[LOGO] Federated Investors
International
Income Fund
4th Semi-Annual Report
May 31, 1995
Established 1991
FIXED INCOME
President's Message
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders of International
Income Fund for the period from December 1, 1994 to May 31, 1995.
The report includes an interview with the fund's portfolio manager, John Beck,
Director of Fiduciary Trust International Limited. The interview is followed
by a complete listing of the fund's international bonds, a series of investment
record performance charts, and its financial statements.
During the past six months, Class A shareholders received $0.41 per share in
dividends and watched their net asset value per share increase from $10.52 to
$11.30. Total return, based on net asset value, for this same period was
11.65%.* As of May 31, 1995, the Fund's total net assets were over $197
million.
For the six-month reporting period, Class B Shares and Class C Shares paid
$0.38 per share and $0.35 per share in dividends, respectively. Share price
based on net asset value also increased for Class B Shares and Class C Shares
from $10.51 and $10.48 on December 1, 1994, respectively, to $11.28 on May 31,
1995. Total returns, based on net asset value, for the six month period were
11.23% and 11.26% for Class B Shares and Class C Shares, respectively.*
International Income Fund's bond holdings include 11 countries and 17 issuers.
As of May 31, 1995, the fund's top five holdings were:
Issuer Moody's Rating U.S. $ Value
United Kingdom Treasury Aaa $39.4 million
New Zealand Aaa $12.5 million
Federal Republic of Germany Aaa $11.2 million
New South Wales Treasury Corp. Aaa $11.1 million
Kingdom of Spain Aa2 $10.9 million
*Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Total returns, based on
offering price, for Class A Shares, Class B Shares, and Class C Shares were
6.58%, 5.51%, and 10.27%, respectively.
For investors who want to have international exposure, the International Income
Fund allows investors to pursue current income with a diversified portfolio of
high-quality government bonds from around the world.
The fund's shares can be purchased regularly as an international investment
plan with dividends reinvested to compound shares for future income. I
recommend adding to your account on a regular basis.
Thank you for your participation in the fund. As always, your comments and
suggestions are welcome.
Very sincerely yours,
Glen R. Johnson
President
July 14, 1995
Investment Review
[PITCHURE APPEARS HERE]
John Beck
Director,
Fiduciary Trust
International Limited,
Portfolio Manager
Q. Will you summarize recent activity in the international bond market?
A. Movements in international bonds largely reflected the rally in the U.S.
bond market, as continued signs of U.S. economic slowdown caused the market to
speculate that the Federal Reserve would no longer need to tighten rates. With
well-publicized trade friction between the United States and Japan threatening
to further undermine prospects for international growth, the environment for
international bonds was relatively positive. The change in sentiment toward
bonds which is particularly evident when contrasted with 1994 was evidenced
in May, which was the strongest month for global bonds in local currency terms
since the crash of 1987. Taken over the last six-month period, uncertainty
over U.S. trade relations and the move by Far Eastern Central banks to
rebalance their foreign exchange reserves caused international currencies to
strengthen versus the U.S. dollar, resulting in currency profits. This process
was reinforced by growing feelings that the Federal Reserve would begin to
reduce interest rates to counterbalance the signs of economic slowdown.
Q. How has International Income Fund performed in this
environment?
A. Over the six-month period to the end of May, the fund's Class A Shares had a
total return of 11.65%, based on net asset value, through a combination of
strong capital gains and currency gains from the U.S. dollar versus the
currency of investments of the fund.
Q. Would you review the fund's investment philosophy?
A. The fund seeks to invest principally in non-U.S. government bonds of
developed economies. The principal focus of the fund is to generate a high
level of income return consistent also with investing in high quality credit
issues. The fund has avoided the pitfalls of developing economy debt,
particularly in Latin America, which sustained heavy losses in late 1994, as
Latin American economies were forced to devalue their currencies. Most of the
issues held by the fund are rated a minimum of AA by Moody's or Standard and
Poor's, and most bonds hold the unconditional guarantee of the sovereign issuer
states. The fund therefore seeks to gain international diversification from
solely U.S. government bonds by investing in foreign government bonds, but
without sacrificing creditworthiness in the process.
Q. Please describe your outlook for the international bond market and future
plans for the fund.
A. The key question for the balance of 1995 is whether the rally in
international bonds, principally led by the United States, can be sustained.
Similarly, following the sharp decline in value of the U.S. dollar as trade
friction with Japan has risen, a question mark remains regarding whether the
U.S. currency will experience a rebound or continue to be weak.
If 1994 was traumatic for the bond investor as yields rose, 1995 has provided
some respite. Although economic growth showed some increase in pace in 1994,
the impact of technological change on the major economies in reducing the cost
and the importance of labor in the production process has kept inflation under
control. As a result, the bond markets have retraced much of their losses
sustained in 1994. Going forward, we believe that the world economy has
reached a comfortable medium where yields more accurately reflect growth and
inflation fundamentals. The outlook for bonds continues to look benign. The
investor should perhaps not expect gains of the magnitude experienced in early
1995, but neither should the investor fear higher bond yields with the
consequent capital loss that affected the markets in 1994.
The outlook for international currencies is also for relative stability.
Although the trade talks with Japan have not been concluded satisfactorily,
further weakness in the dollar seems unlikely given the extent of the falls
year to date.
Two Ways You May Seek to Invest for Success in
International Income Fund
- ------------------------------------------------------------------------------
Initial Investment:
If you had made an initial investment of $4,000 in the Class A Shares of
International Income Fund on 6/4/91, reinvested dividends and capital gains,
and didn't redeem any shares, your account would have been worth $5,942 on
5/31/95. You would have earned a 10.44%* average annual total return for the
4-year investment life span.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/95, the Class A Shares' average annual one-year and since inception
(6/4/91) total returns were 10.40%, and 10.14%, respectively. Class B Shares'
since inception (9/28/94) total return was 7.80%. Class C Shares' average
annual one-year and since inception (4/1/93) total returns were 13.75% and
12.60%, respectively.
SEE APPENDIX A-1
*Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.5% sales
charge applicable to an initial investment in Class A Shares.
Data quoted represent past performance and do not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
International Income Fund
- ------------------------------------------------------------------------------
Investing One Step at a Time:
$1,000 invested each year for 4 years (reinvesting all dividends and capital
gains) grew to $5,019.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
International Income Fund on 6/4/91, reinvested your dividends and capital
gains and didn't redeem any shares, you would have invested only $4,000, but
your account would have reached a total value of $5,019* by 5/31/95. You would
have earned an average annual total return of 9.53%.
A practical investment plan helps you pursue a high level of income by
investing in high-quality debt securities denominated primarily in foreign
currencies. Through systematic investing, you buy shares on a regular basis
and reinvest all earnings. An investment plan works for you when you invest
only $1,000 annually. You can take it one step at a time. Put time and
compounding to work!
SEE APPENDIX A-2
*No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at various
prices, investors can purchase more shares at lower prices, and all accumulated
shares have the ability to pay income to the investor.
International Income Fund _ Hypothetical Investor Profile:
Investing for a High Level of Income from Abroad
- ------------------------------------------------------------------------------
The Griffins_Bob, Nancy and Cal_are a single-income suburban family. Bob and
Nancy don't regard public schools very highly and are building a nest egg for
Cal's private school education.
They've added $2,000 every January to their initial $10,000 investment in
International Income Fund made on 6/4/91, and as of 5/31/95, their account
totaled $24,077, giving them an annual total return of 9.82%.*
Now they don't feel they need to worry about the quality of Cal's education,
and Bob figures his son will get to college even if he never does learn to
catch a football.
The couple is fictional, but the figures are real.
SEE APPENDIX A-3
*This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
International Income Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1995 (unaudited)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE
PAR CREDIT IN U.S.
AMOUNT RATING* DOLLARS
<C> <S> <C> <C>
BONDS--94.6% ------------------------------------------------------------------------
AUSTRALIAN DOLLAR--5.6%
- -------------------------------------------------------------------------------------
AGENCY--5.6%
------------------------------------------------------------------
14,000,000 New South Wales Treasury Corp., 11.50%, 7/1/1999 Aaa $ 11,063,147
------------------------------------------------------------------ --------------
TOTAL AUSTRALIAN DOLLAR 11,063,147
------------------------------------------------------------------ --------------
AUSTRIAN SHILLING--4.0%
- -------------------------------------------------------------------------------------
SOVEREIGN--4.0%
------------------------------------------------------------------
75,000,000 Republic of Austria, 7.625%, 10/18/2004 Aaa 7,896,723
------------------------------------------------------------------ --------------
TOTAL AUSTRIAN SHILLING 7,896,723
------------------------------------------------------------------ --------------
BRITISH POUND--23.6%
- -------------------------------------------------------------------------------------
SOVEREIGN--20.0%
------------------------------------------------------------------
7,000,000 UK Treasury, 7.00%, 11/6/2001 Aaa 10,657,853
------------------------------------------------------------------
18,000,000 UK Treasury 8.00%, 6/10/2003 Aaa 28,719,019
------------------------------------------------------------------ --------------
Total 39,376,872
------------------------------------------------------------------ --------------
SUPRANATIONAL--3.6%
------------------------------------------------------------------
4,000,000 African Development Bank, 11.25%, 7/23/2001 Aaa 7,233,603
------------------------------------------------------------------ --------------
TOTAL BRITISH POUND 46,610,475
------------------------------------------------------------------ --------------
CANADIAN DOLLAR--3.9%
- -------------------------------------------------------------------------------------
AGENCY--3.9%
------------------------------------------------------------------
10,000,000 Ontario Hydro, 9.00%, 6/24/2002 Aa3 7,619,378
------------------------------------------------------------------ --------------
TOTAL CANADIAN DOLLAR 7,619,378
------------------------------------------------------------------ --------------
DANISH KRONE--4.6%
- -------------------------------------------------------------------------------------
SOVEREIGN--4.6%
------------------------------------------------------------------
50,000,000 Kingdom of Denmark, 8.00%, 5/15/2003 Aaa 9,055,082
------------------------------------------------------------------ --------------
TOTAL DANISH KRONE 9,055,082
------------------------------------------------------------------ --------------
</TABLE>
International Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE
PAR CREDIT IN U.S.
AMOUNT RATING* DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
- -------------------------------------------------------------------------------------
DEUTSCHE MARK--26.8%
- -------------------------------------------------------------------------------------
SOVEREIGN--11.2%
------------------------------------------------------------------
14,600,000 Federal Republic of Germany, 8.00%, 7/22/2002 Aaa $ 11,242,609
------------------------------------------------------------------
15,000,000 Kingdom of Spain, 7.25%, 3/4/2003 Aa2 10,878,794
------------------------------------------------------------------ --------------
Total 22,121,403
------------------------------------------------------------------ --------------
SUPRANATIONAL--15.6%
------------------------------------------------------------------
13,000,000 European Economic Commission, 6.50%, 3/10/2000 Aaa 9,458,643
------------------------------------------------------------------
15,000,000 European Investment Bank, 6.50%, 4/21/2004 Aaa 10,480,790
------------------------------------------------------------------
16,000,000 World Bank, 5.875%, 11/10/2003 Aaa 10,724,404
------------------------------------------------------------------ --------------
Total 30,663,837
------------------------------------------------------------------ --------------
TOTAL DEUTSCHE MARK 52,785,240
------------------------------------------------------------------ --------------
FINNISH MARKKA--5.2%
- -------------------------------------------------------------------------------------
SOVEREIGN--5.2%
------------------------------------------------------------------
42,000,000 Republic of Finland, 9.50%, 3/15/2004 AAA 10,265,320
------------------------------------------------------------------ --------------
TOTAL FINNISH MARKKA 10,265,320
------------------------------------------------------------------ --------------
FRENCH FRANC--4.9%
- -------------------------------------------------------------------------------------
SOVEREIGN--4.9%
------------------------------------------------------------------
50,000,000 Government of France, 6.75%, 10/25/2003 Aaa 9,707,750
------------------------------------------------------------------ --------------
TOTAL FRENCH FRANC 9,707,750
------------------------------------------------------------------ --------------
IRISH PUNT--4.4%
- -------------------------------------------------------------------------------------
SOVEREIGN--4.4%
------------------------------------------------------------------
5,000,000 Republic of Ireland, 9.25%, 7/11/2003 Aaa 8,595,651
------------------------------------------------------------------ --------------
TOTAL IRISH PUNT 8,595,651
------------------------------------------------------------------ --------------
NETHERLANDS GUILDER--5.3%
- -------------------------------------------------------------------------------------
SOVEREIGN--5.3%
------------------------------------------------------------------
15,000,000 Dutch Government, 8.50%, 3/15/2001 Aaa $ 10,540,207
------------------------------------------------------------------ --------------
TOTAL NETHERLANDS GUILDER 10,540,207
------------------------------------------------------------------ --------------
</TABLE>
International Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE
PAR CREDIT IN U.S.
AMOUNT RATING* DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
- -------------------------------------------------------------------------------------
NEW ZEALAND DOLLAR--CONTINUED
- -------------------------------------------------------------------------------------
NEW ZEALAND DOLLAR--6.3%
- -------------------------------------------------------------------------------------
SOVEREIGN--6.3%
------------------------------------------------------------------
18,000,000 New Zealand, 8.00%, 4/15/2004 Aaa 12,461,714
------------------------------------------------------------------ --------------
TOTAL NEW ZEALAND DOLLAR 12,461,714
------------------------------------------------------------------ --------------
TOTAL INVESTMENTS (IDENTIFIED COST $174,483,326)(A) $ 186,600,687
------------------------------------------------------------------ --------------
</TABLE>
*Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings.
(a) The cost for federal tax purposes amounts to $174,483,326. The net
unrealized appreciation of investments amounts to $12,117,361, which is
comprised of $13,302,022 appreciation and $1,184,661 depreciation at
May 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($197,151,164) at May 31, 1995.
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1995 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost, $174,483,326) $186,600,687
- -----------------------------------------------------------------------------------------------------
Cash 538,410
- -----------------------------------------------------------------------------------------------------
Income receivable 6,303,456
- -----------------------------------------------------------------------------------------------------
Receivable for shares sold 3,897,191
- -----------------------------------------------------------------------------------------------------
Deferred expenses 42,467
- ----------------------------------------------------------------------------------------------------- -----------
Total assets 197,382,211
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------------------------
Payable for shares redeemed $ 231,047
- ------------------------------------------------------------------------------------------ ---------
Total liabilities 231,047
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 17,444,323 shares outstanding $197,151,164
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------
Paid-in capital $204,865,945
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and translation of assets
and liabilities in foreign currencies 12,176,735
- -----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and foreign currency transactions (22,266,864)
- -----------------------------------------------------------------------------------------------------
Undistributed net investment income 2,375,348
- ----------------------------------------------------------------------------------------------------- -----------
Total Net Assets $197,151,164
- ----------------------------------------------------------------------------------------------------- -----------
CLASS A SHARES:
- -----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($188,485,033 / 16,676,088 shares outstanding) $11.30
- ----------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/95.5 of $11.30)* $11.83
- ----------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $11.30
- ----------------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- -----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($516,058 / 45,740 shares outstanding) $11.28
- ----------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $11.28
- ----------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.5/100 of $11.28)** $10.66
- ----------------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- -----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($8,150,073 / 722,495 shares outstanding) $11.28
- ----------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $11.28
- ----------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99/100 of $11.28)*** $11.17
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Class B Shares" in the prospectus.
*** See "Redeeming Class C Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended May 31, 1995 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest (net of foreign taxes withheld of $66,972) $8,388,072
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------------------
Investment advisory fee $ 739,839
- ------------------------------------------------------------------------------------------
Administrative personnel and services fees 137,389
- ------------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 106,537
- ------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 41,296
- ------------------------------------------------------------------------------------------
Directors'/Trustees' fees 3,910
- ------------------------------------------------------------------------------------------
Auditing fees 17,566
- ------------------------------------------------------------------------------------------
Legal fees 7,644
- ------------------------------------------------------------------------------------------
Share registration costs 24,206
- ------------------------------------------------------------------------------------------
Printing and postage 42,588
- ------------------------------------------------------------------------------------------
Insurance premiums 4,368
- ------------------------------------------------------------------------------------------
Taxes 15,278
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class A 123,105
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class B 349
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class C 7,619
- ------------------------------------------------------------------------------------------
Distribution services fee--Class A 236,741
- ------------------------------------------------------------------------------------------
Distribution services fee--Class B 1,046
- ------------------------------------------------------------------------------------------
Distribution services fee--Class C 28,570
- ------------------------------------------------------------------------------------------
Miscellaneous 6,734
- ------------------------------------------------------------------------------------------ ---------
Total expenses 1,544,785
- ------------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------
Waiver of investment advisory fee $ 62,257
- -------------------------------------------------------------------------------
Waiver of distribution services fee--Class A 170,454 232,711
- ------------------------------------------------------------------------------- --------- ---------
Net expenses 1,312,074
- ----------------------------------------------------------------------------------------------------- ----------
Net investment income 7,075,998
- ----------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions (6,053,459)
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and translation of assets and
liabilities in foreign currencies 20,257,939
- ----------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments and foreign currency 14,204,480
- ----------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $21,280,478
- ----------------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
MAY 31, 1995 NOVEMBER 30,
(UNAUDITED) 1994]
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 7,075,998 $ 16,136,765
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions
($6,053,459 net loss and $16,137,072 net loss, respectively,
as computed for federal income tax purposes) (6,053,459) (19,246,738)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currencies 20,257,939 (1,632,121)
- ---------------------------------------------------------------------------------- ------------- --------------
Change in net assets resulting from operations 21,280,478 (4,742,094)
- ---------------------------------------------------------------------------------- ------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------------------------------
Class A Shares (7,557,047) (13,175,437)
- ----------------------------------------------------------------------------------
Class C Shares (250,917) (365,743)
- ----------------------------------------------------------------------------------
Class B Shares (7,846)
- ----------------------------------------------------------------------------------
Distributions from net realized gains and foreign currency transactions:
- ----------------------------------------------------------------------------------
Class A Shares -- (12,426,841)
- ----------------------------------------------------------------------------------
Class C Shares -- (280,823)
- ----------------------------------------------------------------------------------
Class B Shares -- --
- ---------------------------------------------------------------------------------- ------------- --------------
Change in net assets resulting from distributions to shareholders (7,815,810) (26,248,844)
- ---------------------------------------------------------------------------------- ------------- --------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 30,480,915 177,536,131
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 2,201,217 8,109,375
- ----------------------------------------------------------------------------------
Cost of shares redeemed (66,201,168) (162,817,187)
- ---------------------------------------------------------------------------------- ------------- --------------
Change in net assets resulting from share transactions (33,519,036) 22,828,319
- ---------------------------------------------------------------------------------- ------------- --------------
Change in net assets (20,054,368) (8,162,619)
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 217,205,532 225,368,151
- ---------------------------------------------------------------------------------- ------------- --------------
End of period (including undistributed net investment income of
$2,375,348 and $3,039,730, respectively) $ 197,151,164 $ 217,205,532
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
International Income Fund
Financial Highlights -- Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
MAY 31,
1995 YEAR ENDED NOVEMBER 30,
(UNAUDITED) 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.52 $ 11.86 $ 10.47 $ 10.84 $ 10.00
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.39 0.70 0.88 0.62 0.25
- --------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.80 (0.76) 1.40 (0.20) 0.75
- -------------------------------------------------- ------ --------- --------- --------- -----------
Total from investment operations 1.19 (0.06) 2.28 0.42 1.00
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Distributions from net investment income (0.41) (0.63) (0.75) (0.71) (0.16)
- --------------------------------------------------
Distributions 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 (0.41) (1.28) (0.89) (0.79) (0.16)
- -------------------------------------------------- ------ --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.30 $ 10.52 $ 11.86 $ 10.47 $ 10.84
- -------------------------------------------------- ------ --------- --------- --------- -----------
TOTAL RETURN (C) 11.65% (0.84%) 22.95% 3.82% 10.07%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 1.30%(d) 1.30% 1.25% 0.99% 0.32%(d)
- --------------------------------------------------
Net investment income 7.20%(d) 6.67% 7.71% 5.83% 7.54%(d)
- --------------------------------------------------
Expense waiver/reimbursement (e) 0.25%(d) 0.20% 0.27% 0.62% 1.18%(d)
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $188,485 $209,008 $220,602 $86,937 $23,465
- --------------------------------------------------
Portfolio turnover 29% 136% 189% 314% 35%
- --------------------------------------------------
</TABLE>
(a) 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.
(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) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) 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)
International Income Fund
Financial Highlights -- Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR
MAY 31, ENDED
1995 NOVEMBER 30,
(UNAUDITED) 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.51 $ 10.21
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income 0.34 0.08
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.81 0.22
- ------------------------------------------------------------------------- ------- -------
Total from investment operations 1.15 0.30
- ------------------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Distributions from net investment income (0.38) --
- ------------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.28 $ 10.51
- ------------------------------------------------------------------------- ------- -------
TOTAL RETURN (B) 11.23% 2.44%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 2.10%(c) 2.11%(c)
- -------------------------------------------------------------------------
Net investment income 6.25%(c) 7.07%(c)
- -------------------------------------------------------------------------
Expense waiver/reimbursements (d) 0.06%(c) 0.10%(c)
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $516 $101
- -------------------------------------------------------------------------
Portfolio turnover 29% 136%
- -------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) 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)
International Income Fund
Financial Highlights -- Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
MAY 31, YEAR ENDED
1995 NOVEMBER 30,
(UNAUDITED) 1994 1993(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.84 $ 10.23
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income 0.35 0.58 0.41
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.80 (0.72) 1.58
- -------------------------------------------------------------------- ------- --------- -----------
Total from investment operations 1.15 (0.14) 1.99
- -------------------------------------------------------------------- ------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income (0.35) (0.57) (0.38)
- --------------------------------------------------------------------
Distributions from net realized gain on investment transactions -- (0.65) --
- -------------------------------------------------------------------- ------- --------- -----------
Total distributions (0.35 ) (1.22) (0.38)
- -------------------------------------------------------------------- ------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.28 $ 10.48 $ 11.84
- -------------------------------------------------------------------- ------- --------- -----------
TOTAL RETURN (B) 11.26% (1.54%) 19.67%
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 2.05%(c) 2.05% 2.05%(c)
- --------------------------------------------------------------------
Net investment income 6.44%(c) 6.00% 5.39%(c)
- --------------------------------------------------------------------
Expense waiver/reimbursements (d) 0.06%(c) 0.10% 0.21%(c)
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $8,150 $8,098 $4,767
- --------------------------------------------------------------------
Portfolio turnover 29% 136% 189%
- --------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from March 31, 1993 (start of business)
to November 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) 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)
International Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
May 31, 1995 (unaudited)
(1) ORGANIZATION
International Series, Inc. (the "Corporation") 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.
(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 and
asset backed securities), unlisted securities (and other fixed-income and
asset-backed securities and/or private placements), and short-term
securities are valued at the prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days at
the time of purchase or less may be valued at amortized cost, which
approximates fair market value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank or broker 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 under repurchase
and reverse 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 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 and/or standards reviewed or established by the
Board of Directors ("Directors"). Risks may arise from the potential
inability of counterparties to honor the terms of these agreements.
Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
International Income Fund
- --------------------------------------------------------------------------------
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, as amended (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 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 by 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 forward foreign currency transactions are adjusted by
the daily
International Income Fund
- --------------------------------------------------------------------------------
exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the
settlement date. The Fund had no forward foreign currency exchange
contracts outstanding at May 31, 1995.
G. OPTION CONTRACTS WRITTEN--The Fund may write option contracts. A written
option obligates the Fund to deliver (a call) or to receive (a put) the
contract amount upon exercise by the holder of the option. The value of the
option contract is recorded as a liability and unrealized gain or loss is
measured by the difference between the current value and the premium
received. The Fund had no outstanding written option contracts at May 31,
1995.
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 not to exceed over a period of
five years from the Fund's commencement date.
K. RECLASSIFICATION--Income distribution and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments for market discount and foreign currency
transactions. (The Fund also utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.) Amounts as of May 31, 1995, have been
reclassified to reflect an increase in accumulated net realized loss, and
an increase in undistributed net investment income of $75,430. Net
investment income, net realized gains, and net assets were not affected by
this change.
L. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1995, there were 500,000,000 shares of $.0001 par value authorized
for Class A Shares, Class B Shares, and Class C Shares, respectively.
Transactions in shares were as follows:
International Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,693,341 $ 28,819,081 15,262,427 $ 169,735,435
- ----------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 196,733 2,062,430 692,848 7,698,922
- ----------------------------------------------------
Shares redeemed (6,075,782) (64,306,781) (14,688,399) (159,024,074)
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
Net change resulting from Class A Shares
transactions (3,185,708) ($ 33,425,270) 1,266,876 $ 18,410,283
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1995 1994*
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 36,719 $ 394,717 10,320 $ 108,114
- ----------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 465 4,918 -- --
- ----------------------------------------------------
Shares redeemed (1,010) (11,268) (754) (7,894)
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
Net change resulting from Class B Shares
transactions 36,174 $ 388,367 9,566 $ 100,220
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
</TABLE>
*For the period from September 19, 1994 (start of business) to November 30,
1994.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 114,973 $ 1,267,117 688,918 $ 7,692,582
- --------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 12,758 133,869 37,082 410,453
- --------------------------------------------------------
Shares redeemed (177,640) (1,883,119) (356,033) (3,785,219)
- -------------------------------------------------------- ----------- -------------- ---------- -------------
Net change resulting from Class C
Shares transactions (49,909) ($ 482,133) 369,967 $ 4,317,816
- -------------------------------------------------------- ----------- -------------- ---------- -------------
Net change resulting from Fund
share transactions (3,199,443) ($ 33,519,036) 1,646,409 $ 22,828,319
- -------------------------------------------------------- ----------- -------------- ---------- -------------
</TABLE>
International Income Fund
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH TRUST
ADVISORY FEE--On March 15, 1994, Federated Management became the Fund's
investment adviser ("the Adviser"). The Adviser receives for its services an
annual investment advisory fee equal to 0.75 of 1% of the Fund's average daily
net assets. Under the terms of a sub-advisory agreement between Federated
Management and Fiduciary Trust International Limited (the "Sub-Adviser"),
Sub-Adviser will receive an annual fee from Federated Management equal to 0.375
of 1% of average daily net assets of the Fund. Prior to March 15, 1994,
Fiduciary Trust International Limited served as the Fund's investment adviser
and received for its services an annual investment advisory fee equal to 0.75 of
1% of the Fund's average daily net assets. Prior to March 15, 1994, Federated
Management, under the terms of a sub-advisory agreement with Fiduciary Trust
International Limited served as the Fund's sub-adviser and received an annual
fee from Fiduciary Trust International Limited equal to 0.375 of 1% of average
daily net assets. Adviser may voluntarily choose to waive a portion of its fee.
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE SERVICES--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund administrative personnel
and services. 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 the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEES--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. 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. The distributor may voluntarily choose to waive a portion of its
fee. The distributor can modify or terminate this voluntary waiver at any time
at its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25 of
1% of average daily net assets for the Fund for the period. This fee is to
obtain certain services for shareholders and to maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company 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.
International Income Fund
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1994 were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 55,729,105
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 91,189,072
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
Thomas G. Bigley Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Richard B. Fisher
Peter E. Madden Vice President
Gregor F. Meyer Edward C. Gonzales
John E. Murray, Jr. Vice President and Treasurer
Wesley W. Posvar Joseph S. Machi
Marjorie P. Smuts Vice President and Assistant Treasurer
John W. McGonigle
Vice President and Secretary
David M. Taylor
Assistant Treasurer
Jeannette Fisher-Garber
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
[LOGO]
Federated Securities Corp.
- ------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federerated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 46031P100
Cusip 46031P209
Cusip 46031P506
2061602 (7/95)
[LOGO] Federated Investors
International
Equity Fund
10th Semi-Annual Report
May 31, 1995
Established 1984
EQUITY
President's Message
Dear Shareholder:
The International Equity Fund was established in 1984, and I am pleased to
present the 10th Semi-Annual Report to shareholders for the period from
December 1, 1994 to May 31, 1995.
The report includes an interview with the fund's portfolio manager, Margaret
Lindsay, Senior Vice President of Fiduciary Trust International Limited. The
interview is followed by a complete listing of the fund's diversified
international stocks, a series of investment record performance charts, and its
financial statements.
This six-month period was a very difficult time for international investors as
a number of emerging markets suffered declines, coupled with a devaluation of
the Mexican peso that hurt the stock markets in South American countries.
During the past six months, Class A shareholders received $0.8989 per share in
dividends (short-term gains $0.0958/share and long-term gains $0.8006/share).
The net asset value per share for Class A Shares decreased from $18.53 on
December 1, 1994 to $17.56 on May 31, 1995. Total return, based on net asset
value, for this same period was (0.27%).* As of May 31, 1995, the fund's total
net assets were over $230.3 million.
For the six-month reporting period, both Class B Shares and Class C Shares paid
$0.896 per share in dividends. Share price based on net asset value decreased
for Class B Shares and Class C Shares from $18.50 and $18.30 on December 1,
1994, respectively, to $17.45 and $17.25 on May 31, 1995, respectively. Total
returns, based on net asset value, for the sixmonth period were (0.74%) and
(0.75%) for Class B Shares and Class C Shares, respectively.*
*Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Total returns, based on
offering price, for Class A Shares, Class B Shares and Class C Shares were
(5.77%), (6.20%) and (1.72%), respectively.
International Equity Fund's diversified portfolio included 25 countries and 110
issuers. As of May 31, 1995, the fund's largest holdings in the top 10
countries, in U.S. dollar value, were:
Cadbury Schweppes (United Kingdom) $3,413,506
Canon Sales Co., Inc. (Japan) $2,846,558
L'Oreal (France) $3,106,077
BBC Brown Boveri (Switzerland) $3,767,501
Wolters Kluwer (Netherlands) $3,664,733
Swire Pacific Ltd. (Hong Kong) $1,877,012
Mannesmann AG (Germany) $2,927,899
SSAB (Sweden) $2,330,653
Malayan Banking Berhad (Malaysia) $1,894,503
Embotelladora Andina S.A., ADR (Chile) $2,077,500
For those who want international exposure, the International Equity Fund allows
investors to pursue growth through a diversified portfolio of stocks from
around the world.
The fund's shares can be purchased regularly as an international investment
plan with dividends reinvested to compound shares for future growth. I
recommend adding to your account on a regular basis.
Thank you for your participation in the fund. As always, your comments and
suggestions are welcome.
Very sincerely yours,
Glen R. Johnson
President
July 14, 1995
Investment Review
Margaret Lindsay
Senior Vice President
Fiduciary International,
Inc., Portfolio Manager
Q. Will you summarize recent events in the international equity market?
A. The Far East, which had been burdened by prospects for higher global
interest rates and mutual fund outflows, failed to perform in the early months
of the semi-annual reporting period. Positions were trimmed with proceeds
redirected to Japan and Europe. In the final weeks of 1994, the decision made
by the Mexican government to let the peso float resulted in substantial
currency depreciation, adversely affecting returns on Mexican investments and
sentiment elsewhere in the region. The fund's exposure was quickly reduced to
the lowest level allowed by the guidelines. More money was put into Japan as
an economic recovery appeared imminent.
Two events then dominated the first quarter of 1995. The growth of the U.S.
economy slowed with an attendant drop in interest rates. The U.S. dollar also
weakened substantially versus the yen and the Deutschemark. A global bond and
equity market rally ensued with the fund, not being hedged, benefiting fully
from currency gains. The performance of international markets, i.e., Europe,
the Far East and even parts of Latin America, improved noticeably beginning in
March. Japan was the important exception with the rising yen resulting in a
sharp reduction in Japanese earnings estimates. This development, combined
with the Kobe earthquake and a government either unable or unwilling to take
action on either the economy or banking crisis, led to a pronounced
underperformance. Europe, meanwhile, proved to be a resilient region with
recovery in place despite the pause in growth induced by adverse support in the
United Kingdom and on the Continent. The Japanese exposure was reduced by
other sales as earnings visibility decreased. These proceeds were directed to
Europe and the Far East, where equity markets had a strong recovery as
investors were willing to focus on the growth prospects of the region.
Q. How has International Equity Fund performed in this
environment?
A. During the six-month period ended May 31, 1995, the fund's total return was
down 0.27% versus the Europe, Australia and the Far East Index (EAFE)*, which
rose by 5.2%. The fund's underperformance was attributable to the Far Eastern
and Latin American exposure during the first half of the period and the
Japanese weighting in the second half.
*This index is unmanaged.
Q. Would you review the fund's investment philosophy?
A. The fund is designed to offer shareholders a fully diversified international
equity product providing exposure to four major regions outside the United
States Japan, Europe, the Far East and Latin America. We look for growth
opportunities in countries and industries around the world. Emphasis is placed
on identifying undervalued securities of high-quality companies that are either
regional or global leaders in their particular field. The fund's asset
allocation is based largely on stock selection. As opportunities present
themselves, care is taken to retain the desired diversification across regions
and countries. In this way, regional exposure is kept within the ranges
specified by the fund's guidelines.
Q. Will you describe your outlook for the international equity markets and your
future plans for the fund?
A. The exposure to Japan is likely to stay at the low end of the permissible
range unless the yen and Japanese earnings reverse their current trends.
Holdings are expected to remain oriented toward companies with domestic
exposure and other special situations such as housing, construction and
specialty retailing. Although growth has recently slowed, Europe is still in a
recovery phase. Declining interest rates should continue to support equity
prices. The fund's representation in this area is expected to stay at or above
present levels. The larger and more domestically oriented markets, the United
Kingdom and France, will continue to be emphasized, although care will be taken
to monitor political developments. The remaining "core" countries,
Switzerland, the Netherlands and Germany, will be favored at the expense of the
more peripheral countries, i.e., Southern Europe and Scandinavia.
Interest-rate sensitive and consumer-related growth stocks are likely to remain
major investment themes in Europe. In the Far East, a more favorable outlook
for global interest rates would suggest continued commitment to Hong Kong and
Malaysia, as well as a number of smaller countries. Financial and property
stocks are expected to continue to perform well. In Latin America, exposure is
likely to remain limited. Emphasis will remain on Chile, Colombia and Brazil
as opposed to Mexico. Infrastructure continues to be an important investment
theme.
Two Ways You May Seek to Invest for Success in
International Equity Fund
- -----------------------------------------------------------------------------
Initial Investment:
If you had made an initial investment of $11,000 in the Class A Shares of
International Equity Fund on 8/17/84, reinvested dividends and capital gains,
and didn't redeem any shares, your account would have been worth $42,630 on
5/31/95. You would have earned a 13.38%* average annual total return for the
11-year investment life span.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/95, the Class A Shares' average annual one-year, five-year and since
inception (8/17/84) total returns were -5.04%, 1.93%, and 13.38%, respectively.
Class B Shares' since inception (9/28/94) total return was -10.23%. Class C
Shares' average annual one-year and since inception (4/1/93) total returns were
- -1.45% and 9.85%, respectively.
SEE APPENDIX A-4
*Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.5% sales
load applicable to an initial investment in Class A Shares.
Data quoted represent past performance and do not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
International Equity Fund
- -----------------------------------------------------------------------------
Investing One Step at a Time:
$1,000 invested each year for 11 years (reinvesting all dividends and capital
gains) grew to $18,302.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
International Equity Fund on 8/17/84, reinvested your dividends and capital
gains and didn't redeem any shares, you would have invested only $11,000, but
your account would have reached a total value of $18,302* by 5/31/95. You would
have earned an average annual total return of 8.56%.
A practical investment plan helps you pursue long-term capital growth through a
diversified portfolio primarily invested in equity securities of non-U.S.
issuers. Through systematic investing, you buy shares on a regular basis and
reinvest all earnings. An investment plan works for you when you invest only
$1,000 annually. You can take it one step at a time. Put time and compounding
to work!
SEE APPENDIX A-5
*No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at various
prices, investors can purchase more shares at lower prices, and all accumulated
shares have the ability to pay income to the investor.
International Equity Fund Hypothetical Investor Profile:
Investing for Long-Term Growth
- -----------------------------------------------------------------------------
Dan and Gigi Hardwick are a two-income suburban couple who, like many others,
want to be able to afford their present lifestyle after they retire.
They decided an international stock fund, though possibly volatile in the short
term, offered excellent opportunities for long-term growth. They invested
$10,000 in International Equity Fund on 8/17/84 and to take advantage of dollar
cost averaging have invested $5,000 every August since.
By 5/31/95, they were pleased to see that their $60,000 investment had grown to
$111,346 for an average annual total return of 9.66%. Gigi's already picturing
a long Mediterranean cruise to celebrate their retirement.
The couple is fictional, but the figures are real.
SEE APPENDIX A-6
This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
International Equity Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1995 (unaudited)
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--92.7%
- ------------------------------------------------------------------------------------------------
ARGENTINA--0.3%
---------------------------------------------------------------------------------
215,000 **Mirgor, ADR $ 657,900
--------------------------------------------------------------------------------- --------------
AUSTRALIA--1.7%
---------------------------------------------------------------------------------
159,028 Amcor Ltd. 1,181,031
---------------------------------------------------------------------------------
110,963 Broken Hill Proprietary Co. Ltd. 1,405,866
---------------------------------------------------------------------------------
260,000 Western Mining Corporation Holdings Ltd. 1,383,754
--------------------------------------------------------------------------------- --------------
Total 3,970,651
--------------------------------------------------------------------------------- --------------
BRAZIL--0.6%
---------------------------------------------------------------------------------
100,000 **Centrais Eletricas Brasileiras, ADR 1,434,150
--------------------------------------------------------------------------------- --------------
CHILE--2.0%
---------------------------------------------------------------------------------
27,800 Chilgener S.A., ADR 854,850
---------------------------------------------------------------------------------
60,000 Embotelladora Andina S.A., ADR 2,077,500
---------------------------------------------------------------------------------
60,000 Madeco, ADR 1,740,000
--------------------------------------------------------------------------------- --------------
Total 4,672,350
--------------------------------------------------------------------------------- --------------
CHINA--0.5%
---------------------------------------------------------------------------------
55,000 **Jilin Chemical Industrial Co., ADR 1,168,750
--------------------------------------------------------------------------------- --------------
COLUMBIA--0.4%
---------------------------------------------------------------------------------
50,000 **Cementos Diamante S.A., GDR 923,570
--------------------------------------------------------------------------------- --------------
FRANCE--12.1%
---------------------------------------------------------------------------------
53,300 AXA 2,823,187
---------------------------------------------------------------------------------
14,040 Castorama Dubois 2,246,853
---------------------------------------------------------------------------------
7,771 Colas 1,527,104
---------------------------------------------------------------------------------
17,800 Compagnie de St. Gobain 2,227,915
---------------------------------------------------------------------------------
40,620 Credit Local de France 3,568,731
---------------------------------------------------------------------------------
14,180 Groupe Danon 2,343,565
---------------------------------------------------------------------------------
11,800 L'Oreal 3,106,077
---------------------------------------------------------------------------------
1,710 Legrand $ 2,588,350
---------------------------------------------------------------------------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
FRANCE--CONTINUED
---------------------------------------------------------------------------------
12,500 LVMH (Moet-Hennessy) 2,375,794
---------------------------------------------------------------------------------
17,140 Lyonnaise Des Eaux SA 1,754,937
---------------------------------------------------------------------------------
6,575 Primagaz Cie 1,166,180
---------------------------------------------------------------------------------
40,200 Valeo 2,230,588
--------------------------------------------------------------------------------- --------------
Total 27,959,281
--------------------------------------------------------------------------------- --------------
GERMANY--3.7%
---------------------------------------------------------------------------------
4,440 Linde AG 2,607,514
---------------------------------------------------------------------------------
10,000 Mannesmann AG 2,927,899
---------------------------------------------------------------------------------
7,600 Veba AG 2,889,323
--------------------------------------------------------------------------------- --------------
Total 8,424,736
--------------------------------------------------------------------------------- --------------
HONG KONG--4.2%
---------------------------------------------------------------------------------
380,000 Cheung Kong 1,871,679
---------------------------------------------------------------------------------
1,620,611 First Pacific Co. 1,518,937
---------------------------------------------------------------------------------
280,000 **Guoco Group 1,317,596
---------------------------------------------------------------------------------
138,966 HSBC Holdings 1,805,495
---------------------------------------------------------------------------------
185,000 Sung Hung Kai Properties 1,339,315
---------------------------------------------------------------------------------
243,000 Swire Pacific Ltd. 1,877,012
--------------------------------------------------------------------------------- --------------
Total 9,730,034
--------------------------------------------------------------------------------- --------------
INDONESIA--0.6%
---------------------------------------------------------------------------------
752,600 Lippo Bank 1,436,582
--------------------------------------------------------------------------------- --------------
IRELAND--1.1%
---------------------------------------------------------------------------------
240,312 Bank of Ireland 1,324,254
---------------------------------------------------------------------------------
200,000 CRH 1,273,622
--------------------------------------------------------------------------------- --------------
Total 2,597,876
--------------------------------------------------------------------------------- --------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
JAPAN--18.0%
---------------------------------------------------------------------------------
25,000 Autobacs Seven Co. $ 2,505,170
---------------------------------------------------------------------------------
109,000 Canon Sales Co., Inc. 2,846,558
---------------------------------------------------------------------------------
350,000 Daicel Chemical Industries 1,848,744
---------------------------------------------------------------------------------
155,000 Daiwa Securities 1,718,050
---------------------------------------------------------------------------------
250 DDI Corp. 1,660,266
---------------------------------------------------------------------------------
425,000 Hitachi Zosen Corp. 1,823,043
---------------------------------------------------------------------------------
44,000 Ito Yokado Co. 2,329,335
---------------------------------------------------------------------------------
27,000 Kyocera Corp. 2,051,521
---------------------------------------------------------------------------------
360,000 Minebea Co. 2,339,734
---------------------------------------------------------------------------------
109,000 Mitsubishi Bank 2,601,832
---------------------------------------------------------------------------------
230,000 Mitsubishi Estate 2,579,261
---------------------------------------------------------------------------------
140,000 Mitsubishi Trust & Banking Corp., Tokyo 2,266,470
---------------------------------------------------------------------------------
550,000 Nippon Steel Co. 1,975,775
---------------------------------------------------------------------------------
250 Nippon Telephone & Telegraph Corp. 2,067,947
---------------------------------------------------------------------------------
260,000 Sekisui Chemical Co. 3,053,944
---------------------------------------------------------------------------------
350,000 Taisei Corp. 2,249,926
---------------------------------------------------------------------------------
270,000 Tokuyama Corp. 1,387,887
---------------------------------------------------------------------------------
350,000 **Tosoh Corp. 1,555,096
---------------------------------------------------------------------------------
75,000 Tostem Corp. 2,534,712
--------------------------------------------------------------------------------- --------------
Total 41,395,271
--------------------------------------------------------------------------------- --------------
KOREA--1.9%
---------------------------------------------------------------------------------
37,000 **Korea Electric Power 1,386,554
---------------------------------------------------------------------------------
32,300 **Korea Mobile Telecom Corp., GDR 1,017,450
---------------------------------------------------------------------------------
33,000 Pohang Iron and Steel Ltd., ADR 932,250
---------------------------------------------------------------------------------
6,526 Samsung Electronics Co. 951,538
---------------------------------------------------------------------------------
1,291 **Samsung Electronics Co. $ 188,237
--------------------------------------------------------------------------------- --------------
Total 4,476,029
--------------------------------------------------------------------------------- --------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
MALAYSIA--2.4%
---------------------------------------------------------------------------------
170,000 Genting Berhad 1,757,358
---------------------------------------------------------------------------------
230,000 Malayan Banking Berhad 1,894,503
---------------------------------------------------------------------------------
282,000 United Engineers Ltd. 1,865,125
--------------------------------------------------------------------------------- --------------
Total 5,516,986
--------------------------------------------------------------------------------- --------------
MEXICO--0.7%
---------------------------------------------------------------------------------
1,300,000 Cifra SA de CV 1,606,504
--------------------------------------------------------------------------------- --------------
NETHERLANDS--7.6%
---------------------------------------------------------------------------------
32,700 Aegon NV 2,637,830
---------------------------------------------------------------------------------
76,550 Ahold NV 2,637,486
---------------------------------------------------------------------------------
15,930 Heineken NV 2,265,931
---------------------------------------------------------------------------------
73,000 Philips Electronics NV 2,907,447
---------------------------------------------------------------------------------
93,700 Royal PTT Nederland NV 3,388,317
---------------------------------------------------------------------------------
43,750 Wolters Kluwer 3,664,733
--------------------------------------------------------------------------------- --------------
Total 17,501,744
--------------------------------------------------------------------------------- --------------
NEW ZEALAND--1.3%
---------------------------------------------------------------------------------
774,274 Carter Holt Harvey 1,950,740
---------------------------------------------------------------------------------
750,000 Fletcher Challlenge 1,022,070
--------------------------------------------------------------------------------- --------------
Total 2,972,810
--------------------------------------------------------------------------------- --------------
NORWAY--1.1%
---------------------------------------------------------------------------------
62,000 Orkla Borregaard A.S. 2,606,992
--------------------------------------------------------------------------------- --------------
PHILIPPINES--0.6%
---------------------------------------------------------------------------------
11,700 Metro Bank and Trust Co. 256,221
---------------------------------------------------------------------------------
3,500,000 **SM Prime Holdings, Inc. $ 1,207,364
--------------------------------------------------------------------------------- --------------
Total 1,463,585
--------------------------------------------------------------------------------- --------------
SINGAPORE--1.8%
---------------------------------------------------------------------------------
120,000 Fraser & Neave Ltd. 1,438,622
---------------------------------------------------------------------------------
160,000 Keppel Corp. 1,458,722
---------------------------------------------------------------------------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
SINGAPORE--CONTINUED
---------------------------------------------------------------------------------
126,000 United Overseas Bank Ltd. 1,257,286
--------------------------------------------------------------------------------- --------------
Total 4,154,630
--------------------------------------------------------------------------------- --------------
SWEDEN--2.5%
---------------------------------------------------------------------------------
25,000 **Autoliv AB 1,218,141
---------------------------------------------------------------------------------
57,000 SSAB 2,330,653
---------------------------------------------------------------------------------
118,635 Volvo AB 2,085,855
--------------------------------------------------------------------------------- --------------
Total 5,634,649
--------------------------------------------------------------------------------- --------------
SWITZERLAND--7.9%
---------------------------------------------------------------------------------
4,250 Alusuisse Lonza Holding AG 2,503,000
---------------------------------------------------------------------------------
3,690 BBC Brown Boveri 3,767,501
---------------------------------------------------------------------------------
8,150 Merkur Holding AG 2,298,628
---------------------------------------------------------------------------------
6,900 **Oerlikon Buhrle AG 591,514
---------------------------------------------------------------------------------
605 Roche Holding AG 3,726,468
---------------------------------------------------------------------------------
3,475 Sulzer AG 1,658,380
---------------------------------------------------------------------------------
5,855 Winterthur 3,618,907
--------------------------------------------------------------------------------- --------------
Total 18,164,398
--------------------------------------------------------------------------------- --------------
TAIWAN--0.6%
---------------------------------------------------------------------------------
130,932 **Tuntex Distinctive Corp., GDR 1,423,205
--------------------------------------------------------------------------------- --------------
THAILAND--1.0%
---------------------------------------------------------------------------------
120,500 Bangkok Bank 1,318,274
---------------------------------------------------------------------------------
300,000 Krung Thai Bank PLC $ 1,075,770
--------------------------------------------------------------------------------- --------------
Total 2,394,044
--------------------------------------------------------------------------------- --------------
UNITED KINGDOM--18.1%
---------------------------------------------------------------------------------
353,885 BAA 2,725,651
---------------------------------------------------------------------------------
387,000 British Aerospace 3,217,318
---------------------------------------------------------------------------------
444,037 British Petroleum, Ltd. 3,130,895
---------------------------------------------------------------------------------
453,000 Cadbury Schweppes 3,413,506
---------------------------------------------------------------------------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
UNITED KINGDOM--CONTINUED
---------------------------------------------------------------------------------
150,000 Carlton Communication PLC 2,253,454
---------------------------------------------------------------------------------
241,000 Chubb Security 1,261,069
---------------------------------------------------------------------------------
416,000 Compass Group 2,338,637
---------------------------------------------------------------------------------
150,000 David S. Smith (Holdings) 1,369,700
---------------------------------------------------------------------------------
363,000 Granada Group PLC 3,406,908
---------------------------------------------------------------------------------
300,000 Guinness 2,282,039
---------------------------------------------------------------------------------
205,000 Legal & General Group PLC 1,624,504
---------------------------------------------------------------------------------
316,000 National Westminster Bank PLC 2,704,844
---------------------------------------------------------------------------------
184,000 **Powergen PLC 618,009
---------------------------------------------------------------------------------
164,800 Reuters Holdings PLC 1,232,663
---------------------------------------------------------------------------------
260,653 Siebe 2,496,010
---------------------------------------------------------------------------------
411,369 Smithkline Beecham Corp., Class A 3,321,917
---------------------------------------------------------------------------------
141,943 Thorn EMI 2,801,892
---------------------------------------------------------------------------------
611,000 William Morrison Supermarkets 1,402,088
--------------------------------------------------------------------------------- --------------
Total 41,601,104
--------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $195,639,622) 213,887,831
--------------------------------------------------------------------------------- --------------
PREFERRED STOCKS--3.2%
- ------------------------------------------------------------------------------------------------
AUSTRALIA--1.0%
---------------------------------------------------------------------------------
466,460 News Corporation Ltd. 2,241,339
--------------------------------------------------------------------------------- --------------
GERMANY--2.2%
---------------------------------------------------------------------------------
3,929 Fresenius $ 2,390,816
---------------------------------------------------------------------------------
3,475 Wella AG 2,729,251
--------------------------------------------------------------------------------- --------------
Total 5,120,067
--------------------------------------------------------------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $5,488,380) 7,361,406
--------------------------------------------------------------------------------- --------------
TOTAL LONG-TERM SECURITIES (IDENTIFIED COST $201,128,002) 221,249,237
--------------------------------------------------------------------------------- --------------
</TABLE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENT--6.1%
- ------------------------------------------------------------------------------------------------
$ 14,095,000 J.P. Morgan Securities, Inc., 6.17%, dated 5/31/1995, due 6/1/1995
(at amortized cost) 14,095,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $215,223,002)(A) $ 235,344,237
--------------------------------------------------------------------------------- --------------
</TABLE>
(a) The cost for federal tax purposes amounts to $215,223,002. The net
unrealized appreciation of investments amounts to $20,121,233, which is
comprised of $25,474,827 appreciation and $5,353,593 depreciation at May 31,
1995.
* 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
($230,314,215) at May 31, 1995.
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1995 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in repurchase agreements at amortized cost and value $14,095,000
- --------------------------------------------------------------------------------------
Investments in other securities, at value 221,249,237
- -------------------------------------------------------------------------------------- -----------
Total investments (identified and tax cost, $215,223,002) $235,344,237
- ---------------------------------------------------------------------------------------------------
Cash 95,941
- ---------------------------------------------------------------------------------------------------
Income receivable 818,135
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 939,626
- ---------------------------------------------------------------------------------------------------
Receivable for foreign currency sold 5,663,203
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 624,093
- --------------------------------------------------------------------------------------------------- -----------
Total assets 243,485,235
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased 5,888,528
- --------------------------------------------------------------------------------------
Payable for foreign currency purchased 5,625,686
- --------------------------------------------------------------------------------------
Payable for shares redeemed 1,437,632
- --------------------------------------------------------------------------------------
Dividend taxes withheld liability 81,065
- --------------------------------------------------------------------------------------
Accrued expenses 138,109
- -------------------------------------------------------------------------------------- -----------
Total liabilities 13,171,020
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 13,126,070 shares outstanding $230,314,215
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $205,740,739
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and translation of assets
and liabilities in foreign currencies 20,145,539
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and foreign currency transactions 67,113,848
- ---------------------------------------------------------------------------------------------------
Distributions paid from capital gains (63,504,943)
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 819,032
- --------------------------------------------------------------------------------------------------- -----------
Total net assets $230,314,215
- --------------------------------------------------------------------------------------------------- -----------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($219,216,371 / 12,485,113 shares outstanding) $17.56
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.5 of $17.56)* $18.58
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $17.56
- --------------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($3,467,256 / 198,669 shares outstanding) $17.45
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $17.45
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.5/100 of $17.45)** $16.49
- --------------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($7,630,588 / 442,288 shares outstanding) $17.25
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $17.25
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99/100 of $17.25)*** $17.08
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redeeming Class B Shares" in the prospectus.
***See "Redeeming Class C Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended May 31, 1995 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividend income (net of foreign taxes withheld of $329,774) $ 1,875,721
- ----------------------------------------------------------------------------------------------------
Interest 629,918
- ---------------------------------------------------------------------------------------------------- ------------
Total investment income 2,505,639
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 1,196,994
- ---------------------------------------------------------------------------------------
Administrative personnel and services fees 166,697
- ---------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 179,825
- ---------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 93,501
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 3,148
- ---------------------------------------------------------------------------------------
Auditing fees 19,962
- ---------------------------------------------------------------------------------------
Legal fees 9,632
- ---------------------------------------------------------------------------------------
Share registration costs 25,578
- ---------------------------------------------------------------------------------------
Printing and postage 72,092
- ---------------------------------------------------------------------------------------
Insurance premiums 3,984
- ---------------------------------------------------------------------------------------
Taxes 23,188
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class A 211,797
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class B 3,030
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class C 9,588
- ---------------------------------------------------------------------------------------
Distribution services fee--Class B 9,089
- ---------------------------------------------------------------------------------------
Distribution services fee--Class C 29,192
- ---------------------------------------------------------------------------------------
Miscellaneous 7,998
- --------------------------------------------------------------------------------------- -----------
Total expenses 2,065,295
- ---------------------------------------------------------------------------------------
Deduct:
- ----------------------------------------------------------------------------
Waiver of shareholder services fee--Class A $ 138,890
- ----------------------------------------------------------------------------
Waiver of shareholder services fee--Class C 1,233 140,123
- ---------------------------------------------------------------------------- --------- -----------
Net expenses 1,925,172
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 580,467
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions 3,609,524
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and translation of assets and
liabilities in foreign currencies (6,661,336)
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain/(loss) on investments and foreign currency (3,051,812)
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations ($ 2,471,345)
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30,
- --------------------------------------------------------------------------------- (UNAUDITED) 1994
<S> <C> <C>
NET INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------
Net investment income $ 580,467 $ (54,439)
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions ($3,609,524 net gain and $14,870,196 net gain, respectively,
as computed for federal income tax purposes) 3,609,524 15,659,072
- ---------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments and translation
of assets and liabilities in foreign currencies (6,661,336) 7,122,265
- --------------------------------------------------------------------------------- -------------- ---------------
Change in net assets resulting from operations (2,471,345) 22,726,898
- --------------------------------------------------------------------------------- -------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------------
Distributions from net investment income:
- ---------------------------------------------------------------------------------
Class A Shares (34,414) (7,180)
- ---------------------------------------------------------------------------------
Class C Shares (101) --
- ---------------------------------------------------------------------------------
Distributions from net realized gains and foreign currency transactions:
- ---------------------------------------------------------------------------------
Class A Shares (12,398,816) --
- ---------------------------------------------------------------------------------
Class B Shares (77,839) --
- ---------------------------------------------------------------------------------
Class C Shares (431,114) --
- ---------------------------------------------------------------------------------
Distributions in excess of net investment income:
- ---------------------------------------------------------------------------------
Class A Shares -- (803,651)
- ---------------------------------------------------------------------------------
Class C Shares -- (6,995)
- --------------------------------------------------------------------------------- -------------- ---------------
Change in net assets from distributions to shareholders (12,942,284) (817,826)
- --------------------------------------------------------------------------------- -------------- ---------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------------
Proceeds from sale of shares 54,544,856 158,071,765
- ---------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 62,096 324,527
- ---------------------------------------------------------------------------------
Cost of shares redeemed (80,107,333) (104,788,830)
- --------------------------------------------------------------------------------- -------------- ---------------
Change in net assets resulting from share transactions (25,500,381) 53,607,462
- --------------------------------------------------------------------------------- -------------- ---------------
Change in net assets (40,914,010) 75,516,534
- ---------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------
Beginning of period 271,228,225 195,711,691
- --------------------------------------------------------------------------------- -------------- ---------------
End of period (including undistributed net investment income of $816,864 and
$273,080, respectively) $230,314,215 $ 271,228,225
- --------------------------------------------------------------------------------- -------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
International Equity Fund
Financial Highlights -- Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, 1995 YEAR ENDED NOVEMBER 30,
(UNAUDITED) 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 18.53 $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59 $ 17.34 $ 19.99 $ 22.87
- ------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------
Net investment income 0.05 0.15 0.06 0.10 0.11 0.19 0.18 0.19 0.24
- ------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions (0.12) 1.96 2.53 (0.37) 0.37 (1.16) 1.60 3.27 (0.72)
- ------------------------ ------ --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations (0.07) 2.11 2.59 (0.27) 0.48 (0.97) 1.78 3.46 (0.48)
- ------------------------
LESS DISTRIBUTIONS
- ------------------------
Distributions from net
investment income 0.00 (0.07) (0.06) (0.08) (0.21) (0.20) (0.23) (0.23) (0.05)
- ------------------------
Distributions from net
realized gain on
investment transactions (0.90) -- -- -- (0.11) (2.14) (1.30) (5.88) (2.35)
- ------------------------
Distributions in excess
of net investment
income -- -- (0.13)(a) -- -- -- -- -- --
- ------------------------ ------ --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.90) (0.07) (0.19) (0.08) (0.32) (2.34) (1.53) (6.11) (2.40)
- ------------------------ ------ --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 17.56 $ 18.53 $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59 $ 17.34 $ 19.99
- ------------------------ ------ --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (B) (0.27%) 12.82% 18.52% (1.86%) 3.49% (6.72%) 11.55% 24.33% (2.70%)
- ------------------------
RATIOS TO AVERAGE NET
ASSETS
- ------------------------
Expenses 1.57%(c) 1.61% 1.60% 1.57% 1.52% 1.32% 1.01% 1.00% 1.00%
- ------------------------
Net investment income 0.52%(c) -- 0.13% 0.69% 0.78% 1.39% 1.04% 1.43% 0.93%
- ------------------------
Expense waiver/
reimbursement (d) 0.12%(c) -- 0.01% 0.02% 0.30% 0.25% 0.46% 0.28% 0.17%
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
Net assets, end of
period (000 omitted) $219,216 $261,178 $192,860 $106,937 $101,980 $82,541 $65,560 $68,922 $85,860 $106,257 $34,209
- ------------------------
Portfolio turnover 63% 73% 74% 91% 84% 114% 85% 98% 130%
- ------------------------
<CAPTION>
1986 1985
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.62 $ 9.50
- ------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------
Net investment income 0.04 0.09
- ------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions 8.63 5.04
- ------------------------ --------- ---------
Total from investment
operations 8.67 5.13
- ------------------------
LESS DISTRIBUTIONS
- ------------------------
Distributions from net
investment income (0.08) (0.01)
- ------------------------
Distributions from net
realized gain on
investment transactions (0.34) --
- ------------------------
Distributions in excess
of net investment
income -- --
- ------------------------ --------- ---------
Total distributions (0.42) (0.01)
- ------------------------ --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 22.87 $ 14.62
- ------------------------ --------- ---------
TOTAL RETURN (B) 60.75% 54.07%
- ------------------------
RATIOS TO AVERAGE NET
ASSETS
- ------------------------
Expenses 1.00% 1.00%
- ------------------------
Net investment income 0.34% 1.30%
- ------------------------
Expense waiver/
reimbursement (d) 0.19% 0.50%
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
Net assets, end of
period (000 omitted)
- ------------------------
Portfolio turnover 70% 61%
- ------------------------
</TABLE>
(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) Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(c) Computed on an annualized basis.
(d) 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)
International Equity Fund
Financial Highlights -- Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30,
(UNAUDITED) 1994 1993*
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.30 $ 16.41 $ 14.88
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income (0.04) (0.05) (0.04)
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign
currency transactions (0.11) 1.98 1.57
- ----------------------------------------------------------------------- ------- --------- ---------
Total from investment operations (0.15) 1.93 1.53
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.90) -- --
- -----------------------------------------------------------------------
Distributions in excess of net investment income -- (0.04)(a) --
- ----------------------------------------------------------------------- ------- --------- ---------
Total distributions (0.90) (0.04) --
- ----------------------------------------------------------------------- ------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.25 $ 18.30 $ 16.41
- ----------------------------------------------------------------------- ------- --------- ---------
TOTAL RETURN (B) (0.75%) 11.75% 10.28%
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 2.45 (c) 2.55% 2.57%(c)
- -----------------------------------------------------------------------
Net investment income (0.36)(c) (0.91%) (1.10%)(c)
- -----------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.03 (c) -- 0.01%(c)
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,631 $8,836 $2,852
- -----------------------------------------------------------------------
Portfolio turnover 63% 73% 74%
- -----------------------------------------------------------------------
</TABLE>
* 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) Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(c)Computed on an annualized basis.
(d) 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)
International Equity Fund
Financial Highlights -- Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
MAY 31, 1995 ENDED
(UNAUDITED) 1994*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.50 $ 19.61
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income -- (0.01)
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.15) (1.10)
- ----------------------------------------------------------------------------------- ------- -----------
Total from investment operations (0.15) (1.11)
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.90) --
- ----------------------------------------------------------------------------------- ------- -----------
NET ASSET VALUE, END OF PERIOD $ 17.45 $ 18.50
- ----------------------------------------------------------------------------------- ------- -----------
TOTAL RETURN (A) (0.74%) (5.27%)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 2.49%(b) 2.59%(b)
- -----------------------------------------------------------------------------------
Net investment income (0.05% (b) (0.88%)(b)
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) -- --
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,467 $1,214
- -----------------------------------------------------------------------------------
Portfolio turnover 63% 73%
- -----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
(a) Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(b) Computed on an annualized basis.
(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)
International Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
May 31, 1995 (unaudited)
(1) ORGANIZATION
International Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. The Corporation consists of two portfolios, one
diversified and one non-diversified. The financial statements included herein
are only those of the diversified portfolio, International Equity Fund (the
"Fund"). The financial statements of the other portfolio are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
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.
(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 or broker to take possession, to have legally segregated in
the Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure the value at
least equals the principal amount of the repurchase agreement, including
accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors ("Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of these agreements. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--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 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 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. The fund had no forward foreign currency exchange
contracts outstanding at May 31, 1995.
G. OPTION CONTRACTS--The Fund may write or purchase option contracts. A
written option obligates the Fund to deliver (a call) or to receive (a put)
the contract amount of foreign currency upon exercise by the holder of the
option. The value of the option contract is
recorded as a liability and unrealized gain or loss is measured by the
difference between the current value and the premium received. The Fund had
no outstanding written option contracts at May 31, 1995.
H. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
I. CONCENTRATION OF CREDIT RISK--The Fund invests in equity and fixed income
securities of non-U.S. issuers. Although the Fund maintains a diversified
investment portfolio, the political or economic developments within a
particular country or region may have an adverse effect on the ability of
domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At May 31, 1995 the Portfolio was diversified within the following
industries:
<TABLE>
<S> <C> <C> <C>
Automotive 4.8% Engineering & Construction 4.3%
Beverage & Tobacco 3.0 Finance & Insurance 15.7
Media & Entertainment 7.1 Food Products 4.8
Diversified Investment Companies 3.0 Forest Products 2.5
Building & Development 3.2 Industrial Products/Services 4.0
Building Materials 2.2 Machinery 4.3
Capital Goods 1.7 Metals 2.5
Chemical 8.0 Retailers 5.7
Consumer Products 7.1 Steel 3.0
Utilities 5.5 Telecommunications 2.1
Electronics & Electrical Equipment 3.0 Transportation 0.7
Energy 1.9
</TABLE>
J. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1995, there were 500,000,000 shares of $.0001 par value shares
authorized for Class A Shares, Class B Shares, and Class C Shares respectively.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,980,011 $ 50,748,167 7,830,629 $ 148,658,669
- -----------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 3,712 62,096 18,065 320,105
- -----------------------------------------------------
Shares redeemed (4,595,857) (77,928,952) (5,447,729) (102,494,771)
- ----------------------------------------------------- ----------- -------------- ----------- ---------------
Net change resulting from Class A share
transactions (1,612,134) ($ 27,118,689) 2,400,965 $ 46,484,003
- ----------------------------------------------------- ----------- -------------- ----------- ---------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994*
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 146,551 $ 2,485,282 66,837 $ 1,290,771
- -----------------------------------------------------
Shares issued to shareholders in payment of
distributions declared -- -- -- --
- -----------------------------------------------------
Shares redeemed (13,516) (221,966) (1,202) (23,249)
- ----------------------------------------------------- ----------- -------------- ----------- ---------------
Net change resulting from Class B share
transactions 133,035 $ 2,263,316 65,635 $ 1,267,522
- ----------------------------------------------------- ----------- -------------- ----------- ---------------
</TABLE>
*For the period from September 19, 1994 (start of business) to November 30,
1994.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 77,941 $ 1,311,407 429,959 $ 8,122,325
- -----------------------------------------------------
Shares issued to shareholders in payment of
distributions declared -- -- 250 4,422
- -----------------------------------------------------
Shares redeemed (118,602) (1,956,415) (120,985) (2,270,810)
- ----------------------------------------------------- ----------- -------------- ----------- ---------------
Net change resulting from Class C share
transactions (40,661) $ (645,008) 309,224 $ 5,855,937
- ----------------------------------------------------- ----------- -------------- ----------- ---------------
Net change resulting from share
transactions (1,519,760) ($ 25,500,381) 2,775,824 $ 53,607,462
- ----------------------------------------------------- ----------- -------------- ----------- ---------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE--On March 15, 1994, Federated Management became the Fund's
investment adviser ("Adviser"). The 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 Trust International Limited (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 Trust
International Limited 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 Trust International
Limited, served as the Fund's sub-adviser and received an annual fee from
Fiduciary Trust International Limited equal to 0.50 of 1% of average daily net
assets.
ADMINISTRATIVE SERVICES--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund administrative personnel
and services. 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 the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION 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.
SHAREHOLDER SERVICES FEES--Under the terms of a Shareholder Services agreement
with FSC, the Fund will pay FSC up to .25 of 1% of average daily net assets of
the Class A, Class B, and Class C Shares for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company serves as transfer and dividend disbursing agent for the Fund.
The fee is based on the size, type and number of accounts and transactions made
by shareholders.
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1995 were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 141,235,088
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 170,378,910
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Richard B. Fisher
Peter E. Madden Vice President
Gregor F. Meyer Edward C. Gonzales
John E. Murray, Jr. Vice President and Treasurer
Wesley W. Posvar Joseph S. Machi
Marjorie P. Smuts Vice President and Assistant Treasurer
John W. McGonigle
Vice President and Secretary
David M. Taylor
Treasurer
Jeannette Fisher-Garber
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
[LOGO]
Federated Securities Corp.
- --------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 46031P308
Cusip 46031P407
Cusip 46031P605
8070112 (7/95)
A1. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color coded mountain chart is a visual
representation of the narrative text above it. The "x" axis reflects
computation periods from 6/4/91 to 5/31/95. The "y" axis is measured in
increments of $1,000 ranging from $0 to $6,000 and indicates that the
ending value of a hypothetical initial investment of $4,000 in the Fund,
assuming the reinvestment of capital gains and dividends,would have
grown to $5,942 on 5/31/95.
A2. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color coded mountain chart is a
visual representation of the narrative text above it. The "x" axis
reflects computation periods from 6/4/91 to 5/31/95. The "y" axis is
measured in increments of $1,000 ranging from $0 to $6,000 and indicates
that the ending value of hypothetical yearly investments of $1,000 in
the Fund, assuming the reinvestment of capital gains and dividends,would
have grown to $5,019 on 5/31/95.
A3. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color-coded mountain chart is a
visual representation of the narrative text beneath it. The "x" axis
reflects computation periods from 6/4/91 to 5/31/95. The "y" axis is
measured in increments of $5,000 ranging from $0 to $25,000 and
indicates that the ending value of a hypothetical initial investment of
$10,000 on 6/4/91 and subsequent annual contributions of $2,000 would
have grown to $24,077 on 4/30/95.
A4. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color coded mountain chart is a visual
representation of the narrative text above it. The "x" axis reflects
computation periods from 8/17/84 to 5/31/95. The "y" axis is measured in
increments of $5,000 ranging from $0 to $45,000 and indicates that the
ending value of a hypothetical initial investment of $11,000 in the
Fund, assuming the reinvestment of capital gains and dividends,would
have grown to $42,630 on 5/31/95.
A5. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color coded mountain chart is a
visual representation of the narrative text above it. The "x" axis
reflects computation periods from 8/17/84 to 5/31/95. The "y" axis is
measured in increments of $2,000 ranging from $0 to $20,000 and
indicates that the ending value of hypothetical yearly investments of
$1,000 in the Fund, assuming the reinvestment of capital gains and
dividends,would have grown to $18,302 on 5/31/95.
A6. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color-coded mountain chart is a
visual representation of the narrative text beneath it. The "x" axis
reflects computation periods from 8/17/94 to 5/31/95. The "y" axis is
measured in increments of $20,000 ranging from $0 to $120,000 and
indicates that the ending value of a hypothetical initial investment of
$10,000 on 8/17/84 and subsequent annual contributions of $5,000 would
have grown to $111,346 on 5/31/95.
