[logo] FEDERATED INVESTORS
Since 1955
Federated
International
Income Fund
(formerly, International
Income Fund)
5th Annual Report
November 30, 1995
Established 1991
FIXED INCOME
President's Message
Dear Shareholder:
I am pleased to present the 5th Annual Report for Federated International
Income Fund, which covers the period from December 1, 1994 to November 30,
1995.
This report begins with an interview with the portfolio manager, Robert Kowit,
Vice President, Federated Global Research Corp. Following his interview are
three additional items of shareholder interest:
First a series of graphs indicating the fund's performance over time. These
long-term investment charts show the value of reinvesting dividends and the
benefit of a continuous investment program.
Second, a complete listing of the fund's holdings indicating the income
opportunities available through a diversified portfolio of high-quality bonds
issued by foreign countries.
Third, we have published the fund's complete financial statements.
Consistent with a favorable environment for international bonds, your fund
delivered strong performance during the reporting period. Total returns based
on net asset value for the period were 16.12% for Class A Shares, 15.28% for
Class B Shares, and 15.32% for Class C Shares.*
Contributing to the fund's performance was an increase of approximately 11% in
the net asset value between the first and last day of the reporting period, and
dividends paid per share during the reporting period totaling $0.77 for Class A
Shares, $0.70 for Class B Shares and $0.67 for Class C Shares. At the end of
the period, the fund's net assets stood at $187 million.
I would like to remind shareholders that Federated Global Research Corp.,
headquartered in New York City, is a newly formed subsidiary of Federated
Investors, and is dedicated exclusively to the management of international
investments. It is led and staffed by highly skilled professionals with a long
history of experience in the international marketplace. We are extremely
confident about the level of expertise Federated Global Research brings to the
fund.
* Performance quoted reflects 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 for the period
based on offering price for Class A Shares, Class B Shares, and Class C
Shares were 10.85%, 9.40%, and 14.30%, respectively.
We trust you were pleased with the positive performance of your investment in
Federated International Income Fund. Remember, reinvesting your earnings and
regularly adding to your account helps your investment grow through the benefit
of compounding. This technique allows you to buy more shares when prices are
low, and build your base of shares on which future earnings are paid.
As always, we welcome your comments and suggestions.
Sincerely,
Glen R. Johnson
Glen R. Johnson
President
January 15, 1996
Investment Review
[PHOTO]
Robert Kowit
Vice President,
Federated Global
Research Corp.
Q International bonds performed extremely well during 1995. What accounted for
this level of performance?
A Two factors combined for a very positive international bond market
environment: a combination of rapidly declining interest rates, and an
appreciation of most currencies against the dollar.+
Q In this environment, how did Federated International Income Fund perform for
shareholders over the one-year period ended November 30, 1995?
A The fund delivered an extremely strong total return. Total returns based on
net asset value were: Class A Shares, 16.12%; Class B Shares, 15.28%; and
Class C Shares, 15.32%.* By comparison, the Lipper General World Income
Average, an average that consists of 129 international bond funds, achieved a
total return of 13.97%. As of December 31, 1995 Federated International
Income Fund, Class A Shares, ranked 77th out of 135 funds in total return out
of all funds in that category.**
I would like to point out that many bond managers suffered in 1994 as interest
rates rapidly rose here in the U.S. In 1995, we were both reminded and rewarded
as interest rates declined and bond prices increased. 1995 was a good year for
bonds and we look forward to 1996 with anticipated lower rates.
+ International investing can involve additional risks, including currency
risk, increased volatility of foreign securities and differences in auditing
and other financial standards.
* 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 for the
period based on offering price for Class A Shares, Class B Shares, and
Class C Shares were 10.85%, 9.40%, and 14.30%, respectively.
** Past performance is not indicative of future results. Lipper rankings are
based on total return and do not take sales charges into account.
Q The fund's assets are primarily invested in high-quality
bonds issued within developed countries. What countries
were emphasized in the portfolio's holdings as of
November 30, 1995?
A The portfolio's holdings based on net assets as of
November 30, 1995, were as follows:
Germany 22.6%
United Kingdom 21.0%
New Zealand 6.7%
Australia 6.2%
Finland 5.9%
Spain 5.9%
Netherlands 5.7%
France 5.4%
Denmark 5.0%
Ireland 4.7%
Canada 4.3%
Austria 4.2%
Q What is your current outlook for international bonds? And what is your
strategy for the fund as we enter 1996?
A Economic conditions remain weak in Europe. Recently, both the Bank of England
and the German Bundesbank have cut rates. We believe that rates will continue
to decline through 1996 in most international markets. We continue to be long
in major European bond markets and have newly added positions in Italy and
Sweden, also, we increased our positions in Denmark and Spain. This will
further diversify the portfolio.
Two Ways You May Seek to Invest for Success in
Federated International Income Fund
(formerly, International Income Fund)
If you had made an initial investment of $5,000 in the Class A Shares of
Federated Inter-national Income Fund on 6/4/91, reinvested dividends and
capital gains, and didn't redeem any shares, your account would have been worth
$7,725 on 11/30/95. You would have earned a 10.19%* average annual total return
for the 5-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 12/31/95, the Class A Shares' average annual one-year and since inception
(6/4/91) total returns were 12.20%, and 10.48%, respectively. Class B Shares'
average annual one-year and since inception (9/28/94) total returns were 10.81%
and 11.88%, respectively. Class C Shares' average annual one-year and since
inception (4/1/93) total returns were 15.65% and 12.58%, respectively.
SEE APPENDIX B.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 represents past performance and does 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.
Federated International Income Fund
(formerly, International Income Fund)
One Step at a Time:
$1,000 invested each year for 4 years (reinvesting all dividends and capital
gains) grew to $6,215.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
International Income Fund on 6/4/91, reinvested your dividends and capital
gains and didn't redeem any shares, you would have invested only $5,000, but
your account would have reached a total value of $6,215* by 11/30/95. You would
have earned an average annual total return of 9.01%.
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 B.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.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
Federated International Income Fund
(formerly, 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
Federated International Income Fund made on 6/4/91, and as of 11/30/95, their
account totaled $25,041, giving them an annual total return of 9.59%.
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 B.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.
Federated International Income Fund
(formerly, International Income Fund)
Portfolio Update
SEE APPENDIX B.4
Serving a Wide Range of Investors
SEE APPENDIX B.5
Federated International Income Fund
(formerly, International Income Fund)
(Class A Shares)
Growth of $10,000 Invested in
Federated International Income Fund
(Class A Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated International Income Fund (Class A Shares) (the ``Fund'') from June 4,
1991 (start of performance) to November 30, 1995 compared to the JP Morgan
Global Government Bond Less U.S. Index (JPMGXUS).+
SEE APPENDIX B.6
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales
charge = $9,550). The Fund's performance assumes the reinvestment of all
dividends and distributions. The JPMGXUS is not adjusted to reflect
reinvestment of income earned on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The JPMGXUS is not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the
Fund's performance. This index is unmanaged.
Federated International Income Fund
(formerly, International Income Fund)
(Class B Shares)
Growth of $10,000 Invested in
Federated International Income Fund
(Class B Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated International Income Fund (Class B Shares) (the ``Fund'') from
September 28, 1994 (start of performance) to November 30, 1995 compared to the
JP Morgan Global Government Bond Less U.S. Index (JPMGXUS).+
SEE APPENDIX B.7
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 4.75% contingent deferred sales charge on any
redemption less than 2 years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than 1 year from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The JPMGXUS is not adjusted to reflect
reinvestment of income earned on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The JPMGXUS is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
Federated International Income Fund
(formerly, International Income Fund)
(Class C Shares)
Growth of $10,000 Invested in
Federated International Income Fund
(Class C Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated International Income Fund (Class C Shares) (the ``Fund'') from
April 1, 1993 (start of performance) to November 30, 1995 compared to
the JP Morgan Global Government Bond Less U.S. Index (JPMGXUS).+
SEE APPENDIX B.8
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less
than 1 year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The JPMGXUS has been
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The JPMGXUS is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
Federated International Income Fund
(formerly, International Income Fund)
Portfolio of Investments
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE
PAR CREDIT IN U.S.
AMOUNT RATING* DOLLARS
<C> <S> <C> <C>
BONDS--97.6%
- --------------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--6.2%
- --------------------------------------------------------------------------------------
AGENCY--6.2%
---------------------------------------------------------------------
14,000,000 New South Wales Treasury, 11.50%, 7/1/1999 Aaa $ 11,657,281
--------------------------------------------------------------------- --------------
TOTAL AUSTRALIAN DOLLAR 11,657,281
--------------------------------------------------------------------- --------------
AUSTRIAN SCHILLING--4.2%
- --------------------------------------------------------------------------------------
SOVEREIGN--4.2%
---------------------------------------------------------------------
75,000,000 Republic of Austria, Deb., 7.625%, 10/18/2004 Aaa 7,879,220
--------------------------------------------------------------------- --------------
TOTAL AUSTRIAN SCHILLING 7,879,220
--------------------------------------------------------------------- --------------
BRITISH POUND--21.0%
- --------------------------------------------------------------------------------------
SOVEREIGN--21.0%
---------------------------------------------------------------------
7,000,000 UK Treasury, 7.00%, 11/6/2001 Aaa 10,649,495
---------------------------------------------------------------------
18,000,000 UK Treasury, 8.00%, 6/10/2003 Aaa 28,538,350
--------------------------------------------------------------------- --------------
Total 39,187,845
--------------------------------------------------------------------- --------------
TOTAL BRITISH POUND 39,187,845
--------------------------------------------------------------------- --------------
CANADIAN DOLLAR--4.3%
- --------------------------------------------------------------------------------------
AGENCY--4.3%
---------------------------------------------------------------------
10,000,000 Ontario Hydro, 9.00%, 6/24/2002 AA- 8,022,819
--------------------------------------------------------------------- --------------
TOTAL CANADIAN DOLLAR 8,022,819
--------------------------------------------------------------------- --------------
DANISH KRONE--5.0%
- --------------------------------------------------------------------------------------
SOVEREIGN--5.0%
---------------------------------------------------------------------
50,000,000 Denmark, 8.00%, 5/15/2003 Aaa 9,390,396
--------------------------------------------------------------------- --------------
TOTAL DANISH KRONE 9,390,396
--------------------------------------------------------------------- --------------
</TABLE>
Federated International Income Fund
(formerly, International Income Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE
PAR CREDIT IN U.S.
AMOUNT RATING* DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
- --------------------------------------------------------------------------------------
DEUTSCHE MARK--22.6%
- --------------------------------------------------------------------------------------
SUPRANATIONAL--22.6%
---------------------------------------------------------------------
13,000,000 European Economic Community, Sr. Unsub., 6.50%,
3/10/2000 Aaa $ 9,455,853
---------------------------------------------------------------------
15,000,000 European Investment Bank, Unsub., 6.50%, 4/21/2004 Aaa 10,578,718
---------------------------------------------------------------------
15,750,000 Federal Republic of Germany, Deb., 6.75%, 7/15/2004 Aaa 11,316,739
---------------------------------------------------------------------
16,000,000 International Bank Recon and Development, Unsub., 5.875%, 11/10/2003 Aaa 10,986,379
--------------------------------------------------------------------- --------------
TOTAL DEUTSCHE MARK 42,337,689
--------------------------------------------------------------------- --------------
FINNISH MARKKA--5.9%
- --------------------------------------------------------------------------------------
SOVEREIGN--5.9%
---------------------------------------------------------------------
42,000,000 Republic of Finland, 9.50%, 3/15/2004 Aaa 11,121,036
--------------------------------------------------------------------- --------------
TOTAL FINNISH MARKKA 11,121,036
--------------------------------------------------------------------- --------------
FRENCH FRANC--5.4%
- --------------------------------------------------------------------------------------
SOVEREIGN--5.4%
---------------------------------------------------------------------
50,000,000 France (Govt of), Deb., 6.75%, 10/25/2003 Aaa 10,009,017
--------------------------------------------------------------------- --------------
TOTAL FRENCH FRANC 10,009,017
--------------------------------------------------------------------- --------------
IRISH PUNT--4.7%
- --------------------------------------------------------------------------------------
SOVEREIGN--4.7%
---------------------------------------------------------------------
5,000,000 Republic of Ireland, 9.25%, 7/11/2003 Aaa 8,792,557
--------------------------------------------------------------------- --------------
TOTAL IRISH PUNT 8,792,557
--------------------------------------------------------------------- --------------
NETHERLANDS GUILDER--5.7%
- --------------------------------------------------------------------------------------
SOVEREIGN--5.7%
---------------------------------------------------------------------
15,000,000 Dutch Govt., 8.50%, 3/15/2001 Aaa 10,578,645
--------------------------------------------------------------------- --------------
TOTAL NETHERLANDS GUILDER 10,578,645
--------------------------------------------------------------------- --------------
</TABLE>
Federated International Income Fund
(formerly, 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--6.7%
- --------------------------------------------------------------------------------------
SOVEREIGN--6.7%
---------------------------------------------------------------------
18,000,000 New Zealand, Foreign Gov't. Guarantee, 8.00%, 4/15/2004 Aaa $ 12,476,373
--------------------------------------------------------------------- --------------
TOTAL NEW ZEALAND DOLLAR 12,476,373
--------------------------------------------------------------------- --------------
SPANISH PESETA--5.9%
- --------------------------------------------------------------------------------------
SOVEREIGN--5.9%
---------------------------------------------------------------------
1,350,000,000 Spain (Government), Foreign Gov't. Guarantee, 10.30%,
6/15/2002 AA 11,046,002
--------------------------------------------------------------------- --------------
TOTAL SPANISH PESETA 11,046,002
--------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $169,281,255)(A) $ 182,498,880
--------------------------------------------------------------------- --------------
</TABLE>
*Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
(a)The cost for federal tax purposes amounts to $169,281,255. The net unrealized
appreciation of investments amounts to $13,217,625, which is comprised of
$13,433,208 appreciation and $215,583 depreciation at November 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($187,042,824) at November 30, 1995.
(See Notes which are an integral part of the Financial Statements)
Federated International Income Fund
(formerly, International Income Fund)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $169,281,255) $182,498,880
- ---------------------------------------------------------------------------------------------------
Cash denominated in foreign currencies (at cost, $346,396) 335,463
- ---------------------------------------------------------------------------------------------------
Income receivable 6,785,056
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 173,954
- ---------------------------------------------------------------------------------------------------
Deferred expenses 1,967
- --------------------------------------------------------------------------------------------------- -----------
Total assets 189,795,320
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for shares redeemed 332,347
- ----------------------------------------------------------------------------------------
Payable to Bank 2,305,434
- ----------------------------------------------------------------------------------------
Accrued expenses 114,715
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 2,752,496
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 16,433,232 shares outstanding $187,042,824
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $190,482,053
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets
and liabilities in foreign currency 13,090,664
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (20,978,654)
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 4,448,761
- --------------------------------------------------------------------------------------------------- -----------
Total Net Assets $187,042,824
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($173,905,120 / 15,276,429 shares outstanding) $11.38
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/95.50 of $11.38)* $11.92
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $11.38
- --------------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($1,122,654 / 98,831 shares outstanding) $11.36
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $11.36
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $11.36)** $10.74
- --------------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($12,015,050 / 1,057,972 shares outstanding) $11.36
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $11.36
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $11.36)** $11.25
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "Investing in Class A Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Federated International Income Fund
(formerly, International Income Fund)
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended November 30, 1995
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest (net of foreign taxes withheld $66,636) $15,723,724
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $1,459,314
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 271,797
- -----------------------------------------------------------------------------------------
Custodian fees 227,514
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 81,084
- -----------------------------------------------------------------------------------------
Directors'/Trustees' fees 6,071
- -----------------------------------------------------------------------------------------
Auditing fees 33,433
- -----------------------------------------------------------------------------------------
Legal fees 5,525
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 38,799
- -----------------------------------------------------------------------------------------
Distribution services fee--Class A Shares 463,225
- -----------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 4,210
- -----------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 65,430
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 463,225
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 1,403
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 21,810
- -----------------------------------------------------------------------------------------
Share registration costs 48,226
- -----------------------------------------------------------------------------------------
Printing and postage 104,715
- -----------------------------------------------------------------------------------------
Insurance premiums 6,830
- -----------------------------------------------------------------------------------------
Taxes 30,331
- -----------------------------------------------------------------------------------------
Miscellaneous 15,664
- ----------------------------------------------------------------------------------------- ---------
Total expenses 3,348,606
- -----------------------------------------------------------------------------------------
Waivers--
- ------------------------------------------------------------------------------
Waiver of investment advisory fee ($185,507)
- ------------------------------------------------------------------------------
Waiver of distribution services fee--Class A Shares (321,662)
- ------------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (240,467)
- ------------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (3,290)
- ------------------------------------------------------------------------------ ---------
Total waivers (750,926)
- ----------------------------------------------------------------------------------------- ---------
Net expenses 2,597,680
- ---------------------------------------------------------------------------------------------------- ----------
Net investment income 13,126,044
- ---------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ----------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions (5,611,275)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency 21,171,868
- ---------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments and foreign currency 15,560,593
- ---------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $28,686,637
- ---------------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated International Income Fund
(formerly, International Income Fund)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 13,126,044 $ 16,136,765
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions
(($4,766,152) and ($16,137,072), respectively, as computed for federal tax
purposes) (5,611,275) (19,246,738)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currency 21,171,868 (1,632,121)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 28,686,637 (4,742,094)
- ---------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------------------------------
Class A Shares (13,434,295) (13,175,437)
- ----------------------------------------------------------------------------------
Class B Shares (28,671) --
- ----------------------------------------------------------------------------------
Class C Shares (524,373) (365,743)
- ----------------------------------------------------------------------------------
Distributions from net realized gains on investments and foreign currency
transactions:
- ----------------------------------------------------------------------------------
Class A Shares -- (12,426,841)
- ----------------------------------------------------------------------------------
Class B Shares -- --
- ----------------------------------------------------------------------------------
Class C Shares -- (280,823)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (13,987,339) (26,248,844)
- ---------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 64,344,928 177,536,131
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 4,176,847 8,109,375
- ----------------------------------------------------------------------------------
Cost of shares redeemed (113,383,781) (162,817,187)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (44,862,006) 22,828,319
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets (30,162,708) (8,162,619)
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 217,205,532 225,368,151
- ---------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $4,448,761 and
$3,039,730, respectively) $ 187,042,824 $ 217,205,532
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated International Income Fund
(formerly, International Income Fund)
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 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 0.79 0.70 0.88 0.62 0.25
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.84 (0.76) 1.40 (0.20) 0.75
- ----------------------------------------------------- --------- --------- --------- --------- -----------
Total from investment operations 1.63 (0.06) 2.28 0.42 1.00
- -----------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Distributions from net investment income (0.77) (0.63) (0.75) (0.71) (0.16)
- -----------------------------------------------------
Distributions in excess of net investment income
(b) -- -- -- (0.05) --
- -----------------------------------------------------
Distributions from net realized gain on investments
and foreign currency transactions -- (0.65) (0.14) (0.03) --
- ----------------------------------------------------- --------- --------- --------- --------- -----------
Total distributions (0.77) (1.28) (0.89) (0.79) (0.16)
- ----------------------------------------------------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.38 $ 10.52 $ 11.86 $ 10.47 $ 10.84
- ----------------------------------------------------- --------- --------- --------- --------- -----------
TOTAL RETURN (C) 16.12% (0.84%) 22.95% 3.82% 10.07%
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.30% 1.30% 1.25% 0.99% 0.32%*
- -----------------------------------------------------
Net investment income 6.79% 6.67% 7.71% 5.83% 7.54%*
- -----------------------------------------------------
Expense waiver/reimbursement (d) 0.40% 0.20% 0.27% 0.62% 1.18%*
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $173,905 $209,008 $220,602 $ 86,937 $ 23,465
- -----------------------------------------------------
Portfolio turnover 41% 136% 189% 314% 35%
- -----------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 4, 1991 (date of initial
public investment) to November 30, 1991. For the period from 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 charge or
contingent deferred sales charge, if applicable.
(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)
Federated International Income Fund
(formerly, International Income Fund)
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.51 $ 10.21
- ---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------
Net investment income 0.77 0.08
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 0.78 0.22
- --------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.55 0.30
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------
Distributions from net investment income (0.70) --
- --------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.36 $ 10.51
- --------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 15.28% 2.44%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------
Expenses 2.10% 2.11%*
- ---------------------------------------------------------------------------------------
Net investment income 5.76% 7.07%*
- ---------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.10% 0.10%*
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,123 $101
- ---------------------------------------------------------------------------------------
Portfolio turnover 41% 136%
- ---------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(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)
Federated International Income Fund
(formerly, International Income Fund)
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 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 0.60 0.58 0.41
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign
currency 0.95 (0.72) 1.58
- -------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 1.55 (0.14) 1.99
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Distributions from net investment income (0.67) (0.57) (0.38)
- --------------------------------------------------------------------------
Distributions from net realized gain on investments and foreign currency
transactions -- (0.65) --
- -------------------------------------------------------------------------- --------- --------- -----------
Total distributions (0.67) (1.22) (0.38)
- -------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.36 $ 10.48 $ 11.84
- -------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (B) 15.32% (1.54%) 19.67%
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 2.06% 2.05% 2.05%*
- --------------------------------------------------------------------------
Net investment income 5.96% 6.00% 5.39%*
- --------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.14% 0.10% 0.21%*
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $12,015 $ 8,098 $ 4,767
- --------------------------------------------------------------------------
Portfolio turnover 41% 136% 189%
- --------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(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)
Federated International Income Fund
(formerly, International Income Fund)
Notes to Financial Statements
- --------------------------------------------------------------------------------
November 30, 1995
(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 Federated International Income Fund (the "Fund"), the
non-diversified portfolio. The financial statements of the other portfolio are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The Fund offers three classes of shares: Class A Shares, Class B Shares, and
Class C Shares.
Effective September 1, 1995, the Fund changed its name to Federated
International Income Fund.
(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.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
REPURCHASE AND REVERSE 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 transactions. Additionally,
procedures have been established by the Fund to monitor, on a daily basis,
the market value of each repurchase agreement's collateral to ensure that
the value of collateral at least equals the repurchase price to be paid
under the repurchase agreement transaction.
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 (the "Directors"). Risks may arise from the potential
inability of counterparties to honor the terms of these agreements.
Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
Federated International Income Fund
(formerly, International Income Fund)
- --------------------------------------------------------------------------------
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.
Income 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
straddle adjustments on forward contracts, market discount, and foreign
currency transactions. As a result of these differences, the following
required reclassifications have been made to the current year financial
statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED NET
PAID-IN CAPITAL REALIZED GAIN/LOSS UNDISTRIBUTED NET INVESTMENT INCOME
<S> <C> <C>
($3,040,922) $770,596 $2,270,326
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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.
Withholding taxes on foreign interest have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and
rates.
At November 30, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $20,978,654, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $16,212,502
2003 4,766,152
</TABLE>
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.
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 its shares, have been
Federated International Income Fund
(formerly, International Income Fund)
- --------------------------------------------------------------------------------
deferred and are being amortized using the straight-line method over a
period of five years from the Fund's commencement date.
CONCENTRATION OF CREDIT RISK--The Fund invests in securities of non-U.S.
issuers. The political or economic developments within a particular country
or region may have an adverse effect on the ability of domiciled issuers to
meet their obligations. Additionally, political or economic developments
may have an effect on the liquidity and volatility of portfolio securities
and currency holdings.
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 counterparties 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. As of November 30, 1995, the Fund had no outstanding
foreign currency commitments.
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 of
portfolio securities, 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.
OTHER--Investment transactions are accounted for on the trade date.
Federated International Income Fund
(formerly, International Income Fund)
- --------------------------------------------------------------------------------
(3) CAPITAL STOCK
At November 30, 1995, par value shares ($0.0001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
POUND OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A 500,000,000
- ----------------------------------------------------------------
Class B 500,000,000
- ----------------------------------------------------------------
Class C 500,000,000
- ---------------------------------------------------------------- -----------------
Total 1,500,000,000
- ---------------------------------------------------------------- -----------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
<CAPTION>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,228,161 $ 57,263,553 15,262,427 $ 169,735,435
- -------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 357,263 3,841,251 692,848 7,698,922
- -------------------------------------------------
Shares redeemed (10,170,791) (110,148,750) (14,688,399) (159,024,074)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class A share
transactions (4,585,367) ($ 49,043,946) 1,266,876 $ 18,410,283
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994(A)
<CAPTION>
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 89,871 $ 989,494 10,320 $ 108,114
- -------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 1,934 21,170 -- --
- -------------------------------------------------
Shares redeemed (2,540) (28,402) (754) (7,894)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class B share
transactions 89,265 $ 982,262 9,566 $ 100,220
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
(a) For the period from September 19, 1994 (start of business) to November 30,
1994.
Federated International Income Fund
(formerly, International Income Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
<CAPTION>
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 551,738 $ 6,091,880 688,918 $ 7,692,582
- --------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 29,098 314,427 37,082 410,453
- --------------------------------------------------------
Shares redeemed (295,268) (3,206,629) (356,033) (3,785,219)
- -------------------------------------------------------- ----------- -------------- ---------- -------------
Net change resulting from Class C share transactions 285,568 $ 3,199,678 369,967 $ 4,317,816
- -------------------------------------------------------- ----------- -------------- ---------- -------------
Net change resulting from share transactions (4,210,534) (44,862,006) 1,646,409 $ 22,828,319
- -------------------------------------------------------- ----------- -------------- ---------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Global Research Corp., the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to .75 of 1% of the Fund's average daily net assets.
Federated Global Research Corp. became the Fund's investment adviser on
September 1, 1995.
Under the terms of a sub-advisory agreement between the Adviser and Fiduciary
Trust International Limited (the "Sub-Adviser"), the Sub-Adviser received an
annual fee from the Adviser equal to .375 of 1% of the Fund's average daily net
assets. The sub-adviser rendered its resignation to the Adviser effective
December 1, 1995.
From March 15, 1994 to August 31, 1995, Federated Management served as the
Fund's investment adviser. 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 .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 the Fiduciary Trust International
Limited equal to .375 of 1% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under an
Administrative Services Agreement, provides the Fund with administrative
personnel and services. This 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
Federated International Income Fund
(formerly, International Income Fund)
- --------------------------------------------------------------------------------
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--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, Class B, and Class C shares. The Plan provides that the
Fund may incur distribution expenses according to the following schedule
annually, to compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A Shares 0.25 of 1%
Class B Shares 0.75 of 1%
Class C Shares 0.75 of 1%
</TABLE>
The distributor may voluntarily choose to waive any 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 .25 of
1% of average daily net assets of the Fund shares for the period. This fee is to
obtain certain services for shareholders and to maintain shareholder accounts.
FSS may voluntarily choose to waive any portion of its fee. FSS can modify or
terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended November 30, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 77,312,634
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 119,983,136
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
INTERNATIONAL SERIES, INC.
(Federated International Income Fund):
We have audited the accompanying statement of assets and liabilities of
Federated International Income Fund (an investment portfolio of International
Series, Inc., a Maryland corporation), including the schedule of portfolio
investments, as of November 30, 1995, and the related statement of operations
for the year then ended, the statement of changes in net asset for each of the
two years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated International Income Fund, an investment portfolio of International
Series, Inc., as of November 30, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
January 12, 1996
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. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
David M. Taylor
Treasurer
J. Crilley Kelly
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 FUNDS
WHERE EXPERTS INVEST
Federated Securities Corp. is the distributor of the fund.
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 46031P100
Cusip 46031P209
Cusip 46031P506
3010401 (1/96)
Federated International
Equity Fund
(formerly, International
Equity Fund)
12th Annual Report
November 30, 1995
Established 1984
Equity
[PHOTO]
President's Message
Dear Shareholder:
I am pleased to present the 12th Annual Report for Federated International
Equity Fund which covers the period from December 1, 1994 to November 30, 1995.
This report begins with an interview with the portfolio manager, Drew Collins,
Senior Vice President, Federated Global Research Corp. Following his interview
are three additional items of shareholder interest:
First a series of graphs indicating the fund's performance over time. These
long-term investment charts show the value of reinvesting dividends and the
benefit of a continuous investment program.
Second, we have published the fund's broadly diversified listing of
international holdings. U.S. corporations now compete in world markets and
compete with these successful international companies as the world's demand for
goods and services expands.
Third, we have published the fund's complete financial statements.
Federated International Equity Fund brings you long-term growth opportunities
through a broadly diversified list of stocks issued by companies in 26
countries. For the long-term, international stocks can be a wise complement to
investor's U.S. stock holdings because the performance of international stocks
generally do not correlate with the performance of U.S. stocks. Diversifying
internationally can enhance returns potential and may even smooth out the
fluctuations in the U.S. stock market. Simply stated, that is the purpose of
international investing.+
The lack of correlation between the performance of international stocks and the
U.S. stocks was true in the extreme during 1995. As Mr. Collins discusses,
while U.S. stocks soared, international stocks recorded weak gains. Consistent
with the weak international market, Federated International Equity Fund
produced a total return of 1.60% over the 12-month period for Class A shares
based on net asset value. Total returns based on the net asset value for the
fund's Class B and Class C shares were 0.68% and 0.69%, respectively.* At the
end of the period, the fund's net assets stood at $205.43 million.
+International investing can involve additional risks including currency risk,
increased volatility of foreign securities and differences in auditing and
other financial standards.
*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 for the
period based on offering prices for Class A, Class B and Class C shares were
- -3.99%, -4.84% and -0.29%, respectively.
One year's performance does not signify the long-term value of international
investing. As the long-term investment charts point out, investing over five
or ten years in Federated International Equity Fund has proven to be an
attractive investment for shareholders.
I would like to remind shareholders that Federated Global Research Corp.,
headquartered in New York City, is a newly formed subsidiary of Federated
Investors, and is dedicated exclusively to the management of international
investments. It is led and staffed by highly skilled professionals with a long
history of experience in the international marketplace. We are extremely
confident about the level of expertise Federated Global Research Corp. brings
to the fund.
Thank you for your participation in Federated International Equity Fund. As
Mr. Collins relates, there is reason for optimism about the international stock
markets as many countries - notably Japan - appear poised for a recovery.
Remember, reinvesting your earnings and regularly adding to your account helps
your investment grow through the benefit of compounding. This technique allows
you to buy more shares when prices are low, and build your base of shares on
which future earnings are paid.
As always, we welcome your comments and suggestions.
Sincerely,
Glen R. Johnson
President
January 15, 1996
Investment Review
[PHOTO]
Drew Collins
Senior Vice President
Federated Global
Research Corp.
Q. While the U.S. stock market soared to record levels, 1995 was a difficult
year for international stocks. What factors contributed to the flat performance
of this market?
A. The weak international market in 1995 was primarily due to the poor
performance of the Japanese equity market, which declined slightly, and
difficulties in the Mexican market, which declined approximately 28% due to the
devaluation of the peso and a major economic recession. In addition, several
emerging markets suffered similar fates. Columbia was down 28%, India dropped
33% and Venezuela retreated 28%.
Q. On September 1, 1995, Federated Global Research assumed full management
responsibility for the fund. What changes have you made in the way stocks are
selected for the fund's portfolio?
A. We've restructured the portfolio to conform with the highly disciplined
investment style that has always been the hallmark of Federated Investors and
is the guiding principle behind Federated Global Research.
We characterize this stock selection approach as seeking "growth at a
reasonable price." It contains both "top-down" and "bottom-up" elements. First,
we look at each market relative to its historical valuation in terms of
price/earnings, price/cash flow, price/book value, and dividend yield. Through
this process, we identify markets that are significantly over- or under-valued
relative to their histories. The four major markets we follow are Japan,
Europe, the Far East, and Latin America.
Next, we apply the same type of analysis to the companies within each market to
reveal those that represent potential investments for the fund. The survivors
of this process are then examined more closely by our regional portfolio
managers to determine whether they are of sufficient merit for purchase.
Q. With regards to specific securities within countries, are all stocks
approximately of equal weighting?
A. Yes. For example, if Germany comprises 10% of the portfolio, and management
likes 10 stocks in Germany, each stock will receive a 1% weight in the fund.
There are no sector requirements within countries; if no financial stocks
appear attractive in France, none will be purchased, regardless of the
weighting of financial stocks in the French market index. Another positive
consequence of our style will result in more stocks being held in the fund's
portfolio. At the end of the report period, there were 153 different stocks in
the portfolio, up from approximately 120 at the end of the second quarter. It
is anticipated that the number of stocks held could be as high as 200 or more
in the future.
Q. How are the fund's assets currently weighted among these regions?
A. Country weightings based on total net assets as of 11/30/95, were as
follows:
Japan 37.6%
United Kingdom 16.9%
Germany 6.5%
France 6.2%
Switzerland 4.9%
Netherlands 3.3%
Hong Kong 3.1%
Australia 2.7%
Malaysia 2.4%
Singapore 2.3%
Other Countries 12.0%
The Japanese weighting has risen to 37.6% recently due to a strong performance
from that market within the past several weeks. We are approaching market
weight in Japan, and we see signs that the Bank of Japan is starting to open
the monetary spigot in a more concerted fashion, which will be good for our
Japanese holdings. We have reduced our holding in Switzerland due to market
performance. The strong outperformance in the Swiss and Dutch markets during
the last several years has put the valuation of these markets on the high side
of normal, although not yet unattractive.
Q. As we enter 1996, do you see a turnaround on the horizon for international
stocks?
A. The key to performance of the international markets continues to be Japan,
which accounts for 40% of the international equity universe. We believe that
Japan is on the verge of recovering from its longest economic slowdown of the
post-war period. Following four consecutive years of near-zero economic growth,
we expect Japan's real gross domestic product to expand by roughly 2.5% in
calendar year 1996. While relatively sedate by historical standards, this would
be the fastest rate of growth the economy has seen since 1991. The markets in
the rest of Asia should perform well in this environment, with China continuing
at the present time to experience high rates of growth. The Latin American
markets should also show some signs of recovery in the coming year, while
European markets may benefit from low inflation and the potential for further
declines in interest rates. In summary, with prospects of lower rates in
Europe, a recovery in Japan, and cheap valuations in Asia and Latin America, we
are very optimistic regarding the international stocks and the fund's prospects
in 1996.
Two Ways You May Seek to Invest for Success in
Federated International Equity Fund
(formerly, International Equity Fund)
Initial Investment:
If you had made an initial investment of $12,000 in the Class A Shares of
Federated International Equity Fund on 8/17/84, reinvested dividends and
capital gains, and didn't redeem any shares, your account would have been worth
$47,380 on 11/30/95. You would have earned a 12.94%* 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 12/31/95, the Class A Shares' average annual one-year, five-year and
ten-year total returns were 0.67%, 6.08%, and 9.94%, respectively. Class B
Shares' average annual one year and since inception (9/28/94) total returns
were -0.37% and -4.99% respectively. Class C Shares' average annual one-year
and since inception (4/1/93) total returns were 4.46% and 9.43%, 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 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.
Federated International Equity Fund
(formerly, 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 $19,581.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
International Equity Fund on 8/17/84, reinvested your dividends and capital
gains and didn't redeem any shares, you would have invested only $12,000, but
your account would have reached a total value of $19,581 by 11/30/95. You would
have earned an average annual total return of 8.15%.*
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.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.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Federated International Equity Fund-
(formerly, 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 Federated International Equity Fund on 8/17/84 and-to take advantage
of dollar cost averaging-have invested $5,000 every August since.
By 11/30/95, they were pleased to see that their $65,000 investment had grown
to $118,199 for an average annual total return of 9.22%.* Gigi's already
picturing a long Mediterranean cruise to celebrate their retirement.
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.
Federated International Equity Fund-
(formerly, International Equity Fund)
Portfolio Update
SEE APPENDIX A.4
Serving A Wide Range of Investors
SEE APPENDIX A.5
Federated International Equity Fund-
(formerly, International Equity Fund)
(Class A Shares)
Growth of $10,000 Invested in
Federated International Equity Fund
(Class A Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated International Equity Fund (Class A Shares) (the "Fund") from November
30, 1985 to November 30, 1995 compared to the Morgan Stanley Capital
International Europe Australia Far-East Index (EAFE).+
SEE APPENDIX A.6
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund with no sales
charge. As of October 1, 1994, the maximum sales charge is 5.50%. The fund's
performance assumes the reinvestment of all dividends and distributions. The
EAFE has been adjusted to reflect reinvestment of dividends on securities in
the index.
**Total return quoted reflects all current sales charges.
+The EAFE is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index is
unmanaged.
Federated International Equity Fund-
(formerly, International Equity Fund)
(Class B Shares)
Growth of $10,000 Invested in
Federated International Equity Fund
(Class B Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated International Equity Fund (Class B Shares) (the "Fund") from
September 28, 1994 (start of performance) to November 30, 1995 compared to the
Morgan Stanley Capital International Europe Australia Far-East Index (EAFE).+
SEE APPENDIX A.7
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 4.75% contingent deferred sales charge on any redemption
less than 2 years from the purchase date. The maximum contingent deferred sales
charge is 5.50% on any redemption less than 1 year from the purchase date. The
Fund's performance assumes the reinvestment of all dividends and distributions.
The EAFE has been adjusted to reflect reinvestment of dividends on securities
in the index.
**Total return quoted reflects all current sales charges and contingent
deferred sales charges.
+The EAFE is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index is
unmanaged.
Federated International Equity Fund-
(formerly, International Equity Fund)
(Class C Shares)
Growth of $10,000 Invested in
Federated International Equity Fund
(Class C Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated International Equity Fund (Class C Shares) (the "Fund") from April 1,
1993 (start of performance) to November 30, 1995 compared to the Morgan Stanley
Capital International Europe Australia Far-East Index (EAFE).+
SEE APPENDIX A.8
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less than 1
year from the purchase date. The Fund's performance assumes the reinvestment of
all dividends and distributions. The EAFE has been adjusted to reflect
reinvestment of dividends on securities in the index.
**Total return quoted reflects all current sales charges and contingent
deferred sales charges.
+The EAFE is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index is
unmanaged.
Federated International Equity Fund
(formerly, International Equity Fund)
Federated International Equity Fund
(formerly, International Equity Fund)
Portfolio of Investments
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
- ------------ ---------------------------------------------------------------------------------- ---------------
COMMON STOCKS--95.1%
- ------------------------------------------------------------------------------------------------
ARGENTINA--0.4%
----------------------------------------------------------------------------------
8,100 Banco Frances del Rio de la Plata S.A., ADR $ 211,613
----------------------------------------------------------------------------------
43,300 Compania Naviera Perez Companc SA, Class B 210,089
----------------------------------------------------------------------------------
10,240 IRSA Inversiones y Representaciones S.A., GDR 222,720
----------------------------------------------------------------------------------
11,000 YPF Sociedad Anonima, ADR 214,500
---------------------------------------------------------------------------------- ---------------
Total 858,922
---------------------------------------------------------------------------------- ---------------
AUSTRALIA--2.2%
----------------------------------------------------------------------------------
210,000 Mayne Nickless Ltd. 966,305
----------------------------------------------------------------------------------
175,000 Western Mining Corporation Holdings Ltd. 1,172,814
----------------------------------------------------------------------------------
250,000 Woodside Petroleum Ltd. 1,241,280
----------------------------------------------------------------------------------
500,000 Woolworth's Ltd. 1,168,918
---------------------------------------------------------------------------------- ---------------
Total 4,549,317
---------------------------------------------------------------------------------- ---------------
FRANCE--6.2%
----------------------------------------------------------------------------------
14,100 Accor SA 1,712,173
----------------------------------------------------------------------------------
37,150 AXA 2,222,821
----------------------------------------------------------------------------------
12,000 Credit Local de France 904,599
----------------------------------------------------------------------------------
6,000 Group Danon 938,984
----------------------------------------------------------------------------------
25,000 Lafarge-Coppee 1,588,017
----------------------------------------------------------------------------------
77,000 Lagardere Groupe 1,498,187
----------------------------------------------------------------------------------
9,777 LVMH (Moet-Hennessy) 1,861,166
----------------------------------------------------------------------------------
20,930 Lyonnaise Des Eaux SA 2,004,717
---------------------------------------------------------------------------------- ---------------
Total 12,730,664
---------------------------------------------------------------------------------- ---------------
GERMANY--4.6%
----------------------------------------------------------------------------------
7,000 BASF AG 1,534,260
----------------------------------------------------------------------------------
6,400 Commerzbank AG, Frankfurt 1,480,191
----------------------------------------------------------------------------------
4,400 Kaufhof Holding AG 1,332,504
----------------------------------------------------------------------------------
2,600 Linde AG $ 1,524,442
----------------------------------------------------------------------------------
</TABLE>
Federated International Equity Fund
(formerly, International Equity Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
- ------------ ---------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
GERMANY--CONTINUED
----------------------------------------------------------------------------------
6,000 Mannesmann AG 1,931,964
----------------------------------------------------------------------------------
3,000 Siemens AG 1,567,102
---------------------------------------------------------------------------------- ---------------
Total 9,370,463
---------------------------------------------------------------------------------- ---------------
HONG KONG--3.1%
----------------------------------------------------------------------------------
1,119,000 Amoy Properties Ltd. 1,070,550
----------------------------------------------------------------------------------
15,561 First Pacific Co. 16,899
----------------------------------------------------------------------------------
619,600 Hong Kong Telecom 1,053,374
----------------------------------------------------------------------------------
71,015 HSBC Holdings 1,046,642
----------------------------------------------------------------------------------
2,522,000 Manhattan Card Co., Ltd. 1,124,888
----------------------------------------------------------------------------------
132,000 Sun Hung Kai Properties 1,062,328
----------------------------------------------------------------------------------
278,000 Television Broadcasting 1,049,477
---------------------------------------------------------------------------------- ---------------
Total 6,424,158
---------------------------------------------------------------------------------- ---------------
INDONESIA--1.8%
----------------------------------------------------------------------------------
323,600 Lippo Bank 474,736
----------------------------------------------------------------------------------
569,000 PT Astra International 1,133,764
----------------------------------------------------------------------------------
373,000 PT Hero Supermarket 735,056
----------------------------------------------------------------------------------
191,000 PT Indocement 648,237
----------------------------------------------------------------------------------
338,000 PT United Tractors 614,276
---------------------------------------------------------------------------------- ---------------
Total 3,606,069
---------------------------------------------------------------------------------- ---------------
ITALY--2.1%
----------------------------------------------------------------------------------
415,000 La Rinascente S.P.A. 2,325,206
----------------------------------------------------------------------------------
1,200,000 (a)Telecom Italia Mobile 1,936,004
---------------------------------------------------------------------------------- ---------------
Total 4,261,210
---------------------------------------------------------------------------------- ---------------
JAPAN--37.6%
----------------------------------------------------------------------------------
252,000 Asahi Chemical Industry Co. Ltd. 1,882,260
----------------------------------------------------------------------------------
113,000 Bridgestone Corp. $ 1,665,848
----------------------------------------------------------------------------------
50,000 Canon, Inc. 879,607
----------------------------------------------------------------------------------
</TABLE>
Federated International Equity Fund
(formerly, International Equity Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
- ------------ ---------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
JAPAN--CONTINUED
----------------------------------------------------------------------------------
102,000 Dai Nippon Printing Co. Ltd. 1,784,373
----------------------------------------------------------------------------------
322,000 Daimaru, Inc. 2,120,295
----------------------------------------------------------------------------------
415,000 Dainippon Ink and Chemical, Inc. 1,921,032
----------------------------------------------------------------------------------
250 DDI Corp. 2,009,828
----------------------------------------------------------------------------------
100,000 Hitachi Cable 710,565
----------------------------------------------------------------------------------
200,000 Jaccs 1,965,602
----------------------------------------------------------------------------------
100,000 (a)Japan Airlines Co. 639,803
----------------------------------------------------------------------------------
73,000 JUSCO Co. 1,750,565
----------------------------------------------------------------------------------
126,000 Kandenko Co., Ltd. 1,535,528
----------------------------------------------------------------------------------
449,000 Kawasaki Heavy Industries 2,043,115
----------------------------------------------------------------------------------
542,000 Kawasaki Steel 1,922,968
----------------------------------------------------------------------------------
78,000 Kokuyo Co. 1,678,821
----------------------------------------------------------------------------------
300,000 Kubota Corp. 1,972,482
----------------------------------------------------------------------------------
230,000 Kuraray Co. Ltd. 2,350,860
----------------------------------------------------------------------------------
30,000 Kurita Water Industries 834,398
----------------------------------------------------------------------------------
12,000 Kyocera Corp. 949,386
----------------------------------------------------------------------------------
220,000 Kyowa Hakko Kogyo Co. 2,162,162
----------------------------------------------------------------------------------
250,000 Minebea Co. 2,078,624
----------------------------------------------------------------------------------
279,000 Mitsubishi Heavy Industries 2,223,774
----------------------------------------------------------------------------------
245,000 Mitsui Marine & Fire Insurance Co. 1,649,386
----------------------------------------------------------------------------------
330,000 Nagoya Railroad Co. Ltd. 1,621,622
----------------------------------------------------------------------------------
170,000 NEC Corp. 2,171,990
----------------------------------------------------------------------------------
100,000 NGK Insulators 992,629
----------------------------------------------------------------------------------
170,000 Nichiei Construction 1,426,830
----------------------------------------------------------------------------------
280,000 Nihon Cement Co., Ltd. $ 1,854,742
----------------------------------------------------------------------------------
89,000 Nippon Electric Glass Co., Ltd. 1,653,170
----------------------------------------------------------------------------------
230,000 Nippon Express Co. Ltd. 1,995,971
----------------------------------------------------------------------------------
</TABLE>
Federated International Equity Fund
(formerly, International Equity Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
- ------------ ---------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
JAPAN--CONTINUED
----------------------------------------------------------------------------------
360,000 Nippon Sheet Glass Co. 1,606,290
----------------------------------------------------------------------------------
4 Nippon Telephone & Telegraph Corp. 32,668
----------------------------------------------------------------------------------
135,000 Nishimatsu Construction 1,618,673
----------------------------------------------------------------------------------
810,000 (a)NKK Corp. 2,228,993
----------------------------------------------------------------------------------
160,000 Sakura Bank Ltd., Tokyo 1,729,730
----------------------------------------------------------------------------------
25,000 Secom Co. 1,687,961
----------------------------------------------------------------------------------
37,000 Sega Enterprises 2,000,000
----------------------------------------------------------------------------------
132,000 Sekisui House Ltd. 1,543,784
----------------------------------------------------------------------------------
129,000 Shionogi and Co. 1,111,872
----------------------------------------------------------------------------------
35,000 Sony Music Entertainment, Inc. 1,565,111
----------------------------------------------------------------------------------
364,000 Sumitomo Chemical Co. 1,810,162
----------------------------------------------------------------------------------
532,000 Sumitomo Heavy Industries 1,694,034
----------------------------------------------------------------------------------
40,000 Takeda Chemical Industries 597,543
----------------------------------------------------------------------------------
60,000 Tokio Marine and Fire 684,029
----------------------------------------------------------------------------------
50,000 Tokyo Electron Ltd. 2,132,678
----------------------------------------------------------------------------------
60,000 Tostem Corp. 1,828,010
----------------------------------------------------------------------------------
100,000 Toto Ltd. 1,356,265
----------------------------------------------------------------------------------
80,000 Yamanouchi Pharmaceutical 1,721,867
---------------------------------------------------------------------------------- ---------------
Total 77,397,906
---------------------------------------------------------------------------------- ---------------
KOREA--2.1%
----------------------------------------------------------------------------------
26,000 Korea Electric Power Corp. 1,032,375
----------------------------------------------------------------------------------
32,300 (a)Korea Mobile Telecomm Corp., GDR 1,267,775
----------------------------------------------------------------------------------
33,000 Pohang Iron and Steel Co., Ltd., ADR 808,500
----------------------------------------------------------------------------------
5,817 (a)Samsung Electronics Co. $ 1,091,135
----------------------------------------------------------------------------------
545 Samsung Electronics Co., GDR 35,017
---------------------------------------------------------------------------------- ---------------
Total 4,234,802
---------------------------------------------------------------------------------- ---------------
</TABLE>
Federated International Equity Fund
(formerly, International Equity Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
- ------------ ---------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
MALAYSIA--2.4%
----------------------------------------------------------------------------------
122,000 Malayan Banking Berhad 966,575
----------------------------------------------------------------------------------
1,020,000 Malayan United Industries Bhd 775,956
----------------------------------------------------------------------------------
434,000 Malayawata Steel Berhad 742,436
----------------------------------------------------------------------------------
333,000 Malaysian International Shipping BHD 813,796
----------------------------------------------------------------------------------
235,000 Tenaga Nasional Berhad 879,976
----------------------------------------------------------------------------------
330,000 UMW Holdings Bhd 773,946
---------------------------------------------------------------------------------- ---------------
Total 4,952,685
---------------------------------------------------------------------------------- ---------------
MEXICO--0.4%
----------------------------------------------------------------------------------
23,000 Cemex SA, Class B, ADR 153,813
----------------------------------------------------------------------------------
15,000 Empresas ICA Sociedad Controladora S.A., ADR 153,750
----------------------------------------------------------------------------------
29,000 (a)Grupo Financiero Bancomer, S.A. de C.V., Class B, ADR 166,750
----------------------------------------------------------------------------------
5,000 Pan American Beverage, Class A 161,250
----------------------------------------------------------------------------------
21,000 Transportacion Maritima Mexicana SA , Class L, ADR 160,125
---------------------------------------------------------------------------------- ---------------
Total 795,688
---------------------------------------------------------------------------------- ---------------
NETHERLANDS--3.3%
----------------------------------------------------------------------------------
172,800 Elsevier NV 2,358,354
----------------------------------------------------------------------------------
41,500 Polygram 2,498,768
----------------------------------------------------------------------------------
55,000 Royal PTT Nederland NV 1,959,797
---------------------------------------------------------------------------------- ---------------
Total 6,816,919
---------------------------------------------------------------------------------- ---------------
NEW ZEALAND--0.4%
----------------------------------------------------------------------------------
384,274 Carter Holt Harvey 810,345
---------------------------------------------------------------------------------- ---------------
PHILIPPINES--0.0%
----------------------------------------------------------------------------------
2,933 Metro Bank and Trust Co. $ 50,125
---------------------------------------------------------------------------------- ---------------
SINGAPORE--2.3%
----------------------------------------------------------------------------------
334,000 First Capital Corp., Ltd. 899,823
----------------------------------------------------------------------------------
80,000 Fraser and Neave Ltd. 952,854
----------------------------------------------------------------------------------
460,000 Haw Par Brothers International Ltd. 991,422
----------------------------------------------------------------------------------
</TABLE>
Federated International Equity Fund
(formerly, International Equity Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
- ------------ ---------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
SINGAPORE--CONTINUED
----------------------------------------------------------------------------------
100,000 Singapore Airlines Ltd. 935,838
----------------------------------------------------------------------------------
62,000 Singapore Press Holdings Ltd. 980,220
---------------------------------------------------------------------------------- ---------------
Total 4,760,157
---------------------------------------------------------------------------------- ---------------
SPAIN--1.8%
----------------------------------------------------------------------------------
7,900 Acerinox SA 791,570
----------------------------------------------------------------------------------
50,500 Centros Comerciales Pryca, SA 983,327
----------------------------------------------------------------------------------
32,200 Repsol SA 1,014,945
----------------------------------------------------------------------------------
9,700 Zardoya-Otis SA 1,007,342
---------------------------------------------------------------------------------- ---------------
Total 3,797,184
---------------------------------------------------------------------------------- ---------------
SWEDEN--1.4%
----------------------------------------------------------------------------------
121,000 Stora Kopparbergs, Class A 1,522,767
----------------------------------------------------------------------------------
47,200 Svedala Industri 1,306,811
---------------------------------------------------------------------------------- ---------------
Total 2,829,578
---------------------------------------------------------------------------------- ---------------
SWITZERLAND--4.9%
----------------------------------------------------------------------------------
1,539 BBC Brown Boveri 1,767,461
----------------------------------------------------------------------------------
1,900 Ciba-Giegy AG-R 1,693,918
----------------------------------------------------------------------------------
16,800 CS HOLDING "R" 1,593,535
----------------------------------------------------------------------------------
1,500 Nestle SA 1,598,894
----------------------------------------------------------------------------------
242 Roche Holding AG 1,828,124
----------------------------------------------------------------------------------
5,000 Zurich Versicherungsgesellschaft 1,535,517
---------------------------------------------------------------------------------- ---------------
Total 10,017,449
---------------------------------------------------------------------------------- ---------------
TAIWAN--0.0%
----------------------------------------------------------------------------------
1,236 Tuntex Distinct Corp., GDR $ 7,829
---------------------------------------------------------------------------------- ---------------
THAILAND--1.2%
----------------------------------------------------------------------------------
120,500 Bangkok Bank 1,283,545
----------------------------------------------------------------------------------
300,000 Krung Thai Bank PLC 1,108,903
---------------------------------------------------------------------------------- ---------------
Total 2,392,448
---------------------------------------------------------------------------------- ---------------
</TABLE>
Federated International Equity Fund
(formerly, International Equity Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
- ------------ ---------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
UNITED KINGDOM--16.9%
----------------------------------------------------------------------------------
380,000 Associated British Ports Holdings PLC 1,646,356
----------------------------------------------------------------------------------
204,000 Boots Co. PLC 1,767,667
----------------------------------------------------------------------------------
353,000 BTR PLC 1,807,693
----------------------------------------------------------------------------------
280,000 Cable & Wireless 1,943,968
----------------------------------------------------------------------------------
304,578 Cadbury Schweppes 2,597,213
----------------------------------------------------------------------------------
543,000 Caradon PLC 1,633,489
----------------------------------------------------------------------------------
347,000 Chubb Security 1,718,532
----------------------------------------------------------------------------------
300,000 Compass Group 2,055,266
----------------------------------------------------------------------------------
300,000 David S. Smith (Holdings) 1,171,157
----------------------------------------------------------------------------------
282,000 Grand Metropolitan PLC 1,908,206
----------------------------------------------------------------------------------
110,000 Imperial Chemical Industries 1,279,853
----------------------------------------------------------------------------------
267,000 Rank Organisation PLC 1,684,078
----------------------------------------------------------------------------------
173,000 Reckitt & Colman PLC 1,773,171
----------------------------------------------------------------------------------
100,000 RTZ Corp. PLC 1,435,242
----------------------------------------------------------------------------------
1,165,000 Rugby Group PLC 1,908,374
----------------------------------------------------------------------------------
333,000 Scottish Power PLC 1,921,938
----------------------------------------------------------------------------------
964,000 Sedgwick Group PLC 1,778,353
----------------------------------------------------------------------------------
170,000 Smith, W.H. Group PLC 1,126,914
----------------------------------------------------------------------------------
100,000 Thorn EMI 2,384,415
----------------------------------------------------------------------------------
</TABLE>
Federated International Equity Fund
(formerly, International Equity Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<S> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
UNITED KINGDOM--CONTINUED
----------------------------------------------------------------------------------
280,000 Tomkins PLC $ 1,131,660
---------------------------------------------------------------------------------- ---------------
Total 34,673,545
---------------------------------------------------------------------------------- ---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $188,667,918) 195,337,463
---------------------------------------------------------------------------------- ---------------
PREFERRED STOCKS--2.8%
- ------------------------------------------------------------------------------------------------
AUSTRALIA--0.5%
----------------------------------------------------------------------------------
233,000 News Corp., Ltd., Pfd. 1,113,641
---------------------------------------------------------------------------------- ---------------
BRAZIL--0.4%
----------------------------------------------------------------------------------
870,000 Brasmotor S.A., Preference 182,807
----------------------------------------------------------------------------------
490,000 Cia Cervejaria Brahma, Preference 193,241
----------------------------------------------------------------------------------
1,300,000 Telecomunicacoes de Sao Paulo S.A., Preference 226,023
----------------------------------------------------------------------------------
4,000,000 Uniao de Bancos Brasileir, Pfd. 130,421
---------------------------------------------------------------------------------- ---------------
Total 732,492
---------------------------------------------------------------------------------- ---------------
GERMANY--1.9%
----------------------------------------------------------------------------------
4,300 Gea AG, Pfd. 1,367,628
----------------------------------------------------------------------------------
4,000 Henkel KGaA--Vorzug, Pfd. 1,498,997
----------------------------------------------------------------------------------
2,300 Wella AG, Pfd. 1,081,380
---------------------------------------------------------------------------------- ---------------
Total 3,948,005
---------------------------------------------------------------------------------- ---------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $5,996,296) 5,794,138
---------------------------------------------------------------------------------- ---------------
TOTAL LONG-TERM SECURITIES (IDENTIFIED COST $194,664,214) 201,131,601
---------------------------------------------------------------------------------- ---------------
(B) REPURCHASE AGREEMENT--0.3%
- ------------------------------------------------------------------------------------------------
610,000 J.P. Morgan Securities, Inc., 5.93%, dated 11/30/1995, due 12/1/1995
(at amortized cost) 610,000
---------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $195,274,214)(C) $ 201,741,601
---------------------------------------------------------------------------------- ---------------
</TABLE>
Federated International Equity Fund
(formerly, International Equity Fund)
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) The 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 funds.
(c) The cost of investments for federal tax purposes amounts to $195,368,570.
The net unrealized appreciation of investments on a federal tax basis
amounts to $6,373,031 which is comprised of $12,336,470 appreciation and
$5,963,439 depreciation at November 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($205,427,901) at November 30, 1995.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
GDR--Global Depository Receipts
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
Federated International Equity Fund
(formerly, International Equity Fund)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $195,274,214 and tax cost $195,368,570) $201,741,601
- ---------------------------------------------------------------------------------------------------
Income receivable 780,957
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 4,297,050
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 535,358
- ---------------------------------------------------------------------------------------------------
Receivable for foreign currency sold 1,661,998
- --------------------------------------------------------------------------------------------------- -----------
Total assets 209,016,964
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased $1,183,131
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 342,943
- ----------------------------------------------------------------------------------------
Payable to Bank 152,684
- ----------------------------------------------------------------------------------------
Payable for taxes withheld 59,752
- ----------------------------------------------------------------------------------------
Payable for foreign currency purchased 1,661,998
- ----------------------------------------------------------------------------------------
Accrued expenses 188,555
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 3,589,063
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 11,493,725 shares outstanding $205,427,901
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $176,665,375
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and liabilities in foreign
currency 6,427,495
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 21,471,982
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 863,049
- --------------------------------------------------------------------------------------------------- -----------
Total net assets $205,427,901
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($191,911,473 / 10,725,577 shares outstanding) $17.89
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.50 of $17.89)* $18.93
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $17.89
- --------------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($6,370,337 / 359,853 shares outstanding) $17.70
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $17.70
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $17.70)** $16.73
- --------------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($7,146,091 / 408,295 shares outstanding) $17.50
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $17.50
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $17.50)** $16.54
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "Investing in Class A Shares" in the Prospectus.
**See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Federated International Equity Fund
(formerly, International Equity Fund)
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended November 30, 1995
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $632,345) $ 3,748,236
- ---------------------------------------------------------------------------------------------------
Interest 858,935
- --------------------------------------------------------------------------------------------------- ------------
Total income 4,607,171
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee $ 2,307,680
- --------------------------------------------------------------------------------------
Administrative personnel and services fee 322,342
- --------------------------------------------------------------------------------------
Custodian fees 340,578
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 223,775
- --------------------------------------------------------------------------------------
Directors'/Trustees' fees 9,363
- --------------------------------------------------------------------------------------
Auditing fees 33,416
- --------------------------------------------------------------------------------------
Legal fees 4,198
- --------------------------------------------------------------------------------------
Portfolio accounting fees 37,204
- --------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 27,576
- --------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 57,321
- --------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 548,621
- --------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 9,192
- --------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 19,107
- --------------------------------------------------------------------------------------
Share registration costs 32,904
- --------------------------------------------------------------------------------------
Printing and postage 91,925
- --------------------------------------------------------------------------------------
Insurance premiums 7,791
- --------------------------------------------------------------------------------------
Taxes 46,417
- --------------------------------------------------------------------------------------
Miscellaneous 20,203
- -------------------------------------------------------------------------------------- -----------
Total expenses 4,139,613
- --------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares ($ 403,783)
- --------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (3,003)
- -------------------------------------------------------------------------- ----------
Total waivers (406,786)
- -------------------------------------------------------------------------------------- -----------
Net expenses 3,732,827
- --------------------------------------------------------------------------------------------------- ------------
Net investment income 874,344
- --------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 21,589,545
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency (20,374,381)
- --------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments and foreign currency transactions 1,215,164
- --------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 2,089,508
- --------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated International Equity Fund
(formerly, International Equity Fund)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income (loss) $ 874,344 $ (54,439)
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions ($21,531,956 and $14,870,196 net gain, respectively,
as computed for federal tax purposes) 21,589,545 15,659,072
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments
and translation of assets and liabilities in foreign currency (20,374,381) 7,122,265
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 2,089,508 22,726,898
- ---------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------------------------------
Class A Shares (34,372) (7,180)
- ----------------------------------------------------------------------------------
Class B Shares -- --
- ----------------------------------------------------------------------------------
Class C Shares (101) --
- ----------------------------------------------------------------------------------
Distributions in excess of net investment income:
- ----------------------------------------------------------------------------------
Class A Shares -- (803,651)
- ----------------------------------------------------------------------------------
Class C Shares -- (6,995)
- ----------------------------------------------------------------------------------
Distributions from net realized gains on investments
and foreign currency transactions:
- ----------------------------------------------------------------------------------
Class A Shares (12,398,817) --
- ----------------------------------------------------------------------------------
Class B Shares (77,839) --
- ----------------------------------------------------------------------------------
Class C Shares (431,114) --
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (12,942,243) (817,826)
- ---------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 94,560,822 158,071,765
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 62,363 324,527
- ----------------------------------------------------------------------------------
Cost of shares redeemed (149,570,774) (104,788,830)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (54,947,589) 53,607,462
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets (65,800,324) 75,516,534
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 271,228,225 195,711,691
- ---------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment
income of $863,049 and $273,080, respectively) $ 205,427,901 $ 271,228,225
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated International Equity Fund
(formerly, International Equity Fund)
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994 1993 1992 1991 1990 1989 1988
<S> <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
- -----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------
Net investment income 0.09 0.15 0.06 0.10 0.11 0.19 0.18 0.19
- -----------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.17 1.96 2.53 (0.37) 0.37 (1.16) 1.60 3.27
- ----------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.26 2.11 2.59 (0.27) 0.48 (0.97) 1.78 3.46
- -----------------------------------
LESS DISTRIBUTIONS
- -----------------------------------
Distributions from net investment
income (0.003) (0.07) (0.06) (0.08) (0.21) (0.20) (0.23) (0.23)
- -----------------------------------
Distributions in excess of net
investment income (a) -- -- (0.13) -- -- -- -- --
- ----------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions from net
investment income (0.003) (0.07) (0.19) (0.08) (0.21) (0.20) (0.23) (0.23)
- ----------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Distributions from net realized
gain on investments and foreign
currency transactions (0.90) -- -- -- (0.11) (2.14) (1.30) (5.88)
- ----------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.90) (0.07) (0.19) (0.08) (0.32) (2.34) (1.53) (6.11)
- ----------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.89 $ 18.53 $ 16.49 $ 14.09 $ 14.44 $ 14.28 $ 17.59 $ 17.34
- ----------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (B) 1.60% 12.82% 18.52% (1.86%) 3.49% (6.72%) 11.55% 24.33%
- -----------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------
Expenses 1.57% 1.61% 1.60% 1.57% 1.52% 1.32% 1.01% 1.00%
- -----------------------------------
Net investment income 0.42% -- 0.13% 0.69% 0.78% 1.39% 1.04% 1.43%
- -----------------------------------
Expense waiver/reimbursement (c) 0.18% -- 0.01% 0.02% 0.30% 0.25% 0.46% 0.28%
- -----------------------------------
SUPPLEMENTAL DATA
- -----------------------------------
Net assets, end of period (000
omitted) $191,911 $261,178 $192,860 $106,937 $101,980 $82,541 $65,560 $68,922
- -----------------------------------
Portfolio turnover 166% 73% 74% 91% 84% 114% 85% 98%
- -----------------------------------
<CAPTION>
1987 1986
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 22.87 $ 14.62
- -----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------
Net investment income 0.24 0.04
- -----------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (0.72) 8.63
- ----------------------------------- --------- ---------
Total from investment operations (0.48) 8.67
- -----------------------------------
LESS DISTRIBUTIONS
- -----------------------------------
Distributions from net investment
income (0.05) (0.08)
- -----------------------------------
Distributions in excess of net
investment income (a) -- --
- ----------------------------------- --------- ---------
Total distributions from net
investment income (0.05) (0.08)
- ----------------------------------- --------- ---------
Distributions from net realized
gain on investments and foreign
currency transactions (2.35) (0.34)
- ----------------------------------- --------- ---------
Total distributions (2.40) (0.42)
- ----------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 19.99 $ 22.87
- ----------------------------------- --------- ---------
TOTAL RETURN (B) (2.70%) 60.75%
- -----------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------
Expenses 1.00% 1.00%
- -----------------------------------
Net investment income 0.93% 0.34%
- -----------------------------------
Expense waiver/reimbursement (c) 0.17% 0.19%
- -----------------------------------
SUPPLEMENTAL DATA
- -----------------------------------
Net assets, end of period (000
omitted) $85,860 $106,257
- -----------------------------------
Portfolio turnover 130% 70%
- -----------------------------------
</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 charge or
contingent deferred sales charge, if applicable.
(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)
Federated International Equity Fund
(formerly, International Equity Fund)
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.50 $ 19.61
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income (loss) (0.08) (0.01)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.18 (1.10)
- ----------------------------------------------------------------------------------------- --------- ---------
Total from investment operations 0.10 (1.11)
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Distributions from net realized gain on investments
and foreign currency transactions (0.90) --
- ----------------------------------------------------------------------------------------- --------- ---------
Total distributions (0.90) --
- ----------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.70 $ 18.50
- ----------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN (B) 0.68% (5.27%)
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 2.52% 2.59%*
- -----------------------------------------------------------------------------------------
Net investment income (0.52%) (0.88%)*
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) -- --
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,370 $1,214
- -----------------------------------------------------------------------------------------
Portfolio turnover 166% 73%
- -----------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(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)
Federated International Equity Fund
(formerly, International Equity Fund)
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994 1993(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.30 $ 16.41 $ 14.88
- ---------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------
Net investment income (loss) (0.12) (0.05) (0.04)
- ---------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.22 1.98 1.57
- --------------------------------------------------------------------------- --------- --------- ---------
Total from investment operations 0.10 1.93 1.53
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------
Distributions from net investment income (0.001) -- --
- ---------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.04) --
- --------------------------------------------------------------------------- --------- --------- ---------
Total distributions from net investment income (0.001) (0.04) --
- --------------------------------------------------------------------------- --------- --------- ---------
Distributions from net realized gain on investments
and foreign currency transactions (0.90) -- --
- --------------------------------------------------------------------------- --------- --------- ---------
Total distributions (0.90) (0.04) --
- --------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.50 $ 18.30 $ 16.41
- --------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN (C) 0.69% 11.75% 10.28%
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------
Expenses 2.46% 2.55% 2.57%*
- ---------------------------------------------------------------------------
Net investment income (0.47%) (0.91%) (1.10%)*
- ---------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.04% -- 0.01%*
- ---------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,146 $8,836 $2,852
- ---------------------------------------------------------------------------
Portfolio turnover 166% 73% 74%
- ---------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 31, 1993 (start of business)
to November 30, 1993.
(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 charge or
contingent deferred sales charge, if applicable.
(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)
Federated International Equity Fund
(formerly, International Equity Fund)
Notes to Financial Statements
- --------------------------------------------------------------------------------
November 30, 1995
(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 Federated International Equity Fund (the "Fund"), the
diversified portfolio. The financial statements of the other portfolio are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The Fund offers three classes of shares: Class A Shares, Class B Shares and
Class C Shares.
Effective September 1, 1995, the Fund changed its name to Federated
International Equity Fund.
(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.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Equity securities are valued at the
last sale price reported on national security exchanges. Unlisted equity
securities are valued at prices provided by independent pricing services.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
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 (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
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"). Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Income 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
foreign currency transactions. As a result of these differences, the
following required reclassifications have been made to the current year
financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
<S> <C> <C>
ACCUMULATED NET UNDISTRIBUTED NET
PAID-IN CAPITAL REALIZED GAIN/LOSS INVESTMENT INCOME
$ 371,843 $ (121,942) $ (249,901)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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.
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.
CONCENTRATION OF CREDIT RISK--The Fund invests in securities of non-U.S.
issuers. Although the Fund maintains a diversified investment portfolio,
the political or economic developments within a particular country or
region may have an adverse effect on the ability of domiciled issuers to
meet their obligations. Additionally, political or economic developments
may have an effect on the liquidity and volatility of portfolio securities
and currency holdings.
At November 30, 1995, the diversification of industries was as follows:
<TABLE>
<CAPTION>
% OF
INDUSTRY NET ASSETS
<S> <C>
Appliances & Household
Durables 0.6%
Automobiles 0.8
Banking 5.4
Beverages & Tobacco 1.5
Broadcasting & Publishing 2.7
Building Materials
& Components 4.6
Business & Public Services 3.3
Chemicals 6.9
Construction & Housing 3.1
Data Processing & Reproduction 0.4
Electrical & Electronics 3.7
Energy Sources 1.2
Finance 1.5
Food & Household Products 5.0
Forest Products & Paper 1.3
Health & Personal Care 4.1
<CAPTION>
% OF
INDUSTRY NET ASSETS
<S> <C>
Industrial Components 3.5%
Insurance 3.8
Leisure & Tourism 2.7
Machinery & Engineering 8.1
Merchandising 6.5
Metals 4.0
Miscellaneous Materials
& Commodities 1.6
Multi-Industry 4.1
Non-Energy Minerals 0.8
Producer Manufacturing 0.5
Real Estate 1.6
Recreation 4.1
Telecommunications 5.1
Transportation--Airlines 0.8
Transportation--Road & Rail 2.2
Transportation--Shipping 0.5
Utilities--Electrical & Gas 1.9
</TABLE>
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 counterparties to meet the terms of their
commitments and from unanticipated movements in security prices or foreign
exchange rates. The foreign currency transactions are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the
settlement date. At November 30, 1995, the Fund had outstanding foreign
currency commitments as set forth below:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO APPRECIATION
SETTLEMENT DATA DELIVER/RECEIVE IN EXCHANGE FOR (DEPRECIATION)
<S> <C> <C> <C>
PURCHASES
12/01/95 100,613 Argentine Peso $ 100,643 $ 10
12/01/95 955,118 Hong Kong Dollar $ 123,499 (18)
SOLD
12/05/95 440,088 Pound Sterling $ 670,914 (2,827)
12/29/95 509,645,729 Italian Lira $ 318,728 34
12/29/95 411,711,150 Italian Lira $ 256,998 (455)
12/01/95 19,440,965 Japanese Yen $ 191,216 150
</TABLE>
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At November 30, 1995, par value shares ($0.0001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
POUND OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A 500,000,000
- --------------------------------------------------------------------------------------
Class B 500,000,000
- --------------------------------------------------------------------------------------
Class C 500,000,000
- -------------------------------------------------------------------------------------- --------------------------
Total 1,500,000,000
- -------------------------------------------------------------------------------------- --------------------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,975,723 $ 86,980,247 7,830,629 $ 148,658,669
- --------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 3,695 61,786 18,065 320,105
- --------------------------------------------------
Shares redeemed (8,351,087) (145,908,457) (5,447,729) (102,494,771)
- -------------------------------------------------- ----------- --------------- ------------- ---------------
Net change resulting from Class A share
transactions (3,371,669) $ (58,866,424) 2,400,965 $ 46,484,003
- -------------------------------------------------- ----------- --------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994(A)
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 320,651 $ 5,616,298 66,837 $ 1,290,771
- ----------------------------------------------------
Shares issued to shareholders in
payment of distributions declared -- -- -- --
- ----------------------------------------------------
Shares redeemed (26,432) (455,453) (1,202) (23,249)
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
Net change resulting from Class B share
transactions 294,219 $ 5,160,845 65,635 $ 1,267,522
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
</TABLE>
(a) For the period from September 19, 1994 (start of business) to November 30,
1994.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 114,724 $ 1,964,277 429,959 $ 8,122,325
- ----------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 32 577 250 4,422
- ----------------------------------------------------
Shares redeemed (189,410) (3,206,864) (120,985) (2,270,810)
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
Net change resulting from Class C share
transactions (74,654) $ (1,242,010) 309,224 $ 5,855,937
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
Net change resulting from share
transactions (3,152,104) $ (54,947,589) 2,775,824 $ 53,607,462
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Global Research Corp., the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 1.00% of the Fund's average daily net assets. Federated
Global Research Corp. became the Fund's investment adviser on September 1, 1995.
Under the terms of a sub-advisory agreement between the Adviser and Fiduciary
Trust International Limited (the "Sub-Adviser"), the Sub-Adviser received an
annual fee from the Adviser equal to .50 of 1% of the Fund's average daily net
assets. The Sub-Adviser rendered its resignation to the Adviser effective
December 1, 1995.
From March 15, 1994 to August 31, 1995, Federated Management served as the
Fund's investment adviser. 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 the Fiduciary Trust International
Limited equal to .50 of 1% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. This 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 FEE--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., 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 and Class C shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate Federated Securities Corp.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class B Shares 0.75 of 1%
- ----------------------------------------------------------------------------------------
Class C Shares 0.75 of 1%
- ----------------------------------------------------------------------------------------
</TABLE>
The distributor may voluntarily choose to waive any 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 .25 of
1% of average daily net assets of the Fund shares for the period. This fee is to
obtain certain services for shareholders and to maintain shareholder accounts.
FSS may voluntarily choose to waive any portion of its fee. FSS can modify or
terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the
period ended
November 30, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 361,043,673
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 418,142,795
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
INTERNATIONAL SERIES, INC.
(Federated International Equity Fund):
We have audited the accompanying statement of assets and liabilities of
Federated International Equity Fund (an investment portfolio of International
Series, Inc., a Maryland corporation), including the schedule of portfolio
investments, as of November 30, 1995, and the related statement of operations
for the year then ended, the statement of changes in net asset for each of the
two years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated International Equity Fund, an investment portfolio of International
Series, Inc., as of November 30, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
January 12, 1996
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. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
David M. Taylor
Treasurer
J. Crilley Kelly
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 FUNDS
WHERE EXPERTS INVEST
Federated Securities Corp. is the distributor of the fund.
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 46031P308
Cusip 46031P407
Cusip 46031P605
G00267-01 (1/96)
FEDERATED INTERNATIONAL INCOME FUND
APPENDIX B
B.1 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 lighter shaded portion represents
the value of reinvested income for the fund. The dark shaded portion
reflects the principal value of a $5,000 investment in the fund. The "x"
axis reflects computation periods from 6/4/91 to 11/30/95. The "y" axis
is measured in increments of $1,000 ranging from $0 to $8,000 and
indicates that the ending value of hypothetical initial investment of
$5,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends,would have grown to $7,725 on 11/30/95.
B.2 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 lighter shaded portion represents
the value of reinvested income for the fund. The dark shaded portion
reflects the annual investment of $1,000 in the fund. The "x" axis
reflects computation periods from 6/4/91 to 11/30/95. The "y" axis is
measured in increments of $1,000 ranging from $0 to $7,000 and indicates
that the ending value of hypothetical annual investments of $1,000 in the
fund's Class A Shares, assuming the reinvestment of capital gains and
dividends,would have grown to $7,725 on 11/30/95.
B.3 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 lighter shaded portion represents
the value of reinvested income for the fund. The dark shaded portion
reflects the initial investment of $10,000 and the annual investments of
$2,000 in the fund. The "x" axis reflects computation periods from
6/4/91 to 11/30/95. The "y" axis is measured in increments of $3,000
ranging from $0 to $27,000 and indicates that the ending value of
hypothetical initial investment of $10,00 and the annual investments of
$2,000 in the fund's Class A Shares would have grown to $25,041 on
11/30/95.
B.4 The graphic presentation here displayed consists of a two-column
chart outlining the portfolio update and is entitled "Breakdown by
Country (as of 11/30/95)." The information is as follows: Australia -
6.2%, Austria - 4.2%, Canada - 4.3%, Denmark - 5.0%, Finland - 5.9%,
France - 5.4%, Germany - 22.6%, Great Britain - 21.0%, Ireland - 4.7%,
Netherlands - 5.7%, New Zealand - 6.7%, Spain - 5.9%.
B.5 The graphic presentation here displayed consists of a two-column
chart regarding serving a wide range of investors entitled "Some of the
Fund's Major Shareholder Groups as of 11/30/95." The information is as
follows: Australia - 6.2%, Austria - 4.2%, Canada - 4.3%, Denmark - 5.0%,
Finland - 5.9%, France - 5.4%, Germany - 22.6%, Great Britain - 21.0%,
Ireland - 4.7%, Netherlands - 5.7%, New Zealand - 6.7%, Spain - 5.9%.
B.6 The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class A Shares of Federated International Income Fund are represented by
a solid line. The JP Morgan Global Government Bond Less U.S. Index
("JPMGXUS") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund and the
JPMGXUS. The "x" axis reflects computation periods from 6/4/91 to
11/30/95. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
fund's Class A Shares, as compared to the JPMGXUS; the ending values were
$15,451, $17,606, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the fund's Class A Shares Average Annual
Total Returns for the period ended 11/30/95; for the one year and since
start of performance (6/4/91) are 10.85%, and 10.19%, respectively.
B.7 The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class B Shares of Federated International Income Fund are represented by
a solid line. The JP Morgan Global Government Bond Less U.S. Index
("JPMGXUS") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund and the
JPMGXUS. The "x" axis reflects computation periods from 9/28/94 to
11/30/95. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
fund's Class A Shares, as compared to the JPMGXUS; the ending values were
$11,300, $12,016, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the fund's Class A Shares Average Annual
Total Returns for the period ended 11/30/95; for the one year and since
start of performance (9/28/94) are 9.40%, and 10.97%, respectively.
B.8 The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class C Shares of Federated International Income Fund are represented by
a solid line. The JP Morgan Global Government Bond Less U.S. Index
("JPMGXUS") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund and the
JPMGXUS. The "x" axis reflects computation periods from 4/1/93 to
11/30/95. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
fund's Class A Shares, as compared to the JPMGXUS; the ending values were
$13,586, $13,628, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the fund's Class A Shares Average Annual
Total Returns for the period ended 11/30/95; for the one year and since
start of performance (4/1/93) are 14.30%, and 12.18%, respectively.
FEDERATED INTERNATIONAL EQUITY FUND
APPENDIX A
A.1 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 lighter shaded portion represents
the value of reinvested income for the fund. The dark shaded portion
reflects the principal value of $1,000 annual investments in the fund.
The "x" axis reflects computation periods from 8/17/84 to 11/30/95. The
"y" axis is measured in increments of $3,000 ranging from $0 to $21,000
and indicates that the ending value of hypothetical annual investments of
$1,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends,would have grown to $19,581 on 11/30/95.
A.2 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 lighter shaded portion represents
the value of reinvested income for the fund. The dark shaded portion
reflects the initial investment of $10,000 and the annual investments of
$5,000 in the fund. The "x" axis reflects computation periods from
8/17/84 to 11/30/95. The "y" axis is measured in increments of $10,000
ranging from $0 to $120,000 and indicates that the ending value of
hypothetical initial investment of $10,000 and the annual investments of
$5,000 in the fund would have grown to $118,199 on 11/30/95.
A.3 The graphic presentation here displayed consists of a two-column
chart outlining the portfolio update and is entitled "Top Ten Holdings as
of 11/30/95." The information is as follows: Cadbury Schweppes - United
Kingdom $2,597,213; Polygram - Netherlands $2, 498,768; Thorn EMI -
United Kingdom $2,384,415; Elsevier NV - Netherlands $2,358,354; Kuraray
Co. Ltd. - $2,350,860; La Rinascente S.P.S. - Italy $2,325,206; NKK Corp.
- - Japan $2,228,993; Mitsubishi Heavy Industries - Japan $2,223,774; AXA -
France $2,222,821; NEC Corp. - Japan $2,171,990.
A.4 The graphic presentation here displayed consists of a two-column
chart regarding serving a wide range of investors entitled "Some of the
Fund's Major Shareholder Groups as of 11/30/95." The information is as
follows: Individual Retirement Accounts $19,862,278; Individual and Joint
Tenants $11,613,276; Trusts $2,620,287; Corporations $1,823,637;
Custodian Account (UGMA) $1,013,729.
A.5 The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class A Shares of Federated International Equity Fund are represented by
a solid line. Eastern Australia Far-East Index ("EAFE") is represented by
a broken line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in the Class A
Shares of the fund and the EAFE. The "x" axis reflects computation
periods from 11/30/85 to 11/30/95. The "y" axis reflects the cost of the
investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class A Shares, as compared to the
EAFE; the ending values were $27,920 and $36,137, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the
fund's Class A Shares Average Annual Total Returns for the period ended
11/30/95; for the one year, five year, ten year and since start of
performance (8/17/84) are -3.99%, 5.45%, 10.19% and 12.94%, respectively.
A.6 The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class B Shares of Federated International Equity Fund are represented by
a solid line. Eastern Australia Far-East Index ("EAFE") is represented by
a broken line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in the Class B
Shares of the fund and the EAFE. The "x" axis reflects computation
periods from 9/28/94 to 11/30/95. The "y" axis reflects the cost of the
investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class B Shares, as compared to the
EAFE; the ending values were $9,085, $10,581, respectively. The legend in
the bottom quadrant of the graphic presentation indicates the fund's
Class B Shares Average Annual Total Returns for the period ended
11/30/95; for the one year and since start of performance (9/28/94) are -
4.84%, and -7.84%, respectively.
A.7 The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class C Shares of Federated International Equity Fund are represented by
a solid line. Eastern Australia Far-East Index ("EAFE") is represented by
a broken line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in the Class C
Shares of the fund and the EAFE. The "x" axis reflects computation
periods from 4/1/93 to 11/30/95. The "y" axis reflects the cost of the
investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class C Shares, as compared to the
EAFE; the ending values were $12,409, $14,831, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the fund's
Class C Shares Average Annual Total Returns for the period ended
11/30/95; for the one year and since start of performance (4/1/93) are -
.29%, and 8.43%, respectively.
