. By identifying potential investors whose needs are served by
the Fund's objective, and properly servicing these accounts, it may be
possible to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts.
For the fiscal year ended November 30, 1994, and the period from March
31, 1993 to November 30, 1993, payments in the amount of $50,203 and
$4,375, respectively, were made pursuant to the Distribution Plan for
Class C Shares. For the period from September 19, 1994 (start of
business) to November 30, 1994, payments in the amount of $220 were made
pursuant to the Distribution Plan for Class B Shares. In addition, for
the fiscal year ended November 30, 1994, payments in the amount of
$152,547, $220, and $16,570, were made pursuant to the Shareholder
Services Plan for Class A Shares, Class B Shares, and Class C Shares,
respectively.
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds
before shareholders begin to earn dividends. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them
to federal funds.
Purchases by Sales Representatives, Directors of the Corporation, and
Employees
Directors, employees, and sales representatives of the Fund, the
Adviser, the sub-adviser, and Federated Securities Corp., or their
affiliates, or any investment dealer who has a sales agreement with
Federated Securities Corp., and their spouses and children under 21, may
buy Shares at net asset value without a sales load and are not subject
to a contingent deferred sales charge (Class B Shares and Class C Shares
only) to the extent the financial institution through which the Shares
are sold agrees to waive any initial payment to which it might otherwise
be entitled. Shares may also be sold without sales loads to trusts or
pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the respective
prospectuses.
Determining Market Value of Securities
Market or fair values of the Fund's portfolio securities are determined
as follows:
- - according to the last reported sale price on a recognized securities
exchange, if available. (If a security is traded on more than one
exchange, the price on the primary market for that security, as
determined by the Adviser or sub- adviser, is used.);
- - according to the last reported bid price, if no sale on the
recognized
exchange is reported or if the security is traded over-the-counter;
- - at fair value as determined in good faith by the Directors; or
- - for short-term obligations with remaining maturities of 60 days or
less at the time of purchase, at amortized cost, which approximates
value.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider:
institutional trading in similar groups of securities; yield; quality;
coupon rate; maturity; type of issue; trading characteristics; and other
market data.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from
the closing of the New York Stock Exchange. In computing the net asset
value, the Fund values foreign securities at the latest closing price on
the exchange on which they are traded immediately prior to the closing
of the New York Stock Exchange. Certain foreign currency exchange rates
may also be determined at the latest rate prior to the closing of the
New York Stock Exchange. Foreign securities quoted in foreign currencies
are translated into U.S. dollars at current rates. Occasionally, events
that affect these values and exchange rates may occur between the times
at which they are determined and the closing of the New York Stock
Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as
determined in good faith by the Directors, although the actual
calculation may be done by others.
Redeeming Shares
The Fund redeems Shares at the next computed net asset value after the
Fund receives the redemption request. Shareholder redemptions of Class B
Shares and Class C Shares may be subject to a contingent deferred sales
charge. Redemption procedures are explained in the respective
prospectuses under "Redeeming Class A Shares," "Redeeming Class B
Shares," and "Redeeming Class C Shares." Although the Fund does not
charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
Since portfolio securities of the Fund may be traded on foreign
exchanges which trade on Saturdays or on holidays on which the Fund will
not make redemptions, the net asset value of each class of Shares of the
Fund may be significantly affected on days when shareholders do not have
an opportunity to redeem their Shares.
Redemption in Kind
Although the Corporation intends to redeem Shares in cash, it reserves
the right under certain circumstances to pay the redemption price, in
whole or in part, by a distribution of securities from the Fund's
portfolio. The Corporation has elected to be governed by Rule 18f-1 of
the Investment Company Act of 1940, as amended, under which the
Corporation is obligated to redeem Shares for any one shareholder in
cash only up to the lesser of $250,000 or 1% of a class of Shares' net
asset value during any 90-day period. Any redemption beyond this amount
will also be in cash unless the Directors determine that further cash
payments will have a materially adverse effect on remaining
shareholders. In such a case, the Fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in the same
way as the Fund determines net asset value. The portfolio instruments
will be selected in a manner that the Directors deem fair and equitable.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net
asset value and selecting the securities in a manner the Directors
determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made is kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special
tax treatment afforded to such companies. To qualify for this treatment,
the Fund must, among other requirements:
- - derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities
held less than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign
corporations which would constitute a Passive Foreign Investment Company
(PFIC). Federal income taxes may be imposed on the Fund upon disposition
of PFIC investments.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the
amount of foreign taxes to which the Fund would be subject.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The Fund's dividends, and
any short-term capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-
term capital gains distributed to them regardless of how long they
have held the Fund Shares.
Total Return
The average annual total return for all classes of Shares of the Fund is
the average compounded rate of return for a given period that would
equate a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by multiplying
the number of Shares owned at the end of the period by the offering
price per Share at the end of the period. The number of Shares owned at
the end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional Shares, assuming the annual
reinvestment of all dividends and distributions. Any applicable
contingent deferred sales charge is deducted from the ending value of
the investment based on the lesser of the original purchase price or the
offering price of Shares redeemed.
Cumulative total return reflects total performance over a specific
period of time. This total return assumes and is reduced by the payment
of the maximum sales load. The Fund's total return is representative of
less than three months of investment activity since the start of
performance.
The Class A Shares' average annual total returns for the fiscal year
ended November 30, 1994, and, prior to the creation of separate classes
of Shares, for the five-year and ten-year period ended November 30,
1994, and for the period from August 17, 1984 (effective date of Class A
Shares registration statement) to November 30, 1994, were 6.61%, 3.67%,
14.88%, and 14.16%, respectively.
The Class B Shares' average annual total returns for the period from
September 27, 1994 (effective date of Class B Shares registration
statement) to November 30, 1994, was (10.50%). The Class B Shares' total
return is representative of only two months of investment activity since
the Class B Shares' effective date.
The Class C Shares' average annual total returns for the fiscal year
ended November 30, 1994, and, prior to the creation of separate classes
of Shares, for the period from March 31, 1993 (effective date of Class C
Shares registration statement) to November 30, 1994, were 10.77% and
13.34%, respectively.
Performance Comparisons
The Fund's performance of each class of Shares depends upon such
variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in the Fund's or a class of Shares' expenses; and
- - various other factors.
A class of Shares' performance fluctuates on a daily basis largely
because net earnings and offering price per Share fluctuate daily. Both
net earnings and offering price per Share are factors in the computation
of total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition
of any indices used, prevailing market conditions, portfolio
compositions of other funds, and methods used to value portfolio
securities and compute offering price. The financial publications and/or
indices which the Fund uses in advertising may include:
- - Lipper Analytical Services, Inc., for example, makes comparative
calculations for one-month, three-month, one-year, and five-year
periods which assume the reinvestment of all capital gains
distributions and income dividends.
- - Europe, Australia, and Far East (EAFE) Index is a market
capitalization weighted foreign securities index, which is widely
used to measure the performance of European, Australian, New Zealand
and Far Eastern stock markets. The index covers approximately 1,020
companies drawn from 18 countries in the above regions. The index
values its securities daily in both U.S. dollars and local currency
and calculates total returns monthly. EAFE U.S. dollar total return
is a net dividend figure less Luxembourg withholding tax. The EAFE is
monitored by Capital International, S.A., Geneva, Switzerland.
- - Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
- - Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertisements and sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods.
These total returns also represent the historic change in the value of
an investment in any class of Shares based on annual reinvestment of
dividends over a specified period of time.
Advertisements may quote performance information which does not reflect
the effect of the sales load or contingent deferred sales charge, as
applicable.
Appendix
Moody's Investors Service, Inc., Commercial Paper Rating Definitions
P-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- - Leading market positions in well established industries;
- - High rates of return on funds employed;
- - Conservative capitalization structures with moderate reliance on debt
and ample asset protection;
- - Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
- - Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Standard and Poor's Ratings Group Commercial Paper Rating Definitions
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
Moody's Investors Service, Inc., Long-Term Bond Rating Definitions
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as ''gilt edge.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Standard and Poor's Ratings Group Long-Term Debt Rating Definitions
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
46031P308
46031P605
46031P407
1010302B (1/95)
INTERNATIONAL INCOME FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
(FORMERLY, FT SERIES, INC.)
CLASS A SHARES
PROSPECTUS
The Class A Shares of International Income Fund (the "Fund") offered by
this
prospectus represent interests in the Fund, which is a non-diversified
investment portfolio in International Series, Inc. (formerly, FT Series,
Inc.)
(the "Corporation"), an open-end, management investment company (a
mutual fund).
The Fund's objective is to seek a high level of current income in U.S.
Dollars
consistent with prudent investment risk. The Fund has a secondary
objective of
capital appreciation. The Fund will pursue these objectives by investing
in
high-quality debt securities denominated primarily in foreign
currencies.
THE CLASS A SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A SHARES INVOLVES
INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you
invest in Class A Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Class
A Shares, Class B Shares, and Class C Shares dated January 31, 1995,
with the
Securities and Exchange Commission. The information contained in the
Combined
Statement of Additional Information is incorporated by reference into
this
prospectus. You may request a copy of the Combined Statement of
Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the
address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1995
TABLE OF CONTENTS
- ------------------------------------------------------------------------
- --------
SUMMARY OF FUND EXPENSES
1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
2
- ------------------------------------------------------
GENERAL INFORMATION
3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS
3
- ------------------------------------------------------
LIBERTY FAMILY RETIREMENT PROGRAM
5
- ------------------------------------------------------
INVESTMENT INFORMATION
5
- ------------------------------------------------------
Investment Objective
5
Investment Policies
5
Hedging Vehicles and Strategies
10
Hedging Strategies
12
Investment Limitations
14
NET ASSET VALUE
14
- ------------------------------------------------------
INVESTING IN CLASS A SHARES
14
- ------------------------------------------------------
Share Purchases
14
Minimum Investment Required
15
What Shares Cost
16
Subaccounting Services
17
Eliminating or Reducing the
Sales Load
17
Systematic Investment Program
19
Certificates and Confirmations
19
Dividends
19
Capital Gains
19
Retirement Plans
19
EXCHANGE PRIVILEGE
19
- ------------------------------------------------------
Eliminated or Reduced Sales Load
20
Requirements for Exchange
20
Tax Consequences
20
Making an Exchange
20
REDEEMING CLASS A SHARES
21
- ------------------------------------------------------
Through a Financial Institution
21
Directly from the Fund
21
Systematic Withdrawal Program
22
Accounts with Low Balances
23
INTERNATIONAL SERIES, INC., INFORMATION
23
- ------------------------------------------------------
Management of the Corporation
23
Distribution of Class A Shares
29
Administration of the Fund
30
Brokerage Transactions
31
SHAREHOLDER INFORMATION
31
- ------------------------------------------------------
Voting Rights
31
TAX INFORMATION
32
- ------------------------------------------------------
Federal Income Tax
32
Pennsylvania Corporate and
Personal Property Taxes
33
PERFORMANCE INFORMATION
33
- ------------------------------------------------------
OTHER CLASSES OF SHARES
34
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
35
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
36
- ------------------------------------------------------
FINANCIAL STATEMENTS
37
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
49
- ------------------------------------------------------
ADDRESSES
50
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).................... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering
price)..........................................................
None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as
applicable).................................................
0.00%
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................. None
Exchange
Fee.....................................................................
.............. None
ANNUAL CLASS A SHARES
OPERATING EXPENSES
(As a percentage of average
net assets)
Management Fee (after waiver)
(1)..............................................................
0.65%
12b-1 Fee (after waiver)
(2)...................................................................
0.07%
Total Other
Expenses................................................................
........... 0.58%
Shareholder Services Fee (after waiver)
(3)................................................ 0.13%
Total Class A Shares Operating Expenses
(4)........................................... 1.30%
</TABLE>
- ------------
(1)The management fee has been reduced to reflect the voluntary waiver
of a
portion of the management fee. The adviser can terminate this
voluntary
waiver at any time at its sole discretion. The maximum management fee
is
0.75%.
(2)The maximum 12b-1 fee is 0.25%.
(3)The maximum shareholder services fee is 0.25%.
(4)The total Class A Shares operating expenses in the table above are
based on
expenses expected during the fiscal year ending November 30, 1995.
The total
operating expenses were 1.30% for the fiscal year ended November 30,
1994 and
were 1.50% absent the voluntary waiver of the management fee and the
voluntary waiver of a portion of the 12b-1 fee.
The purpose of this table is to assist an investor in understanding
the
various costs and expenses that a shareholder of the Class A Shares of
the Fund
will bear, either directly or indirectly. For more complete descriptions
of the
various costs and expenses, see "Investing in Class A Shares" and
"International
Series, Inc. Information." Wire-transferred redemptions of less than
$5,000 may
be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of
the
maximum front-end sales charges permitted under the rules of the
National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE
1 year 3 years 5 years 10 years
<S>
<C> <C> <C> <C>
- --------- --------- --------- ---------
You would pay the following expenses on a $1,000 investment, assuming
(1)
5% annual return and (2) redemption at the end of each time
period....... $58 $84 $113 $195
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The information set forth in the foregoing table and example relates
only to
Class A Shares of the Fund. The Fund also offers two additional classes
of
shares called Class C Shares and Class B Shares. Class A Shares, Class C
Shares
and Class B Shares are subject to certain of the same expenses. However,
Class C
Shares are subject to a 12b-1 fee of 0.75% and a contingent deferred
sales
charge of 1.00% but are not subject to a sales load. Class B Shares are
subject
to a 12b-1 fee of 0.75% and a contingent deferred sales charge of up to
5.50%,
and are not subject to a sales load. See "Other Classes of Shares."
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 49.
<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
0.70 0.88 0.62 0.25
- -------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions
(0.76) 1.40 (0.20) 0.75
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
Total from investment operations
(0.06) 2.28 0.42 1.00
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Dividends to shareholders from net investment income
(0.63) (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
(1.28) (0.89) (0.79) (0.16)
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $
10.52 $ 11.86 $ 10.47 $ 10.84
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
TOTAL RETURN**
(0.84%) 22.95% 3.82% 10.07%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses
1.30% 1.25% 0.99% 0.32%(a)
- -------------------------------------------------------------------
Net investment income
6.67% 7.71% 5.83% 7.54%(a)
- -------------------------------------------------------------------
Expense waiver/reimbursement (c)
0.20% 0.27% 0.62% 1.18%(a)
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted)
$209,008 $220,602 $86,937 $23,465
- -------------------------------------------------------------------
Portfolio turnover rate
136% 189% 314% 35%
- -------------------------------------------------------------------
</TABLE>
* Reflects operations for the period June 4, 1991 (date of initial
public
investment) to November 30, 1991. For the period from the start of
business,
May 15, 1991, to June 3, 1991, the net investment income was
distributed to
the Corporation's adviser.
** Based on net asset value which does not reflect the sales load or
contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) Distributions are determined in accordance with income tax
regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal
income tax
purposes.
(c) This voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
GENERAL INFORMATION
- ------------------------------------------------------------------------
- --------
The Corporation was established as FT International Trust, a
Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under
the
laws of the state of Maryland on February 11, 1991. At a special meeting
of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the
name of the
Corporation to International Series, Inc. The Corporation's address is
Liberty
Center, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
The
Articles of Incorporation permit the Corporation to offer separate
series of
shares representing interests in separate portfolios of securities. The
shares
in any one portfolio may be offered in separate classes. With respect to
this
Fund, as of the date of this prospectus, the Board of Directors (the
"Directors") has established three classes of shares, known as Class A
Shares,
Class B Shares, and Class C Shares. This prospectus relates only to
Class A
Shares (the "Shares") of the Corporation's portfolio known as
International
Income Fund.
Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended
to
provide a complete investment program for an investor. In general,
Shares are
sold at net asset value plus an applicable sales load and are redeemed
at net
asset value. For a more complete description, see "Investing in Class A
Shares"
and "Redeeming Class A Shares." A minimum initial investment of $500 is
required, unless the investment is in a retirement account, in which
case the
minimum investment is $50.
The Fund's current net asset value and offering price can be found in
the mutual
funds section of local newspapers under "Federated Liberty."
LIBERTY FAMILY OF FUNDS
- ------------------------------------------------------------------------
- --------
The Fund is a member of a family of mutual funds, collectively known as
the
Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
. American Leaders Fund, Inc., providing growth of capital and
income
through high-quality stocks;
. Capital Growth Fund, providing appreciation of capital primarily
through
equity securities;
. Fund for U.S. Government Securities, Inc., providing current
income
through long-term U.S. government securities;
. International Equity Fund, providing long-term capital growth and
income
through international securities;
. Liberty Equity Income Fund, Inc., providing above-average income
and
capital appreciation through income producing equity securities;
. Liberty High Income Bond Fund, Inc., providing high current
income
through high-yielding, lower-rated, corporate bonds;
. Liberty Municipal Securities Fund, Inc., providing a high level
of
current income exempt from federal regular income tax through
municipal
bonds;
. Liberty U.S. Government Money Market Trust, providing current
income
consistent with stability of principal through high-quality U.S.
government securities;
. Liberty Utility Fund, Inc., providing current income and long-
term growth
of income, primarily through electric, gas, and communications
utilities;
. Limited Term Fund, providing a high level of current income
consistent
with minimum fluctuation in principal through investment grade
securities;
. Limited Term Municipal Fund, providing a high level of current
income
exempt from federal regular income tax consistent with the
preservation
of principal, primarily limited to municipal securities;
. Michigan Intermediate Municipal Trust, providing current income
exempt
from federal regular income tax and personal income taxes imposed
by the
state of Michigan and Michigan municipalities, primarily through
Michigan
municipal securities;
. Pennsylvania Municipal Income Fund, providing current income
exempt from
federal regular income tax and the personal income taxes imposed
by the
Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal
securities;
. Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt
obligations;
. Tax-Free Instruments Trust, providing current income consistent
with the
stability of principal and exempt from federal income tax,
through
high-quality, short-term municipal securities; and
. World Utility Fund, providing total return primarily through
securities
issued by domestic and foreign companies in the utilities
industries.
Prospectuses for these funds are available by writing to Federated
Securities
Corp.
Each of the funds may also invest in certain other types of securities
as
described in each fund's prospectus. The Liberty Family of Funds
provides
flexibility and diversification for an investor's long-term investment
planning.
It enables an investor to meet the challenges of changing market
conditions by
offering convenient exchange privileges which give access to various
investment
vehicles and by providing the investment services of proven,
professional
investment advisers.
Shareholders of Class A Shares participating in the Liberty Account are
designated as Liberty Life Members. Liberty Life Members are exempt from
sales
loads on future purchases in and exchanges between the Class A Shares of
any
funds in the Liberty Family of Funds, as long as they maintain a $500
balance in
one of the Liberty Funds.
LIBERTY FAMILY RETIREMENT PROGRAM
- ------------------------------------------------------------------------
- --------
The Fund is also a member of the Liberty Family Retirement Program
("Program"),
an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit
and
savings plans. Under the Program, employers or plan trustees may select
a group
of investment options to be offered in a plan which also uses the
Program for
recordkeeping and administrative services. Additional fees are charged
to the
plan for these services. As part of the Program, exchanges may readily
be made
between investment options selected by the employer or a plan trustee.
The other funds participating in the Liberty Family Retirement Program
are:
American Leaders Fund, Inc.; Capital Growth Fund; Capital Preservation
Fund;
Fund for U.S. Government Securities, Inc.; International Equity Fund;
Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Utility
Fund, Inc.; Prime Cash Series; Stock and Bond Fund, Inc.; and Strategic
Income
Fund.
INVESTMENT INFORMATION
- ------------------------------------------------------------------------
- --------
INVESTMENT OBJECTIVE
The Fund's objective is to seek a high level of current income in U.S.
Dollars
consistent with prudent investment risk. The Fund has a secondary
investment
objective of capital appreciation. The investment objectives cannot be
changed
without the approval of the shareholders. The Fund will pursue these
objectives
by investing in high-quality debt securities denominated primarily in
foreign
currencies.
While there is no assurance that the Fund will achieve its investment
objectives, it endeavors to do so by following the investment policies
described
in this prospectus. Unless indicated otherwise, the investment policies
of the
Fund may be changed by the Directors without shareholder approval.
Shareholders
will be notified before any material change in the policies becomes
effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund will invest primarily in high-quality
debt
securities denominated in the currencies of the nations that are members
of the
Organization for Economic Cooperation and Development. These nations
include,
but are not limited to, the following: Australia, Austria, Belgium,
Canada,
Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland,
Italy,
Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, and the United States. The Fund will
invest at
least 65%, and under normal market conditions substantially all of its
total
assets in high-quality debt securities denominated in foreign currencies
of
issuers located in at least three countries outside of the United
States.
Additionally, investments may be made in securities denominated in the
European
Currency Unit (the "ECU"), a multinational currency unit which
represents
specified amounts of the currencies of certain member states of the
European
Economic Community.
The high-quality debt securities in which the Fund will invest will
possess a
minimum credit rating of A as assigned by Standard & Poor's Ratings
Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if
unrated,
will be judged by Federated Management, the Fund's investment adviser
(the
"Adviser"), or Fiduciary Trust International Limited, the Fund's sub-
adviser
(the "sub-adviser"), to be of comparable quality. Because the average
quality of
the Fund's portfolio investments should remain constantly between A and
AAA, the
Fund will seek to avoid the adverse consequences that may arise for some
debt
securities in difficult economic circumstances. Downgraded securities
will be
evaluated on a case by case basis by the Adviser. The Adviser will
determine
whether or not the security continues to be an acceptable investment. If
not,
the security will be sold. A description of the ratings categories is
contained
in the Appendix to the Statement of Additional Information.
The Fund's portfolio of debt securities will be comprised mainly of
foreign
government, foreign governmental agency or supranational institution
bonds. In
addition, the Fund will also invest in high quality debt securities
issued by
corporations in the currencies specified above and subject to the credit
limitations listed above. No more than 25% of the Fund's total assets
will be
invested in the securities of issuers located in any one country. The
Fund will
also invest in both exchange traded and over-the-counter options,
subject to the
limitations outlined in this prospectus.
The prices of fixed income securities generally fluctuate inversely to
the
direction of interest rates.
FOREIGN GOVERNMENT SECURITIES. The foreign government securities
in which
the Fund may invest generally consist of obligations supported by
national,
state or provincial governments or similar political subdivisions.
Foreign
government securities also include debt obligations of
supranational
entities, which include international organizations designed or
supported
by governmental entities to promote economic reconstruction or
development,
international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and
Development
(the World Bank), the Asian Development Bank and the Inter-American
Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies." Debt securities of quasi-
governmental
agencies are either debt securities issued by entities which are
owned by a
national, state or equivalent government or are obligations of a
political
unit that are not backed by the national government's full faith
and credit
and general taxing powers. Further, foreign government securities
include
mortgage-related securities issued or guaranteed by national, state
or
provincial governmental instrumentalities, including quasi-
governmental
agencies.
TEMPORARY INVESTMENTS. Up to 10% of the Fund's total assets may be
invested at any one time in cash deposits or in certificates of
deposit
issued by banks of high credit quality, or in commercial paper with
an
A1/P1 rating assigned by S&P or Moody's, or in repurchase
agreements. At
the discretion of the Adviser, these instruments may be denominated
in
foreign currencies or U.S. Dollars.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in
which
banks, broker/dealers, and other recognized financial institutions
sell
securities to the Fund and agree at the time of sale to repurchase
them at
a mutually agreed upon time and price. To the extent
that the original seller does not repurchase the securities from
the Fund,
the Fund could receive less than the repurchase price on any sale
of such
securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities
on a when-issued or delayed delivery basis. These transactions are
arrangements
in which the Fund purchases securities with payment and delivery
scheduled for a
future time. The seller's failure to complete the transaction may cause
the Fund
to miss a price or yield considered to be advantageous. Settlement dates
may be
a month or more after entering into these transactions, and the market
values of
the securities purchased may vary from the purchase prices. Accordingly,
the
Fund may pay more/less than the market value of the securities on the
settlement
date.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it
appropriate to do so. In addition, the Fund may enter into transactions
to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities
at later
dates. The Fund may realize short-term profits or losses upon the sale
of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, the
Fund may lend its portfolio securities on a short-term or long-term
basis up to
one-third the value of its total assets to broker/dealers, banks, or
other
institutional borrowers of securities. The Fund will only enter into
loan
arrangements with broker/dealers, banks, or other institutions which the
Adviser
has determined are creditworthy under guidelines established by the
Directors
and will receive collateral in the form of cash or U.S. government
securities
equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities
may not
be available to the Fund on a timely basis and the Fund may, therefore,
lose the
opportunity to sell the securities at a desirable price. In addition, in
the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court
action.
RISK CONSIDERATIONS. Investing in foreign securities carries
substantial risks
in addition to those associated with investments in domestic securities.
In an
attempt to reduce some of these risks, the Fund will attempt to
distribute its
investments broadly among foreign countries. The debt securities of at
least
three different foreign countries will always be represented.
The economies of foreign countries may differ from the U.S. economy in
such
respects as growth of gross domestic product, rate of inflation,
currency
depreciation, capital reinvestment, resource self-sufficiency, and
balance of
payments position. Further, the economies of developing countries
generally are
heavily dependent on international trade and, accordingly, have been,
and may
continue to be, adversely affected by trade barriers, exchange controls,
managed
adjustments in relative currency values, and other protectionist
measures
imposed or negotiated by the countries with which they trade. These
economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required
under
certain circumstances in some countries, and the extent of foreign
investment
in certain debt securities and domestic companies may be subject to
limitation.
Foreign ownership limitations also may be imposed by the charters of
individual
companies to prevent, among other concerns, violation of foreign
investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a
refusal to
grant, any required governmental registration or approval for such
repatriation.
Any investment subject to such repatriation controls will be considered
illiquid
if it appears reasonably likely that this process will take more than
seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political
changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or
the value of the Fund's investments in those countries. In addition, it
may be
difficult to obtain and enforce a judgment in a court outside of the
U.S.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may
have different clearance and settlement procedures and in certain
markets there
have been times when settlements have been unable to keep pace with the
volume
of securities transactions, making it difficult to conduct such
transactions.
The inability of the Fund to make intended security purchases due to
settlement
problems could cause the Fund to miss attractive investment
opportunities.
Inability to dispose of a portfolio security due to settlement problems
could
result either in losses to the Fund due to subsequent declines in value
of the
portfolio security or, if the Fund has entered into a contract to sell
the
security, could result in possible liability to the purchaser.
ALLOCATION. The allocation of the Fund's assets in a particular
market and
currency will be based on a fundamental assessment of the economic
strength
of each relevant country combined with considerations of credit
quality and
currency and interest rate trends. These factors are reviewed on a
regular
basis in order to derive specific interest rate and currency
forecasts,
which are quantified in terms of total return. The market and
currency
allocation of the Fund will vary to achieve an optimal mix of
investments
to achieve the investment objectives of the Fund.
DURATION. Duration measures the magnitude of the change in the
price of a
debt security relative to a given change in the market rate of
interest.
The duration of a debt security depends primarily upon the
security's
coupon rate, maturity date, and level of market interest rates for
similar
debt securities. There will be no limit on the duration of any one
individual issue purchased by the Fund, except that the purchase of
an
issue that has no final maturity date shall not be permitted. The
weighted
average duration of the Fund shall not exceed ten years and shall
not be
less than one year, but will normally fall within a range of three
to seven
years. The Adviser regards that range as being consistent with a
prudent
attitude towards risk. Shifts outside this range would be made only
under
unusual circumstances.
FOREIGN SECURITIES. Investments in foreign securities involve
special
risks that differ from those associated with investments in
domestic
securities. The risks associated with investments in foreign
securities
relate to political and economic developments abroad, as well as
those that
result from the differences between the regulation of domestic
securities
and issuers
and foreign securities and issuers. These risks may include, but
are not
limited to, expropriation, confiscatory taxation, currency
fluctuations,
withholding taxes on interest, limitations on the use or transfer
of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case
in the
United States because of differences in the legal systems.
Moreover,
individual foreign economies may differ favorably or unfavorably
from the
domestic economy in such respects as growth of gross national
product, the
rate of inflation, capital reinvestment, resource self-sufficiency
and
balance of payments position.
Additional differences exist between investing in foreign and
domestic
securities. Examples of such differences include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to
those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign
stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to
enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited
trading
volume in issuers compared to the volume of trading in U.S.
securities
could cause prices to be erratic for reasons apart from factors
that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less
liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments
in some
countries;
. increased risk of delayed settlements of portfolio transactions
or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before
delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's
investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies
have
discouraged or restricted certain investments abroad by investors
such as
the Fund. Investors are advised that when such policies are
instituted, the
Fund will abide by them.
CURRENCY RISKS. Because the majority of the debt securities
purchased by
the Fund are denominated in currencies other than the U.S. Dollar,
changes
in foreign currency exchange rates will affect the Fund's net asset
value;
the value of interest earned; gains and losses realized on the sale
of
securities; and net investment income and capital gain, if any, to
be
distributed to shareholders by the Fund. If the value of a foreign
currency
rises against the U.S. Dollar, the value of Fund assets denominated
in that
currency will increase; correspondingly, if the value of a foreign
currency
declines against the U.S. Dollar, the value of Fund assets
denominated in
that currency will decrease. Under the U.S. tax code, the Fund is
required
to separately account for the foreign currency component of gains
or
losses, which will usually be viewed under the U.S. tax code as
items of
ordinary and distributable income or loss, thus affecting the
Fund's
distributable income (See "Federal Income Tax").
The exchange rates between the U.S. Dollar and foreign currencies
are a
function of such factors as supply and demand in the currency
exchange
markets, international balances of payments, governmental
interpretation,
speculation and other economic and political conditions. Although
the Fund
values its assets daily in U.S. Dollars, the Fund will not convert
its
holdings of foreign currencies to U.S. Dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion
costs.
Foreign exchange dealers may realize a profit on the difference
between the
price at which they buy and sell currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its investments in foreign securities. The Fund
will
conduct its foreign currency exchange transactions either on a spot
(i.e.
cash) basis at the spot rate prevailing in the foreign currency
exchange
market, or through forward contracts to purchase or sell foreign
currencies.
The Adviser believes that active management of currency risks
through a
variety of hedging vehicles and strategies can considerably limit
the risk
of capital loss through movements in the foreign exchange markets,
such as
those described above. The Adviser will not engage in hedging for
speculative purposes.
HEDGING VEHICLES AND STRATEGIES
HEDGING VEHICLES. The Fund may use the following hedging vehicles in an
attempt
to manage currency and interest rate risks:
. forward foreign currency exchange contracts
. options contracts
. futures contracts
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign
currency
exchange contract involves an obligation to purchase or sell a
specific
currency at a future date, which may be any fixed number of days
from the
date of the contract agreed upon by the parties, at a price set at
the time
of the contract. These contracts are traded directly between
currency
traders (usually large commercial banks) and their customers. When
the Fund
enters into a contract for the purchase or sale of a security
denominated
in a foreign currency, it may want to establish the U.S. Dollar
cost or
proceeds, as the case may be. By entering into a forward contract
in U.S.
Dollars for the purchase or sale of the amount of foreign currency
involved
in an underlying security transaction, the Fund is able to protect
itself
against a possible loss between trade and settlement dates
resulting from
an adverse change in the relationship between the U.S. Dollar and
such
foreign currency. However, this tends to limit potential gains
which might
result from a positive change in such currency relationships.
There is no limitation as to the percentage of the Fund's assets
that may
be committed under forward foreign currency exchange contracts. The
Fund
does not enter into such forward contracts or maintain a net
exposure in
such contracts where the Fund would be obligated to deliver an
amount of
foreign currency in excess of the value of the Fund's portfolio
securities
or other assets denominated in that currency or, in the case of a
"cross-hedge" (see "Hedging Strategies" below), denominated in a
currency
or currencies that the Adviser believes will reflect a high degree
of
correlation with the currency with regard to price movements. The
Fund
generally does not enter into a forward foreign currency exchange
contract
with a term longer than one year.
OPTIONS. The Fund may deal in options on foreign currencies,
foreign
currency futures, securities, and securities indices, which options
may be
listed for trading on a national securities exchange or traded
over-the-counter. The Fund may write covered call options and
secured put
options on up to 25% of its net assets and may purchase put and
call
options provided that no more than 5% of the fair market value of
its net
assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer
the
obligation to sell, the underlying currency, security or other
asset at the
exercise price during the option period. A put option gives the
purchaser
the right to sell, and the writer the obligation to buy, the
underlying
currency, security or other asset at the exercise price during the
option
period. The writer of a covered call owns assets that are
acceptable for
escrow and the writer of a secured put invests an amount not less
than the
exercise price in eligible assets to the extent that it is
obligated as a
writer. If a call written by the Fund is exercised, the Fund
foregoes any
possible profit from an increase in the market price of the
underlying
asset over the exercise price plus the premium received. In writing
puts,
there is a risk that the Fund may be required to take delivery of
the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange
traded
options in several respects. They are transacted directly with
dealers and
not with a clearing corporation, and there is a risk of non-
performance by
the dealer as a result of the insolvency of such dealer or
otherwise, in
which event the Fund may experience material losses. However, in
writing
options the premium is paid in advance by the dealer. OTC options,
which
may not be continuously liquid, are available for a greater variety
of
assets, and a wider range of expiration dates and exercise prices,
than are
exchange traded options.
FUTURES. Futures contracts are contracts that obligate the long or
short
holder to take or make delivery of a specified quantity of an
asset, such
as a currency, a security, or the cash value of a securities index
at a
specified future date at a specified price. The Fund may engage in
futures
transactions, but will not participate in futures contracts if the
sum of
its initial margin deposits on open contracts will exceed 5% of the
fair
market value of the Fund's net assets.
HEDGING STRATEGIES
CURRENCY HEDGING. When the Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against
the
U.S. Dollar, it may enter into a forward contract to sell an amount
of that
foreign currency for a fixed U.S. Dollar amount approximating the
value of
some or all of the Fund's portfolio securities denominated in such
foreign
currency (i.e., "hedge"). The Fund may, as an alternative, enter
into a
forward contract to sell a different foreign currency for a fixed
U.S.
Dollar amount where the Adviser believes that the U.S. Dollar value
of the
currency to be sold pursuant to the forward contract will fall
whenever
there is a decline in the U.S. Dollar value of the currency in
which
portfolio securities of the Fund are denominated (i.e., "cross-
hedge"). A
cross hedge can be achieved not only by using a "proxy" currency in
which
Fund securities are denominated, but also by using the Canadian
Dollar as a
"proxy" currency for the U.S. Dollar. This strategy may be
beneficial
because the level of divergence in the exchange rates of U.S. and
Canadian
currencies has historically tended to be relatively small.
For example, the Fund may invest in securities denominated in a
Western
European currency, such as the French Franc, and seek to hedge
against the
effect of an increase in the value of the U.S. Dollar against that
currency
by entering into a forward foreign currency exchange contract to
sell the
lower yielding German Mark, which has historically had price
movements that
tend to correlate closely with those of the French Franc, thereby
creating
a hedge similar to the simple Dollar/Franc hedge, but at a possibly
lower
cost. In addition, the Fund might arrange to sell those Marks
against
Canadian Dollars in an effort to minimize hedging costs.
INTEREST RATE HEDGING. The Fund may engage in futures transactions
and may
use options in an attempt to hedge against the effects of
fluctuations in
interest rates and other market conditions. For example, if the
Fund owned
long-term bonds and interest rates were expected to rise, it could
sell
futures contracts or the cash value of a securities index. If
interest
rates did increase, the value of the bonds in the Fund would
decline, but
this decline would be offset in whole or in part by an increase in
the
value of the Fund's futures contracts or the cash value of the
securities
index.
If, on the other hand, long-term interest rates were expected to
decline,
the Fund could hold short-term debt securities and benefit from the
income
earned by holding such securities, while at the same time the Fund
could
purchase futures contracts on long-term bonds or the cash value of
a
securities index. Thus, the Fund could take advantage of the
anticipated
rise in the value of long-term bonds without actually buying them.
The
futures contracts and short-term debt securities could then be
liquidated
and the cash proceeds used to buy long-term bonds.
GENERAL. The Fund might not employ any of the techniques or
strategies
described above, and there can be no assurance that any technique
or
strategy (or combination thereof) used will succeed. The use of
these
techniques and strategies involves certain risks, including:
. dependence on the Adviser's ability to predict movements in the
prices of
assets being hedged or movements in interest rates and currency
markets;
. imperfect correlation between the hedging instruments and the
securities
or currencies being hedged;
. the fact that skills needed to use these instruments are
different from
those needed to select the Fund's securities;
. the possible absence of a liquid secondary market for any
particular
instrument at any particular time;
. possible impediments to effective portfolio management or the
ability to
meet redemption requests or other short-term obligations because
of the
percentage of the Fund's assets segregated to cover its
obligations; and
. the possible need to defer closing out hedged positions to avoid
adverse
tax consequences.
New futures contracts, options thereon and other financial products and
risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
NON-DIVERSIFICATION. The Fund is a non-diversified investment
portfolio. As
such, there is no limit on the percentage of assets which can be
invested in any
single issuer. An investment in the Fund, therefore, will entail greater
risk
than would exist in a diversified portfolio of securities because the
higher
percentage of investments among fewer issuers may result in greater
fluctuation
in the total market value of the Fund's portfolio. Any economic,
political, or
regulatory developments affecting the value of the securities in the
Fund's
portfolio will have a greater impact on the total value of the portfolio
than
would be the case if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue
Code (the
"Code"). This undertaking requires that at the end of each quarter of
the
taxable year, with regard to at least 50% of the Fund's total assets, no
more
than 5% of its total assets are invested in the securities of a single
issuer;
beyond that, no more than 25% of its total assets are invested in the
securities
of a single issuer.
PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the
purpose
of seeking short-term profits, securities in its portfolio will be sold
whenever
the Adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular
security
may have been held. The Fund's rate of portfolio turnover may exceed
that of
certain other mutual funds with the same investment objective. A higher
rate of
portfolio turnover involves correspondingly greater transaction expenses
which
must be borne directly by the Fund and, thus, indirectly by its
shareholders. In
addition, a high rate of portfolio turnover may result in the
realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in
the
Fund's Statement of Additional Information within the sections
"Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the
Fund's
portfolio will be based only upon investment considerations and will not
be
limited by any other considerations when the Adviser deems it
appropriate to
make changes in the Fund's portfolio.
INVESTMENT LIMITATIONS
The Fund will not:
. borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for
a
percentage of its cash value with an agreement to buy it back on
a set
date) or pledge securities except, under certain circumstances,
the Fund
may borrow up to one-third of the value of its total assets and
pledge up
to 15% of the value of those assets to secure such borrowings;
nor
. sell securities short except under strict limitations.
The above investment limitation cannot be changed without shareholder
approval.
The following limitations, however, may be changed by the Directors
without
shareholder approval. Shareholders will be notified before any material
changes
in these limitations become effective.
The Fund will not:
. invest more than 5% of its total assets in securities of issuers
that
have records of less than three years of continuous operations;
nor
. invest more than 15% of the value of its net assets in restricted
or
other securities determined by the Directors not to be liquid,
including
repurchase agreements with maturities longer than seven days
after notice
and certain OTC options.
NET ASSET VALUE
- ------------------------------------------------------------------------
- --------
The Fund's net asset value per Class A Share fluctuates. The net asset
value for
Class A Shares is determined by adding the interest of the Class A
Shares in the
market value of all securities and other assets of the Fund, less
liabilities of
the Fund attributable to Class A Shares, and dividing the remainder by
the total
number of Class A Shares outstanding. The net asset value for Class A
Shares may
differ from that of Class B Shares and Class C Shares due to the
variance in
daily net income realized by each class. Such variance will reflect only
accrued
net income to which the shareholders of a particular class are entitled.
INVESTING IN CLASS A SHARES
- ------------------------------------------------------------------------
- --------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open.
Shares may
be purchased through a financial institution which has a sales agreement
with
the distributor or directly from the distributor, Federated Securities
Corp.,
once an account has been established. In connection with the sale of
Shares,
Federated Securities Corp. may, from time to time, offer certain items
of
nominal value to any shareholder or investor. The Fund reserves the
right to
reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall
purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution
(such as a bank or an investment dealer) to place an order to purchase
Shares.
Orders placed through a financial institution are considered received
when the
Fund is notified of the purchase order. It is the financial
institution's
responsibility to transmit orders promptly. Purchase orders through a
registered
broker/ dealer must be received by the broker before 4:00 P.M. (Eastern
time)
and must be transmitted by the broker to the Fund before 5:00 P.M.
(Eastern
time) in order for Shares to be purchased at that day's price. Purchase
orders
through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 P.M. (Eastern time)
in order
for Shares to be purchased at that day's price.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to
purchase
Shares directly from the distributor once an account has been
established. To do
so:
. complete and sign the new account form available from the Fund;
. enclose a check made payable to International Income Fund--Class
A
Shares; and
. mail both to Federated Services Company, P.O. Box 8604, Boston,
MA
02266-8604.
Orders by mail are considered received after payment by check is
converted by
the transfer agent's bank, State Street Bank and Trust Company ("State
Street
Bank"), into federal funds. This is generally the next business day
after State
Street Bank receives the check.
BY WIRE. To purchase Shares directly from the distributor by wire, call
the
Fund. All information needed will be taken over the telephone, and the
order is
considered received when the transfer agent's bank, State Street Bank,
receives
payment by wire. Federal funds should be wired as follows: Federated
Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts;
Attention: Mutual Fund Servicing Division; For Credit to: International
Income
Fund-- Class A Shares; Fund Number (this number can be found on the
account
statement or by contacting the Fund); Group Number or Order Number;
Nominee or
Institution Name; ABA Number 011000028. Shares cannot be purchased by
wire on
Columbus Day, Veterans' Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $500 unless the investment
is in a
retirement plan, in which case the minimum initial investment is $50.
Subsequent
investments must be in amounts of at least $100, except for retirement
plans,
which must be in amounts of at least $50. (Other minimum investment
requirements
may apply to investments through the Liberty Family Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order
is
received, plus a sales load as follows:
<TABLE>
<CAPTION>
SALES LOAD AS SALES
LOAD AS DEALER CONCESSION
AMOUNT OF A PERCENTAGE OF A
PERCENTAGE OF AS A PERCENTAGE OF
TRANSACTION PUBLIC OFFERING PRICE NET
AMOUNT INVESTED PUBLIC OFFERING PRICE
<S> <C> <C>
<C>
- ------------------------------- ------------------------- ------------
- -------------- -------------------------
Less than $100,000 4.50%
4.71% 4.00%
$100,000 but less than 3.75%
3.90% 3.25%
$250,000
$250,000 but less than 2.50%
2.56% 2.25%
$500,000
$500,000 but less than 2.00%
2.04% 1.80%
$1,000,000
$1,000,000 or greater 0.00%
0.00% 0.25%*
</TABLE>
*See sub-section entitled "Dealer Concession" below.
The net asset value is determined at 4:00 P.M. (Eastern time) or at the
close of
the New York Stock Exchange, Monday through Friday, except on: (i) days
on which
there are not sufficient changes in the value of the Fund's portfolio
securities
that its net asset value might be materially affected; (ii) days during
which no
Shares are tendered for redemption and no orders to purchase Shares are
received; or (iii) the following holidays: New Year's Day, Presidents'
Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
No sales load is imposed for Shares purchased through bank trust
departments,
investment advisers registered under the Investment Advisers Act of
1940, as
amended, or retirement plans where the third party administrator has
entered
into certain arrangements with Federated Securities Corp. or its
affiliates. In
addition, certain institutions such as insurance companies and certain
associations are exempt from the sales load for purchases of Shares.
However,
investors who purchase Shares through a trust department or investment
adviser
or retirement plan may be charged an additional service fee by that
institution.
Shareholders designated as Liberty Life Members may purchase additional
Shares
at net asset value, without a sales load, except that a sales load will
be
imposed when the Shares are acquired in exchange for shares of another
fund in
the Liberty Family of Funds.
No sales load is imposed on purchases made by qualified retirement plans
with
over $1 million invested in funds available in the Liberty Family
Retirement
Program.
DEALER CONCESSION. In addition to the dealer concession as noted in the
table
above, the distributor, in its sole discretion, may uniformly offer to
pay all
dealers selling Shares additional amounts, all or a portion of which may
be paid
from the sales load it normally retains or any other source available to
it.
Such payments may take the form of cash or promotional incentives, such
as
payment of certain expenses of qualified employees and their spouses to
attend
informational meetings about the Fund, or other special events at
recreational-type facilities, or of items of
material value. In some instances, these incentives will be made
available only
to dealers whose employees have sold or may sell a significant amount of
Shares.
On purchases of $1 million or more, the investor pays no sales load;
however,
the distributor will make twelve monthly payments to the dealer totaling
0.25%
of the public offering price over the first year following the purchase.
Such
payments are based on the original purchase price of Shares outstanding
at each
month end.
The sales load for Shares sold other than through registered
broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may
pay
fees to banks out of the sales load in exchange for sales and/or
administrative
services performed on behalf of the bank's customers in connection with
the
initiation of customer accounts and purchases of Shares.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However,
certain
institutions may wish to use the transfer agent's subaccounting system
to
minimize their internal recordkeeping requirements. Institutions holding
Shares
in a fiduciary, agency, custodial, or similar capacity may charge or
pass
through subaccounting fees as part of or in addition to normal trust or
agency
account fees. They may also charge fees for other services provided
which may be
related to the ownership of Shares. This prospectus should, therefore,
be read
together with any agreement between the customer and the institution
with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
ELIMINATING OR REDUCING THE SALES LOAD
The sales load can be eliminated or reduced on the purchase of Shares
through:
quantity discounts and accumulated purchases:
. quantity discounts and accumulated purchases;
. signing a 13-month letter of intent;
. using the reinvestment privilege;
. purchases with proceeds from redemptions of unaffiliated mutual
fund
shares; or
. concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown on page 18,
larger
purchases may eliminate or reduce the sales load paid. The Fund will
combine
purchases of Shares made on the same day by the investor, the investor's
spouse,
and the investor's children under age 21 when it calculates the sales
load. In
addition, the sales load, if applicable, is eliminated or reduced for
purchases
made at one time by a trustee or fiduciary for a single trust estate or
a single
fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the
previous
purchases still invested in the Fund. For example, if a shareholder
already owns
Shares having a current value at the public offering price of $90,000
and he
purchases $10,000 more at the current public offering price, the sales
load as a
percentage of public offering price on the additional purchase according
to the
schedule now in effect would be 3.75%, not 4.50%.
To receive the sales load elimination or reduction, Federated Securities
Corp.
must be notified by the shareholder in writing or by his financial
institution
at the time the purchase is made that
Shares are already owned or that purchases are being combined. The Fund
will
eliminate or reduce the sales load after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least
$100,000 of
shares in the funds in the Liberty Family of Funds over the next 13
months, the
sales load may be eliminated or reduced by signing a letter of intent to
that
effect. This letter of intent includes a provision for a sales load
adjustment
depending on the amount actually purchased within the 13-month period,
and a
provision for the custodian to hold 4.50% of the total amount intended
to be
purchased in escrow (in Shares) until such purchase is completed.
The 4.50% held in escrow will be applied to the shareholder's account at
the end
of the 13-month period unless the amount specified in the letter of
intent is
not purchased. In this event, an appropriate number of escrowed Shares
may be
redeemed in order to realize the difference in the sales load.
This letter of intent will not obligate the shareholder to purchase
Shares, but
if he does, each purchase during the period will be at the sales load
applicable
to the total amount intended to be purchased. This letter may be dated
as of a
prior date to include any purchases made within the past 90 days toward
the
dollar fulfillment of the letter of intent. Prior trade prices will not
be
adjusted.
REINVESTMENT PRIVILEGE. If Shares in the Fund have been redeemed, the
shareholder has a one-time right, within 120 days, to reinvest the
redemption
proceeds at the next-determined net asset value without any sales load.
Federated Securities Corp. must be notified by the shareholder in
writing or by
his financial institution of the reinvestment in order to eliminate a
sales
load. If the shareholder redeems his Shares in the Fund, there may be
tax
consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED MUTUAL FUND
SHARES.
Investors may purchase Shares at net asset value, without a sales load,
with
the proceeds from the redemption of shares of a mutual fund which was
sold with
a sales load or commission and was not distributed by Federated
Securities Corp.
(This does not include shares which were or would be subject to a
contingent
deferred sales charge upon redemption.) The purchase must be made within
60 days
of the redemption, and Federated Securities Corp. must be notified by
the
investor in writing or by his financial institution at the time the
purchase is
made.
CONCURRENT PURCHASES. For purposes of qualifying for a sales load
elimination
or reduction, a shareholder has the privilege of combining concurrent
purchases
of two or more funds in the Liberty Family of Funds, the purchase price
of which
includes a sales load. For example, if a shareholder concurrently
invested
$30,000 in one of the other Liberty Funds with a sales load, and $70,000
in this
Fund, the sales load would be reduced.
To receive this sales load elimination or reduction, Federated
Securities Corp.
must be notified by the shareholder in writing or by his financial
institution
at the time the concurrent purchases are made. The Fund will eliminate
or reduce
the sales load after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on
a regular basis in a minimum amount of $100. Under this program, funds
may be
automatically withdrawn periodically from the shareholder's checking
account and
invested in Shares at the net asset value next determined after an order
is
received by the transfer agent, plus the applicable sales load. A
shareholder
may apply for participation in this program through his financial
institution or
directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share
account for each shareholder. Share certificates are not issued unless
requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid
during the
year.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested
in the
Fund on the record date. Dividends are automatically reinvested in
additional
Shares on the payment date, at the ex-dividend date net asset value
without a
sales load, unless shareholders request cash payments on the new account
form or
by writing to the transfer agent. All shareholders on the record date
are
entitled to the dividend. If Shares are redeemed or exchanged prior to
the
record date, or purchased after the record date, those Shares are not
entitled
to that quarter's dividend. A portion of distributions to shareholders
could,
under some circumstances, be reclassified as a return of capital for
income tax
purposes (See "Federal Income Tax").
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least
once
every twelve months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement
plans or for
IRA accounts. For further details, contact Federated Securities Corp.
and
consult a tax adviser.
EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------
- --------
In order to provide greater flexibility to Fund shareholders whose
investment
objectives have changed, Class A shareholders may exchange all or some
of their
Shares for Class A Shares in other funds in the Liberty Family of Funds.
Shareholders of Class A Shares may also exchange into certain other
funds for
which affiliates of Federated Investors serve as investment adviser or
principal
underwriter ("Federated Funds") which are sold with a sales load
different from
that of the Fund's or with no sales load, and which are advised by
subsidiaries
or affiliates of Federated Investors. These exchanges are made at net
asset
value plus the difference between the Fund's sales load and any sales
load of
the fund into which the Shares are to be exchanged, if higher. Neither
the
Fund nor any of the funds in the Liberty Family of Funds imposes any
additional
fees on exchanges. Shareholders in certain other Federated Funds may
exchange
their shares in the Federated Funds for Class A Shares. Participants in
a plan
under the Liberty Family Retirement Program may exchange all or some of
their
Shares for Class A Shares of other funds offered under the plan at net
asset
value.
ELIMINATED OR REDUCED SALES LOAD
If a shareholder making such an exchange qualifies for an elimination or
reduction of the sales load, Federated Securities Corp. must be notified
in
writing by the shareholder or by his financial institution.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net
asset value
equal to the minimum investment requirements of the fund into which the
exchange
is being made. Before the exchange, the shareholder must receive a
prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in
which the
fund shares being acquired may be sold. Upon receipt of proper
instructions and
required supporting documents, Shares submitted for exchange are
redeemed and
the proceeds invested in shares of the other fund. The exchange
privilege may be
modified or terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty
Family of Funds or certain Federated Funds are available by contacting
the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income
tax purposes. Depending on the circumstances, a short-term or long-term
capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds and certain
Federated
Funds may be given in writing or by telephone. Written instructions may
require
a signature guarantee. Shareholders of the Fund may have difficulty in
making
exchanges by telephone through brokers and other financial institutions
during
times of drastic economic or market changes. If a shareholder cannot
contact his
broker or financial institution by telephone, it is recommended that an
exchange
request be made in writing and sent by overnight mail to Federated
Services
Company, 500 Victory Road--2nd Floor, Quincy, Massachusetts 02171.
Instructions
for exchanges for the Liberty Family Retirement Program should be given
to the
plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may
be
carried out only if a telephone authorization form completed by the
investor is
on file with the transfer agent. If the instructions are given by a
broker, a
telephone authorization form completed by the broker must be on file
with the
transfer agent. Shares may be exchanged between two funds by telephone
only if
the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be
forwarded to Federated Services Company, P.O. Box 8604, Boston,
Massachusetts
02266-8604, and deposited to the shareholder's account before being
exchanged.
Telephone exchange instructions may be recorded and will be binding upon
the
shareholder. Such instructions will be processed as of 4:00 P.M.
(Eastern time)
and must be received by the transfer agent before that time for Shares
to be
exchanged the same day. Shareholders exchanging into a fund will not
receive any
dividend that is payable to shareholders of record on that date. This
privilege
may be modified or terminated at any time.
Telephone redemption instructions may be recorded. If reasonable
procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or
fraudulent telephone instructions.
REDEEMING CLASS A SHARES
- ------------------------------------------------------------------------
- --------
The Fund redeems Shares at their net asset value, next determined after
the
transfer agent receives the redemption request. Redemptions will be made
on days
on which the Fund computes its net asset value. Redemptions can be made
through
a financial institution or directly from the Fund. Redemption requests
must be
received in proper form. Redemptions of Shares held through the Liberty
Family
Retirement Program will be governed by the requirements of the
respective plans.
THROUGH A FINANCIAL INSTITUTION
Shareholders may redeem Shares by calling their financial institution
(such as a
bank or an investment dealer) to request the redemption. Shares will be
redeemed
at the net asset value, next determined after the Fund receives the
redemption
request from the financial institution. Redemption requests through a
registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern
time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern
time) in
order for Shares to be redeemed at that day's net asset value.
Redemption
requests through other financial institutions must be received by the
financial
institution and transmitted to the Fund before 4:00 P.M. (Eastern time)
in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests
and
providing proper written redemption instructions to the Fund. The
financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The
proceeds will
be mailed to the shareholder's address of record or wire transferred to
the
shareholder's account at a domestic commercial bank that is a member of
the
Federal Reserve System, normally within one business day, but in no
event longer
than seven days after the request. The minimum amount for a wire
transfer is
$1,000. If at any time the Fund shall determine it necessary to
terminate or
modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Fund to accept telephone requests
must
first be completed. Authorization forms and information on this service
are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may
experience
difficulty in redeeming by telephone. If such a case should occur,
another
method of redemption, such as redeeming by mail, should be considered.
Telephone redemption instructions may be recorded. If reasonable
procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or
fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request
to
Federated Services Company, c/o State Street Bank and Trust Company,
P.O. Box
8604, Boston, Massachusetts 02266-8604. The written request should
include the
shareholder's name, the Fund name and class of Shares name, the account
number,
and the Share or dollar amount requested and should be signed exactly as
the
Shares are registered.
If Share certificates have been issued, they must be properly endorsed
and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on
record with
the Fund, or a redemption payable other than to the shareholder of
record must
have signatures on written redemption requests guaranteed by:
. a trust company or commercial bank whose deposits are insured by
the Bank
Insurance Fund ("BIF"), which is administered by the Federal
Deposit
Insurance Corporation ("FDIC");
. a member of the New York, American, Boston, Midwest, or Pacific
Stock
Exchanges;
. a savings bank or savings and loan association whose deposits are
insured
by the Savings Association Insurance Fund ("SAIF"), which is
administered
by the FDIC; or
. any other "eligible guarantor institution," as defined in the
Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature
guarantees from the above institutions. The Fund may elect in the future
to
limit eligible signature guarantors to institutions that are members of
a
signature guarantee program. The Fund and its transfer agent reserve the
right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day,
but in no
event more than seven days, after receipt of a proper written redemption
request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount
not less
than $100 may take advantage of the Systematic Withdrawal Program. Under
this
program, Shares are redeemed to provide for periodic withdrawal payments
in an
amount directed by the shareholder. Depending upon the amount of the
withdrawal
payments, the amount of dividends paid and capital gains distributions
with
respect to Shares, and the fluctuation of the net asset value of Shares
redeemed under this program, redemptions may reduce, and eventually
deplete,
the shareholder's investment in Shares. For this reason, payments under
this
program should not be considered as yield or income on the shareholder's
investment in Shares. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A
shareholder may
apply for participation in this program through his financial
institution. Due
to the fact that Shares are sold with a sales load, it is not advisable
for
shareholders to be purchasing Shares while participating in this
program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may
redeem Shares in any account, except retirement plans, and pay the
proceeds to
the shareholder if the account balance falls below the required minimum
value of
$500. This requirement does not apply, however, if the balance falls
below $500
because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is
notified in
writing and allowed 30 days to purchase additional Shares to meet the
minimum
requirement.
INTERNATIONAL SERIES, INC. INFORMATION
- ------------------------------------------------------------------------
- --------
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Corporation is managed by a Board of Directors.
The
Directors are responsible for managing the Corporation's business
affairs and
for exercising all the Corporation's powers except those reserved for
the
shareholders. An Executive Committee of the Board of Directors handles
the
Board's responsibilities between meetings of the Board.
OFFICERS AND DIRECTORS. _Officers and Directors are listed with their
addresses,
present positions with International Series, Inc., and principal
occupations,
including those with Federated Management, its affiliates, and the
"Funds"
described in the Statement of Additional Information.
- ------------------------------------------------------------------------
- --------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research
Corp.; Chairman, Passport Research, Ltd.; Director, tna Life and
Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing
General
Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Vice
President of the Company.
- ------------------------------------------------------------------------
- --------
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
- ------------------------------------------------------------------------
- --------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Director
President, Investment Properties Corporation; Senior Vice-President,
John R.
Wood and Associates, Inc., Realtors; President, Northgate Village
Development
Corporation; Partner or Trustee in private real estate ventures in
Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly,
President, Naples Property Management, Inc.
- ------------------------------------------------------------------------
- --------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
- ------------------------------------------------------------------------
- --------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Director of the Corporation
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross
of
Massachusetts, Inc.
- ------------------------------------------------------------------------
- --------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Director
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director,
Trustee, or
Managing General Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Edward L. Flaherty, Jr.+
Two Gateway Center--Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Peter E. Madden
225 Franklin Street
Boston, MA
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State
Street Bank and Trust Company and State Street Boston Corporation and
Trustee,
Lahey Clinic Foundation, Inc.
- ------------------------------------------------------------------------
- --------
Gregor F. Meyer
Two Gateway Center--Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment
for International Peace, RAND Corporation, Online Computer Library
Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center;
Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council
for
Environmental Policy and Technology.
- ------------------------------------------------------------------------
- --------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General
Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds;
staff member, Federated Securities Corp. and Federated Administrative
Services.
- ------------------------------------------------------------------------
- --------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated
Management, and Federated Research; President and Director, Federated
Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative
Services, Federated Services Company, and Federated Shareholder
Services;
President or Vice President of the Funds; Director, Trustee, or Managing
General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Director of the Company.
- ------------------------------------------------------------------------
- --------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated
Research Corp.; Chairman and Director, Federated Securities Corp.;
President or
Vice President of some of the Funds; Director or Trustee of some of the
Funds.
- ------------------------------------------------------------------------
- --------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice
President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated
Services
Company and Federated Shareholder Services; Chairman, Treasurer, and
Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds;
Vice President and Treasurer of the Funds.
- ------------------------------------------------------------------------
- --------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary,
Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services
Company;
Executive Vice President, Secretary, and Trustee, Federated
Administrative
Services; Secretary and Trustee, Federated Shareholder Services;
Executive Vice
President and Director, Federated Securities Corp.; Vice President and
Secretary
of the Funds.
- ------------------------------------------------------------------------
- --------
*This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940 as amended.
+Member of the Executive Committee. The Executive Committee of the Board
of
Directors handles the responsibilities of the Board of Directors
between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by
Federated
Management, the Fund's investment adviser, subject to direction by the
Board of
Directors. The Adviser continually conducts investment research and
supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory
fee
equal to 0.75% of the Fund's average daily net assets. The fee paid
by the
Fund, while higher than the advisory fee paid by other mutual funds
in
general, is comparable to fees paid by many mutual funds with
similar
objectives and policies. The Adviser may voluntarily waive a
portion of its
fee. The Adviser can terminate this voluntary waiver at any time at
its
sole discretion. The Adviser has also undertaken to reimburse the
Fund for
operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business
trust
organized on April 11, 1989, is a registered investment adviser
under the
Investment Advisers Act of 1940. It is a subsidiary of Federated
Investors.
All of the Class A (voting) shares of Federated Investors are owned
by a
trust, the trustees of which are John F. Donahue, Chairman and
Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative
services
to a number of investment companies. Total assets under management
or
administration by these and other subsidiaries of Federated
Investors are
approximately $70 billion, including over $60 billion in fixed
income
assets. Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily for
the
financial industry. Federated Investors' track record of
competitive
performance and its disciplined, risk averse investment philosophy
serve
approximately 3,500 client institutions nationwide. Through these
same
client institutions, individual shareholders also have access to
this same
level of investment expertise.
Randall S. Bauer is the Fund's portfolio manager. He has
contributed toward
the management of the Fund's portfolio of investments since its
inception
on May 15, 1991, while Federated Management served as the Fund's
sub-adviser, and continued in that capacity through March 15, 1994,
when,
pursuant to shareholder approval, Federated Management was
appointed the
Fund's investment adviser. Mr. Bauer joined Federated Investors in
1989 as
an Assistant Vice President of Federated Management. Mr. Bauer was
an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a
Chartered
Financial Analyst and received his M.B.A. in Finance from
Pennsylvania
State University.
SUB-ADVISER. Under the terms of a Sub-Advisory Agreement between
Federated
Management and Fiduciary Trust International Limited, Fiduciary Trust
International Limited will furnish to Federated Management such
investment
advice, statistical and other factual information as may, from time to
time, be
reasonably requested by Federated Management.
SUB-ADVISORY FEES. For its services under the Sub-Advisory
Agreement, the
sub-adviser receives an annual fee from the Adviser equal to .375
of 1% of
average daily net assets of the Fund. The sub-advisory fee is
accrued and
paid daily. In the event that the fee due from the Fund to the
Adviser is
reduced in order to meet expense limitations imposed on the Fund by
state
securities laws or regulations, the sub-advisory fee will be
reduced by
one-half of said
reduction in the fee due from the Fund to the Adviser.
Notwithstanding any
other provision in the Sub-Advisory Agreement, the sub-adviser may,
from
time to time, and for such periods as it deems appropriate, reduce
its
compensation (and, if appropriate, assume expenses of the Fund) to
the
extent that the Fund's expenses exceed such lower expense
limitations as
the sub-adviser may, by notice to the Fund, voluntarily declare to
be
effective.
SUB-ADVISER'S BACKGROUND. Fiduciary Trust International Limited is
located
at 30 Old Burlington Street, London, W1X1LB. Fiduciary Trust
International
Limited, which is an English company formed on May 20, 1985, is
registered
as an investment adviser with the Securities and Exchange
Commission and is
a member of the Investment Management Regulatory Organization, a
United
Kingdom self-regulatory organization. Substantially all of the
shares of
the sub-adviser are owned by Fiduciary Trust International (SA), a
wholly-owned subsidiary of Fiduciary Trust Company International.
No
director, officer or employee of the sub-adviser or Fiduciary Trust
International (SA) serves as a director, officer or employee of the
Corporation.
Fiduciary Trust Company International was founded in 1931 and is a
New York
state-chartered bank. It has focused primarily on the management of
the
investments and financial affairs of its customers, and has chosen
to
minimize its commercial banking activities (i.e., accepting
deposits and
making loans). As of December 31, 1994, Fiduciary Trust Company
International had total assets of approximately $375 million, and
total
assets under management of approximately $30 billion.
David Smart has been primarily responsible for management of the
Fund's
portfolio since its inception, when Fiduciary International, Inc.
was the
Fund's investment adviser. Mr. Smart, a Managing Director of
Fiduciary
Trust International Limited, joined its parent in 1988.
Fiduciary Trust International (SA) is a Swiss company organized to
act as
an intermediate foreign parent for certain of Fiduciary Trust
Company
International's foreign subsidiaries.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of
the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is
the
principal distributor for a number of investment companies. Federated
Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan
adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution
Plan"),
the Fund may pay to the distributor an amount, computed at an annual
rate of up
to 0.25 of 1% of the average daily net asset value of Shares to finance
any
activity which is principally intended to result in the sale of Shares
subject
to the Distribution Plan. The distributor may select financial
institutions such
as banks, fiduciaries, custodians for public funds, investment advisers,
and
broker/dealers to provide sales support services as agents for their
clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no
payments to the distributor except as described above. Therefore, the
Fund does
not pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the
Fund,
interest, carrying or other financing charges in connection with excess
amounts
expended, or the distributor's overhead expenses. However, the
distributor may
be able to recover such amount or may earn a profit from future payments
made
by the Fund under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the
"Services
Plan") under which it may make payments up to 0.25 of 1% of the average
daily
net asset value of Shares to obtain certain personal services for
shareholders
and for the maintenance of shareholder accounts ("shareholder
services"). The
Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which
Federated
Shareholder Services will either perform shareholder services directly
or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients
or
customers. The schedules of such fees and the basis upon which such fees
will be
paid will be determined from time to time by the Fund and Federated
Shareholder
Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.
will pay
dealers an amount equal to .50 of 1% of the net asset value of Shares
purchased
by their clients or customers under the Liberty Family Retirement
Program. (Such
payments are subject to a reclaim from the dealer should the assets
leave the
Program within 12 months after purchase.) These payments will be made
directly
by the distributor and will not be made from the assets of the Fund or
by the
assessment of a sales load on Shares.
Furthermore, the distributor may offer to pay a fee from its own assets
to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize
the
attributes of the Fund. Such assistance will be predicated upon the
amount of
Shares the financial institution sells or may sell, and/or upon the type
and
nature of sales or marketing support furnished by the financial
institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser
or its
affiliates.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial
bank or a savings and loan association) from being an underwriter or
distributor
of most securities. In the event the Glass-Steagall Act is deemed to
prohibit
depository institutions from acting in the capacities described above or
should
Congress relax current restrictions on depository institutions, the
Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions
to act as
underwriters or distributors of securities may differ from
interpretations given
to the Glass-Steagall Act and, therefore, banks and financial
institutions may
be required to register as dealers pursuant to state laws.
The distributor may, from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a
subsidiary of
Federated Investors, provides administrative personnel and services
(including
certain legal and financial reporting services) necessary to operate the
Corporation and the Fund. Federated Administrative Services provides
these at
an annual rate which relates to the average aggregate daily net assets
of all
funds advised by subsidiaries of Federated Investors (the "Federated
Funds") as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<C> <S>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a
portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of
the Fund.
Foreign instruments purchased by the Fund are held by foreign banks
participating in a network coordinated by State Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services
Company,
Pittsburgh, Pennsylvania, with offices in Boston, Massachusetts, is
transfer
agent for the Shares of the Fund and dividend disbursing agent for the
Fund.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for
the Fund
are Arthur Andersen LLP, 2100 One PPG Place, Pittsburgh, Pennsylvania
15222.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio
instruments, the Adviser looks for prompt execution of the order at a
favorable
price. In working with dealers, the Adviser will generally utilize those
who are
recognized dealers in specific portfolio instruments, except when a
better price
and execution of the order can be obtained elsewhere. In selecting among
firms
believed to meet this criteria, the Adviser may give consideration to
those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review
by the
Directors.
SHAREHOLDER INFORMATION
- ------------------------------------------------------------------------
- --------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and
other
matters submitted to shareholders for vote. All shares of each portfolio
or
class in the Corporation have equal voting rights, except that in
matters
affecting only a particular Fund or class, only shares of that
particular Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold
annual
shareholder meetings. Shareholder approval will be sought only for
certain
changes in the Fund's operation and for the election of Directors under
certain
circumstances.
Directors may be removed by a two-thirds vote of the number of Directors
prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. The Directors shall call a special meeting of shareholders upon
the
written request of shareholders owning at least 10% of the Corporation's
outstanding shares entitled to vote.
TAX INFORMATION
- ------------------------------------------------------------------------
- --------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements
of the Code, as amended, applicable to regulated investment companies
and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income
tax
purposes so that income (including capital gains) and losses realized by
the
Corporation's other portfolios, if any, will not be combined for tax
purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may
be subject to foreign taxes withheld at the source. The United States
has
entered into tax treaties with many foreign countries that entitle the
Fund to
reduced tax rates or exemptions on this income. The effective rate of
foreign
tax cannot be predicted since the amount of Fund assets to be invested
within
various countries is unknown. However, the Fund intends to operate so as
to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on
any dividends and other distributions, including capital gains
distributions,
received. This applies whether dividends and distributions are received
in cash
or as additional Shares. Distributions representing long-term capital
gains, if
any, will be taxable to shareholders as long-term capital gains no
matter how
long the shareholders have held the Shares. No federal income tax is due
on any
dividends earned in an IRA or qualified retirement plan until
distributed.
Quarterly distributions from the Fund are based on estimates of book
income for
the year. Tax basis income includes gains or losses attributable to
currency
fluctuation, whereas book income generally consists solely of the coupon
income
generated by the portfolio. Due to differences in the book and tax
treatment of
fixed incomes securities denominated in foreign currencies, it is
difficult to
project currency effects on an interim basis. Therefore, to the extent
that
currency fluctuations can not be anticipated, a portion of distributions
to
Shareholders could later be designated as a return of capital, rather
than
income, for income tax purposes, which may be of particular concern to
simple
trusts.
If more than 50% of the value of the Fund's assets at the end of the tax
year is
represented by stock or securities of foreign corporations, the Fund
intends to
qualify for certain Code stipulations that would allow shareholders to
claim a
foreign tax credit or deduction on their U.S. income tax returns. The
Code, as
amended, may limit a shareholder's ability to claim a foreign tax
credit.
Furthermore, shareholders who elect to deduct their portion of the
Fund's
foreign taxes rather than take the foreign tax credit must itemize
deductions on
their income tax returns.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
The Fund is not subject to Pennsylvania corporate or personal property
taxes.
Fund Shares may be subject to personal property taxes imposed by
counties,
municipalities, and school districts in Pennsylvania to the extent that
the
portfolio securities in the Fund would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of
their accounts under state and local tax laws, including treatment of
distributions as income or return of capital.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------
- --------
From time to time, the Fund advertises the total return and yield for
Class A
Shares.
Total return represents the change, over a specified period of time, in
the
value of an investment in Class A Shares after reinvesting all income
and
capital gains distributions. It is calculated by dividing that change by
the
initial investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment
income
per share (as defined by the Securities and Exchange Commission) earned
by
Shares over a thirty-day period by the maximum offering price per Share
of Class
A Shares on the last day of the period. This number is then annualized
using
semi-annual compounding. The yield does not necessarily reflect income
actually
earned by Shares and, therefore, may not correlate to the dividends or
other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales
load,
which, if excluded, would increase the total return and yield.
Yield and total return will be calculated separately for Class A Shares,
Class B
Shares, and Class C Shares. Because Class A Shares may be subject to
lower 12b-1
fees, the yield for Class A Shares, for the same period, may exceed that
of
Class B Shares and Class C Shares. Because Class A Shares are subject to
a
front-end sales load, the total return for Class B Shares and Class C
Shares,
for the same period, may exceed that of Class A Shares. Depending on the
dollar
amount invested and the time period for which any class of shares is
held, the
total return for any particular class will likely exceed that of
another.
From time to time, the Fund may advertise the performance of Class A
Shares
using certain financial publications and/or compare the performance of
Class A
Shares to certain indices.
OTHER CLASSES OF SHARES
- ------------------------------------------------------------------------
- --------
Class B Shares are sold primarily to customers of financial
institutions,
subject to a maximum contingent deferred sales charge of 5.50% and a
Rule 12b-1
fee of up to .75 of 1%. In addition, Class B Shares are subject to a
shareholder
services fee of up to .25 of 1% of the Class B Shares' average daily net
assets.
Investments in Class B Shares are subject to a minimum initial
investment of
$1,500, unless the investment is in a retirement account, in which case
the
minimum investment is $50.
Class C Shares are sold primarily to customers of financial institutions
at net
asset value with no initial sales load. Class C Shares are distributed
pursuant
to a Distribution Plan adopted by the Fund whereby the distributor is
paid a fee
of up to 0.75 of 1%. Class C Shares are also subject to a shareholder
services
fee of up to 0.25 of 1% of the Class C Shares' average daily net assets.
In
addition, Class C Shares may be subject to certain contingent deferred
sales
charges. Investments in Class C Shares are subject to a minimum initial
investment of $1,500, unless the investment is in a retirement account,
in which
case the minimum investment is $50.
The amount of dividends payable to Class A Shares will generally exceed
that
payable to Class B Shares and Class C Shares by the difference between
Class
Expenses and distribution and shareholder service expenses borne by
shares of
each respective class.
The stated advisory fee is the same for all classes of shares.
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS B SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 49.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S>
<C>
- ------------------------------------------------------------------------
- ---------------- -------------------------
NET ASSET VALUE, BEGINNING OF PERIOD
$ 10.21
- ------------------------------------------------------------------------
- ----------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- ----------------
Net investment income
0.08
- ------------------------------------------------------------------------
- ----------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions
0.22
- ------------------------------------------------------------------------
- ---------------- -------
Total from investment operations
0.30
- ------------------------------------------------------------------------
- ---------------- -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- ----------------
Dividends to shareholders from net investment income
- --
- ------------------------------------------------------------------------
- ----------------
Distributions to shareholders from net realized gain on investment
transactions --
- ------------------------------------------------------------------------
- ---------------- -------
Total distributions
- --
- ------------------------------------------------------------------------
- ---------------- -------
NET ASSET VALUE, END OF PERIOD
$ 10.51
- ------------------------------------------------------------------------
- ---------------- -------
TOTAL RETURN**
2.44%
- ------------------------------------------------------------------------
- ----------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- ----------------
Expenses
2.11%(a)
- ------------------------------------------------------------------------
- ----------------
Net investment income
7.07%(a)
- ------------------------------------------------------------------------
- ----------------
Expense waiver/reimbursement (b)
0.10%(a)
- ------------------------------------------------------------------------
- ----------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- ----------------
Net assets, end of period (000 omitted)
$101
- ------------------------------------------------------------------------
- ----------------
Portfolio turnover rate
136%
- ------------------------------------------------------------------------
- ----------------
</TABLE>
* Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
** Based on net asset value which does not reflect the sales load or
contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 49.
<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
0.58 0.41
- ------------------------------------------------------------------------
- ---------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions
(0.72) 1.58
- ------------------------------------------------------------------------
- --------------------- --------- ---------
Total from investment operations
(0.14) 1.99
- ------------------------------------------------------------------------
- --------------------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- ---------------------
Dividends to shareholders from net investment income
(0.57) (0.38)
- ------------------------------------------------------------------------
- ---------------------
Distributions to shareholders from net realized gain on investment
transactions (0.65) --
- ------------------------------------------------------------------------
- --------------------- --------- ---------
Total distributions
(1.22) (0.38)
- ------------------------------------------------------------------------
- --------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD
$ 10.48 $ 11.84
- ------------------------------------------------------------------------
- --------------------- --------- ---------
TOTAL RETURN**
(1.54%) 19.67%
- ------------------------------------------------------------------------
- ---------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- ---------------------
Expenses
2.05% 2.05%(a)
- ------------------------------------------------------------------------
- ---------------------
Net investment income
6.00% 5.39%(a)
- ------------------------------------------------------------------------
- ---------------------
Expense waiver/reimbursements (b)
0.10% 0.21%(a)
- ------------------------------------------------------------------------
- ---------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- ---------------------
Net assets, end of period (000 omitted)
$ 8,098 $ 4,767
- ------------------------------------------------------------------------
- ---------------------
Portfolio turnover rate
136% 189%
- ------------------------------------------------------------------------
- ---------------------
</TABLE>
* Reflects operations for the period from March 31, 1993 (start of
business)
to November 30, 1993.
** Based on net asset value which does not reflect the sales load or
contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
CREDIT VALUE
PAR
RATING: IN U.S.
AMOUNT
MOODY'S* DOLLARS
<C> <S>
<C> <C>
BONDS--95.5%
- ------------------------------------------------------------------------
- -----------
AUSTRALIAN DOLLAR--26.6%
- ------------------------------------------------------------------------
- -----------
AGENCY--21.5%
-----------------------------------------------------
- -----------
30,000,000 New South Wales Treasury Corp., 11.50%, 7/1/99
Aaa $ 23,955,733
-----------------------------------------------------
- -----------
15,000,000 New South Wales Treasury Corp., 12.00%, 12/1/2001
Aaa 12,271,826
-----------------------------------------------------
- -----------
15,500,000 Queensland Treasury Corp., 8.00%, 8/14/2001
Aaa 10,433,792
-----------------------------------------------------
- ----------- --------------
Total
46,661,351
-----------------------------------------------------
- ----------- --------------
SUPRANATIONAL--5.1%
-----------------------------------------------------
- -----------
14,500,000 European Investment Bank, 10.25%, 10/1/2001
Aaa 11,143,560
-----------------------------------------------------
- ----------- --------------
TOTAL AUSTRALIAN DOLLAR
57,804,911
-----------------------------------------------------
- ----------- --------------
BRITISH POUND--30.6%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--24.5%
-----------------------------------------------------
- -----------
9,500,000 UK Treasury, 7.00%, 11/6/2001
Aaa 13,732,677
-----------------------------------------------------
- -----------
26,000,000 UK Treasury, 8.00%, 6/10/2003
Aaa 39,378,112
-----------------------------------------------------
- ----------- --------------
Total
53,110,789
-----------------------------------------------------
- ----------- --------------
SUPRANATIONAL--6.1%
-----------------------------------------------------
- -----------
4,000,000 African Development Bank, 11.25%, 7/23/2001
Aaa 6,913,561
-----------------------------------------------------
- -----------
4,000,000 World Bank, 9.25%, 7/20/2007
Aaa 6,432,039
-----------------------------------------------------
- ----------- --------------
Total
13,345,600
-----------------------------------------------------
- ----------- --------------
TOTAL BRITISH POUND
66,456,389
-----------------------------------------------------
- ----------- --------------
CANADIAN DOLLAR--3.3%
- ------------------------------------------------------------------------
- -----------
AGENCY--3.3%
-----------------------------------------------------
- -----------
10,000,000 Ontario Hydro, 9.00%, 6/24/2002
Aa2 7,109,430
-----------------------------------------------------
- ----------- --------------
TOTAL CANADIAN DOLLAR
7,109,430
-----------------------------------------------------
- ----------- --------------
DANISH KRONE--3.6%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.6%
-----------------------------------------------------
- -----------
50,000,000 Kingdom of Denmark, 8.00%, 5/15/2003
Aaa $ 7,819,793
-----------------------------------------------------
- ----------- --------------
TOTAL DANISH KRONE
7,819,793
-----------------------------------------------------
- ----------- --------------
FINNISH MARKKA--3.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.8%
-----------------------------------------------------
- -----------
42,000,000 Republic of Finland, 9.50%, 3/15/2004
Aa2 8,208,785
-----------------------------------------------------
- ----------- --------------
TOTAL FINNISH MARKKA
8,208,785
-----------------------------------------------------
- ----------- --------------
FRENCH FRANC--4.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.8%
-----------------------------------------------------
- -----------
60,000,000 Government of France, 6.75%, 10/25/2003
Aaa 10,363,262
-----------------------------------------------------
- ----------- --------------
TOTAL FRENCH FRANC
10,363,262
-----------------------------------------------------
- ----------- --------------
IRISH PUNT--5.5%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--5.5%
-----------------------------------------------------
- -----------
7,500,000 Republic of Ireland, 9.25%, 7/11/2003
Aaa 11,976,048
-----------------------------------------------------
- ----------- --------------
TOTAL IRISH PUNT
11,976,048
-----------------------------------------------------
- ----------- --------------
NETHERLANDS GUILDER--4.2%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.2%
-----------------------------------------------------
- -----------
15,000,000 Netherlands, 8.50%, 3/15/2001
Aaa 9,017,908
-----------------------------------------------------
- ----------- --------------
TOTAL NETHERLANDS GUILDER
9,017,908
-----------------------------------------------------
- ----------- --------------
NEW ZEALAND DOLLAR--4.9%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.9%
-----------------------------------------------------
- -----------
18,000,000 New Zealand, 8.00%, 4/15/2004
Aa3 10,703,989
-----------------------------------------------------
- ----------- --------------
TOTAL NEW ZEALAND DOLLAR
10,703,989
-----------------------------------------------------
- ----------- --------------
SPANISH PESETA--4.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.8%
-----------------------------------------------------
- -----------
1,400,000,000 Kingdom of Spain, 10.25%, 11/30/98
Aaa $ 10,474,766
-----------------------------------------------------
- ----------- --------------
TOTAL SPANISH PESETA
10,474,766
-----------------------------------------------------
- ----------- --------------
SWEDISH KRONA--3.4%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.4%
-----------------------------------------------------
- -----------
50,000,000 Kingdom of Sweden, 13.00%, 6/15/2001
Aaa 7,360,258
-----------------------------------------------------
- -----------
358,000 Salomon, Inc., Warrant on Sweden, 11.00%, 1/25/99
(Expires
1/25/95)**
A3 96,660(a)
-----------------------------------------------------
- ----------- --------------
TOTAL SWEDISH KRONA
7,456,918
-----------------------------------------------------
- ----------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $215,563,676)
207,392,199+
-----------------------------------------------------
- ----------- --------------
</TABLE>
* Please refer to the Appendix of the Statement of Additional
Information for
an explanation of the credit ratings. Current credit ratings are
unaudited.
**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 cost for federal tax purposes amounts to $215,563,676. The net
unrealized
depreciation of investments amounts to $8,171,477, which is comprised
of
$281,874 appreciation and $8,453,351 depreciation at November 30,
1994.
Note: The categories of investments are shown as a percentage of net
assets
($217,205,532) at November 30, 1994.
(a)Non-income producing security.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
ASSETS:
- ------------------------------------------------------------------------
- ---------------------------
Investments in securities, at value (identified and tax cost,
$215,563,676) $207,392,199
- ------------------------------------------------------------------------
- ---------------------------
Cash
294,877
- ------------------------------------------------------------------------
- ---------------------------
Interest receivable
8,385,586
- ------------------------------------------------------------------------
- ---------------------------
Receivable for investments sold
1,455,471
- ------------------------------------------------------------------------
- ---------------------------
Receivable for foreign currency sold
1,454,865
- ------------------------------------------------------------------------
- ---------------------------
Receivable for capital stock sold
60,915
- ------------------------------------------------------------------------
- ---------------------------
Deferred expenses
7,179
- ------------------------------------------------------------------------
- --------------------------- -----------
Total assets
219,051,092
- ------------------------------------------------------------------------
- ---------------------------
LIABILITIES:
- ------------------------------------------------------------------------
- ---------------------------
Payable for foreign currency purchased
$1,455,471
- ------------------------------------------------------------------------
- ----------------
Payable for capital stock redeemed
255,119
- ------------------------------------------------------------------------
- ----------------
Tax withholding liability
69,204
- ------------------------------------------------------------------------
- ----------------
Accrued expenses
65,766
- ------------------------------------------------------------------------
- ---------------- ---------
Total liabilities
1,845,560
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS for 20,643,766 shares of capital stock outstanding
$217,205,532
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------
- ---------------------------
Paid-in capital
$238,384,981
- ------------------------------------------------------------------------
- ---------------------------
Net unrealized appreciation (depreciation) of investments and
translation of assets
and liabilities in foreign currencies
(8,081,204)
- ------------------------------------------------------------------------
- ---------------------------
Accumulated net realized gain (loss) on investments and foreign currency
transactions (16,137,975)
- ------------------------------------------------------------------------
- ---------------------------
Undistributed net investment income
3,039,730
- ------------------------------------------------------------------------
- --------------------------- -----------
Total net assets
$217,205,532
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSET VALUE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares ($209,007,501 / 19,861,796 shares of capital stock
outstanding) $10.52
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares ($100,522 / 9,566 shares of capital stock outstanding)
$10.51
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares ($8,097,509 / 772,404 shares of capital stock
outstanding) $10.48
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF OFFERING PRICE PER SHARE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares (100/95.5 of $10.52)*
$11.02
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares
$10.51
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares
$10.48
- ------------------------------------------------------------------------
- --------------------------- -----------
REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares
$10.52
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares (94.5/100 of $10.51)**
$9.93
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares (99/100 of $10.48)**
$10.38
- ------------------------------------------------------------------------
- --------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------
- ---------------------------
Interest (net of foreign taxes withheld of $300,285)
$ 19,350,257
- ------------------------------------------------------------------------
- ---------------------------
EXPENSES:
- ------------------------------------------------------------------------
- ---------------------------
Investment advisory fee
$ 1,819,216
- ------------------------------------------------------------------------
- --------------
Administrative personnel and services fees
334,436
- ------------------------------------------------------------------------
- --------------
Custodian and portfolio accounting services and expenses
310,321
- ------------------------------------------------------------------------
- --------------
Transfer and dividend disbursing agent fees and expenses
75,146
- ------------------------------------------------------------------------
- --------------
Directors' fees
6,511
- ------------------------------------------------------------------------
- --------------
Auditing fees
39,733
- ------------------------------------------------------------------------
- --------------
Legal fees
18,025
- ------------------------------------------------------------------------
- --------------
Capital stock registration costs
54,982
- ------------------------------------------------------------------------
- --------------
Printing and postage
98,003
- ------------------------------------------------------------------------
- --------------
Insurance premiums
11,760
- ------------------------------------------------------------------------
- --------------
Taxes
16,198
- ------------------------------------------------------------------------
- --------------
Class A shareholder servicing fee
221,397
- ------------------------------------------------------------------------
- --------------
Class B shareholder servicing fee
26
- ------------------------------------------------------------------------
- --------------
Class C shareholder servicing fee
19,544
- ------------------------------------------------------------------------
- --------------
Class A distribution services fee
586,447
- ------------------------------------------------------------------------
- --------------
Class B distribution services fee
79
- ------------------------------------------------------------------------
- --------------
Class C distribution services fee
59,787
- ------------------------------------------------------------------------
- --------------
Miscellaneous
14,070
- ------------------------------------------------------------------------
- -------------- -----------
Total expenses
3,685,681
- ------------------------------------------------------------------------
- --------------
Deduct--
- ------------------------------------------------------------------------
- ---
Waiver of investment advisory fee
$ 232,622
- ------------------------------------------------------------------------
- ---
Waiver of distribution services fee--Class A
239,567 472,189
- ------------------------------------------------------------------------
- --- --------- -----------
Net expenses
3,213,492
- ------------------------------------------------------------------------
- --------------------------- ------------
Net investment income
16,136,765
- ------------------------------------------------------------------------
- --------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ------------------------------------------------------------------------
- ---------------------------
Net realized gain (loss) on investment and foreign currency
transactions (identified cost basis)
(19,246,738)
- ------------------------------------------------------------------------
- ---------------------------
Net change in unrealized appreciation (depreciation) of investments
and foreign currency
(1,632,121)
- ------------------------------------------------------------------------
- --------------------------- ------------
Net realized and unrealized gain (loss) on investments and foreign
currency (20,878,859)
- ------------------------------------------------------------------------
- --------------------------- ------------
Change in net assets resulting from operations
($ 4,742,094)
- ------------------------------------------------------------------------
- --------------------------- ------------
</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
$ 16,136,765 $ 10,115,823
- ------------------------------------------------------------------------
- -----------
Net realized gain (loss) on investments and foreign currency
transactions
($16,137,072 net loss and $12,707,324 net gain, respectively,
as computed for federal tax purposes)
(19,246,738) 14,622,033
- ------------------------------------------------------------------------
- -----------
Change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currencies
(1,632,121) (1,145,113)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets resulting from operations
(4,742,094) 23,592,743
- ------------------------------------------------------------------------
- ----------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
- -----------
Dividends to shareholders from net investment income:
- ------------------------------------------------------------------------
- -----------
Class A Shares
(13,175,437) (8,164,154)
- ------------------------------------------------------------------------
- -----------
Class C Shares
(365,743) (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
(26,248,844) (9,391,846)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
CAPITAL STOCK TRANSACTIONS
- ------------------------------------------------------------------------
- -----------
Net proceeds from sale of shares
177,536,131 172,701,876
- ------------------------------------------------------------------------
- -----------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock
8,109,375 2,711,987
- ------------------------------------------------------------------------
- -----------
Cost of shares redeemed
(162,817,187) (51,183,603)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets resulting from capital stock transactions
22,828,319 124,230,260
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets
(8,162,619) 138,431,157
- ------------------------------------------------------------------------
- -----------
NET ASSETS:
- ------------------------------------------------------------------------
- -----------
Beginning of period
225,368,151 86,936,994
- ------------------------------------------------------------------------
- ----------- -------------- -------------
End of period (including undistributed net investment income of
$3,039,730 and $1,485,988, respectively)
$ 217,205,532 $ 225,368,151
- ------------------------------------------------------------------------
- ----------- -------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
(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.
Effective September 27, 1994 (effective date of Class B Shares) the Fund
provides three classes of shares Class A Shares, Class B Shares, and
Class C
Shares.
Effective March 15, 1994, the Corporation changed its name FT Series
Inc. 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 and asset backed securities) are valued at the last sale
price
reported on national securities exchanges. Unlisted bonds and
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 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.
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 (the "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, if applicable 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. At
November
30, 1994, the Fund, for federal tax purposes, had a capital loss
carryforward of $16,137,072 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 2002 ($16,137,072).
F. FOREIGN CURRENCY COMMITMENTS--The Fund may enter into foreign
currency
commitments for the delayed delivery of securities or foreign
currency
exchange transactions. Risks may arise upon entering these
transactions
from the potential inability of counterparts to meet the terms of
their
commitments and from unanticipated movements in security prices or
foreign
exchange rates. The foreign currency transactions 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
settlement date.
At November 30, 1994, the Fund had outstanding foreign currency
commitments
set out below:
<TABLE>
<CAPTION>
COMMITMENTS
UNREALIZED
TO DELIVER/
IN EXCHANGE APPRECIATION
SETTLEMENT DATE RECEIVE
FOR (DEPRECIATION)
<S> <C>
<C> <C>
UNSETTLED TRANSACTIONS
12/2/94
UK Pound
928,736 $ 1,454,865 $ (606)
- ------
</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 year ended November
30,
1994, the Fund had a realized gain of $408,000 on written options.
The following is a summary of the Fund's written option activity:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
<S>
<C> <C>
OPTION
- ------------------------------------------------------------------------
- ----------
Outstanding at December 31, 1993
1 $ 60,000,000
- ------------------------------------------------------------------------
- ----------
Contracts opended
- -- --
- ------------------------------------------------------------------------
- ----------
Contracts expired
(1) ($ 60,000,000)
- --
- ------------------------------------------------------------------------
- ---------- --------------
Outstanding at December 31, 1994
- -- $ --
- --
- ------------------------------------------------------------------------
- ---------- --------------
</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 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. 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.
J. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the
initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five
years from
the Fund's commencement date.
K. OTHER--Investment transactions are accounted for on the 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. Accordingly, amounts as of
November 30,
1994, have been reclassified to reflect an increase in paid-in-
capital of
$217,491, a decrease in undistributed net investment income of
$1,041,845,
and a decrease in accumulated net realized loss of $824,354. Net
investment
income, net realized gains, and net assets were not affected by
this
change.
(3) CAPITAL STOCK
At November 30, 1994, there were 500,000,000 shares of $.0001 par value
capital
stock authorized for Class A Shares, Class B 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 15,262,427 $
169,735,435 14,494,139 $ 167,776,782
- ---------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 692,848
7,698,922 243,001 2,687,283
- ---------------------------------------------------
Shares redeemed (14,688,399)
(159,024,074) (4,447,404) (50,982,677)
- --------------------------------------------------- ------------- ----
- ----------- ------------ --------------
Net change resulting from Class A transactions 1,266,876 $
18,410,283 10,289,736 $ 119,481,388
- --------------------------------------------------- ------------- ----
- ----------- ------------ --------------
<CAPTION>
YEAR
ENDED
NOVEMBER 30,
1994*
CLASS B SHARES SHARES
AMOUNT
<S> <C>
<C>
Shares sold 10,320 $
108,114
- ----------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 0
0
- ----------------------------------------------------------
Shares redeemed (754)
(7,894)
- ---------------------------------------------------------- --------- -
- ----------
Net change resulting from Class B
transactions 9,566 $
100,220
- ---------------------------------------------------------- --------- -
- ----------
</TABLE>
*For the period from September 19, 1994 (start of business) to November
30,
1994.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994
1993*
CLASS C SHARES SHARES
AMOUNT SHARES AMOUNT
<S> <C> <C>
<C> <C>
Shares sold 688,918 $
7,692,582 409,680 $ 4,925,094
- -------------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 37,082
410,453 2,095 24,704
- -------------------------------------------------------
Shares redeemed (356,033)
(3,785,219) (9,338) (200,926)
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
Net change resulting from Class C
transactions 369,967 $
4,317,816 402,437 $ 4,748,872
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
Net change resulting from Fund share transactions 1,646,409 $
22,828,319 10,692,173 $ 124,230,260
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
</TABLE>
*For the period from March 31, 1993 (start of business) 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 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 International, Inc. (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
International, Inc.
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 International, Inc., served as the
Fund's
sub-adviser and received an annual fee from Fiduciary International,
Inc. 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.
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 A
Shares,
Class B Shares and Class C Shares. The Plan provides that the Fund may
incur
distribution expenses up to 0.25 of 1%, 0.75 of 1%, and 0.75 of 1% of
the
average daily net assets of the Class A Shares, Class B 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
fiscal year ended November 30, 1994 were as follows:
<TABLE>
<S>
<C>
- ------------------------------------------------------------------------
- --------------------------
PURCHASES
$ 324,082,442
- ------------------------------------------------------------------------
- -------------------------- --------------
SALES
$ 315,705,738
- ------------------------------------------------------------------------
- -------------------------- --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------
- --------
To the Shareholders and Board of Directors of
INTERNATIONAL SERIES, INC. (formerly FT Series, Inc.)
(International Income Fund):
We have audited the accompanying statement of assets and liabilities of
International Income Fund (an investment portfolio of International
Series,
Inc., formerly FT Series, Inc., a Maryland Corporation), including the
schedule
of portfolio investments, as of November 30, 1994, the related statement
of
operations for the year then ended, the statements of changes in net
assets for
each of the two years in the period then ended and financial highlights
for each
of the periods presented. These financial statements and financial
highlights
are the responsibility of the Fund's managment. Our responsibility is to
express
an opinion on these financial statements and financial highlights based
on our
audites.
We conducted our audits in accordnace with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and
financial
highlights are free of material mistatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. Our procedures included confirmation of the securities owned
as of
November 30, 1994, by correspondence with the custodian and broker. An
audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable basis for
our
opinion.
In our opinion, the financial statements and financial highlights
referred to
above present fairly, in all material respects, the financial position
of
International Income Fund, an investment portfolio of International
Series,
Inc., as of November 30, 1994, and the results of its operations for the
year
then ended, the changes in its net assets for each of the two years in
the
period then ended and financial highlights for each of the periods
presented in
conformity with generally accepted accounting principles.
ARTHUR
ANDERSEN LLP
Pittsburgh, Pennsylvania
January 13, 1995
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S> <C>
<C>
International Income Fund
Class A Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- -------------------------------------------
Distributor
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- -------------------------------------------
Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- -------------------------------------------
Sub-Adviser
Fiduciary Trust International Limited
30 Old Burlington Street
London W1X1LB
England
- ------------------------------------------------------------------------
- -------------------------------------------
Custodian
State Street Bank and
P.O. Box 8604
Trust Company
Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------
- -------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- -------------------------------------------
Independent Public Accountants
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------
- -------------------------------------------
</TABLE>
INTERNATIONAL INCOME
FUND
CLASS A SHARES
PROSPECTUS
A Non-Diversified Portfolio of
International Series, Inc.,
(formerly, FT Series, Inc.)
An Open-End Management
Investment Company
January 31, 1995
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
46031P100
1051602A-A (1/95)
INTERNATIONAL INCOME FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
(FORMERLY, FT SERIES, INC.)
CLASS B SHARES
PROSPECTUS
The Class B Shares of International Income Fund (the "Fund") offered by
this
prospectus represent interests in the Fund, which is a non-diversified
investment portfolio in International Series, Inc. (formerly, FT Series,
Inc.)
(the "Corporation"), an open-end, management investment company (a
mutual fund).
The Fund's objective is to seek a high level of current income in U.S.
Dollars
consistent with prudent investment risk. The Fund has a secondary
objective of
capital appreciation. The Fund will pursue these objectives by investing
in
high-quality debt securities denominated primarily in foreign
currencies.
The Class B Shares offered by this prospectus are not deposits or
obligations of
any bank, are not endorsed or guaranteed by any bank, and are not
insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other
government agency. Investment in these Class B Shares involves
investment risks,
including the possible loss of principal.
This prospectus contains the information you should read and know before
you
invest in Class B Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Class
A Shares, Class B Shares, and Class C Shares dated January 31, 1995,
with the
Securities and Exchange Commission. The information contained in the
Combined
Statement of Additional Information is incorporated by reference into
this
prospectus. You may request a copy of the Combined Statement of
Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1995
TABLE OF CONTENTS
- ------------------------------------------------------------------------
- --------
SUMMARY OF FUND EXPENSES
1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
2
- ------------------------------------------------------
GENERAL INFORMATION
3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS
3
- ------------------------------------------------------
INVESTMENT INFORMATION
4
- ------------------------------------------------------
Investment Objective
4
Investment Policies
5
Hedging Vehicles and Strategies
10
Hedging Strategies
11
Investment Limitations
13
NET ASSET VALUE
14
- ------------------------------------------------------
INVESTING IN CLASS B SHARES
14
- ------------------------------------------------------
Share Purchases
14
Minimum Investment Required
15
What Shares Cost
15
Conversion of Class B Shares
15
Systematic Investment Program
16
Certificates and Confirmations
16
Dividends
16
Capital Gains
16
Retirement Plans
16
EXCHANGE PRIVILEGE
17
- ------------------------------------------------------
Requirements for Exchange
17
Tax Consequences
17
Making an Exchange
17
REDEEMING CLASS B SHARES
18
- ------------------------------------------------------
Through a Financial Institution
18
Directly from the Fund
18
Contingent Deferred Sales Charge
19
Elimination of Contingent
Deferred Sales Charge
20
Systematic Withdrawal Program
21
Reinvestment Privilege
21
Accounts with Low Balances
21
INTERNATIONAL SERIES, INC., INFORMATION
21
- ------------------------------------------------------
Management of the Corporation
21
Distribution of Class B Shares
28
Administration of the Fund
29
Brokerage Transactions
30
Expenses of the Fund
and Class B Shares
30
SHAREHOLDER INFORMATION
31
- ------------------------------------------------------
Voting Rights
31
TAX INFORMATION
31
- ------------------------------------------------------
Federal Income Tax
31
Pennsylvania Corporate and
Personal Property Taxes
32
PERFORMANCE INFORMATION
32
- ------------------------------------------------------
OTHER CLASSES OF SHARES
33
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
34
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
35
- ------------------------------------------------------
FINANCIAL STATEMENTS
36
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
48
- ------------------------------------------------------
ADDRESSES
49
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering
price)..........................................................
None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)
(1)............................................. 5.50%
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................. None
Exchange
Fee.....................................................................
.............. None
ANNUAL CLASS B SHARES
OPERATING EXPENSES
(As a percentage of average
net assets)
Management Fee (after waiver)
(2)..............................................................
0.65%
12b-1
Fee.....................................................................
................. 0.75%
Total Other
Expenses................................................................
........... 0.70%
Shareholder Services
Fee...................................................................
0.25%
Total Class B Shares Operating Expenses
(3)........................................... 2.10%
</TABLE>
- ------------
(1) The contingent deferred sales charge assessed is 5.50% in the first
year
declining to 1.00% in the sixth year and 0.00% thereafter. (See
"Contingent
Deferred Sales Charge").
(2) The management fee has been reduced to reflect the voluntary waiver
of a
portion of the management fee. The adviser can terminate this
voluntary
waiver at any time at its sole discretion. The maximum management
fee is
0.75%.
(3) The total Class B Shares operating expenses in the table above are
based on
expenses expected during the fiscal year ending November 30, 1995.
The total
operating expenses were 2.11% for the fiscal year ended November 30,
1994
and were 2.21% absent the voluntary waiver of the management fee.
The purpose of this table is to assist an investor in understanding
the
various costs and expenses that a shareholder of Class B Shares of the
Fund will
bear, either directly or indirectly. For more complete descriptions of
the
various costs and expenses, see "Investing in Class B Shares" and
"International
Series, Inc. Information". Wire-transferred redemptions of less than
$5,000 may
be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of
the
maximum front-end sales charges permitted under the rules of the
National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE
1 year 3 years
<S>
<C> <C>
- --------- ---------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and
(2) redemption at the end of each time
period.................................................. $78
$109
You would pay the following expenses on the same investment assuming no
redemption............. $21 $66
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The information set forth in the foregoing table and example relates
only to
Class B Shares of the Fund. The Fund also offers two additional classes
of
shares called Class A Shares and Class C Shares. Class B Shares, Class A
Shares
and Class C Shares are subject to certain of the same expenses. However,
Class A
Shares are subject to a maximum sales load of 4.50%, and a 12b-1 fee up
to 0.25%
but may be subject to a contingent deferred sales charge. Class C Shares
are
subject to a 12b-1 fee of 0.75% and a contingent deferred sales charge
of up to
1.00%, but are not subject to a sales load. See "Other Classes of
Shares."
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS B SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 48.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S>
<C>
- ------------------------------------------------------------------------
- ---------------- -------------------------
NET ASSET VALUE, BEGINNING OF PERIOD
$ 10.21
- ------------------------------------------------------------------------
- ----------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- ----------------
Net investment income
0.08
- ------------------------------------------------------------------------
- ----------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions
0.22
- ------------------------------------------------------------------------
- ---------------- -------
Total from investment operations
0.30
- ------------------------------------------------------------------------
- ---------------- -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- ----------------
Dividends to shareholders from net investment income
- --
- ------------------------------------------------------------------------
- ----------------
Distributions to shareholders from net realized gain on investment
transactions --
- ------------------------------------------------------------------------
- ---------------- -------
Total distributions
- --
- ------------------------------------------------------------------------
- ---------------- -------
NET ASSET VALUE, END OF PERIOD
$ 10.51
- ------------------------------------------------------------------------
- ---------------- -------
TOTAL RETURN**
2.44%
- ------------------------------------------------------------------------
- ----------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- ----------------
Expenses
2.11%(a)
- ------------------------------------------------------------------------
- ----------------
Net investment income
7.07%(a)
- ------------------------------------------------------------------------
- ----------------
Expense waiver/reimbursement (b)
0.10%(a)
- ------------------------------------------------------------------------
- ----------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- ----------------
Net assets, end of period (000 omitted)
$101
- ------------------------------------------------------------------------
- ----------------
Portfolio turnover rate
136%
- ------------------------------------------------------------------------
- ----------------
</TABLE>
* Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
GENERAL INFORMATION
- ------------------------------------------------------------------------
- --------
The Corporation was established as FT International Trust, a
Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under
the
laws of the state of Maryland on February 11, 1991. At a special meeting
of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the
name of the
Corporation to International Series, Inc. The Corporation's address is
Liberty
Center, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
The
Articles of Incorporation permit the Corporation to offer separate
series of
shares representing interests in separate portfolios of securities. The
shares
in any one portfolio may be offered in separate classes. With respect to
this
Fund, as of the date of this prospectus, the Board of Directors of the
Corporation (the "Directors") has established three classes of shares,
known as
Class A Shares, Class B Shares, and Class C Shares. This prospectus
relates only
to Class B Shares (the "Shares") of the Corporation's portfolio known as
International Income Fund.
Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended
to
provide a complete investment program for an investor. A minimum initial
investment of $1,500 is required, unless the investment is in a
retirement
account, in which case the minimum investment is $50.
Except as otherwise noted in this prospectus, Shares are sold at net
asset value
and redeemed at net asset value. However, a contingent deferred sales
charge
("CDSC") is imposed on certain Shares of the Fund which are redeemed
within six
full years of the date of purchase.
The Fund's current net asset value and offering price can be found in
the mutual
funds section of local newspapers under "Federated Liberty."
LIBERTY FAMILY OF FUNDS
- ------------------------------------------------------------------------
- --------
The Fund is a member of a family of mutual funds, collectively known as
the
Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
. American Leaders Fund, Inc., providing growth of capital and
income
through high-quality stocks;
. Capital Growth Fund, providing appreciation of capital primarily
through
equity securities;
. Fund for U.S. Government Securities, Inc., providing current
income
through long-term U.S. government securities;
. International Equity Fund, providing long-term capital growth and
income
through international securities;
. Liberty Equity Income Fund, Inc., providing above-average income
and
capital appreciation through income producing equity securities;
. Liberty High Income Bond Fund, Inc., providing high current
income
through high-yielding, lower-rated, corporate bonds;
. Liberty Municipal Securities Fund, Inc., providing a high level
of
current income exempt from federal regular income tax through
municipal
bonds;
. Liberty U.S. Government Money Market Trust, providing current
income
consistent with stability of principal through high-quality U.S.
government securities;
. Liberty Utility Fund, Inc., providing current income and long-
term growth
of income, primarily through electric, gas, and communications
utilities;
. Limited Term Fund, providing a high level of current income
consistent
with minimum fluctuation in principal through investment grade
securities;
. Limited Term Municipal Fund, providing a high level of current
income
exempt from federal regular income tax consistent with the
preservation
of principal, primarily limited to municipal securities;
. Michigan Intermediate Municipal Trust, providing current income
exempt
from federal regular income tax and personal income taxes imposed
by the
state of Michigan and Michigan municipalities, primarily through
Michigan
municipal securities;
. Pennsylvania Municipal Income Fund, providing current income
exempt from
federal regular income tax and the personal income taxes imposed
by the
Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal
securities;
. Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt
obligations;
. Tax-Free Instruments Trust, providing current income consistent
with the
stability of principal and exempt from federal income tax,
through
high-quality, short-term municipal securities; and
. World Utility Fund, providing total return primarily through
securities
issued by domestic and foreign companies in the utilities
industries.
Prospectuses for these funds are available by writing to Federated
Securities
Corp.
Each of the funds may also invest in certain other types of securities
as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for
an
investor's long-term investment planning. It enables an investor to meet
the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by
providing the
investment services of proven, professional investment advisers.
INVESTMENT INFORMATION
- ------------------------------------------------------------------------
- --------
INVESTMENT OBJECTIVE
The Fund's objective is to seek a high level of current income in U.S.
Dollars
consistent with prudent investment risk. The Fund has a secondary
investment
objective of capital appreciation. The investment objectives cannot be
changed
without the approval of the shareholders. The Fund will pursue these
objectives
by investing in high-quality debt securities denominated primarily in
foreign
currencies.
While there is no assurance that the Fund will achieve its investment
objectives, it endeavors to do so by following the investment policies
described
in this prospectus. Unless indicated otherwise, the investment policies
of the
Fund may be changed by the Directors without shareholder approval.
Shareholders
will be notified before any material change in the policies becomes
effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund will invest primarily in high-quality
debt
securities denominated in the currencies of the nations that are members
of the
Organization for Economic Cooperation and Development. These nations
include,
but are not limited to, the following: Australia, Austria, Belgium,
Canada,
Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland,
Italy,
Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, and the United States. The Fund will
invest at
least 65%, and under normal market conditions substantially all of its
total
assets in high-quality debt securities denominated in foreign currencies
of
issuers located in at least three countries outside of the United
States.
Additionally, investments may be made in securities denominated in the
European
Currency Unit (the "ECU"), a multinational currency unit which
represents
specified amounts of the currencies of certain member states of the
European
Economic Community.
The high-quality debt securities in which the Fund will invest will
possess a
minimum credit rating of A as assigned by Standard & Poor's Ratings
Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if
unrated,
will be judged by Federated Management, the Fund's investment adviser
(the
"Adviser"), or Fiduciary Trust International Limited, the Fund's sub-
adviser
(the "sub-adviser"), to be of comparable quality. Because the average
quality of
the Fund's portfolio investments should remain constantly between A and
AAA, the
Fund will seek to avoid the adverse consequences that may arise for some
debt
securities in difficult economic circumstances. Downgraded securities
will be
evaluated on a case by case basis by the Adviser. The Adviser will
determine
whether or not the security continues to be an acceptable investment. If
not,
the security will be sold. A description of the ratings categories is
contained
in the Appendix to the Statement of Additional Information.
The Fund's portfolio of debt securities will be comprised mainly of
foreign
government, foreign governmental agency or supranational institution
bonds. In
addition, the Fund will also invest in high quality debt securities
issued by
corporations in the currencies specified above and subject to the credit
limitations listed above. No more than 25% of the Fund's total assets
will be
invested in the securities of issuers located in any one country. The
Fund will
also invest in both exchange traded and over-the-counter options,
subject to the
limitations outlined in this prospectus.
The prices of fixed income securities generally fluctuate inversely to
the
direction of interest rates.
FOREIGN GOVERNMENT SECURITIES. The foreign government securities
in which
the Fund may invest generally consist of obligations supported by
national,
state or provincial governments orsimilar political subdivisions.
Foreign
government securities also include debt obligations of
supranational
entities, which include international organizations designed or
supported
by governmental entities to promote economic reconstruction or
development,
international banking institutions and related government agencies.
Examples include the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank and the Inter-American Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies." Debt securities of quasi-
governmental
agencies are either debt securities issued by entities which are
owned by a
national, state or equivalent government or are obligations of a
political
unit that are not backed by the national government's full faith
and credit
and general taxing powers. Further, foreign government securities
include
mortgage-related securities issued or guaranteed by national, state
or
provincial governmental instrumentalities, including quasi-
governmental
agencies.
TEMPORARY INVESTMENTS. Up to 10% of the Fund's total assets may be
invested at any one time in cash deposits or in certificates of
deposit
issued by banks of high credit quality, or in commercial paper with
an
A1/P1 rating assigned by S&P or Moody's, or in repurchase
agreements. At
the discretion of the Adviser, these instruments may be denominated
in
foreign currencies or U.S. Dollars.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in
which
banks, broker/dealers, and other recognized financial institutions
sell
securities to the Fund and agree at the time of sale to repurchase
them at
a mutually agreed upon time and price. To the extent that the
original
seller does not repurchase the securities from the Fund, the Fund
could
receive less than the repurchase price on any sale of such
securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities
on a when-issued or delayed delivery basis. These transactions are
arrangements
in which the Fund purchases securities with payment and delivery
scheduled for a
future time. The seller's failure to complete the transaction may cause
the Fund
to miss a price or yield considered to be advantageous. Settlement dates
may be
a month or more after entering into these transactions, and the market
values of
the securities purchased may vary from the purchase prices. Accordingly,
the
Fund may pay more/less than the market value of the securities on the
settlement
date.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it
appropriate to do so. In addition, the Fund may enter into transactions
to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities
at later
dates. The Fund may realize short-term profits or losses upon the sale
of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, the
Fund may lend its portfolio securities on a short-term or long-term
basis up to
one-third the value of its total assets to broker/dealers, banks, or
other
institutional borrowers of securities. The Fund will only enter into
loan
arrangements with broker/dealers, banks, or other institutions which the
Adviser
has determined are creditworthy under guidelines established by the
Directors
and will receive collateral in the form of cash or U.S. government
securities
equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities
may
not be available to the Fund on a timely basis and the Fund may,
therefore,
lose the opportunity to sell the securities at a desirable price. In
addition,
in the event that a borrower of securities would file for bankruptcy or
become
insolvent, disposition of the securities may be delayed pending court
action.
RISK CONSIDERATIONS. Investing in foreign securities carries
substantial risks
in addition to those associated with investments in domestic securities.
In an
attempt to reduce some of these risks, the Fund will attempt to
distribute its
investments broadly among foreign countries. The debt securities of at
least
three different foreign countries will always be represented.
The economies of foreign countries may differ from the U.S. economy in
such
respects as growth of gross domestic product, rate of inflation,
currency
depreciation, capital reinvestment, resource self-sufficiency, and
balance of
payments position. Further, the economies of developing countries
generally are
heavily dependent on international trade and, accordingly, have been,
and may
continue to be, adversely affected by trade barriers, exchange controls,
managed
adjustments in relative currency values, and other protectionist
measures
imposed or negotiated by the countries with which they trade. These
economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required
under
certain circumstances in some countries, and the extent of foreign
investment in
certain debt securities and domestic companies may be subject to
limitation.
Foreign ownership limitations also may be imposed by the charters of
individual
companies to prevent, among other concerns, violation of foreign
investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a
refusal to
grant, any required governmental registration or approval for such
repatriation.
Any investment subject to such repatriation controls will be considered
illiquid
if it appears reasonably likely that this process will take more than
seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political
changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or
the value of the Fund's investments in those countries. In addition, it
may be
difficult to obtain and enforce a judgment in a court outside of the
U.S.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may
have different clearance and settlement procedures and in certain
markets there
have been times when settlements have been unable to keep pace with the
volume
of securities transactions, making it difficult to conduct such
transactions.
The inability of the Fund to make intended security purchases due to
settlement
problems could cause the Fund to miss attractive investment
opportunities.
Inability to dispose of a portfolio security due to settlement problems
could
result either in losses to the Fund due to subsequent declines in value
of the
portfolio security or, if the Fund has entered into a contract to sell
the
security, could result in possible liability to the purchaser.
ALLOCATION. The allocation of the Fund's assets in a particular
market and
currency will be based on a fundamental assessment of the economic
strength
of each relevant country combined with considerations of credit
quality and
currency and interest rate trends. These factors are reviewed on a
regular
basis in order to derive specific interest rate and currency
forecasts,
which are quantified in terms of total return. The market and
currency
allocation of the Fund will vary to achieve an optimal mix of
investments
to achieve the investment objectives of the Fund.
DURATION. Duration measures the magnitude of the change in the
price of a
debt security relative to a given change in the market rate of
interest.
The duration of a debt security depends primarily upon the
security's
coupon rate, maturity date, and level of market interest rates for
similar
debt securities. There will be no limit on the duration of any one
individual issue purchased by the Fund, except that the purchase of
an
issue that has no final maturity date shall not be permitted. The
weighted
average duration of the Fund shall not exceed ten years and shall
not be
less than one year, but will normally fall within a range of three
to seven
years. The Adviser regards that range as being consistent with a
prudent
attitude towards risk. Shifts outside this range would be made only
under
unusual circumstances.
FOREIGN SECURITIES. Investments in foreign securities involve
special
risks that differ from those associated with investments in
domestic
securities. The risks associated with investments in foreign
securities
relate to political and economic developments abroad, as well as
those that
result from the differences between the regulation of domestic
securities
and issuers and foreign securities and issuers. These risks may
include,
but are not limited to, expropriation, confiscatory taxation,
currency
fluctuations, withholding taxes on interest, limitations on the use
or
transfer of Fund assets, political or social instability and
adverse
diplomatic developments. It may also be more difficult to enforce
contractual obligations or obtain court judgments abroad than would
be the
case in the United States because of differences in the legal
systems.
Moreover, individual foreign economies may differ favorably or
unfavorably
from the domestic economy in such respects as growth of gross
national
product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
Additional differences exist between investing in foreign and
domestic
securities. Examples of such differences include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to
those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign
stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to
enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited
trading
volume in issuers compared to the volume of trading in U.S.
securities
could cause prices to be erratic for reasons apart from factors
that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less
liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments
in some
countries;
. increased risk of delayed settlements of portfolio transactions
or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before
delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's
investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies
have
discouraged or restricted certain investments abroad by investors
such as
the Fund. Investors are advised that when such policies are
instituted, the
Fund will abide by them.
CURRENCY RISKS. Because the majority of the debt securities
purchased by
the Fund are denominated in currencies other than the U.S. Dollar,
changes
in foreign currency exchange rates will affect the Fund's net asset
value;
the value of interest earned; gains and losses realized on the sale
of
securities; and net investment income and capital gain, if any, to
be
distributed to shareholders by the Fund. If the value of a foreign
currency
rises against the U.S. Dollar, the value of Fund assets denominated
in that
currency will increase; correspondingly, if the value of a foreign
currency
declines against the U.S. Dollar, the value of Fund assets
denominated in
that currency will decrease. Under the U.S. tax code, the Fund is
required
to separately account for the foreign currency component of gains
or
losses, which will usually be viewed under the U.S. tax code as
items of
ordinary and distributable income or loss, thus affecting the
Fund's
distributable income (see "Federal Income Tax").
The exchange rates between the U.S. Dollar and foreign currencies
are a
function of such factors as supply and demand in the currency
exchange
markets, international balances of payments, governmental
interpretation,
speculation and other economic and political conditions. Although
the Fund
values its assets daily in U.S. Dollars, the Fund will not convert
its
holdings of foreign currencies to U.S. Dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion
costs.
Foreign exchange dealers may realize a profit on the difference
between the
price at which they buy and sell currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its investments in foreign securities. The Fund
will
conduct its foreign currency exchange transactions either on a spot
(i.e.
cash) basis at the spot rate prevailing in the foreign currency
exchange
market, or through forward contracts to purchase or sell foreign
currencies.
The Adviser believes that active management of currency risks
through a
variety of hedging vehicles and strategies can considerably limit
the risk
of capital loss through movements in the
foreign exchange markets, such as those described above. The
Adviser will
not engage in hedging for speculative purposes.
HEDGING VEHICLES AND STRATEGIES
HEDGING VEHICLES. The Fund may use the following hedging vehicles in an
attempt
to manage currency and interest rate risks:
. forward foreign currency exchange contracts
. options contracts
. futures contracts
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign
currency
exchange contract involves an obligation to purchase or sell a
specific
currency at a future date, which may be any fixed number of days
from the
date of the contract agreed upon by the parties, at a price set at
the time
of the contract. These contracts are traded directly between
currency
traders (usually large commercial banks) and their customers. When
the Fund
enters into a contract for the purchase or sale of a security
denominated
in a foreign currency, it may want to establish the U.S. Dollar
cost or
proceeds, as the case may be. By entering into a forward contract
in U.S.
Dollars for the purchase or sale of the amount of foreign currency
involved
in an underlying security transaction, the Fund is able to protect
itself
against a possible loss between trade and settlement dates
resulting from
an adverse change in the relationship between the U.S. Dollar and
such
foreign currency. However, this tends to limit potential gains
which might
result from a positive change in such currency relationships.
There is no limitation as to the percentage of the Fund's assets
that may
be committed under forward foreign currency exchange contracts. The
Fund
does not enter into such forward contracts or maintain a net
exposure in
such contracts where the Fund would be obligated to deliver an
amount of
foreign currency in excess of the value of the Fund's portfolio
securities
or other assets denominated in that currency or, in the case of a
"cross-hedge" (see "Hedging Strategies" below), denominated in a
currency
or currencies that the Fund's Adviser believes will reflect a high
degree
of correlation with the currency with regard to price movements.
The Fund
generally does not enter into a forward foreign currency exchange
contract
with a term longer than one year.
OPTIONS. The Fund may deal in options on foreign currencies,
foreign
currency futures, securities, and securities indices, which options
may be
listed for trading on a national securities exchange or traded
over-the-counter. The Fund may write covered call options and
secured put
options on up to 25% of its net assets and may purchase put and
call
options provided that no more than 5% of the fair market value of
its net
assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer
the
obligation to sell, the underlying currency, security or other
asset at the
exercise price during the option period. A put option gives the
purchaser
the right to sell, and the writer the obligation to buy, the
underlying
currency, security or other asset at the exercise price during the
option
period. The writer of a covered call owns assets that are
acceptable for
escrow and the writer of a secured
put invests an amount not less than the exercise price in eligible
assets
to the extent that it is obligated as a writer. If a call written
by the
Fund is exercised, the Fund foregoes any possible profit from an
increase
in the market price of the underlying asset over the exercise price
plus
the premium received. In writing puts, there is a risk that the
Fund may be
required to take delivery of the underlying asset at a
disadvantageous
price.
Over-the-counter options ("OTC options") differ from exchange
traded
options in several respects. They are transacted directly with
dealers and
not with a clearing corporation, and there is a risk of non-
performance by
the dealer as a result of the insolvency of such dealer or
otherwise, in
which event the Fund may experience material losses. However, in
writing
options the premium is paid in advance by the dealer. OTC options,
which
may not be continuously liquid, are available for a greater variety
of
assets, and a wider range of expiration dates and exercise prices,
than are
exchange traded options.
FUTURES. Futures contracts are contracts that obligate the long or
short
holder to take or make delivery of a specified quantity of an
asset, such
as a currency, a security, or the cash value of a securities index
at a
specified future date at a specified price. The Fund may engage in
futures
transactions, but will not participate in futures contracts if the
sum of
its initial margin deposits on open contracts will exceed 5% of the
fair
market value of the Fund's net assets.
HEDGING STRATEGIES
CURRENCY HEDGING. When the Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against
the
U.S. Dollar, it may enter into a forward contract to sell an amount
of that
foreign currency for a fixed U.S. Dollar amount approximating the
value of
some or all of the Fund's portfolio securities denominated in such
foreign
currency (i.e., "hedge"). The Fund may, as an alternative, enter
into a
forward contract to sell a different foreign currency for a fixed
U.S.
Dollar amount where the Adviser believes that the U.S. Dollar value
of the
currency to be sold pursuant to the forward contract will fall
whenever
there is a decline in the U.S. Dollar value of the currency in
which
portfolio securities of the Fund are denominated (i.e., "cross-
hedge"). A
cross hedge can be achieved not only by using a "proxy" currency in
which
Fund securities are denominated, but also by using the Canadian
Dollar as a
"proxy" currency for the U.S. Dollar. This strategy may be
beneficial
because the level of divergence in the exchange rates of U.S. and
Canadian
currencies has historically tended to be relatively small.
For example, the Fund may invest in securities denominated in a
Western
European currency, such as the French Franc, and seek to hedge
against the
effect of an increase in the value of the U.S. Dollar against that
currency
by entering into a forward foreign currency exchange contract to
sell the
lower yielding German Mark, which has historically had price
movements that
tend to correlate closely with those of the French Franc, thereby
creating
a hedge similar to the simple Dollar/Franc hedge, but at a possibly
lower
cost. In addition, the Fund might arrange to sell those Marks
against
Canadian Dollars in an effort to minimize hedging costs.
INTEREST RATE HEDGING. The Fund may engage in futures transactions
and may
use options in an attempt to hedge against the effects of
fluctuations in
interest rates and other market conditions. For example, if the
Fund owned
long-term bonds and interest rates were expected
to rise, it could sell futures contracts or the cash value of a
securities
index. If interest rates did increase, the value of the bonds in
the Fund
would decline, but this decline would be offset in whole or in part
by an
increase in the value of the Fund's futures contracts or the cash
value of
the securities index.
If, on the other hand, long-term interest rates were expected to
decline,
the Fund could hold short-term debt securities and benefit from the
income
earned by holding such securities, while at the same time the Fund
could
purchase futures contracts on long-term bonds or the cash value of
a
securities index. Thus, the Fund could take advantage of the
anticipated
rise in the value of long-term bonds without actually buying them.
The
futures contracts and short-term debt securities could then be
liquidated
and the cash proceeds used to buy long-term bonds.
GENERAL. The Fund might not employ any of the techniques or
strategies
described above, and there can be no assurance that any technique
or
strategy (or combination thereof) used will succeed. The use of
these
techniques and strategies involves certain risks, including:
. dependence on the Adviser's ability to predict movements in the
prices of
assets being hedged or movements in interest rates and currency
markets;
. imperfect correlation between the hedging instruments and the
securities
or currencies being hedged;
. the fact that skills needed to use these instruments are
different from
those needed to select the Fund's securities;
. the possible absence of a liquid secondary market for any
particular
instrument at any particular time;
. possible impediments to effective portfolio management or the
ability to
meet redemption requests or other short-term obligations because
of the
percentage of the Fund's assets segregated to cover its
obligations; and
. the possible need to defer closing out hedged positions to avoid
adverse
tax consequences.
New futures contracts, options thereon and other financial products and
risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
NON-DIVERSIFICATION. The Fund is a non-diversified investment
portfolio. As
such, there is no limit on the percentage of assets which can be
invested in any
single issuer. An investment in the Fund, therefore, will entail greater
risk
than would exist in a diversified portfolio of securities because the
higher
percentage of investments among fewer issuers may result in greater
fluctuation
in the total market value of the Fund's portfolio. Any economic,
political, or
regulatory developments affecting the value of the securities in the
Fund's
portfolio will have a greater impact on the total value of the portfolio
than
would be the case if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue
Code (the
"Code"). This undertaking requires that at the end of each quarter of
the
taxable year, with regard to at least 50% of the Fund's total assets, no
more
than 5% of its total assets are invested in the securities of a single
issuer; beyond that, no more than 25% of its total assets are invested
in the
securities of a single issuer.
PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the
purpose
of seeking short-term profits, securities in its portfolio will be sold
whenever
the Adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular
security
may have been held. The Fund's rate of portfolio turnover may exceed
that of
certain other mutual funds with the same investment objective. A higher
rate of
portfolio turnover involves correspondingly greater transaction expenses
which
must be borne directly by the Fund and, thus, indirectly by its
shareholders. In
addition, a high rate of portfolio turnover may result in the
realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in
the
Fund's Statement of Additional Information within the sections
"Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the
Fund's
portfolio will be based only upon investment considerations and will not
be
limited by any other considerations when the Adviser deems it
appropriate to
make changes in the Fund's portfolio.
INVESTMENT LIMITATIONS
The Fund will not:
. borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for
a
percentage of its cash value with an agreement to buy it back on
a set
date) or pledge securities except, under certain circumstances,
the Fund
may borrow up to one-third of the value of its total assets and
pledge up
to 15% of the value of those assets to secure such borrowings;
nor
. sell securities short except under strict limitations.
The above investment limitation cannot be changed without shareholder
approval.
The following limitations, however, may be changed by the Directors
without
shareholder approval. Shareholders will be notified before any material
changes
in these limitations become effective.
The Fund will not:
. invest more than 5% of its total assets in securities of issuers
that
have records of less than three years of continuous operations;
nor
. invest more than 15% of the value of its net assets in restricted
or
other securities determined by the Directors not to be liquid,
including
repurchase agreements with maturities longer than seven days
after notice
and certain OTC options.
NET ASSET VALUE
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- --------
The Fund's net asset value per Class B Share fluctuates. The net asset
value for
Class B Shares is determined by adding the interest of the Class B
Shares in the
market value of all securities and other assets of the Fund, less
liabilities of
the Fund attributable to Class B Shares, and dividing the remainder by
the total
number of Class B Shares outstanding. The net asset value for Class B
Shares may
differ from that of Class A Shares and Class C Shares due to the
variance in
daily net income realized by each class. Such variance will reflect only
accrued
net income to which the shareholders of a particular class are entitled.
INVESTING IN CLASS B SHARES
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- --------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open.
Shares may
be purchased through a financial institution which has a sales agreement
with
the distributor or directly from the distributor, Federated Securities
Corp.,
once an account has been established. In connection with the sale of
Shares,
Federated Securities Corp. may, from time to time, offer certain items
of
nominal value to any shareholder or investor. The Fund reserves the
right to
reject any purchase request.
Orders for $250,000 or more of Class B Shares will normally be invested
in Class
A Shares. (See "Other Classes of Shares.")
THROUGH A FINANCIAL INSTITUTION. Investors may call their financial
institution
(such as a bank or an investment dealer) to place an order to purchase
Shares.
Orders placed through a financial institution are considered received
when the
Fund is notified of the purchase order or when converted into federal
funds. It
is the financial institution's responsibility to transmit orders
promptly.
Purchase orders through a registered broker/dealer must be received by
the
broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to
the Fund before 5:00 p.m. (Eastern time) in order for Shares to be
purchased at
that day's price. Purchase orders through other financial institutions
must be
received by the financial institution and transmitted to the Fund before
4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's
price.
The financial institution which maintains investor accounts with the
Fund must
do so on a fully disclosed basis unless it accounts for share ownership
periods
used in calculating the CDSC (See "Contingent Deferred Sales Charge.")
In
addition, advance payments made to financial institutions may be subject
to
reclaim by the distributor for accounts transferred to financial
institutions
which do not maintain investor accounts on a fully disclosed basis and
do not
account for share ownership periods (see "Other Payments to Financial
Institutions.")
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to
purchase
Shares directly from the distributor once an account has been
established. To do
so:
. complete and sign the new account form available from the Fund;
. enclose a check made payable to International Income Fund--Class
B
Shares; and
. mail both to Federated Services Company, P.O. Box 8604, Boston,
MA
02266-8604.
Orders by mail are considered received after payment by check is
converted by
the transfer agent's bank, State Street Bank and Trust Company ("State
Street
Bank"), into federal funds. This is generally the next business day
after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire once an account
has
been established, call the Fund. All information needed will be taken
over the
telephone, and the order is considered received when State Street Bank
receives
payment by wire. Federal funds should be wired as follows: Federated
Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts
02105;
Attention: Mutual Fund Servicing Division; For Credit to: International
Income
Fund--Class B Shares; Fund Number (this number can be found on the
account
statement or by contacting the Fund); Group Number or Order Number;
Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased
by wire
on days on which the New York Stock Exchange is closed and on federal
holidays
restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500 unless the investment
is in a
retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts, which must be in amounts of at least $50.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order
is
received.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday
through
Friday, except on: (i) days on which there are not sufficient changes in
the
value of the Fund's portfolio securities that its net asset value might
be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances described under "Redeeming Class B Shares,"
shareholders may be charged a CDSC by the distributor at the time Shares
are
redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on the
fifteenth
day of the month, eight years after the purchase date, except as noted
below,
and will be subject to a lower distribution fee (see "Other Classes of
Shares.")
Such conversion will be on the basis of the relative net asset values
per share,
without the imposition of any sales load, fee, or other charge. Class B
Shares
acquired by exchange from Class B Shares of another fund in the Liberty
Family
of Funds will convert into Class A Shares based on the time of the
initial
purchase. For purposes of conversion to Class A Shares, Class B Shares
purchased
through the reinvestment of dividends and distributions paid on Class B
Shares
will be considered to be held in a separate sub-account. Each time any
Class B
Shares in the shareholder's account (other than those in the sub-
account)
convert to Class A Shares, an equal pro rata portion of the Class B
Shares in
the sub-account will also convert to Class A Shares. The availability of
the
conversion feature is subject to the granting of an exemptive order by
the
Securities and Exchange Commission or the adoption of a rule permitting
such
conversion.
In the event that the exemptive order or rule ultimately issued by the
Securities and Exchange Commission requires any conditions additional to
those
described in this prospectus, shareholders will be notified. The
conversion of
Class B Shares to Class A Shares is subject to the continuing
availability of a
ruling from the Internal Revenue Service or an opinion of counsel that
such
conversions will not constitute taxable events for federal tax purposes.
There
can be no assurance that such ruling or opinion will be available, and
the
conversion of Class B Shares to Class A Shares will not occur if such
ruling or
opinion is not available. In such event, Class B Shares would continue
to be
subject to higher expenses than Class A Shares for an indefinite period.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on
a regular basis in a minimum amount of $100. Under this program, funds
may be
automatically withdrawn periodically from the shareholder's checking
account and
invested in Shares at the net asset value next determined after an order
is
received by the Fund. Shareholders may apply for participation in this
program
through their financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share
account for each shareholder. Share certificates are not issued unless
requested
in writing to the Fund.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid
during the
year.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested
in the
Fund on the record date. Dividends are automatically reinvested in
additional
Shares on the payment date at the ex-dividend date net asset value,
unless
shareholders request cash payments on the new account form or by writing
to the
Fund. All shareholders on the record date are entitled to the dividend.
If
Shares are redeemed or exchanged prior to the record date or purchased
after the
record date, those Shares are not entitled to that quarter's dividend. A
portion
of distributions to shareholders could, under certain circumstances, be
reclassified as a return of capital for income tax purposes (see
"Federal Income
Tax").
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least
once
every twelve months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement
plans or for
IRA accounts. For further details, contact Federated Securities Corp.
and
consult a tax adviser.
EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------
- --------
In order to provide greater flexibility to Fund shareholders whose
investment
objectives have changed, Class B shareholders may exchange all or some
of their
Shares for Class B Shares of other funds in the Liberty Family of Funds
at net
asset value without being assessed a CDSC on the exchanged Shares. (Not
all
funds in the Liberty Family of Funds currently offer Class B Shares.
Contact
your financial institution regarding the availability of other Class B
Shares in
the Liberty Family of Funds.) To the extent that a shareholder exchanges
Shares
for Class B Shares in other funds in the Liberty Family of Funds, the
time for
which the exchanged-for shares were held will be added, or tacked, to
the time
for which the exchanged-from Shares were held for purposes of satisfying
the
applicable holding period.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net
asset value
equal to the minimum investment requirements of the fund into which the
exchange
is being made. Before the exchange, the shareholder must receive a
prospectus of
the fund into which the exchange is being made.
This privilege is available to shareholders resident in any state in
which the
fund shares being acquired may be sold. Upon receipt of proper
instructions and
required supporting documents, Shares submitted for exchange are
redeemed and
the proceeds invested in Class B Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will
be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty
Family of Funds or funds advised by subsidiaries of Federated Investors
("Federated Funds") are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income
tax purposes. Depending on the circumstances, a short-term or long-term
capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain
Federated
Funds may be given in writing or by telephone. Written instructions may
require
a signature guarantee. Shareholders of the Fund may have difficulty in
making
exchanges by telephone through brokers and other financial institutions
during
times of drastic economic or market changes. If shareholders cannot
contact
their broker or financial institution by telephone, it is recommended
that an
exchange request be made in writing and sent by overnight mail to
Federated
Services Company, 500 Victory Road--2nd Floor, Quincy, Massachusetts
02171.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may
be
carried out only if a telephone authorization form completed by the
investor is
on file with the Fund. If the instructions are given by a broker, a
telephone
authorization form completed by the broker must be on file with the
Fund.
Shares may be exchanged between two funds by telephone only if the two
funds
have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be
forwarded to Federated Services Company, c/o State Street Bank and Trust
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604, and deposited
to the
shareholder's account before being exchanged. Telephone exchange
instructions
may be recorded. Such instructions will be processed as of 4:00 p.m.
(Eastern
time) and must be received by the transfer agent before that time for
Shares to
be exchanged the same day. Shareholders exchanging into a fund will not
receive
any dividend that is payable to shareholders of record on that date.
This
privilege may be modified or terminated at any time.
REDEEMING CLASS B SHARES
- ------------------------------------------------------------------------
- --------
The Fund redeems Shares at their net asset value next determined after
the Fund
receives the redemption request, less any applicable CDSC (see
"Contingent
Deferred Sales Charge.") Redemptions will be made on days on which the
Fund
computes its net asset value. Redemptions can be made through a
financial
institution or directly from the Fund. Redemption requests must be
received in
proper form.
THROUGH A FINANCIAL INSTITUTION
Shareholders may redeem Shares by calling their financial institution
(such as a
bank or an investment dealer) to request the redemption. Shares will be
redeemed
at their net asset value, less any applicable CDSC, next determined
after the
Fund receives the redemption request from the financial institution.
Redemption
requests through a registered broker/dealer must be received by the
broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to
the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed
at that
day's net asset value. Redemption requests through other financial
institutions
must be received by the financial institution and transmitted to the
Fund before
4:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net
asset value. The financial institution is responsible for promptly
submitting
redemption requests and providing proper written redemption instructions
to the
Fund. The financial institution may charge customary fees and
commissions for
this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The
proceeds will
be mailed to the shareholder's address of record or wire transferred to
the
shareholder's account at a domestic commercial bank that is a member of
the
Federal Reserve System, normally within one business day, but in no
event longer
than seven days after the request. The minimum amount for a wire
transfer is
$1,000. If at any time the Fund shall determine it necessary to
terminate or
modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Fund to accept telephone requests
must
first be completed. Authorization forms and information on this service
are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may
experience
difficulty in redeeming by telephone. If such a case should occur,
another
method of redemption, such as redeeming by mail, should be considered.
Telephone redemption instructions may be recorded. If reasonable
procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or
fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request
to
Federated Services Company, c/o State Street Bank and Trust Company,
P.O. Box
8604, Boston, Massachusetts 02266-8604. The written request should
include the
shareholder's name, the Fund name and class designation, the account
number, and
the Share or dollar amount requested, and should be signed exactly as
the Shares
are registered.
If Share certificates have been issued, they must be properly endorsed
and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on
record with
the Fund, or a redemption payable other than to the shareholder of
record must
have signatures on written redemption requests guaranteed by:
. a trust company or commercial bank whose deposits are insured by
the Bank
Insurance Fund ("BIF"), which is administered by the Federal
Deposit
Insurance Corporation ("FDIC");
. a member of the New York, American, Boston, Midwest, or Pacific
Stock
Exchanges;
. a savings bank or savings and loan association whose deposits are
insured
by the Savings Association Insurance Fund ("SAIF"), which is
administered
by the FDIC; or
. any other "eligible guarantor institution," as defined in the
Securities
Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature
guarantees from the above institutions. The Fund may elect in the future
to
limit eligible signature guarantors to institutions that are members of
a
signature guarantee program. The Fund and its transfer agent reserve the
right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day,
but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming Shares from their Fund accounts within six full
years of
the purchase date of those Shares will be charged a CDSC by the Fund's
distributor. Any applicable CDSC will be imposed on the lesser of the
net asset
value of the redeemed Shares at the time of purchase or the net asset
value of
the redeemed Shares at the time of redemption in accordance with the
following
schedule:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SHARES HELD SALES CHARGE
<S> <C>
One full year or less..................... 5.50%
Two full years or less.................... 4.75%
Three full years or less.................. 4.00%
Four full years or less................... 3.00%
Five full years or less................... 2.00%
Six full years or less.................... 1.00%
Seven full years or less.................. 0.00%
</TABLE>
The CDSC will be deducted from the redemption proceeds otherwise payable
to the
shareholder and will be retained by the distributor. The CDSC will not
be
imposed with respect to: (1) Shares acquired through the reinvestment of
dividends or distributions of long-term capital gains; and/or (2) Shares
held
for more than six full years from the date of purchase. Redemptions will
be
processed in a manner intended to maximize the amount of redemption
which will
not be subject to a CDSC. In computing the amount of the applicable
CDSC,
redemptions are deemed to have occurred in the following order: (1)
Shares
acquired through the reinvestment of dividends and long-term capital
gains; (2)
Shares held for more than six full years from the date of purchase; and
(3)
Shares held for six years or less on a first-in, first-out basis.
A CDSC is not assessed in connection with an exchange of Fund Shares for
shares
of other Class B Shares of funds in the Liberty Family of Funds (see
"Exchange
Privilege.") Any CDSC imposed at the time the exchanged-for shares are
redeemed
is calculated as if the shareholder had held the shares from the date on
which
the investor became a shareholder of the exchanged-from Shares.
Moreover, the
CDSC will be eliminated with respect to certain redemptions (see
"Elimination of
Contingent Deferred Sales Charge.")
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The CDSC will be eliminated with respect to the following redemptions:
(1)
redemptions following the death or disability, as defined in Section
72(m)(7) of
the Internal Revenue Code of 1986, of a shareholder; (2) redemptions
representing minimum required distributions from an Individual
Retirement
Account or other qualified retirement plan to a shareholder who has
attained the
age of 70-1/2; and (3) involuntary redemptions by the Fund of Shares in
shareholder accounts that do not comply with the minimum balance
requirements.
In addition, to the extent that the distributor does not make advance
payments
to certain financial institutions for purchases made by their clients,
no CDSC
will be imposed on redemptions of Shares held by Directors, employees
and sales
representatives of the Fund, the distributor, or affiliates of the Fund
or
distributor; employees of any financial institution that sells Shares of
the
Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
CDSC
will be imposed on the redemption of Shares originally purchased through
a bank
trust department, an investment adviser registered under the Investment
Advisers
Act of 1940, as amended, or a retirement plan where the third-party
administrator has entered into certain arrangements with Federated
Securities
Corp. or its affiliates, or any other financial institution, to the
extent that
no payments were advanced for purchases made through or by such
entities.
The Directors reserve the right to discontinue elimination of the CDSC.
Shareholders will be notified of such elimination. Any Shares purchased
prior to
the termination of such waiver would have the CDSC eliminated as
provided in the
Fund's prospectus at the time of the purchase of the Shares. If a
shareholder
making a redemption qualifies for an elimination of the CDSC, the
shareholder
must notify Federated Securities Corp. or the Fund in writing that said
shareholder is entitled to such elimination.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount
not less
than $100 may take advantage of the Systematic Withdrawal Program. Under
this
program, Shares are redeemed to provide for periodic withdrawal payments
in an
amount directed by the shareholder. Depending upon the amount of the
withdrawal
payments, the amount of dividends paid and capital gains distributions
with
respect to Shares, and the fluctuation of the net asset value of Shares
redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Shares. For this reason, payments under this
program
should not be considered as yield or income on the shareholder's
investment in
Shares. To be eligible to participate in this program, a shareholder
must have
an account value of at least $10,000. Shareholders may apply for
participation
in this program through their financial institution. A CDSC will be
imposed on
Shares redeemed within six full years of their purchase date (see
"Contingent
Deferred Sales Charge.")
REINVESTMENT PRIVILEGE
If Shares have been redeemed, the shareholder has a one-time right,
within 120
days, to reinvest the redemption proceeds into Class A Shares at the
next-determined net asset value without a sales load (see "Other Classes
of
Shares.") Federated Securities Corp. must be notified by the shareholder
in
writing or by his or her financial institution of the reinvestment in
order to
receive this privilege. If the shareholder redeems his or her Shares,
there may
be tax consequences.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may
redeem Shares in any account, except retirement plans, and pay the
proceeds to
the shareholder if the account balance falls below the required minimum
value of
$1,500. This requirement does not apply, however, if the balance falls
below
$1,500 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is
notified in
writing and allowed 30 days to purchase additional Shares to meet the
minimum
requirement.
INTERNATIONAL SERIES, INC., INFORMATION
- ------------------------------------------------------------------------
- --------
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Corporation is managed by a Board of Directors.
The
Directors are responsible for managing the Corporation's business
affairs and
for exercising all the Corporation's powers except those reserved for
the
shareholders. An Executive Committee of the Board of Directors handles
the
Board's responsibilities between meetings of the Board.
OFFICERS AND DIRECTORS. _Officers and Directors are listed with their
addresses,
present positions with International Series, Inc., and principal
occupations,
including those with Federated Management, its affiliates, and the
"Funds"
described in the Statement of Additional Information.
- ------------------------------------------------------------------------
- --------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research
Corp.; Chairman, Passport Research, Ltd.; Director, tna Life and
Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing
General
Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Vice
President of the Company.
- ------------------------------------------------------------------------
- --------
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
- ------------------------------------------------------------------------
- --------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Director
President, Investment Properties Corporation; Senior Vice-President,
John R.
Wood and Associates, Inc., Realtors; President, Northgate Village
Development
Corporation; Partner or Trustee in private real estate ventures in
Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly,
President, Naples Property Management, Inc.
- ------------------------------------------------------------------------
- --------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
- ------------------------------------------------------------------------
- --------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Director of the Corporation
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross
of
Massachusetts, Inc.
- ------------------------------------------------------------------------
- --------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Director
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director,
Trustee, or
Managing General Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Edward L. Flaherty, Jr.+
Two Gateway Center--Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Peter E. Madden
225 Franklin Street
Boston, MA
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State
Street Bank and Trust Company and State Street Boston Corporation and
Trustee,
Lahey Clinic Foundation, Inc.
- ------------------------------------------------------------------------
- --------
Gregor F. Meyer
Two Gateway Center--Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment
for International Peace, RAND Corporation, Online Computer Library
Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center;
Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council
for
Environmental Policy and Technology.
- ------------------------------------------------------------------------
- --------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General
Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds;
staff member, Federated Securities Corp. and Federated Administrative
Services.
- ------------------------------------------------------------------------
- --------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated
Management, and Federated Research; President and Director, Federated
Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative
Services, Federated Services Company, and Federated
Shareholder Services; President or Vice President of the Funds;
Director,
Trustee, or Managing General Partner of some of the Funds. Mr. Donahue
is the
son of John F. Donahue, Chairman and Director of the Company.
- ------------------------------------------------------------------------
- --------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated
Research Corp.; Chairman and Director, Federated Securities Corp.;
President or
Vice President of some of the Funds; Director or Trustee of some of the
Funds.
- ------------------------------------------------------------------------
- --------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice
President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated
Services
Company and Federated Shareholder Services; Chairman, Treasurer, and
Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds;
Vice President and Treasurer of the Funds.
- ------------------------------------------------------------------------
- --------
- ------------------------------------------------------------------------
- --------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary,
Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services
Company;
Executive Vice President, Secretary, and Trustee, Federated
Administrative
Services; Secretary and Trustee, Federated Shareholder Services;
Executive Vice
President and Director, Federated Securities Corp.; Vice President and
Secretary
of the Funds.
- ------------------------------------------------------------------------
- --------
*This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940 as amended.
+Member of the Executive Committee. The Executive Committee of the Board
of
Directors handles the responsibilities of the Board of Directors
between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by
Federated
Management, the Fund's investment adviser (the "Adviser"), subject to
direction
by the Directors. The Adviser continually conducts investment research
and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory
fee
equal to 0.75% of the Fund's average daily net assets. The fee paid
by the
Fund, while higher than the advisory fee paid by other mutual funds
in
general, is comparable to fees paid by many mutual funds with
similar
objectives and policies. The Adviser may voluntarily choose to
waive a
portion of its fee. The Adviser can terminate this voluntary waiver
at any
time at its sole discretion. The Adviser has also undertaken to
reimburse
the Fund for operating expenses in excess of limitations
established by
certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business
trust
organized on April 11, 1989, is a registered investment adviser
under the
Investment Advisers Act of 1940. It is a subsidiary of Federated
Investors.
All of the Class A (voting) shares of Federated Investors are owned
by a
trust, the trustees of which are John F. Donahue, Chairman and
Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative
services
to a number of investment companies. Total assets under management
or
administration by these and other subsidiaries of Federated
Investors are
approximately $70 billion, including over $60 billion in fixed
income
assets. Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages
mutual funds primarily for the financial industry. Federated
Investors'
track record of competitive performance and its disciplined, risk-
averse
investment philosophy serve approximately 3,500 client institutions
nationwide. Through these same client institutions, individual
shareholders
also have access to this same level of investment expertise.
Randall S. Bauer is the Fund's portfolio manager. He has
contributed toward
the management of the Fund's portfolio of investments since its
inception
on May 15, 1991, while Federated Management served as the Fund's
sub-adviser, and continued in that capacity through March 15, 1994,
when,
pursuant to shareholder approval, Federated Management was
appointed the
Fund's investment adviser. Mr. Bauer joined Federated Investors in
1989 as
an Assistant Vice President of Federated Management. Mr. Bauer was
an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a
Chartered
Financial Analyst and received his M.B.A. in Finance from
Pennsylvania
State University.
SUB-ADVISER. Under the terms of a Sub-Advisory Agreement between
Federated
Management and Fiduciary Trust International Limited, Fiduciary Trust
International Limited will furnish to Federated Management such
investment
advice, statistical information, and other factual information as may,
from time
to time, be reasonably requested by Federated Management.
SUB-ADVISORY FEES. For its services under the Sub-Advisory
Agreement, the
sub-adviser receives an annual fee from the Adviser equal to .375
of 1% of
average daily net assets of the Fund. The sub-advisory fee is
accrued and
paid daily. In the event that the fee due from the Fund to the
Adviser is
reduced in order to meet expense limitations imposed on the Fund by
state
securities laws or regulations, the sub-advisory fee will be
reduced by
one-half of said reduction in the fee due from the Fund to the
Adviser.
Notwithstanding any other provision in the Sub-Advisory Agreement,
the
sub-adviser may, from time to time, and for such periods as it
deems
appropriate, reduce its compensation (and, if appropriate, assume
expenses
of the Fund) to the extent that the Fund's expenses exceed such
lower
expense limitations as the sub-adviser may, by notice to the Fund,
voluntarily declare to be effective.
SUB-ADVISER'S BACKGROUND. Fiduciary Trust International Limited is
located
at 30 Old Burlington Street, London, W1X1LB. Fiduciary Trust
International
Limited, which is an English company formed on May 20, 1985, is
registered
as an investment adviser with the Securities and Exchange
Commission and is
a member of the Investment Management Regulatory Organization, a
United
Kingdom self-regulatory organization. Substantially all of the
shares of
the sub-adviser are owned by Fiduciary Trust International (SA), a
wholly-owned subsidiary of Fiduciary Trust Company International.
No
director, officer or employee of the sub-adviser or Fiduciary Trust
International (SA) serves as a director, officer or employee of the
Corporation.
Fiduciary Trust Company International was founded in 1931 and is a
New York
state-chartered bank. It has focused primarily on the management of
the
investments and financial affairs of its customers, and has chosen
to
minimize its commercial banking activities (i.e., accepting
deposits and
making loans). As of December 31, 1994, Fiduciary Trust Company
International had total assets of approximately $375 million, and
total
assets under management of approximately $30 billion.
David Smart has been primarily responsible for management of the
Fund's
portfolio since its inception, when Fiduciary International, Inc.
was the
Fund's investment adviser. Mr. Smart, a Managing Director of
Fiduciary
Trust International Limited, joined its parent in 1988.
Fiduciary Trust International (SA) is a Swiss company organized to
act as
an intermediate foreign parent for certain of Fiduciary Trust
Company
International's foreign subsidiaries.
DISTRIBUTION OF CLASS B SHARES
Federated Securities Corp. is the principal distributor for Shares of
the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is
the
principal distributor for a number of investment companies. Federated
Securities
Corp. is a subsidiary of Federated Investors.
The distributor will pay financial institutions an amount equal to 5.50%
of the
net asset value of Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and
will not
be made from the assets of the Fund. Dealers may voluntarily waive
receipt of
all or any portion of these payments.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan
adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution
Plan"),
the Class B Shares will pay to the distributor an amount, computed at an
annual
rate of up to 0.75 of 1% of the average daily net assets of Class B
Shares, to
finance any activity which is principally intended to result in the sale
of
Shares subject to the Distribution Plan. The distributor may pay a
portion of
this amount to financial institutions that waive all or any portion of
the
payments discussed in the preceding paragraph. Because distribution fees
to be
paid by the Fund to the distributor may not exceed an annual rate of
0.75 of 1%
of the Shares' average daily net assets, it will take the distributor a
number
of years to recoup the expenses it has incurred for its distribution and
distribution-related services pursuant to the Distribution Plan.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no
payments to the distributor except as described above. Except as set
forth in
the next paragraph, the Fund does not pay for unreimbursed expenses of
the
distributor, including amounts expended by the distributor in excess of
amounts
received by it from the Fund, interest, carrying or other financing
charges in
connection with excess amounts expended, or the distributor's overhead
expenses.
However, the distributor may be able to recover such amounts or may earn
a
profit from future payments made by the Class B Shares under the
Distribution
Plan.
The distributor may sell, assign, or pledge its right to receive Rule
12b-1 fees
and CDSCs to finance payments made to brokers in connection with the
sale of
Class B Shares. Fiduciary Trust Company International, parent of the
sub-adviser, or one of its subsidiaries, including the sub-adviser,
expects to
participate in this financing program by purchasing 50% of the Rule 12b-
1 fees
and CDSCs assigned by the distributor. Actual distribution expenses for
Class B
Shares at any given time may exceed the Rule 12b-1 fees and payments
received
pursuant to CDSCs. These unrecovered amounts, plus interest thereon,
will be
carried forward and paid from future Rule 12b-1 fees and payments
received
through CDSCs. If the Distribution Plan were terminated or not
continued, the
Fund would not be contractually obligated to pay for any expenses not
previously
reimbursed by the Fund or recovered through CDSCs.
In addition, the Fund has adopted a Shareholder Services Plan (the
"Services
Plan") under which it may make payments up to 0.25 of 1% of the average
daily
net asset value of Class B Shares to obtain certain personal services
for
shareholders and for the maintenance of shareholder accounts
("shareholder
services"). The Fund has entered into a Shareholder Services Agreement
with
Federated Shareholder Services, a subsidiary of Federated Investors,
under which
Federated Shareholder Services will either perform shareholder services
directly
or will select financial institutions to perform shareholder services.
Financial
institutions will receive fees based upon Shares owned by their clients
or
customers. The schedules of such fees and the basis upon which such fees
will be
paid will be determined from time to time by the Fund and Federated
Shareholder
Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may offer to
pay a
fee from its own assets to financial institutions as financial
assistance for
providing substantial marketing and sales support. The support may
include
sponsoring sales, educational and training seminars at recreational-type
facilities, providing sales literature, and engineering computer
software
programs that emphasize the attributes of the Fund. Such assistance will
be
predicated upon the amount of Shares the financial institution sells or
may sell
and/or upon the nature and type of sales or marketing support furnished
by the
financial institution. Any payments made by the distributor may be
reimbursed by
the Fund's investment adviser or its affiliates.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial
bank or a savings and loan association) from being an underwriter or
distributor
of most securities. In the event the Glass-Steagall Act is deemed to
prohibit
depository institutions from acting in the capacities described above or
should
Congress relax current restrictions on depository institutions, the
Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions
to act as
underwriters or distributors of securities may differ from
interpretations given
to the Glass-Steagall Act and, therefore, banks and financial
institutions may
be required to register as dealers pursuant to state law.
The distributor may, from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Distribution
Plan.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a
subsidiary of
Federated Investors, provides administrative personnel and services
(including
certain legal and financial reporting services) necessary to operate the
Fund.
Federated Administrative Services provides these at an annual rate which
relates
to the average aggregate daily net assets of Federated Funds as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a
portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts,
is
custodian for the securities and cash of the Fund. Foreign instruments
purchased
by the Fund are held by foreign banks participating in a network
coordinated by
State Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services
Company,
Pittsburgh, Pennsylvania, is transfer agent for Shares of the Fund and
dividend
disbursing agent for the Fund.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for
the Fund
are Arthur Andersen LLP, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio
instruments, the Adviser looks for prompt execution of the order at a
favorable
price. In working with dealers, the Adviser will generally utilize those
who are
recognized dealers in specific portfolio instruments, except when a
better price
and execution of the order can be obtained elsewhere. In selecting among
firms
believed to meet this criteria, the Adviser may give consideration to
those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review
by the
Directors.
EXPENSES OF THE FUND AND CLASS B SHARES
Holders of Shares pay their allocable portion of Fund and Corporation
expenses.
The Corporation expenses for which holders of Class B Shares pay their
allocable
portion include, but are not limited to: the cost of organizing the
Corporation
and continuing its existence; registering the Corporation with federal
and state
securities authorities; Directors' fees; auditors' fees; the cost of
meetings of
Directors; legal fees of the Corporation; association membership dues;
and such
non-recurring and extraordinary items as may arise from time to time.
The Fund expenses for which holders of Shares pay their allocable
portion
include, but are not limited to: registering the Fund and Shares of the
Fund;
investment advisory services; taxes and commissions; custodian fees;
insurance
premiums; auditors' fees; and such non-recurring and extraordinary items
as may
arise from time to time.
At present, the only expenses which are allocated specifically to Shares
as a
class are expenses under the Fund's Services Plan and Distribution Plan.
However, the Directors reserve the right to allocate certain other
expenses to
holders of Shares as they deem appropriate ("Class Expenses"). In any
case,
Class Expenses would be limited to: distribution fees; transfer agent
fees as
identified by the transfer agent as attributable to holders of Shares;
fees
under the Fund's Services Plan; printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses,
and proxies to current shareholders; registration fees paid to the
Securities
and Exchange Commission and to state securities commissions; expenses
related
to administrative personnel and services as required to support holders
of
Shares; legal fees relating solely to Shares; and Directors' fees
incurred as a
result of issues relating solely to Shares.
SHAREHOLDER INFORMATION
- ------------------------------------------------------------------------
- --------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and
other
matters submitted to shareholders for vote. All shares of each portfolio
or
class in the Corporation have equal voting rights, except that, in
matters
affecting only a particular Fund or class, only shares of that
particular Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold
annual
shareholder meetings. Shareholder approval will be sought only for
certain
changes in the Fund's operation and for the election of Directors under
certain
circumstances. As of January 10, 1995, the International Society of
Nephrology
(Bond Account), University of Florida, Gainesville, Florida, owned
approximately
4,996 Shares (27.43%) and therefore may, for certain purposes, be deemed
to
control the Fund and be able to affect the outcome of certain matters
presented
for a vote of shareholders.
Directors may be removed by a two-thirds vote of the number of Directors
prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. The Directors shall call a special meeting of shareholders upon
the
written request of shareholders owning at least 10% of the Corporation's
outstanding shares entitled to vote.
TAX INFORMATION
- ------------------------------------------------------------------------
- --------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements
of the Internal Revenue Code, as amended (the "Code"), applicable to
regulated
investment companies and to receive the special tax treatment afforded
to such
companies.
The Fund will be treated as a single, separate entity for federal income
tax
purposes so that income (including capital gains) and losses realized by
the
Corporation's other portfolios, if any, will not be combined for tax
purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may
be subject to foreign taxes withheld at the source. The United States
has
entered into tax treaties with many foreign countries that entitle the
Fund to
reduced tax rates or exemptions on this income. The effective rate of
foreign
tax cannot be predicted since the amount of Fund assets to be invested
within
various countries is unknown. However, the Fund intends to operate so as
to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on
any dividends and other distributions, including capital gains
distributions,
received. This applies whether dividends and distributions are received
in cash
or as additional Shares. Distributions representing long-term capital
gains, if
any, will be taxable to shareholders as long-term capital gains no
matter how
long the shareholders have held the Shares. No federal income tax is due
on any
dividends earned in an IRA or qualified retirement plan until
distributed.
Quarterly distributions from the Fund are based on estimates of book
income for
the year. Tax basis income includes gains or losses attributable to
currency
fluctuation, whereas book income generally consists solely of the coupon
income
generated by the portfolio. Due to differences in the book and tax
treatment of
fixed incomes securities denominated in foreign currencies, it is
difficult to
project currency effects on an interim basis. Therefore, to the extent
that
currency fluctuations can not be anticipated, a portion of distributions
to
Shareholders could later be designated as a return of capital, rather
than
income, for income tax purposes, which may be of particular concern to
simple
trusts.
If more than 50% of the value of the Fund's assets at the end of the tax
year is
represented by stock or securities of foreign corporations, the Fund
intends to
qualify for certain Code stipulations that would allow shareholders to
claim a
foreign tax credit or deduction on their U.S. income tax returns. The
Code may
limit a shareholder's ability to claim a foreign tax credit.
Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign
taxes
rather than take the foreign tax credit must itemize deductions on their
income
tax returns.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
The Fund is not subject to Pennsylvania corporate or personal property
taxes.
Fund Shares may be subject to personal property taxes imposed by
counties,
municipalities, and school districts in Pennsylvania to the extent that
the
portfolio securities in the Fund would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of
their accounts under state and local tax laws, including treatment of
distributions as income or return of capital.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------
- --------
From time to time, the Fund advertises the total return and yield for
Class B
Shares.
Total return represents the change, over a specific period of time, in
the value
of an investment in Class B Shares after reinvesting all income and
capital
gains distributions. It is calculated by dividing that change by the
initial
investment and is expressed as a percentage.
The yield of Class B Shares is calculated by dividing the net investment
income
per Share (as defined by the Securities and Exchange Commission) earned
by Class
B Shares over a thirty-day period by the maximum offering price per
Share on the
last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually
earned by
Class B Shares and, therefore, may not correlate to the dividends or
other
distributions paid to shareholders.
The performance information reflects the effect of non-recurring
charges, such
as the CDSC, which, if excluded, would increase the total return and
yield.
Total return and yield will be calculated separately for Class A Shares,
Class B
Shares, and Class C Shares. Because Class A Shares may be subject to
lower 12b-1
fees, the yield for Class A Shares, for the same period, may exceed that
of
Class B Shares and Class C Shares. Because Class A Shares are subject to
a
front-end sales load, the total return for Class B Shares and Class C
Shares,
for the same period, may exceed that of Class A Shares. Depending on the
dollar
amount invested and the time period for which any class of shares is
held, the
total return for any particular class may exceed that of another.
From time to time, the Fund may advertise the performance of Shares
using
certain financial publications and/or compare the performance of Shares
to
certain indices.
OTHER CLASSES OF SHARES
- ------------------------------------------------------------------------
- --------
Class A Shares are sold primarily to customers of financial institutions
subject
to a front-end sales load of up to 4.50% and a Rule 12b-1 fee of up to
0.25 of
1%. Under certain circumstances, investors may qualify for reduced sales
loads
on purchases of Class A Shares. Class A Shares are also subject to a
shareholder
services fee of up to 0.25 of 1% of the Class A Shares' average daily
net
assets. Investments in Class A Shares are subject to a minimum initial
investment of $500, unless the investment is in a retirement account, in
which
case the minimum is $50.
Class C Shares are sold primarily to customers of financial institutions
at net
asset value with no initial sales load. Class C Shares are distributed
pursuant
to a Distribution Plan adopted by the Fund whereby the distributor is
paid a fee
of up to 0.75 of 1%. Class C Shares are also subject to a shareholder
services
fee of up to 0.25 of 1% of the Class C Shares' average daily net assets.
In
addition, Class C Shares may be subject to certain CDSCs. Investments in
Class C
Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum
investment is
$50.
The amount of dividends payable to Class A Shares will generally exceed
that
payable to Class B Shares and Class C Shares by the difference between
Class
Expenses and distribution and shareholder service expenses borne by
shares of
each respective class.
The stated advisory fee is the same for all classes of shares.
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 48.
<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
0.70 0.88 0.62 0.25
- -------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions
(0.76) 1.40 (0.20) 0.75
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
Total from investment operations
(0.06) 2.28 0.42 1.00
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Dividends to shareholders from net investment income
(0.63) (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
(1.28) (0.89) (0.79) (0.16)
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $
10.52 $ 11.86 $ 10.47 $ 10.84
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
TOTAL RETURN**
(0.84%) 22.95% 3.82% 10.07%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses
1.30% 1.25% 0.99% 0.32%(a)
- -------------------------------------------------------------------
Net investment income
6.67% 7.71% 5.83% 7.54%(a)
- -------------------------------------------------------------------
Expense waiver/reimbursement (c)
0.20% 0.27% 0.62% 1.18%(a)
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted)
$209,008 $220,602 $86,937 $23,465
- -------------------------------------------------------------------
Portfolio turnover rate
136% 189% 314% 35%
- -------------------------------------------------------------------
</TABLE>
* Reflects operations for the period June 4, 1991 (date of initial
public
investment) to November 30, 1991. For the period from the start of
business,
May 15, 1991, to June 3, 1991, the net investment income was
distributed to
the Corporation's adviser.
** Based on net asset value which does not reflect the sales load or
contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) Distributions are determined in accordance with income tax
regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal
income tax
purposes.
(c) This voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 48.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S>
<C> <C>
1994 1993*
NET ASSET VALUE, BEGINNING OF PERIOD
$ 11.84 $ 10.23
- ------------------------------------------------------------------------
- ---------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- ---------------------
Net investment income
0.58 0.41
- ------------------------------------------------------------------------
- ---------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions
(0.72) 1.58
- ------------------------------------------------------------------------
- --------------------- --------- ---------
Total from investment operations
(0.14) 1.99
- ------------------------------------------------------------------------
- --------------------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- ---------------------
Dividends to shareholders from net investment income
(0.57) (0.38)
- ------------------------------------------------------------------------
- ---------------------
Distributions to shareholders from net realized gain on investment
transactions (0.65) --
- ------------------------------------------------------------------------
- --------------------- --------- ---------
Total distributions
(1.22) (0.38)
- ------------------------------------------------------------------------
- --------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD
$ 10.48 $ 11.84
- ------------------------------------------------------------------------
- --------------------- --------- ---------
TOTAL RETURN**
(1.54%) 19.67%
- ------------------------------------------------------------------------
- ---------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- ---------------------
Expenses
2.05% 2.05%(a)
- ------------------------------------------------------------------------
- ---------------------
Net investment income
6.00% 5.39%(a)
- ------------------------------------------------------------------------
- ---------------------
Expense waiver/reimbursements (b)
0.10% 0.21%(a)
- ------------------------------------------------------------------------
- ---------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- ---------------------
Net assets, end of period (000 omitted)
$ 8,098 $ 4,767
- ------------------------------------------------------------------------
- ---------------------
Portfolio turnover rate
136% 189%
- ------------------------------------------------------------------------
- ---------------------
</TABLE>
* Reflects operations for the period from March 31, 1993 (start of
business)
to November 30, 1993.
** Based on net asset value which does not reflect the sales load or
contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
CREDIT VALUE
PAR
RATING: IN U.S.
AMOUNT
MOODY'S* DOLLARS
<C> <S>
<C> <C>
BONDS--95.5%
- ------------------------------------------------------------------------
- -----------
AUSTRALIAN DOLLAR--26.6%
- ------------------------------------------------------------------------
- -----------
AGENCY--21.5%
-----------------------------------------------------
- -----------
30,000,000 New South Wales Treasury Corp., 11.50%, 7/1/99
Aaa $ 23,955,733
-----------------------------------------------------
- -----------
15,000,000 New South Wales Treasury Corp., 12.00%, 12/1/2001
Aaa 12,271,826
-----------------------------------------------------
- -----------
15,500,000 Queensland Treasury Corp., 8.00%, 8/14/2001
Aaa 10,433,792
-----------------------------------------------------
- ----------- --------------
Total
46,661,351
-----------------------------------------------------
- ----------- --------------
SUPRANATIONAL--5.1%
-----------------------------------------------------
- -----------
14,500,000 European Investment Bank, 10.25%, 10/1/2001
Aaa 11,143,560
-----------------------------------------------------
- ----------- --------------
TOTAL AUSTRALIAN DOLLAR
57,804,911
-----------------------------------------------------
- ----------- --------------
BRITISH POUND--30.6%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--24.5%
-----------------------------------------------------
- -----------
9,500,000 UK Treasury, 7.00%, 11/6/2001
Aaa 13,732,677
-----------------------------------------------------
- -----------
26,000,000 UK Treasury, 8.00%, 6/10/2003
Aaa 39,378,112
-----------------------------------------------------
- ----------- --------------
Total
53,110,789
-----------------------------------------------------
- ----------- --------------
SUPRANATIONAL--6.1%
-----------------------------------------------------
- -----------
4,000,000 African Development Bank, 11.25%, 7/23/2001
Aaa 6,913,561
-----------------------------------------------------
- -----------
4,000,000 World Bank, 9.25%, 7/20/2007
Aaa 6,432,039
-----------------------------------------------------
- ----------- --------------
Total
13,345,600
-----------------------------------------------------
- ----------- --------------
TOTAL BRITISH POUND
66,456,389
-----------------------------------------------------
- ----------- --------------
CANADIAN DOLLAR--3.3%
- ------------------------------------------------------------------------
- -----------
AGENCY--3.3%
-----------------------------------------------------
- -----------
10,000,000 Ontario Hydro, 9.00%, 6/24/2002
Aa2 7,109,430
-----------------------------------------------------
- ----------- --------------
TOTAL CANADIAN DOLLAR
7,109,430
-----------------------------------------------------
- ----------- --------------
DANISH KRONE--3.6%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.6%
-----------------------------------------------------
- -----------
50,000,000 Kingdom of Denmark, 8.00%, 5/15/2003
Aaa $ 7,819,793
-----------------------------------------------------
- ----------- --------------
TOTAL DANISH KRONE
7,819,793
-----------------------------------------------------
- ----------- --------------
FINNISH MARKKA--3.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.8%
-----------------------------------------------------
- -----------
42,000,000 Republic of Finland, 9.50%, 3/15/2004
Aa2 8,208,785
-----------------------------------------------------
- ----------- --------------
TOTAL FINNISH MARKKA
8,208,785
-----------------------------------------------------
- ----------- --------------
FRENCH FRANC--4.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.8%
-----------------------------------------------------
- -----------
60,000,000 Government of France, 6.75%, 10/25/2003
Aaa 10,363,262
-----------------------------------------------------
- ----------- --------------
TOTAL FRENCH FRANC
10,363,262
-----------------------------------------------------
- ----------- --------------
IRISH PUNT--5.5%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--5.5%
-----------------------------------------------------
- -----------
7,500,000 Republic of Ireland, 9.25%, 7/11/2003
Aaa 11,976,048
-----------------------------------------------------
- ----------- --------------
TOTAL IRISH PUNT
11,976,048
-----------------------------------------------------
- ----------- --------------
NETHERLANDS GUILDER--4.2%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.2%
-----------------------------------------------------
- -----------
15,000,000 Netherlands, 8.50%, 3/15/2001
Aaa 9,017,908
-----------------------------------------------------
- ----------- --------------
TOTAL NETHERLANDS GUILDER
9,017,908
-----------------------------------------------------
- ----------- --------------
NEW ZEALAND DOLLAR--4.9%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.9%
-----------------------------------------------------
- -----------
18,000,000 New Zealand, 8.00%, 4/15/2004
Aa3 10,703,989
-----------------------------------------------------
- ----------- --------------
TOTAL NEW ZEALAND DOLLAR
10,703,989
-----------------------------------------------------
- ----------- --------------
SPANISH PESETA--4.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.8%
-----------------------------------------------------
- -----------
1,400,000,000 Kingdom of Spain, 10.25%, 11/30/98
Aaa $ 10,474,766
-----------------------------------------------------
- ----------- --------------
TOTAL SPANISH PESETA
10,474,766
-----------------------------------------------------
- ----------- --------------
SWEDISH KRONA--3.4%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.4%
-----------------------------------------------------
- -----------
50,000,000 Kingdom of Sweden, 13.00%, 6/15/2001
Aaa 7,360,258
-----------------------------------------------------
- -----------
358,000 Salomon, Inc., Warrant on Sweden, 11.00%, 1/25/99
(Expires
1/25/95)**
A3 96,660(a)
-----------------------------------------------------
- ----------- --------------
TOTAL SWEDISH KRONA
7,456,918
-----------------------------------------------------
- ----------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $215,563,676)
207,392,199+
-----------------------------------------------------
- ----------- --------------
</TABLE>
*Please refer to the Appendix of the Statement of Additional
Information for
an explanation of the credit ratings. Current credit ratings are
unaudited.
**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 cost for federal tax purposes amounts to $215,563,676. The net
unrealized
depreciation of investments amounts to $8,171,477, which is comprised
of
$281,874 appreciation and $8,453,351 depreciation at November 30,
1994.
Note: The categories of investments are shown as a percentage of net
assets
($217,205,532) at November 30, 1994.
(a)Non-income producing security.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
ASSETS:
- ------------------------------------------------------------------------
- ---------------------------
Investments in securities, at value (identified and tax cost,
$215,563,676) $207,392,199
- ------------------------------------------------------------------------
- ---------------------------
Cash
294,877
- ------------------------------------------------------------------------
- ---------------------------
Interest receivable
8,385,586
- ------------------------------------------------------------------------
- ---------------------------
Receivable for investments sold
1,455,471
- ------------------------------------------------------------------------
- ---------------------------
Receivable for foreign currency sold
1,454,865
- ------------------------------------------------------------------------
- ---------------------------
Receivable for capital stock sold
60,915
- ------------------------------------------------------------------------
- ---------------------------
Deferred expenses
7,179
- ------------------------------------------------------------------------
- --------------------------- -----------
Total assets
219,051,092
- ------------------------------------------------------------------------
- ---------------------------
LIABILITIES:
- ------------------------------------------------------------------------
- ---------------------------
Payable for foreign currency purchased
$1,455,471
- ------------------------------------------------------------------------
- ----------------
Payable for capital stock redeemed
255,119
- ------------------------------------------------------------------------
- ----------------
Tax withholding liability
69,204
- ------------------------------------------------------------------------
- ----------------
Accrued expenses
65,766
- ------------------------------------------------------------------------
- ---------------- ---------
Total liabilities
1,845,560
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS for 20,643,766 shares of capital stock outstanding
$217,205,532
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------
- ---------------------------
Paid-in capital
$238,384,981
- ------------------------------------------------------------------------
- ---------------------------
Net unrealized appreciation (depreciation) of investments and
translation of assets
and liabilities in foreign currencies
(8,081,204)
- ------------------------------------------------------------------------
- ---------------------------
Accumulated net realized gain (loss) on investments and foreign currency
transactions (16,137,975)
- ------------------------------------------------------------------------
- ---------------------------
Undistributed net investment income
3,039,730
- ------------------------------------------------------------------------
- --------------------------- -----------
Total net assets
$217,205,532
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSET VALUE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares ($209,007,501 / 19,861,796 shares of capital stock
outstanding) $10.52
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares ($100,522 / 9,566 shares of capital stock outstanding)
$10.51
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares ($8,097,509 / 772,404 shares of capital stock
outstanding) $10.48
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF OFFERING PRICE PER SHARE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares (100/95.5 of $10.52)*
$11.02
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares
$10.51
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares
$10.48
- ------------------------------------------------------------------------
- --------------------------- -----------
REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares
$10.52
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares (94.5/100 of $10.51)**
$9.93
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares (99/100 of $10.48)**
$10.38
- ------------------------------------------------------------------------
- --------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------
- ---------------------------
Interest (net of foreign taxes withheld of $300,285)
$ 19,350,257
- ------------------------------------------------------------------------
- ---------------------------
EXPENSES:
- ------------------------------------------------------------------------
- ---------------------------
Investment advisory fee
$ 1,819,216
- ------------------------------------------------------------------------
- --------------
Administrative personnel and services fees
334,436
- ------------------------------------------------------------------------
- --------------
Custodian and portfolio accounting services and expenses
310,321
- ------------------------------------------------------------------------
- --------------
Transfer and dividend disbursing agent fees and expenses
75,146
- ------------------------------------------------------------------------
- --------------
Directors' fees
6,511
- ------------------------------------------------------------------------
- --------------
Auditing fees
39,733
- ------------------------------------------------------------------------
- --------------
Legal fees
18,025
- ------------------------------------------------------------------------
- --------------
Capital stock registration costs
54,982
- ------------------------------------------------------------------------
- --------------
Printing and postage
98,003
- ------------------------------------------------------------------------
- --------------
Insurance premiums
11,760
- ------------------------------------------------------------------------
- --------------
Taxes
16,198
- ------------------------------------------------------------------------
- --------------
Class A shareholder servicing fee
221,397
- ------------------------------------------------------------------------
- --------------
Class B shareholder servicing fee
26
- ------------------------------------------------------------------------
- --------------
Class C shareholder servicing fee
19,544
- ------------------------------------------------------------------------
- --------------
Class A distribution services fee
586,447
- ------------------------------------------------------------------------
- --------------
Class B distribution services fee
79
- ------------------------------------------------------------------------
- --------------
Class C distribution services fee
59,787
- ------------------------------------------------------------------------
- --------------
Miscellaneous
14,070
- ------------------------------------------------------------------------
- -------------- -----------
Total expenses
3,685,681
- ------------------------------------------------------------------------
- --------------
Deduct--
- ------------------------------------------------------------------------
- ---
Waiver of investment advisory fee
$ 232,622
- ------------------------------------------------------------------------
- ---
Waiver of distribution services fee--Class A
239,567 472,189
- ------------------------------------------------------------------------
- --- --------- -----------
Net expenses
3,213,492
- ------------------------------------------------------------------------
- --------------------------- ------------
Net investment income
16,136,765
- ------------------------------------------------------------------------
- --------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ------------------------------------------------------------------------
- ---------------------------
Net realized gain (loss) on investment and foreign currency
transactions (identified cost basis)
(19,246,738)
- ------------------------------------------------------------------------
- ---------------------------
Net change in unrealized appreciation (depreciation) of investments
and foreign currency
(1,632,121)
- ------------------------------------------------------------------------
- --------------------------- ------------
Net realized and unrealized gain (loss) on investments and foreign
currency (20,878,859)
- ------------------------------------------------------------------------
- --------------------------- ------------
Change in net assets resulting from operations
($ 4,742,094)
- ------------------------------------------------------------------------
- --------------------------- ------------
</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
$ 16,136,765 $ 10,115,823
- ------------------------------------------------------------------------
- -----------
Net realized gain (loss) on investments and foreign currency
transactions
($16,137,072 net loss and $12,707,324 net gain, respectively,
as computed for federal tax purposes)
(19,246,738) 14,622,033
- ------------------------------------------------------------------------
- -----------
Change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currencies
(1,632,121) (1,145,113)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets resulting from operations
(4,742,094) 23,592,743
- ------------------------------------------------------------------------
- ----------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
- -----------
Dividends to shareholders from net investment income:
- ------------------------------------------------------------------------
- -----------
Class A Shares
(13,175,437) (8,164,154)
- ------------------------------------------------------------------------
- -----------
Class C Shares
(365,743) (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
(26,248,844) (9,391,846)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
CAPITAL STOCK TRANSACTIONS
- ------------------------------------------------------------------------
- -----------
Net proceeds from sale of shares
177,536,131 172,701,876
- ------------------------------------------------------------------------
- -----------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock
8,109,375 2,711,987
- ------------------------------------------------------------------------
- -----------
Cost of shares redeemed
(162,817,187) (51,183,603)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets resulting from capital stock transactions
22,828,319 124,230,260
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets
(8,162,619) 138,431,157
- ------------------------------------------------------------------------
- -----------
NET ASSETS:
- ------------------------------------------------------------------------
- -----------
Beginning of period
225,368,151 86,936,994
- ------------------------------------------------------------------------
- ----------- -------------- -------------
End of period (including undistributed net investment income of
$3,039,730 and $1,485,988, respectively)
$ 217,205,532 $ 225,368,151
- ------------------------------------------------------------------------
- ----------- -------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
(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.
Effective September 27, 1994 (effective date of Class B Shares) the Fund
provides three classes of shares Class A Shares, Class B Shares, and
Class C
Shares.
Effective March 15, 1994, the Corporation changed its name FT Series
Inc. 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 and asset backed securities) are valued at the last sale
price
reported on national securities exchanges. Unlisted bonds and
securities
and short-term obligations are valued at the prices provided by an
independent pricing service. Short-term securities with remaining
sixty
maturities of days, or less 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.
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 (the "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, if applicable 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. At
November
30, 1994, the Fund, for federal tax purposes, had a capital loss
carryforward of $16,137,072 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 2002 ($16,137,072).
F. FOREIGN CURRENCY COMMITMENTS--The Fund may enter into foreign
currency
commitments for the delayed delivery of securities or foreign
currency
exchange transactions. Risks may arise upon entering these
transactions
from the potential inability of counterparts to meet the terms of
their
commitments and from unanticipated movements in security prices or
foreign
exchange rates. The foreign currency transactions 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
settlement date.
At November 30, 1994, the Fund had outstanding foreign currency
commitments
set out below:
<TABLE>
<CAPTION>
COMMITMENTS
UNREALIZED
TO DELIVER/
IN EXCHANGE APPRECIATION
SETTLEMENT DATE RECEIVE
FOR (DEPRECIATION)
<S> <C>
<C> <C>
UNSETTLED TRANSACTIONS
12/2/94
UK Pound
928,736 $ 1,454,865 $ (606)
- ------
</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 year ended November
30,
1994, the Fund had a realized gain of $408,000 on written options.
The following is a summary of the Fund's written option activity:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
CONTRACTS
CONTRACTS FACE VALUE
<S>
<C> <C>
Option
Outstanding at December 1, 1993
1 $60,000,000
Contracts opened
- -- --
Contracts expired
(1) ($ 60,000,000)
- ------ --------------
Outstanding at November 30, 1994
- -- $ --
- ------ --------------
</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 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. 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.
J. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the
initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five
years from
the Fund's commencement date.
K. OTHER--Investment transactions are accounted for on the 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. Accordingly, amounts as of
November 30,
1994, have been reclassified to reflect an increase in paid-in-
capital of
$217,491, a decrease in undistributed net investment income of
$1,041,845,
and a decrease in accumulated net realized loss of $824,354. Net
investment
income, net realized gains, and net assets were not affected by
this
change.
(3) CAPITAL STOCK
At November 30, 1994, there were 500,000,000 shares of $.0001 par value
capital
stock authorized for Class A Shares, Class B 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 15,262,427 $
169,735,435 14,494,139 $ 167,776,782
- ---------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 692,848
7,698,922 243,001 2,687,283
- ---------------------------------------------------
Shares redeemed (14,688,399)
(159,024,074) (4,447,404) (50,982,677)
- --------------------------------------------------- ------------- ----
- ----------- ------------ --------------
Net change resulting from Class A transactions 1,266,876 $
18,410,283 10,289,736 $ 119,481,388
- --------------------------------------------------- ------------- ----
- ----------- ------------ --------------
<CAPTION>
YEAR
ENDED
NOVEMBER
30,
1994*
CLASS B SHARES SHARES
AMOUNT
<S> <C> <C>
Shares sold 10,320 $
108,114
- ---------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 0
0
- ---------------------------------------------------
Shares redeemed (754)
(7,894)
- --------------------------------------------------- ------------- ----
- -----------
Net change resulting from Class B transactions 9,566 $
100,220
- --------------------------------------------------- ------------- ----
- -----------
</TABLE>
*For the period from September 19, 1994 (start of business) to November
30,
1994.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994
1993*
CLASS C SHARES SHARES
AMOUNT SHARES AMOUNT
<S> <C> <C>
<C> <C>
Shares sold 688,918 $
7,692,582 409,680 $ 4,925,094
- -------------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 37,082
410,453 2,095 24,704
- -------------------------------------------------------
Shares redeemed (356,033)
(3,785,219) (9,338) (200,926)
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
Net change resulting from Class C
transactions 369,967 $
4,317,816 402,437 $ 4,748,872
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
Net change resulting from Fund share transactions 1,646,409 $
22,828,319 10,692,173 $ 124,230,260
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
</TABLE>
*For the period from March 31, 1993 (start of business) 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 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 International, Inc. (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
International, Inc.
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 International, Inc., served as the
Fund's
sub-adviser and received an annual fee from Fiduciary International,
Inc. 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.
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 A
Shares,
Class B 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%, 0.75 of 1%, of
the
average daily net assets of the Class A Shares, Class B 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
fiscal year ended November 30, 1994 were as follows:
<TABLE>
<S>
<C>
- ------------------------------------------------------------------------
- --------------------------
PURCHASES
$ 324,082,442
- ------------------------------------------------------------------------
- -------------------------- --------------
SALES
$ 315,705,738
- ------------------------------------------------------------------------
- -------------------------- --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------
- --------
To the Shareholders and Board of Directors of
INTERNATIONAL SERIES, INC. (formerly FT Series, Inc.)
(International Income Fund):
We have audited the accompanying statement of assets and liabilities of
International Income Fund (an investment portfolio of International
Series,
Inc., formerly FT Series, Inc., a Maryland Corporation), including the
schedule
of portfolio investments, as of November 30, 1994, the related statement
of
operations for the year then ended, the statements of changes in net
assets for
each of the two years in the period then ended and financial highlights
for each
of the periods presented. These financial statements and financial
highlights
are the responsibility of the Fund's managment. Our responsibility is to
express
an opinion on these financial statements and financial highlights based
on our
audites.
We conducted our audits in accordnace with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and
financial
highlights are free of material mistatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. Our procedures included confirmation of the securities owned
as of
November 30, 1994, by correspondence with the custodian and broker. An
audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable basis for
our
opinion.
In our opinion, the financial statements and financial highlights
referred to
above present fairly, in all material respects, the financial position
of
International Income Fund, an investment portfolio of International
Series,
Inc., as of November 30, 1994, and the results of its operations for the
year
then ended, the changes in its net assets for each of the two years in
the
period then ended and financial highlights for each of the periods
presented in
conformity with generally accepted accounting principles.
ARTHUR
ANDERSEN LLP
Pittsburgh, Pennsylvania
January 13, 1995
ADDRESSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S> <C>
<C>
International Income Fund
Class B Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Distributor
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Sub-adviser
Fiduciary Trust
30 Old Burlington Street
International Limited
London W1X1LB
England
- ------------------------------------------------------------------------
- ---------------------------------------------
Custodian
State Street Bank
P.O. Box 8604
and Trust Company
Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------
- ---------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Independent Public Accountants
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------
- ---------------------------------------------
</TABLE>
INTERNATIONAL INCOME
FUND
CLASS B SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
January 31, 1995
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
46031P506
1051602A-B (1/95)
INTERNATIONAL INCOME FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
(FORMERLY, FT SERIES, INC.)
CLASS C SHARES
PROSPECTUS
The Class C Shares of International Income Fund (the "Fund") offered by
this
prospectus represent interests in the Fund, which is a non-diversified
investment portfolio in International Series, Inc. (formerly, FT Series,
Inc.)
(the "Corporation"), an open-end, management investment company (a
mutual fund).
The Fund's objective is to seek a high level of current income in U.S.
Dollars
consistent with prudent investment risk. The Fund has a secondary
objective of
capital appreciation. The Fund will pursue these objectives by investing
in
high-quality debt securities denominated primarily in foreign
currencies.
THE CLASS C SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS C SHARES INVOLVES
INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you
invest in Class C Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Class
A Shares, Class B Shares, and Class C Shares dated January 31, 1995,
with the
Securities and Exchange Commission. The information contained in the
Combined
Statement of Additional Information is incorporated by reference into
this
prospectus. You may request a copy of the Combined Statement of
Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the
address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1995
TABLE OF CONTENTS
- ------------------------------------------------------------------------
- --------
SUMMARY OF FUND EXPENSES
1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
2
- ------------------------------------------------------
GENERAL INFORMATION
3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS
3
- ------------------------------------------------------
LIBERTY FAMILY RETIREMENT PROGRAM
4
- ------------------------------------------------------
INVESTMENT INFORMATION
5
- ------------------------------------------------------
Investment Objective
5
Investment Policies
5
Hedging Vehicles and Strategies
10
Hedging Strategies
11
Investment Limitations
13
NET ASSET VALUE
14
- ------------------------------------------------------
INVESTING IN CLASS C SHARES
14
- ------------------------------------------------------
Share Purchases
14
Minimum Investment Required
15
What Shares Cost
15
Systematic Investment Program
15
Certificates and Confirmations
15
Dividends
16
Capital Gains
16
Retirement Plans
16
EXCHANGE PRIVILEGE
16
- ------------------------------------------------------
Requirements for Exchange
16
Tax Consequences
17
Making an Exchange
17
REDEEMING CLASS C SHARES
17
- ------------------------------------------------------
Through a Financial Institution
17
Directly from the Fund
18
Contingent Deferred Sales Charge
19
Systematic Withdrawal Program
19
Accounts with Low Balances
20
INTERNATIONAL SERIES, INC. INFORMATION
20
- ------------------------------------------------------
Management of the Corporaton
20
Distribution of Class C Shares
26
Administration of the Fund
27
Brokerage Transactions
28
SHAREHOLDER INFORMATION
28
- ------------------------------------------------------
Voting Rights
28
TAX INFORMATION
29
- ------------------------------------------------------
Federal Income Tax
29
Pennsylvania Corporate and
Personal Property Taxes
29
PERFORMANCE INFORMATION
30
- ------------------------------------------------------
OTHER CLASSES OF SHARES
30
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
32
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
33
- ------------------------------------------------------
FINANCIAL STATEMENTS
34
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
46
- ------------------------------------------------------
ADDRESSES
47
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering
price)..........................................................
None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)
(1)............................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................. None
Exchange
Fee.....................................................................
.............. None
ANNUAL CLASS C SHARES
OPERATING EXPENSES
(As a percentage of average
net assets)
Management Fee (after waiver)
(2)..............................................................
0.65%
12b-1
Fee.....................................................................
................. 0.75%
Total Other
Expenses................................................................
........... 0.65%
Shareholder Services Fee (after waiver)
(3)................................................ 0.20%
Total Class C Shares Operating Expenses
(4)........................................... 2.05%
</TABLE>
- ------------
(1) The contingent deferred sales charge assessed is 1.00% of the lesser
of the
original purchase price or the net asset value of shares redeemed
within one
year of their purchase date. For a more complete description, see
"Redeeming
Class C Shares."
(2) The management fee has been reduced to reflect the voluntary waiver
of a
portion of the management fee. The adviser can terminate this
voluntary
waiver at any time at its sole discretion. The maximum management
fee is
0.75%.
(3) The maximum shareholder services fee is 0.25%.
(4) The total Class C Shares operating expenses in the table above are
based on
expenses expected during the fiscal year ending November 30, 1995.
The total
operating expenses were 2.05% for the fiscal year ended November 30,
1994
and were 2.15% absent the voluntary waiver of the management fee.
The purpose of this table is to assist an investor in understanding
the
various costs and expenses that a shareholder of Class C Shares of the
Fund will
bear, either directly or indirectly. For more complete descriptions of
the
various costs and expenses, see "Investing in Class C Shares" and
"International
Series, Inc. Information." Wire-transferred redemptions of less than
$5,000 may
be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of
the
maximum front-end sales charges permitted under the rules of the
National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE
1 year 3 years 5 years 10 years
<S>
<C> <C> <C> <C>
- --------- --------- --------- ---------
You would pay the following expenses on a $1,000 investment, assuming
(1)
5% annual return and (2) redemption at the end of each time
period....... $31 $64 $110 $238
You would pay the following expenses on the same investment assuming no
redemption..............................................................
. $21 $64 $110 $238
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The information set forth in the foregoing table and example relates
only to
Class C Shares of the Fund. The Fund also offers two additional classes
of
shares called Class A Shares and Class B Shares. Class C Shares, Class A
Shares
and Class B Shares are subject to certain of the same expenses. However,
Class A
Shares are subject to a maximum sales load of 4.50%, and a 12b-1 fee of
up to
0.25% but may be subject to a contingent deferred sales charge. Class B
Shares
are subject to a 12b-1 fee of 0.75% and a contingent deferred sales
charge of up
to 5.50%, but are not subject to a sales load. See "Other Classes of
Shares."
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 46.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S>
<C> <C>
1994 1993*
NET ASSET VALUE, BEGINNING OF PERIOD
$ 11.84 $ 10.23
- ------------------------------------------------------------------------
- ---------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- ---------------------
Net investment income
0.58 0.41
- ------------------------------------------------------------------------
- ---------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions
(0.72) 1.58
- ------------------------------------------------------------------------
- --------------------- --------- ---------
Total from investment operations
(0.14) 1.99
- ------------------------------------------------------------------------
- --------------------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- ---------------------
Dividends to shareholders from net investment income
(0.57) (0.38)
- ------------------------------------------------------------------------
- ---------------------
Distributions to shareholders from net realized gain on investment
transactions (0.65) --
- ------------------------------------------------------------------------
- --------------------- --------- ---------
Total distributions
(1.22) (0.38)
- ------------------------------------------------------------------------
- --------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD
$ 10.48 $ 11.84
- ------------------------------------------------------------------------
- --------------------- --------- ---------
TOTAL RETURN**
(1.54%) 19.67%
- ------------------------------------------------------------------------
- ---------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- ---------------------
Expenses
2.05% 2.05%(a)
- ------------------------------------------------------------------------
- ---------------------
Net investment income
6.00% 5.39%(a)
- ------------------------------------------------------------------------
- ---------------------
Expense waiver/reimbursements (b)
0.10% 0.21%(a)
- ------------------------------------------------------------------------
- ---------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- ---------------------
Net assets, end of period (000 omitted)
$ 8,098 $ 4,767
- ------------------------------------------------------------------------
- ---------------------
Portfolio turnover rate
136% 189%
- ------------------------------------------------------------------------
- ---------------------
</TABLE>
* Reflects operations for the period from March 31, 1993 (start of
business)
to November 30, 1993.
** Based on net asset value which does not reflect the sales load or
contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
GENERAL INFORMATION
- ------------------------------------------------------------------------
- --------
The Corporation was established as FT International Trust, a
Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under
the
laws of the state of Maryland on February 11, 1991. At a special meeting
of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the
name of the
Corporation to International Series, Inc. The Corporation's address is
Liberty
Center, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
The
Articles of Incorporation permit the Corporation to offer separate
series of
shares representing interests in separate portfolios of securities. The
shares
in any one portfolio may be offered in separate classes. With respect to
this
Fund, as of the date of this prospectus, the Board of Directors
("Directors")
has established three classes of shares, known as Class A Shares, Class
B
Shares, and Class C Shares. This prospectus relates only to Class C
Shares
("Shares") of the Corporation's portfolio known as International Income
Fund.
Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended
to
provide a complete investment program for an investor. Shares are sold
at net
asset value and are redeemed at net asset value. However, a contingent
deferred
sales charge ("CDSC") of 1.00% will be charged on assets redeemed within
the
first twelve months following purchase. A minimum initial investment of
$1,500
is required, unless the investment is in a retirement account, in which
case the
minimum investment is $50.
The Fund's current net asset value can be found in the mutual funds
section of
local newspapers under "Federated Liberty."
LIBERTY FAMILY OF FUNDS
- ------------------------------------------------------------------------
- --------
The Fund is a member of a family of mutual funds, collectively known as
the
Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
. American Leaders Fund, Inc., providing growth of capital and
income
through high-quality stocks;
. Capital Growth Fund, providing appreciation of capital primarily
through
equity securities;
. Fund for U.S. Government Securities, Inc., providing current
income
through long-term U.S. government securities;
. International Equity Fund, providing long-term capital growth and
income
through international securities;
. Liberty Equity Income Fund, Inc., providing above-average income
and
capital appreciation through income producing equity securities;
. Liberty High Income Bond Fund, Inc., providing high current
income
through high-yielding, lower-rated, corporate bonds;
. Liberty Municipal Securities Fund, Inc., providing a high level
of
current income exempt from federal regular income tax through
municipal
bonds;
. Liberty U.S. Government Money Market Trust, providing current
income
consistent with stability of principal through high-quality U.S.
government securities;
. Liberty Utility Fund, Inc., providing current income and long-
term growth
of income, primarily through electric, gas, and communications
utilities;
. Limited Term Fund, providing a high level of current income
consistent
with minimum fluctuation in principal through investment grade
securities;
. Limited Term Municipal Fund, providing a high level of current
income
exempt from federal regular income tax consistent with the
preservation
of principal, primarily limited to municipal securities;
. Michigan Intermediate Municipal Trust, providing current income
exempt
from federal regular income tax and personal income taxes imposed
by the
state of Michigan and Michigan municipalities, primarily through
Michigan
municipal securities;
. Pennsylvania Municipal Income Fund, providing current income
exempt from
federal regular income tax and the personal income taxes imposed
by the
Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal
securities;
. Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt
obligations;
. Tax-Free Instruments Trust, providing current income consistent
with the
stability of principal and exempt from federal income tax,
through
high-quality, short-term municipal securities; and
. World Utility Fund, providing total return primarily through
securities
issued by domestic and foreign companies in the utilities
industries.
Prospectuses for these funds are available by writing to Federated
Securities
Corp.
Each of the funds may also invest in certain other types of securities
as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for
an
investor's long-term investment planning. It enables an investor to meet
the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by
providing the
investment services of proven, professional investment advisers.
LIBERTY FAMILY RETIREMENT PROGRAM
- ------------------------------------------------------------------------
- --------
The Fund is also a member of the Liberty Family Retirement Program
("Program"),
an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit
and
savings plans. Under the Program, employers or plan trustees may select
a group
of investment options to be offered in a plan which also uses the
Program for
recordkeeping and administrative services. Additional fees are charged
to the
plan for these services. As part of the Program, exchanges may readily
be made
between investment options selected by the employer or plan trustee.
The other funds participating in the Liberty Family Retirement Program
are:
American Leaders Fund, Inc.; Capital Growth Fund; Capital Preservation
Fund;
Fund for U.S. Government Securities, Inc.; International Equity Fund;
Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Utility
Fund, Inc.; Prime Cash Series; Stock and Bond Fund, Inc.; and Strategic
Income
Fund.
INVESTMENT INFORMATION
- ------------------------------------------------------------------------
- --------
INVESTMENT OBJECTIVE
The Fund's objective is to seek a high level of current income in U.S.
Dollars
consistent with prudent investment risk. The Fund has a secondary
investment
objective of capital appreciation. The investment objectives cannot be
changed
without the approval of the shareholders. The Fund will pursue these
objectives
by investing in high-quality debt securities denominated primarily in
foreign
currencies.
While there is no assurance that the Fund will achieve its investment
objectives, it endeavors to do so by following the investment policies
described
in this prospectus. Unless indicated otherwise, the investment policies
of the
Fund may be changed by the Directors without shareholder approval.
Shareholders
will be notified before any material change in the policies becomes
effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund will invest primarily in high-quality
debt
securities denominated in the currencies of the nations that are members
of the
Organization for Economic Cooperation and Development. These nations
include,
but are not limited to, the following: Australia, Austria, Belgium,
Canada,
Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland,
Italy,
Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, and the United States. The Fund will
invest at
least 65%, and under normal market conditions substantially all of its
total
assets in high-quality debt securities denominated in foreign currencies
of
issuers located in at least three countries outside of the United
States.
Additionally, investments may be made in securities denominated in the
European
Currency Unit (the "ECU"), a multinational currency unit which
represents
specified amounts of the currencies of certain member states of the
European
Economic Community.
The high-quality debt securities in which the Fund will invest will
possess a
minimum credit rating of A as assigned by Standard & Poor's Ratings
Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if
unrated,
will be judged by Federated Management, the Fund's investment adviser
(the
"Adviser"), or Fiduciary Trust International Limited, the Fund's sub-
adviser
(the "sub-adviser"), to be of comparable quality. Because the average
quality of
the Fund's portfolio investments should remain constantly between A and
AAA, the
Fund will seek to avoid the adverse consequences that may arise for some
debt
securities in difficult economic circumstances. Downgraded securities
will be
evaluated on a case by case basis by the Adviser. The Adviser will
determine
whether or not the security continues to be an acceptable investment. If
not,
the security will be sold. A description of the ratings categories is
contained
in the Appendix to the Statement of Additional Information.
The Fund's portfolio of debt securities will be comprised mainly of
foreign
government, foreign governmental agency or supranational institution
bonds. In
addition, the Fund will also invest in high quality debt securities
issued by
corporations in the currencies specified above and subject to the credit
limitations listed above. No more than 25% of the Fund's total assets
will be
invested in the securities of issuers located in any one country. The
Fund will
also invest in both exchange traded and over-the-counter options,
subject to the
limitations outlined in this prospectus.
The prices of fixed income securities generally fluctuate inversely to
the
direction of interest rates.
FOREIGN GOVERNMENT SECURITIES. The foreign government securities
in which
the Fund may invest generally consist of obligations supported by
national,
state or provincial governments or similar political subdivisions.
Foreign
government securities also include debt obligations of
supranational
entities, which include international organizations designed or
supported
by governmental entities to promote economic reconstruction or
development,
international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and
Development
(the World Bank), the Asian Development Bank and the Inter-American
Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies." Debt securities of quasi-
governmental
agencies are either debt securities issued by entities which are
owned by a
national, state or equivalent government or are obligations of a
political
unit that are not backed by the national government's full faith
and credit
and general taxing powers. Further, foreign government securities
include
mortgage-related securities issued or guaranteed by national, state
or
provincial governmental instrumentalities, including quasi-
governmental
agencies.
TEMPORARY INVESTMENTS. Up to 10% of the Fund's total assets may be
invested at any one time in cash deposits or in certificates of
deposit
issued by banks of high credit quality, or in commercial paper with
an
A1/P1 rating assigned by S&P or Moody's, or in repurchase
agreements. At
the discretion of the Adviser, these instruments may be denominated
in
foreign currencies or U.S. Dollars.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in
which
banks, broker/dealers, and other recognized financial institutions
sell
securities to the Fund and agree at the time of sale to repurchase
them at
a mutually agreed upon time and price. To the extent that the
original
seller does not repurchase the securities from the Fund, the Fund
could
receive less than the repurchase price on any sale of such
securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities
on a when-issued or delayed delivery basis. These transactions are
arrangements
in which the Fund purchases securities with payment and delivery
scheduled for a
future time. The seller's failure to complete the transaction may cause
the Fund
to miss a price or yield considered to be advantageous. Settlement dates
may be
a month or more after entering into these transactions, and the market
values of
the securities purchased may vary from the purchase prices. Accordingly,
the
Fund may pay more/less than the market value of the securities on the
settlement
date.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it
appropriate to do so. In addition, the Fund may enter into transactions
to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities
at later
dates. The Fund may realize short-term profits or losses upon the sale
of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, the
Fund may lend its portfolio securities on a short-term or long-term
basis up to
one-third the value of its total assets to broker/dealers, banks, or
other
institutional borrowers of securities. The Fund will only enter into
loan
arrangements with broker/dealers, banks, or other institutions which the
Adviser
has determined are creditworthy under guidelines established by the
Directors
and will receive collateral in the form of cash or U.S. government
securities
equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities
may not
be available to the Fund on a timely basis and the Fund may, therefore,
lose the
opportunity to sell the securities at a desirable price. In addition, in
the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court
action.
RISK CONSIDERATIONS. Investing in foreign securities carries
substantial risks
in addition to those associated with investments in domestic securities.
In an
attempt to reduce some of these risks, the Fund will attempt to
distribute its
investments broadly among foreign countries. The debt securities of at
least
three different foreign countries will always be represented.
The economies of foreign countries may differ from the U.S. economy in
such
respects as growth of gross domestic product, rate of inflation,
currency
depreciation, capital reinvestment, resource self-sufficiency, and
balance of
payments position. Further, the economies of developing countries
generally are
heavily dependent on international trade and, accordingly, have been,
and may
continue to be, adversely affected by trade barriers, exchange controls,
managed
adjustments in relative currency values, and other protectionist
measures
imposed or negotiated by the countries with which they trade. These
economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required
under
certain circumstances in some countries, and the extent of foreign
investment in
certain debt securities and domestic companies may be subject to
limitation.
Foreign ownership limitations also may be imposed by the charters of
individual
companies to prevent, among other concerns, violation of foreign
investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a
refusal to
grant, any required governmental registration or approval for such
repatriation.
Any investment subject to such repatriation controls will be considered
illiquid
if it appears reasonably likely that this process will take more than
seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political
changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or
the value of the Fund's investments in those countries. In addition, it
may be
difficult to obtain and enforce a judgment in a court outside of the
U.S.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may
have different clearance and settlement procedures and in certain
markets there
have been times when settlements have been unable to keep pace with the
volume
of securities transactions, making it difficult to conduct such
transactions.
The inability of the Fund to make intended security purchases due to
settlement
problems could cause the Fund to miss attractive investment
opportunities.
Inability to dispose of a portfolio security due to settlement problems
could
result either in losses to the Fund due to subsequent declines in value
of the
portfolio security or, if the Fund has entered into a contract to sell
the
security, could result in possible liability to the purchaser.
ALLOCATION. The allocation of the Fund's assets in a particular
market and
currency will be based on a fundamental assessment of the economic
strength
of each relevant country combined with considerations of credit
quality and
currency and interest rate trends. These factors are reviewed on a
regular
basis in order to derive specific interest rate and currency
forecasts,
which are quantified in terms of total return. The market and
currency
allocation of the Fund will vary to achieve an optimal mix of
investments
to achieve the investment objectives of the Fund.
DURATION. Duration measures the magnitude of the change in the
price of a
debt security relative to a given change in the market rate of
interest.
The duration of a debt security depends primarily upon the
security's
coupon rate, maturity date, and level of market interest rates for
similar
debt securities. There will be no limit on the duration of any one
individual issue purchased by the Fund, except that the purchase of
an
issue that has no final maturity date shall not be permitted. The
weighted
average duration of the Fund shall not exceed ten years and shall
not be
less than one year, but will normally fall within a range of three
to seven
years. The Adviser regards that range as being consistent with a
prudent
attitude towards risk. Shifts outside this range would be made only
under
unusual circumstances.
FOREIGN SECURITIES. Investments in foreign securities involve
special
risks that differ from those associated with investments in
domestic
securities. The risks associated with investments in foreign
securities
relate to political and economic developments abroad, as well as
those that
result from the differences between the regulation of domestic
securities
and issuers and foreign securities and issuers. These risks may
include,
but are not limited to, expropriation, confiscatory taxation,
currency
fluctuations, withholding taxes on interest, limitations on the use
or
transfer of Fund assets, political or social instability and
adverse
diplomatic developments. It may also be more difficult to enforce
contractual obligations or obtain court judgments abroad than would
be the
case in the United States because of differences in the legal
systems.
Moreover, individual foreign economies may differ favorably or
unfavorably
from the domestic economy in such respects as growth of gross
national
product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
Additional differences exist between investing in foreign and
domestic
securities. Examples of such differences include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to
those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign
stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to
enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited
trading
volume in issuers compared to the volume of trading in U.S.
securities
could cause prices to be erratic for reasons apart from factors
that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less
liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments
in some
countries;
. increased risk of delayed settlements of portfolio transactions
or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before
delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's
investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies
have
discouraged or restricted certain investments abroad by investors
such as
the Fund. Investors are advised that when such policies are
instituted, the
Fund will abide by them.
CURRENCY RISKS. Because the majority of the debt securities
purchased by
the Fund are denominated in currencies other than the U.S. Dollar,
changes
in foreign currency exchange rates will affect the Fund's net asset
value;
the value of interest earned; gains and losses realized on the sale
of
securities; and net investment income and capital gain, if any, to
be
distributed to shareholders by the Fund. If the value of a foreign
currency
rises against the U.S. Dollar, the value of Fund assets denominated
in that
currency will increase; correspondingly, if the value of a foreign
currency
declines against the U.S. Dollar, the value of Fund assets
denominated in
that currency will decrease. Under the U.S. tax code, the Fund is
required
to separately account for the foreign currency component of gains
or
losses, which will usually be viewed under the U.S. tax code as
items of
ordinary and distributable income or loss, thus affecting the
Fund's
distributable income (see "Federal Income Tax").
The exchange rates between the U.S. Dollar and foreign currencies
are a
function of such factors as supply and demand in the currency
exchange
markets, international balances of payments, governmental
interpretation,
speculation and other economic and political conditions. Although
the Fund
values its assets daily in U.S. Dollars, the Fund will not convert
its
holdings of foreign currencies to U.S. Dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion
costs.
Foreign exchange dealers may realize a profit on the difference
between the
price at which they buy and sell currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its investments in foreign securities. The Fund
will
conduct its foreign currency exchange transactions either on a spot
(i.e.
cash) basis at the spot rate prevailing in the foreign currency
exchange
market, or through forward contracts to purchase or sell foreign
currencies.
The Adviser believes that active management of currency risks
through a
variety of hedging vehicles and strategies can considerably limit
the risk
of capital loss through movements in the foreign exchange markets,
such as
those described above. The Adviser will not engage in hedging for
speculative purposes.
HEDGING VEHICLES AND STRATEGIES
HEDGING VEHICLES. The Fund may use the following hedging vehicles in an
attempt
to manage currency and interest rate risks:
. forward foreign currency exchange contracts
. options contracts
. futures contracts
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign
currency
exchange contract involves an obligation to purchase or sell a
specific
currency at a future date, which may be any fixed number of days
from the
date of the contract agreed upon by the parties, at a price set at
the time
of the contract. These contracts are traded directly between
currency
traders (usually large commercial banks) and their customers. When
the Fund
enters into a contract for the purchase or sale of a security
denominated
in a foreign currency, it may want to establish the U.S. Dollar
cost or
proceeds, as the case may be. By entering into a forward contract
in U.S.
Dollars for the purchase or sale of the amount of foreign currency
involved
in an underlying security transaction, the Fund is able to protect
itself
against a possible loss between trade and settlement dates
resulting from
an adverse change in the relationship between the U.S. Dollar and
such
foreign currency. However, this tends to limit potential gains
which might
result from a positive change in such currency relationships.
There is no limitation as to the percentage of the Fund's assets
that may
be committed under forward foreign currency exchange contracts. The
Fund
does not enter into such forward contracts or maintain a net
exposure in
such contracts where the Fund would be obligated to deliver an
amount of
foreign currency in excess of the value of the Fund's portfolio
securities
or other assets denominated in that currency or, in the case of a
"cross-hedge" (see "Hedging Strategies" below), denominated in a
currency
or currencies that the Adviser believes will reflect a high degree
of
correlation with the currency with regard to price movements. The
Fund generally does not enter into a forward foreign currency
exchange
contract with a term longer than one year.
OPTIONS. The Fund may deal in options on foreign currencies,
foreign
currency futures, securities, and securities indices, which options
may be
listed for trading on a national securities exchange or traded
over-the-counter. The Fund may write covered call options and
secured put
options on up to 25% of its net assets and may purchase put and
call
options provided that no more than 5% of the fair market value of
its net
assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer
the
obligation to sell, the underlying currency, security or other
asset at the
exercise price during the option period. A put option gives the
purchaser
the right to sell, and the writer the obligation to buy, the
underlying
currency, security or other asset at the exercise price during the
option
period. The writer of a covered call owns assets that are
acceptable for
escrow and the writer of a secured put invests an amount not less
than the
exercise price in eligible assets to the extent that it is
obligated as a
writer. If a call written by the Fund is exercised, the Fund
foregoes any
possible profit from an increase in the market price of the
underlying
asset over the exercise price plus the premium received. In writing
puts,
there is a risk that the Fund may be required to take delivery of
the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange
traded
options in several respects. They are transacted directly with
dealers and
not with a clearing corporation, and there is a risk of non-
performance by
the dealer as a result of the insolvency of such dealer or
otherwise, in
which event the Fund may experience material losses. However, in
writing
options the premium is paid in advance by the dealer. OTC options,
which
may not be continuously liquid, are available for a greater variety
of
assets, and a wider range of expiration dates and exercise prices,
than are
exchange traded options.
FUTURES. Futures contracts are contracts that obligate the long or
short
holder to take or make delivery of a specified quantity of an
asset, such
as a currency, a security, or the cash value of a securities index
at a
specified future date at a specified price. The Fund may engage in
futures
transactions, but will not participate in futures contracts if the
sum of
its initial margin deposits on open contracts will exceed 5% of the
fair
market value of the Fund's net assets.
HEDGING STRATEGIES
CURRENCY HEDGING. When the Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against
the
U.S. Dollar, it may enter into a forward contract to sell an amount
of that
foreign currency for a fixed U.S. Dollar amount approximating the
value of
some or all of the Fund's portfolio securities denominated in such
foreign
currency (i.e., "hedge"). The Fund may, as an alternative, enter
into a
forward contract to sell a different foreign currency for a fixed
U.S.
Dollar amount where the Adviser believes that the U.S. Dollar value
of the
currency to be sold pursuant to the forward contract will fall
whenever
there is a decline in the U.S. Dollar value of the currency in
which
portfolio securities of the Fund are denominated (i.e., "cross-
hedge"). A
cross hedge can be achieved not only by using a "proxy" currency in
which
Fund securities are denominated, but also by using the Canadian
Dollar as a "proxy" currency for the U.S. Dollar. This strategy may
be
beneficial because the level of divergence in the exchange rates of
U.S.
and Canadian currencies has historically tended to be relatively
small.
For example, the Fund may invest in securities denominated in a
Western
European currency, such as the French Franc, and seek to hedge
against the
effect of an increase in the value of the U.S. Dollar against that
currency
by entering into a forward foreign currency exchange contract to
sell the
lower yielding German Mark, which has historically had price
movements that
tend to correlate closely with those of the French Franc, thereby
creating
a hedge similar to the simple Dollar/Franc hedge, but at a possibly
lower
cost. In addition, the Fund might arrange to sell those Marks
against
Canadian Dollars in an effort to minimize hedging costs.
INTEREST RATE HEDGING. The Fund may engage in futures transactions
and may
use options in an attempt to hedge against the effects of
fluctuations in
interest rates and other market conditions. For example, if the
Fund owned
long-term bonds and interest rates were expected to rise, it could
sell
futures contracts or the cash value of a securities index. If
interest
rates did increase, the value of the bonds in the Fund would
decline, but
this decline would be offset in whole or in part by an increase in
the
value of the Fund's futures contracts or the cash value of the
securities
index.
If, on the other hand, long-term interest rates were expected to
decline,
the Fund could hold short-term debt securities and benefit from the
income
earned by holding such securities, while at the same time the Fund
could
purchase futures contracts on long-term bonds or the cash value of
a
securities index. Thus, the Fund could take advantage of the
anticipated
rise in the value of long-term bonds without actually buying them.
The
futures contracts and short-term debt securities could then be
liquidated
and the cash proceeds used to buy long-term bonds.
GENERAL. The Fund might not employ any of the techniques or
strategies
described above, and there can be no assurance that any technique
or
strategy (or combination thereof) used will succeed. The use of
these
techniques and strategies involves certain risks, including:
. dependence on the Adviser's ability to predict movements in the
prices of
assets being hedged or movements in interest rates and currency
markets;
. imperfect correlation between the hedging instruments and the
securities
or currencies being hedged;
. the fact that skills needed to use these instruments are
different from
those needed to select the Fund's securities;
. the possible absence of a liquid secondary market for any
particular
instrument at any particular time;
. possible impediments to effective portfolio management or the
ability to
meet redemption requests or other short-term obligations because
of the
percentage of the Fund's assets segregated to cover its
obligations; and
. the possible need to defer closing out hedged positions to avoid
adverse
tax consequences.
New futures contracts, options thereon and other financial products and
risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
NON-DIVERSIFICATION. The Fund is a non-diversified investment
portfolio. As
such, there is no limit on the percentage of assets which can be
invested in any
single issuer. An investment in the Fund, therefore, will entail greater
risk
than would exist in a diversified portfolio of securities because the
higher
percentage of investments among fewer issuers may result in greater
fluctuation
in the total market value of the Fund's portfolio. Any economic,
political, or
regulatory developments affecting the value of the securities in the
Fund's
portfolio will have a greater impact on the total value of the portfolio
than
would be the case if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue
Code, as
amended (the "Code"). This undertaking requires that at the end of each
quarter
of the taxable year, with regard to at least 50% of the Fund's total
assets, no
more than 5% of its total assets are invested in the securities of a
single
issuer; beyond that, no more than 25% of its total assets are invested
in the
securities of a single issuer.
PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the
purpose
of seeking short-term profits, securities in its portfolio will be sold
whenever
the Adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular
security
may have been held. The Fund's rate of portfolio turnover may exceed
that of
certain other mutual funds with the same investment objective. A higher
rate of
portfolio turnover involves correspondingly greater transaction expenses
which
must be borne directly by the Fund and, thus, indirectly by its
shareholders. In
addition, a high rate of portfolio turnover may result in the
realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in
the
Fund's Statement of Additional Information within the sections
"Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the
Fund's
portfolio will be based only upon investment considerations and will not
be
limited by any other considerations when the Adviser deems it
appropriate to
make changes in the Fund's portfolio.
INVESTMENT LIMITATIONS
The Fund will not:
. borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for
a
percentage of its cash value with an agreement to buy it back on
a set
date) or pledge securities except, under certain circumstances,
the Fund
may borrow up to one-third of the value of its total assets and
pledge up
to 15% of the value of those assets to secure such borrowings;
nor
. sell securities short except under strict limitations.
The above investment limitation cannot be changed without shareholder
approval.
The following limitations, however, may be changed by the Directors
without
shareholder approval. Shareholders will be notified before any material
changes
in these limitations become effective.
The Fund will not:
. invest more than 5% of its total assets in securities of issuers
that
have records of less than three years of continuous operations;
nor
. invest more than 15% of the value of its net assets in restricted
or
other securities determined by the Directors not to be liquid,
including
repurchase agreements with maturities longer than seven days
after notice
and certain OTC options.
NET ASSET VALUE
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The Fund's net asset value per Class C Share fluctuates. The net asset
value for
Class C Shares is determined by adding the interest of the Class C
Shares in the
market value of all securities and other assets of the Fund, less
liabilities of
the Fund attributable to Class C Shares, and dividing the remainder by
total the
number of Class C Shares outstanding. The net asset value for Class C
Shares may
differ from that of Class A Shares and Class B Shares due to the
variance in
daily net income realized by each class. Such variance will reflect only
accrued
net income to which the shareholders of a particular class are entitled.
INVESTING IN CLASS C SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open.
Shares may
be purchased through a financial institution which has a sales agreement
with
the distributor or directly from the distributor, Federated Securities
Corp.
once an account has been established. In connection with the sale of
Shares,
Federated Securities Corp. may, from time to time, offer certain items
of
nominal value to any shareholder or investor. The Fund reserves the
right to
reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall
purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution
(such as a bank or an investment dealer) to place an order to purchase
Shares.
Orders placed through a financial institution are considered received
when the
Fund is notified of the purchase order. It is the financial
institution's
responsibility to transmit orders promptly. Purchase orders through a
registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern
time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern
time) in
order for Shares to be purchased at that day's price. Purchase orders
through
other financial institutions must be received by the financial
institution and
transmitted to the Fund before 4:00 P.M. (Eastern time) in order for
Shares to
be purchased at that day's price.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to
purchase
Shares directly from the distributor once an account has been
established. To do
so:
. complete and sign the new account form available from the Fund;
. enclose a check made payable to International Income Fund-Class C
Shares;
and
. mail both to Federated Services Company, P.O. Box 8604, Boston,
MA
02266-8604.
Orders by mail are considered received after payment by check is
converted by
the transfer agent's bank, State Street Bank and Trust Company ("State
Street
Bank"), into federal funds. This is generally the next business day
after State
Street Bank receives the check.
BY WIRE. To purchase Shares directly from the distributor by wire, call
the
Fund. All information needed will be taken over the telephone, and the
order is
considered received when the transfer agent's bank, State Street Bank,
receives
payment by wire. Federal funds should be wired as follows: Federated
Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts;
Attention: Mutual Fund Servicing Division; For Credit to: International
Income
Fund-Class C Shares; Fund Number (this number can be found on the
account
statement or by contacting the Fund); Group Number or Order Number;
Nominee or
Institution Name; ABA Number 011000028. Shares cannot be purchased by
wire on
Columbus Day, Veterans' Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500 unless the investment
is in a
retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts, which must be in amounts of at least $50. (Other
minimum
investment requirements may apply to investments through the Liberty
Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order
is
received.
The net asset value is determined at 4:00 P.M. (Eastern time) or at the
close of
the New York Stock Exchange, Monday through Friday, except on: (i) days
on which
there are not sufficient changes in the value of the Fund's portfolio
securities
that its net asset value might be materially affected; (ii) days during
which no
Shares are tendered for redemption and no orders to purchase Shares are
received; or (iii) the following holidays: New Year's Day, Presidents'
Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on
a regular basis in a minimum amount of $100. Under this program, funds
may be
automatically withdrawn periodically from the shareholder's checking
account and
invested in Shares at the net asset value next determined after an order
is
received by the transfer agent. A shareholder may apply for
participation in
this program through his financial institution or directly through the
Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share
account for each shareholder. Share certificates are not issued unless
requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual confirmations are sent to report dividends paid
during the
year.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested
in the
Fund on the record date. Dividends are automatically reinvested in
additional
Shares on the payment date at the ex-dividend date net asset value,
unless
shareholders request cash payments on the new account form or by writing
to the
transfer agent. All shareholders on the record date are entitled to the
dividend. If Shares are redeemed or exchanged prior to the record date
or
purchased after the record date, those Shares are not entitled to that
quarter's
dividend. A portion of distributions to shareholders could, under some
circumstances, be reclassified as a return of capital for income tax
purposes
(see "Federal Income Tax").
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least
once
every twelve months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement
plans or for
IRA accounts. For further details, contact Federated Securities Corp.
and
consult a tax adviser.
EXCHANGE PRIVILEGE
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- --------
In order to provide greater flexibility to Fund shareholders whose
investment
objectives have changed, Class C shareholders may exchange all or some
of their
Shares for Class C Shares in other funds in the Liberty Family of Funds
at net
asset value without a CDSC. Participants in a plan under the Liberty
Family
Retirement Program may exchange some or all of their Shares for Class C
Shares
of other funds offered under their plan at net asset value without a
CDSC. Any
CDSC charged at the time exchanged-for Shares are redeemed is calculated
as if
the shareholder has held the Shares from the date on which he or she
became a
shareholder of the exchanged-from Shares. For more information, see
"Contingent
Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net
asset value
equal to the minimum investment requirements of the fund into which the
exchange
is being made.
Before the exchange, the shareholder must receive a prospectus of the
fund for
which the exchange is being made. This privilege is available to
shareholders
resident in any state in which the fund shares being acquired may be
sold. Upon
receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and the proceeds invested in Class C
Shares
of the other fund. The exchange privilege may be modified or terminated
at any
time. Shareholders will be notified of the modification or termination
of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty
Family of Funds or certain Federated Funds are available by contacting
the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income
tax purposes. Depending on the circumstances, a short-term or long-term
capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds and certain
Federated
Funds may be given in writing or by telephone. Written instructions may
require
a signature guarantee. Shareholders of the Fund may have difficulty in
making
exchanges by telephone through brokers and other financial institutions
during
times of drastic economic or market changes. If a shareholder cannot
contact his
broker or financial institution by telephone, it is recommended that an
exchange
request be made in writing and sent by overnight mail to Federated
Services
Company, 500 Victory Road--2nd Floor, Quincy, Massachusetts 02171.
Instructions for exchanges for the Liberty Family Retirement Program
should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may
be
carried out only if a telephone authorization form completed by the
investor is
on file with the transfer agent. If the instructions are given by a
broker, a
telephone authorization form completed by the broker must be on file
with the
transfer agent. Shares may be exchanged between two funds by telephone
only if
the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be
forwarded to Federated Services Company, P.O. Box 8604, Boston,
Massachusetts
02266-8604, and deposited to the shareholder's account before being
exchanged.
Telephone exchange instructions may be recorded and will be binding upon
the
shareholder. Such instructions will be processed as of 4:00 P.M.
(Eastern time)
and must be received by the transfer agent before that time for Shares
to be
exchanged the same day. Shareholders exchanging into a fund will not
receive any
dividend that is payable to shareholders of record on that date. This
privilege
may be modified or terminated at any time.
REDEEMING CLASS C SHARES
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The Fund redeems Shares at their net asset value, less any applicable
CDSC, next
determined after the transfer agent receives the redemption request.
Redemptions
will be made on days on which the Fund computes its net asset value.
Redemptions
can be made through a financial institution or directly from the Fund.
Redemption requests must be received in proper form. Redemptions of
Shares held
through the Liberty Family Retirement Program will be governed by the
requirements of the respective plans.
THROUGH A FINANCIAL INSTITUTION
Shareholders may redeem Shares by calling their financial institution
(such as
a bank or an investment dealer) to request the redemption. Shares will
be
redeemed at the net asset value, less any applicable CDSC, next
determined
after the Fund receives the redemption request from the financial
institution.
Redemption requests through a registered broker/dealer must be received
by the
broker before 4:00 P.M. (Eastern time) and must be transmitted by the
broker to
the Fund before 5:00 P.M. (Eastern time) in order for Shares to be
redeemed at
that day's net asset value. Redemption requests through other financial
institutions must be received by the financial institution and
transmitted to
the Fund before 4:00 P.M. (Eastern time) in order for Shares to be
redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written
redemption
instructions to the Fund. The financial institution may charge customary
fees
and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The
proceeds will
be mailed to the shareholder's address of record or wire transferred to
the
shareholder's account at a domestic commercial bank that is a member of
the
Federal Reserve System, normally within one business day, but in no
event longer
than seven days after the request. The minimum amount for a wire
transfer is
$1,000. If at any time the Fund shall determine it necessary to
terminate or
modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Fund to accept telephone requests
must
first be completed. Authorization forms and information on this service
are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may
experience
difficulty in redeeming by telephone. If such a case should occur,
another
method of redemption, such as redeeming by mail, should be considered.
Telephone redemption instructions may be recorded. If reasonable
procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or
fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request
to
Federated Services Company, c/o State Street Bank and Trust Company,
P.O. Box
8604, Boston, Massachusetts 02266-8604. The written request should
include the
shareholder's name, the Fund name and class of Shares' name, the account
number,
and the Share or dollar amount requested and should be signed exactly as
the
Shares are registered.
If Share certificates have been issued, they must be properly endorsed
and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on
record with
the Fund, or a redemption payable other than to the shareholder of
record must
have signatures on written redemption requests guaranteed by:
. a trust company or commercial bank whose deposits are insured by
the Bank
Insurance Fund ("BIF"), which is administered by the Federal
Deposit
Insurance Corporation ("FDIC");
. a member of the New York, American, Boston, Midwest, or Pacific
Stock
Exchanges;
. a savings bank or savings and loan association whose deposits are
insured
by the Savings Association Insurance Fund ("SAIF"), which is
administered
by the FDIC; or
. any other "eligible guarantor institution," as defined in the
Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature
guarantees from the above institutions. The Fund may elect in the future
to
limit eligible signature guarantors to institutions that are members of
a
signature guarantee program. The Fund and its transfer agent reserve the
right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day,
but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Class C Shares will be charged a CDSC by
Federated
Securities Corp. of 1.00% for redemptions of those Shares made within
one year
from the date of purchase. To the extent that a shareholder exchanges
between or
among Class C Shares in other funds in the Liberty Family of Funds, the
time for
which the exchanged-for shares were held will be added, or "tacked," to
the time
for which the exchanged-from Shares were held for purposes of satisfying
the
one-year holding period. The CDSC will be calculated based upon the
lesser of
the original purchase price of the Shares or the net asset value of the
Shares
when redeemed.
The CDSC will not be imposed on Shares acquired through reinvestment of
dividends or distribution of short-term or long-term capital gains.
Redemptions
are deemed to have occurred in the following order: 1) Shares acquired
through
the reinvestment of dividends and long-term capital gains, 2) purchases
of
Shares occurring more than one year before the date of redemption, and
3)
purchases of Shares within the previous year.
The CDSC will not be imposed when a redemption results from a tax-free
return
under the following circumstances: (i) a total or partial distribution
from a
qualified plan, other than an IRA, Keogh Plan, or a custodial account,
following
retirement; (ii) a total or partial distribution from an IRA, Keogh
Plan, or a
custodial account, after the beneficial owner attains age 59-1/2; or
(iii) from
the death or permanent and total disability of the beneficial owner. The
exemption from the CDSC for qualified plans, an IRA, Keogh Plan, or a
custodial
account does not extend to account transfers, rollovers, and other
redemptions
made for purposes of reinvestment.
A CDSC will not be charged in connection with exchanges of Shares for
Class C
Shares in other Liberty Family Funds or Liberty Family Retirement
Program funds
or in connection with redemptions by the Fund of accounts with low
balances. No
CDSC will be charged for redemptions from the Liberty Family Retirement
Program.
For additional information, see "Other Payments to Financial
Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount
not less
than $100 may take advantage of the Systematic Withdrawal Program. Under
this
program, Shares are redeemed to provide for periodic withdrawal payments
in an
amount directed by the shareholder. Depending
upon the amount of the withdrawal payments, the amount of dividends paid
and
capital gains distributions with respect to Shares, and the fluctuation
of the
net asset value of Shares redeemed under this program, redemptions may
reduce,
and eventually deplete, the shareholder's investment in Shares. For this
reason,
payments under this program should not be considered as yield or income
on the
shareholder's investment in Shares. To be eligible to participate in
this
program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through his
financial
institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may
redeem Shares in any account, except retirement plans, and pay the
proceeds to
the shareholder if the account balance falls below the required minimum
value of
$1,500. This requirement does not apply, however, if the balance falls
below
$1,500 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is
notified in
writing and allowed 30 days to purchase additional Shares to meet the
minimum
requirement.
INTERNATIONAL SERIES, INC. INFORMATION
- ------------------------------------------------------------------------
- --------
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Corporation is managed by a Board of Directors.
The
Directors are responsible for managing the business affairs of the
Corporation
and for exercising all of the Corporation's powers except those reserved
for the
shareholders. An Executive Committee of the Board of Directors handles
the
Directors' responsibilities between meetings of the Directors.
OFFICERS AND DIRECTORS. _Officers and Directors are listed with their
addresses,
present positions with International Series, Inc., and principal
occupations,
including those with Federated Management, its affiliates, and the
"Funds"
described in the Statement of Additional Information.
- ------------------------------------------------------------------------
- --------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research
Corp.; Chairman, Passport Research, Ltd.; Director, tna Life and
Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing
General
Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Vice
President of the Company.
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- --------
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
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- --------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Director
President, Investment Properties Corporation; Senior Vice-President,
John R.
Wood and Associates, Inc., Realtors; President, Northgate Village
Development
Corporation; Partner or Trustee in private real estate ventures in
Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly,
President, Naples Property Management, Inc.
- ------------------------------------------------------------------------
- --------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
- ------------------------------------------------------------------------
- --------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Director of the Corporation
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross
of
Massachusetts, Inc.
- ------------------------------------------------------------------------
- --------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Director
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director,
Trustee, or
Managing General Partner of the Funds.
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- --------
Edward L. Flaherty, Jr.+
Two Gateway Center--Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------
- --------
Peter E. Madden
225 Franklin Street
Boston, MA
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State
Street Bank and Trust Company and State Street Boston Corporation and
Trustee,
Lahey Clinic Foundation, Inc.
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- --------
Gregor F. Meyer
Two Gateway Center--Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon
Financial, F.A., Western Region.
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- --------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment
for International Peace, RAND Corporation, Online Computer Library
Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center;
Director,
Trustee, or Managing General
Partner of the Funds; President Emeritus, University of Pittsburgh;
formerly,
Chairman, National Advisory Council for Environmental Policy and
Technology.
- ------------------------------------------------------------------------
- --------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General
Partner of the Funds.
- ------------------------------------------------------------------------
- --------
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds;
staff member, Federated Securities Corp. and Federated Administrative
Services.
- ------------------------------------------------------------------------
- --------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated
Management, and Federated Research; President and Director, Federated
Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative
Services, Federated Services Company, and Federated Shareholder
Services;
President or Vice President of the Funds; Director, Trustee, or Managing
General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Director of the Company.
- ------------------------------------------------------------------------
- --------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated
Research Corp.; Chairman and Director, Federated Securities Corp.;
President or
Vice President of some of the Funds; Director or Trustee of some of the
Funds.
- ------------------------------------------------------------------------
- --------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice
President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated
Services
Company and Federated Shareholder Services; Chairman, Treasurer, and
Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds;
Vice President and Treasurer of the Funds.
- ------------------------------------------------------------------------
- --------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary,
Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services
Company;
Executive Vice President, Secretary, and Trustee, Federated
Administrative
Services; Secretary and Trustee, Federated Shareholder Services;
Executive Vice
President and Director, Federated Securities Corp.; Vice President and
Secretary
of the Funds.
- ------------------------------------------------------------------------
- --------
*This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940 as amended.
+Member of the Executive Committee. The Executive Committee of the Board
of
Directors handles the responsibilities of the Board of Directors
between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by
Federated
Management, the Fund's investment adviser (the "Adviser"), subject to
direction
by the Directors. The Adviser continually conducts investment research
and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory
fee
equal to 0.75% of the Fund's average daily net assets. The fee paid
by the
Fund, while higher than the advisory fee paid by other mutual funds
in
general, is comparable to fees paid by many mutual funds with
similar
objectives and policies. The Adviser may voluntarily waive a
portion of its
fee. The Adviser can terminate this voluntary waiver at any time at
its
sole discretion. The Adviser has also undertaken to reimburse the
Fund for
operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business
trust
organized on April 11, 1989, is a registered investment adviser
under the
Investment Advisers Act of 1940. It is a subsidiary of Federated
Investors.
All of the Class A (voting) shares of Federated Investors are owned
by a
trust, the trustees of which are John F. Donahue, Chairman and
Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative
services
to a number of investment companies. Total assets under management
or
administration by these and other subsidiaries of Federated
Investors are
approximately $70 billion, including over $60 billion in fixed
income
assets. Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily for
the
financial industry. Federated Investors' track record of
competitive
performance and its disciplined, risk averse investment philosophy
serve
approximately 3,500 client institutions nationwide. Through these
same
client institutions, individual shareholders also have access to
this same
level of investment expertise.
Randall S. Bauer is the Fund's portfolio manager. He has
contributed toward
the management of the Fund's portfolio of investments since its
inception
on May 15, 1991, while Federated Management served as the Fund's
sub-adviser, and continued in that capacity through March 15, 1994,
when,
pursuant to shareholder approval, Federated Management was
appointed the
Fund's investment adviser. Mr. Bauer joined Federated Investors in
1989 as
an Assistant Vice President of Federated Management. Mr. Bauer was
an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a
Chartered
Financial Analyst and received his M.B.A. in Finance from
Pennsylvania
State University.
SUB-ADVISER. Under the terms of a Sub-Advisory Agreement between
Federated
Management and Fiduciary Trust International Limited, Fiduciary Trust
International Limited will furnish to Federated Management such
investment
advice, statistical and other factual information as may, from time to
time, be
reasonably requested by Federated Management.
SUB-ADVISORY FEES. For its services under the Sub-Advisory
Agreement, the
sub-adviser receives an annual fee from the Adviser equal to .375
of 1% of
average daily net assets of the Fund. The sub-advisory fee is
accrued and
paid daily. In the event that the fee due from the Fund to the
Adviser is
reduced in order to meet expense limitations imposed on the Fund by
state
securities laws or regulations, the sub-advisory fee will be
reduced by
one-half of said
reduction in the fee due from the Fund to the Adviser.
Notwithstanding any
other provision in the Sub-Advisory Agreement, the sub-adviser may,
from
time to time, and for such periods as it deems appropriate, reduce
its
compensation (and, if appropriate, assume expenses of the Fund) to
the
extent that the Fund's expenses exceed such lower expense
limitations as
the sub-adviser may, by notice to the Fund, voluntarily declare to
be
effective.
SUB-ADVISER'S BACKGROUND. Fiduciary Trust International Limited is
located
at 30 Old Burlington Street, London, W1X1LB. Fiduciary Trust
International
Limited, which is an English company formed on May 20, 1985, is
registered
as an investment adviser with the Securities and Exchange
Commission and is
a member of the Investment Management Regulatory Organization, a
United
Kingdom self-regulatory organization. Substantially all of the
shares of
the sub-adviser are owned by Fiduciary Trust International (SA), a
wholly-owned subsidiary of Fiduciary Trust Company International.
No
director, officer or employee of the sub-adviser or Fiduciary Trust
International (SA) serves as a director, officer or employee of the
Corporation.
David Smart has been primarily responsible for management of the
Fund's
portfolio since its inception, when Fiduciary International, Inc.
was the
Fund's investment adviser. Mr. Smart, a Managing Director of
Fiduciary
Trust International Limited, joined its parent in 1988.
Fiduciary Trust Company International was founded in 1931 and is a
New York
state-chartered bank. It has focused primarily on the management of
the
investments and financial affairs of its customers, and has chosen
to
minimize its commercial banking activities (i.e., accepting
deposits and
making loans). As of December 31, 1994, Fiduciary Trust Company
International had total assets of approximately $375 million, and
total
assets under management of approximately $30 billion.
Fiduciary Trust International (SA) is a Swiss company organized to
act as
an intermediate foreign parent for certain of Fiduciary Trust
Company
International's foreign subsidiaries.
DISTRIBUTION OF CLASS C SHARES
Federated Securities Corp. is the principal distributor for Shares of
the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is
the
principal distributor for a number of investment companies. Federated
Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan
adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution
Plan"),
the Fund may pay to the distributor an amount, computed at an annual
rate of up
to 0.75 of 1% of the average daily net asset value of Shares to finance
any
activity which is principally intended to result in the sale of Shares
subject
to the Distribution Plan. The distributor may select financial
institutions such
as banks, fiduciaries, custodians for public funds, investment advisers,
and
broker/dealers to provide sales support services as agents for their
clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no
payments to the distributor except as described above. Therefore, the
Fund does
not pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the
Fund,
interest, carrying or other financing charges in connection with excess
amounts
expended, or the distributor's overhead expenses. However, the
distributor may
be able to recover such amount or may earn a profit from future payments
made
by the Fund under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the
"Services
Plan") under which it may make payments up to 0.25 of 1% of the average
daily
net asset value of Shares to obtain certain personal services for
shareholders
and for the maintenance of shareholder accounts ("shareholder
services"). The
Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which
Federated
Shareholder Services will either perform shareholder services directly
or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients
or
customers. The schedules of such fees and the basis upon which such fees
will be
paid will be determined from time to time by the Fund and Federated
Shareholder
Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic
payments
under the Plan, Federated Securities Corp. will pay financial
institutions an
amount equal to 1% of the net asset value of Shares purchased by their
clients
or customers at the time of purchase (except for participants in the
Liberty
Family Retirement Program).
The Glass-Steagall Act prohibits a depository institution (such as a
commercial
bank or a savings and loan association) from being an underwriter or
distributor
of most securities. In the event the Glass-Steagall Act is deemed to
prohibit
depository institutions from acting in the capacities described above or
should
Congress relax current restrictions on depository institutions, the
Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions
to act as
underwriters or distributors of securities may differ from
interpretations given
to the Glass-Steagall Act and, therefore, banks and financial
institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a
subsidiary of
Federated Investors, provides administrative personnel and services
(including
certain legal and financial reporting services) necessary to operate the
Corporation and the Fund. Federated Administrative Services provides
these at an
annual rate which relates to the average aggregate daily net assets of
all funds
advised by subsidiaries of Federated Investors (the "Federated Funds")
as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a
portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of
the Fund.
Foreign instruments purchased by the Fund are held by foreign banks
participating in a network coordinated by State Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services
Company,
Pittsburgh, Pennsylvania, with offices in Boston, Massachusetts, is
transfer
agent for the Shares of the Fund and dividend disbursing agent for the
Fund.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for
the Fund
are Arthur Andersen LLP, 2100 One PPG Place, Pittsburgh, Pennsylvania
15222.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio
instruments, the Adviser looks for prompt execution of the order at a
favorable
price. In working with dealers, the Adviser will generally utilize those
who are
recognized dealers in specific portfolio instruments, except when a
better price
and execution of the order can be obtained elsewhere. In selecting among
firms
believed to meet this criteria, the Adviser may give consideration to
those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review
by the
Directors.
SHAREHOLDER INFORMATION
- ------------------------------------------------------------------------
- --------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and
other
matters submitted to shareholders for vote. All shares of each portfolio
or
class in the Corporation have equal voting rights, except that in
matters
affecting only a particular Fund or class, only shares of that
particular Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold
annual
shareholder meetings. Shareholder approval will be sought only for
certain
changes in the Fund's operation and for the election of Directors under
certain
circumstances.
Directors may be removed by a two-thirds vote of the number of Directors
prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. The Directors shall call a special meeting of shareholders upon
the
written request of shareholders owning at least 10% of the Corporation's
outstanding shares entitled to vote.
TAX INFORMATION
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- --------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements
of the Code applicable to regulated investment companies and to receive
the
special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income
tax
purposes so that income (including capital gains) and losses realized by
the
Corporation's other portfolios, if any, will not be combined for tax
purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may
be subject to foreign taxes withheld at the source. The United States
has
entered into tax treaties with many foreign countries that entitle the
Fund to
reduced tax rates or exemptions on this income. The effective rate of
foreign
tax cannot be predicted since the amount of Fund assets to be invested
within
various countries is unknown. However, the Fund intends to operate so as
to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on
any dividends and other distributions, including capital gains
distributions,
received. This applies whether dividends and distributions are received
in cash
or as additional Shares. Distributions representing long-term capital
gains, if
any, will be taxable to shareholders as long-term capital gains no
matter how
long the shareholders have held the Shares. No federal income tax is due
on any
dividends earned in an IRA or qualified retirement plan until
distributed.
Quarterly distributions from the Fund are based on estimates of book
income for
the year. Tax basis income includes gains or losses attributable to
currency
fluctuation, whereas book income generally consists solely of the coupon
income
generated by the portfolio. Due to differences in the book and tax
treatment of
fixed income securities denominated in foreign currencies, it is
difficult to
project currency effects on an interim basis. Therefore, to the extent
that
currency fluctuations can not be anticipated, a portion of distributions
to
Shareholders could later be designated as a return of capital, rather
than
income, for income tax purposes, which may be of particular concern to
simple
trusts.
If more than 50% of the value of the Fund's assets at the end of the tax
year is
represented by stock or securities of foreign corporations, the Fund
intends to
qualify for certain Code stipulations that would allow shareholders to
claim a
foreign tax credit or deduction on their U.S. income tax returns. The
Code may
limit a shareholder's ability to claim a foreign tax credit.
Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign
taxes
rather than take the foreign tax credit must itemize deductions on their
income
tax returns.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
The Fund is not subject to Pennsylvania corporate or personal property
taxes.
Fund Shares may be subject to personal property taxes imposed by
counties,
municipalities, and school districts in
Pennsylvania to the extent that the portfolio securities in the Fund
would be
subject to such taxes if owned directly by residents of those
jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of
their accounts under state and local tax laws, including treatment of
distributions as income or return of capital.
PERFORMANCE INFORMATION
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- --------
From time to time, the Fund advertises the total return and yield for
Class C
Shares.
Total return represents the change, over a specified period of time, in
the
value of an investment in Class C Shares after reinvesting all income
and
capital gains distributions. It is calculated by dividing that change by
the
initial investment and is expressed as a percentage.
The yield of Class C Shares is calculated by dividing the net investment
income
per Share (as defined by the Securities and Exchange Commission) earned
by
Shares over a thirty-day period by the maximum offering price per Share
of Class
C Shares on the last day of the period. This number is then annualized
using
semi-annual compounding. The yield does not necessarily reflect income
actually
earned by Shares and, therefore, may not correlate to the dividends or
other
distributions paid to shareholders.
The performance information reflects the effect of non-recurring
charges, such
as the CDSC, which, if excluded, would increase the total return and
yield.
Total return will be calculated separately for Class A Shares, Class B
Shares,
and Class C Shares. Because Class A Shares may be subject to lower 12b-1
fees,
the yield for Class A Shares, for the same period, may exceed that of
Class B
Shares and Class C Shares. Because Class A Shares are subject to a front-
end
sales load, the total return for Class B Shares and Class C Shares, for
the same
period, may exceed that of Class A Shares. Depending on the dollar
amount
invested and the time period for which any class of shares is held, the
total
return for any particular class will likely exceed that of another.
From time to time, the Fund may advertise the performance of Class C
Shares
using certain financial publications and/or compare the performance of
Class C
Shares to certain indices.
OTHER CLASSES OF SHARES
- ------------------------------------------------------------------------
- --------
Class A Shares are sold primarily to customers of financial institutions
subject
to a front-end sales load of up to 4.50% and a Rule 12b-1 fee of up to
.25 of
1%. Under certain circumstances, investors may qualify for reduced sales
loads
on purchases of Class A Shares. Class A Shares are subject to a
shareholder
services fee of up to 0.25 of 1% of the Class A Shares' average daily
net
assets. Investments in Class A Shares are subject to a minimum initial
investment of $500, unless the investment is in a retirement account, in
which
case the minimum is $50.
Class B Shares are sold primarily to customers of financial
institutions,
subject to a maximum CDSC of 5.50% and a Rule 12b-1 fee of up to .75 of
1%. In
addition, Class B Shares are subject to a
shareholder services fee of up to .25 of 1% of the Class B Shares'
average daily
net assets. Investments in Class B Shares are subject to a minimum
initial
investment of $1,500, unless the investment is in a retirement account,
in which
case the minimum investment is $50.
The amount of dividends payable to Class A Shares will generally exceed
that
payable to Class B Shares and Class C Shares by the difference between
Class
Expenses and distribution and shareholder service expenses borne by
shares of
each respective class.
The stated advisory fee is the same for all classes of shares.
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 46.
<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
0.70 0.88 0.62 0.25
- -------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions
(0.76) 1.40 (0.20) 0.75
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
Total from investment operations
(0.06) 2.28 0.42 1.00
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Dividends to shareholders from net investment income
(0.63) (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
(1.28) (0.89) (0.79) (0.16)
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $
10.52 $ 11.86 $ 10.47 $ 10.84
- ------------------------------------------------------------------- ---
- ------ --------- --------- ---------
TOTAL RETURN**
(0.84%) 22.95% 3.82% 10.07%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses
1.30% 1.25% 0.99% 0.32%(a)
- -------------------------------------------------------------------
Net investment income
6.67% 7.71% 5.83% 7.54%(a)
- -------------------------------------------------------------------
Expense waiver/reimbursement (c)
0.20% 0.27% 0.62% 1.18%(a)
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted)
$209,008 $220,602 $86,937 $23,465
- -------------------------------------------------------------------
Portfolio turnover rate
136% 189% 314% 35%
- -------------------------------------------------------------------
</TABLE>
* Reflects operations for the period June 4, 1991 (date of initial
public
investment) to November 30, 1991. For the period from the start of
business,
May 15, 1991, to June 3, 1991, the net investment income was
distributed to
the Corporation's adviser.
** Based on net asset value which does not reflect the sales load or
contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) Distributions are determined in accordance with income tax
regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal
income tax
purposes.
(c) This voluntary expense decrease is reflected in both the expense
and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS B SHARES
- ------------------------------------------------------------------------
- --------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on
page 46.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S>
<C>
- ------------------------------------------------------------------------
- ---------------- -------------------------
NET ASSET VALUE, BEGINNING OF PERIOD
$ 10.21
- ------------------------------------------------------------------------
- ----------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
- ----------------
Net investment income
0.08
- ------------------------------------------------------------------------
- ----------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions
0.22
- ------------------------------------------------------------------------
- ---------------- -------
Total from investment operations
0.30
- ------------------------------------------------------------------------
- ---------------- -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
- ----------------
Dividends to shareholders from net investment income
- --
- ------------------------------------------------------------------------
- ----------------
Distributions to shareholders from net realized gain on investment
transactions --
- ------------------------------------------------------------------------
- ---------------- -------
Total distributions
- --
- ------------------------------------------------------------------------
- ---------------- -------
NET ASSET VALUE, END OF PERIOD
$ 10.51
- ------------------------------------------------------------------------
- ---------------- -------
TOTAL RETURN**
2.44%
- ------------------------------------------------------------------------
- ----------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
- ----------------
Expenses
2.11%(a)
- ------------------------------------------------------------------------
- ----------------
Net investment income
7.07%(a)
- ------------------------------------------------------------------------
- ----------------
Expense waiver/reimbursement (b)
0.10%(a)
- ------------------------------------------------------------------------
- ----------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
- ----------------
Net assets, end of period (000 omitted)
$101
- ------------------------------------------------------------------------
- ----------------
Portfolio turnover rate
136%
- ------------------------------------------------------------------------
- ----------------
</TABLE>
* Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and
net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the
Fund's
annual report for the fiscal year ended November 30, 1994, which can be
obtained
free of charge.
INTERNATIONAL INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
CREDIT VALUE
PAR
RATING: IN U.S.
AMOUNT
MOODY'S* DOLLARS
<C> <S>
<C> <C>
BONDS--95.5%
- ------------------------------------------------------------------------
- -----------
AUSTRALIAN DOLLAR--26.6%
- ------------------------------------------------------------------------
- -----------
AGENCY--21.5%
-----------------------------------------------------
- -----------
30,000,000 New South Wales Treasury Corp., 11.50%, 7/1/99
Aaa $ 23,955,733
-----------------------------------------------------
- -----------
15,000,000 New South Wales Treasury Corp., 12.00%, 12/1/2001
Aaa 12,271,826
-----------------------------------------------------
- -----------
15,500,000 Queensland Treasury Corp., 8.00%, 8/14/2001
Aaa 10,433,792
-----------------------------------------------------
- ----------- --------------
Total
46,661,351
-----------------------------------------------------
- ----------- --------------
SUPRANATIONAL--5.1%
-----------------------------------------------------
- -----------
14,500,000 European Investment Bank, 10.25%, 10/1/2001
Aaa 11,143,560
-----------------------------------------------------
- ----------- --------------
TOTAL AUSTRALIAN DOLLAR
57,804,911
-----------------------------------------------------
- ----------- --------------
BRITISH POUND--30.6%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--24.5%
-----------------------------------------------------
- -----------
9,500,000 UK Treasury, 7.00%, 11/6/2001
Aaa 13,732,677
-----------------------------------------------------
- -----------
26,000,000 UK Treasury, 8.00%, 6/10/2003
Aaa 39,378,112
-----------------------------------------------------
- ----------- --------------
Total
53,110,789
-----------------------------------------------------
- ----------- --------------
SUPRANATIONAL--6.1%
-----------------------------------------------------
- -----------
4,000,000 African Development Bank, 11.25%, 7/23/2001
Aaa 6,913,561
-----------------------------------------------------
- -----------
4,000,000 World Bank, 9.25%, 7/20/2007
Aaa 6,432,039
-----------------------------------------------------
- ----------- --------------
Total
13,345,600
-----------------------------------------------------
- ----------- --------------
TOTAL BRITISH POUND
66,456,389
-----------------------------------------------------
- ----------- --------------
CANADIAN DOLLAR--3.3%
- ------------------------------------------------------------------------
- -----------
AGENCY--3.3%
-----------------------------------------------------
- -----------
10,000,000 Ontario Hydro, 9.00%, 6/24/2002
Aa2 7,109,430
-----------------------------------------------------
- ----------- --------------
TOTAL CANADIAN DOLLAR
7,109,430
-----------------------------------------------------
- ----------- --------------
DANISH KRONE--3.6%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.6%
-----------------------------------------------------
- -----------
50,000,000 Kingdom of Denmark, 8.00%, 5/15/2003
Aaa $ 7,819,793
-----------------------------------------------------
- ----------- --------------
TOTAL DANISH KRONE
7,819,793
-----------------------------------------------------
- ----------- --------------
FINNISH MARKKA--3.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.8%
-----------------------------------------------------
- -----------
42,000,000 Republic of Finland, 9.50%, 3/15/2004
Aa2 8,208,785
-----------------------------------------------------
- ----------- --------------
TOTAL FINNISH MARKKA
8,208,785
-----------------------------------------------------
- ----------- --------------
FRENCH FRANC--4.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.8%
-----------------------------------------------------
- -----------
60,000,000 Government of France, 6.75%, 10/25/2003
Aaa 10,363,262
-----------------------------------------------------
- ----------- --------------
TOTAL FRENCH FRANC
10,363,262
-----------------------------------------------------
- ----------- --------------
IRISH PUNT--5.5%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--5.5%
-----------------------------------------------------
- -----------
7,500,000 Republic of Ireland, 9.25%, 7/11/2003
Aaa 11,976,048
-----------------------------------------------------
- ----------- --------------
TOTAL IRISH PUNT
11,976,048
-----------------------------------------------------
- ----------- --------------
NETHERLANDS GUILDER--4.2%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.2%
-----------------------------------------------------
- -----------
15,000,000 Netherlands, 8.50%, 3/15/2001
Aaa 9,017,908
-----------------------------------------------------
- ----------- --------------
TOTAL NETHERLANDS GUILDER
9,017,908
-----------------------------------------------------
- ----------- --------------
NEW ZEALAND DOLLAR--4.9%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.9%
-----------------------------------------------------
- -----------
18,000,000 New Zealand, 8.00%, 4/15/2004
Aa3 10,703,989
-----------------------------------------------------
- ----------- --------------
TOTAL NEW ZEALAND DOLLAR
10,703,989
-----------------------------------------------------
- ----------- --------------
SPANISH PESETA--4.8%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--4.8%
-----------------------------------------------------
- -----------
1,400,000,000 Kingdom of Spain, 10.25%, 11/30/98
Aaa $ 10,474,766
-----------------------------------------------------
- ----------- --------------
TOTAL SPANISH PESETA
10,474,766
-----------------------------------------------------
- ----------- --------------
SWEDISH KRONA--3.4%
- ------------------------------------------------------------------------
- -----------
SOVEREIGN--3.4%
-----------------------------------------------------
- -----------
50,000,000 Kingdom of Sweden, 13.00%, 6/15/2001
Aaa 7,360,258
-----------------------------------------------------
- -----------
358,000 Salomon, Inc., Warrant on Sweden, 11.00%, 1/25/99
(Expires
1/25/95)**
A3 96,660(a)
-----------------------------------------------------
- ----------- --------------
TOTAL SWEDISH KRONA
7,456,918
-----------------------------------------------------
- ----------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $215,563,676)
$ 207,392,199+
-----------------------------------------------------
- ----------- --------------
</TABLE>
* Please refer to the Appendix of the Statement of Additional
Information for
an explanation of the credit ratings. Current credit ratings are
unaudited.
** 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 cost for federal tax purposes amounts to $215,563,676. The net
unrealized depreciation of investments amounts to $8,171,477, which
is
comprised of $281,874 appreciation and $8,453,351 depreciation at
November
30, 1994.
Note: The categories of investments are shown as a percentage of net
assets
($217,205,532) at November 30, 1994.
(a) Non-income producing security.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C>
ASSETS:
- ------------------------------------------------------------------------
- ---------------------------
Investments in securities, at value (identified and tax cost,
$215,563,676) $207,392,199
- ------------------------------------------------------------------------
- ---------------------------
Cash
294,877
- ------------------------------------------------------------------------
- ---------------------------
Interest receivable
8,385,586
- ------------------------------------------------------------------------
- ---------------------------
Receivable for investments sold
1,455,471
- ------------------------------------------------------------------------
- ---------------------------
Receivable for foreign currency sold
1,454,865
- ------------------------------------------------------------------------
- ---------------------------
Receivable for capital stock sold
60,915
- ------------------------------------------------------------------------
- ---------------------------
Deferred expenses
7,179
- ------------------------------------------------------------------------
- --------------------------- -----------
Total assets
219,051,092
- ------------------------------------------------------------------------
- ---------------------------
LIABILITIES:
- ------------------------------------------------------------------------
- ---------------------------
Payable for foreign currency purchased
$1,455,471
- ------------------------------------------------------------------------
- ----------------
Payable for capital stock redeemed
255,119
- ------------------------------------------------------------------------
- ----------------
Tax withholding liability
69,204
- ------------------------------------------------------------------------
- ----------------
Accrued expenses
65,766
- ------------------------------------------------------------------------
- ---------------- ---------
Total liabilities
1,845,560
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS for 20,643,766 shares of capital stock outstanding
$217,205,532
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------
- ---------------------------
Paid-in capital
$238,384,981
- ------------------------------------------------------------------------
- ---------------------------
Net unrealized appreciation (depreciation) of investments and
translation of assets
and liabilities in foreign currencies
(8,081,204)
- ------------------------------------------------------------------------
- ---------------------------
Accumulated net realized gain (loss) on investments and foreign currency
transactions (16,137,975)
- ------------------------------------------------------------------------
- ---------------------------
Undistributed net investment income
3,039,730
- ------------------------------------------------------------------------
- --------------------------- -----------
Total net assets
$217,205,532
- ------------------------------------------------------------------------
- --------------------------- -----------
NET ASSET VALUE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares ($209,007,501 / 19,861,796 shares of capital stock
outstanding) $10.52
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares ($100,522 / 9,566 shares of capital stock outstanding)
$10.51
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares ($8,097,509 / 772,404 shares of capital stock
outstanding) $10.48
- ------------------------------------------------------------------------
- --------------------------- -----------
COMPUTATION OF OFFERING PRICE PER SHARE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares (100/95.5 of $10.52)*
$11.02
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares
$10.51
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares
$10.48
- ------------------------------------------------------------------------
- --------------------------- -----------
REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------
- ---------------------------
Class A Shares
$10.52
- ------------------------------------------------------------------------
- --------------------------- -----------
Class B Shares (94.5/100 of $10.51)**
$9.93
- ------------------------------------------------------------------------
- --------------------------- -----------
Class C Shares (99/100 of $10.48)**
$10.38
- ------------------------------------------------------------------------
- --------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
<TABLE>
<S>
<C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------
- ---------------------------
Interest (net of foreign taxes withheld of $300,285)
$ 19,350,257
- ------------------------------------------------------------------------
- ---------------------------
EXPENSES:
- ------------------------------------------------------------------------
- ---------------------------
Investment advisory fee
$ 1,819,216
- ------------------------------------------------------------------------
- --------------
Administrative personnel and services fees
334,436
- ------------------------------------------------------------------------
- --------------
Custodian and portfolio accounting services and expenses
310,321
- ------------------------------------------------------------------------
- --------------
Transfer and dividend disbursing agent fees and expenses
75,146
- ------------------------------------------------------------------------
- --------------
Directors' fees
6,511
- ------------------------------------------------------------------------
- --------------
Auditing fees
39,733
- ------------------------------------------------------------------------
- --------------
Legal fees
18,025
- ------------------------------------------------------------------------
- --------------
Capital stock registration costs
54,982
- ------------------------------------------------------------------------
- --------------
Printing and postage
98,003
- ------------------------------------------------------------------------
- --------------
Insurance premiums
11,760
- ------------------------------------------------------------------------
- --------------
Taxes
16,198
- ------------------------------------------------------------------------
- --------------
Class A shareholder servicing fee
221,397
- ------------------------------------------------------------------------
- --------------
Class B shareholder servicing fee
26
- ------------------------------------------------------------------------
- --------------
Class C shareholder servicing fee
19,544
- ------------------------------------------------------------------------
- --------------
Class A distribution services fee
586,447
- ------------------------------------------------------------------------
- --------------
Class B distribution services fee
79
- ------------------------------------------------------------------------
- --------------
Class C distribution services fee
59,787
- ------------------------------------------------------------------------
- --------------
Miscellaneous
14,070
- ------------------------------------------------------------------------
- -------------- -----------
Total expenses
3,685,681
- ------------------------------------------------------------------------
- --------------
Deduct--
- ------------------------------------------------------------------------
- ---
Waiver of investment advisory fee
$ 232,622
- ------------------------------------------------------------------------
- ---
Waiver of distribution services fee--Class A
239,567 472,189
- ------------------------------------------------------------------------
- --- --------- -----------
Net expenses
3,213,492
- ------------------------------------------------------------------------
- --------------------------- ------------
Net investment income
16,136,765
- ------------------------------------------------------------------------
- --------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ------------------------------------------------------------------------
- ---------------------------
Net realized gain (loss) on investment and foreign currency
transactions (identified cost basis)
(19,246,738)
- ------------------------------------------------------------------------
- ---------------------------
Net change in unrealized appreciation (depreciation) of investments
and foreign currency
(1,632,121)
- ------------------------------------------------------------------------
- --------------------------- ------------
Net realized and unrealized gain (loss) on investments and foreign
currency (20,878,859)
- ------------------------------------------------------------------------
- --------------------------- ------------
Change in net assets resulting from operations
($ 4,742,094)
- ------------------------------------------------------------------------
- --------------------------- ------------
</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
$ 16,136,765 $ 10,115,823
- ------------------------------------------------------------------------
- -----------
Net realized gain (loss) on investments and foreign currency
transactions
($16,137,072 net loss and $12,707,324 net gain, respectively,
as computed for federal tax purposes)
(19,246,738) 14,622,033
- ------------------------------------------------------------------------
- -----------
Change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currencies
(1,632,121) (1,145,113)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets resulting from operations
(4,742,094) 23,592,743
- ------------------------------------------------------------------------
- ----------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
- -----------
Dividends to shareholders from net investment income:
- ------------------------------------------------------------------------
- -----------
Class A Shares
(13,175,437) (8,164,154)
- ------------------------------------------------------------------------
- -----------
Class C Shares
(365,743) (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
(26,248,844) (9,391,846)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
CAPITAL STOCK TRANSACTIONS
- ------------------------------------------------------------------------
- -----------
Net proceeds from sale of shares
177,536,131 172,701,876
- ------------------------------------------------------------------------
- -----------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock
8,109,375 2,711,987
- ------------------------------------------------------------------------
- -----------
Cost of shares redeemed
(162,817,187) (51,183,603)
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets resulting from capital stock transactions
22,828,319 124,230,260
- ------------------------------------------------------------------------
- ----------- -------------- -------------
Change in net assets
(8,162,619) 138,431,157
- ------------------------------------------------------------------------
- -----------
NET ASSETS:
- ------------------------------------------------------------------------
- -----------
Beginning of period
225,368,151 86,936,994
- ------------------------------------------------------------------------
- ----------- -------------- -------------
End of period (including undistributed net investment income of
$3,039,730 and $1,485,988, respectively)
$ 217,205,532 $ 225,368,151
- ------------------------------------------------------------------------
- ----------- -------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
- ------------------------------------------------------------------------
- --------
(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.
Effective September 27, 1994 (effective date of Class B Shares) the Fund
provides three classes of shares Class A Shares, Class B Shares, and
Class C
Shares.
Effective March 15, 1994, the Corporation changed its name FT Series
Inc. 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 and asset backed securities) are valued at the last sale
price
reported on national securities exchanges. Unlisted bonds and
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 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.
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 (the "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, if applicable 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. At
November
30, 1994, the Fund, for federal tax purposes, had a capital loss
carryforward of $16,137,072 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 2002 ($16,137,072).
F. FOREIGN CURRENCY COMMITMENTS--The Fund may enter into foreign
currency
commitments for the delayed delivery of securities or foreign
currency
exchange transactions. Risks may arise upon entering these
transactions
from the potential inability of counterparts to meet the terms of
their
commitments and from unanticipated movements in security prices or
foreign
exchange rates. The foreign currency transactions 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
settlement date.
At November 30, 1994, the Fund had outstanding foreign currency
commitments
set out below:
<TABLE>
<CAPTION>
COMMITMENTS
UNREALIZED
TO DELIVER/
IN EXCHANGE APPRECIATION
SETTLEMENT DATE RECEIVE
FOR (DEPRECIATION)
<S> <C>
<C> <C>
UNSETTLED TRANSACTIONS
12/2/94
UK Pound
928,736 $ 1,454,865 $ (606)
- ------
</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 year ended November
30,
1994, the Fund had a realized gain of $408,000 on written options.
The following is a summary of the Fund's written option activity:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
CONTRACTS
CONTRACTS FACE VALUE
<S>
<C> <C>
Option
Outstanding at December 1, 1993
1 $ 60,000,000
Contracts opened
- -- --
Contracts expired
(1) ($ 60,000,000)
- ------ --------------
Outstanding at November 30, 1994
- -- $ --
- ------ --------------
</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 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. 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.
J. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the
initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five
years from
the Fund's commencement date.
K. OTHER--Investment transactions are accounted for on the 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. Accordingly, amounts as of
November 30,
1994 have been reclassified to reflect an increase in paid-in-
capital of
$217,491, a decrease in undistributed net investment income of
$1,041,845,
and a decrease in accumulated net realized loss of $824,354. Net
investment
income, net realized gains, and net assets were not affected by
this
change.
(3) CAPITAL STOCK
At November 30, 1994, there were 500,000,000 shares of $.0001 par value
capital
stock authorized for Class A Shares, Class B 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 15,262,427 $
169,735,435 14,494,139 $ 167,776,782
- ---------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 692,848
7,698,922 243,001 2,687,283
- ---------------------------------------------------
Shares redeemed (14,688,399)
(159,024,074) (4,447,404) (50,982,677)
- --------------------------------------------------- ------------- ----
- ----------- ------------ --------------
Net change resulting from Class A transactions 1,266,876 $
18,410,283 10,289,736 $ 119,481,388
- --------------------------------------------------- ------------- ----
- ----------- ------------ --------------
<CAPTION>
YEAR
ENDED
NOVEMBER
30,
1994*
CLASS B SHARES SHARES
AMOUNT
<S> <C> <C>
<C> <C>
Shares sold 10,320 $
108,114
- -------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 0
0
- -------------------------------------------------------
Shares redeemed (754)
(7,894)
- ------------------------------------------------------- ---------- ---
- ----------
Net change resulting from Class B
transactions 9,566 $
100,220
- ------------------------------------------------------- ---------- ---
- ----------
</TABLE>
*For the period from September 19, 1994 (start of business) to November
30,
1994.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994
1993*
CLASS C SHARES SHARES
AMOUNT SHARES AMOUNT
<S> <C> <C>
<C> <C>
Shares sold 688,918 $
7,692,582 409,680 $ 4,925,094
- -------------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 37,082
410,453 2,095 24,704
- -------------------------------------------------------
Shares redeemed (356,033)
(3,785,219) (9,338) (200,926)
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
Net change resulting from Class C
transactions 369,967 $
4,317,816 402,437 $ 4,748,872
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
Net change resulting from Fund share transactions 1,646,409 $
22,828,319 10,692,173 $ 124,230,260
- ------------------------------------------------------- ---------- ---
- ---------- ------------ --------------
</TABLE>
*For the period from March 31, 1993 (start of business) 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 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 International, Inc. (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
International, Inc.
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 International, Inc., served as the
Fund's
sub-adviser and received an annual fee from Fiduciary International,
Inc. 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.
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 A
Shares,
Class B Shares and Class C Shares. The Plan provides that the Fund may
incur
distribution expenses up to 0.25 of 1%, 0.75 of 1%, and 0.75 of 1% of
the
average daily net assets of the Class A Shares, Class B 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
fiscal year ended November 30, 1994 were as follows:
<TABLE>
<S>
<C>
- ------------------------------------------------------------------------
- --------------------------
PURCHASES
$ 324,082,442
- ------------------------------------------------------------------------
- -------------------------- --------------
SALES
$ 315,705,738
- ------------------------------------------------------------------------
- -------------------------- --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------
- --------
To the Shareholders and Board of Directors of
INTERNATIONAL SERIES, INC. (formerly FT Series, Inc.)
(International Income Fund):
We have audited the accompanying statement of assets and liabilities of
International Income Fund (an investment portfolio of International
Series,
Inc., formerly FT Series, Inc., a Maryland Corporation), including the
schedule
of portfolio investments, as of November 30, 1994, the related statement
of
operations for the year then ended, the statements of changes in net
assets for
each of the two years in the period then ended and financial highlights
for each
of the periods presented. These financial statements and financial
highlights
are the responsibility of the Fund's managment. Our responsibility is to
express
an opinion on these financial statements and financial highlights based
on our
audites.
We conducted our audits in accordnace with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and
financial
highlights are free of material mistatement. An audit includes
examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. Our procedures included confirmation of the securities owned
as of
November 30, 1994, by correspondence with the custodian and broker. An
audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable basis for
our
opinion.
In our opinion, the financial statements and financial highlights
referred to
above present fairly, in all material respects, the financial position
of
International Income Fund, an investment portfolio of International
Series,
Inc., as of November 30, 1994, and the results of its operations for the
year
then ended, the changes in its net assets for each of the two years in
the
period then ended and financial highlights for each of the periods
presented in
conformity with generally accepted accounting principles.
ARTHUR
ANDERSEN LLP
Pittsburgh, Pennsylvania
January 13, 1995
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- ------------------------------------------------------------------------
- --------
<TABLE>
<S> <C>
<C>
International Income Fund
Class C Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Distributor
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Sub-adviser
Fiduciary Trust
30 Old Burlington Street
International Limited
London W1X1LB
England
- ------------------------------------------------------------------------
- ---------------------------------------------
Custodian
State Street Bank and
P.O. Box 8604
Trust Company
Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------
- ---------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------
- ---------------------------------------------
Independent Public Accountants
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------
- ---------------------------------------------
</TABLE>
INTERNATIONAL INCOME
FUND
CLASS C SHARES
PROSPECTUS
January 31, 1995
A Non-Diversified Portfolio
of International Series, Inc.
(formerly, FT Series, Inc.)
An Open-End Management
Investment Company
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
46031P209
1051602A-C (1/95)
International Income Fund
A Portfolio of International Series, Inc.
(formerly, F.T. Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Statement of Additional Information
This Combined Statement of Additional Information should be read
with the respective prospectuses for Class A Shares, Class B
Shares, and Class C Shares of International Income Fund (the
"Fund"). This Statement is not a prospectus itself. To receive a
copy of any of the prospectuses, write or call the Fund.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3776
Statement dated January 31, 1995
FEDERATED SECURITIES CORP
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objectives and
Policies 1
Types of Investments and
Investment Techniques 1
When-Issued and Delayed
Delivery Transactions 7
Repurchase Agreements 7
Reverse Repurchase Agreements 8
Lending Portfolio Securities 8
Restricted and Illiquid
Securities 8
Duration 9
Additional Risk Considerations 9
Portfolio Turnover 9
Investment Limitations 10
The Funds 17
Fund Ownership 17
Investment Advisory Services 17
Adviser to the Fund 17
Sub-Adviser 18
Advisory Fees 18
Sub-Advisory Fees 18
Other Related Services 19
Administrative Services 19
Brokerage Transactions 19
Purchasing Shares 20
Distribution and Shareholder
Services Plans 20
Conversion to Federal Funds 21
Purchases by Sales
Representatives, Directors
of the Corporation, and
Employees 21
Determining Net Asset Value 21
Determining Market Value of
Securities 23
Trading in Foreign Securities 23
Redeeming Shares 23
Redemption in Kind 23
Tax Status 23
The Fund's Tax Status 23
Foreign Taxes 23
Shareholders' Tax Status 23
Total Return 23
Yield 24
Performance Comparisons 24
Appendix 26
General Information About the Fund
The Fund is a portfolio in International Series, Inc. (the
"Corporation"), which was established as FT International Trust, a
Massachusetts business trust, under a Declaration of Trust dated March
9, 1984, and reorganized as a corporation under the laws of the state of
Maryland on February 11, 1991. At a special meeting of shareholders held
on March 15, 1994, the shareholders of the Corporation approved an
amendment to the Articles of Incorporation to change the name of the
Corporation from FT Series, Inc., to International Series, Inc.
Shares of the Fund are offered in three classes known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively
referred to as "Shares" as the context may require). This Combined
Statement of Additional Information relates to all three classes of the
above-mentioned Shares.
Investment Objectives and Policies
The Fund's investment objective is to seek a high level of current
income in U.S. Dollars consistent with prudent investment risk. The Fund
has a secondary objective of capital appreciation. The investment
objectives of the Fund cannot be changed without the approval of the
shareholders.
Types of Investments and Investment Techniques
General
The Fund will invest primarily in high-quality debt securities
denominated in foreign currencies in accordance with the Fund's
investment objectives and policies. The Fund intends to engage in
forward contracts, futures and options transactions whenever it
appears to Federated Management, the Fund's investment adviser
(the "Adviser") (a) to be advantageous to do so in pursuing the
Fund's investment objectives; (b) to hedge (i.e., protect) against
foreign currency and interest rate risks; and (c) to stabilize the
value of the Fund's assets. The Fund will not engage in such
transactions for speculation. Up to 10% of the Fund's total assets
may be invested at any one time in commercial paper, certificates
of deposit or repurchase agreements. The use of forward contracts,
futures and options, and the attendant benefits and possible risks
of such transactions, are discussed below along with certain other
investment information.
Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange
contracts in order to protect itself against a possible loss
resulting from an adverse change in the relationship between the
U.S. Dollar and a foreign currency involved in an underlying
transaction. However, forward foreign currency exchange contracts
may limit potential gains which could result from a positive
change in such currency relationships. The Adviser believes that
it is important to have the flexibility to enter into forward
foreign currency exchange contracts whenever it determines that it
is in the Fund's best interest to do so. The Fund will not
speculate in foreign currency exchange.
There is no limitation as to the percentage of the Fund's assets
that may be committed to such contracts. The Fund does not enter
into forward foreign currency exchange contracts or maintain a net
exposure in such contracts when the Fund would be obligated to
deliver an amount of foreign currency in excess of the value of
the Fund's portfolio securities or other assets denominated in
that currency or, in the case of a "cross-hedge" denominated in a
currency or currencies that the Adviser believes will tend to be
closely correlated with that currency with regard to price
movements. Generally, the Fund does not enter into a forward
foreign currency exchange contract with a term longer than one
year.
Foreign Currency Options
A foreign currency option provides the option buyer with the right
to buy or sell a stated amount of foreign currency at the exercise
price on a specified date or during the option period. The owner
of a call option has the right, but not the obligation, to buy the
currency. Conversely, the owner of a put option has the right, but
not the obligation to sell the currency.
When the option is exercised, the seller (i.e., writer) of the
option is obligated to fulfill the terms of the sold option.
However, either the seller or the buyer may, in the secondary
market, close its position during the option period at any time
prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on
foreign currency generally falls in value if the underlying
currency depreciates in value. Although purchasing a foreign
currency option can protect the Fund against an adverse movement
in the value of a foreign currency, the option will not limit the
movement in the value of such currency. For example, if the Fund
were holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge
against a decline in the value of the currency, the Fund would not
have to exercise its put option. Likewise, if the Fund were to
enter into a contract to purchase a security denominated in
foreign currency and, in conjunction with that purchase, were to
purchase a foreign currency call option to hedge against a rise in
value of the currency, and if the value of the currency instead
depreciated between the date of purchase and the settlement date,
the Fund would not have to exercise its call. Instead, the Fund
could acquire in the spot market the amount of foreign currency
needed for settlement.
Special Risks Associated with Foreign Currency Options
Buyers and sellers of foreign currency options are subject to the
same risks that apply to options generally. In addition, there are
certain additional risks associated with foreign currency options.
The markets in foreign currency options are relatively new, and
the Fund's ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary
market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the Adviser, the market for
them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in
connection with the underlying currency, there can be no assurance
that a liquid secondary market will exist for a particular option
at any specific time.
In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value of
the underlying currency relative to the U.S. Dollar. As a result,
the price of the option position may vary with changes in the
value of either or both currencies and may have no relationship to
the investment merits of a foreign security. Because foreign
currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in
the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations
available through dealers or other market sources be firm or
revised on a timely basis. Available quotation information is
generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller
transactions (i.e. less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market subject to significant price and rate
movements.
Futures Contracts
The Fund may enter into contracts for the future delivery of a
financial instrument such as an amount of foreign currency, a
security, or the cash value of a securities index during a
specified future period at a specified price. This investment
technique is designed primarily to hedge against anticipated
future changes in foreign exchange rates, interest rates or market
conditions, all of which might otherwise have an adverse effect
upon the value of securities or other assets which the Fund holds
or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the underlying
foreign currency, security or cash value of a securities index
called for by the contract at a specified price during a specified
delivery period. A "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the underlying
foreign currency, security or cash value of a securities index at
a specified price during a specified delivery period. At the time
of delivery, in the case of fixed income securities pursuant to
the contract, adjustments are made to recognize differences in
value resulting from the delivery of securities with a different
interest rate than the rate specified in the contract. In some
cases, securities called for by a futures contract may not have
been issued at the time the contract was written.
Although some futures contracts by their terms call for the actual
delivery or acquisition of assets, in most cases a party will
close out the contractual commitment before delivery without
having to make or take delivery of the underlying assets by
purchasing (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the
same month. Such a transaction, if effected through a member of an
exchange, cancels the obligation to make or take delivery of the
underlying assets. All transactions in the futures market are
made, offset or fulfilled through a clearing house associated with
the exchange on which the contracts are traded. Brokerage fees
will be incurred by the Fund when it purchases or sells contracts,
and the Fund will be required to maintain margin deposits. At the
time the Fund enters into a futures contract, it is required to
deposit with its custodian, on behalf of the broker, a specified
amount of cash or eligible securities, called "initial margin."
The initial margin required for a futures contract is set by the
exchange on which the contract is traded. Subsequent payments,
which are called "variation margin," to and from the broker are
made on a daily basis as the market price of the futures contract
fluctuates. The costs incurred in connection with futures
transactions could reduce the Fund's return.
Futures contracts entail risks. If the Adviser's judgment about
the general direction of interest rates, markets or exchange rates
is wrong, the overall performance may be poorer than if no such
contracts had been entered into. An imperfect correlation may
exist between movements in the prices of futures contracts and
portfolio assets being hedged. Further, the market prices of
futures contracts may be affected by certain factors. For example,
the normal relationship between the assets and futures markets
could be distorted if participants in the futures market were to
elect to close out their contracts through offsetting transactions
rather than by meeting margin requirements. Price distortions also
could result if investors in futures contracts were to decide to
make or take delivery of underlying assets rather than engaging in
closing transactions because of the resultant liquidity of the
futures market. Further, increased participation by speculators in
the futures market could cause temporary price distortions
because, as perceived by speculators, margin requirements in the
futures market are less onerous than margin requirements in the
cash market. Because of the possibility of price distortions in
the futures market and the imperfect correlation between movements
in the prices of securities or other assets and movements in the
prices of futures contracts, a correct forecast of market trends
by the Adviser still may not result in a successful hedging
transaction. If one of these events were to occur, the Fund could
lose money on the futures contracts as well as on its portfolio
assets.
Options on Futures Contracts
The Fund may purchase and write call and put options on futures
contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a
futures contract at a specified price at any time during the
period of the option. When the option is exercised, the writer of
the option delivers the futures contract to the holder at the
exercise price. With regard to put and call options on futures
contracts written by the Fund, the Fund would be required to
deposit initial and maintenance margin with the custodian. Options
on futures contracts involve risks similar to those discussed
above that relate to transactions in futures contracts.
Furthermore, an option on a futures contract purchased by the Fund
may expire worthless, which would cause the Fund to lose the
premium paid for the option.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such
contracts, the Fund may be able to achieve many of the same
objectives as it would through the use of forward foreign currency
exchange contracts. The Fund may be able to achieve these
objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange
contracts.
Special Risks Associated with Foreign Currency Futures Contracts and
Related Options
Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures
generally. In addition, there are risks associated with foreign
currency futures contracts and their use as a hedging device
similar to those associated with options on foreign currencies, as
described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures
contracts is relatively new. The ability to establish and close
out positions on such options is subject to the maintenance of a
liquid secondary market. To reduce this risk, the Fund will not
purchase or write options on foreign currency futures contracts
unless and until, in the Adviser opinion, the market for such
options has developed sufficiently that the risks in connection
with such options are not greater than the risks in connection
with transactions in the underlying foreign currency futures
contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus
transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would
result in a loss, such as when there is no movement in the price
of the underlying currency or futures contract.
Options on Securities
The Fund may write (sell) covered call options on securities if it
owns securities that are acceptable for escrow purposes.
Additionally, the Fund may write secured put options on
securities. When writing a secured put option, the Fund will
invest an amount not less than the exercise price of the put
option in eligible securities, so long as the Fund is obligated as
a writer of a put option. A call option gives the purchaser the
right to buy, and the writer the obligation to sell, the
underlying security at the exercise price during the option
period. A put option gives the purchaser the right to sell, and
the writer the obligation to buy, the underlying security at the
exercise price during the option period. The premium received for
writing an option will reflect such factors as the current market
price of the underlying security, the relationship of the exercise
price to such market price, the option period, supply and demand,
and interest rates. The exercise price of an option may be below,
equal to or above the current market value of the underlying
security at the time that the option is written. The Fund may also
write or purchase spread options. A spread option is an option for
which the exercise price may be a fixed dollar spread or yield
spread between the security underlying the option and another
security that it does not own but uses as a bench mark.
The purchase of a put option by the owner of the related security
protects the purchaser against any decline in the related
security's price below the exercise price (less the amount paid
for the option). The ability of the Fund to purchase put options
allows it to protect capital gains in an appreciated security
without actually requiring the Fund to sell the appreciated
security. On occasion, the Fund would like to establish a position
in a security upon which call options are available. The purchase
of a call option enables the Fund to fix the cost of acquiring the
security, which would be the cost of the call plus the exercise
price of the option. In addition, this method of acquiring
securities provides some protection from an unexpected downturn in
the market. This is because the Fund is at risk only for the
amount of the premium paid for the call option, which it can let
lapse, if it so chooses.
During the option period, the covered call writer gives up the
potential for capital appreciation above the exercise price if the
underlying asset rises in value, and the secured put writer
retains the risk of loss if the underlying asset declines in
value. For the covered call writer, substantial appreciation in
the value of the underlying asset would result in the asset being
"called away." For the secured put writer, substantial
depreciation in the value of the underlying asset could result in
the asset being "put to" the writer. If a covered call option
expired unexercised, the writer of the call would realize a gain
and the buyer would realize a loss in the amount of the premium.
If the covered call option writer had to sell the underlying asset
because of the exercise of the call option, it would realize a
gain or loss from the sale of the underlying asset, with the
proceeds being increased by the amount of the premium.
If a secured put option expired unexercised, the writer would
realize a gain and the buyer would realize a loss on the amount of
the premium. If the secured put writer would have to buy the
underlying asset because of the exercise of the put option, the
writer would incur an unrealized loss to the extent that the
current market value of the underlying asset is less than the
exercise price of the put option, less the premium received.
Over-The-Counter Options
The Fund may deal in over-the-counter traded options ("OTC
options") in addition to exchange traded options. OTC options
differ from exchange traded options in several respects. First,
they are transacted with dealers rather than a clearing
corporation. Second, a risk of nonperformance by the dealer
exists, whether as a result of the insolvency of the dealer or
otherwise, which could cause the Fund to experience material
losses; however, in writing OTC options, the premium is paid in
advance by the dealer. Third, in contrast to exchange traded
options, OTC options are available for a greater variety of
securities and wider range of expiration dates and exercise
prices. Because there is no exchange in the case of OTC options,
pricing is normally done with reference to information from market
makers, which is carefully monitored by the Fund's investment
adviser and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it
voluntarily only by entering into a closing transaction. In the
case of OTC options, there cannot be any assurance that a
continuous liquid secondary market will exist for any particular
option at any given time. As a result, the Fund may be able to
realize the value of an OTC option it has purchased only by
exercising it or by entering into a closing sale transaction with
the dealer that issued it. Likewise, in cases where the Fund
writes an OTC option, it generally can close out that option prior
to its expiration only by entering into a closing purchase
transaction with the dealer to whom the Fund wrote the option. If
a covered call option writer is unable to effect a closing
transaction, it cannot sell the underlying asset until the option
either expires or is exercised. Thus, a covered call option writer
of an OTC option may not be able to sell an underlying asset even
though it might otherwise be advantageous to do so. Moreover, a
secured put writer of an OTC option may be unable to sell the
assets pledged to secure the put for other investment purposes so
long as it is obligated as a put writer, and a purchaser of the
put or call option might also find it difficult to terminate its
position on a timely basis when no secondary market exists.
Options on Securities Indices
The Fund also may purchase and write call and put options on
securities indices in order to hedge against market conditions
which affect the values of securities that the Fund owns or
intends to purchase. The Fund will not purchase and write such
options for speculation. By writing and purchasing index options,
the Fund may be able to achieve many of the same objectives as
through the purchasing and writing of options on individual
securities. Options on securities indices are similar to options
on individual securities. However, unlike an option on an
individual security, which gives the right to take or make
delivery of a security at a specified price, an option on a
securities index gives the holder upon exercise the right to
receive an amount of cash if the closing level of the securities
index upon which the option is based exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of
the option. Upon exercise of the option, the amount of cash
received by the holder is equal to the difference between the
closing price of the index and the exercise price of the option.
In consideration for the premium received, the writer of the
option has an obligation to make delivery of the amount of cash
resulting from the exercise of the option. Unlike options on
individual securities, all settlements are in cash, and the gain
or loss depends upon price movements in the market generally or in
a segment of the market, rather than upon price movements in
individual securities.
The Fund covers call options written on a securities index through
the ownership of securities whose changes in price, in the opinion
of the Adviser, are anticipated to be similar to the price changes
of the index, or in such other manner or may be in conformance
with applicable laws, regulations and exchange rules. Any changes
in the prices of the securities owned by the Fund probably will
not be perfectly correlated with the securities index. The Fund
will secure put options written on a securities index by means of
segregating liquid high-grade securities equal to the exercise
price, or in such other manner as may be in conformance with
applicable laws, regulations and exchange rules. Upon writing an
option on a securities index, the Fund will be required to deposit
with its custodian and mark-to-market, eligible securities that
are equal in value to at least 100% of the exercise price in the
case of a put or, in the case of a call, the value of the
contract. Additionally, if the Fund writes a call option on a
securities index at a time when the value of the contract is
greater than the exercise price, the Fund will segregate and mark
to market, until such time as the option expires or is closed out,
cash or a cash equivalent equal in value to the excess of the
contract value.
In addition, the Fund may purchase and write options on other
appropriate indices, as available (e.g., foreign currency
indices).
Index options involve risks similar to those associated with
transactions in futures contracts, as described above. Also, an
option purchased by the Fund may expire worthless. In such case,
the Fund could lose the premium paid for the option.
Regulatory Restrictions
To the extent required to comply with Securities and Exchange
Commission ("SEC") Release No. 10666, when purchasing a futures
contract, writing a put option or entering into a delayed delivery
purchase or forward foreign currency exchange purchase, the Fund
will establish and maintain a segregated account consisting of
cash or liquid high-grade securities equal to the value of such
contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid status as a "commodity
pool operator", the Fund will not enter into a futures contract,
or purchase an option thereon, if immediately thereafter the
initial margin deposits for futures contracts held by the Fund,
plus premiums paid by it for open options of futures, would exceed
5% of the total assets of the Fund. The Fund will not engage in
transactions in futures contracts or options thereon for
speculation, but only to attempt to hedge against changes in
market conditions affecting the values of assets which the Fund
holds or intends to purchase. When futures contracts or options
thereon are purchased in order to protect against a price increase
on securities or other assets intended to be purchased later, it
is anticipated that at least 75% of such intended purchases will
be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all
times not exceed the sum of (1) accrued profit on such contracts
held by the broker; (2) cash or high-quality money market
instruments set aside in an identifiable manner; and (3) cash
proceeds from investments due in 30 days or less.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market
daily. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers which are deemed by the Adviser to be creditworthy
pursuant to guidelines established by the Corporation's Board of
Directors (the "Directors").
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Fund will be able to avoid selling
portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
assets are marked to market daily and maintained until the transaction
is settled.
Lending Portfolio Securities
The Fund may lend its portfolio securities to broker-dealers, banks, or
other institutional borrowers of securities. The Fund will only enter
into loan arrangements with broker-dealers, banks, or other institutions
which the Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral equal to at
least 100% of the value of the securities loaned.
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on
the cash or equivalent collateral to the borrower or placing broker. The
Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Restricted and Illiquid Securities
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a SEC staff position set forth
in the adopting release for Rule 144A under the Securities Act of 1933
(the "Rule"). The Rule is a non-exclusive, safe-harbor for certain
secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides
an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to
further enhance the liquidity of the secondary market for securities
eligible for resale under Rule 144A. The Fund believes that the staff of
the SEC has left the question of determining the liquidity of all
restricted securities (eligible for resale under Rule 144A) for
determination of the Directors. The Directors consider the following
criteria in determining the liquidity of certain restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
- dealers' undertakings to make a market in the security; and
- the nature of the security and the nature of the marketplace
trades.
Notwithstanding the foregoing, securities of foreign issuers which are
not listed on a recognized domestic or foreign exchange or for which a
bona fide market does not exist at the time of purchase or subsequent
transaction shall be treated as illiquid securities by the Directors.
When the Fund invests in certain restricted securities determined by the
Directors to be liquid, such investments could have the effect of
increasing the level of Fund illiquidity to the extent that the buyers
in the secondary market for such securities (whether in Rule 144A
resales or other exempt transactions) become, for a time, uninterested
in purchasing these securities.
Duration
Duration is a measure of a debt security's price sensitivity expressed
in years and is a measure of the interest rate risk of a debt security,
taking into consideration that there may be cash flows before the
maturity date and that the cash flows must be considered in terms of
their present value. Duration is similar to, but more precise than,
average life. It is a measure of the number of years until the average
dollar--in present value terms--is received from coupon and principal
payments. As such, it is one measure of systematic risk. Average life,
on the other hand, is a measure of the time to receive a dollar of
principal--it takes into consideration neither interest payments nor
present value. Duration is computed by multiplying each principal and
interest payment by its present value, summing these products, and
dividing the sum by the full price of the debt security. When a Fund
invests in mortgage pass-through securities, its duration will be
calculated in a manner which requires assumptions to be made regarding
future principal prepayments. A more complete description of this
calculation is available upon request from the Fund.
Additional Risk Considerations
The Directors consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions
which would affect the liquidity of the Fund's assets maintained with
custodians in foreign countries, as well as the degree of risk from
political acts of foreign governments to which such assets may be
exposed. The Directors also consider the degree of risk involved through
the holding of portfolio securities in domestic and foreign securities
depositories. However, in the absence of willful misfeasance, bad faith
or gross negligence on the part of the Adviser, any losses resulting
from the holding of the Funds' portfolio securities in foreign countries
and/or with securities depositories will be at the risk of shareholders.
No assurance can be given that the Directors' appraisal of the risks
will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever
the Adviser believes it is appropriate to do so in light of the Fund's
investment objectives, without regard to the length of time a particular
security may have been held. The Adviser does not anticipate that
portfolio turnover will result in adverse tax consequences. For the
fiscal years ended November 30, 1994 and 1993, the portfolio turnover
rates were 136% and 189%, respectively.
Investment Limitations
Acquiring Securities
The Fund will not acquire any securities of Fiduciary Trust
Company International or its affiliates.
Concentration of Investments
The Fund will not invest more than 25% of its total assets in
securities of any one government or supranational issuer.
Borrowing
The Fund will not borrow money except from banks or through
reverse repurchase agreements as a temporary measure for
extraordinary or emergency purposes and then only in amounts up to
one-third of the value of its total assets, including the amount
borrowed, but entering into futures contracts shall not be
considered borrowing. This borrowing provision is not for
investment leverage but solely to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when
the liquidation of portfolio securities would be inconvenient or
disadvantageous. The Fund will not purchase securities while
outstanding borrowings exceed 5% of the value of its total assets.
Pledging Securities
The Fund will not mortgage, pledge, or hypothecate securities,
except when necessary for permissible borrowings. In those cases,
it may pledge assets having a value of 15% of its assets taken at
cost. To comply with certain state restrictions, the Fund will
limit these transactions to 10% of its net assets at market. If
state restrictions change, this latter restriction may be revised
without shareholder approval or notification. For purposes of the
limitation, (a) the deposit of assets in escrow in connection with
the writing of covered call and secured put options and (b)
collateral arrangements with respect to (i) the purchase and sale
of options and (ii) initial or variation margins for futures
contracts, will not be deemed to be pledges of the Fund's assets.
Buying on Margin
The Fund will not purchase any securities on margin but may obtain
such short-term credits as may be necessary for clearance of
purchases and sales of securities, and except that the Fund may
make margin deposits or payments in connection with its use of
options, futures contracts and options on futures contracts.
Issuing Senior Securities
The Fund will not issue senior securities except in connection
with transactions described in other investment limitations or as
required by forward commitments to purchase securities or
currencies.
Underwriting
The Fund will not underwrite or participate in the marketing of
securities of other issuers, except as it may be deemed to be an
underwriter under federal securities law in connection with the
disposition of its portfolio securities.
Investing in Real Estate
The Fund will not invest in real estate, including limited
partnership interests, although it may invest in securities
secured by real estate or interests in real estate or issued by
companies, including real estate investment trusts, which invest
in real estate or interests therein.
Investing in Commodities
The Fund will not purchase or sell commodities or commodity
contracts, except that the Fund may purchase or sell futures
contracts and options thereon, provided that the sum of its
initial margin deposits on open contracts will not exceed 5% of
the fair market value of the Fund's net assets. Further, the Fund
may engage in transactions in foreign currencies and may purchase
and sell options on foreign currencies and indices for hedging
purposes.
Lending Cash or Securities
The Fund will not lend any assets except portfolio securities.
This shall not prevent the purchase or holding of bonds,
debentures, notes, certificates of indebtedness, or other debt
securities of an issuer, repurchase agreements or other
transactions which are permitted by the Fund's investment
objective and policies or its Articles of Incorporation.
Investing in Minerals
The Fund will not invest in interests in oil, gas, or other
mineral exploration or development programs or leases.
Dealing in Puts and Calls
The Fund may not write or purchase options, except that the Fund
may write covered call options and secured put options on up to
25% of its net assets and may purchase put and call options,
provided that no more than 5% of its net assets may be invested in
premiums of such options.
Selling Short
The Fund will not sell securities short unless (1) it owns, or has
a right to acquire, an equal amount of such securities, or (2) it
has segregated an amount of its other assets equal to the lesser
of the market value of the securities sold short or the amount
required to acquire such securities. The segregated amount will
not exceed 10% of the Fund's net assets. While in a short
position, the Fund will retain the securities, rights, or
segregated assets.
Except as noted, the above investment limitations cannot be changed
without shareholder approval. The following limitations, however, may be
changed by the Directors without shareholder approval. Except as noted,
shareholders will be notified before any material change in these
limitations becomes effective.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for the purpose
of exercising control or management.
Investing in Securities of Other Investment Companies
The Fund will not own securities of open-end investment companies,
own more than 3% of the total outstanding voting stock of any
closed-end investment company, invest more than 5% of its total
assets in any closed-end investment company, or invest more than
10% of its total assets in closed-end investment companies in
general. The Fund will purchase securities of closed-end
investment companies only in openmarket transactions involving
only customary broker's commissions. However, these limitations
are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. The Fund
will indirectly bear its proportionate share of any fees and
expenses paid by other investment companies in addition to the
fees and expenses payable directly by the Fund.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total
assets in securities of issuers which have records of less than
three years of continuous operations, including the operation of
any predecessor.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including securities not determined
by the Directors to be liquid, repurchase agreements with
maturities longer than seven days after notice, and certain over-
the-counter options.
Investing in Issuers Whose Securities are Owned by Officers and
Directors of the Corporation
The Fund will not purchase or retain the securities of any issuer
if the officers and directors of the Corporation or the Fund's
investment adviser or sub-adviser owning individually more than -
1/2 of 1% of the issuer's securities together own more than 5% of
the issuer's securities.
Arbitrage Transactions
To comply with certain state restrictions, the Fund will not enter
into transactions for the purpose of engaging in arbitrage. If
state requirements change, this restriction may be revised without
shareholder notification.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
To comply with registration requirements in certain states, the Fund (1)
will limit short sales of securities of any class of any one issuer to
the lesser of 2% of the Fund's net assets or 2% of the securities of
that class, and (2) will make short sales only on securities listed on
recognized stock exchanges. The latter restrictions, however, do not
apply to short sales of securities the Fund holds or has a right to
acquire without the payment of any further consideration. If state
requirements change, these restrictions may be revised without
shareholder notification.
The Fund did not borrow money, invest in reverse repurchase agreements,
pledge securities in excess of 5% of the value of its total assets or
sell securities short in an amount exceeding 5% of its net assets,
during the past year and does not anticipate doing so during the current
fiscal year.
The Funds
"The Funds" and "Funds" mean the following investment companies:
American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds;
Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth
Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. -
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; The Medalist Funds: Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark
Funds; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; World Investment Series, Inc.
Fund Ownership
Officers and Directors own less than 1% of the Fund's outstanding
Shares.
As of January 10, 1995, the following shareholders of record owned 5% or
more of the outstanding Class A Shares of the Fund: TRUCOJO, Trust
Company of St. Joseph, St. Joseph, Missouri, owned approximately
1,048,657 Class A Shares (5.58%); Clooney and Company, New York, New
York, owned approximately 1,519,266 Class A Shares (8.09%); JATO,
National City Bank Minneapolis, Minneapolis, Minnesota, owned
approximately 2,295,582 Class A Shares (12.22%); and Charles Schwab and
Company, Inc., San Francisco, California, owned approximately 1,773,767
Class A Shares (9.48%).
Also as of January 10, 1995, the following shareholders of record owned
5% or more of the outstanding Class B Shares of the Fund: Barbara Robbez-
Masson, Roslyn, New York, owned approximately 3,870 Class B Shares
(21.25%); Smith Barney, Inc., New York, New York, owned approximately
1,201 Class B Shares (6.60%); Brian E. Hornstra, Denver, Colorado, owned
approximately 970 Class B Shares (5.33%); and John F. Sullivan, Jr.,
Seattle, Washington owned approximately 2,703 Class B Shares (14.84%).
Also as of January 10, 1995, the following shareholders of record owned
5% or more of the outstanding Class C Shares of the Fund: Merrill Lynch
Pierce Fenner & Smith (as record owner holding Class C Shares for its
clients), Jacksonville, Florida, owned approximately 244,218 Class C
Shares (32.63%).
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Management. It is a
subsidiary of Federated Investors. All of the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund, the Corporation, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
upon it by its contract with the Corporation.
Sub-Adviser
Fiduciary Trust International Limited is the sub-adviser to the Fund
(the "sub-adviser") under the terms of a Sub-Advisory Agreement between
Federated Management and Fiduciary Trust International Limited.
Fiduciary Trust International Limited is located at 30 Old Burlington
Street, London W1X1LB. Fiduciary Trust International Limited, which is
an English company formed on May 20, 1985, is registered as an
investment adviser with the Securities and Exchange Commission and is a
member of the Investment Management Regulatory Organization, a United
Kingdom self-regulatory organization. Substantially all of the shares of
Fiduciary Trust International Limited are owned by Fiduciary Trust
International (SA), a wholly-owned subsidiary of Fiduciary Trust Company
International. No director, officer or employee of Fiduciary Trust
International Limited or Fiduciary Trust International (SA) serves as
director, officer or employee of the Corporation.
Fiduciary Trust Company International was founded in 1931 and is a New
York state-chartered bank. It has focused primarily on the management of
the investments and financial affairs of its customers, and has chosen
to minimize its commercial banking activities (i.e., accepting deposits
and making loans). As of December 31, 1994, Fiduciary Trust Company
International had total assets in excess of $375 million, and total
assets under management of approximately $30 billion. Fiduciary Trust
International (SA) is a Swiss company organized to act as an
intermediate foreign parent for certain of Fiduciary Trust Company
International's foreign subsidiaries.
Advisory Fees
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectuses. Federated
Management became the Fund's investment adviser on March 15, 1994. For
the period from March 15, 1994 to November 30, 1994, Federated
Management received $1,281,997, of which $172,142 was waived because of
undertakings to limit the Fund's expenses. For the period from December
1, 1993 to March 15, 1994, Fiduciary Trust International Limited, the
Fund's former investment adviser, received $537,219, of which $60,480
was waived because of undertaking to limit the Fund's expenses. For the
fiscal years ended November 30, 1993, and 1992, Fiduciary Trust
International Limited received $986,055 and $528,035, respectively,
which were reduced by $271,710 and $433,317, respectively, because of
undertakings to limit the Fund's expenses.
Sub-Advisory Fees
For its sub-advisory services, Fiduciary Trust International Limited
receives an annual sub-advisory fee as described in the prospectuses.
Federated Management became the Fund's sub-adviser on December 1, 1990,
and served in that capacity until March 15, 1994. For the period from
March 15, 1994 to November 30, 1994, Fiduciary Trust International
Limited received $640,998, of which $86,071 was waived because of
undertakings to limit the Fund's expenses. For the period from December
1, 1993 to March 15, 1994, Federated Management, in its former capacity
as sub-adviser to the Fund received $286,610, of which $30,240 was
waived because of undertaking to limit the Fund's expenses. For the
fiscal years ended November 30, 1993, and 1992, Federated Management
received $493,028 and $264,018, respectively, which were reduced by
$135,855 and $216,659, respectively, because of undertakings to limit
the Fund's expenses.
State Expense Limitations
The Adviser and sub-adviser have undertaken to comply with the
expense limitations established by certain states for investment
companies whose shares are registered for sale in those states. If
the Fund's normal operating expenses (including the investment
advisory and sub-advisory fees, but not including brokerage
commissions, interest, taxes, and extraordinary expenses) exceed 2-
1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2%
per year of the remaining average net assets, the Adviser and sub-
adviser will reimburse the Fund for their expenses over the
limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory and sub-advisory fees paid
will be reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amounts to
be reimbursed by the Adviser and sub-adviser will be limited, in
any single fiscal year, by the amount of the investment advisory
and sub-advisory fee.
This arrangement is not part of the investment advisory contract
or sub-advisory agreement, and may be amended or rescinded in the
future.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated
Securities Corp.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal years ended November 30,
1994, 1993, and 1992, Federated Administrative Services earned $334,436,
$197,211, and $105,607. Dr. Henry J. Gailliot, an officer of Federated
Management, the Adviser to the Fund, holds approximately 20% of the
outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Fund. The fee paid for this service is based on
the size, type and number of accounts and transactions made by
shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund
or to the Adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising certain other accounts. To
the extent that receipt of these services may supplant services for
which the Adviser might otherwise have paid, it would tend to reduce
their expenses.
Investment decisions for the Fund will be made independently from those
of any fiduciary or other accounts that may be managed by Fiduciary
Trust Company International or its subsidiaries. If, however, such
accounts and the Fund are simultaneously engaged in transactions
involving the same securities, the transactions may be combined and
allocated to each account. This system may adversely affect the price
the Fund pays or receives, or the size of the position it obtains.
The Adviser may engage in other non-U.S. transactions that may have
adverse effects on the market for securities in the Fund's portfolio.
The Adviser is not obligated to obtain any material non-public
("inside") information about any securities issuer, or to base purchase
or sale recommendations on such information.
For the fiscal years ended November 30, 1994, 1993, and 1992, the Fund
paid $0, $0, and $0, respectively, in brokerage commissions on brokerage
transactions.
Purchasing Shares
Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value, plus a sales
load (for Class A Shares only) on days the New York Stock Exchange is
open for business. The procedure for purchasing Shares is explained in
the respective prospectuses under "Investing in Class A Shares,"
"Investing in Class B Shares," or "Investing in Class C Shares."
Distribution and Shareholder Services Plans
As explained in the respective prospectuses, the Fund has adopted a
Shareholder Services Plan and Distribution Plan pursuant to Rule 12b-1
of the Investment Company Act of 1940. These arrangements permit the
payment of fees to financial institutions, the distributor, and
Federated Shareholder Services to stimulate distribution activities and
to cause services to be provided to shareholders by a representative who
has knowledge of the shareholder's particular circumstances and goals.
These activities may include, but are not limited to, marketing efforts;
providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund
will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in pursuing its investment
objective. By identifying potential investors whose needs are served by
the Fund's objective, and properly servicing these accounts, it may be
possible to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts.
For the fiscal years ended November 30, 1994, 1993, and 1992, payments
in the amount of $586,447, $326,268, and $176,012, respectively, were
made pursuant to the Distribution Plan for Class A Shares. For the
period from September 19, 1994 (start of business) to November 30, 1994,
payments in the amount of $79 were made pursuant to the Distribution
Plan for Class B Shares. For the fiscal year ended November 30, 1994,
and the period from March 31, 1993 (start of business) to November 30,
1993, payments in amount of $59,787 and $7,251, respectively, were made
pursuant to the Distribution Plan for Class C Shares. In addition, for
the fiscal year ended November 30, 1994, payments in the amount of
$221,397, $26, and $19,544 were made pursuant to the Shareholder
Services Plan for Class A Shares, Class B Shares, and Class C Shares,
respectively.
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds
before shareholders begin to earn dividends. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them
to federal funds.
Purchases by Sales Representatives, Directors of the Corporation, and
Employees
Directors, employees, and sales representatives of the Fund, the
Adviser, the sub-adviser, and Federated Securities Corp., or their
affiliates, or any investment dealer who has a sales agreement with
Federated Securities Corp., and their spouses and children under 21, may
buy Shares at net asset value without a load and are not subject to a
contingent deferred sales charge (Class B Shares and Class C Shares
only) to the extent the financial institution through which the Shares
are sold agrees to waive any initial payment to which it might otherwise
be entitled. Shares may also be sold without sales loads to trusts or
pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the respective
prospectuses.
Determining Market Value of Securities
Market or appraised values of the Fund's portfolio securities are
determined as follows:
- - according to the prices provided by an independent pricing service,
if available, or at fair value as determined in good faith by the
Directors; or
- - for short-term obligations with remaining maturities of 60 days or
less at the time of purchase, at amortized cost, unless the Directors
determine that particular circumstances of the security indicate
otherwise.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider:
institutional trading in similar groups of securities; yield; quality;
coupon rate; maturity; type of issue; trading characteristics; and other
market data.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from
the closing of the New York Stock Exchange. In computing the net asset
value, the Fund values foreign securities at the latest closing price on
the exchange on which they are traded immediately prior to the closing
of the New York Stock Exchange. Certain foreign currency exchange rates
may also be determined at the latest rate prior to the closing of the
New York Stock Exchange. Foreign securities quoted in foreign currencies
are translated into U.S. dollars at current rates. Occasionally, events
that affect these values and exchange rates may occur between the times
at which they are determined and the closing of the New York Stock
Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as
determined in good faith by the Directors, although the actual
calculation may be done by others.
Redeeming Shares
The Fund redeems Shares at the next computed net asset value after the
Fund receives the redemption request. Shareholder redemptions of Class B
Shares and Class C Shares may be subject to a contingent deferred sales
charge. Redemption procedures are explained in the respective
prospectuses under "Redeeming Class A Shares," "Redeeming Class B
Shares," or "Redeeming Class C Shares." Although the Fund does not
charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
Since portfolio securities of the Fund may be traded on foreign
exchanges which trade on Saturdays or on holidays on which the Fund will
not make redemptions, the net asset value of each class of Shares of the
Fund may be significantly affected on days when shareholders do not have
an opportunity to redeem their Shares.
Redemption in Kind
Although the Corporation intends to redeem Shares in cash, it reserves
the right under certain circumstances to pay the redemption price, in
whole or in part, by a distribution of securities from the Fund's
portfolio. The Corporation has elected to be governed by Rule 18f-1 of
the Investment Company Act of 1940, as amended, under which the
Corporation is obligated to redeem Shares for any one shareholder in
cash only up to the lesser of $250,000 or 1% of a class of Shares' net
asset value during any 90-day period. Any redemption beyond this amount
will also be in cash unless the Directors determine that further cash
payments will have a materially adverse effect on remaining
shareholders. In such a case, the Fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in the same
way as the Fund determines net asset value. The portfolio instruments
will be selected in a manner that the Directors deem fair and equitable.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net
asset value and selecting the securities in a manner the Directors
determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made is kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
- - derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities
held less than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned
during the year.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the
amount of foreign taxes to which the Fund would be subject.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The Fund's dividends, and
any short-term capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-
term capital gains distributed to them regardless of how long they
have held the Fund Shares.
Total Return
The average annual total return for all classes of Shares of the Fund is
the average compounded rate of return for a given period that would
equate a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by multiplying
the number of Shares owned at the end of the period by the offering
price per Share at the end of the period. The number of Shares owned at
the end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional Shares, assuming the
quarterly reinvestment of all dividends and distributions. Any
applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase
price or the offering price of Shares redeemed.
Cumulative total return reflects total performance over a specific
period of time. This total return assumes and is reduced by the payment
of the maximum sales load. The Fund's total return is representative of
less than three months of investment activity since the start of
performance.
The Class A Shares' average annual total returns for the fiscal year
ended November 30, 1994, and, prior to the creation of separate classes
of Shares, for the period from June 4, 1991 (effective date of Class A
Shares registration statement) to November 30, 1994, were (5.31%) and
8.54%, respectively.
The Class B Shares' cumulative total return for the period from
September 27, 1994 (effective date of Class B Shares registration
statement) to November 30, 1994, was (3.02%). The Class B Shares' total
return is representative of only two months of investment activity since
the Class B Shares' effective date.
The Class C Shares' average annual total returns for the fiscal year
ended November 30, 1994, and, prior to the creation of separate classes
of Shares, for the period from March 31, 1993 (effective date of Class C
Shares registration statement) to November 30, 1994, were (2.48%) and
10.34%, respectively.
Yield
The yield for Class A Shares for the thirty-day period ended November
30, 1994, was 8.11%. The yield for Class B Shares for the thirty-day
period ended November 30, 1994, was 7.67%. The yield for Class C Shares
for the thirty-day period ended November 30, 1994, was 7.73%.
The yield for all classes of Shares of the Fund is determined by
dividing the net investment income per Share (as defined by the SEC)
earned by any class of Shares over a thirty-day period by the maximum
offering price per Share of any class of Shares on the last day of the
period. This value is then annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day
period is assumed to be generated each month over a 12-month period and
is reinvested every six months. The yield does not necessarily reflect
income actually earned by any class of Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in any class of Shares, the performance will be reduced for those
shareholders paying those fees.
Performance Comparisons
The Fund's performance of each class of Shares depends upon such
variables as: .portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in the Fund's or a class of Shares' expenses; and
- - various other factors.
A class of Shares' performance fluctuates on a daily basis largely
because net earnings and offering price per Share fluctuate daily. Both
net earning and offering price per Share are factors in the computation
of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition
of any index used, prevailing market conditions, portfolio compositions
of other funds, and methods used to value portfolio securities and
compute offering price. The financial publications and/or indices which
the Fund uses in advertising may include:
- - Lipper Analytical Services, Inc., for example, makes comparative
calculations for one-month, three-month, one-year, and five-year
periods which assume the reinvestment of all capital gains
distributions and income dividends.
- - Salomon Brothers High Grade Bond Index; Salomon Brothers World
Government Bond Index; and J.P. Morgan Government Bond Index.
- - Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
- - Lehman Brothers Government/Corporate Bond Index is comprised of
approximately 5,000 issues which include non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities, and
finance. The average maturity of these bonds approximates nine years.
Tracked by Lehman Brothers, Inc., the index calculates total returns
for one-month, three-month, twelve-month, and ten-year periods and
year-to-date.
Advertisements and sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods.
These total returns also represent the historic change in the value of
an investment in any class of Shares based on quarterly reinvestment of
dividends over a specified period of time.
Advertisements may quote performance information which does not reflect
the effect of the sales load or contingent deferred sales charge, as
applicable.
Appendix
Moody's Investors Service, Inc., Commercial Paper Rating Definitions
P-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- - Leading market positions in well established industries;
- - High rates of return on funds employed;
- - Conservative capitalization structures with moderate reliance on debt
and ample asset protection;
- - Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
- - Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Standard and Poor's Ratings Group Commercial Paper Rating Definitions
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
Moody's Investors Service, Inc., Long-Term Bond Rating Definitions
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as ''gilt edge.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Standard and Poor's Ratings Group Long-Term Debt Rating Definitions
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
46031P100
46031P506
46031P209
1051602B (1/95)
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part A);
(b) Exhibits:
(1) Copy of the Articles of Incorporation of the
Registrant (10);
(2) Copy of the By-Laws of the Registrant (10);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of
Common
Stock for Class A Shares, Class B Shares, and
Class C
Shares of International Equity Fund and
International
Income Fund (14);
(5) (i) Copy of the Investment Advisory Contract
dated February 11, 1991 of the Registrant
(10);
(ii) Copy of the Sub-Advisory Agreement dated
February 11, 1991 (10);
(iii) Conformed Copy of Investment Advisory
Contract
of the Registrant with Federated
Management
dated March 15, 1994; +
(iv) Conformed Copy of Sub-Advisory Agreement
of the
Registrant between Federated Management
and
Fiduciary Trust International Limited on
behalf of the International Income Fund
dated
March 15, 1994; +
(v) Conformed Copy of Sub-Advisory Agreement
of the
Registrant between Federated Management
and
Fiduciary International, Inc., on behalf
of
the International Equity Fund dated March
15,
1994; +
(6) (i) Conformed copy of Distributor's Contract
of the
Registrant dated February 11, 1991,
through and
including Exhibit E; (14)
(ii) Form of Exhibit F to the Distributor's
Contract
of the Registrant adding Class B Shares to
the
current existing Distributor's Contract;
(14)
(7) Not applicable;
(8) Conformed copy of the Custodian Contract of the
Registrant; (14)
+ All Exhibits have been filed electronically.
10. Response is incorporated by reference to Registrant's Post-
Effective
Amendment No. 13 on Form N-1A filed February 13, 1991 (File Nos. 2-
91776 and 811-3984).
14. Response is incorporated by reference to Registrant's Post-
Effective
Amendment No. 20 on Form N-1A filed July 29, 1994 (File Nos. 2-
91776
and 811-3984).
(9) (i) Conformed copy of the Fund Accounting,
Shareholder Recordkeeping and Custody
Services
Procurement Agreement; +
(ii) Conformed copy of Shareholder Services
Plan;
(14)
(iii) Conformed copy of Administrative Services
Agreement of the Registrant; (14)
(iv) Conformed copy of Shareholder Services
Agreement of the Registrant; (14)
(v) Copy of Shareholder Services Sub-contract;
+
(10) Paper Copy of the Opinion and Consent of Counsel
as to legality of shares being registered (2);
(11) Conformed copy of Consent of Independent Public
Accountants;+
(13) Paper Copy of Initial Capital Understanding (2);
(14) Not applicable;
(15) (i) Conformed copy of Rule 12b-1 Plan of the
Registrant, through and including
Exhibit B; (14)
(ii) Form of Exhibit C to Rule 12b-1 Plan of
the Registrant adding Class B Shares to
the current existing Rule 12b-1 Plan;(14)
(iii) Copy of 12b-1 Agreement, through and
including
Exhibit C; (14)
(16) (i) Paper copy of Schedule for Computation of
Fund Performance Data for International
Equity Fund (8);
(ii) Paper copy of Schedule for Computation of
Fund
Performance Data for International Income
Fund
(12);
(17) Financial Data Schedules;+
(18) Not applicable.
(19) Conformed Copy of Power of Attorney;+
Item 25. Persons Controlled by or Under Common Control with
Registrant:
None
+ All Exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-
Effective
Amendment No. 1 on Form N-1 filed August 17, 1984 (File Nos. 2-
91776
and 811-3984).
8. Response is incorporated by reference to Registrant's Post-
Effective
Amendment No. 9 on Form N-1A filed January 24, 1989 (File Nos. 2-
91776
and 811-3984).
12. Response is incorporated by reference to Registrant's Post-
Effective
Amendment No. 15 on Form N-1A filed November 25, 1991 (File Nos. 2-
91776 and 811-3984).
14. Response is incorporated by reference to Registrant's Post-
Effective
Amendment No. 20 on Form N-1A filed July 29, 1994 (File Nos. 2-
91776
and 811-3984).
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of January 10,
1995
International Equity Fund
Class A Shares 12,536
Class B Shares 217
Class C Shares 357
International Income Fund
Class A Shares 1,827
Class B Shares 21
Class C Shares 357
Item 27. Indemnification: (13)
Item 28. Business and Other Connections of Investment Advisers:
For a description of the other business of the investment
adviser, see the section entitled "International Series,
Inc. Information - Management of the Corporation" in Part A.
The affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are
included in Part A of this Registration Statement under
"Management of the Corporation - Officers and Directors."
The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses,
his principal occupation is: Mark D. Olson, (Partner,
Wilson, Halbrook & Bayard), 107 W. Market Street,
Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
William D. Dawson, III, J. Thomas Madden, and Mark L.
Mallon, Executive Vice Presidents; Henry J. Gailliot, Senior
Vice President-Economist; Peter R. Anderson, Gary J. Madich,
and J. Alan Minteer, Senior Vice Presidents; Randall A.
Bauer, Jonathan C. Conley, Deborah A. Cunningham, Mark E.
Durbiano, Kathleen M. Foody-Malus, Thomas M. Franks, Edward
C. Gonzales, Jeff A. Kozemchak, Marian R. Marinack, John W.
McGonigle, Susan M. Nason, Mary Jo Ochson, Robert J.
Ostrowski, Charles A. Ritter and Christopher H. Wiles, Vice
Presidents; Edward C. Gonzales, Treasurer; and John W.
McGonigle, Secretary. The business address of each of the
Officers of the investment adviser is Federated Investors
Tower, Pittsburgh, PA 15222-3779. These individuals are
also officers of a majority of the investment advisers to
the Funds listed in Part B of this Registration Statement
under "The Funds."
(b) For a description of the other business of
the sub-
adviser to International Equity Fund, Fiduciary
International,
Inc., see the section entitled "International Series, Inc.,
Information -- Sub-Adviser's Background" in Part A.
13. Response is incorporated by reference to Registrant's Post-
Effective
Amendment No. 17 on Form N-1A filed February 2, 1993 (File Nos. 2-
91776
and 811-3984).
The officers and directors of the sub-adviser and any other
business, profession, vocation or employment of a
substantial
nature in which each such officer and director is or has
been
engaged during the past two years is set forth below.
FIDUCIARY INTERNATIONAL, INC.
Directors Officers
L. F. Boker Doyle L. F. Boker Doyle - Chairman
Lawrence S. Huntington Landon Thomas - President & CEO
Landon Thomas Stephen C. Thormahlen -
Senior
VP
Jeremy H. Biggs - Vice
President
Sheila H. Coco - Vice
President
James M. Drury - Vice
President
Francois Gour - Vice
President
Stuart Hochberger - Vice
President
Cheng Hock-Lau - Vice
President
Brian Hopkinson - Vice
President
Margaret Lindsay - Vice
President
George J. Mullen - Vice
President
Anne M. Tatlock - Vice
President
William Y. Yun - Vice
President
Nancy Nierman - Assistant
VP
Brenda C. Soule - Assistant
VP
Robert T. Wilmoth, Jr. -
Assstant VP
Kevin K. Wong - Assistant
VP
Barry J. McKeon - Treasurer
Mary A. Mullin - Secretary
(c) For a description of the other business of
the sub-
adviser to International Income Fund, Fiduciary Trust
International Limited, see the section entitled
"International
Series, Inc., Information - Sub-Adviser's Background" in
Part A.
The officers and directors of the sub-adviser and any other
business, profession, vocation or employment of a
substantial
nature in which each such officer and director is or has
been
engaged during the past two years is set forth below.
FIDUCIARY TRUST INTERNATIONAL LIMITED
Directors Officers
Michel de Selys David Smart - Managing Director
Landon Thomas John W. Beck - Assistant
Director
David Smart Nicholas B. Holliday -
Assistant
Director
Brian Cox Brian Cox - Secretary and
Compliance Officer
Thomas W. Alder - Manager
Keith Kelsall - Manager
Maureen O'Meara - Manager
Gail A. Wayman - Manager
Mathew Head - Assistant
Manager
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of
the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander
Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust;
Automated Government Money Trust; BayFunds; The
Biltmore
Funds; The Biltmore Municipal Funds; California
Municipal
Cash Trust; Cash Trust Series, Inc.; Cash Trust Series
II;
DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Exchange
Fund,
Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income
Trust;
Federated Index Trust; Federated Institutional Trust;
Federated Intermediate Government Trust; Federated
Master
Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-
Free
Trust; Federated U.S. Government Bond Fund; First
Priority
Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund,
Inc.; Fountain Square Funds; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.;
High
Yield Cash Trust; Independence One Mutual Funds; Insight
Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series Inc.;
Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income
Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty
U.S. Government Money Market Trust; Liberty Utility
Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; The Medalist
Funds; Money Market Obligations Trust; Money Market
Trust;
The Monitor Funds; Municipal Securities Income Trust;
Newpoint Funds; New York Municipal Cash Trust; 111
Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument
Funds; The Shawmut Funds; Short-Term Municipal Trust;
SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds;
The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments
Trust;
Tower Mutual Funds; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust
for
Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Fiduciary Funds, Inc.;
Vision
Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal
underwriter
for the following closed-end investment company:
Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant
Richard B. Fisher Director, Chairman, Chief Vice
President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice
President and
Federated Investors Tower President, and Treasurer, Treasurer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice
President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
Fiduciary International, Inc. Two World Trade Center
("Sub-Adviser to International New York, NY 10048
Equity Fund")
Fiduciary Trust International Ltd. 30 Old Burlington Street
("Sub-Adviser to International London W1X1LB
Income Fund") England
State Street Bank and Trust Co. P.O. Box 8604
("Custodian") Boston, MA 02266-8604
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions
of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom
a
prospectus is delivered, a copy of the Registrant's latest
annual
report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, INTERNATIONAL SERIES,
INC., certifies that it meets all of the requirements for effectiveness
of this Amendment to its Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 27th day of January, 1995.
INTERNATIONAL SERIES, INC.
BY: /s/Jeannette Fisher-Garber
(Name) Jeannette Fisher-Garber, Assistant Secretary
Attorney in Fact for John F. Donahue
January 27, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Jeannette Fisher-Garber Attorney in Fact January 27,
1995
Jeannette Fisher-Garber for the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Glen R. Johnson* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in
Post-Effective Amendment No. 23 to Form N-1A Registration Statement of
INTERNATIONAL SERIES, INC. (formerly FT Series, Inc.) of our reports
dated January 13, 1995, on the financial statements of International
Income Fund and International Equity Fund, the two portfolios comprising
International Series, Inc., included in or made part of this
registration statement.
By: ARTHUR ANDERSEN & CO.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania,
February 7, 1995
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of INTERNATIONAL SERIES,
INC. and the Assistant General Counsel of Federated Investors, and each
of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names,
place and stead, in any and all capacities, to sign any and all
documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of
1934 and the Investment Company Act of 1940, by means of the Securities
and Exchange Commission's electronic disclosure system known as EDGAR;
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to sign and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman Janaury 16, 1995
John F. Donahue (Chief Executive Officer)
/s/ Glen R. Johnson President
Glen R. Johnson
/s/ Edward C. Gonzales Vice President and Treasurer
Edward C. Gonzales (Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Director
Thomas G. Bigley
/s/ John T. Conroy, Jr. Director
John T. Conroy, Jr.
/s/ William J. Copeland Director
William J. Copeland
SIGNATURES TITLE DATE
/s/ James E. Dowd Director January 16, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Director
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Director
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Director
Peter E. Madden
/s/ Gregor F. Meyer Director
Gregor F. Meyer
/s/ Wesley W. Posvar Director
Wesley W. Posvar
/s/ Marjorie P. Smuts Director
Marjorie P. Smuts
Sworn to and subscribed before me this 16th day of January, 1995.
/s/ Marie L. Hamm
Notary Public
Exhibit 9 (i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of the 1st day of December, 1994, by and between
those investment companies listed on Exhibit 1 as may be amended from
time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on
behalf of the portfolios (individually referred to herein as a "Fund"
and
collectively as "Funds") of the Trust, and FEDERATED SERVICES COMPANY, a
Delaware business trust, having its principal office and place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"), with authorized and issued shares of capital stock or
beneficial interest ("Shares"); and
WHEREAS, the Trust may desire to retain the Company to provide
certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so
indicated on Exhibit 1, and the Company is willing to furnish such
services; and
WHEREAS, the Trust may desire to appoint the Company as its transfer
agent, dividend disbursing agent if so indicated on Exhibit 1, and agent
in connection with certain other activities, and the Company desires to
accept such appointment; and
WHEREAS, the Trust may desire to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an
approved
list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or
another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and
on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in
return
for the compensation as provided in Article 3 of this Section.
Article 2. The Company's Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the Trust with
regard to fund accounting for the Trust, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds using: primarily, market
quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not
provide a price for a security which the Company believes should
be available by market quotation, the Company may obtain a price
by calling brokers designated by the investment adviser of the
fund holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own to
find brokers to price those securities; thirdly, for securities
for which no market price is available, the Pricing Committee of
the Board will determine a fair value in good faith. Consistent
with Rule 2a-4 of the 40 Act, estimates may be used where
necessary or appropriate. The Company's obligations with regard
to the prices received from outside pricing services and
designated brokers or other outside sources, is to exercise
reasonable care in the supervision of the pricing agent. The
Company is not the guarantor of the securities prices received
from such agents and the Company is not liable to the Fund for
potential errors in valuing a Fund's assets or calculating the
net asset value per share of such Fund or Class when the
calculations are based upon such prices. All of the above
sources of prices used as described are deemed by the Company to
be authorized sources of security prices. The Company provides
daily to the adviser the securities prices used in calculating
the net asset value of the fund, for its use in preparing
exception reports for those prices on which the adviser has
comment. Further, upon receipt of the exception reports
generated by the adviser, the Company diligently pursues
communication regarding exception reports with the designated
pricing agents.
B. Determine the net asset value per share of each Fund and/or
Class,
at the time and in the manner from time to time determined by the
Board and as set forth in the Prospectus and Statement of
Additional Information ("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and
financial records of the Trust, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the
Rules thereunder in connection with the services provided by the
Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940
Act the records to be maintained by Rule 31a-1 under the 1940 Act
in connection with the services provided by the Company. The
Company further agrees that all such records it maintains for the
Trust are the property of the Trust and further agrees to
surrender promptly to the Trust such records upon the Trust's
request;
G. At the request of the Trust, prepare various reports or other
financial documents required by federal, state and other
applicable laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the
fees agreed upon from time to time between the parties hereto.
Such fees do not include out-of-pocket disbursements of the
Company for which the Funds shall reimburse the Company upon
receipt of a separate invoice. Out-of-pocket disbursements shall
include, but shall not be limited to, the items agreed upon
between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the
cost of: custodial expenses; membership dues in the Investment
Company Institute or any similar organization; transfer agency
expenses; investment advisory expenses; costs of printing and
mailing stock certificates, Prospectuses, reports and notices;
administrative expenses; interest on borrowed money; brokerage
commissions; taxes and fees payable to federal, state and other
governmental agencies; fees of Trustees or Directors of the
Trust; independent auditors expenses; Federated Administrative
Services and/or Federated Administrative Services, Inc. legal and
audit department expenses billed to Federated Services Company
for work performed related to the Trust, the Funds, or the
Classes; law firm expenses; or other expenses not specified in
this Article 3 which may be properly payable by the Funds and/or
classes.
C. The compensation and out-of-pocket expenses shall be accrued by
the Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company.
The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a duly
authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement
with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period
bears to the full month period. Upon any termination of this
Agreement before the end of any month, the fee for such period
shall be prorated according to the proportion which such period
bears to the full month period. For purposes of determining fees
payable to the Company, the value of the Fund's net assets shall
be computed at the time and in the manner specified in the Fund's
Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing services under this Section One. Such
person or persons may be third-party service providers, or they
may be officers and employees who are employed by both the
Company and the Funds. The compensation of such person or
persons shall be paid by the Company and no obligation shall be
incurred on behalf of the Trust, the Funds, or the Classes in
such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's
Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic investment
plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the
Board
shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the Company
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved, and (b) the Trust, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in
writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trust, or the
Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Trust as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefore to the custodian of the
relevant Fund, (the "Custodian"). The Company shall notify
the Fund and the Custodian on a daily basis of the total
amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the
Fund's current Prospectus, the Company shall compute and
issue the appropriate number of Shares of each Fund and/or
Class and hold such Shares in the appropriate Shareholder
accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or
its agent requests a certificate, the Company, as Transfer
Agent, shall countersign and mail by first class mail, a
certificate to the Shareholder at its address as set forth
on the transfer books of the Funds, and/or Classes, subject
to any Proper Instructions regarding the delivery of
certificates.
(4) In the event that any check or other order for the purchase
of Shares of the Fund and/or Class is returned unpaid for
any reason, the Company shall debit the Share account of
the Shareholder by the number of Shares that had been
credited to its account upon receipt of the check or other
order, promptly mail a debit advice to the Shareholder, and
notify the Fund and/or Class of its action. In the event
that the amount paid for such Shares exceeds proceeds of
the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund
and/the Class or its distributor will reimburse the Company
on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Funds in accordance with
the provisions of its governing document and the then-
current Prospectus of the Fund. The Company shall prepare
and mail or credit income, capital gain, or any other
payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of
any such distribution, notify the Custodian of the
estimated amount required to pay any portion of said
distribution which is payable in cash and request the
Custodian to make available sufficient funds for the cash
amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with
the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made
to the Shareholder's account, for certificated Funds and/or
Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund
and Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or
set forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the
Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the
Company shall pay or cause to be paid the redemption
proceeds in the manner instructed by the redeeming
Shareholders, pursuant to procedures described in the then-
current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the
reason therefor, and shall effect such redemption at the
price applicable to the date and time of receipt of
documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the
registered owners thereof.
(5) The Company shall identify and process abandoned accounts
and uncashed checks for state escheat requirements on an
annual basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each
Fund, and/or Class, and maintain pursuant to applicable
rules of the Securities and Exchange Commission ("SEC") a
record of the total number of Shares of the Fund and/or
Class which are authorized, based upon data provided to it
by the Fund, and issued and outstanding. The Company shall
also provide the Fund on a regular basis or upon reasonable
request with the total number of Shares which are
authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall be the
sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by
the Trust or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and
whether such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account,
including dividends paid and date and price for all
transactions;
(d) Any stop or restraining order placed against the
account;
(e) Information with respect to withholding in the case of
a foreign account or an account for which withholding
is required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any
Shareholder holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by
this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company,
and such records may be inspected by the Fund at reasonable
times. The Company may, at its option at any time, and
shall forthwith upon the Fund's demand, turn over to the
Fund and cease to retain in the Company's files, records
and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by
the Company in performance of its services or for its
protection. If not so turned over to the Fund, such
records and documents will be retained by the Company for
six years from the year of creation, during the first two
of which such documents will be in readily accessible form.
At the end of the six year period, such records and
documents will either be turned over to the Fund or
destroyed in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in
each state for "blue sky" purposes as determined
according to Proper Instructions delivered from time
to time by the Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption
fees, or other transaction- or sales-related
payments;
(f) Such other information as may be agreed upon from time
to time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state
agencies, and, if required, mail to Shareholders, such
notices for reporting dividends and distributions paid as
are required to be so filed and mailed and shall withhold
such sums as are required to be withheld under applicable
federal and state income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth
above, the Company shall:
(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account
or similar plans (including without limitation any
periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports
and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other
withholding (including non-resident alien accounts),
preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms
required with respect to dividends and distributions
by federal authorities for all Shareholders,
preparing and mailing confirmation forms and
statements of account to Shareholders for all
purchases and redemptions of Shares and other
conformable transactions in Shareholder accounts,
preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor
the total number of Shares of each Fund and/or Class
sold in each state ("blue sky reporting"). The Fund
shall by Proper Instructions (i) identify to the
Company those transactions and assets to be treated
as exempt from the blue sky reporting for each state
and (ii) verify the classification of transactions
for each state on the system prior to activation and
thereafter monitor the daily activity for each state.
The responsibility of the Company for each Fund's
and/or Class's state blue sky registration status is
limited solely to the recording of the initial
classification of transactions or accounts with
regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as
provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other
correspondence as may from time to time be addressed to the
Company;
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund
in connection with Shareholder Meetings of each Fund;
receive, examine and tabulate returned proxies, and certify
the vote of the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share
certificates shall be properly signed, manually or by facsimile,
if authorized by the Trust and shall bear the seal of the Trust
or facsimile thereof; and notwithstanding the death, resignation
or removal of any officer of the Trust authorized to sign
certificates, the Company may continue to countersign
certificates which bear the manual or facsimile signature of such
officer until otherwise directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of
any dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as agreed
upon between the parties and as may be added to or amended from
time to time. Such fees may be changed from time to time subject
to written agreement between the Trust and the Company. Pursuant
to information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund
into Classes or other sub-components for recordkeeping purposes.
The Company will charge the Fund the same fees for each such
Class or sub-component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added to or amended from time
to time. In addition, any other expenses incurred by the Company
at the request or with the consent of the Trust and/or the Fund,
will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by
the Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company.
The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a duly
authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of the
other party.
A. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and
assigns.
B. The Company may without further consent on the part of the Trust
subcontract for the performance hereof with (A) State Street Bank
and its subsidiary, Boston Financial Data Services, Inc., a
Massachusetts Trust ("BFDS"), which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities
Exchange Act of 1934, as amended, or any succeeding statute
("Section 17A(c)(1)"), or (B) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1), or (C) a BFDS
affiliate, or (D) such other provider of services duly registered
as a transfer agent under Section 17A(c)(1) as Company shall
select; provided, however, that the Company shall be as fully
responsible to the Trust for the acts and omissions of any
subcontractor as it is for its own acts and omissions; or
C. The Company shall upon instruction from the Trust subcontract for
the performance hereof with an Agent selected by the Trust, other
than BFDS or a provider of services selected by Company, as
described in (2) above; provided, however, that the Company shall
in no way be responsible to the Trust for the acts and omissions
of the Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and obtain
custody services from a financial institution that (i) meets the
criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved
by the Board as eligible for selection by the Company as a custodian
(the
"Eligible Custodian"). The Company accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
A. evaluate the nature and the quality of the custodial services
provided by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the Trust as
Custodian of the Trust's assets substantially on the terms set
forth as the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for the
benefit of the Trust, with the Trust as a party to each such
agreement. The Company shall not be a party to any agreement
with any such Custodian;
D. establish procedures to monitor the nature and the quality of the
services provided by the Custodians;
E. continuously monitor the nature and the quality of services
provided by the Custodians; and
F. periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature and
amount of disbursement made on account of the Trust with respect
to each custodial agreement; and (iii) such other information as
the Board shall reasonably request to enable it to fulfill its
duties and obligations under Sections 17(f) and 36(b) of the 1940
Act and other duties and obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of
this Agreement, the Trust and/or the Fund agree to pay the
Company an annual fee as agreed upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added to or amended from time
to time. In addition, any other expenses incurred by the Company
at the request or with the consent of the Trust and/or the Fund,
will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by
the Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company.
The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a duly
authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
Article 12. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to
enter into this arrangement and to provide the services contemplated in
Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Trust and all
amendments thereto;
(2) A copy of the resolution of the Board of the Trust
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of
the Trust or the Funds in the forms approved by the Board
of the Trust with a certificate of the Secretary of the
Trust as to such approval;
(4) All account application forms and other documents relating
to Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and
amendments thereof and orders relating thereto in effect
with respect to the sale of Shares of any Fund, and/or
Class;
(3) A certified copy of each amendment to the governing document
and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accountant, custody services procurement,
and shareholder recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares
of any Fund, accompanied by Board resolutions approving
such forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in
good standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State
of Delaware.
(3) It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations
under this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
(6) It is in compliance with federal securities law requirements
and in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and
in good standing under the laws of its state of
organization;
(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under
this Agreement;
(3) All corporate proceedings required by said Charter and By-
Laws have been taken to authorize it to enter into and
perform its obligations under this Agreement;
(4) The Trust is an open-end investment company registered under
the 1940 Act; and
(5) A registration statement under the 1933 Act will be
effective, and appropriate state securities law filings
have been made and will continue to be made, with respect
to all Shares of each Fund being offered for sale.
Article 15. Standard of Care and Indemnification.
A. Standard of Care
The Company shall be held to a standard of reasonable care in
carrying out the provisions of this Contract. The Company shall
be
entitled to rely on and may act upon advice of counsel (who may
be
counsel for the Trust) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to
such advice, provided that such action is not in violation of
applicable federal or state laws or regulations, and is in good
faith and without negligence.
B. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and
affiliates, harmless against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser
or other party contracted by or approved by the Trust or
Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in
proper form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of
the Fund, its Shareholders or investors regarding the
purchase, redemption or transfer of Shares and
Shareholder account information;
(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of
the Funds; or
(c) are received by the Company or its agents or
subcontractors from Advisers, Sub-advisers or other
third parties contracted by or approved by the Trust
of Fund for use in the performance of services under
this Agreement;
(d) have been prepared and/or maintained by the Fund or
its affiliates or any other person or firm on behalf
of the Trust.
(3) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the
Trust or the Fund.
(4) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such
Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of
such Shares in such state.
Provided, however, that the Company shall not be protected
by this Article 15.A. from liability for any act or
omission resulting from the Company's willful misfeasance,
bad faith, negligence or reckless disregard of its duties
of failure to meet the standard of care set forth in 15.A.
above.
C. Reliance
At any time the Company may apply to any officer of the Trust or
Fund for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company
and its agents or subcontractors shall not be liable and shall be
indemnified by the Trust or the appropriate Fund for any action
reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such
action is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Trust or the Fund, and the
proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with
respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other
party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust
exercise
its rights to terminate, all out-of-pocket expenses associated with the
movement of records and materials will be borne by the Trust or the
appropriate Fund. Additionally, the Company reserves the right to
charge
for any other reasonable expenses associated with such termination. The
provisions of Article 15 shall survive the termination of this
Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and
the Trust may from time to time agree on such provisions interpretive of
or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any
such
interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Charter. No
interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company
at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or
to
such other address as the Trust or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to
the
respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust and signed by an authorized officer of the
Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not
binding
upon any of the Trustees or Shareholders of the Trust, but bind only the
appropriate property of the Fund, or Class, as provided in the
Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized by
the Trustees of the Company and signed by an authorized officer of the
Company, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not
binding
upon any of the Trustees or Shareholders of the Company, but bind only
the property of the Company as provided in the Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of the
parties hereto except by the specific written consent of the other
party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust,
the Company shall upon termination of this Agreement deliver to such
successor agent at the office of the Company all properties of the Trust
held by it hereunder. If no such successor agent shall be appointed,
the
Company shall at its office upon receipt of Proper Instructions deliver
such properties in accordance with such instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or
before
the date when such termination shall become effective, then the Company
shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the 1940 Act, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $2,000,000, all properties held by
the
Company under this Agreement. Thereafter, such bank or trust company
shall be the successor of the Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a result of
work stoppage, power or other mechanical failure, natural disaster,
governmental action, communication disruption or other impossibility of
performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the
prior
written consent of the other party, except that either party may assign
to a successor all of or a substantial portion of its business, or to a
party controlling, controlled by, or under common control with such
party. Nothing in this Article 28 shall prevent the Company from
delegating its responsibilities to another entity to the extent provided
herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first
above written.
ATTEST: INVESTMENT COMPANIES (listed on Exhibit 1)
/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President
Exhibit 1
INTERNATIONAL SERIES, INC.
Exhibit 5 (iii) under
Form N-1A
Exhibit 10 under
601/Reg S-K
FT SERIES, INC.
INVESTMENT ADVISORY CONTRACT
This Contract is made between Federated Management, a Delaware
business
trust (the "Adviser"), and FT Series, Inc., a Maryland corporation, having
its
principal place of business in Pittsburgh, Pennsylvania (the
"Corporation").
WHEREAS, the Corporation is an open-end management
investment
company as that term is defined in the Investment Company Act of 1940
(the
"Act") and is registered as such with the Securities and Exchange
Commission;
and
WHEREAS, the Adviser is engaged in the business of rendering
investment advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally
bound, agree
as follows:
1. The Corporation hereby appoints Adviser as Investment Adviser
for
each of the portfolios ("Funds") of the Corporation, which may be
offered in
one or more classes of shares ("Classes"), on whose behalf the
Corporation
executes an exhibit to this Contract, and Adviser, by its execution of
each
such exhibit, accepts the appointments. Subject to the direction of the
Directors of the Corporation, Adviser shall provide investment research
and
supervision of the investments of each of the Funds and conduct a
continuous
program of investment evaluation and of appropriate sale or other
disposition
and reinvestment of each Fund's assets.
2. Adviser, in its supervision of the investments of each of the
Funds
will be guided by each of the Funds' fundamental investment policies and
the
provisions and restrictions contained in the Articles of Incorporation
and By-
Laws of the Corporation and as set forth in the Registration Statement
and
exhibits as may be on file with the Securities and Exchange Commission.
3. The Corporation shall pay or cause to be paid, on behalf of
each Fund
or Class, all of the Fund's or Class's expenses and the Fund's or
Class's
allocable share of Corporation expenses.
4. The Corporation, on behalf of each of the Funds shall pay to
Adviser,
for all services rendered to such Fund by Adviser hereunder, the fees
set forth
in the exhibits attached hereto.
5. The Adviser may from time to time and for such periods as it
deems
appropriate reduce its compensation to the extent that any Fund's
expenses
exceed such lower expense limitation as the Adviser may, by notice to
the
Corporation, voluntarily declare to be effective. Furthermore, the
Adviser
may, if it deems appropriate, assume expenses of one or more Fund or
Class to
the extent that any Fund's or Class's expenses exceed such lower expense
limitation as the Adviser may, by notice to the Corporation, voluntarily
declare to be effective.
6. This Contract shall begin for each Fund on the date that the
Corporation executes an exhibit to this Contract relating to such Fund.
This
Contract shall remain in effect for each Fund until the first meeting of
shareholders held after the execution date of an exhibit relating to the
respective Fund, and if approved at such meeting by the shareholders of
a
particular Fund, shall continue in effect for such Fund for two years
from the
date of its execution and from year to year thereafter, subject to the
provisions for termination and all of the other terms and conditions
hereof if:
(a) such continuation shall be specifically approved at least annually
by the
vote of a majority of the Directors of the Corporation, including a
majority of
the Directors who are not parties to this Contract or interested persons
of any
such party (other than as Directors of the Corporation) cast in person
at a
meeting called for that purpose; and (b) Adviser shall not have notified
the
Corporation in writing at least sixty (60) days prior to the anniversary
date
of this Contract in any year thereafter that it does not desire such
continuation with respect to that Fund.
7. Notwithstanding any provision in this Contract, it may be
terminated
at any time with respect to any Fund, without the payment of any
penalty, by:
(a) the Directors of the Corporation or by a vote of a majority of the
outstanding voting securities (as defined in Section 2(a)(42) of the
Act) of
the Fund, on sixty (60) days' written notice to Adviser; or (b) the
Adviser on
sixty (60) days' written notice to the Corporation.
8. This Contract may not be assigned by Adviser and shall
automatically
terminate in the event of any assignment. Adviser may employ or
contract with
such other person, persons, corporation or corporations at its own cost
and
expense as it shall determine in order to assist it in carrying out this
Contract.
9. In the absence of willful misfeasance, bad faith, gross
negligence or
reckless disregard of obligations or duties under this Contract on the
part of
Adviser, Adviser shall not be liable to the Corporation or to any of the
Funds
or to any shareholder for any act or omission in the course of or
connected in
any way with rendering services or for any losses that may be sustained
in the
purchase, holding or sale of any security.
10. This Contract may be amended at any time by agreement of the
parties
provided that the amendment shall be approved both by the vote of a
majority of
the Directors of the Corporation, including a majority of Directors who
are not
parties to this Contract or interested persons of any such party to this
Contract (other than as Directors of the Corporation), cast in person at
a
meeting called for that purpose, and on behalf of a Fund by a majority
of the
outstanding voting securities (as defined in Section 2(a)(42) of the
Act) of
such Fund.
11. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Articles of Incorporation
and
agrees that the obligations pursuant to this Contract of a particular
Fund and
of the Corporation with respect to that particular Fund be limited
solely to
the assets of that particular Fund, the Directors, officers, employees
or
agents of the Corporation, or any of them; and Adviser shall not seek
satisfaction of any such obligation from the assets of any other Fund,
or the
shareholders of any Fund.
12. This Contract shall be construed in accordance with and
governed by
the laws of the Commonwealth of Pennsylvania.
13. All notices, requests, demands and other communications
hereunder
shall be in writing and shall be deemed to have been given if delivered
or
mailed first class to the Corporation, c/o Federated Investors,
Federated
Investors Tower, Pittsburgh, PA 15222-3779, Attention: John W.
McGonigle,
Secretary; and to Adviser, Federated Management, Federated Investors
Tower,
Pittsburgh, PA 15222-3779, Attention: John A. Staley, IV, President.
14. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
EXHIBIT A TO THE INVESTMENT ADVISORY CONTRACT
INTERNATIONAL EQUITY FUND
A PORTFOLIO OF FT SERIES, INC.
For all services rendered by Adviser hereunder, the Corporation
shall
pay to Adviser and Adviser agrees to accept as full compensation for all
services rendered hereunder, an annual investment advisory fee equal to
1.00 of
1% of the average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of 1.00 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
The effective date hereof shall be the 15th day of March, 1994 to be
renewed on March 1, 1996, and annually thereafter.
This Exhibit duly incorporates by reference the Primary Investment
Advisory Contract.
Attest: FEDERATED MANAGEMENT
/s/ John W. McGonigle By: /s/ John A. Staley, IV
John W. McGonigle John A. Staley, IV
Secretary President
Attest: FT SERIES, INC.
/s/ John W. McGonigle By: /s/ J. Christopher
Donahue
John W. McGonigle J. Christopher Donahue
Secretary Vice President
EXHIBIT B TO THE INVESTMENT ADVISORY CONTRACT
INTERNATIONAL INCOME FUND
A PORTFOLIO OF FT SERIES, INC.
For all services rendered by Adviser hereunder, the Corporation
shall
pay to Adviser and Adviser agrees to accept as full compensation for all
services rendered hereunder, an annual investment advisory fee equal to
.75 of
1% of the average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .75 of
1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
The effective date hereof shall be this 15th day of March, 1994 to be
renewed on March 1, 1996, and annually thereafter.
This Exhibit duly incorporates by reference the Primary Investment
Advisory Contract.
Attest: FEDERATED MANAGEMENT
/s/ John W. McGonigle By: /s/ John A. Staley, IV
John W. McGonigle John A. Staley, IV
Secretary President
Attest: FT SERIES, INC.
/s/ John W. McGonigle By: /s/ Richard B. Fisher
John W. McGonigle Richard B. Fisher
Secretary Vice President
Exhibit 5 (v) under
Form N-1A
Exhibit 10 under
601/Reg S-K
FT SERIES, INC.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between FEDERATED MANAGEMENT, a Delaware
business
trust (hereinafter referred to as "Adviser")
and
FIDUCIARY INTERNATIONAL INC., a New York corporation (hereinafter
referred to as "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound hereby agree as
follows:
1. Sub-Adviser hereby agrees to furnish to Adviser in its
capacity as
investment adviser to FT SERIES, INC. ("Corporation"), such investment
advice,
statistical and other factual information, as may from time to time be
reasonably requested by Adviser for one or more of the portfolios
("Funds") of
the Corporation, which may be offered in one or more classes of shares
("Classes").
2. For its services under this Agreement, Sub-Adviser shall
receive from
Adviser an annual fee ("the Sub-Advisory Fee"), as set forth in the
exhibits
hereto. In the event that the fee due from the Corporation to the
Adviser on
behalf of a Fund is reduced in order to meet expense limitations imposed
on the
Fund by state securities laws or regulations, the Sub-Advisory Fee shall
be
reduced by one-half of said reduction in the fee due from the
Corporation to
the Adviser on behalf of such Fund.
Notwithstanding any other provisions of this Agreement, the Sub-
Adviser
may from time to time and for such periods as it deems appropriate,
reduce its
compensation (and, if appropriate, assume expenses of a Fund or Class)
to the
extent that the Fund's expenses exceed such lower expense limitation as
the Sub-
Adviser may, by notice to the Corporation on behalf of the Fund,
voluntarily
declare to be effective.
3. This Agreement shall begin for each Fund on the date that the
parties
execute an exhibit to this Agreement relating to such Fund. This
Agreement
shall remain in effect for each Fund until the first meeting of
Shareholders
held after the execution date of an exhibit relating to the respective
Fund,
and if approved at such meeting by the shareholders of a particular
Fund, shall
continue in effect for such Fund for two years from the date of its
execution
and from year to year thereafter, subject to the provisions for
termination and
all of the other terms and conditions hereof if: (a) such continuation
shall be
specifically approved at least annually by the vote of a majority of the
Directors of the Corporation, including a majority of the Directors who
are not
parties to this Agreement or interested persons of any such party (other
than
as Directors of the Corporation) cast in person at a meeting called for
that
purpose; and (b) Adviser shall not have notified the Corporation in
writing at
least sixty (60) days prior to the anniversary date of this Agreement in
any
year thereafter that it does not desire such continuation with respect
to that
Fund.
4. Notwithstanding any provision in this Agreement, it may be
terminated
at any time with respect to any Fund, without the payment of any
penalty: (a)
by the Directors of the Corporation or by a vote of a majority of the
outstanding voting securities (as defined in Section 2(a)(42) of the
Act) of
that Fund on sixty (60) days' written notice to Adviser; (b) by Sub-
Adviser or
Adviser upon 120 days' written notice to the other party to the
Agreement.
5. This Agreement shall automatically terminate: (a) in the event
of its
assignment (as defined in the Investment Company Act of 1940); or (b) in
the
event of termination of the Investment Advisory Contract for any reason
whatsoever.
6. So long as both Adviser and Sub-Adviser shall be legally
qualified to
act as an investment adviser to a Fund, neither Adviser nor Sub-Adviser
shall
act as an investment adviser (as such term is defined in the Investment
Company
Act of 1940) to such Fund except as provided herein and in the
Investment
Advisory Contract or in such other manner as may be expressly agreed
between
Adviser and Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall
resign with
respect to a Fund prior to the end of any term of this Agreement for
such Fund
or for any reason be unable or unwilling to serve for a successive term
which
has been approved by the Directors of the Corporation pursuant to the
provisions of Paragraph 3 of this Agreement or Paragraph 6 of the
Investment
Advisory Contract, the remaining party, Sub-Adviser or Adviser as the
case may
be, shall not be prohibited from serving as an investment adviser to
such Fund
by reason of the provisions of this Paragraph 6.
7. This Agreement may be amended from time to time by agreement of the
parties hereto provided that such amendment shall be approved both by
the vote
of a majority of Directors of the Corporation, including a majority of
Directors who are not parties to this Agreement or interested persons,
as
defined in Section 2(a)(19) of the Investment Company Act of 1940, of
any such
party at a meeting called for that purpose, and by the holders of a
majority
of the outstanding voting securities (as defined in Section 2(a)(42) of
the
Investment Company Act of 1940) of such Fund.
EXHIBIT A TO THE SUB-ADVISORY AGREEMENT
INTERNATIONAL EQUITY FUND
A PORTFOLIO OF FT SERIES, INC.
For all services rendered by Sub-Adviser hereunder, Adviser shall
pay
Sub-Adviser a Sub-Advisory Fee equal to 0.50 of 1% of the average daily
net
assets of the Fund. The Sub-Advisory Fee shall be accrued, and paid
daily as
set forth in the Investment Advisory Contract between FT Series, Inc.
and
Federated Management.
The effective date hereof shall be the 15th day of March, 1994 to be
renewed on March 1, 1996, and annually thereafter.
This Exhibit duly incorporates by reference the Sub-Advisory Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be
executed on their behalf by their duly authorized officers, and their
corporate
seals to be affixed hereto this day of , 19 .
Attest: FEDERATED MANAGEMENT
/s/ John W. McGonigle By: /s/ John A. Staley, IV
John W. McGonigle John A. Staley, IV
Secretary President
Attest: FIDUCIARY INTERNATIONAL
INC.
/s/ Irene Greenberg By: /s/ Stuart Hochberger
Vice President
Exhibit 5 (v) under
Form N-1A
Exhibit 10 under
601/Reg S-K
FT SERIES, INC.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between FEDERATED MANAGEMENT, a Delaware
business
trust (hereinafter referred to as "Adviser")
and
FIDUCIARY INTERNATIONAL INC., a New York corporation (hereinafter
referred to as "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound hereby agree as
follows:
1. Sub-Adviser hereby agrees to furnish to Adviser in its
capacity as
investment adviser to FT SERIES, INC. ("Corporation"), such investment
advice,
statistical and other factual information, as may from time to time be
reasonably requested by Adviser for one or more of the portfolios
("Funds") of
the Corporation, which may be offered in one or more classes of shares
("Classes").
2. For its services under this Agreement, Sub-Adviser shall
receive from
Adviser an annual fee ("the Sub-Advisory Fee"), as set forth in the
exhibits
hereto. In the event that the fee due from the Corporation to the
Adviser on
behalf of a Fund is reduced in order to meet expense limitations imposed
on the
Fund by state securities laws or regulations, the Sub-Advisory Fee shall
be
reduced by one-half of said reduction in the fee due from the
Corporation to
the Adviser on behalf of such Fund.
Notwithstanding any other provisions of this Agreement, the Sub-
Adviser
may from time to time and for such periods as it deems appropriate,
reduce its
compensation (and, if appropriate, assume expenses of a Fund or Class)
to the
extent that the Fund's expenses exceed such lower expense limitation as
the Sub-
Adviser may, by notice to the Corporation on behalf of the Fund,
voluntarily
declare to be effective.
3. This Agreement shall begin for each Fund on the date that the
parties
execute an exhibit to this Agreement relating to such Fund. This
Agreement
shall remain in effect for each Fund until the first meeting of
Shareholders
held after the execution date of an exhibit relating to the respective
Fund,
and if approved at such meeting by the shareholders of a particular
Fund, shall
continue in effect for such Fund for two years from the date of its
execution
and from year to year thereafter, subject to the provisions for
termination and
all of the other terms and conditions hereof if: (a) such continuation
shall be
specifically approved at least annually by the vote of a majority of the
Directors of the Corporation, including a majority of the Directors who
are not
parties to this Agreement or interested persons of any such party (other
than
as Directors of the Corporation) cast in person at a meeting called for
that
purpose; and (b) Adviser shall not have notified the Corporation in
writing at
least sixty (60) days prior to the anniversary date of this Agreement in
any
year thereafter that it does not desire such continuation with respect
to that
Fund.
4. Notwithstanding any provision in this Agreement, it may be
terminated
at any time with respect to any Fund, without the payment of any
penalty: (a)
by the Directors of the Corporation or by a vote of a majority of the
outstanding voting securities (as defined in Section 2(a)(42) of the
Act) of
that Fund on sixty (60) days' written notice to Adviser; (b) by Sub-
Adviser or
Adviser upon 120 days' written notice to the other party to the
Agreement.
5. This Agreement shall automatically terminate: (a) in the event
of its
assignment (as defined in the Investment Company Act of 1940); or (b) in
the
event of termination of the Investment Advisory Contract for any reason
whatsoever.
6. So long as both Adviser and Sub-Adviser shall be legally
qualified to
act as an investment adviser to a Fund, neither Adviser nor Sub-Adviser
shall
act as an investment adviser (as such term is defined in the Investment
Company
Act of 1940) to such Fund except as provided herein and in the
Investment
Advisory Contract or in such other manner as may be expressly agreed
between
Adviser and Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall
resign with
respect to a Fund prior to the end of any term of this Agreement for
such Fund
or for any reason be unable or unwilling to serve for a successive term
which
has been approved by the Directors of the Corporation pursuant to the
provisions of Paragraph 3 of this Agreement or Paragraph 6 of the
Investment
Advisory Contract, the remaining party, Sub-Adviser or Adviser as the
case may
be, shall not be prohibited from serving as an investment adviser to
such Fund
by reason of the provisions of this Paragraph 6.
7. This Agreement may be amended from time to time by agreement of the
parties hereto provided that such amendment shall be approved both by
the vote
of a majority of Directors of the Corporation, including a majority of
Directors who are not parties to this Agreement or interested persons,
as
defined in Section 2(a)(19) of the Investment Company Act of 1940, of
any such
party at a meeting called for that purpose, and by the holders of a
majority
of the outstanding voting securities (as defined in Section 2(a)(42) of
the
Investment Company Act of 1940) of such Fund.
EXHIBIT A TO THE SUB-ADVISORY AGREEMENT
INTERNATIONAL EQUITY FUND
A PORTFOLIO OF FT SERIES, INC.
For all services rendered by Sub-Adviser hereunder, Adviser shall
pay
Sub-Adviser a Sub-Advisory Fee equal to 0.50 of 1% of the average daily
net
assets of the Fund. The Sub-Advisory Fee shall be accrued, and paid
daily as
set forth in the Investment Advisory Contract between FT Series, Inc.
and
Federated Management.
The effective date hereof shall be the 15th day of March, 1994 to be
renewed on March 1, 1996, and annually thereafter.
This Exhibit duly incorporates by reference the Sub-Advisory Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be
executed on their behalf by their duly authorized officers, and their
corporate
seals to be affixed hereto this day of , 19 .
Attest: FEDERATED MANAGEMENT
/s/ John W. McGonigle By: /s/ John A. Staley, IV
John W. McGonigle John A. Staley, IV
Secretary President
Attest: FIDUCIARY INTERNATIONAL
INC.
/s/ Irene Greenberg By: /s/ Stuart Hochberger
Vice President
Exhibit 9 (v) under
Form N-1A
Exhibit 10 under
601/Reg S-K
SHAREHOLDER SERVICES SUB-CONTRACT
This Agreement is made between the Financial Institution executing
this Agreement ("Provider") and Federated Shareholder Services ("FSS")
on behalf of the investment companies listed in Exhibit A hereto (the
"Funds"), for whom FSS administers the Shareholder Services Plan
("Plan") and who have approved this form of Agreement. In consideration
of the mutual covenants hereinafter contained, it is hereby agreed by
and between the parties hereto as follows:
1. FSS hereby appoints Provider to render or cause to be
rendered personal services to shareholders of the Funds and/or the
maintenance of accounts of shareholders of the Funds ("Services").
Provider agrees to provide Services which, in its best judgment, are
necessary or desirable for its customers who are investors in the Funds.
Provider further agrees to provide FSS, upon request, a written
description of the Services which Provider is providing hereunder.
2. During the term of this Agreement, the Funds will pay the
Provider fees as set forth in a written schedule delivered to the
Provider pursuant to this Agreement. The fee schedule for Provider may
be changed by FSS sending a new fee schedule to Provider pursuant to
Paragraph 9 of this Agreement. For the payment period in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration of the fee on the basis of the number of days that this
Agreement is in effect during the quarter. To enable the Funds to
comply with an applicable exemptive order, Provider represents that the
fees received pursuant to this Agreement will be disclosed to its
customers, will be authorized by its customers, and will not result in
an excessive fee to the Provider.
3. The Provider understands that the Department of Labor views
ERISA as prohibiting fiduciaries of discretionary ERISA assets from
receiving shareholder service fees or other compensation from funds in
which the fiduciary's discretionary ERISA assets are invested. To date,
the Department of Labor has not issued any exemptive order or advisory
opinion that would exempt fiduciaries from this interpretation. Without
specific authorization from the Department of Labor, fiduciaries should
carefully avoid investing discretionary assets in any fund pursuant to
an arrangement where the fiduciary is to be compensated by the fund for
such investment. Receipt of such compensation could violate ERISA
provisions against fiduciary self-dealing and conflict of interest and
could subject the fiduciary to substantial penalties.
4. The Provider agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of a Fund in opposition to proxies solicited by management
of the Fund, unless a court of competent jurisdiction shall have
determined that the conduct of a majority of the Board of Trustees or
Directors of the Fund constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. This paragraph 4 will
survive the term of this Agreement.
5. This Agreement shall continue in effect for one year from
the date of its execution, and thereafter for successive periods of one
year if the form of this Agreement is approved at least annually by the
Board of each Fund, including a majority of the members of the Board of
the Fund who are not interested persons of the Fund and have no direct
or indirect financial interest in the operation of the Fund's Plan or in
any related documents to the Plan ("Disinterested Board Members") cast
in person at a meeting called for that purpose.
6. Notwithstanding paragraph 5, this Agreement may be
terminated as follows:
(a) at any time, without the payment of any penalty, by
the vote of a majority of the Disinterested Board Members of the
Fund or by a vote of a majority of the outstanding voting
securities of the Fund as defined in the Investment Company Act
of 1940 on not more than sixty (60) days' written notice to the
parties to this Agreement;
(b) automatically in the event of the Agreement's
assignment as defined in the Investment Company Act of 1940; and
(c) by either party to the Agreement without cause by
giving the other party at least sixty (60) days' written notice
of its intention to terminate.
7. The Provider agrees to obtain any taxpayer identification
number certification from its customers required under Section 3406 of
the Internal Revenue Code, and any applicable Treasury regulations, and
to provide the Fund or its designee with timely written notice of any
failure to obtain such taxpayer identification number certification in
order to enable the implementation of any required backup withholding.
8. The execution and delivery of this Agreement have been
authorized by the Trustees of FSS and signed by an authorized officer of
FSS, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of
them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or shareholders of FSS, but bind only the trust
property of FSS as provided in the Declaration of Trust of FSS.
9. Notices of any kind to be given hereunder shall be in
writing (including facsimile communication) and shall be duly given if
delivered to Provider at the address set forth below and if delivered to
FSS at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
10. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of Sections 5
and 6, hereof, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
shall be governed by Pennsylvania law; provided, however, that nothing
herein shall be construed in a manner inconsistent with the Investment
Company Act of 1940 or any rule or regulation promulgated by the
Securities and Exchange Commission thereunder.
11. This Agreement may be executed by different parties on
separate counterparts, each of which, when so executed and delivered,
shall be an original, and all such counterparts shall together
constitute one and the same instrument.
12. This Agreement shall not be assigned by any party without
the prior written consent of FSS in the case of assignment by Provider,
or of Provider in the case of assignment by FSS, except that any party
may assign to a successor all of or a substantial portion of its
business to a party controlling, controlled by, or under common control
with such party.
13. This Agreement may be amended by FSS from time to time by
the following procedure. FSS will mail a copy of the amendment to the
Provider's address, as shown below. If the Provider does not object to
the amendment within thirty (30) days after its receipt, the amendment
will become part of the Agreement. The Provider's objection must be in
writing and be received by FSS within such thirty days.
14. This Agreement may be terminated with regard to a
particular Fund or Class at any time, without the payment of any
penalty, by FSS or by the vote of a majority of the Disinterested
Trustees or Directors, as applicable, or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to the Provider. This
Agreement may be terminated by Provider on sixty (60) days' written
notice to FSS.
15. The Provider acknowledges and agrees that FSS has entered
into this Agreement solely in the capacity of agent for the Funds and
administrator of the Plan. The Provider agrees not to claim that FSS is
liable for any responsibilities or amounts due by the Funds hereunder.
[Provider]
Address
City State Zip Code
Dated: By:
Authoried Signature
Title
Print Name of Authorized Signature
FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
Vice President
EXHIBIT A to Shareholder Services Sub-Contract with
INTERNATIONAL SERIES, INC.
Funds covered by this Agreement:
Shareholder Service Fees
1. During the term of this Agreement, FSS will pay Provider a
quarterly fee. This fee will be computed at the annual rate of ______
of the average net asset value of shares of the Funds held during the
quarter in accounts for which the Provider provides Services under this
Agreement, so long as the average net asset value of Shares in the Funds
during the quarter equals or exceeds such minimum amount as FSS shall
from time to time determine and communicate in writing to the Provider.
2. For the quarterly period in which the Agreement becomes
effective or terminates, there shall be an appropriate proration of any
fee payable on the basis of the number of days that the Agreement is in
effect during the quarter.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> INTERNATIONAL SERIES, INC.
INTERNATIONAL EQUITY FUND
CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 242,802,358
<INVESTMENTS-AT-VALUE> 269,598,055
<RECEIVABLES> 3,213,953
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 272,812,008
<PAYABLE-FOR-SECURITIES> 684,035
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 899,748
<TOTAL-LIABILITIES> 1,583,783
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 231,701,811
<SHARES-COMMON-STOCK> 14,097,247
<SHARES-COMMON-PRIOR> 11,696,283
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (365,017)
<ACCUMULATED-NET-GAINS> 13,084,556
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,806,875
<NET-ASSETS> 261,178,232
<DIVIDEND-INCOME> 3,518,584
<INTEREST-INCOME> 557,853
<OTHER-INCOME> 0
<EXPENSES-NET> 4,130,876
<NET-INVESTMENT-INCOME> (54,439)
<REALIZED-GAINS-CURRENT> 15,659,072
<APPREC-INCREASE-CURRENT> 7,122,265
<NET-CHANGE-FROM-OPS> 22,726,898
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,180
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 803,651
<NUMBER-OF-SHARES-SOLD> 7,830,629
<NUMBER-OF-SHARES-REDEEMED> 5,447,729
<SHARES-REINVESTED> 18,065
<NET-CHANGE-IN-ASSETS> 75,516,534
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 49,588,801
<OVERDISTRIB-NII-PRIOR> 747,020
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,529,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,130,876
<AVERAGE-NET-ASSETS> 252,568,318
<PER-SHARE-NAV-BEGIN> 16.490
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 2.070
<PER-SHARE-DIVIDEND> 0.020
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.050
<PER-SHARE-NAV-END> 18.530
<EXPENSE-RATIO> 161
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> INTERNATIONAL SERIES, INC.
INTERNATIONAL EQUITY FUND
CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 242,802,358
<INVESTMENTS-AT-VALUE> 269,598,055
<RECEIVABLES> 3,213,953
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 272,812,008
<PAYABLE-FOR-SECURITIES> 684,035
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 899,748
<TOTAL-LIABILITIES> 1,583,783
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 231,701,811
<SHARES-COMMON-STOCK> 65,634
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (365,017)
<ACCUMULATED-NET-GAINS> 13,084,556
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,806,875
<NET-ASSETS> 1,214,109
<DIVIDEND-INCOME> 3,518,584
<INTEREST-INCOME> 557,853
<OTHER-INCOME> 0
<EXPENSES-NET> 4,130,876
<NET-INVESTMENT-INCOME> (54,439)
<REALIZED-GAINS-CURRENT> 15,659,072
<APPREC-INCREASE-CURRENT> 7,122,265
<NET-CHANGE-FROM-OPS> 22,726,898
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 66,837
<NUMBER-OF-SHARES-REDEEMED> 1,202
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 75,516,534
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 49,588,801
<OVERDISTRIB-NII-PRIOR> 747,020
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,529,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,130,876
<AVERAGE-NET-ASSETS> 252,568,318
<PER-SHARE-NAV-BEGIN> 19.610
<PER-SHARE-NII> (0.010)
<PER-SHARE-GAIN-APPREC> (1.100)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.500
<EXPENSE-RATIO> 259
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> INTERNATIONAL SERIES, INC.
INTERNATIONAL EQUITY FUND
CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 242,802,358
<INVESTMENTS-AT-VALUE> 269,598,055
<RECEIVABLES> 3,213,953
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 272,812,008
<PAYABLE-FOR-SECURITIES> 684,035
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 899,748
<TOTAL-LIABILITIES> 1,583,783
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 231,701,811
<SHARES-COMMON-STOCK> 482,949
<SHARES-COMMON-PRIOR> 173,724
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (365,017)
<ACCUMULATED-NET-GAINS> 13,084,556
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,806,875
<NET-ASSETS> 8,835,884
<DIVIDEND-INCOME> 3,518,584
<INTEREST-INCOME> 557,853
<OTHER-INCOME> 0
<EXPENSES-NET> 4,130,876
<NET-INVESTMENT-INCOME> (54,439)
<REALIZED-GAINS-CURRENT> 15,659,072
<APPREC-INCREASE-CURRENT> 7,122,265
<NET-CHANGE-FROM-OPS> 22,726,898
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 6,995
<NUMBER-OF-SHARES-SOLD> 429,959
<NUMBER-OF-SHARES-REDEEMED> 120,985
<SHARES-REINVESTED> 250
<NET-CHANGE-IN-ASSETS> 75,516,534
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 49,588,801
<OVERDISTRIB-NII-PRIOR> 747,020
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,529,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,130,876
<AVERAGE-NET-ASSETS> 252,568,318
<PER-SHARE-NAV-BEGIN> 16.410
<PER-SHARE-NII> (0.050)
<PER-SHARE-GAIN-APPREC> 1.980
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.040
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.300
<EXPENSE-RATIO> 254
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> INTERNATIONAL SERIES, INC.
INTERNATIONAL INCOME FUND
CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 215,563,676
<INVESTMENTS-AT-VALUE> 207,392,199
<RECEIVABLES> 11,356,837
<ASSETS-OTHER> 302,056
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219,051,092
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,845,560
<TOTAL-LIABILITIES> 1,845,560
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 238,384,981
<SHARES-COMMON-STOCK> 19,861,796
<SHARES-COMMON-PRIOR> 18,594,920
<ACCUMULATED-NII-CURRENT> 3,039,730
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16,137,975)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,081,204)
<NET-ASSETS> 209,007,501
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,350,257
<OTHER-INCOME> 0
<EXPENSES-NET> 3,213,492
<NET-INVESTMENT-INCOME> 16,136,765
<REALIZED-GAINS-CURRENT> (19,246,738)
<APPREC-INCREASE-CURRENT> (1,632,121)
<NET-CHANGE-FROM-OPS> (4,742,094)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,175,437
<DISTRIBUTIONS-OF-GAINS> 12,426,841
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,262,427
<NUMBER-OF-SHARES-REDEEMED> 14,688,399
<SHARES-REINVESTED> 692,848
<NET-CHANGE-IN-ASSETS> (8,162,619)
<ACCUMULATED-NII-PRIOR> 1,485,988
<ACCUMULATED-GAINS-PRIOR> 14,992,073
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,819,216
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,685,681
<AVERAGE-NET-ASSETS> 240,676,911
<PER-SHARE-NAV-BEGIN> 11.860
<PER-SHARE-NII> 0.700
<PER-SHARE-GAIN-APPREC> (0.760)
<PER-SHARE-DIVIDEND> 0.630
<PER-SHARE-DISTRIBUTIONS> 0.650
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.520
<EXPENSE-RATIO> 130
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> INTERNATIONAL SERIES, INC.
INTERNATIONAL INCOME FUND
CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 215,563,676
<INVESTMENTS-AT-VALUE> 207,392,199
<RECEIVABLES> 11,356,837
<ASSETS-OTHER> 302,056
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219,051,092
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,845,560
<TOTAL-LIABILITIES> 1,845,560
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 238,384,981
<SHARES-COMMON-STOCK> 9,566
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,039,730
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16,137,975)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,081,204)
<NET-ASSETS> 100,522
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,350,257
<OTHER-INCOME> 0
<EXPENSES-NET> 3,213,492
<NET-INVESTMENT-INCOME> 16,136,765
<REALIZED-GAINS-CURRENT> (19,246,738)
<APPREC-INCREASE-CURRENT> (1,632,121)
<NET-CHANGE-FROM-OPS> (4,742,094)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,320
<NUMBER-OF-SHARES-REDEEMED> 754
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (8,162,619)
<ACCUMULATED-NII-PRIOR> 1,485,988
<ACCUMULATED-GAINS-PRIOR> 14,992,073
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,819,216
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,685,681
<AVERAGE-NET-ASSETS> 240,676,911
<PER-SHARE-NAV-BEGIN> 10.210
<PER-SHARE-NII> 0.080
<PER-SHARE-GAIN-APPREC> 0.220
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.510
<EXPENSE-RATIO> 206
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> INTERNATIONAL SERIES, INC.
INTERNATIONAL INCOME FUND
CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 215,563,676
<INVESTMENTS-AT-VALUE> 207,392,199
<RECEIVABLES> 11,356,837
<ASSETS-OTHER> 302,056
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219,051,092
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,845,560
<TOTAL-LIABILITIES> 1,845,560
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 238,384,981
<SHARES-COMMON-STOCK> 772,404
<SHARES-COMMON-PRIOR> 402,437
<ACCUMULATED-NII-CURRENT> 3,039,730
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16,137,975)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,081,204)
<NET-ASSETS> 8,097,509
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,350,257
<OTHER-INCOME> 0
<EXPENSES-NET> 3,213,492
<NET-INVESTMENT-INCOME> 16,136,765
<REALIZED-GAINS-CURRENT> (19,246,738)
<APPREC-INCREASE-CURRENT> (1,632,121)
<NET-CHANGE-FROM-OPS> (4,742,094)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 365,743
<DISTRIBUTIONS-OF-GAINS> 280,823
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 688,918
<NUMBER-OF-SHARES-REDEEMED> 356,033
<SHARES-REINVESTED> 37,082
<NET-CHANGE-IN-ASSETS> (8,162,619)
<ACCUMULATED-NII-PRIOR> 1,485,988
<ACCUMULATED-GAINS-PRIOR> 14,992,073
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,819,216
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,685,681
<AVERAGE-NET-ASSETS> 240,676,911
<PER-SHARE-NAV-BEGIN> 11.840
<PER-SHARE-NII> 0.580
<PER-SHARE-GAIN-APPREC> (0.720)
<PER-SHARE-DIVIDEND> 0.570
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<PER-SHARE-NAV-END> 10.480
<EXPENSE-RATIO> 205
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
