[Graphic]FEDERATED INVESTORS
FEDERATED INTERNATIONAL EQUITY FUND
12TH SEMI-ANNUAL REPORT
MAY 31, 1997
ESTABLISHED 1984
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
Federated International Equity Fund was established in 1984, and I am pleased to
present the 12th Semi-Annual Report for the fund, which covers the period from
December 1, 1996, to May 31, 1997.
This report begins with a discussion with the fund's portfolio manager, Drew
Collins, Senior Vice President, Federated Global Research Corp. Following his
discussion are three additional items of shareholder interest: a series of
graphs showing the fund's long-term investment performance, a complete listing
of the fund's diversified international stock holdings, and the financial
statements.
This international stock fund is designed for capital appreciation by investing
in large, successful corporations around the world (U.S. not included).* The
fund's $158 million portfolio was invested in 26 countries across 4 continents
in 153 issues. Corporations in Japan represent 29.1% of the portfolio, and
corporations in the U.K. represent 17.1% of the portfolio. These are the two
largest commitments made by the fund's manager.
During the period, the international stock market and Federated International
Equity Fund continued to turn in positive performances, although not matching
that of the soaring U.S. equity market. The weak Japanese market, which makes up
a large percentage of the international arena, is slowly improving and continues
to hold down the fund's total returns. In fact, the Asia Pacific Rim countries
have had weak stock performances during this time period. A review of fund
performance for each share class for the six-month period ended May 31, 1997, is
shown below.
<TABLE>
<CAPTION>
CAPITAL TOTAL RETURN
NAV NAV NAV GAINS BASED
12/1/96 5/31/97 CHANGE DISTRIBUTIONS ON NAV**
<S> <C> <C> <C> <C> <C>
Class A Shares $17.32 $17.79 2.71% $0.38 5.06%
Class B Shares $17.04 $17.42 2.23% $0.38 4.61%
Class C Shares $16.85 $17.22 2.20% $0.38 4.60%
</TABLE>
Thank you for joining the growing number of Federated International Equity Fund
shareholders who have broadened their equity assets internationally.
* International investing involves special 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, B, and C Shares were -0.73%, -1.04%, and 3.57%, respectively.
Adding to your account on a regular basis and reinvesting your annual dividends
in additional shares is a convenient, painless way to "pay yourself first" and
enjoy the benefit of compounding.+
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
July 15, 1997
+ Systematic investing does not ensure a profit or protect against loss in
declining markets.
INVESTMENT REVIEW
[Graphic]
Drew Collins
Senior Vice President
Federated Global
Research Corp.
[Graphic]
DURING THE SIX-MONTH REPORTING PERIOD, INTERNATIONAL STOCKS CONTINUED TO
EXPERIENCE POSITIVE PERFORMANCE, BUT LAGGED THE SPECTACULAR RETURNS OF U.S.
STOCKS. WHAT WERE THE MAJOR FACTORS THAT INFLUENCED THE PERFORMANCE OF THE
INTERNATIONAL EQUITY MARKETS?
While the U.S. market rose 12.60% for the period, the broader international
markets did not fare as well in U.S. dollar terms. Japan was again a laggard
during the period, falling 5.80% in dollar terms, while other markets did quite
well. Emerging markets like Argentina, Brazil and Mexico rose 29.39%, 47.17% and
19.34%, respectively. Developed markets like the U.K. and Sweden rose 11.46% and
6.26%.
[Graphic]
HOW DID FEDERATED INTERNATIONAL EQUITY FUND PERFORM DURING THE REPORTING
PERIOD COMPARED TO ITS BENCHMARK, AND WHAT STRATEGIES INFLUENCED THE FUND'S
RETURN?
Federated International Equity Fund produced a six-month total return of 5.06%
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 4.61% and 4.60%,
respectively.* These returns were relatively higher than the 4.04% return of the
fund's benchmark, the Morgan Stanley Capital International Europe, Australia,
and Far East Index for the same period.** The fund benefited by an underweight
position vis-a-vis the index weighting in Japan, and our investments in six
Latin American markets performed quite well during the period.
* 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 -0.73%, -1.04%, and 3.57%,
respectively.
** The Morgan Stanley Capital International Europe, Australia, and Far East
Index is a market capitalization weighted foreign securities index, which is
widely used to measure the performance of European, Australian, New Zealand,
and Far Eastern stock markets. The index covers approximately 1,020 companies
drawn from 18 countries in the above regions. The index values its securities
daily in both U.S. dollars and local currency and calculates total returns
monthly. This index is unmanaged and investments cannot be made in an index.
[Graphic]
HOW WERE THE FUND'S ASSETS WEIGHTED AMONG KEY REGIONS?
29% of the fund's portfolio was in Japan, and 17% in the U.K. The balance was
spread across 24 other countries. Country weightings and top ten holdings as of
May 31, 1997, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY PORTFOLIO
<S> <C>
Japan 29.1%
U.K. 17.1%
Germany 8.1%
Hong Kong 7.0%
Switzerland 6.8%
France 6.4%
Spain 3.6%
Mexico 2.8%
Australia 2.7%
Italy 1.6%
Other Countries 14.8%
<CAPTION>
PERCENTAGE OF
TOP 10 HOLDINGS COUNTRY PORTFOLIO
<S> <C> <C>
Rohm Co. Japan 1.58%
Compagnie Financiere de Paribas France 1.45%
Nippon Telegraph & Telephone Japan 1.42%
HSBC Holdings PLC Hong Kong 1.36%
Bankgesellschaft Berlin AG Germany 1.26%
NEC Corp. Japan 1.23%
Mitsubishi Estate Co., Ltd. Japan 1.23%
Volkswagen AG Germany 1.23%
Unigate U.K. 1.22%
Fujitsu Ltd. Japan 1.16%
</TABLE>
[Graphic]
WHAT ARE SOME OF THE RECENT PURCHASES MADE IN THE FUND?
Three recent purchases to the Federated International Equity Fund include:
* MATSUSHITA COMMUNICATIONS INDUSTRIAL (1.48% of current assets): The leading
manufacturer of cellular phones in Japan. The growth in cellular
telecommunications in Japan is very rapid, and this company is one of the
major beneficiaries of this growth.
* POHANG IRON AND STEEL CO., LTD. (0.51% of current assets): POSCO is the
second largest steel manufacturer in the world. This Korean company is also
one of the lowest cost steel manufacturers in the world and is a direct
beneficiary of the industrialization of Asia.
* AGUAS DE BARCELONA (0.50% of current assets): This leading provider of water
services in Spain has also become one of the leading private providers of
water services in Latin America.
[Graphic]
WITH 1997 IN MID-STREAM, ARE THERE ANY SIGNS THAT INTERNATIONAL EQUITIES MAY
GAIN GROUND ON THE U.S. MARKET?
Since May 31, 1997, we have seen a bit of a turnaround in the Japanese equity
market as well as a rise in the value of the yen. This has lead to a rebound in
the international markets as a whole.
A number of the international markets are performing excitingly, notably Latin
American countries -- Mexico, Brazil, Chile, Argentina and Colombia (totaling
about 6% of the fund's net assets). We are comfortable with the markets in Latin
America as these countries have been able to raise the standards of living of
their citizens, and state-owned utilities have been privatized. Privatization
brings in foreign capital and encourages economic growth. (It is interesting to
note that U.S. utilities are income-producing stocks, while international
utilities are considered growth stocks.)
International markets will continue to offer investors the diversification
necessary to create a well-balanced portfolio and potentially excellent
long-term returns.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED INTERNATIONAL EQUITY FUND
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $13,000 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 BE WORTH $58,584 ON
5/31/97. YOU WOULD HAVE EARNED A 12.49%* AVERAGE ANNUAL TOTAL RETURN FOR THE
13-YEAR INVESTMENT LIFESPAN.
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 6/30/97, the Class A Shares' average annual one-year, five-year and
ten-year total returns were 3.06%, 6.80%, and 5.25%, respectively. Class B
Shares' average annual one-year and since inception (9/28/94) total returns were
2.50% and 2.90%, respectively. Class C Shares' average annual one-year and since
inception (4/1/93) total returns were 7.08% and 9.46%, respectively.
[Graphic]- See Appendix(A)
* 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 that 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 13 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $23,372.
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 $13,000, but
your account would have reached a total value of $23,372* by 5/31/97. You would
have earned an average annual total return of 8.35%.
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. This investment plan works for you even if you invest
only $1,000 annually. You can take it one step at a time. Put time, money, and
compounding to work!
[Graphic]- See Appendix(B)
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED INTERNATIONAL EQUITY FUND
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 August 17, 1984, and -- to
take advantage of dollar cost averaging -- have invested $5,000 every August
since.
By May 31, 1997, they were pleased to see that their $70,000 investment had
grown to $139,697 for an average annual total return of 9.20%.* Gigi is already
picturing a long Mediterranean cruise to celebrate their retirement.
The couple is fictional, but the figures are real.
[Graphic]- See Appendix(c)
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 97.3%
ARGENTINA -- 1.2%
7,744 IRSA Inversiones y Representaciones S.A., GDR $ 302,984
15,600 Telecom Argentina S.A., ADR 832,650
22,700 Telefonica de Argentina S.A., ADR 822,875
Total 1,958,509
AUSTRALIA -- 2.7%
54,000 (b)National Australia Bank, Ltd., Melbourne 772,427
768 (b)News Corp., Ltd. 3,410
225,000 Santos Limited 922,005
135,000 St. George Bank Ltd. 825,691
207,000 Woodside Petroleum Ltd. 1,747,730
Total 4,271,263
BRAZIL -- 0.9%
10,868,000 Telecomunicacoes Brasileiras S.A. 1,416,140
110,905 Telecomunicacoes de Sao Paulo S.A., Rights 3,730
Total 1,419,870
CHILE -- 0.3%
7,750 (a)Chilectra S.A., ADR 209,554
3,200 Sociedad Quimica Y Minera De Chile, ADR 208,000
Total 417,554
COLOMBIA -- 0.6%
15,500 Banco Ganadero S.A., ADR 592,875
17,000 Banco Industrial Colombiano, ADR 299,625
Total 892,500
DENMARK -- 0.5%
4,250 Den Danske Bank 403,904
7,000 Unidanmark, Class A 365,631
Total 769,535
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
EGYPT -- 0.1%
10,500 (a)(b)Suez Cement Co., GDR $ 192,675
FINLAND -- 0.5%
28,000 Pohjola Insurance Group, Class B 815,645
FRANCE -- 6.3%
12,000 AXA 717,972
4,800 Accor S.A. 664,981
12,000 (b)CLF-Dexia France 1,120,078
35,600 Compagnie Financiere de Paribas, Class A 2,291,504
16,400 Credit Commerical De France 693,250
7,000 Group Danon 1,053,407
20,372 Schneider S.A. 978,277
20,000 Scor S.A. 806,982
6,400 Synthelabo 748,104
10,633 Total S.A.-B 972,227
Total 10,046,782
GERMANY -- 7.8%
87,000 Bankgesellschaft Berlin AG 1,992,891
15,000 Bayer AG 581,446
40,000 Commerzbank AG, Frankfurt 1,174,888
8,000 (b)Daimler Benz AG 615,529
21,400 Deutsche Bank, AG 1,185,759
1,760 Linde AG 1,209,994
2,800 Mannesmann S.A. 1,136,973
7,800 Schering AG 783,149
7,600 Thyssen AG 1,725,353
3,000 Volkswagen AG 1,937,862
Total 12,343,844
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
HONG KONG -- 6.9%
26,000 Beijing Enterprises $ 151,668
94,000 (b)Cheung Kong 961,412
882,000 China EB-IHD Holdings Ltd. 1,354,559
278,000 China Resources Enterprises Ltd. 975,879
155,000 Citic Pacific Ltd. 886,171
238,000 Great Eagle Hldgs. 841,608
37,000 Hong Kong Telecommunications, Ltd., ADR 824,286
71,014 HSBC Holdings PLC 2,153,745
146,000 Hutchison Whampoa 1,215,332
156,000 (b)New World Development Co. Ltd. 990,540
592,000 Sino Land Co. 691,436
Total 11,046,636
HUNGARY -- 0.5%
9,000 (a)Gedeon Richter, GDR 747,000
INDONESIA -- 0.1%
163,500 (b)PT Putra Surya Multidana 194,923
ITALY -- 1.6%
150,000 Bca Pop Di Milano 805,571
630,000 Magneti Marelli SPA 1,003,865
270,000 Telecom Italia Mobile SPA 791,938
Total 2,601,374
JAPAN -- 29.0%
82,000 Aiwa Co. Ltd. 1,520,996
11,000 (b)Autobacs Seven Co. 802,920
41,000 (b)Bridgestone Corp. 925,977
90,000 Daiichi Pharmaceutical Co 1,545,728
25,000 Fuji Photo Film Co. 968,227
151,000 Fujitsu Ltd. 1,841,305
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
JAPAN -- CONTINUED
80,000 Hitachi Ltd. $ 851,868
52,000 Honda Motor Co. Ltd. 1,527,179
27,000 I-O Data Device, Inc. 927,437
30,000 Ito-Yokado Co., Ltd. 1,710,605
189 (a)Japan Tobacco, Inc. 1,446,106
25,000 (b)Kyocera Corp. 1,801,202
26,000 Matsushita Communication 826,106
18,000 Ministop Co. Ltd. 571,919
142,000 (b)Mitsubishi Estate Co. Ltd. 1,938,858
736,000 (b)Mitsui Osk Lines 1,643,280
140,000 NEC Corp. 1,947,617
19,000 Nidec Corp. 985,488
20,000 Nintendo Corp. Ltd. 1,562,903
235 Nippon Telegraph & Telephone Corp. 2,240,017
36,000 Noritsu Koki Co. Ltd. 1,653,929
24,000 Rohm Co. 2,493,774
46,000 Sankyo Co. Ltd. 1,457,621
6,000 Shokoh Fund & Co. 1,597,252
126,000 Sumitomo Bank Ltd., Osaka 1,742,035
191,000 Sumitomo Reality & Dev. 1,500,773
180,000 (b)Sumitomo Trust & Banking 1,592,099
114,000 Taiyo Yuden Co. 1,820,867
72,000 Takeda Chemical Industries 1,823,959
258,000 Tokyu Land Corp 1,076,754
269,000 Yasuda Fire & Marine Insurance Co. 1,658,583
Total 46,003,384
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
KOREA -- 1.1%
87,189 SK Telecom Co. Ltd., ADR $ 806,498
16,300 (b)Samsung Display Devices 849,337
216 (b)Samsung Electronics Co. 21,266
21 (a)(b)Samsung Electronics Co., GDR 1,218
216 Samsung Electronics Co., Rights 182
Total 1,678,501
MALAYSIA -- 0.4%
138,000 UMW Holdings Bhd 708,481
MEXICO -- 2.8%
211,000 Fomento Economico Mexicano, S.A. de C.V., Class B 1,120,495
40,000 (b)Grup Iusacell S.A., ADR 660,000
1,687,000 (b)Grupo Financiero Bancomer, S.A. de C.V., Class B 633,504
17,200 Pan American Beverage, Class A 498,800
21,900 Telefonos de Mexico, Class L, ADR 971,813
29,500 (b)Tubos de Acero de Mexico S.A., ADR 516,250
Total 4,400,862
NETHERLANDS -- 1.5%
5,400 Akzo Nobel NV 718,221
16,000 PolyGram NV 754,018
4,400 Royol Dutch Petroleum 849,332
Total 2,321,571
NORWAY -- 1.1%
46,000 Saga Petroleum A.S., Class A 926,587
31,400 Smedvig ASA, Class B 762,521
Total 1,689,108
PORTUGAL -- 1.0%
20,000 (a)(b)Telecel - Comunicacoes Pessoai 1,534,682
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
SINGAPORE -- 1.2%
55,000 (b)Creative Technology Ltd. $ 962,500
241,000 (a)(b)Want Want Holdings 872,420
Total 1,834,920
SPAIN -- 3.6%
13,000 Corp Mapfre S.A. 696,043
10,500 Fomento de Construcciones y Contratas S.A. 1,168,685
37,300 Repsol S.A. 1,561,048
42,000 Telefonica de Espana 1,211,538
8,800 Zardoya-Otis S.A. 1,101,826
Total 5,739,140
SWEDEN -- 1.8%
45,333 Astra AB, Class A 731,070
35,000 Marieberg Tidnings AB, Class A 880,509
117,000 Skand Enskilda BKN, Class A 1,207,555
Total 2,819,134
SWITZERLAND -- 6.8%
1,700 Clariant AG 1,080,203
9,400 Credit Suisse Group 1,179,646
820 Nestle S.A. 1,018,921
1,192 Novartis AG 1,615,815
640 Richemont (Cie Fin) 872,070
185 (b)Roche Holding AG 1,643,109
860 Schw Rueckversicherungs 1,153,629
900 UBS - Union Bank of Switzerland 986,162
3,200 Zurich Versicherungsgesellschaft 1,174,809
Total 10,724,364
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
UNITED KINGDOM -- 17.0%
49,000 Airtours PLC $ 879,323
117,000 Bank of Scotland, Edinburgh 755,438
38,000 Barclays PLC 739,114
150,900 British Petroleum Co. PLC 1,802,012
105,000 British Telecommunication PLC 760,919
126,000 General Electric Co. PLC 719,352
2,561 (b)Grand Metropolitan PLC 23,796
57,000 Hyder PLC 756,674
326,394 Ladbroke Group PLC 1,228,049
80,000 Lloyds TSB Group PLC 804,515
366,000 Medeva PLC 1,640,504
36,000 Misys PLC 806,805
410,000 National Grid Group PLC 1,515,786
200,000 Rank Group PLC 1,406,838
58,000 Reckitt & Colman PLC 817,864
187,512 Rolls-Royce 766,858
157,000 Scottish & Newcastle PLC 1,800,376
124,000 Scottish Power PLC 776,902
66,756 Smithkline Beecham Corp. 1,147,727
231,000 Southern Electric PLC 1,530,427
237,611 Tomkins PLC 1,031,993
240,000 Unigate 1,929,658
177,000 Vodafone Group PLC 787,568
132,000 Whitbread PLC 1,716,670
27,000 Zeneca Group 820,203
Total 26,965,371
TOTAL COMMON STOCKS (IDENTIFIED COST $135,774,184) 154,137,628
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
PREFERRED STOCKS -- 2.5%
AUSTRALIA -- 0.0%
2,051 News Corp., Ltd., Pfd. $ 7,717
BRAZIL -- 2.3%
1,800,000 Centrais Eletricas Brasileiras S.A., Preference, Series B 886,127
7,560,000 Petroleo Brasileiro S.A., Preference 1,807,903
2,545,000 Telecomunicacoes de Sao Paulo S.A., Preference 872,503
Total 3,566,533
GERMANY -- 0.2%
7,000 Henkel KGAA, Pfd. 394,828
TOTAL PREFERRED STOCKS (IDENTIFIED COST $2,966,224) 3,969,078
TOTAL INVESTMENTS (IDENTIFIED COST $138,740,408)(C) $158,106,706
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At May 31, 1997, these securities amounted to
$5,003,655 which represents 3.2% of net assets.
(b) Non-income producing security.
(c) The cost of investments for federal tax purposes amounts to
$138,740,408. The net unrealized appreciation of investments on a federal
tax basis amounts to $19,366,298 which is comprised of $20,994,607
appreciation and $1,628,309 depreciation at May 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($158,430,660) at May 31, 1997.
The following acronyms are used throughout this portfolio:
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
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, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $138,740,408) $158,106,706
Cash 1,934,376
Cash denominated in foreign currencies (at identified cost $16,660) 16,459
Income receivable 661,866
Receivable for investments sold 825,481
Receivable for shares sold 355,410
Total assets 161,900,298
LIABILITIES:
Payable for investments purchased $3,140,533
Payable for shares redeemed 133,081
Net payable for foreign currency exchange contracts purchased and sold 1,619
Payable for taxes withheld 47,230
Accrued expenses 147,175
Total liabilities 3,469,638
NET ASSETS for 8,943,830 shares outstanding $158,430,660
NET ASSETS CONSIST OF:
Paid in capital $132,773,698
Net unrealized appreciation of investments and translation of assets and
liabilities in foreign currency 19,359,724
Accumulated net realized gain on investments and foreign currency transactions 6,257,061
Undistributed net investment income 40,177
Total Net Assets $158,430,660
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($131,440,124 / 7,389,737 shares outstanding) $17.79
Offering Price Per Share (100/94.50 of $17.79)* $18.83
Redemption Proceeds Per Share (99.50/100 of $17.79)** $17.70
CLASS B SHARES:
Net Asset Value Per Share ($20,471,054 / 1,175,414 shares outstanding) $17.42
Offering Price Per Share $17.42
Redemption Proceeds Per Share (94.50/100 of $17.42)** $16.46
CLASS C SHARES:
Net Asset Value Per Share ($6,519,482 / 378,679 shares outstanding) $17.22
Offering Price Per Share $17.22
Redemption Proceeds Per Share (99/100 of $17.22)** $17.05
</TABLE>
* See "How to Purchase 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, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $219,498) $ 1,520,924
Interest 76,895
Total income 1,597,819
EXPENSES:
Investment advisory fee $ 837,440
Administrative personnel and services fee 92,247
Custodian fees 102,748
Transfer and dividend disbursing agent fees and expenses 140,005
Directors'/Trustees' fees 3,844
Auditing fees 15,632
Legal fees 4,618
Portfolio accounting fees 40,434
Distribution services fee -- Class B Shares 67,301
Distribution services fee -- Class C Shares 25,907
Shareholder services fee -- Class A Shares 178,291
Shareholder services fee -- Class B Shares 22,434
Shareholder services fee -- Class C Shares 8,636
Share registration costs 17,406
Printing and postage 32,724
Insurance premiums 2,580
Taxes 30,008
Miscellaneous 3,704
Total expenses 1,625,959
Waiver --
Waiver of shareholder services fee -- Class A Shares (92,712)
Net expenses 1,533,247
Net investment income 64,572
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency transactions (net of foreign
taxes withheld of $5,811) 6,300,959
Net change in unrealized appreciation of investments and translation of assets and
liabilities
in foreign currency 1,146,832
Net realized and unrealized gain on investments and foreign currency 7,447,791
Change in net assets resulting from operations $ 7,512,363
</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
ENDED YEAR ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 64,572 $ 117,810
Net realized gain (loss) on investments and foreign currency
transactions ($6,300,959 and $5,135,689 net gains, respectively,
as computed for federal tax purposes) 6,300,959 4,131,728
Net change in unrealized appreciation/depreciation of investments
and translation of assets and liabilities in foreign currency 1,146,832 11,785,397
Change in net assets resulting from operations 7,512,363 16,034,935
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares -- (919,568)
Class B Shares -- (194)
Class C Shares -- (155)
Distributions from net realized gains on investments and foreign
currency transactions
Class A Shares (3,655,308) (19,980,524)
Class B Shares (386,187) (726,598)
Class C Shares (169,128) (780,198)
Change in net assets resulting from distributions to shareholders (4,210,623) (22,407,237)
SHARE TRANSACTIONS--
Proceeds from sale of shares 89,872,332 146,615,463
Net asset value of shares issued to shareholders in payment of
distributions declared 2,851,011 12,142,035
Cost of shares redeemed (134,818,759) (160,588,761)
Change in net assets resulting from share transactions (42,095,416) (1,831,263)
Change in net assets (38,793,676) (8,203,565)
NET ASSETS:
Beginning of period 197,224,336 205,427,901
End of period (including undistributed net investment income
of $40,177 and $0, respectively) $158,430,660 $197,224,336
</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,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $17.32 $17.89 $18.53 $16.49 $14.09 $14.44 $14.28 $17.59 $17.34 $19.99
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.03 0.03 0.09 0.15 0.06 0.10 0.11 0.19 0.18 0.19
Net realized and
unrealized
gain (loss) on
investments
and foreign
currency 0.82 1.38 0.17 1.96 2.53 (0.37) 0.37 (1.16) 1.60 3.27
Total from
investment
operations 0.85 1.41 0.26 2.11 2.59 (0.27) 0.48 (0.97) 1.78 3.46
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)
Distributions in
excess of
net investment -- -- -- -- (0.13) -- -- -- -- --
income(a)
Total
distributions
from net investment
income -- (0.09) (0.003) (0.07) (0.19) (0.08) (0.21) (0.20) (0.23) (0.23)
Distributions
from net
realized gain on
investments and
foreign currency
transactions (0.38) (1.89) (0.90) -- -- -- (0.11) (2.14) (1.30) (5.88)
Total
distributions (0.38) (1.98) (0.90) (0.07) (0.19) (0.08) (0.32) (2.34) (1.53) (6.11)
NET ASSET
VALUE, END OF
PERIOD $17.79 $17.32 $17.89 $18.53 $16.49 $14.09 $14.44 $14.28 $17.59 $17.34
TOTAL RETURN(B) 5.06% 8.63% 1.60% 12.82% 18.52% (1.86%) 3.49% (6.72%) 11.55% 24.33%
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.70%* 1.68% 1.57% 1.61% 1.60% 1.57% 1.52% 1.32% 1.01% 1.00%
Net investment
income 0.18%* 0.15% 0.42% -- 0.13% 0.69% 0.78% 1.39% 1.04% 1.43%
Expense waiver/
reimbursement(c) 0.13%* 0.15% 0.18% -- 0.01% 0.02% 0.30% 0.25% 0.46% 0.28%
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $131,440 $172,988 $191,911 $261,178 $192,860 $106,937 $101,980 $82,541 $65,560 $68,922
Average
Commission
Rate Paid(d) $0.0025 $0.0018 -- -- -- -- -- -- -- --
Portfolio
turnover 117% 119% 166% 73% 74% 91% 84% 114% 85% 98%
</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.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(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)
MAY 31, YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $17.04 $17.70 $18.50 $19.61
INCOME FROM INVESTMENT OPERATIONS
Net investment operating loss (0.02) (0.03) (0.08) (0.01)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.78 1.26 0.18 (1.10)
Total from investment operations 0.76 1.23 0.10 (1.11)
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.00)(b) -- --
Distributions from net realized gain on investments and
foreign currency transactions (0.38) (1.89) (0.90) --
Total distributions (0.38) (1.89) (0.90) --
NET ASSET VALUE, END OF PERIOD $17.42 $17.04 $17.70 $18.50
TOTAL RETURN(c) 4.61% 7.59% 0.68% (5.27%)
RATIOS TO AVERAGE NET ASSETS
Expenses 2.58%* 2.58% 2.52% 2.59%*
Net investment operating loss (0.53%)* (0.74%) (0.52%) (0.88%)*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $20,471 $16,707 $6,370 $1,214
Average Commission Rate Paid(d) $0.0025 $0.0018 -- --
Portfolio turnover 117% 119% 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) Distributions from net investment income is less than 0.01 per share.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(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)
MAY 31, YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.85 $17.50 $18.30 $16.41 $14.88
INCOME FROM INVESTMENT OPERATIONS
Net investment operating loss (0.06)(g) (0.10) (0.12) (0.05) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.81 1.34 0.22 1.98 1.57
Total from investment operations 0.75 1.24 0.10 1.93 1.53
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.00)(b) (0.00)(b) -- --
Distributions in excess of net investment income(c) -- -- -- (0.04) --
Total distributions from net investment income -- (0.00) (0.00) (0.04) --
Distributions from net realized gain on
investments and foreign currency transactions (0.38) (1.89) (0.90) -- --
Total distributions (0.38) (1.89) (0.90) (0.04) --
NET ASSET VALUE, END OF PERIOD $17.22 $16.85 $17.50 $18.30 $16.41
TOTAL RETURN(D) 4.60% 7.75% 0.69% 11.75% 10.28%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.58%* 2.57% 2.46% 2.55% 2.57%*
Net investment operating loss (0.67%)* (0.72%) (0.47%) (0.91%) (1.10%)*
Expense waiver/reimbursement(e) -- 0.01% 0.04% -- 0.01%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $6,519 $7,580 $7,146 $8,836 $2,852
Average Commission Rate Paid(f) $0.0025 $0.0018 -- -- --
Portfolio turnover 117% 119% 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 from net investment income is less than 0.01 per share.
(c) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principals. These
distributions do not represent a return of capital for federal income tax
purposes.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(f) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(g) Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 (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 offers three classes of shares: Class A Shares, Class B Shares and
Class C Shares. The Fund's objective is to obtain a total return on its assets.
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 corporate bonds, unlisted securities and
private placement securities are generally valued at the mean of the last
closing bid and asked price as furnished by an independent pricing service.
Foreign equity securities are valued at the last sale price reported in the
market in which they are primarily traded. If no sale on the recognized
exchange is reported or the security is traded over the counter, the foreign
securities are valued at the mean between the last closing bid and asked
prices. Short-term securities are valued at the prices provided by an
independent pricing service. However, short-term foreign and domestic
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. 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.
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 the Fund is reasonably able to obtain
information.
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 interest and 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.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the Fund's
securities against currency fluctuations. Risks may arise upon entering these
transactions from the potential inability of counter-parts to meet the terms
of their commitments and from unanticipated movements in security prices or
foreign exchange rates. The foreign currency transactions are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purpose as unrealized until the settlement
date.
At May 31, 1997, the Fund had outstanding foreign currency commitments as set
forth below:
<TABLE>
<CAPTION>
CONTRACTS TO IN UNREALIZED
SETTLEMENT DELIVER/ EXCHANGE CONTRACTS AT APPRECIATION
CONTRACTS PURCHASED DATE RECEIVE FOR VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Pound Sterling 6/2/1997 - 879,854 $1,441,003 $1,439,316 $(1,687)
6/4/1997
CONTRACTS SOLD:
Netherlands Guilder 6/2/1997 23,375 12,194 12,159 35
Norwegian Krone 6/2/1997 30,600 4,328 4,295 33
Net total depreciation
on foreign currency
commitments $(1,619)
</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.
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 Directors. The Fund will not incur any registration costs
upon such resales.
Additional information on each restricted security held at May 31, 1997 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Chilectra S.A., ADR 2/28/1996 $ 168,268
Suez Cement Co., GDR 11/25/1996 154,875
Gedeon Richter, GDR 5/22/1997 702,000
Japan Tobacco, Inc. 3/19/1997 1,275,403
Samsung Electronics Co., GDR 3/14/1996 --
Telecel -- Comunicacoes Pessoai 3/5/1997 - 4/18/1997 1,693,717
Want Want Holdings 4/21/1997 - 4/22/1997 822,084
</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, 1997, par value shares ($0.0001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
PAR VALUE
CLASS NAME AUTHORIZED
<S> <C>
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 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, 1997 NOVEMBER 30, 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,933,723 $ 83,097,937 7,740,149 $ 131,449,303
Shares issued to
shareholders in
payment of
distributions
declared 138,301 2,327,602 679,782 11,012,713
Shares redeemed (7,664,888) (129,580,023) (9,162,907) (155,388,757)
Net change resulting
from Class A Shares
transactions (2,592,864) $ (44,154,484) (742,976) $ (12,926,741)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 308,049 $ 5,104,321 728,125 $ 12,265,060
Shares issued to
shareholders in
payment of
distributions
declared 21,907 362,345 40,410 649,796
Shares redeemed (135,114) (2,238,805) (147,816) (2,473,361)
Net change resulting
from Class B Shares
transactions 194,842 $ 3,227,861 620,719 $ 10,441,495
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 101,850 $ 1,670,074 177,534 $ 2,901,100
Shares issued to
shareholders in
payment of
distributions
declared 9,851 161,064 30,197 479,526
Shares redeemed (182,836) (2,999,931) (166,212) (2,726,643)
Net change resulting
from Class C Shares
transactions (71,135) $ (1,168,793) 41,519 $ 653,983
Net change
resulting from
share
transactions (2,469,157) $ (42,095,416) (80,738) $ (1,831,263)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 1.00% of the Fund's average daily net
assets.
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 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>
PERCENTAGE OF
AVERAGE DAILY NET
CLASS NAME ASSETS OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
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 Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $194,098,221
SALES $243,564,833
</TABLE>
6. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified portfolio, the political or economic developments within a
particular country or region may have an adverse effect on the ability of
domiciled issuers to meet their obligations. Additionally, political or economic
developments may have an effect on the liquidity and volatility of portfolio
securities and currency holdings.
At May 31, 1997, the diversification of industries was as follows:
<TABLE>
<CAPTION>
PERCENTAGE
INDUSTRY OF NET ASSETS <S> <C> Aerospace & Military Technology 0.48% Appliances
& Household Durables 0.01% Automobile 3.20% Banking 14.87% Beverage & Tobacco
3.79% Broadcasting & Publishing 0.56% Building Materials & Components 0.12%
Business & Public Services 0.48% Chemicals 1.50% Construction & Housing 0.74%
Data Processing & Reproduction 2.88% Electrical & Electronics 4.21% Electronic
Components, Instruments 5.10% Energy - Oil & Gas 0.58% Energy Equipment &
Services 0.13% Energy Sources 6.10% Financial Services 1.13% Food & Household
Products 2.64% Health & Personal Care 6.79% Industrial Components 0.58%
Insurance 3.38% Leisure & Tourism 2.65% Machinery & Engineering 3.72%
Merchandising 2.80% Metals - Non Ferrous 0.13% Metals - Steel 0.33%
Multi-Industry 3.30% Pharmaceuticals 2.02% Real Estate 4.66% Recreation, Other
Consumer Goods 2.08% Telecommunications 9.17% Tobacco 0.91% Unassigned 5.31%
Utilities - Electrical & Gas 3.46% </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, Treasurer, and Secretary
Richard B. Fisher
Vice President
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectuses which contain facts
concerning the fund's objective and policies, management fees, expenses and
other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 46031P308
Cusip 46031P407
Cusip 46031P605
8070112 (7/97)
[Graphic]
[Graphic]Federated Investors
Federated International Income Fund
6TH SEMI-ANNUAL REPORT
MAY 31, 1997
ESTABLISHED 1991
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
Federated International Income Fund was established in 1991, and I am pleased to
present the 6th Semi-Annual Report for the fund that covers the period from
December 1, 1996, to May 31, 1997.
This report begins with a discussion with the fund's co-portfolio managers,
Robert Kowit, Vice President, Federated Global Research Corp. and Michael Casey,
Ph.D., Assistant Vice President, Federated Global Research Corp. Following their
discussion are three additional items of shareholder interest: a series of
graphs showing long-term investment performance, a complete listing of the
fund's bond holdings and the fund's financial statements.
The fund's assets of over $223 million are invested in 38 high-quality debt
issues of over 15 countries in an effort to pursue generous quarterly income and
capital appreciation.*
After a strong fiscal year of double-digit total return performance, the fund
experienced a share price decline and negative total return as the result of the
strong U.S. dollar which weakened international bond returns. However, the fund
continued to produce generous income. A review of performance for each share
class for the six months ended May 31, 1997, is shown below.
NAV NAV NAV INCOME TOTAL RETURN
12/1/96 5/31/97 CHANGE DISTRIBUTIONS BASED ON NAV**
Class A Shares $11.92 $10.80 -9% $0.52 -5.13%
Class B Shares $11.89 $10.77 -9% $0.48 -5.51%
Class C Shares $11.89 $10.78 -9% $0.48 -5.44%
Thank you for joining the growing number of Federated International Income Fund
shareholders who have broadened their fixed-income assets internationally.
* International investing involves special 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, B, and C Shares were -9.39%, -10.68%, and -6.41%, respectively.
Remember, adding to your account and reinvesting your quarterly dividends in
additional shares is a convenient, painless way to "pay yourself first" and
enjoy the benefit of compounding.+
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
July 15, 1997
+ Systematic investing does not ensure a profit or protect against loss in
declining markets.
Investment Review
[Graphic]
Robert Kowit
Vice President
Federated Global
Research Corp.
[Graphic]
Michael Casey, Ph.D.
Assistant Vice President
Federated Global
Research Corp.
[Graphic]
WHAT ARE YOUR COMMENTS ON 1997'S WEAK INTERNATIONAL BOND RETURNS, AND THE
CULPRIT -- THE STRONG U.S. DOLLAR?
1997 has actually been a very good year for international bonds, but the
extremely strong performance of the U.S. dollar has more than offset the
performance of the local international bond markets. As defined by the J.P.
Morgan single country bond indexes, the U.S. bond market was up 2.62%. By
comparison Canada was up 3.62%; Germany 3.18%; Italy 3.59%; Japan 3.46%;
U.K. 5.97%; and Sweden 2.17%.
In dollar terms, however, the total returns drop dramatically. Canada, +2.24%;
Germany, -7.76%; Italy, -7.04%; Japan, +1.57%; U.K., +1.24%; and
Sweden, -10.18%.
It is clear that the strength of the U.S. dollar has been the major negative
factor for an unhedged international bond fund.
[Graphic]
IN THIS ENVIRONMENT, HOW DID FEDERATED INTERNATIONAL INCOME FUND PERFORM FOR
SHAREHOLDERS OVER THE SIX-MONTH PERIOD ENDED MAY 31, 1997?
The fund's returns were consistent with the -5.04% return of the overall
international bond market, as measured by the J.P. Morgan Non-Dollar Bond
Index.* Total returns based on net asset value were: Class A Shares, -5.13%;
Class B Shares, -5.51%; and Class C Shares, -5.44%.**
[Graphic]
INCOME IS A PRIMARY CONSIDERATION FOR SHAREHOLDERS. WHAT LEVEL OF INCOME DID
THE FUND PROVIDE SHAREHOLDERS DURING THE PERIOD?
While the fund's total return was impacted by a decrease in net asset value, the
fund paid a healthy income stream totaling $0.52 per share for Class A Shares,
$0.48 for Class B Shares, and $0.48 per share for Class C Shares.
* The J.P. Morgan Non-Dollar Bond Index is a total return, unmanaged,
trade-weighted index of over 360 government and high-grade bonds in 12
developed countries. Investments cannot be made in an index.
** Performance quoted is based on net asset value and represents past
performance. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for Class
A, B, and C Shares were -9.39%, -10.68%, and -6.41%, respectively.
[Graphic]
WHAT COUNTRIES WERE EMPHASIZED IN THE PORTFOLIO'S HIGH-QUALITY BOND HOLDINGS AS
OF MAY 31, 1997?
Half of the fund's holdings were concentrated among Germany, the U.K., Japan,
Canada, Italy and Denmark. The balance was spread across the countries as
indicated below:
Germany 19.3%
U.K. 12.9%
Japan 8.2%
Canada 7.2%
Italy 6.9%
Denmark 6.1%
New Zealand 4.5%
Australia 4.5%
Spain 4.1%
Sweden 3.1%
Other Countries 23.2%
[Graphic]
CAN YOU TELL US ABOUT SOME OF THE FUND'S MOST RECENT PURCHASES?
PURCHASES/
SALES COUNTRY RATIONALE
Kingfisher (United This security helped increase
8.125% Kingdom) exposure to the U.K. market, where
2007 we expected sterling to appreciate.
This occurred and the bond tightened 12 bps to
the U.K. curve to give a 3.0% total return for
the month since we bought the bond.
JGB (Japan) We increased yen exposure from
5% of 9/98 zero to merely underweight in order
to maintain our index tracking in the
face of yen-strength.
FNMA (Australia) We wanted to extend duration in
6.5% our Australian holdings from the
NSW 2-yr. Bond to the 5-yr. Bond.
This has proved beneficial since the
average 2-5 year yield spread has
narrowed 13 bps since the June 26
trade date.
[Graphic]
WHILE 1997 HAS NOT LIVED UP TO ITS PROMISE AS A FAVORABLE YEAR FOR
INTERNATIONAL BOND RETURNS, DO YOU FORESEE AN IMPROVED ENVIRONMENT ON THE
HORIZON?
While international bonds have done well in local terms, we think there is still
a bit more performance left in the markets. Almost all of the European bond
markets continue to have much steeper yield curves than the U.S. The yield
spread between two-year and ten-year maturities is about 40 basis points in the
U.S., while it is over 200 basis points in most European markets. Even though
these economies are starting to show signs of growth, we do not expect to see
short-term rates increase until next year.
Concerning total return performance, in only 5 of the previous 45 quarters has
the international bond market underperformed the U.S. market by 5% or more -- as
was the case in the first quarter of 1997 when international bonds
underperformed the U.S. market by 5.12%. From the beginning of the year through
May 31, 1997, international bonds underperformed the U.S. market by 92 basis
points. Only twice in the previous 45 quarters -- in 1988 and 1995 -- have we
seen international bonds underperform U.S. bonds for three consecutive quarters.
The key element to relative performance over the short-term should be the
movement of the dollar, which has appreciated between 5% and 12% against most
European currencies so far this year.
While it is possible that the dollar might move a bit higher, it does look like
the markets have fully discounted the growth differentials between the U.S. and
Europe. As we start to see further confirmation of European growth and some
slowing in the U.S. economy, we should see the currencies start to make up some
lost ground.
The speed with which this can happen is illustrated by the Japanese yen, which
appreciated over 11% between April 30, 1997, and May 20, 1997, as the strength
of the Japanese economic recovery became more apparent.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED INTERNATIONAL INCOME FUND
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $6,000 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 $9,961 ON
5/31/97. YOU WOULD HAVE EARNED A 8.83%* AVERAGE ANNUAL TOTAL RETURN FOR THE
SIX-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 6/30/97, the Class A Shares' average annual one-year, five-year and since
inception (6/4/91) total returns were 1.44%, 7.45%, and 8.91%, respectively.
Class B Shares' average annual one-year and since inception (9/28/94) total
returns were -0.39% and 7.50%, respectively. Class C Shares' average annual
one-year and since inception (4/1/93) total returns were 4.26% and 9.28%,
respectively.
[Graphic] - See Appendix(A)
* 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 SIX YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $7,682.
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 $6,000, but your
account would have reached a total value of $7,682* by 5/31/97. You would have
earned an average annual total return of 7.25%.
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, money, and compounding to work!
[Graphic] - See Appendix(B)
* 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.
Because such a plan involves continuous investments, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED INTERNATIONAL INCOME FUND
HYPOTHETICAL INVESTOR PROFILE:
INVESTING FOR A HIGH LEVEL OF INCOME FROM ABROAD
Bob and Nancy Griffin -- a single-income suburban couple -- are building a nest
egg for their son 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 June 4, 1991, and as of May 31, 1997, their
account totaled $28,646, giving them an annual total return of 8.16%.*
Now they can feel confident about giving Cal a quality 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(C)
* 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, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY CREDIT IN U.S.
PAR AMOUNT RATING* DOLLARS
<C> <S> <S> <C>
BONDS -- 92.4%
AUSTRALIAN DOLLAR -- 4.3%
AGENCY -- 4.3%
5,500,000 New South Wales Treasury, 6.50%, 5/1/2006 AAA/NR $ 3,841,747
7,000,000 New South Wales Treasury, 11.50%, 7/1/1999 AAA/Aaa 5,891,538
TOTAL AUSTRALIAN DOLLAR 9,733,285
BRITISH POUND -- 12.5%
SOVEREIGN -- 12.5%
4,000,000 Alliance & Leicester BLD, Sub., 8.75%, 12/7/2006 A3 6,788,811
4,000,000 Bayerische Vereinsbank AG, Munich, Sub., 8.625%,
6/15/2005 NR/Aa1 6,837,886
4,000,000 Landbk Hessen -- Thueringen, Sub. Note, 9.00%,
9/6/2004 AAA/Aaa 7,068,084
3,975,000 UK Treasury, Deb., 10.00%, 2/26/2001 NR/Aaa 7,108,084
TOTAL BRITISH POUND 27,802,865
CANADIAN DOLLAR -- 6.9%
SOVEREIGN -- 4.5%
6,500,000 Canada, Government of, Deb., 8.00%, 6/1/2023 AAA/Aa1 5,245,350
5,500,000 Quebec, Province of, Deb., 9.375%, 1/16/2023 A+/A2 4,794,139
Total 10,039,489
STATE/PROVINCIAL -- 2.4%
6,250,000 Alberta Province, Deb., 7.25%, 10/28/2005 AA/Aa2 4,681,732
1,000,000 (a)Metro Toronto, Deb., 7.40%, 9/27/2006 AA+ 759,245
Total 5,440,977
TOTAL CANADIAN DOLLAR 15,480,466
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY CREDIT IN U.S.
PAR AMOUNT RATING* DOLLARS
<C> <S> <S> <C>
BONDS -- CONTINUED
DANISH KRONE -- 5.9%
SOVEREIGN -- 5.9%
25,000,000 Denmark, Bond, 8.00%, 3/15/2006 AAA/Aaa $ 4,242,008
56,294,000 Nykredit, Mtg. Bond, 8.00%, 10/1/2026 AA-/NR 8,877,420
TOTAL DANISH KRONE 13,119,428
DEUTSCHE MARK -- 18.7%
AGENCY -- 7.8%
13,000,000 Export-Import Bank Japan, Foreign Gov't. Guarantee,
6.50%, 5/19/2000 AAA/Aaa 8,018,606
15,000,000 KFW International Finance, Bank Guarantee, 6.75%,
6/20/2005 AAA/Aaa 9,314,113
Total 17,332,719
SOVEREIGN -- 10.9%
7,500,000 Baden Wurt L-Finance NV, Bank Guarantee, 6.75%,
6/22/2005 AAA/Aaa 4,649,377
5,000,000 Deutsche Genossen-Hypobk, Sec. Fac. Bond, Series 758,
5.75%, 1/22/2007 NR 2,864,666
14,000,000 Deutschland Republic, Bond, 6.00%, 6/20/2016 AAA 7,726,172
8,000,000 Germany (Fed Republic), 6.50%, 7/15/2003 AAA/Aaa 4,971,974
7,000,000 Kredit Wiederauf, Bond, 6.00%, 2/9/2006 AAA/Aaa 4,124,393
Total 24,336,582
TOTAL DEUTSCHE MARK 41,669,301
EUROPEAN CURRENCY UNIT (ECU) -- 7.1%
SOVEREIGN -- 7.1%
7,500,000 France O.A.T., Bond, 7.50%, 4/25/2005 AAA/Aaa 9,412,662
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY CREDIT IN U.S.
PAR AMOUNT RATING* DOLLARS
<C> <S> <S> <C>
BONDS -- CONTINUED
EUROPEAN CURRENCY UNIT (ECU) -- CONTINUED
5,400,000 France (Government), Bond, 7.00%, 4/25/2006 AAA $ 6,498,662
TOTAL EUROPEAN CURRENCY UNIT 15,911,324
GREECE -- 3.5%
SOVEREIGN -- 3.5%
1,400,000,000 Hellenic Republic, Bond, 10/31/1997 A-/NR 4,918,406
750,000,000 Hellenic Republic, Bond, 14.00%, 10/23/2003 A-/NR 2,864,755
TOTAL GREECE 7,783,161
IRISH POUND -- 2.1%
SOVEREIGN -- 2.1%
2,850,000 Irish Government, Bond, 8.00%, 8/18/2006 AAA/NR 4,667,622
TOTAL IRISH POUND 4,667,622
ITALIAN LIRA -- 6.7%
SOVEREIGN -- 6.7%
8,000,000,000 Buoni Poliennali Del Tes, Bond, 10.50%, 11/1/2000 AAA/Aa3 5,231,196
5,965,000,000 Buoni Poliennali Del Tes, Deb., 10.50%, 7/15/1998 AAA/A1 3,651,976
1,500,000,000 Buoni Poliennali Del Tes, Deb., 8.50%, 1/1/2004 AAA/Aa3 941,013
8,750,000,000 Cert Di Credito Del Tes, Note, 6.90%, 1/1/2004 AAA/NR 5,090,073
TOTAL ITALIAN LIRA 14,914,258
JAPANESE YEN -- 8.0%
SOVEREIGN -- 8.0%
1,970,000,000 Japan, 5.00%, 9/21/1998 Aaa 17,810,357
TOTAL JAPANESE YEN 17,810,357
NEW ZEALAND DOLLAR -- 4.4%
SOVEREIGN -- 4.4%
13,750,000 New Zealand, Government of, Deb., 8.00%, 11/15/2006 NR/Aaa 9,820,914
TOTAL NEW ZEALAND DOLLAR 9,820,914
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY CREDIT IN U.S.
PAR AMOUNT RATING* DOLLARS
<C> <S> <S> <C>
BONDS -- CONTINUED
NORWEGIAN KRONE -- 2.3%
SOVEREIGN -- 2.3%
36,000,000 Norwegian Government, Foreign Gov't. Guarantee,
5.75%, 11/30/2004 AAA/Aaa $ 5,045,761
TOTAL NORWEGIAN KRONE 5,045,761
PORTUGESE -- 3.0%
SOVEREIGN -- 3.0%
300,000,000 Obrig Do Tes Medio Prazo, 9.50%, 2/23/2006 AAA/NR 2,065,318
555,000,000 Portuguese Government, Bond, 11.875%, 2/23/2000 AAA/NR 3,713,046
130,000,000 Portuguese Government, Deb., 8.875%, 1/23/2004 AAA/NR 854,393
TOTAL PORTUGUESE 6,632,757
SPANISH PESETA -- 4.0%
SOVEREIGN -- 4.0%
1,080,000,000 Spain (Government), Foreign Gov't. Guarantee,
10.30%, 6/15/2002 AA/Aa2 8,886,691
TOTAL SPANISH PESETA 8,886,691
SWEDISH KRONA -- 3.0%
SOVEREIGN -- 3.0%
24,000,000 Statens Bostads, Deb., 11.00%, 1/21/1999 AA-/NR 3,370,812
28,000,000 Sweden (Kingdom of), 6.00%, 2/9/2005 AAA/Aa1 3,429,921
TOTAL SWEDISH KRONA 6,800,733
TOTAL BONDS (IDENTIFIED COST $212,660,355) 206,078,923
</TABLE>
FEDERATED INTERNATIONAL INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
(B)REPURCHASE AGREEMENT -- 4.5%
$ 10,100,000 BT Securities Corporation, 5.56%, dated 5/30/1997,
due 6/2/1997 (AT AMORTIZED COST) $ 10,100,000
TOTAL INVESTMENTS (IDENTIFIED COST $222,760,355)(C) $ 216,178,923
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At May 31, 1997, these securities amounted to
$759,245 which represents 0.3% of net assets.
(b) 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.
(c) The cost of investments for federal tax purposes amounts to $222,760,355.
The net unrealized depreciation of investments on a federal tax basis
amounts to $6,581,432 which is comprised of $3,404,197 appreciation and
$9,985,629 depreciation at May 31, 1997.
* 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
($223,040,276) at May 31, 1997.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $222,760,355) $ 216,178,923
Cash 36,099
Income receivable 6,577,103
Receivable for shares sold 516,092
Total assets 223,308,217
LIABILITIES:
Payable for shares redeemed $ 71,839
Payable for taxes withheld 44,940
Accrued expenses 151,162
Total liabilities 267,941
NET ASSETS for 20,660,466 shares outstanding $ 223,040,276
NET ASSETS CONSIST OF:
Paid in capital $ 240,379,560
Net unrealized depreciation of investments and translation of assets and liabilities in (6,812,519)
foreign currency
Accumulated net realized loss on investments and foreign currency transactions (12,440,627)
Undistributed net investment income 1,913,862
Total Net Assets $ 223,040,276
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($196,660,955 / 18,212,271 shares outstanding) $10.80
Offering Price Per Share (100/95.50 of $10.80)* $11.31
Redemption Proceeds Per Share (99.50/100 of $10.80)** $10.75
CLASS B SHARES:
Net Asset Value Per Share ($11,256,113 / 1,044,827 shares outstanding) $10.77
Offering Price Per Share $10.77
Redemption Proceeds Per Share (94.50/100 of $10.77)** $10.18
CLASS C SHARES:
Net Asset Value Per Share ($15,123,208 / 1,403,368 shares outstanding) $10.78
Offering Price Per Share $10.78
Redemption Proceeds Per Share (99/100 of $10.78)** $10.67
</TABLE>
* See "How to Purchase 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, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign taxes withheld of $68,233) $ 7,946,701
EXPENSES:
Investment advisory fee $ 808,800
Administrative personnel and services fee 92,247
Custodian fees 60,707
Transfer and dividend disbursing agent fees and expenses 85,814
Directors'/Trustees' fees 1,782
Auditing fees 14,238
Legal fees 2,840
Portfolio accounting fees 60,747
Distribution services fee -- Class A Shares 238,667
Distribution services fee -- Class B Shares 36,769
Distribution services fee -- Class C Shares 56,339
Shareholder services fee -- Class A Shares 238,667
Shareholder services fee -- Class B Shares 12,257
Shareholder services fee -- Class C Shares 18,780
Share registration costs 20,658
Printing and postage 18,982
Insurance premiums 3,232
Taxes 11,380
Miscellaneous 3,899
Total expenses 1,786,804
Waivers --
Waiver of distribution services fee -- Class A Shares $ (166,851)
Waiver of shareholder services fee -- Class A Shares (114,560)
Total waivers $(281,411)
Net expenses 1,505,393
Net investment income 6,441,308
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency transactions 2,515,554
Net change in unrealized appreciation (depreciation) of investments and
translation
of assets and liabilities in foreign currency (20,490,370)
Net realized and unrealized loss on investments and foreign currency (17,974,816)
Change in net assets resulting from operations $ (11,533,508)
</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
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 6,441,308 $ 12,816,746
Net realized gain (loss) on investments and foreign currency
transactions ($2,515,554 and $0 net gains, respectively, as computed
for federal tax purposes) 2,515,554 11,654,540
Net change in unrealized appreciation/depreciation of investments and
translation of assets and liabilities in foreign currency (20,490,370) 587,187
Change in net assets resulting from operations (11,533,508) 25,058,473
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (8,812,129) (13,679,429)
Class B Shares (385,193) (229,103)
Class C Shares (617,689) (878,043)
Change in net assets resulting from distributions to shareholders (9,815,011) (14,786,575)
SHARE TRANSACTIONS --
Proceeds from sale of shares 66,676,288 88,154,905
Net asset value of shares issued to shareholders in payment of
distributions declared 4,008,947 5,742,262
Cost of shares redeemed (50,671,258) (66,837,071)
Change in net assets resulting from share transactions 20,013,977 27,060,096
Change in net assets (1,334,542) 37,331,994
NET ASSETS:
Beginning of period 224,374,818 187,042,824
End of period (including undistributed net investment income of
$1,913,862 and $5,287,565, respectively) $ 223,040,276 $ 224,374,818
</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,
1997 1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.92 $11.38 $10.52 $11.86 $10.47 $10.84 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.33 0.74** 0.79 0.70 0.88 0.62 0.25
Net realized and unrealized gain
(loss) on
investments and foreign currency (0.93) 0.67 0.84 (0.76) 1.40 (0.20) 0.75
Total from investment operations (0.60) 1.41 1.63 (0.06) 2.28 0.42 1.00
LESS DISTRIBUTIONS
Distributions from net (0.52) (0.87) (0.77) (0.63) (0.75) (0.71) 0.16)
investment income
Distributions in excess of net
investment
income(b) -- -- -- -- -- (0.05) --
Distributions from net realized
gain on
investments and foreign currency -- -- -- (0.65) (0.14) (0.03) --
transactions
Total distributions (0.52) (0.87) (0.77) (1.28) (0.89) (0.79) (0.16)
NET ASSET VALUE, END OF PERIOD $10.80 $11.92 $11.38 $10.52 $11.86 $10.47 $10.84
TOTAL RETURN(C) (5.13%) 13.27% 16.12% (0.84%) 22.95% 3.82% 10.07%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.30%* 1.30% 1.30% 1.30% 1.25% 0.99% 0.32%*
Net investment income 6.06%* 6.58% 6.79% 6.67% 7.71% 5.83% 7.54%*
Expense waiver/reimbursement(d) 0.29%* 0.34% 0.40% 0.20% 0.27% 0.62% 1.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 $196,661 $200,758 $173,905 $209,008 $220,602 $86,937 $23,465
omitted)
Portfolio turnover 38% 92% 41% 136% 189% 314% 35%
</TABLE>
* Computed on an annualized basis.
** Per share information presented is based upon the monthly average number of
shares outstanding.
(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,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.89 $11.36 $10.51 $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.84** 0.77 0.08
Net realized and unrealized gain (loss) on
investments and foreign currency (0.96) 0.48 0.78 0.22
Total from investment operations (0.64) 1.32 1.55 0.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.48) (0.79) (0.70) --
NET ASSET VALUE, END OF PERIOD $10.77 $11.89 $11.36 $10.51
TOTAL RETURN(B) (5.51%) 12.41% 15.28% 2.44%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.10%* 2.11% 2.10% 2.11%*
Net investment income 5.28%* 5.76% 5.76% 7.07%*
Expense waiver/reimbursement(c) -- 0.02% 0.10% 0.10%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $11,256 $8,641 $1,123 $101
Portfolio turnover 38% 92% 41% 136%
</TABLE>
* Computed on an annualized basis.
** Per share information presented is based upon the monthly average number of
shares outstanding.
(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)
MAY 31, YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.89 $11.36 $10.48 $11.84 $10.23
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.67** 0.60 0.58 0.41
Net realized and unrealized gain (loss) on
investments and foreign currency (0.93) 0.64 0.95 (0.72) 1.58
Total from investment operations (0.63) 1.31 1.55 (0.14) 1.99
LESS DISTRIBUTIONS
Distributions from net investment income (0.48) (0.78) (0.67) (0.57) (0.38)
Distributions from net realized gain
on investments and foreign currency
transactions -- -- -- (0.65) --
Total distributions (0.48) (0.78) (0.67) (1.22) (0.38)
NET ASSET VALUE, END OF PERIOD $10.78 $11.89 $11.36 $10.48 $11.84
TOTAL RETURN(B) (5.44%) 12.31% 15.32% (1.54%) 19.67%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.10%* 2.09% 2.07% 2.05% 2.05%*
Net investment income 5.27%* 5.80% 5.96% 6.00% 5.39%*
Expense waiver/reimbursement(c) -- 0.04% 0.14% 0.10% 0.21%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $15,123 $14,976 $12,015 $8,098 $4,767
Portfolio turnover 38% 92% 41% 136% 189%
</TABLE>
* Computed on an annualized basis.
** Per share information presented is based upon the monthly average number of
shares outstanding.
(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, 1997 (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 offers three classes of shares: Class A Shares, Class
B Shares and Class C Shares. 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.
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.
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, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $14,956,181, 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:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $10,190,029
2003 $ 4,766,152
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.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Risks may arise upon entering these transactions from
the potential inability of counterparts to meet the terms of their commitments
and from unanticipated movements in security prices or foreign exchange rates.
The foreign currency transactions are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded for financial
statement purpose as unrealized until the settlement date. At May 31, 1997,
the Fund had no outstanding foreign exchange contracts.
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.
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 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 pricing committee.
Additional information on each restricted security held at May 31, 1997 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
MetroToronto 9/13/1996 $727,386
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, 1997, par value shares ($0.001 per share) authorized were as follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
Total 1,500,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,396,193 $ 59,706,529 6,869,642 $ 77,132,743
Shares issued to shareholders in
payment of
distributions declared 289,058 3,231,634 441,539 4,853,225
Shares redeemed (4,321,313) (48,035,301) (5,739,277) (64,189,320)
Net change resulting from Class A
Shares
transactions 1,363,938 $ 14,902,862 1,571,904 $ 17,796,648
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 359,449 $ 3,959,977 660,138 $ 7,379,995
Shares issued to shareholders in
payment of
distributions declared 22,640 252,183 13,806 151,637
Shares redeemed (63,902) (703,180) (46,135) (511,605)
Net change resulting from Class B
Shares
transactions 318,187 $ 3,508,980 627,809 $ 7,020,027
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 274,158 $ 3,009,782 325,894 $ 3,642,167
Shares issued to shareholders in
payment of
distributions declared 47,070 525,130 67,085 737,400
Shares redeemed (177,064) (1,932,777) (191,747) (2,136,146)
Net change resulting from Class C
Shares
transactions 144,164 $ 1,602,135 201,232 $ 2,243,421
Net change resulting from share 1,826,289 $ 20,013,977 2,400,945 $ 27,060,096
transactions
</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 0.75% 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 A Shares, 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.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
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 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 Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1997, were as follows:
PURCHASES $90,643,835
SALES $78,185,389
6. 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.
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, Treasurer, and Secretary
Richard B. Fisher
Vice President
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment 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]
Federated Investors
Federated Securities Corp., Distributor
Cusip 46031P100
Cusip 46031P209
Cusip 46031P506
2061602 (7/97)
[Graphic]
APPENDIX
FEDERATED INTERNATIONAL EQUITY FUND
A. The graphic representation here displayed entitled "Initial Investment of
$13,000," 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 $13,000 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 $13,000/1,256 Shares in the Fund on 8/17/84, would
have a reinvested total worth of $58,584/3,293 Shares on 5/31/97. The "x" axis
reflects annual computation periods from 8/17/84 to 5/31/97. The right margin of
the chart reflects the ending values of a hypothetical investment of $13,000 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 investment in the Fund (totaling $12,000
by 5/31/97). 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 $23,372/1,314 Shares
on 5/31/97. The "x" axis reflects computation periods from 8/17/84 to 5/31/97.
The right margin of the chart reflects the ending values of hypothetical annual
investments of $1,000 in the Fund measured in increments of $5,000 ranging from
$0 to $25,000.
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 $70,000 by 5/31/97). The color-coded
mountain is a visual representation of the narrative text above it, which shows
that an original $10,000/966 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 $139,697/7,853 Shares on 5/31/97. The
"x" axis reflects computation periods from 8/17/84 to 5/31/97. 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 $25,000
ranging from $0 to $150,000.
APPENDIX
A. The graphic representation here displayed entitled "Initial Investment of
$6,000," 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 $6,000 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 $6,000/573 Shares in the Fund on 6/4/91, would
have a reinvested total worth of $9,961/922 Shares on 5/31/97. The "x" axis
reflects annual computation periods from 6/4/91 to 5/31/97. The right margin of
the chart reflects the ending values of a hypothetical investment of $6,000 in
the Fund measured in increments of $2,000 ranging from $0 to $10,000.
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 $6,000 by
5/31/97). 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 $7,682/711 Shares on
5/31/97. The "x" axis reflects computation periods from 6/4/91 to 5/31/97. The
right margin of the chart reflects the ending values of hypothetical annual
investments of $1,000 in the Fund measured in increments of $2,000 ranging from
$0 to $8,000.
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 $20,000 by 5/31/97). 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 $28,646/2,652 Shares on 5/31/97. The "x" axis reflects
computation periods from 6/4/91 to 5/31/97. 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 $5,000 ranging from $0
to $30,000.
