SCOTTISH WIDOWS INTERNATIONAL FUND
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
Dear Shareholder:
The Board of Trustees and management of Scottish Widows International Fund
(the "International Fund") are pleased to submit for your vote a proposal for
the tax-free transfer of all the assets of the International Fund to Federated
International Equity Fund (the "Federated Fund"), a mutual fund portfolio of
International Series, Inc. (the "Corporation") advised by Federated Global
Research Corp. The Federated Fund has an investment objective to obtain a total
return on its assets. The Federated Fund's policies are similar to those of the
International Fund in that it pursues its objective by investing at least 65%,
and under normal market conditions substantially all of its total assets, in
non-U.S. equity securities of established companies in economically developed
countries. As part of the transaction, holders of shares in the International
Fund would receive shares of the Federated Fund equal in value to their shares
in the International Fund and the International Fund would be liquidated.
Shareholders would not have to pay a sales charge upon receiving such shares,
nor would they be subject to any contingent deferred sales charges in connection
with the exercise of exchange rights or redemptions of such shares. Further,
William Penn fund group shareholders who were invested as of November 30, 1988,
will not be charged a sales charge for future purchases made in any Federated
Fund, provided the account has remained open since that date.
You may be contacted by Shareholder Communications Corporation, a telephone
solicitation firm, requesting that you cast your vote by telephone. Also, you
may cast your vote by telephone by calling Shareholder Communications
Corporation toll free at (800) 733-8481 ext. 459 (telephone voting only). If you
have any questions regarding the proxy/prospectus, you may call the
International Fund at (800) 523-8440 or the Federated Fund at (800) 245-4770.
The Board of Trustees of the International Fund, as well as Penn Square
Management Corporation, the International Fund's manager and distributor,
believe the proposed agreement and plan of reorganization is in the best
interests of International Fund shareholders for the following reasons:
- The Federated Fund has investment policies similar to that of the
International Fund and offers an investment portfolio which invests
primarily in non-U.S. equity securities to obtain a total return on its
assets.
- The Federated Fund offers competitive performance and comparable expense
ratios.
- The reorganization of the International Fund into the Federated Fund may
provide operating efficiencies as a result of the size of the Federated
Fund which were not available to International Fund shareholders due to
the smaller size of the International Fund.
- As an investor in the Federated Fund, shareholders would have access to a
dramatically expanded array of investment alternatives in the Federated
retail family of funds.
- Federated Investors also has an excellent reputation for customer
servicing, having received a #1 rating for the last five surveys in a row
by DALBAR, Inc. The shareholder services for the Federated funds include
advanced technological systems that result in quick shareholder access to
a broad spectrum of information and efficient routing of telephone calls
to the appropriate person.
The Federated Fund is managed by Federated Global Research Corp., a
subsidiary of Federated Investors. Federated Investors was founded in 1955 and
is located in Pittsburgh, Pennsylvania. Federated Global Research Corp. and
other subsidiaries of Federated Investors serve as investment advisers to a
number of investment companies and private accounts. With over $110 billion
invested across more than 300 funds under management and/or administration by
its subsidiaries, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than
2,000 employees, Federated continues to be led by the family management who
founded the company in 1955. Federated funds are presently at work in and
through 4,500 financial institutions nationwide.
We believe the transfer of the International Fund's assets in this
transaction presents an exciting investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer will be
effected only if approved by a majority of the votes cast at the Special Meeting
of shareholders. We hope you share our enthusiasm and will participate by
casting your vote in person, or by proxy if you are unable to attend the
meeting. Please read the enclosed prospectus/proxy statement carefully before
you vote.
THE BOARD OF TRUSTEES BELIEVES THAT THE TRANSACTION IS IN THE BEST
INTERESTS OF THE INTERNATIONAL FUND AND ITS SHAREHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL.
Thank you for your prompt attention and participation.
Sincerely,
/s/ James E. Jordan
James E. Jordan
President
SCOTTISH WIDOWS INTERNATIONAL FUND
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF SCOTTISH WIDOWS INTERNATIONAL FUND:
A Special Meeting of Shareholders Scottish Widows International Fund (the
"International Fund") will be held at: 9:00 a.m. on May 29, 1997 at: Sheraton
Berkshire Motor Inn, 1741 Paper Mill Road, Wyomissing, PA 19610, for the
following purposes:
1. To approve or disapprove a proposed Agreement and Plan of Reorganization
between the International Fund and Federated International Equity Fund,
Inc. (the "Federated Fund"), whereby the Federated Fund would acquire
all of the assets and assume certain liabilities of the International
Fund in exchange for the Federated Fund's Class A Shares and Class C
Shares to be distributed pro rata by the International Fund to the
holders of its Class A Shares and Class C Shares respectively in
complete liquidation of the International Fund; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
By Order of the Board of Trustees,
/s/ Sandra J. Houck
Sandra J. Houck
Secretary
Dated: April 25, 1997
Shareholders of record at the close of business on April 14, 1997, are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card. Your vote is important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF
FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU
MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF
YOU ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
APRIL 17, 1997
ACQUISITION OF THE ASSETS OF
SCOTTISH WIDOWS INTERNATIONAL FUND
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
TELEPHONE NUMBER: 1-800-523-8440
BY AND IN EXCHANGE FOR CLASS A SHARES AND CLASS C SHARES OF
FEDERATED INTERNATIONAL EQUITY FUND
A PORTFOLIO OF INTERNATIONAL SERIES, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-4770
This Prospectus/Proxy Statement describes the proposed Agreement and Plan of
Reorganization (the "Plan") whereby Federated International Equity Fund, (the
"Federated Fund"), a portfolio of International Series, Inc. (the
"Corporation"), a Maryland corporation, would acquire all the assets and assume
certain liabilities of Scottish Widows International Fund (the "International
Fund"), a Massachusetts business trust (the "Trust"), in exchange for the
Federated Fund's Class A Shares and Class C Shares to be distributed pro rata by
the International Fund to the holders of its Class A Shares and Class C Shares,
respectively, in complete liquidation of the International Fund. As a result of
the Plan, each shareholder of the International Fund will become the owner of
the corresponding Federated Fund's Class A Shares and Class C Shares having a
total net asset value equal to the total net asset value of his or her holdings
in the International Fund's Class A Shares and Class C Shares.
THE BOARD OF TRUSTEES OF THE INTERNATIONAL FUND UNANIMOUSLY RECOMMENDS
APPROVAL OF THE PLAN.
The shares of each of the Federated Fund and the International Fund
represent interests in separate open-end, diversified management investment
companies. The Federated Fund's investment objective is to obtain a total return
on its assets. The Federated Fund pursues its objective by investing at least
65%, and under normal market conditions substantially all of its total assets,
in non-U.S. equity securities of established companies in economically developed
countries. The International Fund's investment objective is long-term capital
appreciation. The International Fund seeks to achieve its objective by investing
primarily in equity securities (common and preferred stock) of issuers organized
under the laws of, or headquartered in, countries outside the United States. For
a comparison of the investment policies of the Federated Fund and the
International Fund, see "Summary--Investment Objectives, Policies and
Limitations."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about the Federated Fund that a prospective
investor should know before investing. This Prospectus/Proxy Statement is
accompanied by the Prospectus of the Federated Fund dated January 31, 1997,
which is incorporated herein by reference. Statements of Additional Information
for the Federated Fund dated January 31, 1997 (relating to the Federated Fund's
Prospectus of the same date) and April 17, 1997 (relating to this
Prospectus/Proxy Statement), and the Annual Report to Shareholders dated
November 30, 1996, all containing additional information, have been filed with
the Securities and Exchange Commission and are incorporated herein by reference.
Copies of the Statements of Additional Information and the Annual Report may be
obtained without charge by writing or calling the Federated Fund at the address
and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses............................................................. 3
Summary......................................................................... 7
About the Proposed Reorganization............................................. 7
Investment Objectives, Policies and Limitations............................... 7
Advisory and Other Fees....................................................... 9
Distribution Arrangements..................................................... 10
Purchase, Exchange and Redemption Procedures.................................. 11
Dividends..................................................................... 13
Tax Consequences.............................................................. 13
Risk Factors.................................................................... 13
Information About the Reorganization............................................ 14
Background and Reasons for the Proposed Reorganization........................ 14
Agreement Between The William Penn Company and Federated...................... 16
Description of the Plan of Reorganization..................................... 16
Description of Federated Fund Shares.......................................... 16
Federal Income Tax Consequences............................................... 16
Comparative Information on Shareholder Rights and Obligations................. 17
Capitalization................................................................ 19
Information About the Federated Fund and the International Fund................. 19
Federated International Equity Fund, Inc...................................... 19
Scottish Widows International Fund............................................ 19
Voting Information.............................................................. 20
Outstanding Shares and Voting Requirements.................................... 20
Dissenter's Right of Appraisal................................................ 21
Other Matters and Discretion of Persons Named in the Proxy...................... 22
Agreement and Plan of Reorganization............................................ Exhibit A
</TABLE>
SUMMARY OF EXPENSES
(CLASS A SHARES)
<TABLE>
<CAPTION>
FEDERATED INTERNATIONAL PRO FORMA
FUND FUND COMBINED
--------- ------------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)................. 5.50%(1) 4.75% 5.50%(1)
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering
price)........................................ None None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable)........... 0.00%(2) None 0.00%(2)
Redemption Fee (as a percentage of amount
redeemed, if applicable)(3)................... None None None
Exchange Fee.................................... None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)................... 1.00% 0.675%(4) 1.00%
12b-1 Fee (after waiver)(5)..................... None 0.25% None
Total Other Expenses (after waivers)............ 0.68%(6) 0.815% 0.63%(6)
Total Operating Expenses (after
waivers)(7).............................. 1.68% 1.74% 1.63%
</TABLE>
(1) This sales charge would not be applicable to Class A Shares of the Federated
Fund acquired through the proposed reorganization or to William Penn fund group
shareholders invested as of November 30, 1988, for future purchases of any of
the Federated Funds provided the account remains open.
(2) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by Federated Securities Corp. would not be charged a sales
charge but may be charged a contingent deferred sales charge of 0.50 of 1% for
redemptions made within one full year of purchase. For a more complete
description, see "Summary--Distribution Arrangements." This contingent deferred
sales charge would not be applicable to Class A Shares of the Federated Fund
acquired through the proposed reorganization.
(3) Wire-transferred redemptions of Class A Shares of the Federated Fund of less
than $5,000 may be subject to additional fees. A $10.00 fee is charged for
certain redemptions of International Fund shares by wire transfer.
(4) The management fee for the International Fund has been reduced to reflect
the voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time in its sole discretion. The maximum
management fee is 0.85%.
(5) With respect to the International Fund, the 12b-1 fee has been reduced to
reflect the voluntary waiver; the maximum 12b-1 fee for Class A Shares is 0.50%.
The Federated Fund's Class A Shares have no 12b-1 fee.
(6) Total other expenses for the Federated Fund and the Pro Forma Combined Fund
include a shareholder services fee of 0.10%. The shareholder services fee has
been reduced to reflect the voluntary waiver of a portion of the shareholder
services fee. The shareholder service provider can terminate this voluntary
waiver at any time at its sole discretion. The maximum shareholder services fee
is 0.25%.
(7) The total operating expenses for Class A Shares of the Federated Fund are
based on expenses incurred during its fiscal year ending November 30, 1996, and
would have been 1.83% absent the
voluntary waiver of a portion of the shareholder services fee. The total
operating expenses for the International Fund are based upon expenses incurred
by the International Fund during its fiscal year ended December 31, 1996, and
would have been 1.915% without expense waivers.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A shares of each of the
Federated Fund, the International Fund and the Pro Forma Combined Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Summary--Advisory and Other Fees" and
"Summary--Distribution Arrangements."
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLES
The Examples below are intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Examples
assume payment of operating expenses at the levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Class A
Shares received as a result of the proposed reorganization.
An investor would pay the following expenses on a 1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period.
Expenses would be the same if there were no redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated Fund.......................................... $ 17 $53 $91 $199
International Fund...................................... $ 18 $55 $94 $208
Pro Forma Combined...................................... $ 17 $51 $89 $193
</TABLE>
(2) This Example includes sales charges since Class A Shares purchased
subsequent to the reorganization may be subject to sales charges. For a more
complete description of sales charges, contingent deferred sales charges and
exemptions from such charges, reference is hereby made to the Prospectus of the
Federated Fund dated January 31, 1997, and the Prospectus of the International
Fund dated March 15, 1996, each of which is incorporated herein by reference
thereto.
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of each time period and
(3) payment of the maximum sales charge. Expenses would be the same if there
were no redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated Fund.......................................... $ 71 $ 105 $ 141 $243
International Fund...................................... $ 64 $ 100 $ 137 $243
Pro Forma Combined...................................... $ 71 $ 104 $ 139 $238
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY OF EXPENSES
(CLASS C SHARES)
<TABLE>
<CAPTION>
FEDERATED INTERNATIONAL PRO FORMA
FUND FUND COMBINED
--------- ------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)........................ None None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).................. None None None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)(1)....................................... 1.00% 1.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if
applicable)(2)....................................... None None None
Exchange Fee........................................... None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver).......................... 1.00% 0.675%(3) 1.00%
12b-1 Fee.............................................. 0.75% 0.75% 0.75%
Total Other Expenses (after waivers)(4)................ 0.82% 1.155% 0.77%
Total Operating Expenses(5)....................... 2.57% 2.58% 2.52%
</TABLE>
(1) The Contingent Deferred Sales Charge assessed is 1.00% of the lesser of the
original purchase price or the Net Asset Value of Shares redeemed within one
year of their purchase date. For a more complete description, see
"Summary--Distribution Arrangement."
(2) Wire-transferred redemptions of Class C Shares of the Federated Funds of
less than $5,000 may be subject to additional fees. A $10.00 fee is charged for
certain redemptions of International Fund shares by wire transfer.
(3) The management fee for the International Fund has been reduced to reflect
the voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time in its sole discretion. The maximum
management fee is 0.85%.
(4) Total Other Expenses include a shareholder services fee of 0.25% for the
International Fund and 0.24% for the Federated Fund and Pro Forma Combined Fund.
The shareholder services fee for the Federated Fund and Pro Forma Combined Fund
has been reduced to reflect the voluntary waiver of a portion of the shareholder
services fee. The shareholder service provider can terminate this voluntary
waiver at any time at its sole discretion. The maximum shareholder services fee
is 0.25%.
(5) The Total Operating Expenses for Class C Shares of the Federated Fund are
based on expenses incurred during its fiscal year ending November 30, 1996, and
would have been 2.58% absent the voluntary waiver of a portion of the
shareholder services fee. The total operating expenses for the International
Fund are based upon expenses incurred by the International Fund during its
fiscal year ended December 31, 1996, and would have been 2.755% without expense
waivers.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares of each of the
Federated Fund, the International Fund and the Pro Forma Combined Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Summary--Advisory and Other Fees" and
"Summary--Distribution Arrangements."
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLES
The Examples below are intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Examples
assume payment of operating expenses at the levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Class C
Shares received as a result of the proposed reorganization.
An investor would pay the following expenses on a 1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period.
Expenses would be the same if there were no redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated Fund.......................................... $ 26 $80 $ 137 $290
International Fund...................................... $ 26 $80 $ 137 $291
Pro Forma Combined...................................... $ 26 $78 $ 134 $286
</TABLE>
(2) This Example includes contingent deferred sales charges since Class C Shares
purchased subsequent to the reorganization may be subject to a sales charge. For
a more complete description of contingent deferred sales charges and exemptions
from such charges, reference is hereby made to the Prospectus of the Federated
Fund dated January 31, 1997, and the Prospectus of the International Fund dated
March 15, 1996, each of which is incorporated herein by reference thereto.
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated Fund.......................................... $ 36 $80 $ 137 $290
International Fund...................................... $ 36 $80 $ 137 $291
Pro Forma Combined...................................... $ 36 $78 $ 134 $286
</TABLE>
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) no redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated Fund.......................................... $ 26 $80 $ 137 $290
International Fund...................................... $ 26 $80 $ 137 $291
Pro Forma Combined...................................... $ 26 $78 $ 134 $286
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Statement of Additional Information, dated April 17, 1997, related to this
Prospectus/Proxy Statement, the Prospectus of the Federated Fund dated January
31, 1997, the Statement of Additional Information of the Federated Fund dated
January 31, 1997, the Prospectus of the International Fund dated March 15, 1996,
the Statement of Additional Information of the International Fund dated March
15, 1996, and the Plan, a copy of which is attached to this Prospectus/Proxy
Statement as Exhibit A all of which are incorporated herein by reference
thereto.
About the Proposed Reorganization
The Board of Trustees of the International Fund has voted unanimously to
recommend to holders of the Class A Shares and Class C Shares of the
International Fund the approval of the Plan whereby the Federated Fund would
acquire all of the assets and assume certain liabilities of the International
Fund's Class A Shares and Class C Shares in exchange for the corresponding
Federated Fund's Class A Shares and Class C Shares to be distributed pro rata by
the International Fund to holders of its Class A Shares and Class C Shares,
respectively, in complete liquidation and dissolution of the International Fund
(the "Reorganization"). As a result of the Reorganization, each shareholder of
the International Fund Class A Shares and Class C Shares will become the owner
of the Federated Fund's Class A Shares or Class C Shares, respectively, having a
total net asset value equal to the total net asset value of his or her holdings
in the International Fund on the date of the Reorganization, i.e., the Closing
Date (as hereinafter defined).
As a condition to the Reorganization transactions, the Federated Fund and
the International Fund will receive an opinion of counsel that the
Reorganization will be considered a tax-free "reorganization" under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), so
that no gain or loss will be recognized by either the Federated Fund or the
International Fund or the shareholders of the International Fund. The tax basis
of the Federated Fund's corresponding Class A Shares and Class C Shares received
by International Fund's Class A Shares and Class C Shares shareholders will be
the same as the tax basis of their shares in the International Fund. After the
acquisition is completed, the International Fund will be dissolved.
Investment Objectives, Policies and Limitations
The investment objective of the Federated Fund is to obtain a total return
on its assets. The investment objective and policies may be changed by the
Directors without shareholder approval. Shareholders will be notified before any
material change becomes effective.
The investment objective of the International Fund is long-term capital
appreciation. Similar to the Federated Fund, the investment objective and
policies may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change becomes effective.
The Federated Fund invests primarily in non-U.S. securities. A substantial
portion of these will be equity securities of established companies in
economically developed countries (e.g., the United Kingdom, Germany, Japan,
Australia, New Zealand, and Hong Kong). The Federated Fund will invest at least
65%, and under normal market conditions substantially all of its total assets,
in equity securities denominated in foreign currencies, including European
Currency Units, of issuers located in at least three countries outside of the
United States and sponsored or unsponsored American Depositary Receipts, Global
Depositary Receipts, and European Depositary Receipts. The Federated Fund may
also purchase corporate and government fixed income securities denominated in
currencies other than U.S. dollars (with minimum ratings of A by a nationally
recognized statistical ratings organization or judged to be of equal quality by
the investment adviser); enter into forward commitments, repurchase agreements,
and foreign currency transactions; maintain reserves in foreign or U.S. money
market instruments; and purchase options and financial futures contracts for
hedging purposes.
The International Fund seeks to achieve its objective by investing
primarily in equity securities (common and preferred stock) of issuers organized
under the laws of, or headquartered in, countries outside the United States
("foreign equities"). Under normal conditions, the International Fund will
invest at least 65% of its total assets in foreign equities. The International
Fund may invest in equity securities of issuers in Argentina, Australia,
Austria, Belgium, Brazil, Canada, Chile, Denmark, Finland, France, Germany,
Greece, Hong Kong, India, Indonesia, Ireland, Italy, Japan, Korea, Luxembourg,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Poland,
Portugal, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey and
the United Kingdom. The International Fund will not necessarily invest in all of
these countries in the future if Scottish Widows Investment Management Ltd. and
Penn Square Management Corporation (the "International Fund's Advisers") believe
that appropriate investment opportunities exist in such other countries. Under
normal market conditions, the International Fund's assets will be invested in
securities of issuers in at least three different foreign countries. The
International Fund may also invest in fixed income securities that are rated
investment-grade or that the International Fund's Advisers determine are
comparable thereto. These include convertible bonds and other corporate debt
obligations, U.S. and foreign government securities, and U.S. and foreign money
market securities. Money market securities will generally be held by the
International Fund only for temporary or defensive purposes. It is not expected
that the income yield of the International Fund will be significant. The
International Fund may purchase foreign securities directly in foreign markets,
or may purchase American Depositary Receipts and European Depositary Receipts.
With respect to certain countries, investments by the International Fund may
currently be made only by acquiring shares of other investment companies which
have local governmental authority to invest in those countries. The
International Fund's investments in other investment companies are subject to
certain limitations. The International Fund may hold cash in U.S. dollars to
meet redemption requirements. The International Fund may engage in currency
exchange transactions in order to protect against uncertainty in the level of
future exchange rates between a particular foreign currency and the U.S. dollar
or between foreign currencies in which the International Fund's securities are
or may be denominated. The International Fund may conduct its currency exchange
transactions either on a "spot" (i.e. cash) basis at the rate then prevailing in
the currency exchange market or through entering into futures, forward, or
option contracts to purchase or sell currencies at a specified rate at a
specified future time. The International Fund's dealings in foreign currency
exchange contracts will be limited to hedging involving either specific
transactions or aggregate portfolio positions.
The Federated Fund will not: (i) with respect to 75% of the value of its
total assets, invest more than 5% of the value of its total assets in the
securities (other than securities issued or guaranteed by the government of the
United States or its agencies or instrumentalities) of any one issuer; (ii)
acquire more than 10% of the outstanding voting securities of any one issuer, or
acquire any securities of Fiduciary Trust Company International or its
affiliates; (iii) sell securities short except under strict limitations; (iv)
borrow money or pledge securities except, under certain circumstances (e.g., for
temporary or emergency purposes), the Fund may borrow up to one-third of the
value of its total assets and pledge up to 15% of the value of those assets to
secure such borrowings; or (v) permit margin deposits for financial futures
contracts held by the Fund, plus premiums paid by it for open options on
financial futures contracts, to exceed 5% of the fair market value of the
Federated Fund's total assets, after taking into account the unrealized profits
and losses on those contracts. These investment limitations (i-v) cannot be
changed without shareholder approval. Also, the Federated Fund may invest up to
15% of net assets in illiquid securities.
The International Fund has adopted certain fundamental investment
restrictions which may not be changed without approval of the International
Fund's shareholders. These restrictions provide, among other things, that the
International Fund may not: (i) borrow in excess of 20% of the market or other
fair value of its total assets, or pledge its assets to an extent greater than
one-third of the market or other fair value of its total assets (any such
borrowings shall be from banks and shall be undertaken only as a temporary
measure for extraordinary or emergency purposes, and deposits in connection with
the purchase or sale of financial futures contracts and related options are not
deemed to be a pledge or other encumbrance); (ii) invest more than 5% of its
total assets in the securities of any one issuer
(other than the U.S. government and its agencies, authorities or
instrumentalities) treating each foreign government as a single issuer, or
purchase more than 10% of the outstanding voting securities of any one issuer;
(iii) purchase an illiquid security, if as a result of such purchase more than
10% of the International Fund's net assets would be invested in such securities;
and (iv) invest in the aggregate more than 5% of its total assets in the
securities of any issuers which have (with predecessors) a record of less than
three years of continuous operation.
In addition to the policies and limitations set forth above, both the
Federated Fund and the International Fund are subject to certain additional
investment policies and limitations, described in the Federated Fund's Statement
of Additional Information dated January 31, 1997, and the International Fund's
Statement of Additional Information dated March 15, 1996. Reference is hereby
made to the Federated Fund's Prospectus and Statement of Additional Information,
each dated January 31, 1997, and to the International Fund's Prospectus and
Statement of Additional Information, each dated March 15, 1996, which set forth
in full the investment objective, policies and investment limitations of each of
the Federated Fund and the International Fund, all of which are incorporated
herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Federated Fund is 1.00% of the
Federated Fund's average daily net assets. The investment adviser to the
Federated Fund, Federated Global Research Corp. ("Federated Global"), a
subsidiary of Federated Investors, may voluntarily choose to waive a portion of
its advisory fee or reimburse the Federated Fund for certain operating expenses.
This voluntary reimbursement of expenses may be terminated by Federated Global
at any time in its sole discretion. The maximum annual management fee for the
International Fund is 0.85% of average daily net assets of the International
Fund. The investment adviser of the International Fund is Penn Square Management
Corporation ("Penn Square"). The adviser is a wholly owned subsidiary of The
William Penn Company, New York, New York. Scottish Widows Investment Management
Limited (the "Sub-Adviser") serves as an investment adviser for the
International Fund pursuant to a sub-advisory agreement with the Penn Square.
The Sub-Adviser, a wholly owned subsidiary of Scottish Widows' Fund and Life
Assurance Society and is located in Edinburgh, Scotland. The International Fund
pays Penn Square 0.85% of its average daily assets of which Penn Square pays
0.50% (subject to a minimum fee of $7,500 per calendar quarter) to the
Sub-Adviser.
Federated Services Company, an affiliate of Federated Global, provides
certain administrative personnel and services necessary to operate the Federated
Fund at an annual rate based upon the average aggregate daily net assets of all
funds advised by Federated Global and its affiliates. The rate charged is 0.15%
on the first $250 million of all such funds' average aggregate daily net assets,
0.125% on the next $250 million, 0.10% on the next $250 million and 0.075% of
all such funds' average aggregate daily net assets in excess of $750 million,
with a minimum annual fee per portfolio of $125,000 plus $30,000 for each
additional class of shares of any such portfolio. Federated Services Company may
choose voluntarily to waive a portion of its fee. The administrative fee expense
for the Federated Fund's fiscal year ended November 30, 1996, was $185,000
representing an effective fee rate of .09%. Administrative personnel and
services necessary to operate the International Fund are currently provided by
Penn Square and are included in the annual transfer agent fee for the
International Fund.
The Federated Fund has entered into a Shareholder Services Agreement under
which it may make payments of up to 0.25% of the average daily net asset value
of each of the Class A Shares and Class C Shares to obtain certain personal
services for shareholders and the maintenance of shareholder accounts. The
Shareholder Services Agreement provides that Federated Shareholder Services
("FSS"), an affiliate of Federated Global, either will perform shareholder
services directly or will select financial institutions to perform such
services. Financial institutions will receive fees based upon shares owned by
their clients or customers. The schedule of such fees and the basis upon which
such fees will be paid is determined from time to time by the Federated Fund and
FSS.
The total annual operating expenses for Class A Shares and Class C Shares
of the Federated Fund were 1.68% and 2.57% respectively of average daily net
assets (after waivers) for its most recent fiscal year. The total annual
operating expenses for Class A Shares and Class C Shares of the International
Fund were 1.74% and 2.58% respectively of average daily net assets (after
waivers) for its most recent fiscal year. Without such waivers, the expense
ratios of the Federated Fund would have been 1.83% (Class A Shares) and 2.58%
(Class C Shares) and the International Fund would have been 1.915% (Class A
Shares) and 2.755% (Class C Shares).
Distribution Arrangements
Federated Securities Corp. ("FSC"), an affiliate of Federated Global, is
the principal distributor for shares of the Federated Fund. The Federated Fund
has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to
which the Federated Fund will pay a fee to the distributor in an amount computed
at an annual rate of 0.75% of the average daily net assets of the Class C Shares
to finance any activity which is principally intended to result in the sale of
Class C Shares subject to the Distribution Plan. FSC may offer to pay financial
institutions, at the time of purchase, an amount equal to 1.00% of the net asset
value of Class C Shares purchased by their clients. These payments will be made
directly by the distributor from its assets, and will not be made from the
assets of the Fund. The Federated Fund does not have a Distribution Plan in
effect with respect to its Class A Shares, and accordingly, does not, nor does
FSC, compensate brokers and dealers for sales and administrative services
performed in connection with the sale of Class A Shares. However, FSC will pay
financial institutions, at the time of purchase of Class A Shares, an amount
equal to 0.50% of the net asset value of Class A Shares purchased by certain
qualified plans as approved by FSC. (Such payments are subject to a reclaim from
the financial institution should the assets leave the program within 12 months
after purchase.) In addition, FSC and FSS, from their own assets, may pay
financial institutions supplemental fees as financial assistance for providing
substantial sales services, distribution-related support services or shareholder
services with respect to the Class A Shares and Class C Shares of the Federated
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
FSC may be reimbursed by Federated Global or its affiliates. If a financial
institution elects to waive receipt of this payment, the Federated fund will
waive any applicable contingent deferred sales charge (such contingent deferred
sales charges are discussed below).
Penn Square is the principal distributor for shares of the International
Fund. The International Fund has adopted a Rule 12b-1 Distribution Plan (the
"Rule 12b-1 Plan") pursuant to which the International Fund reimburses Penn
Square for certain of its expenses incurred in connection with its services as
distributor at an annual rate not to exceed 0.50% of the average daily net
assets of the International Fund's Class A Shares. After the reorganization, the
Federated Fund will not assume any liabilities related to the International
Fund's Rule 12b-1 Plan. The fee may be used by Penn Square for its expenses
incurred in connection with (a) advertising and marketing Class A Shares; (b)
printing and distributing the Prospectus; (c) implementing and operating the
Rule 12b-1 Plan; and (d) payments made by the distributor for servicing fees to
broker/dealers, financial institutions, or other industry professionals
("Service Organizations") for distribution and/or shareholder administrative
services provided to their customers who own Class A Shares. Pursuant to a
Servicing Agreement with Penn Square, a Service Organization may receive, on an
annual basis, up to .50% of the average daily net asset value of the Class A
Shares owned by shareholders with whom the Service Organization has a servicing
relationship. The services provided by a Service Organization pursuant to a
Servicing Agreement may include distribution or shareholder administrative
services, including establishing and maintaining shareholder accounts, sending
confirmations of transactions, forwarding financial reports and other
communications to shareholders, and responding to shareholder inquiries
regarding the International Fund. The International Fund has adopted a
Distribution Plan for Class C Shares to compensate the distributor for its
services and costs in distributing Class C Shares. Under the Rule 12b-1 Plan,
the International Fund pays Penn Square an annual 12b-1 Distribution Fee of
0.75% per year on Class C Shares. Penn Square also receives a Service Fee of
0.25% per year. Both fees are
computed on the average annual net assets of Class C Shares, determined as of
the close of each regular business day. The distribution fee allows investors to
buy Class C Shares without a front end sales charge while permitting the
distributor to compensate dealers who sell Class C Shares. The distribution and
service fee increase Class C Shares expenses by 1.00% of average net assets per
year. Penn Square pays sales commissions of 1.00% of the purchase price to
dealers from its own resources at the time of sale. Penn Square retains the
distribution fee during the first year shares are outstanding to recoup the
sales commission it pays, the advances of service fee payments it makes, and its
financing costs. Penn Square plans to pay the distribution fee as an ongoing
commission to the dealer on Class C Shares that have been outstanding for a year
or more. Penn Square receives no other compensation for its services as
distributor, except that the sales charge will be paid to the distributor. Penn
Square may, in turn, pay such sales charge to broker/dealers as a commission for
generating sales of Class C Shares.
Certain costs exist with respect to the purchase and sale of Federated Fund
and International Fund shares. Shares of the Federated Fund and shares of the
International Fund are sold at their net asset value next determined after an
order is received, plus any applicable sales charge. The Federated Fund Class A
Shares and International Fund Class A Shares have a maximum sales charge of
5.50% and 4.75%, respectively. No sales charge will be imposed in connection
with the issuance of Federated Fund Class A Shares to Class A Shareholders of
the International Fund as a result of the Reorganization. Further, shareholders
of the William Penn group of funds who acquired Class A Shares on or before
November 30, 1988, will not be charged a sales charge for future purchases made
in any Federated Fund, provided the account has remained open. Class A Shares of
the Federated Fund purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by FSC may be charged a contingent deferred sales charge of 0.50
of 1% for redemptions made within one full year of purchase. Any such charge
will be imposed on the lesser of the net asset value of the redeemed shares at
the time of purchase or redemption. The contingent deferred sales charges are
not imposed in connection with the exercise of exchange rights, nor will they be
imposed on redemptions of Federated Fund Class A Shares received by shareholders
of the International Fund as a result of the Reorganization. Sales of Class C
Shares are subject to a 1% contingent deferred sales charge on assets redeemed
within the first twelve months following purchase. For a complete description of
sales charges, contingent deferred sales charges and exemptions from such
charges, reference is hereby made to the Prospectus of the Federated Fund dated
January 31, 1997, and the Prospectus of the International Fund dated March 15,
1996, each of which is incorporated herein by reference thereto.
Purchase, Exchange and Redemption Procedures
The transfer agent and dividend disbursing agent for the Federated Fund is
Federated Shareholder Services Company. The transfer agent and dividend
disbursing agent for the International Fund is Penn Square. Procedures for the
purchase, exchange and redemption of the Federated Fund's Class A Shares and
Class C Shares differ slightly from procedures applicable to the purchase,
exchange and redemption of the International Fund's Class A Shares and Class C
Shares. Any questions about such procedures may be directed to, and assistance
in effecting purchases, exchanges or redemptions of the Federated Fund's Class A
Shares and Class C Shares or the International Fund's Class A Shares and Class C
Shares may be obtained from FSC, principal distributor for the Federated Fund,
at 1-800-245-4770, or from Penn Square, principal distributor for the
International Fund, at 1-800-523-8440.
Reference is made to the Prospectus of the Federated Fund dated January 31,
1997, and the Prospectus of the International Fund dated March 15, 1996, for a
complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges and redemptions of Federated Fund and
International Fund shares, respectively, each of which is incorporated herein by
reference thereto. Set forth below is a brief listing of the significant
purchase, exchange and redemption procedures applicable to the Federated Fund's
Class A Shares and Class C Shares and the International Fund's Class A Shares
and Class C Shares.
Purchases of Class A Shares and Class C Shares of the Federated Fund may be
made through a financial institution that has an agreement with FSC or, once an
account has been established, by wire
or check. Purchases of shares of the International Fund may be made through Penn
Square and through broker-dealers under contract with Penn Square or directly by
wire or check once an account has been established. The minimum initial
investment in the Federated Fund is $500 for Class A Shares and $1,500 for Class
C Shares, except for retirement accounts for which the minimum is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts for which the minimum is $50. The minimum initial investment
in the International Fund is $500 for either Class of Shares, except for
retirement accounts for which the minimum is $250. Subsequent investments must
be in amounts of at least $100. The Federated Fund and the International Fund
each reserve the right to reject any purchase request.
The purchase price of the Federated Fund's Class A Shares and the
International Fund's Class A Shares is based on net asset value plus a sales
charge. The net asset value per share for each class of the Federated Fund and
the International Fund is calculated as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Inc. (the "NYSE") on each
day on which the Federated Fund and the International Fund compute their net
asset value. Purchase and redemption orders for the Federated Fund received from
broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions
before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase
orders for the International Fund are executed based on the net asset value
calculated at the close of business on the day such purchase orders are
received. Purchase orders received after the close of the NYSE will be executed
based on the net asset value calculated on the next business day. Redemption
orders for shares of the International Fund presented prior to the close of the
NYSE on any business day are redeemed at the net asset value calculated at the
close of the exchange that day, except that some Class C Shares may be subject
to a 1.0% contingent deferred sales charge. Federated Fund purchase orders by
wire are considered received upon receipt of payment by wire. Federated Fund
purchase orders received by check are considered received after the check is
converted into federal funds, which normally occurs the business day after
receipt. The International Fund does not have a similar procedure.
Holders of Class A Shares and Class C Shares of the Federated Fund have
exchange privileges with respect to corresponding Class A Shares and Class C
Shares in certain of the funds for which affiliates of Federated Investors serve
as investment adviser or principal underwriter (collectively, the "Federated
Funds"), each of which has different investment objectives and policies. Class A
Shares and Class C Shares of the Federated Fund may be exchanged for
corresponding Class A Shares and Class C Shares of certain Federated Funds at
net asset value without a contingent deferred sales charge. To the extent a
shareholder exchanges Class A Shares or Class C Shares of the Federated Fund for
Class A Shares or Class C Shares of other Federated Funds, the time for which
the exchanged-for shares are to be held will be added to the time for which
exchanged-from shares were held for purposes of satisfying the applicable
holding period for purposes of determining the contingent deferred sales charge.
Class A Shares to be exchanged must have a net asset value which meets the
minimum investment requirement for the fund into which the exchange is being
made. Holders of shares of the International Fund have exchange privileges with
respect to shares in certain of the other funds for which Penn Square serves as
investment manager (collectively, the "Penn Square Group"), each of which has
different investment objectives and policies. Any exchange for shares of other
funds in the Penn Square Group will generally be at the respective net asset
values next determined after receipt of the request for exchange, provided the
amount exchanged previously incurred a sales charge. Exercise of the exchange
privilege is treated as a sale for federal income tax purposes and, accordingly,
may have tax consequences for the shareholder. Information on share exchanges
may be obtained from the Federated Fund or the International Fund, as
appropriate.
Redemptions of Federated Fund Class A Shares and Class C Shares may be made
through a financial institution, by telephone, by mailing a written request or
through the Federated Fund's systematic withdrawal program. Redemptions of
International Fund shares may be made by presenting share certificates, by
letter form, by telephone, or through the International Fund's systematic
withdrawal plan. Class C Shares of the Federated Fund are redeemed at their net
asset value, less any applicable contingent deferred sales charge, next
determined after the redemption request is received.
The International Fund imposes no charges for redemptions of Class A Shares. For
Class C shares, redemptions within the first year of purchase will bear a
contingent deferred sales charge. International Fund Class C shareholders will
have their current holding period tacked into the period of time they hold their
corresponding Federated Class C Shares for purposes of determining any
applicable redemption charges. Redemptions may also be made through a
broker/dealer, and that broker/dealer may charge a transaction fee. Checks for
redemption proceeds will be mailed within three business days. However,
redemption checks will not be mailed until all checks in payment for the shares
redeemed have cleared (not more than seven days).
Dividends
Both the Federated Fund and the International Fund pay dividends annually
from net investment income and make annual distributions of net realized capital
gains, if any. With respect to the Federated Fund, unless a shareholder
otherwise instructs, dividends and capital gain distributions will be reinvested
automatically in additional shares at net asset value, subject to no sales
charge. The International Fund shareholders may instruct the fund to make such
reinvestment which are also not subject to a sales charge.
Tax Consequences
As a condition to the Reorganization, the Corporation, on behalf of the
Federated Fund, and the Trust, on behalf of the International Fund will receive
an opinion of counsel that the Reorganization will be considered a tax-free
"reorganization" under applicable provisions of the Code so that no gain or loss
will be recognized by either the Federated Fund or the International Fund or the
shareholders of the International Fund. The tax basis of the Federated Fund
shares received by International Fund shareholders will be the same as the tax
basis of their shares in the International Fund.
RISK FACTORS
As with other mutual funds that invest in non-U.S. securities, the
Federated Fund is subject to special risks. Investing in non-U.S. securities
carries substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Federated Fund
diversifies its investments broadly among foreign countries, including both
developed and developing countries. At least three different countries will
always be represented. The Federated Fund occasionally takes advantage of the
unusual opportunities for high returns available from investing in developing
countries. These investments carry considerably more volatility and risk because
they are associated with less mature economies and less stable political
systems. The economies of foreign countries may differ from the U.S. economy in
such respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade. Historically, the Federated
Fund has had relatively higher exposure to emerging market securities and the
associated risks. With respect to any foreign country, there is the possibility
of nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Federated Fund's investments in those countries. In addition,
it may be difficult to obtain and enforce a judgment in a court outside of the
U.S. The inability of the Federated Fund to make intended security purchases due
to settlement problems would cause the Federated Fund to miss attractive
investment opportunities. Inability to dispose of a portfolio security due to
settlement problems could result either in losses to the Federated Fund due to
subsequent declines in value of the portfolio security or, the Federated Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Because the majority of the securities purchased are
denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the net asset value; the value of interest earned; gains and
losses realized on the sales or securities; and net investment income and
capital gain, if any to be distributed to shareholders. Since the International
Fund also invests primarily in non-U.S. securities, these risk factors are
generally also present in an investment in the International Fund. A full
discussion of the risks inherent in investment in the Federated Fund and the
International Fund is set forth in the Federated Fund's Prospectus and Statement
of Additional Information, each dated January 31, 1997, and the International
Fund's Prospectus and Statement of Additional Information, each dated March 15,
1996, each of which is incorporated herein by reference thereto.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
CONSIDERATIONS OF THE BOARD OF TRUSTEES OF THE INTERNATIONAL FUND. During
1996, Penn Square advised the Board of Trustees of the International Fund that
The William Penn Company was considering redirecting its corporate strategy away
from the management and distribution of retail mutual funds and that it was
seeking a buyer for its core businesses. Moreover, The William Penn Company
engaged an investment banker to locate potential buyers for Penn Square
Management Corporation. The potential buyer would provide value-added
shareholder services, technological advancements, comprehensive distribution
networks, and diversified mutual fund product choices that many larger mutual
fund complexes offer. After conducting a screening process, Penn Square
determined that in its judgment, the proposed Reorganization was the most
desirable alternative involving the International Fund that was reasonably
available and presented it to the International Fund's Board of Trustees for its
consideration at its February 12, 1997, meeting.
The independent trustees formed a four-person due diligence team. The due
diligence team visited the Federated Investors offices in Pittsburgh,
Pennsylvania, and reviewed with the portfolio manager of the Federated Fund the
investment style and philosophy used to manage the assets of the Federated Fund.
In addition, the due diligence team inspected the Federated customer services
area and the Penn Square Fund's independent counsel inspected the legal records
of the Federated Fund.
A meeting of the entire Board of Trustees was held on March 5, 1997, at
which Federated Investors presented to the Board information relating to the
overall reputation, financial strength and stability of Federated Investors, the
parent company of Federated Global (together with its affiliates, "Federated").
Federated, founded in 1955, is among the seven largest mutual fund sponsors,
with over $110 billion invested across more than 300 funds under management
and/or administration by its subsidiaries, and over 2,000 employees. Federated's
management discussed the Federated Fund's investment performance history and
explained to the Board that the majority of this growth came from within
Federated through its multiple distribution channels. The Board was also
informed of the variety of investment products available through Federated,
including international funds and an array of domestic funds broader than
currently offered in the William Penn Fund Group, as well as the exchange
privileges that would be available to former International Fund shareholders if
the Reorganization is consummated, and the multiple sales charge (or "load")
structures available to prospective shareholders. The Board took into account
that if the Reorganization takes place, shareholders of the International Fund
would receive shares of the Federated Fund without the imposition of any sales
charge and without incurring any tax consequences.
Federated's management advised the Board of its reputation for customer
servicing, noting that it has received a #1 rating for the last five surveys in
a row by DALBAR, Inc. Federated's management stated that its shareholder
services include advanced technological systems that result in quick shareholder
access to a broad spectrum of information, including: telephonic automated yield
and performance information; consolidated monthly shareholder statements; no-fee
IRAs; quarterly newsletters; year-end tax reporting information; direct deposit;
and telephonic redemption and exchange.
Federated's management also discussed comparative sales loads with the
Board. In particular, it was noted that the maximum front-end sales load of the
Class A Shares of the Federated Fund is higher than that of the Class A Shares
of the International Fund. Federated's management also reviewed with the Board
relative asset size and expense ratios, including relative advisory fees. The
Board discussed the fact that the Federated Fund is larger in asset size than
the International Fund.
The Board determined that the investment objectives and policies of the
International Fund were substantially similar to those of the Federated Fund.
The Board was also presented with and discussed materials comparing the
performance, and relative risks of the International Fund and the Federated
Fund. Federated's management also presented biographical information about each
of the Directors of the Federated Fund and reviewed with the Board the structure
of its compliance and internal audit departments and the scope of its training
programs.
THE BOARD NOTED THAT THE INTERNATIONAL FUND WOULD NOT BEAR ANY OF THE COSTS
INVOLVED IN THE REORGANIZATION, WHICH WOULD BE BORNE ENTIRELY BY THE WILLIAM
PENN COMPANY AND/OR FEDERATED. In addition, the Board discussed the anticipated
tax-free nature of the Reorganization to the International Fund and its
shareholders.
In connection with their consideration of the Reorganization, the Board
also reviewed their fiduciary obligations under state and federal law. They
considered the requirements of Section 15(f) of the 1940 Act, which provides
that an investment manager to an investment company, and the affiliates of such
manager (such as Penn Square Management Corporation), may receive any amount or
benefit in connection with a sale of any interest in such investment manager
which results in an assignment of an investment management contract if (1) for a
period of three years after such assignment, at least 75% of the Board of
Trustees of the investment company are not "interested persons" (as defined in
the 1940 Act) of the new investment manager or its predecessor; and (2) no
"unfair burden" (as defined in the 1940 Act) is imposed on the investment
company as a result of the assignment or any express or implied terms,
conditions or understandings applicable thereto.
With respect to the first condition of Section 15(f) relating to Board
composition, the Board was advised that the Federated Fund's Board of Directors
presently consists of twelve (12) Directors, only two (2) of whom are
"interested persons." With respect to the second condition of Section 15(f),
while there is no specific definition of "unfair burden," it includes any
arrangement, for two years after the transaction, pursuant to which the
predecessor or successor adviser is entitled to receive compensation from any
person in connection with the mutual fund's purchase or sale of securities,
other than bona fide ordinary compensation as principal underwriter. The
definition of unfair burden also includes any payments from the fund for other
than bona fide investment advisory or other services. The Board considered the
fact that representations were made by Federated and Penn Square Management
Corporation that the agreement among Federated, Penn Square Management
Corporation and The William Penn Company would contain representations and
covenants that the Reorganization would not impose an unfair burden on the Penn
Square Group.
After reviewing and considering all of the information provided by
Federated and Penn Square, including the terms of the Reorganization, the Board,
including all of the Trustees who are not interested persons of the
International Fund or Penn Square, voted unanimously in person at the meeting
held on March 5, 1997, to approve the Reorganization and to recommend it to the
shareholders of the International Fund for their approval.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
REORGANIZATION.
CONSIDERATIONS OF THE BOARD OF DIRECTORS OF THE FEDERATED FUND. The Board
of Directors of the Federated Fund, including the independent Directors, have
unanimously concluded that consummation of the Reorganization is in the best
interests of the Federated Fund and the shareholders of the Federated Fund and
that the interests of Federated Fund shareholders would not be diluted as a
result of effecting the Reorganization and have unanimously voted to approve the
Plan.
Agreement Between The William Penn Company and Federated
The Reorganization is being proposed as part of an agreement between
Federated and The William Penn Company pursuant to which shareholders of The
William Penn Company would be compensated for selling to Federated their capital
stock and cooperating in facilitating the transaction contemplated by the
agreement.
Description of the Plan of Reorganization
The Plan provides that the Federated Fund will acquire all of the assets
and assume certain liabilities of the International Fund's Class A Shares and
Class C Shares in exchange for the Federated Fund's Class A Shares and Class C
Shares to be distributed pro rata by the International Fund to its Class A and
Class C shareholders, respectively, shareholders in complete liquidation of the
International Fund on or about May 30, 1997, or such later date as the parties
may mutually agree (the "Closing Date"). Shareholders of the International Fund
will become shareholders of the Federated Fund as of the close of business on
the Closing Date, and will be entitled to the Federated Fund's next dividend
distribution.
As of or prior to the Closing Date, the International Fund will declare and
pay a dividend or dividends which, together with all previous such dividends,
shall have the effect of distributing to its shareholders all taxable income for
the period ending on the Closing Date. In addition, the International Fund's
dividend will include its net capital gains realized in the period ending on the
Closing Date.
Consummation of the Reorganization is subject to the conditions set forth
in the Plan, including receipt of an opinion in form and substance satisfactory
to the International Fund and the Federated Fund, as described under the caption
"Federal Income Tax Consequences" below. The Plan may be terminated and the
Reorganization may be abandoned at any time before or after approval by
shareholders of the International Fund prior to the Closing Date by either party
if a majority of the independent board members of either board believes that
continuing the transaction would have a material adverse impact on shareholders
of that fund.
Federated Global is responsible for the payment of substantially all of the
expenses of the Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not limited to,
registration fees, transfer taxes (if any), and the costs of preparing,
printing, copying and mailing proxy solicitation materials to the International
Fund shareholders. Penn Square is responsible for the payment of the legal fees
of the International Fund. The accountants' fees of the International Fund will
be borne by Penn Square.
The foregoing description of the Plan entered into between the Federated
Fund and the International Fund is qualified in its entirety by the terms and
provisions of the Plan, a copy of which is attached hereto as Exhibit A and
incorporated herein by reference thereto.
Description of Federated Fund Shares
Full and fractional Class A Shares and Class C Shares of the Federated Fund
will be issued without the imposition of a sales charge or other fee to the
corresponding shareholders of the International Fund in accordance with the
procedures described above. Class A Shares and Class C Shares of the Federated
Fund to be issued to shareholders of the International Fund under the Plan will
be fully paid and nonassessable when issued and transferable without restriction
and will have no preemptive or conversion rights. Reference is hereby made to
the Prospectus of the Federated Fund dated January 31, 1997, provided herewith
for additional information about Class A Shares and Class C Shares of the
Federated Fund.
Federal Income Tax Consequences
As a condition to the Reorganization, the Corporation on behalf of the
Federated Fund and the International Fund will receive an opinion from Dickstein
Shapiro Morin & Oshinsky LLP, counsel to
the Federated Fund, to the effect that, on the basis of the existing provisions
of the Code, current administrative rules and court decisions, for federal
income tax purposes: (1) the Reorganization as set forth in the Plan will
constitute a tax-free reorganization under Section 368(a)(1)(C) of the Code; (2)
no gain or loss will be recognized by the Federated Fund upon its receipt of the
International Fund's assets solely in exchange for Federated Fund Class A Shares
and Class C Shares and the assumption of certain stated liabilities; (3) no gain
or loss will be recognized by the International Fund upon the transfer of its
assets to the Federated Fund in exchange for Federated Fund Class A Shares and
Class C Shares and the assumption of certain stated liabilities or upon the
distribution (whether actual or constructive) of the Federated Fund Class A
Shares and Class C Shares to the International Fund shareholders in exchange for
their respective shares of the International Fund; (4) no gain or loss will be
recognized by shareholders of the International Fund upon the exchange of their
International Fund shares for Federated Fund Class A Shares and Class C Shares;
(5) the tax basis of the International Fund's assets acquired by the Federated
Fund will be the same as the tax basis of such assets to the International Fund
immediately prior to the Reorganization; (6) the tax basis of Federated Fund
Class A Shares and Class C Shares received by each shareholder of the
International Fund pursuant to the Plan will be the same as the tax basis of
International Fund shares held by such shareholder immediately prior to the
Reorganization; (7) the holding period of the assets of the International Fund
in the hands of the Federated Fund will include the period during which those
assets were held by the International Fund; and (8) the holding period of
Federated Fund Class A Shares and Class C Shares received by each shareholder of
the International Fund will include the period during which the International
Fund shares exchanged therefor were held by such shareholder, provided the
International Fund shares were held as capital assets on the date of the
Reorganization.
Shareholders should recognize that an opinion of counsel is not binding on
the Internal Revenue Service ("IRS") or any court. The International Fund does
not expect to obtain a ruling from the IRS regarding the consequences of the
Reorganization. Accordingly, if the IRS sought to challenge the tax treatment of
the Reorganization and was successful, neither of which is anticipated, the
Reorganization would be treated as a taxable sale of assets of the International
Fund, followed by the taxable liquidation of the International Fund.
Shareholders should also be aware that following the Reorganization, the
Federated adviser may decide to sell certain portfolio securities which may
result in the realization of capital gains.
Comparative Information on Shareholder Rights and Obligations
GENERAL. Both the Corporation and the International Fund are open-end,
diversified management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The
Federated Fund is an investment portfolio of International Series, Inc. which is
organized as a corporation under the laws of the State of Maryland and is
governed by its Articles of Incorporation, By-Laws and Board of Directors, in
addition to applicable state and federal law. The International Fund is
organized as a business trust under the laws of Massachusetts and is governed by
its Declaration of Trust and Board of Trustees, in addition to applicable state
and federal law. Set forth below is a brief summary of the significant rights of
shareholders of the Federated Fund and the International Fund.
SHARES OF THE FEDERATED FUND AND THE INTERNATIONAL FUND. The Federated
Fund is authorized to issue 1,500,000,000 shares of common stock, par value
$0.0001 per share. The Federated Fund is one of two investment portfolios of
International Series, Inc., and the Board of Directors has established Class A
Shares, Class B Shares, and Class C Shares of the Federated Fund. The
International Fund is authorized to issue an unlimited number of shares of
beneficial interest which have no par value. The International Fund has Class A
Shares and Class C Shares. Issued and outstanding shares of both the Federated
Fund and International Fund are fully paid and nonassessable, and freely
transferable.
VOTING RIGHTS. Neither the Federated Fund nor the International Fund is
required to hold annual meetings of shareholders, except as required under the
1940 Act. Shareholder approval is necessary only for certain changes in
operations or the election of directors under certain circumstances. The
Corporation requires that a special meeting of shareholders be called for any
permissible purpose upon
the written request of the holders of at least 10% of the outstanding shares of
the series of the Corporation entitled to vote. A special meeting of the
shareholders of the International Fund is required to be called upon the written
request of shareholders representing not less than 10% of the issued and
outstanding shares entitled to vote. Each share of the Federated Fund and the
International Fund gives the shareholder one vote in director/trustee elections
and other matters submitted to shareholders for vote. All shares of each series
or class in the Federated Fund and the International Fund have equal voting
rights except that in matters affecting only a particular series or class, only
shares of that series or class are entitled to vote.
DIRECTORS/TRUSTEES. The By-Laws of the Corporation provide that the term
of office of each Director shall be until his or her resignation or removal or
until the special meeting next held after his or her election or until election
and qualification of his or her successor. A Director of the Corporation may be
removed by a vote of a majority of all shares outstanding and entitled to vote
at any special meeting of shareholders, and such shareholders may elect a
Director to replace the Director so removed to serve for the remainder of the
term and until the election and qualification of his or her successor. A vacancy
on the Board may be filled by the action of a majority of the Directors
remaining in office, and such elected Director shall hold office until the next
special meeting of shareholders or until his or her successor is duly elected
and qualifies. Notwithstanding the foregoing, the shareholders may, at any time
during the term of such Director elected to fill a vacancy, elect some other
person to fill said vacancy and thereupon the election by the Board shall be
superseded. The Declaration of Trust of the International Fund provides that
each Trustee appointed or elected in accordance with the Declaration of Trust
serves until their successors have been elected and qualified, unless they
resign or are removed. The Trustees shall promptly call a meeting of
shareholders for the purpose of voting upon removal of such Trustee(s) when
requested in writing by holders of at least 10% of the Portfolio's outstanding
shares. Pending the filling of any vacancy or vacancies caused by death,
resignation, or removal, the remaining Trustee or Trustees shall have all the
powers and duties of the whole number of Trustees. If a vacancy occurs in the
office of a Trustee for any reason, including an increase in the number of
Trustees, the other Trustees shall appoint a Trustee to fill the vacancy if,
immediately after filling such vacancy, at least two thirds of the Trustees then
holding such officer shall have been elected by shareholders, subject to the
provisions of Section 16(a) of the 1940 Act. With respect to both the
Corporation and the International Fund, a meeting of shareholders will be
required for the purpose of electing additional Directors/Trustees whenever
fewer than a majority of the Directors then in office were elected by
shareholders.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS. Under the Articles of
Incorporation of the Corporation, a Director or officer will be personally
liable only for his or her own willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his or her
office. The Articles of Incorporation further provide that Directors and
officers will be indemnified by the Corporation against reasonable costs and
expenses incurred in connection with any claim or litigation unless the person's
conduct is determined to constitute willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
person's office. The Declaration of Trust for the International Fund contains a
provision indemnifying the Trustees and officers by the assets of the fund from
personal liability for their actions as Trustees or Officers. Trustees and
officers of the International Fund are not protected from liability by reason of
willful misconduct, bad faith, recklessness, or gross negligence in the
performance of his duties as Trustee or officer.
TERMINATION OR LIQUIDATION. In the event of the termination or liquidation
of the Corporation or any series or class of the Corporation or of the
termination or liquidation of the International Fund, the shareholders of the
respective fund or class are entitled to receive, when and as declared by its
Directors or Trustees, the excess of the assets belonging to the respective fund
or class over the liabilities belonging to the respective fund or class. In
either case, the assets belonging to the fund or class will be distributed among
the shareholders in proportion to the number of shares of the respective fund or
class held by them.
Capitalization
The following table sets forth the unaudited capitalization of the Class A
Shares and Class C Shares of the Federated Fund and the shares of the
International Fund as of February 28, 1997, and on a pro forma combined basis as
of that date:
<TABLE>
<CAPTION>
CLASS A CLASS C
CLASS A SHARES CLASS C SHARES SHARES SHARES
-------------------------- ----------------------- PRO FORMA PRO FORMA
FED. FUND INT. FUND FED. FUND INT. FUND COMBINED COMBINED
------------ ----------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets.................. $141,119,701 $21,185,124 $6,966,846 $231,696 $162,304,825 $7,198,542
Net Asset Value Per Share... $ 16.90 $ 12.46 $ 16.39 $ 12.34 $ 16.90 $ 16.39
Shares Outstanding.......... 8,350,535 1,700,704 425,076 18,777 9,604,131 439,213
</TABLE>
INFORMATION ABOUT THE FEDERATED FUND
AND THE INTERNATIONAL FUND
Federated International Equity Fund, Inc.
Information about the Federated Fund is contained in the Federated Fund's
current Prospectus dated January 31, 1997, a copy of which is included herewith
and incorporated herein by reference. Additional information about the Federated
Fund is included in the Federated Fund's Annual Report to Shareholders dated
November 30, 1996, the Statement of Additional Information dated January 31,
1997, and the Statement of Additional Information dated April 17, 1997 (relating
to this Prospectus/ Proxy Statement), each of which is incorporated herein by
reference. Copies of the Annual Report, the Semi-Annual Report and Statements of
Additional Information, which have been filed with the Securities and Exchange
Commission (the "SEC"), may be obtained upon request and without charge by
contacting the Federated Fund at 1-800-245-4770, option one, or by writing the
Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The
Federated Fund is subject to the informational requirements of the Securities
Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the 1940 Act and in accordance therewith files
reports and other information with the SEC. Reports, proxy and information
statements, charter documents and other information filed by the Federated Fund
can be obtained by calling or writing the Federated Fund and can also be
inspected and copied by the public at the public reference facilities maintained
by the SEC in Washington, DC located at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549 and at certain of its regional offices located at Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and
13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such
material can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, DC
20549 at prescribed rates or electronically at Internet Web Site (www.sec.gov).
This Prospectus/Proxy Statement, which constitutes part of a Registration
Statement filed by the Federated Fund with the SEC under the 1933 Act, omits
certain of the information contained in the Registration Statement. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Federated Fund and the shares offered
hereby. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
Scottish Widows International Fund
Information about the Scottish Widows International Fund is contained in
the International Fund's current Prospectus dated March 15, 1996, the Annual
Report to Shareholders dated December 31, 1996, the Statement of Additional
Information dated March 15, 1996, and the Statement of Additional Information
dated April 17, 1997 (relating to this Prospectus/Proxy Statement), each of
which is incorporated herein by reference. Copies of such Prospectus, Annual
Report, and Statements of
Additional Information, which have been filed with the SEC, may be obtained upon
request and without charge from the International Fund by calling 1-800-523-8440
or by writing to the International Fund at 2650 Westview Drive, Wyomissing, PA
19610. The International Fund is subject to the informational requirements of
the 1933 Act, the 1934 Act, and the 1940 Act and in accordance therewith files
reports and other information with the SEC. Reports, proxy and information
statements, charter documents and other information filed by the International
Fund, can be obtained by calling or writing the International Fund and can also
be inspected at the public reference facilities maintained by the SEC or
obtained at prescribed rates at the addresses listed in the previous section.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the International Fund of proxies for
use at the Special Meeting of Shareholders (the "Special Meeting") to be held at
9:00 a.m. (local time) on May 29, 1997 at: Sheraton Berkshire Motor Inn, 1741
Paper Mill Road, Wyomissing, PA 19610, and at any adjournments thereof. The
proxy confers discretionary authority on the persons designated therein to vote
on other business not currently contemplated which may properly come before the
Special Meeting. A proxy, if properly executed, duly returned and not revoked,
will be voted in accordance with the specifications thereon; if no instructions
are given, such proxy will be voted in favor of the Plan. A shareholder may
revoke a proxy at any time prior to use by filing with the Secretary of the
International Fund an instrument revoking the proxy, by submitting a proxy
bearing a later date or by attending and voting at the Special Meeting. Proxies,
instruments revoking a proxy, or proxies bearing a later date may be received by
telephone, by electronic means including facsimile, or by mail.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by Federated Global. In addition to solicitations
through the mails, proxies may be solicited by officers, employees and agents,
including third party solicitors, of the International Fund, Federated Global
and their respective affiliates at no additional cost to the International Fund.
Such solicitations may be by telephone, telegraph, or personal contact. Any
telephonic solicitations will follow procedures designed to insure accuracy and
prevent fraud including requiring identifying shareholder information, recording
the shareholder's instructions and confirming to the shareholder after the fact.
Shareholders who communicate proxies by telephone or by other electronic means
have the same power and authority to issue, revoke, or otherwise change their
voting instructions as currently exists for instructions communicated in written
form. Federated Global will reimburse custodians, nominees and fiduciaries for
the reasonable costs incurred by them in connection with forwarding solicitation
materials to the beneficial owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees of the International Fund has fixed the close of
business on April 14, 1997, as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting and any
adjournments thereof. As of the record date, there were 1,542,403.352 Class A
Shares and 17,647.563 Class C Shares of the International Fund outstanding. Each
of the International Fund's shares is entitled to one vote and fractional shares
have proportionate voting rights. On the record date, the Trustees and Officers
of the International Fund as a group owned less than 1% of the outstanding Class
A Shares and Class C Shares of the International Fund. To the best knowledge of
Penn Square, as of the record date, no person, except as set forth in the table
below, owned beneficially or of record 5% or more of the outstanding Class A or
Class C Shares of the International Fund.
CLASS A SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ------------------------------------------------------------- ------------ ------------------
<S> <C> <C>
Advest, Inc.................................................. 874,704.709 56.71%
Hartford, CT
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ------------------------------------------------------------- ------------ ------------------
<S> <C> <C>
Morris A. Fishman, Trustee for............................... 3,352.641 19.00%
Morris A. Fishman Profit Sharing Plan
Wynnewood, PA
Sterling Trust Company, Trustee for.......................... 2,161.329 12.25%
the benefit of Jean Michalak
Waco, TX
Caryl R. Sickler............................................. 3,039.775 17.22%
Quaker City, OH
</TABLE>
As of the record date, there were 7,803,562.29 Class A Shares,
1,129,938.755 Class B Shares, and 404,182.566 Class C Shares of the Federated
Fund outstanding. On the record date, the Directors and officers of the
Federated Fund as a group owned less than 1% of the outstanding Class A Shares,
Class B Shares, and Class C Shares of the Federated Fund. To the best knowledge
of Federated Global, as of the record date, no person owned beneficially or of
record 5% or more of the Federated Fund's outstanding Class A Shares or Class B
Shares, and except as set forth in the table below, no person owned beneficially
or of record 5% or more of the Federated Fund's outstanding Class C Shares.
CLASS C SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ------------------------------------------------------------- ------------ ------------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith.......................... 151,439.322 37.47%
acting in various capacities for numerous
accounts on behalf of its customers
Jacksonville, FL
</TABLE>
Approval of the Plan requires the affirmative vote of a majority of the
votes cast at the Special Meeting. Shares represented by abstentions and "broker
non-votes" will be counted as present at the Special Meeting, but not as votes
cast, which means they will have the effect of reducing the number of votes cast
required to approve the Plan. The votes of shareholders of the Federated Fund
are not being solicited since their approval is not required in order to effect
the Reorganization.
Dissenter's Right of Appraisal
Shareholders of the International Fund objecting to the Reorganization have
no appraisal rights under the International Fund's Declaration of Trust or
Massachusetts law. Under the Plan, if approved by International Fund
shareholders, each shareholder will become the owner of Class A Shares and Class
C Shares of the Federated Fund having a total net asset value equal to the total
net asset value of his or her holdings in the International Fund's Class A
Shares or Class C Shares, respectively, at the Closing Date.
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY
Management of the International Fund knows of no other matters that may
properly be, or which are likely to be, brought before the Special Meeting.
However, if any other business shall properly come before the Special Meeting,
the persons named in the proxy intend to vote thereon in accordance with their
best judgment.
If at the time any session of the Special Meeting is called to order, a
quorum is not present in person or by proxy, the persons named as proxies may
vote those proxies which have been received to adjourn the Special Meeting to a
later date. In the event that a quorum is present but sufficient votes in favor
of one or more of the proposals have not been received, the persons named as
proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies with respect to any such proposal. All such
adjournments will require the affirmative vote of a majority of the shares
present in person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxies will vote those proxies which they are
entitled to vote in favor of the proposal, in favor of such an adjournment, and
will vote those proxies required to be voted against the proposal, against any
such adjournment.
Whether or not shareholders expect to attend the Special Meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy form
promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated March 24, 1997 (the
"Agreement"), between INTERNATIONAL SERIES, INC., a Maryland corporation (the
"Corporation"), on behalf of its portfolio, FEDERATED INTERNATIONAL EQUITY FUND,
INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and
SCOTTISH WIDOWS INTERNATIONAL FUND, a Massachusetts Trust (hereinafter called
the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets and the
assumption of certain liabilities of the Acquired Fund in exchange solely for
Class A Shares and Class C Shares of the Acquiring Fund (the "Acquiring Fund
Shares") and the distribution, after the Closing Date (as hereinafter defined),
of the Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Corporation are registered open-end
management investment companies and the Acquired Fund owns securities in
which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue shares of common stock or shares of beneficial interest, as the case
may be;
WHEREAS, the Board of Directors, including a majority of the directors who
are not "interested persons" (as defined under the Investment Company Act
of 1940, as amended (the "1940 Act")), of the Corporation has determined
that the transfer of all of the assets and the assumption of certain
liabilities of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund shareholders and that the interests of the
existing shareholders of the Acquiring Fund would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined under the 1940 Act), of the
Acquired Fund has determined that the transfer of all of the assets and the
assumption of certain liabilities of the Acquired Fund for Acquiring Fund
Shares is in the best interests of the Acquired Fund shareholders;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired Fund
agrees to assign, transfer and convey to the Acquiring Fund all of the net
assets of the Acquired Fund, including all securities and cash, other than cash
in an amount necessary to pay any unpaid dividends and distributions as provided
in paragraph 1.5, beneficially owned by the Acquired Fund, and the Acquiring
Fund agrees in exchange therefor to deliver to the Acquired Fund the number of
Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3. Such transaction shall take place at the closing
(the "Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares,
the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's
account, for the benefit of its shareholders, on the stock record books of the
Acquiring Fund and shall deliver a confirmation thereof to the shareholders of
the Acquired Fund.
1.2 The Acquiring Fund will assume only those certain liabilities which are
set forth in a certificate to be provided by the Acquired Fund at the Closing
and accepted by the Acquiring Fund.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall be
made on the Closing Date and shall be delivered to State Street Bank and Trust
Company (hereinafter called "State Street"), Boston, Massachusetts, the
Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring
Fund, together with proper instructions and all necessary documents to transfer
to the account of the Acquiring Fund, free and clear of all liens, encumbrances,
rights, restrictions and claims created by the Acquired Fund. All cash delivered
shall be in the form of immediately available funds payable to the order of the
Custodian for the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any dividends or interest received on or after the Closing Date with respect to
assets transferred to the Acquiring Fund thereunder. The Acquired Fund will
transfer to the Acquiring Fund any distributions, rights or other assets
received by the Acquired Fund after the Closing Date as distributions on or with
respect to the securities transferred. Such assets shall be deemed included in
assets transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's
shareholders of record, determined as of the close of business on the Closing
Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by
the Acquired Fund pursuant to paragraph 1.1. In addition, each Acquired Fund
Shareholder shall have the right to receive any unpaid dividends or other
distributions which were declared before the Valuation Date (as hereinafter
defined) with respect to the shares of the Acquired Fund that are held by the
shareholder on the Valuation Date. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the Acquired
Fund Shareholders, and representing the respective pro rata number of the
Acquiring Fund Shares due such shareholders, based on their ownership of shares
of the Acquired Fund on the Closing Date. All issued and outstanding Shares of
the Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with paragraph 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Acquired Fund up to and including the Closing Date and
such later dates, with respect to dissolution and deregistration of the Acquired
Fund, on which the Acquired Fund is dissolved and deregistered.
1.9 The Acquired Fund shall be deregistered as an investment company under
the 1940 Act and dissolved as a Massachusetts business trust as promptly as
practicable following the Closing Date and the making of all distributions
pursuant to paragraph 1.5.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the
Closing Date (such time and date being herein called the "Valuation Date"),
using the valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets shall
be determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1, by
the net asset value of one Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made in accordance with the regular
practices of the Acquiring Fund which have been reviewed by the Acquired Fund's
Board of Trustees.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be May 30, 1997, or such later date as the
parties may mutually agree. All acts taking place at the Closing shall be deemed
to take place simultaneously as of the close of business on the Closing Date
unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time)
at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA
15222-3779, or such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3 Penn Square Management Corporation, as transfer agent for the Acquired
Fund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding shares owned
by each such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund, or
provide evidence satisfactory to the Acquired Fund that such Acquiring Fund
Shares have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, assumption agreements, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Corporation as
follows:
(a) The Acquired Fund is a Business Trust duly organized, validly existing
and in good standing under the laws of Massachusetts and has power to own all of
its properties and assets and to carry out this Agreement.
(b) The Acquired Fund is registered under the 1940 Act, as an open-end,
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution, delivery and performance
of this Agreement will not result, in material violation of the Acquired Fund's
Declaration of Trust or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Acquired Fund is a party or by which it is
bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will result in liability to it
after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against the Acquired Fund or any of
its properties or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business. The
Acquired Fund knows of no facts which might form the basis for the institution
of such proceedings, and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(f) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired Fund at
December 31, 1995 and at December 31, 1996 has been audited by Ernst & Young
LLP, independent auditors, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and such statements
(copies of which have been furnished to the Acquiring Fund) fairly reflect the
financial condition of the Acquired Fund as of such dates, and there are no
known contingent liabilities of the Acquired Fund as of such dates not disclosed
therein.
(h) Since December 31, 1996, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund.
(i) At the Closing Date, all federal and other tax returns and reports of
the Acquired Fund required by law to have been filed by such date shall have
been filed or an appropriate extension obtained, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof or contest in good faith, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
(j) For each fiscal year of its operation the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding shares of the Acquired Fund
will, at the time of the Closing, be held by the persons and in the amounts set
forth in the records of the transfer agent as provided in paragraph 3.3. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund shares.
(l) On the Closing Date, the Acquired Fund will have full right, power and
authority to sell, assign, transfer and deliver the assets to be transferred by
it hereunder.
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Acquired Fund and, subject to the approval of the Acquired Fund
Shareholders, this Agreement constitutes the valid and legally binding
obligation of the Acquired Fund enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and to general
principles of equity and the discretion of the court (regardless of whether the
enforceability is considered in a proceeding in equity or at law).
(n) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration Statement
referred to in paragraph 5.5 (only insofar as it relates to the
Acquired Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not misleading.
4.2 The Corporation represents and warrants to the Acquired Fund as
follows:
(a) The Corporation is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland and has the power to
carry on its business as it is now being conducted and to carry out this
Agreement.
(b) The Corporation is registered under the 1940 Act as an open-end,
diversified, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery and performance
of this Agreement will not result, in material violation of the Corporation's
Articles of Incorporation or Bylaws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party or
by which it is bound.
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against the Acquiring Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(f) The Statement of Assets and Liabilities of the Acquiring Fund at
November 30, 1995 and 1996, have been audited by Arthur Andersen LLP,
independent auditors, and have been prepared in accordance with generally
accepted accounting principles, and such statements (copies of which have been
furnished to the Acquired Fund) fairly reflect the financial condition of the
Acquiring Fund as of such dates, and there are no known contingent liabilities
of the Acquiring Fund as of such dates not disclosed therein.
(g) Since November 30, 1996, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business.
(h) At the Closing Date, all federal and other tax returns and reports of
the Acquiring Fund required by law to have been filed or an appropriate
extension obtained, by such date shall have been filed, and all federal and
other taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof or contest in good faith, and to the best of the
Acquiring Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns.
(i) For each fiscal year of its operation the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquiring
Fund Shares, nor is there outstanding any security convertible into any
Acquiring Fund Shares, except for Class B Shares which are convertible into
Class A Shares eight (8) years after purchase.
(k) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Acquiring Fund, and this
Agreement constitutes the valid and legally binding obligation of the Acquiring
Fund enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund Shareholders
to consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days after the
Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form
as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings
and profits of the Acquired Fund for federal income tax purposes which will be
carried over to the Acquiring Fund as a result of Section 381 of the Code and
which will be certified by the Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of the Prospectus/Proxy Statement,
referred to in paragraph 4.1(o), all to be included in a Registration Statement
on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940
Act in connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act as it may
deem appropriate in order to continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a
dividend or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous dividends, shall have the
effect of distributing to its shareholders all of its investment company taxable
income, if any, plus the excess of its interest income, if any, excludable from
gross income under Section 103(a) of the Code over its deductions disallowed
under Sections 265 and 171(a)(2) of the Code for the taxable periods or years
ended on or before December 31, 1996 and for the period from said date to and
including the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized in taxable
periods or years ended on or before December 31, 1996 and in the period from
said date to and including the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the Acquired
Fund's portfolio securities showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the
Corporation, to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct in all material
respects at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Corporation shall reasonably request.
6.4 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate specifying the liabilities which are to be assumed by the Acquiring
Fund all of which shall be reflected in the net asset value of the Acquired Fund
on the Closing Date, which liabilities shall be acceptable to the Acquiring Fund
in its sole discretion.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Corporation contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 The Corporation shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the Acquired
Fund, to the effect that the representations and warranties of the Corporation
made in this Agreement are true and correct in all material respects at and as
of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquired
Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the Acquiring
Fund's financial condition, assets, liabilities or business since the date
hereof other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of any indebtedness, except as otherwise
disclosed to and accepted by the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, either
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of applicable law.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission) deemed necessary by the Acquiring Fund or the Acquired Fund to
permit consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Acquired Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Corporation and the Acquired Fund shall have received an opinion of
Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for
federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets and the assumption of
certain liabilities in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in
liquidation of the Acquired Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Acquired
Fund solely in exchange for the Acquiring Fund Shares and the assumption of
certain liabilities; (c) No gain or loss will be recognized by the Acquired Fund
upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption of certain liabilities or upon
the distribution (whether actual or constructive) of the Acquiring Fund Shares
to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund;
(d) No gain or loss will be recognized by the Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e)
The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be
the same as the tax basis of such assets to the Acquired Fund immediately prior
to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received
by each of the Acquired Fund Shareholders pursuant to the Reorganization will be
the same as the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the assets of
the Acquired Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund; and (h) The holding
period of the Acquiring Fund Shares to be received by each Acquired Fund
Shareholder will include the period during which the Acquired Fund shares
exchanged therefor were held by such shareholder (provided the Acquired Fund
shares were held as capital assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of the Acquired
Fund or the Board of Directors of the Corporation at any time prior to the
Closing Date (and notwithstanding any vote of the Acquired Fund Shareholders) if
a majority of the independent board members of either board reasonably believes
that continuing the transaction would have a material adverse impact on
shareholders of that fund.
9.2 If this Agreement is terminated and the exchange contemplated hereby is
abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the directors/trustees or officers of the Acquired Fund or the
Corporation or the shareholders of the Acquiring Fund or of the Acquired Fund,
in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions may
be waived by the Board of Directors of the Corporation or the Board of Trustees
of the Acquired Fund, if, in the judgment of either, such waiver will not have a
material adverse effect on the benefits intended under this Agreement to the
shareholders of the Corporation or of the Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof, and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them relating to the subject matter hereof. Neither party
shall be bound by any condition, definition, warranty or representation, other
than as set forth or provided in this Agreement or as may be set forth in a
later writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the
internal laws of the Commonwealth of Pennsylvania, without giving effect to
principles of conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
11.6 An agreement has been entered into under which Federated Global
Research Corp. will assume substantially all of the expenses of the
reorganization including registration fees, transfer taxes (if any), the fees of
banks and transfer agents and the costs of preparing, printing, copying and
mailing proxy solicitation materials to the Acquired Fund Shareholders and the
costs of holding the special meeting of shareholders. Penn Square Management
Corporation will assume the legal fees of the Acquired Fund. The accountants'
fees of the Acquired Fund will be borne equally by Federated Global and Penn
Square Management Corporation.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and attested on
its behalf by its duly authorized representatives as of the date first above
written.
<TABLE>
<S> <C>
Acquired Fund:
Attest: SCOTTISH WIDOWS INTERNATIONAL FUND
/s/ SANDRA J. HANCK /s/ JAMES E. JORDAN
- ------------------------------------- By:
Name: Sandra J. Hanck -------------------------------------------
Title: Secretary Name: James E. Jordan
Title: President
Acquiring Fund:
INTERNATIONAL SERIES, INC., on behalf of
its portfolio,
FEDERATED INTERNATIONAL EQUITY
Attest: FUND, INC.
/s/ S. ELLIOTT COHAN /s/ GLEN R. JOHNSON
- ------------------------------------- By:
Name: S. Elliott Cohan -------------------------------------------
Title: Assistant Secretary Name: Glen R. Johnson
Title: President
</TABLE>
Cusip 46031P308
Cusip 46031P407
G02062-07 (4/97)
STATEMENT OF ADDITIONAL INFORMATION
APRIL 17, 1997
Acquisition of the Assets of
SCOTTISH WIDOWS INTERNATIONAL FUND
2650 Westview Drive
Wyomissing, Pennsylvania 19610
Telephone Number: 1-800-523-8440
By and in exchange for Class A and Class C Shares respectively of
FEDERATED INTERNATIONAL EQUITY FUND
a portfolio of INTERNATIONAL SERIES, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-4770
This Statement of Additional Information dated April 17, 1997 is not a
prospectus. A Prospectus/Proxy Statement dated April 17, 1997 related to the
above-referenced matter may be obtained from Federated International Equity
Fund, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This
Statement of Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of Federated International Equity
Fund, dated January 31, 1997.
2. Statement of Additional Information of Scottish Widows International
Fund, dated March 15, 1996.
3. Financial Statements of Federated International Equity Fund, dated
November 30, 1996.
4. Financial Statements of Scottish Widows International Fund, dated
December 31, 1996.
5. Pro forma Financial Statements (unaudited) of the combined Scottish
Widows International Fund, dated November 30, 1996, and Federated
International Equity Fund, dated November 30, 1996.
The Statement of Additional Information of Federated International Equity
Fund (the "Federated Fund"), dated January 31, 1997, is incorporated herein
by reference to Post-Effective Amendment No. 30 to the Federated Fund's
Registration Statement on Form N-1A (File Nos. 2-91776 and 811-3984) which
was filed with the Securities and Exchange Commission on or about January
27, 1997. A copy may be obtained, upon request and without charge, from the
Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779;
telephone number: 1-800-245-4770.
The Statement of Additional Information of Scottish Widows International
Fund (the "International Fund"), dated March 15, 1996, is incorporated
herein by reference to Post-Effective Amendment No. 9 to the Trust's
Registration Statement on Form N-1A (File Nos. 33-35081 and 811-6019) which
was filed with the Securities and Exchange Commission on or about March 21,
1996. A copy may be obtained, upon request and without charge, from the
International Fund at 2650 Westview Drive, Wyomissing, Pennsylvania 19610;
telephone number: 1-800-523-8440.
The audited financial statements of the Federated Fund, dated November 30,
1996, are incorporated herein by reference to the Federated Fund's Annual
Report to Shareholders dated November 30, 1996, which was filed with the
Securities and Exchange Commission. A copy may be obtained, upon request and
without charge, from the Federated Fund at Federated Investors Tower,
Pittsburgh, PA 15222-3779; telephone number: 1-800-245-4770.
The audited financial statements of the International Fund, dated December
31, 1996, are incorporated herein by reference to the International Fund's
Annual Report to Shareholders dated December 31, 1996, which was filed with
the Securities and Exchange Commission. A copy may be obtained, upon request
and without charge, from the International Fund at 2650 Westview Drive,
Wyomissing, Pennsylvania 19610; telephone number 1-800-523-8440.
Pro forma financial statements are included herein as the total net assets
of the International Fund do exceed 10% of the total assets of the Federated
Fund. At February 28, 1997, the total net assets of the International Fund
were $21,416,820 and the total net assets of the Federated Fund were
$166,153,206.
FEDERATED INTERNATIONAL EQUITY FUND
SCOTTISH WIDOWS INTERNATIONAL FUND
INTRODUCTION TO PROPOSED MERGER
NOVEMBER 30, 1996 (UNAUDITED)
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated
International Equity Fund and Scottish Widows International Fund,
collectively ("the Funds"), as of November 30, 1996. These statements have
been derived from the books and records utilized in calculating daily net
asset values at November 30, 1996. The accompanying unaudited Pro Forma
Combining Statement of Operations reflects the accounts of Federated
International Equity Fund's most recent fiscal year ended November 30, 1996,
and the twelve-month period ended November 30, 1996, for Scottish Widows
International Fund.
The Pro Forma statements give effect to the proposed transfer of assets from
Scottish Widows International Fund Class A and Class C Shares in exchange
for Class A and Class C Shares, respectively, of Federated International
Equity Fund.
FEDERATED INTERNATIONAL EQUITY FUND
SCOTTISH WIDOWS INTERNATIONAL FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- 97.0%
<C> <C> <C> <S> <C> <C> <C>
ARGENTINA -- 0.6%
12,015 -- 12,015 Banco Frances del Rio de la
Plata S.A., ADR $ 363,454 $ -- $ 363,454
40,229 -- 40,229 Compania Naviera Perez
Companc S.A., Class B 275,277 -- 275,277
7,744 -- 7,744 (a) IRSA Inversiones y
Representaciones S.A., GDR 240,064 -- 240,064
10,900 -- 10,900 Telefonica de Argentina
S.A., ADR 277,950 -- 277,950
9,800 -- 9,800 YPF Sociedad Anonima, ADR 227,850 -- 227,850
Total 1,384,595 -- 1,384,595
AUSTRALIA -- 1.7%
105,000 -- 105,000 (b) Commonwealth Installment
Receipt Trustee Ltd. 663,194 -- 663,194
195,000 -- 195,000 Darling Park Trust 158,717 -- 158,717
68,500 -- 68,500 Lend Lease Corp., Ltd. 1,271,203 -- 1,271,203
-- 62,000 62,000 (a) News Corporation -- 330,229 330,229
7,000 -- 7,000 (a) Orogen Minerals Ltd.,
GDR 140,910 -- 140,910
-- 43,000 43,000 (a) Western Mining Limited -- 273,154 273,154
130,000 -- 130,000 Woodside Petroleum, Ltd. 913,153 -- 913,153
Total 3,147,177 603,383 3,750,560
AUSTRIA -- 0.1%
3,400 -- 3,400 Vae Eisenbahnsyst 314,189 -- 314,189
BRAZIL -- 0.6%
36,700 -- 36,700 (a)(b) Elevadores Atlas 394,356 -- 394,356
1,338,000 -- 1,338,000 (a) Light Participacoes S.A. 251,409 -- 251,409
8,195 -- 8,195 Telecomunicacoes Brasileras,
ADR 620,771 -- 620,771
Total 1,266,536 -- 1,266,536
CANADA -- 0.1%
18,000 -- 18,000 Ontario Stores, Inc. 173,513 -- 173,513
CHILE -- 0.4%
9,000 -- 9,000 (a) Banco BHIF, ADR 151,875 -- 151,875
8,000 -- 8,000 (a) Banco de A. Edwards, ADR 148,000 -- 148,000
3,100 -- 3,100 (a)(b) Chilectra S.A., ADR 170,500 -- 170,500
2,000 -- 2,000 Compania Telecomunicacion
Chile,
ADR 190,250 -- 190,250
6,900 -- 6,900 (a) Santa Isabel S.A., ADR 173,363 -- 173,363
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <C> <C> <S> <C> <C> <C>
CHILE -- CONTINUED
3,200 -- 3,200 Sociedad Quimica Y Minera De
Chile, ADR $ 166,400 $ -- $ 166,400
Total 1,000,388 -- 1,000,388
COLOMBIA -- 0.3%
15,500 -- 15,500 Banco Ganadero S.A., ADR 383,625 -- 383,625
17,000 -- 17,000 Banco Industrial Colombiano,
ADR 274,125 -- 274,125
Total 657,750 -- 657,750
DENMARK -- 0.1%
4,000 -- 4,000 (a)(b) Inwear Group AS 181,223 -- 181,223
EGYPT -- 0.1%
10,500 -- 10,500 (a)(b) Suez Cement Co., GDR 168,525 -- 168,525
FRANCE -- 7.6%
17,046 -- 17,046 AXA 1,024,300 -- 1,024,300
8,300 -- 8,300 Accor S.A. 1,064,551 -- 1,064,551
-- 2,273 2,273 (a) Adecco S.A. -- 583,195 583,195
12,600 -- 12,600 Compagnie Financiere de
Paribas,
Class A 865,680 -- 865,680
7,600 -- 7,600 Compagnie de St. Gobain 1,092,615 -- 1,092,615
16,400 -- 16,400 Credit Commerical de France 794,288 -- 794,288
12,000 -- 12,000 Credit Local de France 1,086,336 -- 1,086,336
18,200 -- 18,200 Etablissements Economiques du
Casino Guichard-Perrachon 823,979 -- 823,979
7,000 -- 7,000 Group Danon 1,030,476 -- 1,030,476
7,000 -- 7,000 Havas S.A. 495,808 -- 495,808
-- 4,000 4,000 Imetal -- 630,332 630,332
6,700 -- 6,700 LVMH (Moet-Hennessy) 1,698,151 -- 1,698,151
22,900 -- 22,900 Lafarge-Coppee 1,446,648 -- 1,446,648
8,200 -- 8,200 Peugeot S.A. 1,007,772 -- 1,007,772
-- 1,650 1,650 (a) Pinault Printers -- 656,823 656,823
20,372 -- 20,372 Schneider S.A. 969,111 -- 969,111
10,633 -- 10,633 Total SA-B 850,225 -- 850,225
-- 9,600 9,600 (a) Veleo -- 589,679 589,679
Total 14,249,940 2,460,029 16,709,969
GERMANY -- 6.6%
32,000 -- 32,000 BASF AG 1,183,590 -- 1,183,590
30,000 18,000 48,000 (a) Bayer AG 1,207,139 723,697 1,930,836
49,500 -- 49,500 (a) Commerzbank AG
Frankfurt , 1,216,501 -- 1,216,501
20,000 -- 20,000 Daimler Benz AG 1,306,157 -- 1,306,157
21,400 -- 21,400 Deutsche Bank, AG 1,019,843 -- 1,019,843
5,000 -- 5,000 (a) Henkel KGAA 243,807 -- 243,807
2,200 -- 2,200 Linde AG 1,335,934 -- 1,335,934
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <C> <C> <S> <C> <C> <C>
GERMANY -- CONTINUED
2,800 1,490 4,290 Mannesmann AG $ 1,167,804 $ 620,387 $ 1,788,191
17,700 -- 17,700 Schwarz Pharma AG 1,317,632 -- 1,317,632
-- 5,000 5,000 (a) SGL Carbon -- 618,044 618,044
30,000 -- 30,000 Siemens AG 1,445,290 -- 1,445,290
19,700 -- 19,700 Veba AG 1,152,080 -- 1,152,080
Total 12,595,777 1,962,128 14,557,905
HONG KONG -- 6.9%
2,070,000 -- 2,070,000 Aeon Credit Service 696,068 -- 696,068
1,119,000 -- 1,119,000 Amoy Properties Ltd. 1,563,011 -- 1,563,011
-- 117,000 117,000 (a) Asia Satelite -- 300,367 300,367
363,000 -- 363,000 (a) Cheung Kong 882,618 -- 882,618
87,000 -- 87,000 Cheung Kong 765,132 -- 765,132
152,600 -- 152,600 (a)(b) China Resources
Bejing ,734 -- 94,734
-- 65,000 65,000 (a) Citic Pacific Ltd. -- 338,785 338,785
71,014 18,395 89,409 HSBC Holdings PLC 1,478,693 383,029 1,861,722
1,159,000 -- 1,159,000 Henderson Investment Ltd. 1,409,027 -- 1,409,027
388,000 -- 388,000 Hong Kong Telecom 672,426 -- 672,426
146,000 -- 146,000 Hutchison Whampoa 1,128,233 -- 1,128,233
123,000 -- 123,000 New World Development Co.
Ltd. 831,189 -- 831,189
1,414,000 -- 1,414,000 Oriental Press Group 795,512 -- 795,512
600,000 182,000 782,000 (a) Peregrine Investment 1,109,674 336,599 1,446,273
-- 18,200 18,200 (a) Peregrine Investment,
Warrants -- 6,002 6,002
132,000 -- 132,000 Sun Hung Kai Properties 1,638,903 -- 1,638,903
549,500 -- 549,500 (a) Winsor Property Holdings
Ltd. 827,946 -- 827,946
Total 13,893,166 1,364,782 15,257,948
INDIA -- 1.1%
73,200 -- 73,200 (a)(b) Crompton Greaves
Ltd., GDR 237,900 -- 237,900
30,000 -- 30,000 (a) Hindalco Industries
Ltd., GDR 612,000 -- 612,000
40,000 -- 40,000 (a)(b) Larsen & Toubro Ltd.,
GDR 580,000 -- 580,000
63,800 -- 63,800 (a)(b) Mahindra and
Mahindra, GDR 669,900 -- 669,900
34,200 -- 34,200 (a)(b) Steel Authority of
India, GDR 290,700 -- 290,700
Total 2,390,500 -- 2,390,500
INDONESIA -- 1.4%
552,500 -- 552,500 (a) PT Bank Negara Indonesia 276,839 -- 276,839
360,000 -- 360,000 Citra Marga Nusaphala
Persada 303,198 -- 303,198
95,500 -- 95,500 Gudang Garam 406,231 -- 406,231
-- 58,000 58,000 (a) Hanjaya Mandala
Sampoerna -- 295,261 295,261
168,000 -- 168,000 Modern Photo Film Co. 420,896 -- 420,896
112,000 -- 112,000 Semen Gresik 341,493 -- 341,493
360,667 -- 360,667 Steady Safe 422,957 -- 422,957
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <C> <C> <S> <C> <C> <C>
INDONESIA -- CONTINUED
409,060 -- 409,060 Pab K Tjiwi Kimia $ 392,488 $ -- $ 392,488
170,000 -- 170,000 Tambang Timah 268,230 -- 268,230
Total 2,832,332 295,261 3,127,593
ISRAEL -- 0.1%
8,100 -- 8,100 (a) Memco Software, Ltd. 154,913 -- 154,913
ITALY -- 2.2%
150,000 -- 150,000 Bca Pop Di Milano 766,846 -- 766,846
128,000 -- 128,000 Burgo (Cartiere) SPA 612,157 -- 612,157
171,000 -- 171,000 Eni Spa 900,148 -- 900,148
96,000 -- 96,000 Imi 806,465 -- 806,465
5,000 -- 5,000 (a) La Rinascente SPA,
Warrants 2,342 -- 2,342
500,000 -- 500,000 Telecom Italia Mobile 1,175,830 -- 1,175,830
103,000 -- 103,000 (a) Unicem SPA 695,069 -- 695,069
Total 4,958,857 -- 4,958,857
JAPAN -- 23.7%
175,000 -- 175,000 Amada Co. 1,462,687 -- 1,462,687
3,200 -- 3,200 Asahi Broadcasting Corp. 351,185 -- 351,185
40,000 -- 40,000 Canare Electric Co. Ltd. 842,845 -- 842,845
232,000 -- 232,000 Casio Computer Co. 1,882,072 -- 1,882,072
250 -- 250 DDI Corp. 1,788,850 -- 1,788,850
113,000 -- 113,000 Dai Nippon Printing Co. Ltd. 2,063,565 -- 2,063,565
145,200 -- 145,200 Daito Trust Construction 1,899,456 -- 1,899,456
62,000 -- 62,000 Fuji Photo Film 1,943,284 -- 1,943,284
100,000 -- 100,000 Hitachi Maxell 2,063,213 -- 2,063,213
-- 16,000 16,000 (a) Ines -- 255,877 255,877
175,000 -- 175,000 JGC Corp. 1,613,257 -- 1,613,257
4,000 -- 4,000 Japan Cash Machine Co. Ltd. 71,291 -- 71,291
85,000 -- 85,000 Japan Radio Co. 1,037,313 -- 1,037,313
270 20 290 (a)(b) Japan Tobacco, Inc. 1,922,476 142,525 2,065,001
80,000 -- 80,000 Konami Co. 2,732,221 -- 2,732,221
-- 40,000 40,000 Kurimoto Iron Works -- 376,084 376,084
12,000 -- 12,000 (a) Meiwa Estate 349,781 -- 349,781
250,000 -- 250,000 Minolta Co. 1,573,749 -- 1,573,749
250,000 74,000 324,000 Mitsubishi Heavy Industries
Ltd. 2,041,264 604,721 2,645,985
-- 15,000 15,000 Murata Manufacturing
Company -- 512,721 512,721
25,000 -- 25,000 Nintendo Corp. Ltd. 1,766,901 -- 1,766,901
80,000 29,000 109,000 (a) Nippon Comsys Corp. 997,366 361,849 1,359,215
-- 88,000 88,000 Nissan Motor Company -- 625,564 625,564
82,000 -- 82,000 Pioneer Electronic Corp. 1,763,828 -- 1,763,828
30,000 -- 30,000 Promise Co. Ltd. 1,501,317 -- 1,501,317
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <C> <C> <S> <C> <C> <C>
JAPAN -- CONTINUED
-- 7,000 7,000 Rohm Company $ -- $ 430,563 $ 430,563
70,000 -- 70,000 Sankyo Co. 1,874,451 -- 1,874,451
-- 8,700 8,700 Sanyo Shinpan Finance
Company -- 547,360 547,360
110,000 -- 110,000 Shiseido Co. 1,323,090 -- 1,323,090
80,000 40,000 120,000 (a) Shochiku Co. 744,513 372,569 1,117,082
30,000 -- 30,000 Sony Corp. 1,920,105 -- 1,920,105
-- 94,000 94,000 Sumitomo Realty &
Development -- 652,523 652,523
141,000 51,000 192,000 Sumitomo Trust & Banking 1,559,789 564,653 2,124,442
86,000 -- 86,000 Taisho Pharmaceutical Co. 1,917,823 -- 1,917,823
88,000 -- 88,000 Takashimaya Co. 1,174,364 -- 1,174,364
165,000 -- 165,000 Tokio Marine and Fire
Insurance Co. 1,825,285 -- 1,825,285
350,000 -- 350,000 (a) Tokyo Tatemono Co., Ltd. 1,604,038 -- 1,604,038
150,000 -- 150,000 Tsubakimoto Chain 883,670 -- 883,670
-- 70,000 70,000 Yamaichi Securities -- 369,669 369,669
Total 46,495,049 5,816,678 52,311,727
KOREA -- 0.9%
10,000 -- 10,000 Dongkuk Steel Mill 194,222 -- 194,222
7,300 -- 7,300 Hankuk Paper Manufacturing
Co. 165,559 -- 165,559
58,000 -- 58,000 Korea Exchange Bank 545,751 -- 545,751
84,650 -- 84,650 (a) Korea Mobile Telecomm
Corp., ADR 1,100,450 -- 1,100,450
50 -- 50 Samsung Electronics Co. 3,607 -- 3,607
166 -- 166 Samsung Electronics Co. 12,276 -- 12,276
4 -- 4 (a)(b) Samsung Electronics
Co., GDR 0 -- 0
15 -- 15 (a)(b) Samsung Electronics
Co., GDR 754 -- 754
2,740 -- 2,740 Shinhan Bank 48,391 -- 48,391
Total 2,071,010 -- 2,071,010
MALAYSIA -- 2.5%
29,000 -- 429,000 Eastern and Oriental 933,715 -- 933,715
84,000 -- 84,000 Malayan Banking 831,025 -- 831,025
90,000 -- 590,000 Malaysian Industrial
Development 1,214,088 -- 1,214,088
222,000 -- 222,000 Malaysian Pacific Industries 904,867 -- 904,867
192,000 -- 192,000 Metacorp 592,639 -- 592,639
138,000 -- 138,000 UMW Holdings 655,322 -- 655,322
-- 40,000 40,000 (a) United Engineers -- 362,409 362,409
Total 5,131,656 362,409 5,494,065
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <C> <C> <S> <C> <C> <C>
MEXICO -- 1.7%
16,950 -- 16,950 (a)(b) Acer, Inc., ADR $ 305,100 $ -- $ 305,100
44,700 -- 44,700 (a) Cemex S.A., Class B, ADR 322,678 -- 322,678
268,000 -- 268,000 (a) Cifra SA de CV, Class B 369,702 -- 369,702
28,400 -- 28,400 (a) Empresas ICA Sociedad
Controladora S.A., ADR 408,250 -- 408,250
211,000 -- 211,000 Fomento Economico Mexicano,
S.A. de C.V., Class B 720,990 -- 720,990
205,000 -- 205,000 (a) Grupo Corvi S.A., Class
UBL 171,548 -- 171,548
42,800 -- 42,800 (a)(b) Grupo Financiero
Bancomer,
S.A. de C.V., Class B, ADR 344,797 -- 344,797
8,600 -- 8,600 Pan American Beverage, Class
A 402,050 -- 402,050
10,900 -- 10,900 Telefonos de Mexico, Class
L, ADR 331,088 -- 331,088
29,500 -- 29,500 (a) Tubos de Acero de Mexico
S.A., ADR 401,938 -- 401,938
Total 3,778,141 -- 3,778,141
NETHERLANDS -- 3.2%
15,000 -- 15,000 ABN-Amro Hldgs. N.V. 971,699 -- 971,699
22,800 -- 22,800 (a) ASM Lithography Holding
N.V. 1,003,607 -- 1,003,607
24,000 -- 24,000 Boskalis Westminster 476,019 -- 476,019
-- 41,000 41,000 (a) Elsevier N.V. -- 698,955 698,955
32,300 19,292 51,592 ING Groep, N.V. 1,131,427 675,666 1,807,093
2,400 -- 2,400 Koninklijke Frans Maas Groep
N.V. 97,152 -- 97,152
-- 21,000 21,000 (a) Philips Electronics -- 848,731 848,731
9,002 -- 9,002 Wolters Kluwer N.V. 1,177,261 -- 1,177,261
Total 4,857,165 2,223,352 7,080,517
NEW ZEALAND -- 0.4%
210,000 -- 210,000 Air New Zealand Ltd., Class
B 552,631 -- 552,631
100,000 -- 100,000 Fletcher Challenge Building 280,939 -- 280,939
Total 833,570 -- 833,570
NORWAY -- 0.4%
51,000 -- 51,000 (a) Elkem A/S, Class A 794,640 -- 794,640
PAKISTAN -- 0.2%
230,000 -- 230,000 Faysal Bank 137,725 -- 137,725
12,000 -- 12,000 (a) Hub Power Co., GDR 258,000 -- 258,000
90,000 -- 90,000 (a) PEL Appliances Ltd. 78,593 -- 78,593
Total 474,318 -- 474,318
PHILIPPINES -- 0.9%
1,700,000 -- 1,700,000 (a) Belle Corp. 452,712 -- 452,712
911,552 -- 911,552 Davao Union Cement Corp.,
Class B 298,232 -- 298,232
1,344,900 -- 1,344,900 (a) Filinvest Land, Inc. 475,826 -- 475,826
-- 133,800 133,800 First Philippine Holdings -- 282,504 282,504
Corp.
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <C> <C> <S> <C> <C> <C>
PHILIPPINES -- CONTINUED
30,200 -- 30,200 Philippine Commercial
International Bank $ 402,115 $ -- $ 402,115
Total 1,628,885 282,504 1,911,389
SINGAPORE -- 2.3%
172,000 -- 172,000 Hong Leong Finance Ltd. 596,021 -- 596,021
-- 46 46 (a) OCBC Foreign -- 558 558
1,178,300 -- 1,178,300 Roly International Holdings 777,678 -- 777,678
144,000 -- 144,000 Sembawang Corp. Ltd. 780,321 -- 780,321
31,000 -- 31,000 Singapore Press Holdings
Ltd. 585,740 -- 585,740
184,000 -- 184,000 Straits Steamship Land Ltd. 587,750 -- 587,750
69,750 -- 69,750 (a) Straits Steamship Land
Ltd., Warrants 78,080 -- 78,080
100,000 -- 100,000 United Overseas Bank Ltd. 1,062,389 -- 1,062,389
220,000 -- 220,000 Wing Tai Holdings, Ltd. 602,353 -- 602,353
Total 5,070,332 558 5,070,890
SPAIN -- 3.0%
6,500 -- 6,500 (a) ABENGOA S.A. 225,548 -- 225,548
13,000 -- 13,000 Corp Mapfre S.A. 687,432 -- 687,432
14,500 -- 14,500 Empresa Nac De Electridad 979,427 -- 979,427
10,500 -- 10,500 Fomento de Construcciones y
Contratas S.A. 887,564 -- 887,564
79,000 -- 79,000 Iberdrola S.A. 911,726 -- 911,726
28,000 -- 28,000 Repsol S.A. 1,036,437 -- 1,036,437
42,000 -- 42,000 Telefonica de Espana 920,797 -- 920,797
8,800 -- 8,800 Zardoya-Otis S.A. 937,471 -- 937,471
Total 6,586,402 -- 6,586,402
SWEDEN -- 1.7%
25,000 -- 25,000 (a) Biacore International AB 397,396 -- 397,396
-- 16,640 16,640 (a) Ericsson (LM) Telephone -- 513,138 513,138
-- 11,400 11,400 (a) Pharmacia & Upjohn -- 439,011 439,011
-- 25,500 25,500 (a) Sandvik AB -- 629,266 629,266
1,750 -- 1,750 (a) Scala International AB 153,747 -- 153,747
121,000 -- 121,000 Stora Kopparbergs, Class A 1,657,633 -- 1,657,633
Total 2,208,776 1,581,415 3,790,191
SWITZERLAND -- 5.1%
740 -- 740 ABB AG 925,923 -- 925,923
9,400 -- 9,400 CS Holding AG 1,000,575 -- 1,000,575
1,215 625 1,840 (a) Ciba-Giegy AG 1,503,487 774,095 2,277,582
820 -- 820 Nestle S.A. 890,142 -- 890,142
10,000 -- 10,000 (a) Oerlikon-Buhrle Holding
AG 1,031,837 -- 1,031,837
195 100 295 Roche Holding AG 1,498,964 769,392 2,268,356
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <C> <C> <S> <C> <C> <C>
SWITZERLAND -- CONTINUED
950 -- 950 Sandoz AG $ 1,104,872 $ -- $ 1,104,872
1,500 -- 1,500 Sulzer AG 863,061 -- 863,061
3,200 -- 3,200 Zurich
Versicherungsgesellschaft 908,324 -- 908,324
Total 9,727,185 1,543,487 11,270,672
THAILAND -- 1.0%
-- 45,000 45,000 Bangkok Bank -- 359,424 359,424
214,100 -- 214,100 Industrial Finance
Corporation of Thailand 674,812 -- 674,812
78,900 -- 78,900 Krung Thai Bank PLC 225,512 -- 225,512
34,300 -- 34,300 PTT Exploration and
Production Public Co. 504,955 -- 504,955
380,000 -- 380,000 Siam City Bank 446,350 -- 446,350
Total 1,851,629 359,424 2,211,053
UNITED KINGDOM -- 20.0%
-- 10,000 10,000 (a) AMERSHAW International -- 183,991 183,991
275,000 -- 275,000 Asda Group 547,873 -- 547,873
40,000 -- 40,000 (a) Atlantic Telecom Group
PLC 82,717 -- 82,717
100,000 -- 100,000 BAA 823,806 -- 823,806
236,000 -- 236,000 BTR PLC 948,285 -- 948,285
60,766 -- 60,766 Barclays PLC 1,045,118 -- 1,045,118
50,724 -- 50,724 Boc Group PLC 755,573 -- 755,573
80,000 -- 80,000 Boots Co. PLC 852,724 -- 852,724
54,323 26,000 80,323 (a) British Aerospace 1,056,691 505,905 1,562,596
86,765 -- 86,765 British Petroleum Co. PLC 1,003,239 -- 1,003,239
222,495 -- 222,495 Bunzl PLC 830,430 -- 830,430
85,822 -- 85,822 Cadbury Schweppes PLC 738,029 -- 738,029
190,000 -- 190,000 Caradon PLC 761,853 -- 761,853
100,000 -- 100,000 Carlton Communications PLC 845,662 -- 845,662
70,000 -- 70,000 Chubb Security 403,665 -- 403,665
103,600 -- 103,600 Compass Group 1,056,379 -- 1,056,379
190,000 -- 190,000 Cookson Group 721,923 -- 721,923
63,500 -- 63,500 Cowie Group PLC 422,764 -- 422,764
152,757 -- 152,757 David S. Smith (Holdings)
PLC 810,270 -- 810,270
164,550 -- 164,550 Delta 1,005,614 -- 1,005,614
-- 123,000 123,000 (a) Dewhirst Group -- 388,553 388,553
64,937 -- 64,937 EMI Group PLC 1,500,058 -- 1,500,058
16,500 -- 16,500 (a) Eidos PLC 233,020 -- 233,020
300,000 -- 300,000 FKI PLC 1,086,920 -- 1,086,920
-- 37,000 37,000 (a) Farnell Electronics -- 442,658 442,658
59,400 -- 59,400 General Accident 731,515 -- 731,515
126,000 -- 126,000 General Electric Co. PLC 789,089 -- 789,089
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
VALUE IN VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <C> <C> <S> <C> <C> <C>
UNITED KINGDOM -- CONTINUED
56,000 -- 56,000 Glaxo Wellcome PLC $ 921,015 $ -- $ 921,015
-- 37,000 37,000 Granada Group -- 538,402 538,402
114,448 -- 114,448 Grand Metropolitan PLC 893,764 -- 893,764
158,052 -- 158,052 Guardian Royal Ex 712,140 -- 712,140
52,000 -- 52,000 Imperial Chemical
Industries, PLC 674,479 -- 674,479
180,000 -- 180,000 Inchcape PLC 815,568 -- 815,568
166,393 -- 166,393 Ladbroke Group PLC 573,481 -- 573,481
-- 31,500 31,500 Laporte PLC -- 362,037 362,037
-- 58,438 58,438 Lloyds TSB Group -- 404,557 404,557
-- 66,000 66,000 (a) Low & Bonar -- 470,215 470,215
120,000 -- 120,000 Marks & Spencer PLC 1,020,847 -- 1,020,847
277,000 -- 277,000 Mirror Group PLC 1,071,116 -- 1,071,116
78,500 -- 78,500 National Power Co. PLC 608,415 -- 608,415
95,000 -- 95,000 Pearson 1,173,924 -- 1,173,924
50,000 -- 50,000 Peninsular & Oriental Steam
Navigation Co. 497,236 -- 497,236
65,000 -- 65,000 Powergen PLC 633,827 -- 633,827
72,000 -- 72,000 Premier Farnell PLC 861,870 -- 861,870
41,614 -- 41,614 RTZ Corp. PLC 699,630 -- 699,630
100,000 -- 100,000 Rank Group PLC 731,338 -- 731,338
85,500 -- 85,500 Reckitt & Colman PLC 1,007,658 -- 1,007,658
57,000 -- 57,000 Reed International PLC 1,104,447 -- 1,104,447
500,000 -- 500,000 Rugby Group PLC 806,994 -- 806,994
86,000 -- 86,000 Safeway PLC 563,887 -- 563,887
330,000 -- 330,000 Sedgwick Group PLC 696,284 -- 696,284
66,000 -- 66,000 Siebe PLC 1,053,581 -- 1,053,581
114,000 -- 114,000 Smith, W.H. Group PLC 810,726 -- 810,726
66,344 -- 66,344 Smithkline Beecham Corp. 914,635 -- 914,635
-- 119,000 119,000 (a) Storehouse -- 520,885 520,885
74,000 -- 74,000 (a) Thorn PLC 343,376 -- 343,376
235,000 -- 235,000 Tomkins PLC 981,801 -- 981,801
37,000 -- 37,000 Zeneca Group 1,020,175 -- 1,020,175
Total 40,245,431 3,817,203 44,062,634
UNITED STATES -- 0.1%
-- 22,000 22,000 (a) ICICI-Industrial Credit
& Investment Corp. -- 177,375 177,375
TOTAL COMMON STOCKS
(IDENTIFIED COST $193,143,961) 191,123,570 22,849,988 213,973,558
<CAPTION>
SCOTTISH
FEDERATED WIDOWS FEDERATED SCOTTISH WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND FUND COMBINED
FOREIGN FOREIGN FOREIGN
CURRENCY CURRENCY CURRENCY
PAR PAR PAR
AMOUNT AMOUNT AMOUNT
OR SHARES OR SHARES OR SHARES
OR PRINCIPAL OR PRINCIPAL OR PRINCIPAL VALUE IN VALUE IN VALUE IN
AMOUNT AMOUNT AMOUNT U.S. DOLLARS U.S. DOLLARS U.S. DOLLARS
CORPORATE BONDS -- 0.2%
<C> <C> <C> <S> <C> <C> <C>
JAPAN -- 0.2%
53,000,000 -- 53,000,000 (b) Sumitomo Bank Ltd., Osaka,
Conv. Bond, 0.75%, 5/31/2001
(IDENTIFIED COST $486,551) $ 505,454 $ -- $ 505,454
PREFERRED STOCKS -- 3.4%
AUSTRALIA -- 0.5%
233,000 -- 233,000 News Corp., Ltd., Pfd. 1,024,093 -- 1,024,093
BRAZIL -- 1.7%
1,577,000 -- 1,577,000 Banco Itau S.A., Preference 618,282 -- 618,282
1,800,000 -- 1,800,000 Centrais Eletricas Brasileiras,
Preference, Series B 590,707 -- 590,707
29,200 -- 29,200 (a) Cofap-Cia Fab Peca,
Preference 238,858 -- 238,858
4,220,000 -- 4,220,000 (a) Petroleo Brasileiro
S.A., Preference 580,097 -- 580,097
250,000 -- 250,000 Sider Paulista (Cos.) 227,493 -- 227,493
3,230,000 -- 3,230,000 (a) Telecomunicacoes de Sao
Paulo S.A., Preference 572,207 -- 572,207
27,400,000 -- 27,400,000 (a) Uniao de Bancos
Brasileir, Pfd. 767,624 -- 767,624
47,900,000 -- 247,900,000 (a) Usinas Siderurgicas de
Minas Gerais, Pfd. 247,180 -- 247,180
Total 3,842,448 -- 3,842,448
GERMANY -- 0.5%
20,000 -- 20,000 Henkel KGAA, Pfd. 996,034 -- 996,034
JAPAN -- 0.7%
27 -- 27 (b) Sakura Finance
(Bermuda), Conv. Pfd. 1,534,466 -- 1,534,466
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $6,237,930) 7,397,041 -- 7,397,041
(C) REPURCHASE AGREEMENT -- 1.1%
$2,350,000 -- $2,350,000 BT Securities
Corporation, 5.72%,
dated 11/29/1996, due
12/2/1996
(AT AMORTIZED COST) 2,350,000 -- 2,350,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$202,218,442)(D) $ 201,376,065 $ 22,849,988 $ 224,226,053
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal securities laws. At November 30, 1996, these securities
amounted to $8,206,604 which represents 3.7% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to
tax basis amounts to $21,819,252 which is comprised of $27,465,513
appreciation and $5,646,261 depreciation at November 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($220,682,937) at November 30, 1996.
The following acronym(s) are used throughout this portfolio:
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
PLC -- Public Limited Company
(See Notes to Pro Forma Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND
SCOTTISH WIDOWS INTERNATIONAL FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SCOTTISH
FEDERATED WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA PRO FORMA
EQUITY FUND FUND ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value $ 201,376,065 $ 22,849,988 -- $ 224,226,053
Cash 396,020 708,043 -- 1,104,063
Cash denominated in foreign currency 4,535 173,668 178,203
Receivables for:
Investments sold 3,170,635 992,424 -- 4,163,059
Shares sold 502,108 455 -- 502,563
Income 550,968 27,707 -- 578,675
Tax refund 52,311 52,311
Other 22,412 22,412
Total assets 206,000,331 24,827,008 -- 230,827,339
LIABILITIES:
Payables for/to:
Shares redeemed 277,960 21,188 -- 299,148
Investments purchased 8,243,946 1,340,173 -- 9,584,119
Taxes withheld 35,885 -- -- 35,885
Net payable for foreign exchange
contracts 11,278 -- 11,278
Accrued expenses and other 206,926 7,046 -- 213,972
liabilities
Total liabilities 8,775,995 1,368,407 -- 10,144,402
TOTAL NET ASSETS $ 197,224,336 $ 23,458,601 -- $ 220,682,937
NET ASSETS CONSIST OF:
Paid in capital $ 174,869,114 $ 17,710,129 -- $ 192,579,243
Net unrealized appreciation of
investments 18,212,892 3,794,235 -- 22,007,127
Accumulated net realized gain (loss)
on investments 4,166,725 1,892,014 -- 6,058,739
Undistributed (Distributions in
excess
of) net investment income (24,395) 62,223 -- 37,828
TOTAL NET ASSETS $ 197,224,336 $ 23,458,601 $ $ 220,682,937
Class A Shares $ 172,937,556 $ 23,234,537 $ $ 196,172,093
Class B Shares $ 16,707,131 $ -- $ -- $ 16,707,131
Class C Shares $ 7,579,649 $ 224,064 $ -- $ 7,803,713
SHARES OUTSTANDING
Class A Shares 9,982,601 1,733,150 (391,966) (a)11,323,785
Class B Shares 980,572 -- -- 980,572
Class C Shares 449,814 16,841 (3,544) (a) 463,111
TOTAL SHARES OUTSTANDING 11,412,987 1,749,991 (395,510) 12,767,468
<CAPTION>
SCOTTISH
FEDERATED WIDOWS
INTERNATIONAL INTERNATIONAL PRO FORMA PRO FORMA
EQUITY FUND FUND ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share $ 17.32 $ 13.41 $ 17.32
Offering Price Per Share $ 18.33* $ 14.08*** $ 18.33
Redemption Proceeds Per Share $ 17.32 $ 13.41 $ 17.32
CLASS B SHARES:
Net Asset Value Per Share $ 17.04 $ N/A $ 17.04
Offering Price Per Share $ 17.04 $ N/A $ 17.04
Redemption Proceeds Per Share $ 16.10** $ N/A $ 16.10
CLASS C SHARES:
Net Asset Value Per Share $ 16.85 $ 13.30 $ 16.85
Offering Price Per Share $ 16.85 $ 13.30 $ 16.85
Redemption Proceeds Per Share $ 16.68** $ 13.17**** $ 16.68
TOTAL INVESTMENTS, AT IDENTIFIED COST $ 183,164,318 $ 19,054,124 $ 202,218,442
</TABLE>
(a) Adjustment to reflect share balance as a result of the combination,
based on the proforma exchange ratios of 0.7738418487 for Scottish Widows
International Fund Class A Shares and 0.7895611900 for Scottish Widows
International Fund Class C Shares.
* See "How to Purchase Shares" in the Federated International Equity Fund
Prospectus, as of January 31, 1997.
** See "Contingent Deferred Sales Charge" in the Federated International
Equity Fund Prospectus, as of January 31, 1997.
*** See "How to Buy Shares" in the Scottish Widows International Fund
Prospectus, as of March 15, 1996.
**** See "How to Redeem Shares" in the Scottish Widows International Fund
Prospectus, as of March 15, 1996.
(See Notes to Pro Forma Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND
SCOTTISH WIDOWS INTERNATIONAL FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED SCOTTISH
INTERNATIONAL WIDOWS
EQUITY INTERNATIONAL PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 3,539,771 $ 411,295 $ -- $ 3,951,066
Interest 127,931 18,815 -- 146,746
Total Investment Income 3,667,702 430,110 -- 4,097,812
EXPENSES:
Investment advisory 2,004,435 206,623 99,485 (a)2,310,543
Administrative personnel and services fee 185,000 -- -- (b) 185,000
Custodian fees 341,587 34,914 (8,396) (c) 368,105
Transfer and dividend disbursing agent fees and 306,158 43,238 (19,295) (d) 330,101
expenses
Directors'/Trustees' fees 6,877 27,914 (26,791) (e) 8,000
Legal and auditing fees 68,931 35,561 (32,992) (f) 71,500
Portfolio accounting fees 91,853 -- 8,168 (g) 100,021
Distribution services fee -- Class A Shares -- 62,989 (62,989) (h) --
Distribution services fee -- Class B Shares 92,608 -- -- 92,608
Distribution services fee -- Class C Shares 58,555 910 (565) (i) 58,900
Shareholder services fee -- Class A Shares 450,721 -- 29,918 (j) 480,639
Shareholder services fee -- Class B Shares 30,869 -- -- 30,869
Shareholder services fee -- Class C Shares 19,518 305 (188) (j) 19,635
Share registration costs 39,419 15,296 (12,087) (k) 42,628
Printing and postage 56,268 9,318 (7,086) (l) 58,500
Insurance premiums and miscellaneous 11,556 9,572 (8,627) (m) 12,501
Taxes 60,641 -- 1,359 (n) 62,000
Total expenses 3,824,996 446,640 (40,086) 4,231,550
Deduct --
Waiver of shareholder services fee -- Class A (274,003) -- -- (274,003)
Shares
Waiver of Shareholder services fee -- Class C (1,101) -- -- (1,101)
Shares
Net expenses 3,549,892 446,640 (40,086) 3,956,446
Net investment income 117,810 (16,530) 40,086 141,366
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 4,131,728 2,882,786 -- 7,014,514
Net change in unrealized appreciation of 11,785,397 618,257 -- 12,403,654
investments
Net realized and unrealized gain on 15,917,125 3,501,043 -- 19,418,168
investments
Change in net assets resulting from $16,034,935 $3,484,513 $ 40,086 $19,559,534
operations
</TABLE>
(See Notes to Pro Forma Combining Statement of Operations)
(See Notes to Pro Forma Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND
SCOTTISH WIDOWS INTERNATIONAL FUND
NOTES TO PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1996 (UNAUDITED)
(a) Federated Advisers receives for its services an annual investment
advisory fee equal to 1.00% of the Federated International Equity Fund's
("the Federated Fund") average daily net assets. Penn Square Management
Corporation receives for its services 0.675% of the Scottish Widows
International Fund's average daily net assets after the voluntary waiver
(0.85% absent the waiver).
(b) Federated Services Company ("FServ") provides the Federated Fund with
certain 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.
(c) State Street Bank and Trust Company is custodian for the securities and
cash of the Federated Fund. The custodian fee is based upon the level of the
Federated Fund's average daily net assets for the period, plus out-of-pocket
expenses.
(d) FServ serves as transfer and dividend disbursing agent for the Federated
Fund. The fee paid to FServ is based on the size, type, and number of
accounts and transactions made by shareholders.
(e) Adjustment to reflect the elimination of the Trustees' fees paid for the
Scottish Widows International Fund.
(f) Adjustment to reflect the audit and legal fee reductions due to the
combining of two portfolios into a single portfolio.
(g) FServ maintains the Federated Fund's accounting records. The fee paid to
FServ is based on the level of the Federated Fund's average net assets for
the period, plus out-of-pocket expenses.
(h) Adjustment to reflect the elimination of the distribution services fees
charged to the shareholders of the Scottish Widows International Fund. The
Federated Fund Class A Shares does not have a distribution plan.
(i) Under the distribution plan for the Federated Fund, Class C Shares will
pay a fee at an annual rate of 0.75% of the average daily net assets of its
Shares. Penn Square Management Corporation received for its services 0.75%
of the Scottish Widows International Fund's Class C Shares average daily net
assets.
(j) The Federated Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"). The Federated Fund will pay FSS
up to 0.25% of the average daily net assets of the Federated Fund for the
period. Penn Square Management Corporation received for its services 0.25%
of the Scottish Widows International Fund's Class C Shares average daily net
assets.
(k) Adjustment to reflect the state registration costs for the Federated
Fund only.
(l) Printing and postage expenses are adjusted to reflect estimated savings
to be realized by combining two portfolios into a single portfolio.
(m) Adjustment to reflect the decrease in insurance fees due to the
reduction in the coverage requirement of a single portfolio.
(n) Adjustment to reflect the tax increase due to the additional income in
combination with the portfolio's assets.
(See Notes to Pro Forma Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND
SCOTTISH WIDOWS INTERNATIONAL FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
NOVEMBER 30, 1996 (UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated
International Equity Fund and Scottish Widows International Fund,
collectively (the "Funds") as of November 30, 1996. These statements have
been derived from the books and records utilized in calculating daily net
asset values at November 30, 1996. The accompanying unaudited Pro Forma
Combining Statement of Operations reflects the accounts of Federated
International Equity Fund's most recent fiscal year ended November 30, 1996,
and the twelve-month period ended November 30, 1996, for Scottish Widows
International Fund.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds which are incorporated by
reference in the Statement of Additional Information. The Funds follow
generally accepted accounting principles applicable to management investment
companies which are disclosed in the historical financial statements of each
fund.
The Pro Forma Financial Statements give effect to the proposed transfer of
assets of the Scottish Widows International Fund Class A and Class C Shares
in exchange for Class A and Class C Shares, respectively, of Federated
International Equity Fund. Under generally accepted accounting principles,
Federated International Equity Fund will be the surviving entity for
accounting purposes with its historical cost of investment securities and
results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administrative fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect
anticipated expenses of the combined entity. Other costs which may change as
a result of the reorganization are currently undeterminable.
For the twelve months ended November 30, 1996, Federated International
Equity Fund and Scottish Widows International Fund paid investment advisory
fees computed at the annual rate of each Fund's average net assets as
follows:
FUND PERCENT OF EACH FUND'S AVERAGE NET ASSETS
Federated International Equity Fund 1.00%
Scottish Widows International Fund 0.675%*
* The advisory fee of the Scottish Widows International Fund is net of a
voluntary waiver, without such waivers, the advisory fee would be 0.85%.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 1,341,184
shares of Federated International Equity Fund Class A Shares in exchange for
1,733,150 shares of Scottish Widows International Fund Class A Shares and
the issuance of 13,297 shares of Federated International Equity Fund Class C
Shares in exchange for 16,841 shares of Scottish Widows International Fund
Class C Shares in conjunction with the proposed reorganization.
Cusip: 46031P308
Cusip: 46031P407
G02062-08
THE WILLIAM PENN FUNDS
Penn Square Management Corporation
PROXY SERVICES
P.O. BOX 9156
FARMINGDALE, NY 11735
SCOTTISH WIDOWS INTERNATIONAL FUND
----------------------------------------------------------
SCOTTISH WIDOWS INTERNATIONAL FUND
The undersigned shareholder(s) of SCOTTISH WIDOWS INTERNATIONAL FUND hereby
appoint(s) James E. Jordan, Sandra Houck, and Dennis Westley, or any of
them true and lawful proxies, with power of substitution of each, to vote
all shares of the SCOTTISH WIDOWS INTERNATIONAL FUND which the undersigned
is entitled to vote, at the Special Meeting of Shareholders to be held on
May 29, 1997 at Sheraton Berkshire Motor Inn, 1741 Paper Mill Road,
Wyomissing, PA 19610, at 9:00 a.m. (local time) and at any adjournment
thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The proxies
named will vote the shares represented by this proxy in accordance with the
choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED AFFIRMATIVELY ON THAT MATTER.
The Board Of Trustees unanimously recommends a vote FOR the proposal below.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your full title as
such. If a corporation or
partnership, please sign the full
name by an authorized officer or
partner. If stock is owned
jointly, all owners should sign.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
You may also cast your vote by telephone by calling Shareholder
Communications corporation toll free at (800) 733-8481 extension 459.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
SCOTTISH WIDOWS INTERNATIONAL FUND
RECORD DATE SHARES:
-----------------
Vote on Proposal
TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
SCOTTISH WIDOWS INTERNATIONAL FUND AND FEDERATED INTERNATIONAL EQUITY FUND,
A PORTFOLIO OF INTERNATIONAL SERIES, INC.
FOR AGAINST ABSTAIN
- -----------------------------------
Signature
Signature (Joint Owners)
Date:
