[graphic]
Federated Investors
Federated
International
Equity Fund
11TH SEMI-ANNUAL REPORT
MAY 31, 1996
GROWTH
ESTABLISHED 1984
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the 11th Semi-Annual Report for Federated
International Equity Fund which covers the six-month reporting period
from December 1, 1995 through May 31, 1996. The fund was established
in 1984, and currently has assets of $207.4 million. The fund pursues
capital growth opportunities in the international arena of 25 to 30
countries.*
This report begins with an interview with the fund's 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.
* U.S. corporations now compete in world markets and compete with
international companies as the world's demand for goods and services
expands. So, we have published the fund's broadly diversified listing
of international holdings.
* Third, we have published the fund's complete financial statements.
After almost five years of less than robust performance, the
international stock market improved substantially in 1996, and kept
pace with U.S. market indices, as the fund's performance over the
six-month reporting period indicates.
<TABLE>
<CAPTION>
TOTAL RETURN INCOME CAPITAL GAINS
BASED ON NAV** DISTRIBUTIONS DISTRIBUTIONS
<S> <C> <C> <C>
Class A Shares 9.70% $0.09 $1.89
Class B Shares 9.04% $0.00 $1.89
Class C Shares 9.22% $0.00 $1.89
</TABLE>
As Drew Collins notes, we believe that the long-term international
equity outlook continues to be promising. Japan, which is a dominant
economic force in the international marketplace, appears to be
entering a period of recovery.
* 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 and is not
indicative of future results. 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 3.67%, 3.04% and 8.13%, respectively.
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.
Thank you for participating in Federated International Equity Fund. As
always, we welcome your comments and suggestions.
Sincerely,
[graphic]
Glen R. Johnson
President
July 15, 1996
INVESTMENT REVIEW
[graphic]
Drew Colins
Senior Vice President
Federated Global
Research Corp.
[graphic]
AFTER A VERY DIFFICULT 1995, INTERNATIONAL STOCKS HAVE BEGUN TO
ATTRACT INSTITUTIONAL AND INDIVIDUAL INVESTORS, AND THUS WE HAVE SEEN
GOOD MARKET PERFORMANCE EVEN IN COMPARISON TO THE U.S. STOCK MARKET.
CAN YOU COMMENT?
The performance of the international equity markets has certainly
improved since the start of 1996, although the gains of the various
stock markets have not translated directly into U.S.-dollar returns
because of the strength of the greenback. A major feature of the
international markets has been the renewed interest in the emerging
markets with Latin America, Southeast Asia, and Eastern Europe all
showing strong performances.
[graphic]
WITH 1996 IN MID-STREAM, WHAT IS YOUR OUTLOOK FOR INTERNATIONAL
STOCKS?
I have a positive outlook on international investing, and in
particular Japan. While performing strongly in local currency terms,
Japanese equities have not done as well in terms of U.S. dollars over
the last six months because the yen weakened substantially. However,
the Japanese economy is recovering strongly from its four-year slump,
with first quarter Gross Domestic Product having grown at a 5.7% rate
year-on-year and at a 12.70% annualized rate quarter-on-quarter. We
believe that this strength in the Japanese economy, combined with the
substantial improvement in the competitive position of Japanese
industry due to the weakening of the yen over the past twelve months,
will result in much higher earnings for the Japanese market over the
next two years.
[graphic]
WITH RENEWED INTEREST BY INSTITUTIONAL AND INDIVIDUAL INVESTORS, HOW
DID FEDERATED INTERNATIONAL EQUITY FUND PERFORM DURING THE SIX-MONTH
REPORTING PERIOD ENDED MAY 31, 1996? AND WHAT STRATEGIES INFLUENCED
THE FUND'S RETURN?
Federated International Equity Fund produced a six-month total return
of 9.70% for Class A shares based on net asset value. The total
returns for Class B Shares and Class C Shares based on net asset value
were 9.04% and 9.22%, respectively*. The fund was able to outperform
the Europe, Australia, and Far East Index** primarily by
underweighting the weak performing Japanese market, and overweighting
several strong performing countries in Southeast Asia, including
Malaysia, Indonesia, and Thailand. The fund's performance was also
aided by investments in the strong performing countries of Latin
America.
[graphic]
HOW WERE THE FUND'S ASSETS WEIGHTED AMONG KEY REGIONS?
Approximately 50% of the fund's assets were concentrated in Japan and
the United Kingdom, and the balance was spread across 22 other
countries. Country weightings as of May 31, 1996 based on net assets
were:
<TABLE>
<S> <C>
Japan 35.9%
United Kingdom 15.4%
Germany 6.0%
France 5.6%
Switzerland 4.4%
Hong Kong 3.4%
Netherlands 3.0%
Malaysia 2.4%
Australia 2.0%
Singapore 1.8%
Other Countries 18.3%
</TABLE>
* Performance quoted represents past performance and is not
indicative of future results. 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 3.67%, 3.04% and 8.13%, respectively.
** Europe, Australia, and Far East Index (EAFE) is a market
capitalization weighted foreign securities index, which is widely used
to measure the performance of European, Australian, New Zealand and
Far Eastern stock markets. The index covers approximately 1,020
companies drawn from 18 countries in the above regions. The index
values its securities daily in both U.S. dollars and local currency
and calculates total returns monthly. EAFE U.S. dollar total return is
a net dividend figure less Luxembourg withholding tax. The EAFE is
monitored by Capital International, S.A., Geneva, Switzerland. This
index is unmanaged, and investments cannot be made in an index.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED 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 $51,724 ON 5/31/96. YOU WOULD HAVE
EARNED A 13.24%* AVERAGE ANNUAL TOTAL RETURN FOR THE 12-YEAR
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund
shares. This increases the number of shares on which you can earn
future dividends, and you gain the benefit of compounding.
As of 6/30/96, the Class A Shares' average annual one-year, five-year
and ten-year total returns were 4.80%, 6.78%, and 7.22%, respectively.
Class B Shares' average annual one-year and since inception (9/28/94)
total returns were 3.70% and -0.40%, respectively. Class C Shares'
average annual one-year and since inception (4/1/93) total returns
were 8.88% and 9.88%, respectively.
[graphic - See Appendix]
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the
5.5% 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 EQUITY FUND
INVESTING ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 12 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $21,459.
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 $21,459* by 5/31/96. You would have earned an average annual
total return of 8.93%.
A practical investment plan helps you pursue long-term capital growth
through a diversified portfolio primarily invested in equity
securities of non-U.S. issuers. Through systematic investing, you buy
shares on a regular basis and reinvest all earnings. An investment
plan works for you when you invest only $1,000 annually. You can take
it one step at a time. Put time and compounding to work!
[graphic - See Appendix]
* No method of investing can guarantee a profit or protect against loss
in down markets. However, by investing regularly over time and buying
shares at various prices, investors can purchase more shares at lower
prices, and all accumulated shares have the ability to pay income to
the investor.
FEDERATED 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 5/31/96, they were pleased to see that their $65,000 investment had
grown to $129,451 for an average annual total return of 9.87%.* Gigi
is already picturing a long Mediterranean cruise to celebrate their
retirement.
The couple is fictional, but the figures are real.
[graphic - See Appendix]
* 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
PORTFOLIO OF INVESTMENTS
MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - 94.9%
ARGENTINA - 0.6%
8,015 Banco Frances del Rio de la Plata S.A., ADR $ 225,422
40,229 Compania Naviera Perez Companc S.A., Class B 256,764
7,744 IRSA Inversiones y Representaciones S.A., GDR 252,648
55,800 Juan Minetti SA 243,944
9,800 YPF Sociedad Anonima, ADR 215,600
Total 1,194,378
AUSTRALIA - 1.5%
68,500 Lend Lease Corp., Ltd. 1,071,594
677,500 (a)Sydney Harbour Casino Holdings, Inc. 1,022,009
189,000 Woodside Petroleum Ltd. 1,081,595
Total 3,175,198
BRAZIL - 0.3%
6,777,000 Telecomunicacoes Do Rio Janiero 706,008
138,425 Telecomunicacoes de Sao Paulo S.A., Rights 7,013
Total 713,021
CHILE - 0.5%
8,000 (a)Banco de A. Edwards, ADR 158,000
3,100 (a)Chilectra S.A., ADR 172,050
3,000 Compania Telecomunicacion Chile, ADR 182,500
6,900 (a)Santa Isabel S.A., ADR 182,850
3,200 Sociedad Quimica Y Minera De Chile, ADR 165,600
Total 861,000
COLOMBIA - 0.3%
15,500 Banco Ganadero S.A., ADR 350,687
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
COLOMBIA - CONTINUED
17,000 Banco Industrial Colombiano, ADR $ 323,000
Total 673,687
FRANCE - 5.6%
23,200 AXA 1,315,392
11,200 Accor SA 1,614,083
12,000 Credit Local de France 983,074
6,700 LVMH (Moet-Hennessy) 1,625,264
22,900 Lafarge-Coppee 1,507,914
50,000 Lagardere Groupe 1,356,998
16,400 Lyonnaise des Eaux SA 1,589,399
20,000 Schneider SA 925,428
10,400 Total SA-B 751,810
Total 11,669,362
GERMANY - 4.8%
4,000 BASF AG 1,111,402
5,000 (b)Commerzbank AG, Frankfurt 1,041,940
1,500 Hochtief AG 663,499
3,050 Kaufhof Holding AG 1,074,296
2,600 Linde AG 1,669,725
5,000 Mannesmann AG 1,734,273
17,700 Schwarz Pharma Ag 1,074,063
30,000 Siemens AG 1,682,438
Total 10,051,636
HONG KONG - 3.4%
1,119,000 Amoy Properties Ltd. 1,388,391
87,000 Cheung Kong 643,732
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
HONG KONG - CONTINUED
71,014 HSBC Holdings PLC $ 1,073,842
633,283 Hong Kong Telecom 1,174,520
908,000 Manhattan Card Co., Ltd. 437,142
132,000 Sun Hung Kai Properties 1,347,757
99,500 Swire Pacific Ltd. 884,110
Total 6,949,494
INDIA - 1.0%
20,000 (a)(b)Hindalco Industries Ltd., GDR 890,000
63,800 (a)(b)Mahindra and Mahindra , GDR 701,800
34,200 (a)(b)Steel Authority of India, GDR 487,350
Total 2,079,150
INDONESIA - 2.3%
569,000 PT Astra International 853,805
360,000 PT Citra Marga Nusaphala Persada 586,495
484,500 PT Great River Industries 540,064
543,000 PT Hero Supermarket 547,074
91,000 PT Semen Gresik 301,383
500,000 PT Steady Safe 664,523
586,000 Pab K Tjiwi Kimia 621,801
286,000 Tambang Timah 564,030
Total 4,679,175
ITALY - 2.1%
150,000 Bca Pop Di Milano 766,640
128,000 Burgo (Cartiere) S.P.A. 793,496
96,000 Imi 785,101
5,000 (a)La Rinascente S.P.A., Warrants 3,744
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
ITALY - CONTINUED
600,000 (a)Telecom Italia Mobile $ 1,282,591
103,000 (a)Unicem S.P.A. 799,313
Total 4,430,885
JAPAN - 35.9%
50,000 Asatsu, Inc. 2,050,926
58,000 Bridgestone Corp. 1,009,630
200,000 Casio Computer Co. 1,907,407
250 DDI Corp. 2,166,667
195,000 Dai Nippon Ink and Chemical, Inc. 953,333
103,000 Dai Nippon Printing Co. Ltd. 1,907,407
240,000 Hitachi Cable 2,042,222
165,000 JGC Corp. 2,108,333
150,000 Jaccs 1,359,722
150,000 Japan Radio Co. 2,111,111
72,000 Kokuyo Co. 1,926,667
190,000 Kuraray Co. Ltd. 2,163,889
27,000 Kyocera Corp. 1,850,000
100,000 Kyowa Hakko Kogyo Co. 981,481
115,000 Maeda Road Construction Co. 1,927,315
363,000 Marubeni Corp. 1,979,694
160,000 Matsuzakaya Co., Ltd. 2,000,000
200,000 Mitsubishi Electric Corp. 1,370,370
229,000 Mitsubishi Heavy Industries Ltd. 1,969,824
95,000 Mitsui Fudosan Co. 1,205,093
125,000 Mitsui Marine & Fire Insurance Co. 966,435
652,000 (a)NKK Corp. 1,907,704
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
JAPAN - CONTINUED
165,000 Nichiei Construction $ 1,909,722
270,000 Nihon Cement Co., Ltd. 1,972,500
170,000 Nippon Comsys Corp. 2,172,222
60,000 Nippon Electric Glass Co., Ltd. 1,044,444
380,000 Nippon Sheet Glass Co. 1,819,074
315,000 Nippon Zeon Co. 1,901,667
130,000 Nitto Denko Corp. 2,130,556
88,000 Nomura Securities Co. Ltd. 1,662,222
530,000 Renown Inc. 2,178,889
325,000 Sanyo Electric Co. 1,934,954
141,000 Sumitomo Trust & Banking 1,958,333
130,000 Takashimaya Co. 2,118,519
152,000 Tokio Marine and Fire Insurance Co. 1,970,370
350,000 Tokyo Tatemono Co., Ltd. 2,200,463
242,000 Toshiba Corp. 1,682,796
183,000 Toyoda Machine Works 2,033,333
195,000 Wako Securities Co., Ltd. 1,603,333
25,200 Xebio Co. Ltd. 940,333
60,000 Yamanouchi Pharmaceutical 1,294,444
110,000 Yamatake-Honeywell 1,965,741
Total 74,359,145
KOREA - 2.3%
35,100 Kookmin Bank 686,008
21,700 Korea Electric Power Corp. 831,703
58,000 Korea Exchange Bank 758,170
27,000 (a)Korea Housing Bank 762,473
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
KOREA - CONTINUED
28,700 (a)Korea Mobile Telecomm Corp., GDR $ 1,650,250
166 (a)Samsung Electronics Co. 14,536
50 (a)Samsung Electronics Co. 4,366
15 (a)(b)Samsung Electronics Co., GDR 767
Total 4,708,273
MALAYSIA - 2.4%
429,000 Eastern and Oriental Berhad 910,755
84,000 Malayan Banking Berhad 797,436
222,000 Malaysian Pacific Industries 915,922
237,000 (a)Technology Resources Industries Bhd 787,943
200,000 Tenaga Nasional Berhad 849,189
229,000 UMW Holdings Bhd 752,173
Total 5,013,418
MEXICO - 1.3%
44,700 Cemex SA, Class B, ADR 364,584
268,000 (a)Cifra SA de CV, Class B 400,059
28,400 Empresas ICA Sociedad Controladora S.A., ADR 408,250
140,000 Fomento Economico Mexicano, SA de C.V., Class B 414,011
42,800 (a)(b)Grupo Financiero Bancomer, S.A. de C.V., Class B, ADR 392,309
8,600 Pan American Beverage, Class A 361,200
10,900 Telefonos de Mexico, Class L, ADR 359,700
Total 2,700,113
NETHERLANDS - 3.0%
68,000 Elsevier NV 1,055,344
14,555 International Nederlanden 1,198,497
27,711 Koninklijke PTT Nederland NV 1,002,934
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
NETHERLANDS - CONTINUED
35,000 PolyGram NV $ 2,049,780
9,002 Wolters Kluwer NV 1,006,432
Total 6,312,987
PAKISTAN - 0.4%
230,000 (a)Faysal Bank 226,396
12,000 (a)Hub Power Co., GDR 306,000
90,000 PEL Appliances Ltd. 196,579
Total 728,975
PHILIPPINES - 1.0%
1,903,600 (a)Aboitiz Equity Ventures, Inc. 385,374
1,344,900 (a)Filinvest Land, Inc. 539,398
651,000 (a)Marsman & Company 348,128
1,627,000 Metro Pacific Corp. 435,027
30,200 (a)Philippine Commercial International Bank 389,324
Total 2,097,251
SINGAPORE - 1.8%
347,000 Hotel Properties Ltd. 613,440
210,000 Parkway Holdings Ltd. 611,289
64,000 Singapore Airlines Ltd. 658,857
31,000 Singapore Press Holdings Ltd. 581,044
184,000 Straits Steamship Land Ltd. 593,085
69,750 (a)Straits Steamship Land Ltd., Warrants 90,623
58,000 United Overseas Bank Ltd. 527,086
Total 3,675,424
SPAIN - 1.7%
7,900 Acerinox SA 871,877
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
SPAIN - CONTINUED
40,000 Centros Comerciales Pryca, SA $ 940,427
28,000 Repsol SA 957,525
8,000 Zardoya-Otis SA 795,243
Total 3,565,072
SWEDEN - 1.9%
12,500 Astra AB, Class A 572,131
121,000 Stora Kopparbergs, Class A 1,611,941
94,400 Svedala Industri 1,812,601
Total 3,996,673
SWITZERLAND - 4.4%
740 BBC Brown Boveri 884,571
9,400 CS Holding AG 811,187
1,900 Ciba-Giegy AG 2,090,531
820 Nestle SA 923,851
10,000 (a)Oerlikon-Buhrle Holding AG 1,038,753
195 Roche Holding AG 1,495,805
950 Sandoz AG 985,298
3,200 Zurich Versicherungsgesellschaft 843,787
Total 9,073,783
THAILAND - 1.0%
19,800 Advanced Information Services 326,795
29,400 Bangkok Bank Public Co., Ltd. 427,197
104,100 (a)Industrial Finance Corporation of Thailand 468,586
78,900 Krung Thai Bank PLC 401,883
34,300 (a)PTT Exploration and Production Public Co. 511,940
Total 2,136,401
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
UNITED KINGDOM - 15.4%
154,000 Associated British Ports Holdings PLC $ 681,342
300,000 BTR PLC 1,306,369
60,000 Barclays PLC 698,280
50,000 Boc Group PLC 720,595
80,000 Boots Co. PLC 756,237
86,000 British Petroleum Co. PLC 739,656
340,000 Bunzl PLC 1,238,184
211,897 Cable & Wireless 1,461,245
85,822 Cadbury Schweppes PLC 643,698
190,000 Caradon PLC 684,565
150,000 Carlton Communications PLC 1,123,896
126,000 Chubb Security 675,593
103,600 Compass Group 927,953
152,757 David S. Smith (Holdings) PLC 705,433
126,000 General Electric Co. PLC 726,360
113,038 Grand Metropolitan PLC 763,747
52,000 Imperial Chemical Industries PLC 684,953
180,000 Inchcape PLC 847,978
120,000 Peninsular & Oriental Steam Navigation Co. 974,431
41,614 RTZ Corp. PLC 648,103
100,000 Rank Organisation PLC 792,655
110,000 Reckitt & Colman PLC 1,179,180
67,000 Reuters Holdings PLC 778,708
500,000 Rugby Group PLC 925,926
160,000 Sainsbury PLC 983,109
127,000 Scottish Power PLC 624,864
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS - CONTINUED
UNITED KINGDOM - CONTINUED
630,000 Sedgwick Group PLC $ 1,454,672
55,000 Shell Transport & Trading Co. 785,836
114,000 Smith, W.H. Group PLC 800,279
121,000 Sun Alliance Group PLC 746,289
100,000 Thorn EMI 2,786,301
280,000 Tomkins PLC 1,108,632
300,000 Vodafone Group PLC 1,187,820
37,000 Zeneca Group 784,379
Total 31,947,268
TOTAL COMMON STOCKS (IDENTIFIED COST $177,617,890 ) 196,791,769
PREFERRED STOCKS - 3.3%
AUSTRALIA - 0.5%
233,000 News Corp., Ltd., Pfd. 1,136,268
BRAZIL - 1.6%
1,577,000 Banco Itau S.A., Preference 638,983
1,140,000 Cia Cervejaria Brahma, Preference 679,455
3,230,000 (a)Telecomunicacoes de Sao Paulo S.A., Preference 682,691
27,400,000 Uniao de Bancos Brasileir, Pfd. 741,060
494,900,000 Usinas Siderurgicas de Minas Gerais, Pfd. 540,360
Total 3,282,549
GERMANY - 1.2%
3,000 Henkel KGAA, Vorzugsaktien 1,261,140
2,300 Wella AG, Vorzugsaktien 1,240,433
Total 2,501,573
TOTAL PREFERRED STOCKS (IDENTIFIED COST $6,005,595) 6,920,390
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
(c)REPURCHASE AGREEMENT - 0.8%
1,595,000 BT Securities Corporation, 5.34%, dated 5/31/1996, due 6/3/1996
(AT AMORTIZED COST) $ 1,595,000
TOTAL INVESTMENTS (IDENTIFIED COST $185,218,485)(D) $ 205,307,159
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on
resale under Federal Securities laws. At May 31, 1996, these
securities amounted to $3,514,166 which represents 1.7% of net assets.
(c) 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 a joint account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to
$185,218,485. The net unrealized appreciation of investments on a
federal tax basis amounts to $20,088,674 which is comprised of
$23,999,401 appreciation and $3,910,727 depreciation at May 31, 1996.
Note: The categories of investments are shown as a percentage of net
assets ($207,358,583) at May 31, 1996.
The following acronyms are used throughout this portfolio:
ADR - American Depositary Receipt
GDR - Global Depository Receipts
PLC - Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost
$185,218,485) $ 205,307,159
Cash denominated in foreign currencies (at cost, $59,504) 59,778
Receivable for investments sold 2,085,845
Income receivable 1,224,024
Receivable for shares sold 458,514
Total assets 209,135,320
LIABILITIES:
Payable for investments purchased $ 1,246,784
Payable to Bank 207,230
Payable for foreign taxes withheld 113,279
Payable for shares redeemed 56,424
Net receivable for forward foreign currency exchange contracts
purchased and sold 1,623
Accrued expenses 151,397
Total liabilities 1,776,737
Net Assets for 11,876,044 shares outstanding $ 207,358,583
NET ASSETS CONSIST OF:
Paid in capital $ 182,738,133
Net unrealized appreciation of investments and translation of assets
and
liabilities in foreign currency 20,080,554
Accumulated net realized gain on investments and foreign currency
transactions 4,817,880
Distributions in excess of net investment income (277,984)
Total Net Assets $ 207,358,583
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($185,899,802 / 10,628,365 shares
outstanding) $17.49
Offering Price Per Share (100/94.50 of $17.49)* $18.51
Redemption Proceeds Per Share $17.49
CLASS B SHARES:
Net Asset Value Per Share ($13,258,359 / 767,688 shares outstanding)
$17.27
Offering Price Per Share $17.27
Redemption Proceeds Per Share (94.50/100 of $17.27)** $16.32
CLASS C SHARES:
Net Asset Value Per Share ($8,200,422 / 479,991 shares outstanding)
$17.08
Offering Price Per Share $17.08
Redemption Proceeds Per Share (99.00/100 of $17.08)** $16.91
</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
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $538,429) $ 1,455,722
Interest 55,228
Total income 1,510,950
EXPENSES:
Investment advisory fee $ 995,755
Administrative personnel and services fee 140,508
Custodian fees 159,847
Transfer and dividend disbursing agent fees and expenses 120,603
Directors'/Trustees' fees 4,453
Auditing fees 15,226
Legal fees 5,185
Portfolio accounting fees 42,265
Distribution services fee - Class B Shares 35,968
Distribution services fee - Class C Shares 29,052
Shareholder services fee - Class A Shares 227,266
Shareholder services fee - Class B Shares 11,989
Shareholder services fee - Class C Shares 9,684
Share registration costs 20,435
Printing and postage 36,358
Insurance premiums 4,026
Taxes 26,169
Miscellaneous 6,600
Total expenses 1,891,389
Waivers -
Waiver of shareholder services fee - Class A Shares (157,806)
Waiver of shareholder services fee - Class C Shares (1,101)
Total waivers (158,907)
Net expenses 1,732,482
Net operating loss (221,532)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency transactions 4,833,218
Net change in unrealized appreciation of investments and translation
of assets and liabilities in foreign currency 13,653,059
Net realized and unrealized gain on investments and foreign currency 18,486,277
Change in net assets resulting from operations $ 18,264,745
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS -
Net investment income/(operating loss) $ (221,532) $ 874,344
Net realized gain (loss) on investments and foreign currency
transactions ($4,833,218 and $21,531,956, net gains respectively, as
computed for federal tax purposes) 4,833,218 21,589,545
Net change in unrealized appreciation (depreciation) of investments
and translation of assets and liabilities in foreign currency 13,653,059 (20,374,381)
Change in net assets resulting from operations 18,264,745 2,089,508
DISTRIBUTIONS TO SHAREHOLDERS -
Distributions from net investment income
Class A Shares (919,346) (34,372)
Class B Shares - -
Class C Shares (155) (101)
Distributions from net realized gains on investments and foreign
currency transactions
Class A Shares (19,980,524) (12,398,817)
Class B Shares (726,598) (77,839)
Class C Shares (780,198) (431,114)
Change in net assets resulting from distributions to shareholders (22,406,821) (12,942,243)
SHARE TRANSACTIONS -
Proceeds from sale of shares 80,280,115 94,560,822
Net asset value of shares issued to shareholders in payment of
distributions declared 12,139,655 62,363
Cost of shares redeemed (86,347,012) (149,570,774)
Change in net assets resulting from share transactions 6,072,758 (54,947,589)
Change in net assets 1,930,682 (65,800,324)
NET ASSETS:
Beginning of period 205,427,901 271,228,225
End of period (including undistributed net investment income of
$0 and $863,049, respectively) $ 207,358,583 $ 205,427,901
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $17.89 $18.53 $16.49 $14.09 $14.44 $14.28 $17.59 $17.34 $19.99 $22.87
INCOME FROM
INVESTMENT OPERATIONS
Net investment income/
(net operating loss) (0.01) 0.09 0.15 0.06 0.10 0.11 0.19 0.18 0.19 0.24
Net realized and
unrealized gain
(loss) on investments
and foreign currency 1.59 0.17 1.96 2.53 (0.37) 0.37 (1.16) 1.60 3.27 (0.72)
Total from
investment operations 1.58 0.26 2.11 2.59 (0.27) 0.48 (0.97) 1.78 3.46 (0.48)
LESS DISTRIBUTIONS
Distributions from
net investment income (0.09) (0.003) (0.07) (0.06) (0.08) (0.21) (0.20) (0.23) (0.23) (0.05)
Distributions in
excess of net
investment income(a) - - - (0.13) - - - - - -
Total distributions
from net investment
income (0.09) (0.003) (0.07) (0.19) (0.08) (0.21) (0.20) (0.23) (0.23) (0.05)
Distributions from
net realized gain on
investments and
foreign currency
transactions (1.89) (0.90) - - - (0.11) (2.14) (1.30) (5.88) (2.35)
Total distributions
from net realized
gain on investments
and foreign currency
transactions - (0.90) - - - (0.11) (2.14) (1.30) (5.88) (2.35)
Total distributions (1.98) (0.90) (0.07) (0.19) (0.08) (0.32) (2.34) (1.53) (6.11) (2.40)
NET ASSET VALUE,
END OF PERIOD $17.49 $17.89 $18.53 $16.49 $14.09 $14.44 $14.28 $17.59 $17.34 $19.99
TOTAL RETURN(B) 9.70% 1.60% 12.82% 18.52% (1.86%) 3.49% (6.72%) 11.55% 24.33% (2.70%)
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.66%* 1.57% 1.61% 1.60% 1.57% 1.52% 1.32% 1.01% 1.00% 1.00%
Net investment
income/(net operating
loss) (0.15%)* 0.42% - 0.13% 0.69% 0.78% 1.39% 1.04% 1.43% 0.93%
Expense waiver/
reimbursement(c) 0.17%* 0.18% - 0.01% 0.02% 0.30% 0.25% 0.46% 0.28% 0.17%
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $185,900 $191,911 $261,178 $192,860 $106,937 $101,980 $82,541 $65,560 $68,922 $85,860
Average commission
rate paid $0.0015 - - - - - - - - -
Portfolio turnover 59% 166% 73% 74% 91% 84% 114% 85% 98% 130%
</TABLE>
* Computed on an annualized basis.
(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
FINANCIAL HIGHLIGHTS - CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $17.70 $18.50 $19.61
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.04) (0.08) (0.01)
Net realized and unrealized gain
(loss) on investments and
foreign currency 1.50 0.18 (1.10)
Total from investment operations 1.46 0.10 (1.11)
LESS DISTRIBUTIONS
Distributions from net realized gain
on investments and foreign currency
transactions (1.89) (0.90) -
NET ASSET VALUE, END OF PERIOD $17.27 $17.70 $18.50
TOTAL RETURN(B) 9.04% 0.68% (5.27%)
RATIOS TO AVERAGE NET ASSETS
Expenses 2.59%* 2.52% 2.59%*
Net operating loss (1.02%)* (0.52%) (0.88%)*
Expense waiver/reimbursement(c) - - -
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $13,258 $6,370 $1,214
Average commission rate paid $0.0015 - -
Portfolio turnover 59% 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
FINANCIAL HIGHLIGHTS - CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $17.50 $18.30 $16.41 $14.88
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.05) (0.12) (0.05) (0.04)
Net realized and unrealized gain
(loss) on investments
and foreign currency 1.52 0.22 1.98 1.57
Total from investment operations 1.47 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 (1.89) (0.90) - -
Total distributions (1.89) (0.90) (0.04) -
NET ASSET VALUE, END OF PERIOD $17.08 $17.50 $18.30 $16.41
TOTAL RETURN(C) 9.22% 0.69% 11.75% 10.28%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.56%* 2.46% 2.55% 2.57%*
Net operating loss (1.03%)* (0.47%) (0.91%) (1.10%)*
Expense waiver/reimbursement(d) 0.03%* 0.04% - 0.01%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,200 $7,146 $8,836 $2,852
Average commission rate paid $0.0015 - - -
Portfolio turnover 59% 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
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 (UNAUDITED)
1. ORGANIZATION
International Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of two
portfolios. The financial statements included herein are only those of
Federated International Equity Fund (the "Fund"), a 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's objective is to obtain a total return on its
assets.
The Fund offers three classes of shares: Class A Shares, Class B
Shares and Class C Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS - Listed equity foreign securities are valued at
the last sale price reported on a national securities exchange.
Short-term securities are valued at the prices provided by an
independent pricing service. However, 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.
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. Certain dividends
from foreign securities may be recorded after the ex-dividend date
based upon when information becomes available to the Fund.
FEDERATED INTERNATIONAL EQUITY FUND
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. 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.
FEDERATED INTERNATIONAL EQUITY FUND
At May 31, 1996, the diversification of industries was as follows:
<TABLE>
<CAPTION>
% OF NET % OF NET
INDUSTRY ASSETS INDUSTRY ASSETS
<S> <C> <S> <C>
Appliances & Household Durables 0.10% Machinery & Engineering 6.21%
Automobile 0.75% Merchandising 3.71%
Banking 7.68% Metals - Non-Ferrous 0.82%
Beverage & Tobacco 1.49% Metals - Steel 1.84%
Broadcasting & Publishing 2.81% Mining 0.27%
Building Materials & Components 2.95% Miscellaneous Materials &
Business & Public Services 2.88% Commodities 0.33%
Chemicals 4.18% Multi-Industry 3.82%
Construction & Housing 3.41% Pharmaceuticals 0.52%
Electrical & Electronics 6.04% Real Estate 5.53%
Electronic Components, Instruments 3.65% Recreation, Other Consumer
Energy Equipment & Services 0.08% Goods 2.33%
Energy Sources 1.95% Telecommunications 6.26%
Financial Services 3.25% Textiles & Apparel 1.76%
Food & Household Products 3.32% Transportation 1.39%
Forest Products & Paper 2.40% Unassigned 2.73%
Health & Personal Care 3.30% Utilities - Electrical & Gas 1.74%
Industrial Components 1.98% Wholesale & International
Insurance 3.52% Trade 1.36%
Leisure & Tourism 2.64%
</TABLE>
FOREIGN EXCHANGE CONTRACTS - The Fund may enter into foreign currency
exchange contracts as a way of managing foreign exchange rate risk.
The Fund may enter into these contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge
or cross-hedge against either specific transactions or portfolio
positions. The objective of the Fund's foreign currency hedging
transactions is to reduce the risk that the U.S. dollar value of the
Fund's foreign currency denominated securities will decline in value
due to changes in foreign currency exchange rates. All foreign
currency exchange contracts are "marked-to-market" daily at the
applicable translation rates resulting in unrealized gains or losses.
Realized gains or losses are recorded at the time the foreign currency
exchange contract is offset by entering into a closing transaction or
by delivery or receipt of the currency. Risks may arise upon entering
into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.
FEDERATED INTERNATIONAL EQUITY FUND
At May 31, 1996, the Fund had outstanding foreign currency exchange
contracts as set forth below:
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT CONTRACTS TO IN EXCHANGE CONTRACTS AT APPRECIATION
CONTRACTS SOLD DATE DELIVER/RECEIVE FOR VALUE (DEPRECIATION)
<S> <S> <C> <C> <C> <C>
Deutsche Mark 06/03/96 55,941 $ 36,432 $ 36,659 ($227)
Indonesian Rupiah 06/04/96-
06/06/96 1,293,731,425 555,168 554,654 514
Italian Lira 06/05/96 297,234,314 191,270 192,540 (1,270)
Japanese Yen 06/03/96 899,300 8,337 8,327 10
Philippine Peso 06/03/96 54,911 2,093 2,098 (5)
Singapore Dollar 06/03/96 2,294 1,627 1,629 (2)
Thailand Baht 06/03/96 163,526 6,455 6,457 (2)
Total $ 801,382 $ 802,364 ($982)
CONTRACTS PURCHASED
Philippine Peso 06/03/96 10,981,535 $ 420,104 $ 419,463 ($641)
</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 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.
FEDERATED INTERNATIONAL EQUITY FUND
RESTRICTED SECURITIES - Restricted securities are securities that may
only be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer
of restricted securities has agreed to register such securities for
resale, at the issuer's expense either upon demand by the Fund or in
connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may
be determined to be liquid under criteria established by the Board of
Directors. The Fund will not incur any registration costs upon such
resales. The Fund's restricted securities are valued at the price
provided by dealers in the secondary market or, if no market prices
are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at May 31,
1996 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Commerzbank AG, Frankfurt 11/17/1995 $ 1,143,844
Hindalco Industries Ltd. 1/22/1996 605,000
Mahindra and Mahindra 1/22/1996-2/2/1996 478,600
Steel Authority of India 4/23/1996 534,942
Samsung Electronics Co. 3/14/1996 -
Grupo Financiero Bancomer,
S.A. de C.V. 11/7/1995-12/1/1995 205,726
</TABLE>
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those
estimated.
OTHER - Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1996, par value shares ($0.0001 per share) authorized were
as follows:
<TABLE>
<CAPTION>
# 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>
FEDERATED INTERNATIONAL EQUITY FUND
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,197,442 $ 71,346,048 4,975,723 $ 86,980,247
Shares issued to shareholders
in payment of distributions
declared 679,654 11,010,512 3,695 61,786
Shares redeemed (4,974,308) (84,298,079) (8,351,087) (145,908,457)
Net change resulting
from Class A share
transactions (97,212) $ (1,941,519) (3,371,669) $ (58,866,424)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 405,741 $ 6,850,900 320,651 $ 5,616,298
Shares issued to shareholders in
payment of distributions declared 40,399 649,617 - -
Shares redeemed (38,305) (646,646) (26,432) (455,453)
Net change resulting from
Class B share
transactions 407,835 $ 6,853,871 294,219 $ 5,160,845
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 125,890 $ 2,083,167 114,724 $ 1,964,277
Shares issued to
shareholders in payment of
distributions declared 30,197 479,526 32 577
Shares redeemed (84,391) (1,402,287) (189,410) (3,206,864)
Net change resulting from
Class C share
transactions 71,696 $ 1,160,406 (74,654) $ (1,242,010)
Net change resulting from Fund
share transactions 382,319 $ 6,072,758 (3,152,104) $ (54,947,589)
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
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
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 Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ 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.("FSC"),
the principal distributor, from the net assets of the Fund to finance
activities intended to result in the sale of the Fund's Class B Shares
and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
SHAREHOLDER SERVICES FEE - Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will
pay FSS up to 0.25% of average daily net assets of the Fund shares for
the period. The fee paid to FSS is used to finance 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 AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES - FServ,
through its subsidiary, Federated Shareholder Services Company
("FSSC")serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC 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 Fund are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended May 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 115,890,145
SALES $ 132,151,294
</TABLE>
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President and Secretary
Richard B. Fisher
Vice President
David M. Taylor
Treasurer
J. Crilley Kelly
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are
they insured by the federal government or any of its agencies.
Investment in these shares involves risk, including the possible loss
of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the Fund's prospectus, which
contains facts concerning its objective and policies, management fees,
expenses and other information.
[Graphic]
Since 1955
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 46031P308
Cusip 46031P407
Cusip 46031P605
8070112 (7/96)
[Graphic]
[Graphic]
Federated Investors
Federated
International
Income Fund
5th SEMI-ANNUAL REPORT
MAY 31, 1996
ESTABLISHED 1991
INCOME
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
I am pleased to present the 5th Semi-Annual Report for Federated
International Income Fund which covers the six-month reporting period from
December 1, 1995 through May 31, 1996. The fund was established in 1991, has
assets of $192.6 million, and seeks a high level of current income from
international bonds.*
This report begins with an interview with the fund's 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 quarterly
dividends and the benefit of a continuous investment program.
* Second, a complete listing of the fund's bond holdings which produce
income from a diversified portfolio of 27 high-quality, international bonds
issued by foreign countries.
* Third, we have published the fund's complete financial statements.
Bond managers enjoyed 1995 as interest rates declined and bond prices rose.
However, the international bond market weakened during the past six months.
In particular, interest rates in the U.S., rising in anticipation of
inflation, depressed the value of international bond issues. While its total
return mirrored that of the overall market, the fund delivered a strong
income stream, as shown below.
<TABLE>
<CAPTION>
TOTAL RETURN INCOME
BASED ON NAV** DISTRIBUTIONS
<S> <C> <C>
Class A Shares 1.00% $0.51
Class B Shares 0.73% $0.47
Class C Shares 0.69% $0.47
</TABLE>
I suggest that you consider adding to your account and reinvesting your
earnings. In this manner, you can build your account and enjoy the benefit
of compounding your quarterly dividends in additional shares.
* 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 and is not indicative of
future results. 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 -3.58%, -4.78%,
and -0.32%, respectively.
Thank you for participating in the performance potential of high-quality,
international bonds through this fund. As always, we welcome your comments
and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
July 15, 1996
INVESTMENT REVIEW
[Graphic]
Robert Kowit
Vice President
Federated Global
Research Corp.
[Graphic]
HOW DID THE INTERNATIONAL BOND MARKETS PERFORM OVER THE SIX-MONTH REPORTING
PERIOD? WAS THERE MUCH CORRELATION AMONG INDIVIDUAL COUNTRIES?
After a relatively strong 1995, the international bond market, as
represented by the JP Morgan Non-U.S. Government Bond Index showed a small
negative total return of -1.70% for the six-month reporting period ended May
31, 1996. However, the U.S. bond market, as measured by the JP Morgan
Government Bond Index, returned -2.57%.*
There was a wide range of returns, as measured by JP Morgan in U.S. dollars,
among countries with very little correlation. For example, Italy and
Australia returns were highly positive--up 12.08% and 7.77%, respectively.
In contrast, Germany and Holland were down -5.41% and -5.34%, respectively.
[Graphic]
IN THIS ENVIRONMENT, HOW DID FEDERATED INTERNATIONAL INCOME FUND PERFORM
OVER THE SIX-MONTH REPORTING PERIOD ENDED MAY 31, 1996?
In general, the fund's performance over the six-month reporting period was
somewhat better than that of international bonds overall. Total return based
on net asset value for the fund's Class A Shares was 1.00%. Long-term, the
fund has achieved an annualized total return of 10.35% based on net asset
value for Class A Shares since its inception on June 4, 1991 through May 31,
1996.**
* The JP Morgan Non-U.S. Government Bond Index is a market
capitalization-weighted index consisting of the government bond markets of
the following countries: Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, The Netherlands, Spain, and Sweden. This Index
excludes the United States market. The JP Morgan Global Government Bond
Index is a market capitalization-weighted index consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy,
Japan, The Netherlands, Spain, Sweden, the United Kingdom and United States
(collectively the "JPMGGB Countries"). Issue and country eligibility are
based on market capitalization and investability criteria. All issues have a
remaining maturity of at least one year, and the index is rebalanced
monthly. These indices are unmanaged, and actual investments cannot be made
in an index.
** Performance represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so when
shares are redeemed, they may be worth more or less than the original cost.
On May 31, 1996, the Class A Shares' one-year and since inception total
returns based on offering price were 0.34%, and 9.33%, respectively. The
one-year and since inception (9/28/94) total returns based on offering
price for Class B Shares were -1.31% and 7.93%, respectively. The one-year
and since inception (4/1/93) total returns based on offering price for
Class C Shares were 3.32% and 10.40%, respectively.
[Graphic]
WHAT WAS THE COUNTRY ALLOCATION FOR THE FUND AS OF MAY 31, 1996?
Half of the fund's holdings were concentrated among Germany, the United
Kingdom, Canada, and Denmark, and the balance was spread across nine other
countries based on net assets as indicated below:
<TABLE>
<S> <C> <S> <C>
Germany 15.1% New Zealand 6.0%
United Kingdom 13.0% France 5.0%
Denmark 9.6% Ireland 4.6%
Canada 9.5% Sweden 4.1%
Italy 7.4% Finland 4.0%
Spain 6.4% Norway 2.7%
Australia 6.2%
</TABLE>
[Graphic]
WHERE DO YOU SEE OPPORTUNITY IN THE INTERNATIONAL BOND MARKET, AND WHAT IS
YOUR STRATEGY FOR THE FUND FOR THE BALANCE OF 1996?
Almost all European countries are still struggling through the trough of
their recessions with double-digit unemployment and low growth. Short-term
interest rates may still be cut one or two more times, but the value remains
in 10-year bonds. Even after the recent rise in U.S. interest rates, the
U.S. yield curve has a 180 basis point spread between 3-month and 10-year
securities, while the average difference between those maturities for the
rest of the world is more than 300 basis points.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED INTERNATIONAL INCOME FUND
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $5,000 IN THE CLASS A SHARES OF
FEDERATED INTERNATIONAL INCOME FUND ON 6/4/91, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN
WORTH $7,801 ON 5/31/96. YOU WOULD HAVE EARNED A 9.33%* AVERAGE ANNUAL TOTAL
RETURN FOR THE FIVE-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 benefits of compounding.
As of 6/30/96, the Class A Shares' average annual one-year, five-year and
since inception (6/4/91) total returns were 1.92%, 9.55%, and 9.45%,
respectively. Class B Shares' average annual one-year and since inception
(9/28/94) total returns were 0.24% and 8.28%, respectively. Class C Shares'
average annual one-year and since inception (4/1/93) total returns were
4.94% and 10.53%, respectively.
[Graphic - See Appendix]
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.5%
sales charge applicable to an initial investment in Class A Shares.
Data quoted 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
INVESTING ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR FIVE YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $6,320.
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 $6,320* by
5/31/96. You would have earned an average annual total return of 9.84%.
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!
[Graphic - See Appendix]
* No method of investing can guarantee a profit or protects 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.
FEDERATED 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 June to their initial $10,000 investment in
Federated International Income Fund made on 6/4/91, and as of 5/31/96, their
account totaled $25,122, giving them an annual total return of 9.98%.*
Now they don't feel they need to worry about the quality of Cal's education,
and Bob figures his son will get to college even if he never does learn to
catch a football.
The couple is fictional, but the figures are real.
[Graphic - See Appendix]
* 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
PORTFOLIO OF INVESTMENTS
MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY CREDIT VALUE IN
PAR AMOUNT RATING* U.S. DOLLARS
<C> <S> <C> <C>
BONDS--93.6%
AUSTRALIAN DOLLAR--6.2%
AGENCY--6.2%
14,000,000 New South Wales Treasury, 11.50%, 7/1/1999 AAA/Aaa $ 12,008,109
TOTAL AUSTRALIAN DOLLAR (IDENTIFIED COST $11,628,796) 12,008,109
BRITISH POUND--13.0%
SOVEREIGN--9.8%
4,000,000 Bayerische Vereinsbank AG, Munich, Sub., 8.625%,
6/15/2005 NR/Aa1 6,171,548
4,000,000 Japan Development Bank, Foreign Gov't. Guarantee,
9.125%, 1/31/2005 NR/Aaa 6,431,117
4,000,000 Landbk Hessen - Thueringen, Sub. Note, 9.00%,
9/6/2004 NR/Aaa 6,369,131
Total 18,971,796
UTILITIES--3.2%
4,000,000 British Gas PLC, Sr. Unsub., 8.125%, 3/31/2003 AA-/A1 6,082,442
TOTAL BRITISH POUND (IDENTIFIED COST $25,681,875) 25,054,238
CANADIAN DOLLAR--9.5%
AGENCY--4.1%
10,000,000 Ontario Hydro, 9.00%, 6/24/2002 AA-/Aa3 7,852,424
SOVEREIGN--5.4%
7,500,000 Canada- Govt. of, 8.50%, 4/1/2002 NR/Aa1 5,783,065
6,500,000 Canada- Govt. of, Deb., 8.00%, 6/1/2023 NR/Aa1 4,678,781
Total 10,461,846
TOTAL CANADIAN DOLLAR (IDENTIFIED COST $19,172,043) 18,314,270
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
<TABLE>
<CAPTION>
FOREIGN
CURRENCY CREDIT VALUE IN
PAR AMOUNT RATING* U.S. DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
DANISH KRONE--9.6%
SOVEREIGN--9.6%
26,000,000 Denmark, Bond, 8.00%, 11/15/2001 AAA/AAA $ 4,705,813
25,000,000 Denmark, Bond, 8.00%, 3/15/2006 AAA/AAA 4,392,872
58,000,000 Nykredit, Mtg. Bond, 8.00%, 10/1/2026 AAA/AAA 9,355,791
TOTAL DANISH KRONE (IDENTIFIED COST $19,226,679) 18,454,476
DEUTSCHE MARK--15.1%
AGENCY--9.7%
13,000,000 Export-Import Bank Japan, Foreign Gov't. Guarantee,
6.50%, 5/19/2000 AAA/Aaa 8,890,347
15,000,000 KFW International Finance, Bank Guarantee, 6.75%,
6/20/2005 AAA/Aaa 9,908,945
Total 18,799,292
SOVEREIGN--5.4%
7,500,000 Baden Wurt L-Finance NV, Bank Guarantee, 6.75%,
6/22/2005 AAA/Aaa 4,968,868
8,000,000 Germany (Fed Republic), 6.50%, 7/15/2003 NR/Aaa 5,367,235
Total 10,336,103
TOTAL DEUTSCHE MARK (IDENTIFIED COST $30,378,314) 29,135,395
EUROPEAN CURRENCY UNIT (ECU)--5.0%
SOVEREIGN--5.0%
7,500,000 France O.A.T., Bond, 7.50%, 4/25/2005 AAA/AAA 9,602,160
TOTAL EUROPEAN CURRENCY UNIT
(IDENTIFIED COST $9,633,926) 9,602,160
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
<TABLE>
<CAPTION>
FOREIGN
CURRENCY CREDIT VALUE IN
PAR AMOUNT RATING* U.S. DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
FINNISH MARKKA--4.0%
SOVEREIGN--4.0%
32,000,000 Republic of Finland, 9.50%, 3/15/2004 AAA/Aaa $ 7,660,221
TOTAL FINNISH MARKKA (IDENTIFIED COST $6,197,750) 7,660,221
IRISH POUND--4.6%
SOVEREIGN--4.6%
5,000,000 Republic of Ireland, 9.25%, 7/11/2003 AAA/Aaa 8,824,464
TOTAL IRISH POUND (IDENTIFIED COST $8,395,482) 8,824,464
ITALIAN LIRA--7.4%
SOVEREIGN--7.4%
8,000,000,000 Buoni Poliennali Del Tes, Bond, 10.50%, 11/1/2000 AAA/A1 5,480,162
7,000,000,000 Buoni Poliennali Del Tes, Bond, 10.50%, 9/1/2005 AAA/A1 4,831,417
5,965,000,000 Buoni Poliennali Del Tes, Deb., 10.50%, 7/15/1998 AAA/A1 4,003,457
TOTAL ITALIAN LIRA (IDENTIFIED COST $13,602,693) 14,315,036
NEW ZEALAND DOLLAR--6.0%
SOVEREIGN--6.0%
18,000,000 New Zealand, Foreign Gov't. Guarantee, 8.00%,
4/15/2004 AAA/Aaa 11,554,945
TOTAL NEW ZEALAND DOLLAR
(IDENTIFIED COST $10,884,016) 11,554,945
NORWEGIAN KRONE--2.7%
SOVEREIGN--2.7%
36,000,000 Norwegian Government, Foreign Gov't. Guarantee,
5.75%, 11/30/2004 NR/Aaa 5,147,587
TOTAL NORWEGIAN KRONE (IDENTIFIED COST $5,482,973) 5,147,587
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
<TABLE>
<CAPTION>
FOREIGN
CURRENCY CREDIT VALUE IN
PAR AMOUNT RATING* U.S. DOLLARS
<C> <S> <C> <C>
BONDS--CONTINUED
SPANISH PESETA--6.4%
SOVEREIGN--6.4%
150,000,000 Spain (Government), Deb., 9.90%, 10/31/1998 AAA/NR $ 1,216,415
1,350,000,000 Spain (Government), Foreign Gov't. Guarantee, 10.30%,
6/15/2002 AAA/NR 11,253,165
TOTAL SPANISH PESETA (IDENTIFIED COST $12,077,338) 12,469,580
SWEDISH KRONA--4.1%
AGENCY--4.1%
27,000,000 Stadshypotekskas, Foreign Gov't. Guarantee,
Series 1551, 7.50%, 3/17/1999 A-/NR 4,033,744
24,000,000 Statens Bostads, Deb., 11.00%, 1/21/1999 NR 3,878,838
TOTAL SWEDISH KRONA (IDENTIFIED COST $7,950,266) 7,912,582
TOTAL BONDS (IDENTIFIED COST $180,312,151) 180,453,063
(A)REPURCHASE AGREEMENTS--1.9%
$ 3,565,000 BT Securities Corporation, 5.34%, dated 5/31/1996,
due 6/3/1996 3,565,000
TOTAL INVESTMENTS (IDENTIFIED COST $183,877,151)(B) $ 184,018,063
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to
$183,877,151. The net unrealized appreciation/depreciation of investments on
a federal tax basis amounts to $140,912 which is comprised of $4,057,204
appreciation and $3,916,292 depreciation at May 31, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
Note: The categories of investments are shown as a percentage of net assets
($192,598,530) at May 31, 1996.
The following acronym(s) are used throughout this portfolio:
PLC -- Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $183,877,151) $ 184,018,063
Cash 2,328
Cash denominated in foreign currencies (at cost, $1,740) 1,775
Income receivable 6,452,930
Receivable for investments sold 5,562,389
Receivable for shares sold 2,114,745
Total assets 198,152,230
LIABILITIES:
Payable for investments purchased $ 5,489,932
Payable for foreign taxes withheld 39,899
Accrued expenses 23,869
Total liabilities 5,553,700
Net Assets for 17,535,973 shares outstanding $ 192,598,530
NET ASSETS CONSIST OF:
Paid in capital $ 202,747,919
Net unrealized appreciation of investments and translation of assets
and liabilities in foreign currency 102,470
Accumulated net realized loss on investments and
foreign currency transactions (12,486,202)
Undistributed net investment income 2,234,343
Total Net Assets $ 192,598,530
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($175,785,451 O 16,002,759 shares outstanding) $10.98
Offering Price Per Share (100/95.50 of $10.98)* $11.50
Redemption Proceeds Per Share $10.98
CLASS B SHARES:
Net Asset Value Per Share ($4,105,655 O 374,410 shares outstanding) $10.97
Offering Price Per Share $10.97
Redemption Proceeds Per Share (94.50/100 of $10.97)** $10.37
CLASS C SHARES:
Net Asset Value Per Share ($12,707,424 O 1,158,804 shares outstanding) $10.97
Offering Price Per Share $10.97
Redemption Proceeds Per Share (99.00/100 of $10.97)** $10.86
</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
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign taxes withheld of $102,296) $ 7,474,659
EXPENSES:
Investment advisory fee $ 707,976
Administrative personnel and services fee 133,207
Custodian fees 67,797
Transfer and dividend disbursing agent fees and expenses 46,632
Directors'/Trustees' fees 2,531
Auditing fees 16,616
Legal fees 9,303
Portfolio accounting fees 40,819
Distribution services fee -- Class A Shares 217,620
Distribution services fee -- Class B Shares 8,826
Distribution services fee -- Class C Shares 46,289
Shareholder services fee -- Class A Shares 217,620
Shareholder services fee -- Class B Shares 2,942
Shareholder services fee -- Class C Shares 15,430
Share registration costs 19,703
Printing and postage 40,217
Insurance premiums 3,446
Taxes 17,854
Miscellaneous 3,890
Total expenses 1,618,718
Waivers --
Waiver of investment advisory fee $ (67,471)
Waiver of distribution services fee -- Class A Shares (142,195)
Waiver of shareholder services fee -- Class A Shares (118,950)
Waiver of shareholder services fee -- Class C Shares (1,130)
Total waivers (329,746)
Net expenses 1,288,972
Net investment income 6,185,687
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency transactions 8,492,453
Net change in unrealized appreciation of investments and translation of
assets and liabilities in foreign currency (12,988,194)
Net realized and unrealized loss on
investments and foreign currency (4,495,741)
Change in net assets resulting from operations $ 1,689,946
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 6,185,687 $ 13,126,044
Net realized gain (loss) on investments and foreign currency
transactions ($8,492,453 net gain and $(4,766,152)
net loss, respectively, as computed for federal tax
purposes) 8,492,453 (5,611,275)
Net change in unrealized appreciation
(depreciation) of investments
and translation of assets and
liabilities in foreign currency (12,988,194) 21,171,868
Change in net assets resulting from
operations 1,689,946 28,686,637
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (7,824,036) (13,434,295)
Class B Shares (71,799) (28,671)
Class C Shares (504,272) (524,373)
Change in net assets resulting from
distributions to shareholders (8,400,107) (13,987,339)
SHARE TRANSACTIONS --
Proceeds from sale of shares 46,346,915 64,344,928
Net asset value of shares issued to shareholders in
payment of
distributions declared 3,126,919 4,176,847
Cost of shares redeemed (37,207,967) (113,383,781)
Change in net assets resulting from
share transactions 12,265,867 (44,862,006)
Change in net assets 5,555,706 (30,162,708)
NET ASSETS:
Beginning of period 187,042,824 217,205,532
End of period (including undistributed net investment income of
$2,234,343 and $4,448,761, respectively) $ 192,598,530 $ 187,042,824
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.38 $10.52 $11.86 $10.47 $10.84 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.37 0.79 0.70 0.88 0.62 0.25
Net realized and unrealized gain (loss)
on investments and foreign currency (0.26) 0.84 (0.76) 1.40 (0.20) 0.75
Total from investment operations 0.11 1.63 (0.06) 2.28 0.42 1.00
LESS DISTRIBUTIONS
Distributions from net investment income (0.51) (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 (0.51) (0.77) (1.28) (0.89) (0.79) (0.16)
NET ASSET VALUE, END OF PERIOD $10.98 $11.38 $10.52 $11.86 $10.47 $10.84
TOTAL RETURN(C) 1.00% 16.12% (0.84%) 22.95% 3.82% 10.07%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.30%* 1.30% 1.30% 1.25% 0.99% 0.32%*
Net investment income 6.61%* 6.79% 6.67% 7.71% 5.83% 7.54%*
Expenses waiver/reimbursement(d) 0.37%* 0.40% 0.20% 0.27% 0.62% 1.18%*
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $175,785 $173,905 $209,008 $220,602 $86,937 $23,465
Portfolio turnover 87% 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
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.36 $10.51 $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.34 0.77 0.08
Net realized and unrealized gain (loss) on investments and
foreign currency (0.26) 0.78 0.22
Total from investment operations 0.08 1.55 0.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.47) (0.70) --
NET ASSET VALUE, END OF PERIOD $10.97 $11.36 $10.51
TOTAL RETURN(B) 0.73% 15.28% 2.44%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.10%* 2.10% 2.11%*
Net investment income 5.83%* 5.76% 7.07%*
Expense waiver/reimbursement(c) 0.07%* 0.10% 0.10%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $4,106 $1,123 $101
Portfolio turnover 87% 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
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.36 $10.48 $11.84 $10.23
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.33 0.60 0.58 0.41
Net realized and unrealized gain (loss) on investments and
foreign currency (0.25) 0.95 (0.72) 1.58
Total from investment operations 0.08 1.55 (0.14) 1.99
LESS DISTRIBUTIONS
Distributions from net investment income (0.47) (0.67) (0.57) (0.38)
Distributions from net realized gain on investments and
foreign currency transactions -- -- (0.65) --
Total distributions (0.47) (0.67) (1.22) (0.38)
NET ASSET VALUE, END OF PERIOD $10.97 $11.36 $10.48 $11.84
TOTAL RETURN(B) 0.69% 15.32% (1.54%) 19.67%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.09%* 2.06% 2.05% 2.05%*
Net investment income 5.84%* 5.96% 6.00% 5.39%*
Expense waiver/reimbursement(c) 0.09%* 0.14% 0.10% 0.21%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $12,707 $12,015 $8,098 $4,767
Portfolio turnover 87% 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
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 (UNAUDITED)
1. ORGANIZATION
International Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of two portfolios.
The financial statements included herein are only those of Federated
International Income Fund (the "Fund"), a 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's objective is
to seek a high level of current income in U.S. Dollars consistent with
prudent investment risk. The Fund has a secondary investment objective of
capital appreciation.
The Fund offers three classes of shares: Class A Shares, Class B Shares and
Class C Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Foreign government securities and listed foreign
corporate bonds are valued according to the last reported sale price on a
recognized securities exchange, if available. If no sale on a recognized
exchange is reported or if the security is traded over-the-counter, a
security is valued according to the last reported bid price. Short-term
securities are valued at the prices provided by an independent pricing
service. However, 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.
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.
FEDERATED 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.
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
<C> <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 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.
At May 31, 1996, the diversification of industries was as follows:
<TABLE>
<CAPTION>
INDUSTRY % OF NET ASSETS
<S> <C>
Agency 24.1
Utilities 3.2
Sovereign 66.3
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
exchange contracts as a way of managing foreign exchange rate risk. The Fund
may enter into these contract for the purchase or sale of a specific foreign
currency at a fixed price on a future date as a hedge or cross-hedge against
either specific transactions or portfolio positions. The objective of the
Fund's foreign currency hedging transactions is to reduce the risk that the
U.S dollar value of the Fund's foreign currency denominated securities will
decline in value due to changes in foreign currency exchange rates. All
foreign currency exchange contracts are "marked-to market" daily at the
applicable translation rates resulting in unrealized gains or losses.
Realized gains or losses are recorded at the time the foreign currency
exchange contract is offset by entering into a closing transaction or by
delivery or receipt of the currency. Risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the
terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At May 31, 1996, the Fund had outstanding foreign currency exchange
contracts as set forth below:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS SETTLEMENT CONTRACTS TO IN EXCHANGE CONTRACTS AT APPRECIATION
PURCHASED DATE DELIVER/RECEIVE FOR VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Deutsche Mark 06/03/96 226.83 $148 $149 $1
</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 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.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
FEDERATED INTERNATIONAL INCOME FUND
(3) CAPITAL STOCK
At May 31, 1996, par value shares ($ 0.0001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
# 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>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,700,191 $ 41,261,117 5,228,161 $ 57,263,553
Shares issued to shareholders in payment
of distributions declared 241,033 2,653,995 357,263 3,841,251
Shares redeemed (3,214,894) (35,810,823) (10,170,791) (110,148,750)
Net change resulting from Class A share
transactions 726,330 $ 8,104,289 (4,585,367) $ (49,043,946)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 281,816 $ 3,112,526 89,871 $ 989,494
Shares issued to shareholders in
payment of distributions declared 4,643 50,936 1,934 21,170
Shares redeemed (10,880) (119,359) (2,540) (28,402)
Net change resulting from Class B share
transactions 275,579 $ 3,044,103 89,265 $ 982,262
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
<S> <C> <C> <C> <C>
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 178,093 $ 1,973,272 551,738 $ 6,091,880
Shares issued to shareholders in payment of
distributions declared 38,316 421,988 29,098 314,427
Shares redeemed (115,577) (1,277,785) (295,268) (3,206,629)
Net change resulting from Class C share
transactions 100,832 $ 1,117,475 285,568 $ 3,199,678
Net change resulting from fund share
transactions 1,102,741 $ 12,265,867 (4,210,534) $ (44,862,006)
</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 Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ 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.
FEDERATED INTERNATIONAL INCOME FUND
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
SHARE CLASS NAME NET 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. The fee paid to FSS is used to finance 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 AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC"), serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC 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.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $32,825 were borne
initially by the Adviser. The Fund has agreed to reimburse the Adviser for
the organizational expenses at an annual rate of .005% of average daily net
assets until expenses initially borne are fully reimbursed or the expiration
of five years after the effective date -- whichever occurs earlier. For the
period ended May 31, 1996, the Fund paid $1,735 pursuant to this agreement.
GENERAL -- Certain of the Officers and Directors of the Fund are Officers
and Directors or Trustees of the above companies.
FEDERATED INTERNATIONAL INCOME FUND
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 160,100,686
SALES $ 157,862,579
</TABLE>
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
Officers
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President and Secretary
Richard B. Fisher
Vice President
David M. Taylor
Treasurer
J. Crilley Kelly
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are they
insured by the federal government or any of its agencies. Investment in
these shares involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information. [Graphic]
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 46031P100
Cusip 46031P209
Cusip 46031P506
2061602 (7/96)
[Graphic]
APPENDIX
FEDERATED INTERNATIONAL EQUITY FUND
A. The graphic representation here displayed entitled "Initial Investment
of $12,000," consists of a boxed legend in the upper left quadrant
indicating the components of the corresponding mountain chart. The lighter-
shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated International Equity Fund (the "Fund"). The darker-
shaded portion reflects the Principal Value of a $12,000 investment in the
Fund. The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that an initial investment of
$12,000/1,154 Shares in the Fund on 8/17/84, would have a reinvested total
worth of $51,724/2,957 Shares on 5/31/96. The "x" axis reflects annual
computation periods from 8/17/84 to 5/31/96. The right margin of the chart
reflects the ending values of a hypothetical investment of $12,000 in the
Fund measured in increments of $10,000 ranging from $0 to $60,000.
B. The graphic representation here displayed, entitled "Yearly Investments
of $1,000," consists of a boxed legend in the upper left quadrant
indicating the components of the corresponding mountain chart. The lighter-
shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated International Equity Fund (the "Fund"). The darker-
shaded portion reflects the Principal Value of a $1,000/96 Shares
investments in the Fund (totaling $12,000 by 5/31/96). The color-coded
mountain chart is a visual representation of the narrative text above it,
which shows that $1,000 annual investments in the Fund beginning on 8/17/84
would have a reinvested total value of $21,459/1,227 Shares on 5/31/96. The
"x" axis reflects computation periods from 8/17/84 to 5/31/96. The right
margin of the chart reflects the ending values of hypothetical annual
investments of $1,000 in the Fund measured in increments of $4000 ranging
from $0 to $24,000.
C. The graphic representation here displayed, entitled "Growth Over Time,"
consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The lighter-shaded portion
represents the value of Reinvested Income for the Class A Shares of
Federated International Equity Fund (the "Fund") the darker-shaded portion
represents the Principal Value of Systematic Investments (totaling $65,000
by 5/31/96). The color-coded mountain is a visual representation of the
narrative text above it, which shows that an original $10,000/962 Shares
investment in the Fund on 8/17/84 and additional investments of $5,000
every August following for eleven years would have grown to a reinvested
total value of $129,451/7,401 Shares on 5/31/96. The "x" axis reflects
computation periods from 8/17/84 to 5/31/96. The right margin of the chart
reflects the ending values of a hypothetical original investment and
subsequent annual investments in the Fund measured in increments of $20,000
ranging from $0 to $140,000.
FEDERATED INTERNATIONAL INCOME FUND
A. The graphic representation here displayed entitled "Initial Investment
of $5,000," consists of a boxed legend in the upper left quadrant
indicating the components of the corresponding mountain chart. The lighter-
shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated International Income Fund (the "Fund"). The darker-
shaded portion reflects the Principal Value of a $5,000 investment in the
Fund. The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that an initial investment of
$5,000/478 Shares in the Fund on 6/4/91, would have a reinvested total
worth of $7,801/711 Shares on 5/31/96. The "x" axis reflects annual
computation periods from 6/4/91 to 5/31/96. The right margin of the chart
reflects the ending values of a hypothetical investment of $5,000 in the
Fund measured in increments of $2,000 ranging from $0 to $8,000.
B. The graphic representation here displayed, entitled "Yearly Investments
of $1,000," consists of a boxed legend in the upper left quadrant
indicating the components of the corresponding mountain chart. The lighter-
shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated International Income Fund (the "Fund"). The darker-
shaded portion reflects the Principal Value of $1,000/96 Shares investments
in the Fund (totaling $12,000 by 5/31/96). The color-coded mountain chart
is a visual representation of the narrative text above it, which shows that
$1,000 annual investments in the Fund beginning on 6/4/91 would have a
reinvested total value of $6,320/576 Shares on 5/31/96. The "x" axis
reflects computation periods from 6/4/91 to 5/31/96. The right margin of
the chart reflects the ending values of hypothetical annual investments of
$1,000 in the Fund measured in increments of $1,000 ranging from $0 to
$7,000.
C. The graphic representation here displayed, entitled "Income Over Time,"
consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The lighter-shaded portion
represents the value of Reinvested Income for the Class A Shares of
Federated International Income Fund (the "Fund") the darker-shaded portion
represents the Principal Value of Systematic Investments (totaling $18,000
by 5/31/96). The color-coded mountain is a visual representation of the
narrative text above it, which shows that an original $10,000/955 Shares
investment in the Fund on 6/4/91 and additional investments of $2,000 every
June following would have grown to a reinvested total value of
$25,122/2,288 Shares on 5/31/96. The "x" axis reflects computation periods
from 6/4/91 to 5/31/96. The right margin of the chart reflects the ending
values of a hypothetical original investment and subsequent annual
investments in the Fund measured in increments of $4,000 ranging from $0 to
$28,000.
