1933 Act File No. 2-91776
1940 Act File No. 811-3984
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ......................
Post-Effective Amendment No. 32 ................... X_
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _ X
Amendment No. 27 ................................... _X
INTERNATIONAL SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on January 31, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on _________________
pursuant to paragraph (a) (i). 75 days after filing pursuant to paragraph
(a)(ii) on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of INTERNATIONAL SERIES, INC.,
which is comprised of two portfolios: (1) Federated International Equity Fund
consisting of three classes of shares, (a) Class A Shares, (b) Class B Shares,
and (c) Class C Shares; and (2) Federated International Income Fund consisting
of three classes of shares, (a) Class A Shares, (b) Class B Shares, and (c)
Class C Shares, and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page....................(1-2) Cover Page.
Item 2. Synopsis......................(1-2) Summary of Fund Expenses.
Item 3. Condensed Financial
Information...................(1-2) Performance Information;
(1-2) Financial Highlights.
Item 4. General Description of
Registrant....................(1-2) General Information; (1-2)
Investment Information; (1-2)
Investment Objective; (1-2) Investment
Policies; (1) Risks Associated with
Financial Futures Contracts and
Options on Financial Futures
Contracts; (2) Hedging Strategies;
(1-2) Investment Limitations.
Item 5. Management of the Fund........(1-2) International Series, Inc.
Information; (1-2) Management of the
Corporation; (1-2) Distribution
of Shares; (1-2) Administration of
the Fund; (1) Brokerage Transactions.
Item 6. Capital Stock and Other
Securities....................(1-2) Shareholder Information; (1-2)
Voting Rights; (1-2) Tax Information;
(1-2) Federal Income Tax;
(1-2) State and Local Taxes.
Item 7. Purchase of Securities Being
Offered.......................(1-2) Net Asset Value; (1-2) Investing
in the Fund; (1-2) How to Purchase
Shares; (1-2) Investing in Class A
Shares; (1-2) Investing in Class B
Shares; (1-2) Investing in Class C
Shares; (1-2) Special Purchase
Features; (1-2) Exchange Privilege;
(1-2) Account and Shares Information.
<PAGE>
Item 8. Redemption or Repurchase......(1-2) How to Redeem Shares;
(1-2) Special Redemption Features;
(1-2) Contingent Deferred Sales
Charge; (1-2) Elimination of
Contingent Deferred Sales Charge.
Item 9. Pending Legal Proceedings.....None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page....................(1-2) Cover Page.
Item 11. Table of Contents.............(1-2) Table of Contents.
Item 12. General Information and
History.......................(1-2) General Information About the
Fund; (1-2) About Federated Investors.
Item 13. Investment Objectives and
Policies......................(1-2) Investment Objectives and
Policies; (1-2) Investment
Limitations.
Item 14. Management of the
Corporation...................(1-2) International Series, Inc.
Management.
Item 15. Control Persons and Principal
Holders of Securities (1-2) Fund Ownership.
Item 16. Investment Advisory and Other
Services......................(1-2) Investment Advisory Services;
(1-2) Other Services.
Item 17. Brokerage Allocation..........(1-2) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.................(1-2) Purchasing Shares; (1-2)
Distribution Plan and Shareholder
Services; (1-2) Determining Net
Asset Value; (1-2) Redeeming Shares.
Item 20. Tax Status (1-2) Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data..........................(1-2) Total Return; (1-2) Yield;
(1-2) Performance Comparisons.
Item 23. Financial Statements (1-2) Financial Statements are
incorporated by reference from the
Funds' Annual Reports dated
November 30, 1997.(File No. 811-3984).
FEDERATED INTERNATIONAL EQUITY FUND
(A Portfolio of International Series, Inc.)
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS
The shares of Federated International Equity Fund (the "Fund") represent
interests in a diversified investment portfolio of International Series, Inc.
(the "Corporation"), an open-end, management investment company (a mutual fund).
The Fund invests primarily in equity securities of non-U.S.
issuers to obtain a total return on its assets.
THE SHARES OFFERED BY THIS PROSPECTUS 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. This prospectus contains the
information you should read and know before you invest in the Fund. Keep this
prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares and Class C Shares dated January 31, 1998, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund are maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).
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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Fund Expenses 1 Financial Highlights--Class A Shares 2 Financial
Highlights--Class B Shares 3 Financial Highlights--Class C Shares 4 General
Information 5 Calling the Fund 5 Investment Information 5 Investment Objective
5 Investment Policies 5 Portfolio Turnover 11 Investment Limitations 11 Net
Asset Value 12 Investing in the Fund 12 Purchasing Shares 12 Purchasing Shares
Through a Financial Intermediary 12 Purchasing Shares by Wire 13 Purchasing
Shares by Check 13 Systematic Investment Program 13 Retirement Plans 13 Class A
Shares 13 Class B Shares 14 Class C Shares 14 Redeeming and Exchanging Shares
14 Redeeming or Exchanging Shares Through a Financial Intermediary 14 Redeeming
or Exchanging Shares by Telephone 14 Redeeming or Exchanging Shares by Mail 15
Requirements for Redemption 15 Requirements for Exchange 15 Systematic
Withdrawal Program 15 Contingent Deferred Sales Charge 15 Account and Share
Information 16 Confirmations and Account Statements 16 Dividends and
Distributions 16 Accounts with Low Balances 16 International Series, Inc.
Information 16 Management of the Corporation 16 Distribution of Shares 17
Administration of the Fund 18 Brokerage Transactions 18 Shareholder Information
19 Voting Rights 19 Tax Information 19 Federal Income Tax 19 State and Local
Taxes 19 Performance Information 20
</TABLE>
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) 5.50% 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) None 5.50% 1.00%
Redemption Fee (as a percentage of amount redeemed, if
applicable) None None None
Exchange Fee None None None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)*
<TABLE>
<S> <C> <C> <C>
Management Fee 1.00% 1.00% 1.00%
12b-1 Fee None 0.75% 0.75%
Total Other Expenses 0.77% 0.77% 0.77%
Shareholder Services Fee 0.25% 0.25% 0.25%
Total Operating Expenses(2) 1.77% 2.52%(3) 2.52%
</TABLE>
(1) For shareholders of Class B Shares, the contingent deferred sales charge is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, 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 "Contingent Deferred Sales Charge."
(2) The total Class A Shares operating expenses were 1.71% for the fiscal year
ended November 30, 1997 and would have been 1.81% absent the voluntary waiver of
a portion of the shareholder services fee. The total Class B Shares and Class C
Shares operating expenses were 2.56% and 2.56% respectively, for the fiscal year
ended November 30, 1997.
(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
* Total operating expenses are estimated based on average expenses expected to
be incurred during the period ending November 30, 1998. During the course of
this period, expenses may be more or less than the average amount shown.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Purchasing Shares" and "International Series, Inc. Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
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.
<TABLE>
<CAPTION>
EXAMPLE CLASS A CLASS B CLASS C
<S> <C> <C> <C>
You 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.
1 Year $ 72 $ 82 $ 36
3 Years $108 $122 $ 78
5 Years $146 $157 $134
10 Years $252 $266 $286
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption.
<TABLE>
<S> <C> <C> <C>
1 Year $ 72 $ 26 $ 26
3 Years $108 $ 78 $ 78
5 Years $146 $134 $134
10 Years $252 $266 $286
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $17.32 $17.89 $18.53 $16.49 $14.09 $14.44 $14.28 $17.59 $17.34 $19.99
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.04* 0.03 0.09 0.15 0.06 0.10 0.11 0.19 0.18 0.19
Net realized and
unrealized gain (loss)
on investments and
foreign currency 0.95 1.38 0.17 1.96 2.53 (0.37) 0.37 (1.16) 1.60 3.27
Total from investment 0.99 1.41 0.26 2.11 2.59 (0.27) 0.48 (0.97) 1.78 3.46
operations
LESS DISTRIBUTIONS
Distributions from net
investment income -- (0.09) (0.003) (0.07) (0.06) (0.08) (0.21) (0.20) (0.23) (0.23)
Distributions in excess
of net investment
income(a) -- -- -- -- (0.13) -- -- -- -- --
Total distributions -- (0.09) (0.003) (0.07) (0.19) (0.08) (0.21) (0.20) (0.23) (0.23)
from net investment
income
Distributions from net
realized gain on
investmens and foreign
currency transactions (0.38) (1.89) (0.90) -- -- -- (0.11) (2.14) (1.30) (5.88)
Total distributions (0.38) (1.98) (0.90) (0.07) (0.19) (0.08) (0.32) (2.34) (1.53) (6.11)
NET ASSET VALUE, END OF
PERIOD $17.93 $17.32 $17.89 $18.53 $16.49 $14.09 $14.44 $14.28 $17.59 $17.34
TOTAL RETURN(B) 5.89% 8.63% 1.60% 12.82% 18.52% (1.86%) 3.49% (6.72%) 11.55% 24.33%
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.71% 1.68% 1.57% 1.61% 1.60% 1.57% 1.52% 1.32% 1.01% 1.00%
Net investment income 0.23% 0.15% 0.42% -- 0.13% 0.69% 0.78% 1.39% 1.04% 1.43%
Expense waiver/
reimbursement(c) 0.10% 0.15% 0.18% -- 0.01% 0.02% 0.30% 0.25% 0.46% 0.28%
SUPPLEMENTAL DATA
Net assets, end of
period(000 omitted) $134,858 $172,938 $191,911 $261,178 $192,860 $106,937 $101,980 $82,541 $65,560 $68,922
Average commission
rate paid(d) $0.0032 $0.0018 -- -- -- -- -- -- -- --
Portfolio turnover 210% 119% 166% 73% 74% 91% 84% 114% 85% 98%
</TABLE>
* Amount based on average outstanding shares.
(a) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $17.04 $17.70 $18.50 $19.61
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (0.10)** (0.03) (0.08) (0.01)
Net realized and unrealized gain (loss) on investments and
foreign currency 0.92 1.26 0.18 (1.10)
Total from investment operations 0.82 1.23 0.10 (1.11)
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.00)(b) -- --
Distributions from net realized gain on investments and
foreign currency transactions (0.38) (1.89) (0.90) --
Total distributions (0.38) (1.89) (0.90) --
NET ASSET VALUE, END OF PERIOD $17.48 $17.04 $17.70 $18.50
TOTAL RETURN(C) 4.97% 7.59% 0.68% (5.27)%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.56% 2.58% 2.52% 2.59%*
Net investment income (0.59%) (0.74%) (0.52%) (0.88%)*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $23,629 $16,707 $6,370 $1,214
Average commission rate paid(d) $0.0032 $0.0018 -- --
Portfolio turnover 210% 119% 166% 73%
</TABLE>
* Computed on an annualized basis.
** Amount based on average outstanding shares.
(a) Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
(b) Distributions from net investment income is less than 0.01 per share.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.85 $17.50 $18.30 $16.41 $14.88
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (0.11)** (0.10) (0.12) (0.05) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.92 1.34 0.22 1.98 1.57
Total from investment operations 0.81 1.24 0.10 1.93 1.53
LESS DISTRIBUTIONS
Distributions from net investment income -- 0.00(b) (0.00)(b) -- --
Distributions in excess of net investment income(c) -- -- -- (0.04) --
Total distributions from net investment income (0.00) 0.00 (0.00) (0.04) --
Distributions from net realized gain on investments
and foreign currency transactions (0.38) (1.89) (0.90) 0.00 0.00
Total distributions (0.38) (1.89) (0.90) (0.04) 0.00
NET ASSET VALUE, END OF PERIOD $17.28 $16.85 $17.50 $18.30 $16.41
TOTAL RETURN(D) 4.96% 7.75% 0.69% 11.75% 10.28%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.56% 2.57% 2.46% 2.55% 2.57%*
Net investment income (0.67%) (0.72%) (0.47%) (0.91%) (1.10%)*
Expense waiver/reimbursement(e) 0.00% 0.01% 0.04% 0.00% 0.01%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,841 $7,580 $7,146 $8,836 $2,852
Average commission rate paid(f) $0.0032 $0.0018 -- -- --
Portfolio turnover 210% 119% 166% 73% 74%
</TABLE>
* Computed on an annualized basis.
** Amount based on average outstanding shares.
(a) Reflects operations for the period from March 31, 1993 (start of business)
to November 30, 1993.
(b) Distributions from net investment income is less than 0.01 per share.
(c) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principals. These distributions do
not represent a return of capital for federal income tax purposes.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(f) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.
GENERAL INFORMATION
The Corporation was established as FT International Trust, a Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under the
laws of the State of Maryland on February 11, 1991. At a special meeting of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the name of the
Corporation to International Series, Inc. Class A Shares, Class B Shares, and
Class C Shares are designed for investors who wish to spread their investments
beyond the United States and who are prepared to accept the particular risks
associated with these investments as a convenient means of accumulating an
interest in a professionally managed diversified portfolio of non-U.S.
securities.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The Fund's objective is to obtain a total return on its assets. The
objective is based on the premise that investing in non-U.S. securities
provides three potential benefits over investing solely in U.S. securities:
* the opportunity to invest in non-U.S. companies believed to have
superior growth potential;
* the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the United States; and
* the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not move in
harmony.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus. The investment policies may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in the objective or policies becomes effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS
The Fund invests primarily in non-U.S. securities. A substantial portion of
these will be equity securities of established companies in economically
developed countries. The 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 ("ADRs"), Global Depositary Receipts
("GDRs"), and European Depositary Receipts ("EDRs"), collectively, "Depositary
Receipts." The Fund may also purchase corporate and government fixed income
securities denominated in currencies other than U.S. dollars; 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.
EQUITY AND FIXED INCOME SECURITIES
At the date of this prospectus, the Fund has committed its assets primarily to
dividend-paying equity securities of established companies that appear to have
growth potential. However, as a temporary defensive position, the Fund may shift
its emphasis to fixed income securities, warrants, or other obligations of
foreign companies or governments, if they appear to offer potential higher
return. Fixed income securities include preferred stock, convertible securities,
bonds, notes, or other debt securities which are investment grade or higher.
However, in no event will the Fund invest more than 25% of its total assets in
the debt securities of any one foreign country.
The high-quality debt securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by Standard & Poor's Ratings Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if unrated,
will be judged by Federated Global Research Corp., the Fund's investment adviser
(the "Adviser"), to be of comparable quality. Because the average quality of the
Fund's portfolio investments should remain constantly between A and AAA, the
Fund will seek to avoid the adverse consequences that may arise for some debt
securities in difficult economic circumstances. Downgraded securities will be
evaluated on a case by case basis by the Adviser. The Adviser will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. A description of the ratings categories is contained
in the Appendix to the Statement of Additional Information. The prices of
fixed-income securities generally fluctuate inversely to the direction of
interest rates. CONVERTIBLE SECURITIES
Convertible securities include a spectrum of securities which can be exchanged
for or converted into common stock. Convertible securities may include, but are
not limited to: convertible bonds or debentures; convertible preferred stock;
units consisting of usable bonds and warrants; or securities which cap or
otherwise limit returns to the convertible security holder, such as DECS-
(Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common Stock when
issued as a debt security), LYONS- (Liquid Yield Option Notes, which are
corporate bonds that are purchased at prices below par with no coupons and are
convertible into stock), PERCS- (Preferred Equity Redemption Cumulative Stock
(an equity issue that pays a high cash dividend, has a cap price and mandatory
conversion to common stock at maturity), and PRIDES- (Preferred Redeemable
Increased Dividend Securities (which are essentially the same as DECS; the
difference is little more than who initially underwrites the issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or unsponsored
ADRs, GDRs, and EDRs. ADRs are depositary receipts typically issued by a United
States bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs and GDRs are typically issued by foreign
banks or trust companies, although they also may be issued by United States
banks or trust companies, and evidence ownership of underlying securities issued
by either a foreign or a United States corporation. Generally, Depositary
Receipts in registered form are designed for use in the United States securities
market and Depositary Receipts in bearer form are designed for use in securities
markets outside the United States. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored Depositary Receipts may not entitle
the Fund to financial or other reports from the issuer of the underlying
security, to which it would be entitled as the owner of sponsored Depositary
Receipts.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price at a
date beyond customary settlement time. The Fund may enter into these contracts
if liquid securities in amounts sufficient to meet the purchase price are
segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. Risk is involved if the value of the security
declines before settlement. Although the Fund enters into forward commitments
with the intention of acquiring the security, it may dispose of the commitment
prior to settlement and realize short-term profit or loss.
MONEY MARKET INSTRUMENTS
The Fund may invest in U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government obligations,
certificates of deposit, bankers' acceptances, commercial paper, short-term
corporate debt securities, and repurchase agreements. The commercial paper in
which the Fund invests will be rated A-1 by S&P or P-1 by Moody's. These
investments may be used to temporarily invest cash received from the sale of
Fund Shares, to establish and maintain reserves for temporary defensive
purposes, or to take advantage of market opportunities. Investments in the World
Bank, Asian Development Bank, or Inter-American Development Bank are not
anticipated.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed-upon time and price. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
OPTIONS AND FINANCIAL FUTURES CONTRACTS
The Fund may purchase put and call options, financial futures contracts, and
options on financial futures contracts. In addition, the Fund may write (sell)
put and call options with respect to securities in the Fund's portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete the transaction may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Directors, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase together
with other illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice and certain over-the-counter
options to 15% of its net assets.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its portfolio
securities on a short-term or long-term basis up to one-third the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the Adviser has determined are creditworthy
under guidelines established by the Directors and will receive collateral in the
form of cash or U.S. government securities equal to at least 100% of the value
of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot or cash basis at prevailing rates or through forward
foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated on the Fund's records and
are maintained until the contract has been settled. The Fund will not enter into
a forward contract with a term of more than one year. The Fund will generally
enter into a forward contract to provide the proper currency to settle a
securities transaction at the time the transaction occurs ("trade date"). The
period between the trade date and settlement date will vary between 24 hours and
30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency. No more than 30% of the Fund's assets will be committed to
forward contracts for hedging purposes at any time. (This restriction does not
include forward contracts entered into to settle securities transactions.)
PUT AND CALL OPTIONS WITH RESPECT TO EQUITY SECURITIES
The Fund may purchase put and call options on its portfolio of securities. Put
and call options will be used as a hedge to attempt to protect securities which
the Fund holds, or will be purchasing, against decreases or increases in value.
The Fund is also authorized to write (sell) put and call options on all or any
portion of its portfolio of securities to generate income. The Fund may write
call options on securities either held in its portfolio or which it has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration. In the case of
put options written by the Fund, the Corporation's custodian will segregate
cash, U.S. Treasury obligations, or highly liquid debt securities with a value
equal to or greater than the exercise price of the underlying securities.
The Fund is authorized to invest in put and call options that are traded on
securities exchanges. The Fund may also purchase and write over-the-counter
options ("OTC options") on portfolio securities in negotiated transactions with
the buyers or writers of the options since options on some of the portfolio
securities held by the Fund are not traded on an exchange. The Fund will
purchase and write OTC options only with investment dealers and other financial
institutions (such as commercial banks or savings associations) deemed
creditworthy by the Adviser.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while OTC options may not. Prior to exercise or expiration, an option position
can only be terminated by entering into a closing purchase or sale transaction.
This requires a secondary market on an exchange which may or may not exist for
any particular call or put option at any specific time. The absence of a liquid
secondary market also may limit the Fund's ability to dispose of the securities
underlying an option. The inability to close options also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio.
FINANCIAL FUTURES AND OPTIONS ON FINANCIAL FUTURES
The Fund may purchase and sell financial futures contracts to hedge all or a
portion of its portfolio securities against changes in interest rates or
securities prices. Financial futures contracts on securities call for the
delivery of particular securities at a certain time in the future. The seller of
the contract agrees to make delivery of the type of instrument called for in the
contract, and the buyer agrees to take delivery of the instrument at the
specified future time. A financial futures contract on a securities index does
not involve the actual delivery of securities, but merely requires the payment
of a cash settlement based on changes in the securities index.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value resulting from anticipated increases in market
interest rates or broad declines in securities prices. When the Fund writes a
call option on a financial futures contract, it is undertaking the obligation of
selling the financial futures contract at a fixed price at any time during a
specified period if the option is exercised. Conversely, as a purchaser of a put
option on a financial futures contract, the Fund is entitled (but not obligated)
to sell a financial futures contract at the fixed price during the life of the
option.
The Fund may also write put options and purchase call options on financial
futures contracts as a hedge against rising purchase prices of securities
eligible for purchase by the Fund. The Fund will use these transactions to
attempt to protect its ability to purchase securities in the future at price
levels existing at the time it enters into the transactions. When the Fund
writes a put option on a futures contract, it is undertaking to buy a particular
futures contract at a fixed price at any time during a specified period if the
option is exercised. As a purchaser of a call option on a futures contract, the
Fund is entitled (but not obligated) to purchase a futures contract at a fixed
price at any time during the life of the option.
The Fund may not purchase or sell financial futures contracts or options on
financial futures contracts if, immediately thereafter, the sum of the amount of
initial margin deposits on the Fund's existing financial futures positions and
premiums paid for related options would exceed 5% of the fair market value of
the Fund's total assets, after taking into account the unrealized profits and
losses on those contracts it has entered into. When the Fund purchases financial
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the financial futures contracts (less any related
margin deposits), will be deposited in a segregated account with the Fund's
custodian to collateralize the position and, thereby, insure that the use of
such financial futures contracts is unleveraged.
RISK CONSIDERATIONS
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 Fund diversifies its investments broadly among foreign countries,
including both developed and developing countries. At least three different
countries will always be represented. As of November 30, 1996, the portfolio
contained securities from issuers located primarily in Japan, the United
Kingdom, France, Hong Kong, Germany, Switzerland, and Malaysia. There are also
investments in several other countries.
The Fund occasionally takes advantage of the unusual opportunities for higher
returns available from investing in developing countries. As discussed in the
Statement of Additional Information, however, 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.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days. 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 Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States. Brokerage commissions, custodial services, and other costs relating
to investment may be more expensive than in the United States. Foreign markets
may have different clearance and settlement procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended security purchases due
to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
CURRENCY RISKS
Because the majority of the securities purchased by the Fund are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's NAV; the value of interest earned; gains and losses
realized on the sales of securities; and net investment income and capital gain,
if any, to be distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of the Fund assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of Fund assets denominated
in that currency will decrease.
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
FOREIGN COMPANIES
Other differences between investing in foreign and U.S. companies include:
* less publicly available information about foreign companies; * the lack of
uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
* less readily available market quotations on foreign companies; *
differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
* differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
* the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that affect
the quality of securities;
* the likelihood that foreign securities may be less liquid or more
volatile;
* foreign brokerage commissions may be higher;
* unreliable mail service between countries;
* political or financial changes which adversely affect investments in
some countries;
* increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
* certain markets may require payment for securities before delivery; *
religious and ethnic instability; and * certain national policies which may
restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES
In the past, U.S. government policies have discouraged or restricted certain
investments abroad by investors such as the Fund. Investors are advised that
when such policies are instituted, the Fund will abide by them.
SHORT SALES
The Fund intends to sell securities short from time to time, subject to certain
restrictions. A short sale occurs when a borrowed security is sold in
anticipation of a decline in its price. If the decline occurs, Shares equal in
number to those sold short can be purchased at the lower price. If the price
increases, the higher price must be paid. The purchased shares are then returned
to the original lender. Risk arises because no loss limit can be placed on the
transaction. When the Fund enters into a short sale, assets, equal to the market
price of the securities sold short or any lesser price at which the Fund can
obtain such securities, are segregated on the Fund's records and maintained
until the Fund meets its obligations under the short sale.
RISKS ASSOCIATED WITH FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FINANCIAL
FUTURES CONTRACTS
Financial futures contracts and options on financial futures contracts can be
highly volatile and could result in a reduction of the Fund's total return. The
Fund's attempt to use such investment devices for hedging purposes may not be
successful. Successful futures strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors. When
the Fund uses financial futures contracts and options on financial futures
contracts as hedging devices, there is a risk that the prices of the securities
subject to the financial futures contracts and options on financial futures
contracts may not correlate perfectly with the prices of the securities in the
Fund. This may cause the financial futures contract and any related options to
react to market changes differently than the portfolio securities. In addition,
the Adviser could be incorrect in its expectations about the direction or extent
of market factors, such as interest rate, securities price movements, and other
economic factors. In these events, the Fund may lose money on the financial
futures contract or the options on financial futures contracts. It is not
certain that a secondary market for positions in financial futures contracts or
for options on financial futures contracts will exist at all times. Although the
Adviser will consider liquidity before entering into financial futures contracts
or options on financial futures contracts transactions, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
financial futures contract or option on a financial futures contract at any
particular time. The Fund's ability to establish and close out financial futures
contracts and options on financial futures contract positions depends on this
secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the losses to the Fund could be
significant.
PORTFOLIO TURNOVER
The Fund does not attempt to set or meet any specific portfolio turnover
rate, since turnover is incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. High turnover rates may result
in higher brokerage commissions and capital gains. See "Tax Information" in
this prospectus.
INVESTMENT LIMITATIONS
The Fund will not:
* 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;
* 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;
* sell securities short except under strict limitations; * borrow money or
pledge securities except, under certain circumstances,
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;
nor
* 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 Fund's total assets, after
taking into account the unrealized profits and losses on those contracts.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
* purchase put options on securities unless the securities or an offsetting
call option are held in the Fund's portfolio.
* invest more than 15% of the value of its net assets in illiquid securities,
including securities determined by the Directors not to be liquid,
repurchase agreements with maturities longer than seven days after notice
and certain OTC options.
NET ASSET VALUE
The Fund's net asset value ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV for each
class of Shares may differ due to the variance in daily net income realized by
each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV is
detemined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time) every day the New York Stock Exchange is open.
INVESTING IN THE FUND
This prospectus offers three classes of Shares each with the characteristics
described below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Minimum and
Subsequent
Investment Amounts $1500/$100 $1500/$100 $1500/$100
Minimum and
Subsequent
Investment Amount
for Retirement Plans $250/$100 $250/$100 $250/$100
Maximum Sales Charge 5.50%* None None
Maximum Contingent
Deferred Sales
Charge** None 5.50+ 1.00%#
Conversion Feature No Yes++ No
</TABLE>
* Class A Shares are sold at NAV, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE DEALER
AS A PERCENTAGE OF CONCESSION AS
PUBLIC NET A PERCENTAGE OF
OFFERING AMOUNT PUBLIC OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
</TABLE>
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
+ The following contingent deferred sales charge schedule applies to Class B
Shares:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
++ Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase. See "Conversion of Class
B Shares."
# The contingent deferred sales charge is assessed on Shares redeemed within one
year of their purchase date.
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors ("Federated Funds") may exchange their Shares
for Shares of the corresponding class of the Fund. The Fund reserves the right
to reject any purchase or exchange request. In connection with any sale,
Federated Securities Corp., may, from time to time, offer certain items of
nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial intermediaries must be
received by the financial intermediaries and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge additional fees for their services.
The financial intermediaries which maintain investor accounts in Class B Shares
or Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial intermediaries may be subject to reclaim by the
distributor for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods. PURCHASING SHARES BY WIRE Shares may be
purchased by Federal Reserve wire by calling the Fund. All information needed
will be taken over the telephone, and the order is considered received when
State Street Bank receives payment by wire. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA 02266-8600; Attention: EDGEWIRE; For Credit to: (Fund Name)
(Fund Class); (Fund Number--this number can be found on the account statement or
by contacting the Fund); Account Number; Trade Date and Order Number; Group
Number or Dealer Number; Nominee or Institution Name; and ABA Number 011000028.
Shares cannot be purchased by wire on holidays when wire transfers are
restricted. PURCHASING SHARES BY CHECK Shares may be purchased by
mailing a check made payable to the name of the Fund (designate class of Shares
and account number) to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. Orders by mail are considered received when payment by
check is converted into federal funds (normally the business day after the check
is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds in a minimum amount of $50 may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund. Shareholders should
contact their financial intermediary or the Fund to participate in this program.
RETIREMENT PLANS Fund Shares can be purchased as an investment for
retirement plans or IRA accounts. For further details, contact the Fund and
consult a tax adviser.
CLASS A SHARES
Class A Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:
* through financial intermediaries that do not receive sales charge
dealer concessions;
* by Federated Life Members; or
* through "wrap accounts" or similar programs under which clients pay a fee
for services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
* purchasing in quantity and accumulating purchases at the levels in the
table under "Investing in the Fund";
* combining concurrent purchases of two or more funds; * signing a letter of
intent to purchase a specific quantity of shares
within 13 months; or
* using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end. The sales
charge for Shares sold other than through registered broker/dealers will be
retained by Federated Securities Corp. Federated Securities Corp. may pay fees
to banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
establishment of customer accounts and purchases of Shares.
CLASS B SHARES
Class B Shares are sold at NAV. Under certain circumstances, a contingent
deferred sales charge will be assessed at the time of a redemption. Orders for
$250,000 or more of Class B Shares will automatically be invested in Class A
Shares.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares after eight full
years from the purchase date. Such conversion will be on the basis of the
relative NAVs per Share, without the imposition of any charges. Class B Shares
acquired by exchange from Class B Shares of another Federated Fund will convert
into Class A Shares based on the time of the initial purchase.
CLASS C SHARES
Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Shares of the same
class of other Federated Funds on days on which the Fund computes its NAV.
Shares are redeemed at NAV less any applicable contingent deferred sales charge.
Redemption proceeds will normally be sent the following day. However, in order
to protect shareholders of the Fund from possible detrimental effects of
redemptions, the Adviser may cause a delay of two to seven days in sending
redemption proceeds during certain periods of market volatility or for certain
shareholders. Exchanges are made at NAV. Shareholders who desire to
automatically exchange Shares, of a like class, in a pre-determined amount on a
monthly, quarterly, or annual basis may take advantage of a systematic exchange
privilege. Information on this privilege is available from the Fund or your
financial intermediary. Depending upon the circumstances, a capital gain or loss
may be realized when Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions to
be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern
time), while broker/dealers must transmit the request to the Fund before 5:00
p.m. (Eastern time). The financial intermediary is responsible for promptly
submitting transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial intermediary for
this service. Appropriate authorization forms for these transactions must be on
file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these
transactions must be on file with the Fund. Shares held in certificate form must
first be returned to the Fund as described in the instructions under "Redeeming
or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the
form of a check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming or Exchanging Shares by Mail" should be considered. The
telephone transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a written request
to: Federated Shareholder Services Company, Fund Name, Fund Class, P.O. Box
8600, Boston, MA 02266-8600. If share certificates have been issued, they must
accompany the written request. It is recommended that certificates be sent
unendorsed by registered or certified mail.
All written requests should state: Fund Name and the Share Class name; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to be
made. All owners of the account must sign the request exactly as the Shares are
registered. Dividends are paid up to and including the day that a redemption or
exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having an NAV equal to the minimum investment
requirements of the fund into which the exchange is being made. Contact your
financial intermediary directly or the Fund for free information on and
prospectuses for the Federated Funds into which your Shares may be exchanged.
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made.
Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
shares of the other fund. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder of not less than $100. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000, other than retirement accounts subject to required
minimum distributions. A shareholder may apply for participation in this program
through his financial intermediary or by calling the Fund.
Because participation in this program may reduce, and eventually deplete the
shareholder's investment in the Fund, payments under this program should not be
considered as yield or income. It is not advisable for shareholders to continue
to purchase Class A Shares subject to a sales charge while participating in this
program. A contingent deferred sales charge may be imposed on Class B and C
Shares.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. Redemptions will be processed in a manner intended to maximize the
amount of redemption which will not be subject to a contingent deferred sales
charge. The contingent deferred sales charge will not be imposed with respect to
Shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares received
through an exchange will include the period for which your original Shares were
held.
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer
agent, no contingent deferred sales charge will be imposed on redemptions:
* following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 701U2;
* which are involuntary redemptions of shareholder accounts that do not
comply with the minimum balance requirements;
* which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
* which are reinvested in the Fund under the reinvestment privilege; * of
Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and
* of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, or
any other financial intermediary, to the extent that no payments were
advanced for purchases made through such entities.
For more information regarding the elimination of the contingent deferred
sales charge through a Systematic Withdrawal Program, or any of the above
provisions, contact your financial intermediary or the Fund. The Fund
reserves the right to discontinue or modify these provisions. Shareholders
will be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid annually to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming Shares and paying the proceeds to the shareholder
if the account balance falls below the applicable minimum investment amount.
Retirement plan accounts and accounts where the balance falls below the minimum
due to NAV changes will not be closed in this manner. Before an account is
closed, the shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
INTERNATIONAL SERIES, INC. INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Corporation's powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research Corp.,
the Fund's investment adviser, subject to direction by the Board of Directors.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.00% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than
the advisory fee paid by other mutual funds in general, is comparable to fees
paid by many mutual funds with similar objectives and policies. The Adviser
may voluntarily waive a portion of its fee. The Adviser can terminate this
voluntary waiver at any time at its sole discretion.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is
a registered investment adviser under the Investment Advisers Act of 1940. It
is a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $120 billion invested across more
than 300 funds under management and/or administration by its subsidiaries, as
of December 31, 1997, 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 management who founded the company in
1955. Federated funds are presently at work in and through 4,000 financial
institutions nationwide.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of these codes are subject to review by the Board of Directors,
and could result in severe penalties.
Henry A. Frantzen has been the Fund's portfolio manager since September
1995. Mr. Frantzen joined Federated Investors in 1995 as an Executive Vice
President of the Fund's investment adviser. Mr. Frantzen served as Chief
Investment Officer of international equities at Brown Brothers Harriman &
Co. from 1992 to 1995. He was the Executive Vice President and Director of
Equities at Oppenheimer Management Corporation from 1989 to 1991.
Drew J. Collins has been the Fund's portfolio manager since September 1995.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President of
the Fund's investment adviser. Mr. Collins served as a Vice
President/Portfolio Manager of international equity portfolios at Arnhold
and S. Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant Vice
President/ Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the Wharton School
of The University of Pennsylvania.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
The distributor will pay dealers an amount equal to 5.50% of the net asset vale
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
The distributor may offer to pay financial institutions an amount up to 1.00% of
the NAV of Class C Shares purchased by their clients or customers at the time of
purchase. These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.
DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares 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 each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of 0.75% of each class of Shares' average daily
net assets, it will take the distributor a number of years to recoup the
expenses it has incurred for its sales services and distribution-related support
services pursuant to the Distribution Plan. The Distribution Plan is a
compensation type plan. As such, the Fund makes no payments to the distributor
except as described above. Therefore, the Fund does not pay for unreimbursed
expenses of the distributor, including amounts expended by the distributor in
excess of amounts received by it from the Fund, interest, carrying or other
financing charges in connection with excess amounts expended, or the
distributor's overhead expenses. However, the distributor may be able to recover
such amounts or may earn a profit from payments made by Shares under the
Distribution Plan. In addition, the Fund has entered into a Shareholder
Services Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, under which the Fund may make payments up to 0.25% of the
average daily NAV of Class A Shares, Class B Shares, and Class C Shares to
obtain certain personal services for shareholders and for the maintenance of
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS Federated
Securities Corp. will pay financial institutions, at the time of purchase of
Class A Shares, an amount equal to 0.50% of the NAV of Class A Shares purchased
by their clients or customers under certain qualified plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
in addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the 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 the distributor may be reimbursed by the Adviser or its
affiliates. ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Corporation and the Fund. Federated
Services Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet this criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Corporation have equal voting rights, except that in matters
affecting only a portfolio or class, only Shares of that portfolio or class are
entitled to vote.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
As of January 7, 1998, the following shareholder of record owned 25% or more of
the outstanding Class C Shares of the Fund: Keith Co., owned approximately
195,254 Class CShares (29.97%) and, therefore, may for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders. TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended (the "Code"), applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies. However, the Fund may invest in the stock of certain foreign
corporations which would constitute a Passive Foreign Investment Company
("PFIC"). Federal income taxes may be imposed on the Fund upon disposition of
PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios, if any, will not be combined for tax purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns.
STATE AND LOCAL TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises the total return for each class of
Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge and contingent deferred sales charges, which, if
excluded, would increase the total return.
Total return will be calculated separately for Class A Shares, Class B Shares,
and Class C Shares. Expense differences between Class A Shares, Class B Shares,
and Class C Shares may affect the performance of each class.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
FEDERATED INTERNATIONAL
EQUITY FUND
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Global Research Corp.
175 Water Street
New York, NY 10038-4965
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222
[Graphic]
FEDERATED INTERNATIONAL EQUITY FUND (A Portfolio of International Series, Inc.)
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS
JANUARY 31, 1998
An Open-End, Diversified Management Investment Company
[Graphic]
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 46031P308
Cusip 46031P605
Cusip 46031P407
G00692-02-ABC (1/98)
[Graphic]
FEDERATED INTERNATIONAL EQUITY FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Federated International Equity Fund (the "Fund"), a portfolio of International
Series, Inc. (the "Corporation") dated January 31, 1998. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement of Additional Information, if you have received it electronically,
free of charge by calling 1-800-341-7400.
INTERNATIONAL SERIES, INC.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated January 31, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 46031P308
Cusip 46031P605
Cusip 46031P407
1010302B (1/98)
[Graphic]
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND 1 INVESTMENT OBJECTIVE AND POLICIES 1 Types
of Investments 1 Convertible Securities 1 When-Issued and Delayed Delivery
Transactions 1 Repurchase Agreements 2 Lending Portfolio Securities 2
Restricted and Illiquid Securities 2 Futures and Options Transactions 2
Portfolio Turnover 5 INVESTMENT LIMITATIONS 5 Diversification of Investments 5
Acquiring Securities 5 Concentration of Investments 5 Borrowing 6 Pledging
Assets 6 Buying on Margin 6 Issuing Senior Securities 6 Underwriting 6
Investing in Real Estate 6 Investing in Commodities 6 Lending Cash or
Securities 6 Investing in Minerals 6 Selling Short 6 Purchasing Securities to
Exercise Control 6 Investing in Illiquid Securities 7 Dealing in Puts and Calls
7 INTERNATIONAL SERIES, INC. MANAGEMENT 7 Fund Ownership 11 Director
Compensation 11 INVESTMENT ADVISORY SERVICES 12 Adviser to the Fund 12 Advisory
Fees 12 BROKERAGE TRANSACTIONS 12 OTHER SERVICES 12 Fund Administration 12
Custodian and Portfolio Accountant 13 Transfer Agent 13 Independent Public
Accountants 13 Purchasing Shares 13 Quantity Discounts and Accumulated
Purchases 13 Concurrent Purchases 13 Letter of Intent 13 Reinvestment Privilege
14 Conversion of Class B Shares 14 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
14 Purchases by Sales Representatives, Fund Directors, and Employees15
DETERMINING NET ASSET VALUE 15 Determining Market Value of Securities 15
Trading in Foreign Securities 15 REDEEMING SHARES 16 Redemption in Kind 16
Contingent Deferred Sales Charge 16 TAX STATUS 17 The Fund's Tax Status 17
Foreign Taxes 17 Shareholders' Tax Status 17 TOTAL RETURN 17 PERFORMANCE
COMPARISONS 17 Economic and Market Information 18 ABOUT FEDERATED INVESTORS 18
Mutual Fund Market 19 Institutional Clients 19 Bank Marketing 19 Broker/Dealers
and Bank Broker/Dealer Subsidaries 19 FINANCIAL STATEMENTS 19 APPENDIX 20
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in International Series, Inc. (the "Corporation"), which
was established as FT International Trust, a Massachusetts business trust, under
a Declaration of Trust dated March 9, 1984, and reorganized as a corporation
under the laws of the state of Maryland on February 11, 1991. At a special
meeting of shareholders held on March 15, 1994, the shareholders of the
Corporation approved an amendment to the Articles of Incorporation to change the
name of the Corporation from FT Series, Inc., to International Series, Inc.
Shares of the Fund are offered in three classes, known as Class A Shares, Class
B Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Statement of Additional Information
relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to obtain a total return on its assets.
The objective is based on the premise that investing in non-U.S. securities
provides three potential benefits over investing solely in U.S. securities:
* the opportunity to invest in non-U.S. companies believed to have
superior growth potential;
* the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the United States; and
* the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not move in
harmony.
TYPES OF INVESTMENTS
The Fund invests in a diversified portfolio composed primarily of non-U.S.
securities. A substantial portion of these instruments will be equity
securities of established companies in economically developed countries. The
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, collectively, "Depositary Receipts." The Fund
may also purchase investment grade fixed-income securities and foreign
government securities; enter into forward commitments, repurchase
agreements, and foreign currency transactions; and maintain reserves in
foreign or U.S. money market instruments.
CONVERTIBLE SECURITIES
DECS, or similar instruments marketed under different names, offer a substantial
dividend advantage with the possibility of unlimited upside potential if the
price of the underlying common stock exceeds a certain level. DECS convert to
common stock at maturity. The amount received is dependent on the price of the
common stock at the time of maturity. DECS contain two call options at different
strike prices. The DECS participate with the common stock up to the first call
price. They are effectively capped at that point unless the common stock rises
above a second price point, at which time they participate with unlimited upside
potential.
PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is limited to
a predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates declines when
the common stock falls, while the cap price limits gains when the common stock
rises.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by Federated Global
Research Corp., the Fund's investment adviser (the "Adviser") to be
creditworthy.
LENDING PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") Staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933. The Directors consider the following criteria in determining the
liquidity of certain restricted securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealer undertakings to make a market in the security; and * the nature of
the security and the nature of the marketplace trades.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may engage in futures and options hedging transactions. In an effort to
reduce fluctuations in the net asset value of Shares, the Fund may attempt to
hedge all or a portion of its portfolio by buying and selling financial futures
contracts, buying put options on portfolio securities and listed put options on
futures contracts, and writing call options on futures contracts. The Fund may
also write covered call options on portfolio securities to attempt to increase
its current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on financial futures
contracts may be closed out only on the exchange on which the position was
established.
FUTURES CONTRACTS
The Fund may engage in transactions in futures contracts. A futures contract is
a firm commitment by two parties: the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and the
buyer who agrees to take delivery of the security ("going long") at a certain
time in the future. However, a stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index contract was
originally written. No physical delivery of the underlying securities in the
index is made. The purpose of the acquisition or sale of a futures contract
by the Fund is to protect the Fund from fluctuations in the value of its
securities caused by anticipated changes in interest rates or market conditions
without necessarily buying or selling the securities. For example, in the
fixed-income securities market, price generally moves inversely to interest
rates. A rise in rates generally means a drop in price. Conversely, a drop in
rates generally means a rise in price. In order to hedge its holdings of
fixed-income securities against a rise in market interest rates, the Fund could
enter into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed-income securities may decline during the anticipated holding period. The
Fund would "go long" (i.e., agree to purchase securities in the future at a
predetermined price) to hedge against a decline in market interest rates.
PUT OPTIONS ON FUTURES CONTRACTS
The Fund may engage in transactions in put options on futures contracts. The
Fund may purchase listed put options on futures contracts. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price. The Fund would purchase put options on futures contracts to
protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option may be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities. Alternatively, the Fund may
exercise its put option to close out the position. To do so, it would
simultaneously enter into a futures contract of the type underlying the option
(for a price less than the strike price of the option) and exercise the option.
The Fund would then deliver the futures contract in return for payment of the
strike price. If the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and only the premium
paid for the contract will be lost.
When the Fund sells a put on a futures contract, it receives a cash premium
which can be used in whatever way is deemed most advantageous to the Fund. In
exchange for such premium, the Fund grants to the purchaser of the put the right
to receive from the Fund, at the strike price, a short position in such futures
contract, even though the strike price upon exercise of the option is greater
than the value of the futures position received by such holder. If the value of
the underlying futures position is not such that exercise of the option would be
profitable to the option holder, the option will generally expire without being
exercised. The Fund has no obligation to return premiums paid to it whether or
not the option is exercised. It will generally be the policy of the Fund, in
order to avoid the exercise of an option sold by it, to cancel its obligation
under the option by entering into a closing purchase transaction, if available,
unless it is determined to be in the Fund's interest to deliver the underlying
futures position. A closing purchase transaction consists of the purchase by the
Fund of an option having the same term as the option sold by the Fund, and has
the effect of canceling the Fund's position as a seller. The premium which the
Fund will pay in executing a closing purchase transaction may be higher than the
premium received when the option was sold, depending in large part upon the
relative price of the underlying futures position at the time of each
transaction.
CALL OPTIONS ON FUTURES CONTRACTS
The Fund may engage in transactions in call options on futures contracts. In
addition to purchasing put options on futures, the Fund may write listed call
options on futures contracts to hedge its portfolio against, for example, an
increase in market interest rates. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike price at any time
during the life of the option if the option is exercised. As market interest
rates rise or as stock prices fall, causing the prices of futures to go down,
the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call option
position to increase. In other words, as the underlying future's price goes down
below the strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option. This premium
can help substantially to offset the drop in value of the Fund's portfolio
securities. Prior to the expiration of a call written by the Fund, or exercise
of it by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be less
than the premium received by the Fund for the initial option. The net premium
income of the Fund will then help offset the decrease in value of the hedged
securities.
When the Fund purchases a call on a financial futures contract, it receives in
exchange for the payment of a cash premium the right, but not the obligation, to
enter into the underlying futures contract at a strike price determined at the
time the call was purchased, regardless of the comparative market value of such
futures position at the time the option is exercised. The holder of a call
option has the right to receive a long (or buyer's) position in the underlying
futures contract.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio (including cash or cash equivalents) plus or minus the
unrealized gain or loss on those open positions, adjusted for the correlation of
volatility between the hedged securities and the futures contracts. If this
limitation is exceeded at any time, the Fund will take prompt action to close
out a sufficient number of open contracts to bring its open futures and options
positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with the custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contracts initial margin does not involve a
borrowing by the Fund to finance the transactions. Initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions. The Fund is also required to deposit
and maintain margin when it writes call options on futures contracts.
REGULATORY RESTRICTIONS
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid status as a "commodity pool operator," the Fund
will not enter into a futures contract, or purchase an option thereon, if
immediately thereafter the initial margin deposits for futures contracts held by
it, plus premiums paid by it for open options on futures, would exceed 5% of the
total assets of the Fund. The Fund will not engage in transactions in futures
contracts or options thereon for speculation, but only to attempt to hedge
against changes in market conditions affecting the value of assets which the
Fund holds or intends to purchase. When futures contracts or options thereon are
purchased in order to protect against a price increase on securities or other
assets intended to be purchased later, it is anticipated that at least 75% of
such intended purchases will be completed. When other futures contracts or
options thereon are purchased, the underlying value of such contracts will at
all times not exceed the sum of (1) accrued profit on such contracts held by the
broker; (2) cash or high-quality money market instruments set aside in an
identifiable manner; and (3) cash proceeds from investments due in 30 days or
less.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect against
price movements in particular securities in its portfolio. A put option gives
the Fund, in return for a premium, the right to sell the underlying security to
the writer (seller) at a specified price during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may write covered call options to generate income. As a writer of a
call option, the Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price. The Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any additional
consideration).
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options ("OTC options") on
portfolio securities in negotiated transactions with the buyers or writers of
the options for those options on portfolio securities held by the Fund and not
traded on an exchange.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while over-the-counter options may not.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith, or gross negligence on the part of the Adviser, any losses resulting from
the holding of the Funds' portfolio securities in foreign countries and/or with
securities depositories will be at the risk of shareholders. No assurance can be
given that the Directors' appraisal of the risks will always be correct or that
such exchange control restrictions or political acts of foreign governments
might not occur.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Portfolio securities will be sold when the
Adviser believes it is appropriate, regardless of how long those securities have
been held. For the fiscal years ended November 30, 1997, and 1996, the portfolio
turnover rates were 210% and 119%, respectively.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not purchase
securities of any one issuer (other than securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities) if as a
result more than 5% of the value of its total assets would be invested in the
securities of that issuer.
ACQUIRING SECURITIES
The Fund will not 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.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of its total assets in securities of
issuers having their principal business activities in the same industry.
BORROWING
The Fund will not borrow money except as a temporary measure for extraordinary
or emergency purposes and then only in amounts up to one-third of the value of
its total assets, including the amount borrowed. The Fund will not purchase
securities while outstanding borrowings exceed 5% of the value of its total
assets. (This borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities would be inconvenient or
disadvantageous.)
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate assets, except when necessary
for permissible borrowings. In those cases, it may pledge assets having a value
of 15% of its assets taken at cost. Neither the deposit of underlying securities
or other assets in escrow in connection with the writing of put or call options
or the purchase of securities on a when-issued basis, nor margin deposits for
the purchase and sale of financial futures contracts and related options are
deemed to be a pledge.
BUYING ON MARGIN
The Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions, except that
the Fund may make margin payments in connection with its use of financial
futures contracts or related options and transactions.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except in connection with transactions
described in other investment limitations or as required by forward commitments
to purchase securities or currencies.
UNDERWRITING
The Fund will not underwrite or participate in the marketing of securities of
other issuers, except as it may be deemed to be an underwriter under federal
securities law in connection with the disposition of its portfolio securities.
INVESTING IN REAL ESTATE
The Fund will not invest in real estate, although it may invest in securities
secured by real estate or interests in real estate or issued by companies,
including real estate investment trusts, which invest in real estate or
interests therein.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities or commodity contracts, except
that the Fund may purchase and sell financial futures contracts and options on
financial futures contracts, provided that the sum of its initial margin
deposits for financial futures contracts held by the Fund, plus premiums paid by
it for open options on financial futures contracts may not exceed 5% of the fair
market value of the Fund's total assets, after taking into account the
unrealized profits and losses on those contracts. Further, the Fund may engage
in foreign currency transactions and purchase or sell forward contracts with
respect to foreign currencies and related options.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. This shall not
prevent the purchase or holding of bonds, debentures, notes, certificates of
indebtedness, or other debt securities of an issuer, repurchase agreements, or
other transactions which are permitted by the Fund's investment objective and
policies or its Articles of Incorporation.
INVESTING IN MINERALS
The Fund will not invest in interests in oil, gas, or other mineral exploration
or development programs, other than debentures or equity stock interests.
SELLING SHORT
The Fund will not sell securities short unless (1) it owns, or has a right to
acquire, an equal amount of such securities, or (2) it has segregated an amount
of its other assets equal to the lesser of the market value of the securities
sold short or the amount required to acquire such securities. The segregated
amount will not exceed 10% of the Fund's net assets. While in a short position,
the Fund will retain the securities, rights, or segregated assets.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Except as noted, shareholders will be
notified before any material change in these limitations becomes effective.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of exercising
control or management.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including certain restricted securities not determined to
be liquid under criteria established by the Directors, repurchase agreements
with maturities longer than seven days after notice, and certain
over-the-counter options. DEALING IN PUTS AND CALLS
The Fund will not write call options or put options on securities, except hat
the Fund may write covered call options and secured put options on all or any
portion of its portfolio, provided the securities are held in the Fund's
portfolio or the Fund is entitled to them in deliverable form without further
payment or the Fund has segregated cash in the amount of any further payments.
The Fund will not purchase put options on securities unless the securities or an
offsetting call option is held in the Fund's portfolio. The Fund may also
purchase, hold or sell (i) contracts for future delivery of securities or
currencies and (ii) warrants granted by the issuer of the underlying securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its total assets during the last fiscal year and has no present intent to do
so in the coming fiscal year.
INTERNATIONAL SERIES, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with International Series, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member
of Executive Committee, University of Pittsburgh; Director or Trustee of the
Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation;
President Emeritus, University of Pittsburgh; Founding Chairman, National
Advisory Council for Environmental Policy and Technology, Federal Emergency
Management Advisory Board and Czech Management Center, Prague; Director or
Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board between meetings of the
Board. As used in the table above, "The Funds" and "Funds" mean the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc. FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares. As
of January 7, 1998, no shareholder of record owned 5% or more of the
outstanding Class A Shares of the Fund.
As of January 7, 1998, no shareholder of record owned 5% or more of the
outstanding Class B Shares of the Fund.
As of January 7, 1998, the following shareholders of record owned 5% or more of
the outstanding Class C Shares of the Fund: Hubco, Birmingham, Alabama owned
approximately 48,884 (7.50%); Merrill Lynch Pierce Fenner & Smith, Jacksonville,
Florida, for the sole benefit of its customers owned approximately 114,796
(17.62%); and Keith Co., Monroe, Alabama owned
approximately 195,254 (29.97%).
DIRECTOR COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
John F. Donahue $0 $0 for the Corporation and
Chairman and Director 56 other investment companies in
the Fund Complex
Thomas G. Bigley $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
John T. Conroy, Jr. $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
William J. Copeland $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
James E. Dowd $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Peter E. Madden, $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
John E. Murray, Jr. $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Wesley W. Posvar $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
* Information is furnished for the fiscal year ended November 30, 1997.
# The aggregate compensation is provided for the Corporation which is
comprised of two portfolios.
+ The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. It is a
subsidiary of Federated Investors. All the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund, the Corporation, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30, 1997,
1996, and for the period from September 1, 1995 to November 30, 1995, the
Adviser received $1,732,925, $2,004,435, and $535,649, respectively, none of
which was voluntarily waived. For the period from December 1, 1994 to August 31,
1995, Federated Management, the Fund's former investment adviser, received
$1,772,031, none of which was voluntarily waived. BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
For the fiscal years ended November 30, 1997, 1996, and 1995, the Fund paid
total brokerage commissions of $4,321,392, $1,602,769, and $2,289,648,
respectively. Although investment decisions for the Fund are made
independently from those of any other accounts managed by the Adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the Adviser
are prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the Adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or disposed of by the Fund. In other cases, however, it is believed
that coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser is not
obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
administrator. Both former administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and Federated
Administrative Services, Inc. may hereinafter collectively be referred to as
the "Administrators." For the fiscal years ended November 30, 1997, 1996,
and 1995, the Administrators earned $185,000, $185,000, and $322,342,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value, plus a sales charge (for Class A Shares only) on days
the New York Stock Exchange ("NYSE") is open for business. The procedure for
purchasing Shares is explained in the prospectus under "How to Purchase Shares."
For further information on any of the programs listed below, please contact you
financial intermediary or Federated Securities Corp.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectus, larger purchases of the same Shares class reduce
or eliminate the sales charge paid. For example, the Fund will combine all Class
A Shares purchases made on the same day, by the investor, the investor's spouse,
and the investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase into the same Share class is made, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares having a current value at the public
offering price of $90,000 and he purchases $10,000 more at the current public
offering price, the sales charge on the additional purchase according to the
schedule now in effect would be 3.75%, not 4.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce or eliminate the sales charge
after it confirms the purchases.
CONCURRENT PURCHASES
Shareholders have the privilege of combined concurrent purchases of the same
Share class of two or more funds in the Federated Complex in calculating the
applicable sales charge.
To receive a sales charge reduction of elimination, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial intermediary
at the time the concurrent purchases are made. The Fund will reduce or eliminate
the sales charge after it confirms the purchases.
LETTER OF INTENT
A shareholder can sign a letter of intent committing to purchase a certain
amount of the same Share class within a 13-month period in order to combine such
purchases in calculating the applicable sales charge. The Fund's custodian will
hold Shares in escrow equal to the maximum applicable sales charge. If the
shareholder completes the commitment, the escrowed Shares will be released to
their account. If the commitment is not completed within 13 months, the
custodian will redeem an appropriate number of escrowed Shares to pay for the
applicable sales charge.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Funds, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted.
REINVESTMENT PRIVILEGE
The reinvestment privilege is available for all Shares of the Fund within the
same Share class.
Class A shareholders who redeem from the Fund may reinvest the redemption
proceeds back into the same Share class at the next determined net asset value
without any sales charge. The original shares must have been subject to a sales
charge and the reinvestment must be within 120 days.
Similarly, Class C shareholders who redeem may reinvest their redemption
proceeds in the same Share class within 120 days. Class B Shares also may be
reinvested within 120 days of redemption, although such reinvestment will be
made into Class A Shares. Shareholders would not be entitled to a reimbursement
of the contingent deferred sales charge if paid at the time of redemption on any
Share class. However, reinvested Shares would not be subject to a contingent
deferred sales charge, if otherwise applicable, upon later redemption.
In addition, if Shares were reinvested through a financial intermediary, the
financial intermediary would not be entitled to an advanced payment from
Federated Securities Corp. on the reinvested Shares, if otherwise applicable.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial intermediary of the reinvestment in order to eliminate a sales
charge or a contingent deferred sales charge. If the shareholder redeems Shares
in the Fund, there may be tax consequences.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
15th of the month eight full years from the purchase date and will no longer be
subject to a fee under the distribution plan. For purposes of conversion to
Class A Shares, Shares purchased through the reinvestment of dividends and
distributions paid on Class B Shares will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account will also convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversions will not constitute taxable events for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B Shares to Class A Shares will not
occur if such a ruling or opinion is not available. In such event, Class B
Shares would continue to be subject to higher expenses than Class A Shares for
an indefinite period.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to Class B Shares and Class C Shares, the Fund has adopted a
Distribution Plan in accordance with Investment Company Act Rule 12b-1.
Additionally, the Fund has adopted a Shareholder Services Agreement with respect
to all classes of Shares.
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities may include, but are not limited to, marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Distribution Plan (Class B Shares and Class C Shares), the
Directors expect that the Fund will be able to achieve a more predictable flow
of cash for investment purposes and to meet redemptions. This will facilitate
more efficient portfolio management and assist the Fund in pursuing its
investment objective. By identifying potential investors whose needs are served
by the Fund's objective, and properly servicing these accounts, it may be
possible to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1997, the Class B Shares and Class C
Shares incurred $154,605 and $57,956, respectively, in distribution services
fees, none of which were waived. In addition, for the fiscal year ended November
30, 1997, Class A Shares, Class B, Shares and Class C Shares, incurred
shareholder services fees in the amount of $362,378, $51,535, and $19,319,
respectively, of which $149,924, $0, and $0, respectively, were waived.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
The following individuals and their immediate family members may buy Class A
Shares at net asset value without a sales charge:
* Directors, employees, and sales representatives of the Fund, Federated
Global Research Corp., and Federated Securities Corp. and its
affiliates;
* Federated Life Members (Class A Shares only);
* any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp.; and
* trusts, pensions, or profit-sharing plans for these individuals.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund. DETERMINING NET ASSET VALUE The Fund's
net asset value per Share fluctuates and is based on the market value of all
securities and other assets of the Fund. The net asset value for each class of
Shares may differ due to the variance in daily net income realized by each
class.
Net asset value is not determined on (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net asset value
might be materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Fund's portfolio securities are determined as
follows:
* according to the last reported sale price on a recognized securities
exchange, if available. (If a security is traded on more than one exchange,
the price on the primary market for that security, as determined by the
Adviser or sub-adviser, is used);
* according to the mean between the last closing bid and asked prices, if no
sale on the recognized exchange is reported or if the security is traded
over-the-counter;
* at fair value as determined in good faith by the Directors; or * for
short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost, which approximates value.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities; yield; quality; coupon rate; maturity; type of
issue; trading characteristics; and other market data.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the NYSE. In computing the net asset value, the Fund values foreign
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the NYSE. Certain foreign currency exchange
rates may also be determined at the latest rate prior to the closing of the
NYSE. Foreign securities quoted in foreign currencies are translated into U.S.
dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the NYSE. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Directors, although the actual calculation may be done by
others.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
prospectus under "Redeeming and Exchanging Shares." Although the transfer agent
does not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price, in whole or in part, by
a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Directors determine to be fair and
equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem Shares for any shareholder
in cash up to the lesser of $250,000 or 1% of the Fund's net asset value during
any 90-day period. Redemption in kind is not as liquid as a cash
redemption. If redemption is made is kind, shareholders receiving their
securities and selling them before their maturity could receive less than the
redemption value of their securities and could incur certain transaction costs.
CONTINGENT DEFERRED SALES CHARGE
In computing the amount of the applicable Contingent Deferred Sales Charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
Shares held for more than six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares; (3) Shares held for fewer than six years with respect to Class B
Shares and for less than one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
To qualify for elimination of the contingent deferred sales charge through a
Systematic Withdrawal Program, the redemptions of Class B Shares must be from an
account that is at least 12 months old, has all Fund distributions reinvested in
Fund Shares, and has an account value of at least $10,000 when the Systematic
Withdrawal Program is established. Qualifying redemptions may not exceed 1.00%
monthly of the account value as periodically determined by the Fund. The amounts
that a shareholder may withdraw under a Systematic Withdrawal Program that
qualify for elimination of the Contingent Deferred Sales Charge may not exceed
12% annually with reference initially to the value of the Class B Shares upon
establishment of the Systematic Withdrawal Program and then as calculated at the
annual valuation date. Redemptions on a qualifying Systematic Withdrawal Program
can be made at a rate of 1.00% monthly, 3.00% quarterly, or 6.00% semi-annually
with reference to the applicable account valuation amount. Amounts that exceed
the 12.00% annual limit for redemption, as described, may be subject to the
Contingent Deferred Sales Charge. To the extent that a shareholder exchanges
Shares for Class B 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 12-month holding
requirement. However, for purposes of meeting the $10,000 minimum account value
requirement, Class B Share accounts will be not be aggregated. Any Shares
purchased prior to the termination of this program would have the contingent
deferred sales charge eliminated as provided in the Fund's prospectus at the
time of the purchase of the Shares.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
* invest in securities within certain statutory limits; and * distribute to
its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The Fund's dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term capital
gains distributed to them regardless of how long they have held the Fund Shares.
TOTAL RETURN
The Fund's average annual total returns based on offering price for the
following periods ended November 30, 1997, were:
<TABLE>
<CAPTION>
SHARE CLASS INCEPTION DATE ONE-YEAR FIVE-YEARS TEN-YEARS SINCE INCEPTION
<S> <S> <C> <C> <C> <C>
Class A 08/17/84 0.05% 8.11% 6.85% 12.06%
Class B 09/28/94 (0.68%) N/A N/A 1.40%
Class C 04/01/93 3.93% N/A N/A 7.53%
</TABLE>
The average annual total return
for all classes of Shares of the Fund is the average compounded rate of return
for a given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed by
multiplying the number of Shares owned at the end of the period by the offering
price per Share at the end of the period. The number of Shares owned at the end
of the period is based on the number of Shares purchased at the beginning of the
period with $1,000, less any applicable sales charge, adjusted over the period
by any additional Shares, assuming a reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge is deducted from
the ending value of the investment based on the lesser of the original purchase
price or the offering price of Shares redeemed.
PERFORMANCE COMPARISONS
The Fund's performance of each class of Shares depends upon such variables as:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested; * changes in
interest rates on money market instruments; * changes in the Fund's or a
class of Shares' expenses; and * various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any indices
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
* LIPPER ANALYTICAL SERVICES, INC., for example, makes comparative
calculations for one-month, three-month, one-year, and five-year periods
which assume the reinvestment of all capital gains distributions and income
dividends.
* EUROPE, AUSTRALIA, AND FAR EAST (EAFE) INDEX is a market capitalization
weighted foreign securities index, which is widely used to measure the
performance of European, Australian, New Zealand, and Far Eastern stock
markets. The index covers approximately 1,020 companies drawn from 18
countries in the above regions. The index values its securities daily in
both U.S. dollars and local currency and calculates total returns monthly.
EAFE U.S. dollar total return is a net dividend figure less Luxembourg
withholding tax. The EAFE is monitored by Capital International, S.A.,
Geneva, Switzerland.
* STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and
public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's index assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in Standard & Poor's figures.
* MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Advertisements and sales literature for all three classes of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge or contingent deferred sales charge, as applicable.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form, of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute. ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the equity sector, Federated Investors has more
than 27 years experience. As of December 31, 1997, Federated managed 29 equity
funds totaling approximately $11.7 billion in assets across growth, value,
equity income, international, index, and sector (i.e., utility) styles.
Federated's value-oriented management style combines quantitative and
qualitative analysis and features a structured, computer-assisted composite
modeling system that was developed in the 1970s.
J. Thomas Madden, Executive Vice President, oversees Federated Investor's equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investor's domestic fixed-income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investor's international portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.*
Institutional Clients
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high rankings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended November 30, 1997, are
incorporated by reference to the Annual Report of the Fund dated November 30,
1997 (File Nos. 2-91776 and 811-3984). A copy of the Report may be obtained
without charge by contacting the Fund. * Source: Investment Company
Institute Federated Investors, through its subsidiaries, distributes mutual
funds for a variety of investment applications.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligator's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity.
P-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short--term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment.
Federated International Income Fund
(A Portfolio of International Series, Inc.)
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS
The shares of Federated International Income Fund (the "Fund") represent
interests in a non-diversified investment portfolio of International Series,
Inc. (the "Corporation"), an open-end, management investment company (a mutual
fund). The Fund invests primarily in high-quality debt securities denominated
primarily in foreign currencies to seek a high level of current income in U.S.
dollars consistent with prudent investment risk. The Fund has a secondary
objective of capital appreciation.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, and Class C Shares dated January 31, 1998, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund are maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).
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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Class A Shares 2 Financial
Highlights--Class B Shares 3 Financial Highlights--Class C Shares 4 General
Information 5 Calling the Fund 5 Investment Information 5 Investment Objective
5 Investment Policies 5 Portfolio Turnover 11 Investment Limitations 11 Net
Asset Value 11 Investing in the Fund 12 Purchasing Shares 12 Purchasing Shares
Through a Financial Intermediary 12 Purchasing Shares by Wire 13 Purchasing
Shares by Check 13 Systematic Investment Program 13 Retirement Plans 13 Class A
Shares 13 Class B Shares 14 Class C Shares 14 Redeeming and Exchanging Shares
14 Redeeming or Exchanging Shares Through a Financial Intermediary 14 Redeeming
or Exchanging Shares by Telephone 14 Redeeming or Exchanging Shares by Mail 14
Requirements for Redemption 15 Requirements for Exchange 15 Systematic
Withdrawal Program 15 Contingent Deferred Sales Charge 15 Account and Share
Information 16 Confirmations and Account Statements 16 Dividends and
Distributions 16 Accounts with Low Balances 16 International Series, Inc.
Information 16 Management of the Corporation 16 Distribution of Shares 17
Administration of the Fund 18 Shareholder Information 19 Voting Rights 19 Tax
Information 19 Federal Income Tax 19 State and Local Taxes 19 Performance
Information 20
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of 4.50% None None
offering price)
Maximum Sales Charge Imposed on Reinvested Dividends (as a None None None
percentage of offering price)
Contingent Deferred Sales Charge (as a percentage of original None 5.50% 1.00%
purchase price or redemption proceeds, as applicable)(1)
Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)
Exchange Fee None None None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)*
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.75% 0.75% 0.75%
12b-1 Fee 0.10(2) 0.75% 0.75%
Total Other Expenses 0.48% 0.55% 0.55%
Shareholder Services Fee 0.18%(3) 0.25% 0.25%
Total Operating Expenses(4) 1.33% 2.05%(5) 2.05%
</TABLE>
(1) For shareholders of Class B Shares, the contingent deferred sales charge is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, 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 "Contingent Deferred Sales Charge."
(2) For shareholders of Class A Shares, the 12b-1 fee has been reduced to
reflect the voluntary waiver of a portion of the 12b-1 fee. The distributor can
terminate the voluntary waiver at any time at its sole discretion. The maximum
12b-1 fee is 0.25%.
(3) For shareholders of Class A Shares, 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%.
(4) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1998. The total Class A
Shares operating expenses were 1.30% for the fiscal year ended November 30, 1997
and would have been 1.56% absent the voluntary waiver of a portions of the 12b-1
fee and the shareholder services fee. The total Class B Shares and Class C
Shares operating expenses were 2.06% and 2.06% respectively, for the fiscal year
ended November 30, 1997.
(5) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
* Total operating expenses are estimated based on average expenses expected to
be incurred during the period ending November 30, 1998. During the course of
this period, expenses may be more or less than the average amount shown.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Purchasing Shares" and "International Series, Inc. Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
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.
EXAMPLE CLASS A CLASS B CLASS C
You 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.
1 Year $ 58 $ 77 $ 31
3 Years $ 85 $108 $ 64
5 Years $115 $133 $110
10 Years $198 $218 $238
You would pay the following expenses
on the same investment,
assuming no redemption.
1 Year $ 58 $ 21 $ 21
3 Years $ 85 $ 64 $ 64
5 Years $115 $110 $110
10 Years $198 $218 $238
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.92 $11.38 $10.52 $11.86 $10.47 $10.84 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.63** 0.74** 0.79 0.70 0.88 0.62 0.25
Net realized and unrealized gain (1.07) 0.67 0.84 (0.76) 1.40 (0.20) 0.75
(loss) on investments and foreign
currency
Total from investment operations (0.44) 1.41 1.63 (0.06) 2.28 0.42 1.00
LESS DISTRIBUTIONS
Distributions from net investment (0.83) (0.87) (0.77) (0.63) (0.75) (0.71) (0.16)
income
Distributions in excess of net -- -- -- -- -- (0.05) --
investment income(b)
Distributions from net realized gain -- -- -- (0.65) (0.14) (0.03) --
on investments and foreign currency
transactions
Total distributions (0.83) (0.87) (0.77) (1.28) (0.89) (0.79) (0.16)
NET ASSET VALUE, END OF PERIOD $10.65 $11.92 $11.38 $10.52 $11.86 $10.47 $10.84
TOTAL RETURN(C) (3.70%) 13.27% 16.12% (0.84%) 22.95% 3.82% 10.07%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.30% 1.30% 1.30% 1.30% 1.25% 0.99% 0.32%*
Net investment income 5.83% 6.58% 6.79% 6.67% 7.71% 5.83% 7.54%*
Expense waiver/reimbursement(d) 0.26% 0.34% 0.40% 0.20% 0.27% 0.62% 1.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 $180,415 $200,758 $173,905 $209,008 $220,602 $86,937 $23,465
omitted)
Portfolio turnover 67% 92% 41% 136% 189% 314% 35%
</TABLE>
* Computed on an annualized basis.
** Per share information presented is based upon the monthly average number of
shares outstanding.
(a) Reflects operations for the period from June 4, 1991 (date of initial public
investment) to November 30, 1991. For the period from start of business, May 15,
1991, to June 3, 1991, the net investment income was distributed to the
Corporation's Adviser.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.89 $11.36 $10.51 $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.56** 0.84** 0.77 0.08
Net realized and unrealized gain (loss) on investments and foreign (1.08) 0.48 0.78 0.22
currency
Total from investment operations (0.52) 1.32 1.55 0.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.75) (0.79) (0.70) --
NET ASSET VALUE, END OF PERIOD $10.62 $11.89 $11.36 $10.51
TOTAL RETURN(B) (4.43%) 12.41% 15.28% 2.44%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.06% 2.11% 2.10% 2.11%*
Net investment income 5.06% 5.76% 5.76% 7.07%*
Expense waiver/reimbursement(c) -- 0.02% 0.10% 0.10%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $12,521 $8,641 $1,123 $101
Portfolio turnover 67% 92% 41% 136%
</TABLE>
* Computed on an annualized basis.
** Per share information presented is based upon the monthly average number of
shares outstanding.
(a) Reflects operations for the period from September 19, 1994 (start of
business) to November 30, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report dated January 15, 1998, on the
Fund's financial statements for the year ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free from charge.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.89 $11.36 $10.48 $11.84 $10.23
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.56** 0.67** 0.60 0.58 0.41
Net realized and unrealized gain (loss) on investments (1.08) 0.64 0.95 (0.72) 1.58
and foreign currency
Total from investment operations (0.52) 1.31 1.55 (0.14) 1.99
LESS DISTRIBUTIONS
Distributions from net investment income (0.74) (0.78) (0.67) (0.57) (0.38)
Distributions from net realized gain on investments and -- -- -- (0.65) --
foreign currency transactions
Total distributions (0.74) (0.78) (0.67) (1.22) (0.38)
NET ASSET VALUE, END OF PERIOD $10.63 $11.89 $11.36 $10.48 $11.84
TOTAL RETURN(B) (4.42%) 12.31% 15.32% (1.54%) 19.67%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.06% 2.09% 2.06% 2.05% 2.05%*
Net investment income 5.10% 5.80% 5.96% 6.00% 5.39%*
Expense waiver/reimbursement(c) -- 0.04% 0.14% 0.10% 0.21%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,285 $14,976 $12,015 $8,098 $4,767
Portfolio turnover 67% 92% 41% 136% 189%
</TABLE>
* Computed on an annualized basis.
** Per share information presented is based upon the monthly average number of
shares outstanding.
(a) Reflects operations for the period from March 31, 1993 (Start of business)
to November 30, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.
GENERAL INFORMATION
The Corporation was established as FT International Trust, a Massachusetts
business trust, on March 9, 1984, and reorganized as a corporation under the
laws of the State of Maryland on February 11, 1991. At a special meeting of
shareholders held on March 15, 1994, the shareholders of the Corporation
approved an amendment to the Articles of Incorporation to change the name of the
Corporation to International Series, Inc. Class A Shares, Class B Shares, and
Class C Shares are designed for investors who wish to spread their investments
beyond the United States and who are prepared to accept the particular risks
associated with these investments as a convenient means of accumulating an
interest in a professionally managed diversified portfolio of non-U.S.
securities.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The Fund's objective is to seek a high level of current income in U.S. dollars
consistent with prudent investment risk. The Fund has a secondary investment
objective of capital appreciation. The investment objectives cannot be changed
without the approval of the shareholders. The Fund will pursue these objectives
by investing in high-quality debt securities denominated primarily in foreign
currencies.
While there is no assurance that the Fund will achieve its investment
objectives, it endeavors to do so by following the investment policies described
in this prospectus. Unless indicated otherwise, the investment policies of the
Fund may be changed by the Directors without shareholder approval. Shareholders
will be notified before any material change in the policies becomes effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS
The Fund will invest primarily in high-quality debt securities denominated in
the currencies of the nations that are members of the Organization for Economic
Cooperation and Development. These nations include, but are not limited to, the
following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Luxembourg, Netherlands,
New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom,
and the United States. The Fund will invest at least 65%, and under normal
market conditions substantially all of its total assets in high-quality debt
securities denominated in foreign currencies of issuers located in at least
three countries outside of the United States. Additionally, investments may be
made in securities denominated in the European Currency Unit, a multinational
currency unit which represents specified amounts of the currencies of certain
member states of the European Union.
The high-quality debt securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by Standard & Poor's Ratings Group
("S&P") or A by Moody's Investors Service, Inc. ("Moody's"), or, if unrated,
will be judged by Federated Global Research Corp., the Fund's investment adviser
(the "Adviser") to be of comparable quality. Because the average quality of the
Fund's portfolio investments should remain constantly between A and AAA, the
Fund will seek to avoid the adverse consequences that may arise for some debt
securities in difficult economic circumstances. Downgraded securities will be
evaluated on a case by case basis by the Adviser. The Adviser will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. A description of the ratings categories is contained
in the Appendix to the Statement of Additional Information. The Fund's
portfolio of debt securities will be comprised mainly of foreign government,
foreign governmental agency or supranational institution bonds. In addition, the
Fund will also invest in high-quality debt securities issued by corporations in
the currencies specified above and subject to the credit limitations listed
above. No more than 25% of the Fund's total assets will be invested in the
securities of issuers located in any one country. The Fund will also invest in
both exchange traded and over-the-counter options, subject to the limitations
outlined in this prospectus.
The prices of fixed-income securities generally fluctuate inversely to the
direction of interest rates.
FOREIGN GOVERNMENT SECURITIES
The foreign government securities in which the Fund may invest generally consist
of obligations supported by national, state, or provincial governments or
similar political subdivisions. Foreign government securities also include debt
obligations of supranational entities, which include international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction
and Development (the World Bank), the Asian Development Bank and the
Inter-American Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies." Debt securities of quasi-governmental agencies
are either debt securities issued by entities which are owned by a national,
state or equivalent government or are obligations of a political unit that are
not backed by the national government's full faith and credit and general taxing
powers. Further, foreign government securities include mortgage-related
securities issued or guaranteed by national, state, or provincial governmental
instrumentalities, including quasi-governmental agencies. TEMPORARY
INVESTMENTS
Up to 10% of the Fund's total assets may be invested at any one time in cash
deposits or in certificates of deposit issued by banks of high credit quality,
or in commercial paper with an A1/P1 rating assigned by S&P or Moody's, or in
repurchase agreements. At the discretion of the Adviser, these instruments may
be denominated in foreign currencies or U.S. dollars.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed-upon time and price. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete the transaction may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Directors, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase together
with other illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice and certain over-the-counter
options to 15% of its net assets.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its portfolio
securities on a short-term or long-term basis up to one-third the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the Adviser has determined are creditworthy
under guidelines established by the Directors and will receive collateral in the
form of cash or U.S. government securities equal to at least 100% of the value
of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
RISK CONSIDERATIONS
Investing in foreign securities carries substantial risks in addition to those
associated with investments in domestic securities. In an attempt to reduce some
of these risks, the Fund will attempt to distribute its investments broadly
among foreign countries. The debt securities of at least three different foreign
countries will always be represented.
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.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days. 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 Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States. Brokerage commissions, custodial services, and other costs relating
to investment may be more expensive than in the United States. Foreign markets
may have different clearance and settlement procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended security purchases due
to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
ALLOCATION
The allocation of the Fund's assets in a particular market and currency will be
based on a fundamental assessment of the economic strength of each relevant
country combined with considerations of credit quality and currency and interest
rate trends. These factors are reviewed on a regular basis in order to derive
specific interest rate and currency forecasts, which are quantified in terms of
total return. The market and currency allocation of the Fund will vary to
achieve an optimal mix of investments to achieve the investment objectives of
the Fund.
DURATION
Duration measures the magnitude of the change in the price of a debt security
relative to a given change in the market rate of interest. The duration of a
debt security depends primarily upon the security's coupon rate, maturity date,
and level of market interest rates for similar debt securities. There will be no
limit on the duration of any one individual issue purchased by the Fund, except
that the purchase of an issue that has no final maturity date shall not be
permitted. The weighted average duration of the Fund shall not exceed ten years
and shall not be less than one year, but will normally fall within a range of
three to seven years. The Adviser regards that range as being consistent with a
prudent attitude towards risk. Shifts outside this range would be made only
under unusual circumstances.
FOREIGN SECURITIES
Investments in foreign securities involve special risks that differ from those
associated with investments in domestic securities. The risks associated with
investments in foreign securities relate to political and economic developments
abroad, as well as those that result from the differences between the regulation
of domestic securities and issuers and foreign securities and issuers. These
risks may include, but are not limited to, expropriation, confiscatory taxation,
currency fluctuations, withholding taxes on interest, limitations on the use or
transfer of Fund assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual obligations
or obtain court judgments abroad than would be the case in the United States
because of differences in the legal systems. Moreover, individual foreign
economies may differ favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include:
* less publicly available information about foreign issuers; * credit risks
associated with certain foreign governments; * the lack of uniform
accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
* less readily available market quotations on foreign issues; * differences
in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
* differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
* the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that affect
the quality of securities;
* the likelihood that securities of foreign issuers may be less liquid or
more volatile;
* foreign brokerage commissions may be higher;
* unreliable mail service between countries;
* political or financial changes which adversely affect investments in
some countries;
* increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
* certain markets may require payment for securities before delivery; *
religious and ethnic instability; and * certain national policies which may
restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES
In the past, U.S. government policies have discouraged or restricted certain
investments abroad by investors such as the Fund. Investors are advised that
when such policies are instituted, the Fund will abide by them.
CURRENCY RISKS
Because the majority of the debt securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's NAV; the value of interest
earned; gains and losses realized on the sale of securities; and net investment
income and capital gain, if any, to be distributed to shareholders by the Fund.
If the value of a foreign currency rises against the U.S. dollar, the value of
Fund assets denominated in that currency will increase; correspondingly, if the
value of a foreign currency declines against the U.S. dollar, the value of Fund
assets denominated in that currency will decrease. Under the U.S. tax code, the
Fund is required to separately account for the foreign currency component of
gains or losses, which will usually be viewed under the U.S. tax code as items
of ordinary and distributable income or loss, thus affecting the Fund's
distributable income (See "Federal Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental interpretation, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies. The Fund will engage in foreign currency exchange transactions
in connection with its investments in foreign securities. The Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. The Adviser
believes that active management of currency risks through a variety of hedging
vehicles and strategies can considerably limit the risk of capital loss through
movements in the foreign exchange markets, such as those described above. The
Adviser will not engage in hedging for speculative purposes.
HEDGING VEHICLES
The Fund may use the following hedging vehicles in an attempt to manage currency
and interest rate risks:
* forward foreign currency exchange contracts; * options contracts; and *
futures contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers. When the Fund
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may want to establish the U.S. dollar cost or proceeds, as
the case may be. By entering into a forward contract in U.S. dollars for the
purchase or sale of the amount of foreign currency involved in an underlying
security transaction, the Fund is able to protect itself against a possible loss
between trade and settlement dates resulting from an adverse change in the
relationship between the U.S. dollar and such foreign currency. However, this
tends to limit potential gains which might result from a positive change in such
currency relationships.
There is no limitation as to the percentage of the Fund's assets that may be
committed under forward foreign currency exchange contracts. The Fund does not
enter into such forward contracts or maintain a net exposure in such contracts
where the Fund would be obligated to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or, in the case of a "cross-hedge" (see "Hedging
Strategies" below), denominated in a currency or currencies that the Adviser
believes will reflect a high degree of correlation with the currency with regard
to price movements. The Fund generally does not enter into a forward foreign
currency exchange contract with a term longer than one year.
OPTIONS CONTRACTS
The Fund may deal in options on foreign currencies, foreign currency futures,
securities, and securities indices, which options may be listed for trading on a
national securities exchange or traded over-the-counter. The Fund may write
covered call options and secured put options on up to 25% of its net assets and
may purchase put and call options provided that no more than 5% of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and a wider range of expiration dates
and exercise prices, than are exchange traded options.
FUTURES CONTRACTS
Futures contracts are contracts that obligate the long or short holder to take
or make delivery of a specified quantity of an asset, such as a currency, a
security, or the cash value of a securities index at a specified future date at
a specified price. The Fund may engage in futures transactions, but will not
participate in futures contracts if the sum of its initial margin deposits on
open contracts will exceed 5% of the fair market value of the Fund's net assets.
HEDGING STRATEGIES
CURRENCY HEDGING
When the Adviser believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell an amount of that foreign currency for a fixed U.S.
dollar amount approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency (i.e., "hedge"). The Fund may,
as an alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Adviser believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated (i.e., "cross-hedge"). A
cross hedge can be achieved not only by using a "proxy" currency in which Fund
securities are denominated, but also by using the Canadian dollar as a "proxy"
currency for the U.S. dollar. This strategy may be beneficial because the level
of divergence in the exchange rates of U.S. and Canadian currencies has
historically tended to be relatively small.
For example, the Fund may invest in securities denominated in a Western European
currency, such as the French Franc, and seek to hedge against the effect of an
increase in the value of the U.S. dollar against that currency by entering into
a forward foreign currency exchange contract to sell the lower yielding German
Mark, which has historically had price movements that tend to correlate closely
with those of the French Franc, thereby creating a hedge similar to the simple
Dollar/Franc hedge, but at a possibly lower cost. In addition, the Fund might
arrange to sell those Marks against Canadian Dollars in an effort to minimize
hedging costs.
INTEREST RATE HEDGING
The Fund may engage in futures transactions and may use options in an attempt to
hedge against the effects of fluctuations in interest rates and other market
conditions. For example, if the Fund owned long-term bonds and interest rates
were expected to rise, it could sell futures contracts or the cash value of a
securities index. If interest rates did increase, the value of the bonds in the
Fund would decline, but this decline would be offset in whole or in part by an
increase in the value of the Fund's futures contracts or the cash value of the
securities index. If, on the other hand, long-term interest rates were expected
to decline, the Fund could hold short-term debt securities and benefit from the
income earned by holding such securities, while at the same time the Fund could
purchase futures contracts on long-term bonds or the cash value of a securities
index. Thus, the Fund could take advantage of the anticipated rise in the value
of long-term bonds without actually buying them. The futures contracts and
short-term debt securities could then be liquidated and the cash proceeds used
to buy long-term bonds.
GENERAL
The Fund might not employ any of the techniques or strategies described above,
and there can be no assurance that any technique or strategy (or combination
thereof) used will succeed. The use of these techniques and strategies involves
certain risks, including:
* dependence on the Adviser's ability to predict movements in the prices of
assets being hedged or movements in interest rates and currency markets;
* imperfect correlation between the hedging instruments and the
securities or currencies being hedged;
* the fact that skills needed to use these instruments are different from
those needed to select the Fund's securities;
* the possible absence of a liquid secondary market for any particular
instrument at any particular time;
* possible impediments to effective portfolio management or the ability to
meet redemption requests or other short-term obligations because of the
percentage of the Fund's assets segregated to cover its obligations; and
* the possible need to defer closing out hedged positions to avoid adverse
tax consequences.
New futures contracts, options thereon and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified portfolio of securities because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the total
market value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio will
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code (the
"Code"). This undertaking requires that at the end of each quarter of the
taxable year, with regard to at least 50% of the Fund's total assets, no more
than 5% of its total assets are invested in the securities of a single issuer;
beyond that, no more than 25% of its total assets are invested in the securities
of a single issuer.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The Fund's rate of portfolio turnover may exceed that of certain
other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Adviser deems it appropriate to
make changes in the Fund's portfolio.
INVESTMENT LIMITATIONS
The Fund will not:
* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, 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; nor
* sell securities short except under strict limitations.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material changes
in this limitation becomes effective.
The Fund will not:
* invest more than 15% of the value of its net assets in illiquid securities,
including securities determined by the Directors not to be liquid,
repurchase agreements with maturities longer than seven days after notice
and certain OTC options.
NET ASSET VALUE
The Fund's net asset value ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV for each
class of Shares may differ due to the variance in daily net income realized by
each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV is
determined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time) every day the New York Stock Exchange is open.
INVESTING IN THE FUND
This prospectus offers three classes of Shares each with the characteristics
described below.
CLASS A CLASS B CLASS C
Minimum and $1500/$100 $1500/$100 $1500/$100
Subsequent
Investment Amounts
Minimum and
Subsequent $250/$100 $250/$100 $250/$100
Investment Amount
for Retirement Plans
Maximum Sales Charge 5.50%* None None
Maximum Contingent None 5.50+ 1.00%#
Deferred Sales
Charge**
Conversion Feature No Yes++ No
* Class A Shares are sold at NAV, plus a sales charge as follows:
SALES CHARGE DEALER
AS A PERCENTAGE OF CONCESSION AS
PUBLIC NET A PERCENTAGE OF
OFFERING AMOUNT PUBLIC OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
+ The following contingent deferred sales charge schedule applies to Class B
Shares:
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
++ Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase. See "Conversion of Class
B Shares."
# The contingent deferred sales charge is assessed on Shares redeemed within one
year of their purchase date.
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors ("Federated Funds") may exchange their Shares
for Shares of the corresponding class of the Fund. The Fund reserves the right
to reject any purchase or exchange request.
In connection with any sale Federated Securities Corp., may, from time to time,
offer certain items of nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge additional fees for their services.
The financial intermediary which maintain investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial intermediaries may be subject to reclaim by the
distributor for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention: EDGEWIRE: For Credit
to: (Fund Name) (Fund Class); (Fund Number - this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds in a minimum amount of $50 may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund. Shareholders should
contact their financial institution or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
CLASS A SHARES
Class A Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:
* through financial intermediaries that do not receive sales charge
dealer concessions;
* by Federated Life Members; or
* through "wrap accounts" or similar programs under which clients pay a fee
for services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
* purchasing in quantity and accumulating purchases at the levels in the
table under "Investing in the Fund";
* combining concurrent purchases of two or more funds; * signing a letter of
intent to purchase a specific quantity of shares
within 13 months; or
* using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end. The sales
charge for Shares sold other than through registered broker/dealers will be
retained by Federated Securities Corp. Federated Securities Corp. may pay fees
to banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
establishment of customer accounts and purchases of Shares.
CLASS B SHARES
Class B Shares are sold at NAV. Under certain circumstances, a contingent
deferred sales charge will be assessed at the time of a redemption. Orders for
$250,000 or more of Class B Shares will automatically be invested in Class A
Shares.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares after eight full
years from the purchase date. Such conversion will be on the basis of the
relative NAVs per Share, without the imposition of any charges. Class B Shares
acquired by exchange from Class B Shares of another Federated Fund will convert
into Class A Shares based on the time of the initial purchase.
CLASS C SHARES
Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Shares of the same
class of other Federated Funds on days on which the Fund computes its NAV.
Shares are redeemed at NAV less any applicable contingent deferred sales charge.
Redemption proceeds will normally be sent the following day. However, in order
to protect shareholders of the Fund from possible detrimental effects of
redemptions, the Adviser may cause a delay of two to seven days in sending
redemption proceeds during certain periods of market volatility or for certain
shareholders. Exchanges are made at NAV. Shareholders who desire to
automatically exchange Shares, of a like class, in a pre-determined amount on a
monthly, quarterly, or annual basis may take advantage of a systematic exchange
privilege. Information on this privilege is available from the Fund or your
financial intermediary. Depending upon the circumstances, a capital gain or loss
may be realized when Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions to
be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern
time), while broker/dealers must transmit the request to the Fund before 5:00
p.m. (Eastern time). The financial intermediary is responsible for promptly
submitting transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial intermediary for
this service. Appropriate authorization forms for these transactions must be on
file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these
transactions must be on file with the Fund. Shares held in certificate form must
first be returned to the Fund as described in the instructions under "Redeeming
or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the
form of a check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming or Exchanging Shares by Mail" should be considered. The
telephone transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a written request
to: Federated Shareholder Services Company, Fund Name, Fund Class, P.O. Box
8600, Boston, MA 02266-8600. If share certificates have been issued, they must
accompany the written request. It is recommended that certificates be sent
unendorsed by registered or certified mail.
All written requests should state: Fund Name and the Share Class name; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to be
made. All owners of the account must sign the request exactly as the Shares are
registered. Dividends are paid up to and including the day that a redemption or
exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having an NAV equal to the minimum investment
requirements of the fund into which the exchange is being made. Contact your
financial intermediary directly or the Fund for free information on and
prospectuses for the Federated Funds into which your Shares may be exchanged.
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made.
Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
shares of the other fund. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder of not less than $100. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000, other than retirement accounts subject to required
minimum distributions. A shareholder may apply for participation in this program
through his financial intermediary or by calling the Fund.
Because participation in this program may reduce, and eventually deplete the
shareholder's investment in the Fund, payments under this program should not be
considered as yield or income. It is not advisable for shareholders to continue
to purchase Class A Shares subject to a sales charge while participating in this
program. A contingent deferred sales charge may be imposed on Class B and C
Shares.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. Redemptions will be processed in a manner intended to maximize the
amount of redemption which will not be subject to a contingent deferred sales
charge. The contingent deferred sales charge will not be imposed with respect to
Shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares received
through an exchange will include the period for which your original Shares were
held.
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer
agent, no contingent deferred sales charge will be imposed on redemptions:
* following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 701o2;
* which are involuntary redemptions of shareholder accounts that do not
comply with the minimum balance requirements;
* which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
* which are reinvested in the Fund under the reinvestment privilege; * of
Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and
* of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, or
any other financial intermediary, to the extent that no payments were
advanced for purchases made through such entities.
For more information regarding the elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program, or any of the above provisions,
contact your financial intermediary or the Fund. The Fund reserves the right to
discontinue or modify these provisions. Shareholders will be notified of such
action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum investment
amount. Retirement plan accounts and accounts where the balance falls below the
minimum due to NAV changes will not be closed in this manner. Before an account
is closed, the shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
INTERNATIONAL SERIES, INC. INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Corporation's powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research Corp.,
the Fund's investment adviser, subject to direction by the Board of Directors.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.75% the Fund's
average daily net assets. The fees paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by many mutual funds with similar objectives and policies. The Adviser may
voluntarily waive a portion of its fees. The Adviser can terminate this
voluntary waiver at any time at its sole discretion.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors. Federated Global Research Corp. and other subsidiaries
of Federated Investors serve as investment advisers to a number of investment
companies and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With over $120
billion invested across more than 300 funds under management and/or
administration by its subsidiaries, as of December 31, 1997, 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 management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. Both the Corporation and
the Adviser have adopted strict codes of ethics governing the conduct of all
employees who manage the Fund and its portfolio securities. These codes
recognize that such persons owe a fiduciary duty to the Fund's shareholders and
must place the interests of shareholders ahead of the employees' own interest.
Among other things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in securities
being purchased or sold, or being considered for purchase or sale, by the Fund;
prohibit purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of these codes
are subject to review by the Board of Directors, and could result in severe
penalties.
Henry A. Frantzen has been the Fund's portfolio manager since December 1995.
Mr. Frantzen joined Federated Investors in 1995 as an Executive Vice
President of the Fund's investment adviser. Mr. Frantzen served as Chief
Investment Officer of international equities at Brown Brothers Harriman &
Co. from 1992 to 1995. He was the Executive Vice President and Director of
Equities at Oppenheimer Management Corporation from 1989 to 1991.
Drew J. Collins has been the Fund's portfolio manager since December 1995.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President of
the Fund's investment adviser. Mr. Collins served as a Vice
President/Portfolio Manager of international equity portfolios at Arnhold
and Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant Vice
President/ Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the Wharton School
of The University of Pennsylvania.
Robert M. Kowit has been the Fund's portfolio manager since December 1995.
Mr. Kowit joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Mr. Kowit served as a Managing Partner of
Copernicus Global Asset Management from January 1995 through October 1995.
From 1990 to 1994, he served as Senior Vice President of International Fixed
Income and Foreign Exchange for John Hancock Advisers. Mr. Kowit received
his M.B.A. from Iona College with a concentration in finance.
Michael W. Casey, Ph.D. has been the Fund's portfolio manager since January
1997. Mr. Casey joined Federated Investors in 1996 as an Assistant Vice
President. Mr. Casey served as an International Economist and Portfolio
Strategist for Maria Fiorini Ramirez Inc. from 1990 to 1996. Mr. Casey
earned a Ph.D. concentrating in economics from The New School for Social
Research and a M.Sc. from the London School of Economics.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
The distributor will pay dealers an amount equal to 5.50% of the net asset vale
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
The distributor may offer to pay financial institutions an amount up to 1.00% of
the NAV of Class C Shares purchased by their clients or customers at the time of
purchase. These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee computed at
an annual rate of up to 0.25% of the average daily net assets for Class A Shares
and up to 0.75% of the average daily net assets for Class B Shares and Class C
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. For Class A Shares and Class C
Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor may
not exceed an annual rate of 0.75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales service and distribution-related support services
pursuant to the Distribution Plan. The Distribution Plan is a compensation
type plan. As such, the Fund makes no payments to the distributor except as
described above. Therefore, the Fund does not pay for unreimbursed expenses of
the distributor, including amounts expended by the distributor in excess of
amounts received by it from the Fund, interest, carrying or other financing
charges in connection with excess amounts expended, or the distributor's
overhead expenses. However, the distributor may be able to recover such amounts
or may earn a profit from payments made by Shares under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily NAV of Class A
Shares, Class B Shares, and Class C Shares to obtain certain personal services
for shareholders and for the maintenance of shareholder accounts. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS Federated Securities Corp. will pay financial
institutions, at the time of purchase of Class A Shares, an amount equal to
0.50% of the NAV of Class A Shares purchased by their clients or customers under
certain qualified retirement plans as approved by Federated Securities Corp.
(Such payments are subject to a reclaim from the financial institution should
the assets leave the program within 12 months after purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
in addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the 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 the distributor may be reimbursed by the Adviser or its
affiliates. ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Corporation and the Fund. Federated
Services Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Corporation have equal voting rights, except that in matters
affecting only a particular portfolio or class, only Shares of that portfolio or
class are entitled to vote.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
As of January 7, 1998, the following shareholder of record owned 25% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
for the sole benefit of its customers, (as record owner holding Class C Shares
for its clients), owned approximately 207,079 Shares (27.57%) and, therefore,
may for certain purposes, be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders. TAX
INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Code, as amended, applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Corporation's other
portfolios, if any, will not be combined for tax purposes with those realized by
the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
Quarterly distributions from the Fund are based on estimates of book income for
the year. Tax basis income includes gains or losses attributable to currency
fluctuation, whereas book income generally consists solely of the coupon income
generated by the portfolio. Due to differences in the book and tax treatment of
fixed incomes securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
Shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code, as
amended, may limit a shareholder's ability to claim a foreign tax credit.
Furthermore, shareholders who elect to deduct their portion of the Fund's
foreign taxes rather than take the foreign tax credit must itemize deductions on
their income tax returns.
STATE AND LOCAL TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises the total return and yield for each class
of Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net investment
income per Share (as defined by the SEC) earned by each class of Shares over a
thirty-day period by the maximum offering price per Share of each class of
Shares on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by each class of Shares and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge and contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Expense differences between Class A Shares, Class B
Shares and Class C Shares may affect the performance of each class. From
time to time, advertisements for Class A Shares, Class B Shares, and Class C
Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
FEDERATED INTERNATIONAL INCOME FUND
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Global Research Corp.
175 Water Street
New York, NY 10038-4965
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222
[Graphic]
Federated International Income Fund
(A Portfolio of International Series, Inc.)
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS
JANUARY 31, 1998
A Non-Diversified Portfolio of International Series, Inc., an Open-End
Management Investment Company
[Graphic]
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 46031P100
Cusip 46031P506
Cusip 46031P209
G00494-02-ABC (1/98)
FEDERATED INTERNATIONAL INCOME FUND
(A PORTFOLIO OF INTERNATIONAL SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Federated International Income Fund (the "Fund"), a portfolio of International
Series, Inc. (the "Corporation") dated January 31, 1998. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement of Additional Information, if you have received it electronically,
free of charge by calling 1-800-341-7400.
INTERNATIONAL SERIES, INC.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated January 31, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 46031P100
Cusip 46031P506
Cusip 46031P209
1051602B (1/98)
[Graphic]
Table of Contents
GENERAL INFORMATION ABOUT THE FUND 1 INVESTMENT OBJECTIVE AND POLICIES 1 Types
of Investments and Investment Techniques 1 Regulatory Restrictions 5
When-Issued and Delayed Delivery Transactions 6 Repurchase Agreements 6 Reverse
Repurchase Agreements 6 Lending Portfolio Securities 6 Restricted and Illiquid
Securities 6 Duration 6 Additional Risk Considerations 7 Investing in
Securities of Other Investment Companies 7 Portfolio Turnover 7 INVESTMENT
LIMITATIONS 7 Acquiring Securities 7 Concentration of Investments 7 Borrowing 7
Pledging Securities 7 Buying on Margin 7 Issuing Senior Securities 8
Underwriting 8 Investing in Real Estate 8 Investing in Commodities 8 Lending
Cash or Securities 8 Investing in Minerals 8 Dealing in Puts and Calls 8
Selling Short 8 Purchasing Securities to Exercise Control 8 Investing in
Illiquid Securities 8 INTERNATIONAL SERIES, INC. MANAGEMENT 9 Fund Ownership 12
Directors' Compensation 13 INVESTMENT ADVISORY SERVICES 13 Adviser to the Fund
13 Advisory Fees 13 BROKERAGE TRANSACTIONS 14 OTHER SERVICES 14 Fund
Administration 14 Custodian and Portfolio Accountant 14 Transfer Agent 14
Independent Public Accountants 14 PURCHASING SHARES 14 Quantity Discounts and
Accumulated Purchases 15 Concurrent Purchases 15 Letter of Intent 15
Reinvestment Privilege 15 Conversion of Class B Shares 15 DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES 16 Conversion to Federal Funds 16 Purchases by Sales
Representatives, Fund Directors, and Employees16 DETERMINING NET ASSET VALUE 17
Determining Market Value of Securities 17 Trading in Foreign Securities 17
REDEEMING SHARES 17 Redemption in Kind 17 Contingent Deferred Sales Charge 18
TAX STATUS 18 The Fund's Tax Status 18 Foreign Taxes 18 Shareholders' Tax
Status 18 Capital Gains 18 TOTAL RETURN 19 YIELD 19 PERFORMANCE COMPARISONS 19
Economic and Market Information 20 ABOUT FEDERATED INVESTORS 20 Mutual Fund
Market 21 FINANCIAL STATEMENTS 21 APPENDIX 22
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in International Series, Inc. (the "Corporation"), which
was established as FT International Trust, a Massachusetts business trust, under
a Declaration of Trust dated March 9, 1984, and reorganized as a corporation
under the laws of the state of Maryland on February 11, 1991. At a special
meeting of shareholders held on March 15, 1994, the shareholders of the
Corporation approved an amendment to the Articles of Incorporation to change the
name of the Corporation from FT Series, Inc., to International Series, Inc.
Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Statement of Additional Information
relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to seek a high level of current income in
U.S. dollars consistent with prudent investment risk. The Fund has a secondary
objective of capital appreciation. The investment objectives of the Fund cannot
be changed without the approval of the shareholders.
TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
GENERAL
The Fund will invest primarily in high-quality debt securities denominated in
foreign currencies in accordance with the Fund's investment objectives and
policies. The Fund intends to engage in forward contracts, futures and options
transactions whenever it appears to Federated Global Research Corp., the Fund's
investment adviser (the "Adviser") (a) to be advantageous to do so in pursuing
the Fund's investment objectives; (b) to hedge (i.e., protect) against foreign
currency and interest rate risks; and (c) to stabilize the value of the Fund's
assets. The Fund will not engage in such transactions for speculation. Up to 10%
of the Fund's total assets may be invested at any one time in commercial paper,
certificates of deposit, or repurchase agreements. The use of forward contracts,
futures and options, and the attendant benefits and possible risks of such
transactions, are discussed below along with certain other investment
information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in order to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. However, forward foreign currency exchange contracts may
limit potential gains which could result from a positive change in such currency
relationships. The Adviser believes that it is important to have the flexibility
to enter into forward foreign currency exchange contracts whenever it determines
that it is in the Fund's best interest to do so. The Fund will not speculate in
foreign currency exchange.
There is no limitation as to the percentage of the Fund's assets that may be
committed to such contracts. The Fund does not enter into forward foreign
currency exchange contracts or maintain a net exposure in such contracts when
the Fund would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's portfolio securities or other assets denominated in
that currency or, in the case of a "cross-hedge" denominated in a currency or
currencies that the Adviser believes will tend to be closely correlated with
that currency with regard to price movements. Generally, the Fund does not enter
into a forward foreign currency exchange contract with a term longer than one
year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy or
sell a stated amount of foreign currency at the exercise price on a specified
date or during the option period. The owner of a call option has the right, but
not the obligation, to buy the currency. Conversely, the owner of a put option
has the right, but not the obligation to sell the currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the seller or
the buyer may, in the secondary market, close its position during the option
period at any time prior to expiration.
A call option on foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on foreign currency generally
falls in value if the underlying currency depreciates in value. Although
purchasing a foreign currency option can protect the Fund against an adverse
movement in the value of a foreign currency, the option will not limit the
movement in the value of such currency. For example, if the Fund were holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the Fund would not have to exercise its put option. Likewise, if the
Fund were to enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of purchase and
the settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed for
settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same risks
that apply to options generally. In addition, there are certain additional risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market. Although the Fund will not purchase or write such options unless and
until, in the opinion of the Adviser, the market for them has developed
sufficiently to ensure that the risks in connection with such options are not
greater than the risks in connection with the underlying currency, there can be
no assurance that a liquid secondary market will exist for a particular option
at any specific time.
In addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar. As a result, the price of the option
position may vary with changes in the value of either or both currencies and may
have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.
less than $1 million) where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market subject to significant
price and rate movements.
FUTURES CONTRACTS
The Fund may enter into contracts for the future delivery of a financial
instrument such as an amount of foreign currency, a security, or the cash value
of a securities index during a specified future period at a specified price.
This investment technique is designed primarily to hedge against anticipated
future changes in foreign exchange rates, interest rates, or market conditions,
all of which might otherwise have an adverse effect upon the value of securities
or other assets which the Fund holds or intends to purchase. A "sale" of a
futures contract means the undertaking of a contractual obligation to deliver
the underlying foreign currency, security, or cash value of a securities index
called for by the contract at a specified price during a specified delivery
period. A "purchase" of a futures contract means the undertaking of a
contractual obligation to acquire the underlying foreign currency, security, or
cash value of a securities index at a specified price during a specified
delivery period. At the time of delivery, in the case of fixed-income securities
pursuant to the contract, adjustments are made to recognize differences in value
resulting from the delivery of securities with a different interest rate than
the rate specified in the contract. In some cases, securities called for by a
futures contract may not have been issued at the time the contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of assets, in most cases a party will close out the contractual
commitment before delivery without having to make or take delivery of the
underlying assets by purchasing (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, if effected through a member of an exchange,
cancels the obligation to make or take delivery of the underlying assets. All
transactions in the futures market are made, offset, or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded.
Brokerage fees will be incurred by the Fund when it purchases or sells
contracts, and the Fund will be required to maintain margin deposits. At the
time the Fund enters into a futures contract, it is required to deposit with its
custodian, on behalf of the broker, a specified amount of cash or eligible
securities, called "initial margin." The initial margin required for a futures
contract is set by the exchange on which the contract is traded. Subsequent
payments, which are called "variation margin," to and from the broker are made
on a daily basis as the market price of the futures contract fluctuates. The
costs incurred in connection with futures transactions could reduce the Fund's
return.
Futures contracts entail risks. If the Adviser's judgment about the general
direction of interest rates, markets, or exchange rates is wrong, the overall
performance may be poorer than if no such contracts had been entered into. An
imperfect correlation may exist between movements in the prices of futures
contracts and portfolio assets being hedged. Further, the market prices of
futures contracts may be affected by certain factors. For example, the normal
relationship between the assets and futures markets could be distorted if
participants in the futures market were to elect to close out their contracts
through offsetting transactions rather than by meeting margin requirements.
Price distortions also could result if investors in futures contracts were to
decide to make or take delivery of underlying assets rather than engaging in
closing transactions because of the resultant liquidity of the futures market.
Further, increased participation by speculators in the futures market could
cause temporary price distortions because, as perceived by speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Because of the possibility of price distortions in the futures
market and the imperfect correlation between movements in the prices of
securities or other assets and movements in the prices of futures contracts, a
correct forecast of market trends by the Adviser still may not result in a
successful hedging transaction. If one of these events were to occur, the Fund
could lose money on the futures contracts as well as on its portfolio assets.
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write call and put options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract at a specified price at
any time during the period of the option. When the option is exercised, the
writer of the option delivers the futures contract to the holder at the exercise
price. With regard to put and call options on futures contracts written by the
Fund, the Fund would be required to deposit initial and maintenance margin with
the custodian. Options on futures contracts involve risks similar to those
discussed above that relate to transactions in futures contracts. Furthermore,
an option on a futures contract purchased by the Fund may expire worthless,
which would cause the Fund to lose the premium paid for the option.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts, the
Fund may be able to achieve many of the same objectives as it would through the
use of forward foreign currency exchange contracts. The Fund may be able to
achieve these objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to the same
risks that apply to the use of futures generally. In addition, there are risks
associated with foreign currency futures contracts and their use as a hedging
device similar to those associated with options on foreign currencies, as
described above.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Adviser's opinion, the market for such options has developed
sufficiently that the risks in connection with such options are not greater than
the risks in connection with transactions in the underlying foreign currency
futures contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss, such as when there is no movement in the price of the
underlying currency or futures contract.
OPTIONS ON SECURITIES
The Fund may write (sell) covered call options on securities if it owns
securities that are acceptable for escrow purposes. Additionally, the Fund may
write secured put options on securities. When writing a secured put option, the
Fund will invest an amount not less than the exercise price of the put option in
eligible securities, so long as the Fund is obligated as a writer of a put
option. A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during the
option period. A put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying security at the exercise price
during the option period. The premium received for writing an option will
reflect such factors as the current market price of the underlying security, the
relationship of the exercise price to such market price, the option period,
supply and demand, and interest rates. The exercise price of an option may be
below, equal to, or above the current market value of the underlying security at
the time that the option is written. The Fund may also write or purchase spread
options. A spread option is an option for which the exercise price may be a
fixed dollar spread or yield spread between the security underlying the option
and another security that it does not own but uses as a bench mark.
The purchase of a put option by the owner of the related security protects the
purchaser against any decline in the related security's price below the exercise
price (less the amount paid for the option). The ability of the Fund to purchase
put options allows it to protect capital gains in an appreciated security
without actually requiring the Fund to sell the appreciated security. On
occasion, the Fund would like to establish a position in a security upon which
call options are available. The purchase of a call option enables the Fund to
fix the cost of acquiring the security, which would be the cost of the call plus
the exercise price of the option. In addition, this method of acquiring
securities provides some protection from an unexpected downturn in the market.
This is because the Fund is at risk only for the amount of the premium paid for
the call option, which it can let lapse if it so chooses.
During the option period, the covered call writer gives up the potential for
capital appreciation above the exercise price if the underlying asset rises in
value, and the secured put writer retains the risk of loss if the underlying
asset declines in value. For the covered call writer, substantial appreciation
in the value of the underlying asset would result in the asset being "called
away." For the secured put writer, substantial depreciation in the value of the
underlying asset could result in the asset being "put to" the writer. If a
covered call option expired unexercised, the writer of the call would realize a
gain and the buyer would realize a loss in the amount of the premium. If the
covered call option writer had to sell the underlying asset because of the
exercise of the call option, it would realize a gain or loss from the sale of
the underlying asset, with the proceeds being increased by the amount of the
premium.
If a secured put option expired unexercised, the writer would realize a gain and
the buyer would realize a loss on the amount of the premium. If the secured put
writer would have to buy the underlying asset because of the exercise of the put
option, the writer would incur an unrealized loss to the extent that the current
market value of the underlying asset is less than the exercise price of the put
option, less the premium received.
OVER-THE-COUNTER OPTIONS
The Fund may deal in over-the-counter traded options ("OTC options") in addition
to exchange-traded options. OTC options differ from exchange-traded options in
several respects. First, they are transacted with dealers rather than a clearing
corporation. Second, a risk of nonperformance by the dealer exists, whether as a
result of the insolvency of the dealer or otherwise, which could cause the Fund
to experience material losses; however, in writing OTC options, the premium is
paid in advance by the dealer. Third, in contrast to exchange traded options,
OTC options are available for a greater variety of securities and wider range of
expiration dates and exercise prices. Because there is no exchange in the case
of OTC options, pricing is normally done with reference to information from
market makers, which is carefully monitored by the Fund's investment adviser and
verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there cannot
be any assurance that a continuous liquid secondary market will exist for any
particular option at any given time. As a result, the Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or by
entering into a closing sale transaction with the dealer that issued it.
Likewise, in cases where the Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to whom the Fund wrote the option. If a covered call
option writer is unable to effect a closing transaction, it cannot sell the
underlying asset until the option either expires or is exercised. Thus, a
covered call option writer of an OTC option may not be able to sell an
underlying asset even though it might otherwise be advantageous to do so.
Moreover, a secured put writer of an OTC option may be unable to sell the assets
pledged to secure the put for other investment purposes so long as it is
obligated as a put writer, and a purchaser of the put or call option might also
find it difficult to terminate its position on a timely basis when no secondary
market exists.
OPTIONS ON SECURITIES INDICES
The Fund also may purchase and write call and put options on securities indices
in order to hedge against market conditions which affect the values of
securities that the Fund owns or intends to purchase. The Fund will not purchase
and write such options for speculation. By writing and purchasing index options,
the Fund may be able to achieve many of the same objectives as through the
purchasing and writing of options on individual securities. Options on
securities indices are similar to options on individual securities. However,
unlike an option on an individual security, which gives the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder, upon exercise, the right to receive an amount of cash if
the closing level of the securities index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option. Upon exercise of the option, the amount of cash
received by the holder is equal to the difference between the closing price of
the index and the exercise price of the option. In consideration for the premium
received, the writer of the option has an obligation to make delivery of the
amount of cash resulting from the exercise of the option. Unlike options on
individual securities, all settlements are in cash, and the gain or loss depends
upon price movements in the market generally or in a segment of the market,
rather than upon price movements in individual securities.
The Fund covers call options written on a securities index through the ownership
of securities whose changes in price, in the opinion of the Adviser, are
anticipated to be similar to the price changes of the index, or in such other
manner or may be in conformance with applicable laws, regulations, and exchange
rules. Any changes in the prices of the securities owned by the Fund probably
will not be perfectly correlated with the securities index. The Fund will secure
put options written on a securities index by means of segregating liquid
high-grade securities equal to the exercise price, or in such other manner as
may be in conformance with applicable laws, regulations, and exchange rules.
Upon writing an option on a securities index, the Fund will be required to
deposit with its custodian and mark to market, eligible securities that are
equal in value to at least 100% of the exercise price in the case of a put or,
in the case of a call, the value of the contract. Additionally, if the Fund
writes a call option on a securities index at a time when the value of the
contract is greater than the exercise price, the Fund will segregate and mark to
market, until such time as the option expires or is closed out, cash or a cash
equivalent equal in value to the excess of the contract value.
In addition, the Fund may purchase and write options on other appropriate
indices, as available (e.g., foreign currency indices).
Index options involve risks similar to those associated with transactions in
futures contracts, as described above. Also, an option purchased by the Fund may
expire worthless. In such case, the Fund could lose the premium paid for the
option.
REGULATORY RESTRICTIONS
To the extent required to comply with Securities and Exchange Commission ("SEC")
Release No. 10666, when purchasing a futures contract, writing a put option, or
entering into a delayed delivery purchase or forward foreign currency exchange
purchase, the Fund will establish and maintain a segregated account consisting
of cash or liquid high-grade securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid status as a "commodity pool operator," the Fund
will not enter into a futures contract, or purchase an option thereon, if
immediately thereafter the initial margin deposits for futures contracts held by
the Fund, plus premiums paid by it for open options of futures, would exceed 5%
of the total assets of the Fund. The Fund will not engage in transactions in
futures contracts or options thereon for speculation, but only to attempt to
hedge against changes in market conditions affecting the values of assets which
the Fund holds or intends to purchase.
When futures contracts or options thereon are purchased in order to protect
against a price increase on securities or other assets intended to be purchased
later, it is anticipated that at least 75% of such intended purchases will be
completed. When other futures contracts or options thereon are purchased, the
underlying value of such contracts will at all times not exceed the sum of (1)
accrued profit on such contracts held by the broker; (2) cash or high-quality
money market instruments set aside in an identifiable manner; and (3) cash
proceeds from investments due in 30 days or less.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Corporation's Board of
Directors (the "Directors").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure that the
Fund will be able to avoid selling portfolio instruments at a disadvantageous
time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These assets are marked
to market daily and maintained until the transaction is settled.
LENDING PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under an SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act of 1933. The Directors consider
the following criteria in determining the liquidity of certain restricted
securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealers' undertakings to make a market in the security; and * the nature of
the security and the nature of the marketplace trades.
DURATION
Duration is a measure of a debt security's price sensitivity expressed in years
and is a measure of the interest-rate risk of a debt security, taking into
consideration that there may be cash flows before the maturity date and that the
cash flows must be considered in terms of their present value. Duration is
similar to, but more precise than, average life. It is a measure of the number
of years until the average dollarin present value termsis received from coupon
and principal payments. As such, it is one measure of systematic risk. Average
life, on the other hand, is a measure of the time to receive a dollar of
principalit takes into consideration neither interest payments nor present
value. Duration is computed by multiplying each principal and interest payment
by its present value, summing these products, and dividing the sum by the full
price of the debt security. When a Fund invests in mortgage pass-through
securities, its duration will be calculated in a manner which requires
assumptions to be made regarding future principal prepayments. A more complete
description of this calculation is available upon request from the Fund.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith, or gross negligence on the part of the Adviser, any losses resulting from
the holding of the Funds' portfolio securities in foreign countries and/or with
securities depositories will be at the risk of shareholders. No assurance can be
given that the Directors' appraisal of the risks will always be correct or that
such exchange control restrictions or political acts of foreign governments
might not occur.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objectives, without regard to the length of time a particular security may have
been held. The Adviser does not anticipate that portfolio turnover will result
in adverse tax consequences. For the fiscal years ended November 30, 1997 and
1996, the portfolio turnover rates were 67% and 92%, respectively.
INVESTMENT LIMITATIONS
ACQUIRING SECURITIES
The Fund will not acquire any securities of Fiduciary Trust Company
International or its affiliates.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of its total assets in securities of any
one government or supranational issuer.
BORROWING
The Fund will not borrow money except from banks or through reverse repurchase
agreements as a temporary measure for extraordinary or emergency purposes and
then only in amounts up to one-third of the value of its total assets, including
the amount borrowed, but entering into futures contracts shall not be considered
borrowing. This borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities would be inconvenient or
disadvantageous. The Fund will not purchase securities while outstanding
borrowings exceed 5% of the value of its total assets.
PLEDGING SECURITIES
The Fund will not mortgage, pledge, or hypothecate securities, except when
necessary for permissible borrowings. In those cases, it may pledge assets
having a value of 15% of its assets taken at cost. For purposes of the
limitation, (a) the deposit of assets in escrow in connection with the writing
of covered call and secured put options, and (b) collateral arrangements with
respect to (i) the purchase and sale of options and (ii) initial or variation
margins for futures contracts, will not be deemed to be pledges of the Fund's
assets.
BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for clearance of purchases and sales of
securities, and except that the Fund may make margin deposits or payments in
connection with its use of options, futures contracts, and options on futures
contracts.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except in connection with transactions
described in other investment limitations or as required by forward commitments
to purchase securities or currencies.
UNDERWRITING
The Fund will not underwrite or participate in the marketing of securities of
other issuers, except as it may be deemed to be an underwriter under federal
securities law in connection with the disposition of its portfolio securities.
INVESTING IN REAL ESTATE
The Fund will not invest in real estate, including limited partnership
interests, although it may invest in securities secured by real estate or
interests in real estate or issued by companies, including real estate
investment trusts, which invest in real estate or interests therein.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities or commodity contracts, except
that the Fund may purchase or sell futures contracts and options thereon,
provided that the sum of its initial margin deposits on open contracts will not
exceed 5% of the fair market value of the Fund's net assets. Further, the Fund
may engage in transactions in foreign currencies and may purchase and sell
options on foreign currencies and indices for hedging purposes.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. This shall not
prevent the purchase or holding of bonds, debentures, notes, certificates of
indebtedness, or other debt securities of an issuer, repurchase agreements, or
other transactions which are permitted by the Fund's investment objective and
policies or its Articles of Incorporation.
INVESTING IN MINERALS
The Fund will not invest in interests in oil, gas, or other mineral exploration
or development programs or leases.
DEALING IN PUTS AND CALLS
The Fund may not write or purchase options, except that the Fund may write
covered call options and secured put options on up to 25% of its net assets and
may purchase put and call options, provided that no more than 5% of its net
assets may be invested in premiums of such options.
SELLING SHORT
The Fund will not sell securities short unless (1) it owns, or has a right to
acquire, an equal amount of such securities, or (2) it has segregated an amount
of its other assets equal to the lesser of the market value of the securities
sold short or the amount required to acquire such securities. The segregated
amount will not exceed 10% of the Fund's net assets. While in a short position,
the Fund will retain the securities, rights, or segregated assets.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Except as noted, shareholders will be
notified before any material change in these limitations becomes effective.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of exercising
control or management.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including certain restricted securities not determined to
be liquid under criteria established by the Directors, repurchase agreements
with maturities longer than seven days after notice, and certain
over-the-counter options.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money, invest in reverse repurchase agreements, pledge
securities in excess of 5% of the value of its total assets, or sell securities
short in an amount exceeding 5% of its net assets during the past year and does
not anticipate doing so during the current fiscal year.
INTERNATIONAL SERIES, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with International Series, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member
of Executive Committee, University of Pittsburgh; Director or Trustee of the
Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation;
President Emeritus, University of Pittsburgh; Founding Chairman, National
Advisory Council for Environmental Policy and Technology, Federal Emergency
Management Advisory Board and Czech Management Center, Prague; Director or
Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp., and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of some
of the Funds; President, Executive Vice President and Treasurer of some of
the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board between meetings of the
Board. As used in the table above, "The Funds" and "Funds" mean the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Obligations Trust II; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; Trust
for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; WCT Funds; and World Investment Series, Inc. FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares. As
of January 7, 1998, the following shareholders of record owned 5% or more of the
outstanding Class A Shares of the Fund: Jato, Minneapolis, Minnesota owned
approximately 2,299,623 (14.14%); Lacross & Co., Lacrosse, Wisconsin owned
approximately 2,229,467 (13.71%); Charles Schwab & Co., Inc., San Francisco,
California owned approximately 1,463,373 (9.00%); and Hawaiian Trust Company
Ltd., Honolulu, Hawaii owned approximately 1,097,328 (6.75%).
As of January 7, 1998, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 93,016 (7.85%).
As of January 7, 1998, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 207,079 (27.57%).
DIRECTORS' COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
John F. Donahue $0 $0 for the Corporation and
Chairman and Director 56 other investment companies in
the Fund Complex
Thomas G. Bigley $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
John T. Conroy, Jr. $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
William J. Copeland $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
James E. Dowd $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $1,449 $122,362 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Peter E. Madden $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
John E. Murray, Jr. $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Wesley W. Posvar $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $1,317 $111,222 for the Corporation and
Director 56 other investment companies in
the Fund Complex
* Information is furnished for the fiscal year ended November 30, 1997.
# The aggregate compensation is provided for the Corporation which is
comprised of two portfolios.
+ The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. It is a
subsidiary of Federated Investors. All the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund, the Corporation, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30, 1997,
1996, and for the period from September 1, 1995 to November 30, 1995, the
Adviser received $1,615,465, $1,476,050, and $353,494, respectively, none of
which were voluntarily waived. For the period from December 1, 1994 to August
31, 1995, Federated Management, the Fund's former investment adviser received
$1,105,820, none of which was voluntarily waived. BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Directors. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. For the fiscal years
ended November 30, 1997, 1996, and 1995, the Fund did not pay any brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
administrator. Both former administrators are subsidiaries of Federated
Investors. For purposes of the Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to as
the "Administrators." For the fiscal years ended November 30, 1997, 1996,
and 1995, the Administrators earned $185,000, $184,998, and $271,797,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value, plus a sales charge (for Class A Shares only), on days
the New York Stock Exchange ("NYSE") is open for business. The procedure for
purchasing Shares is explained in the prospectus under "How to Purchase Shares."
For further information on any of the programs listed below, please contact you
financial intermediary or Federated Securities Corp.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectus, larger purchases of the same Share class reduce
or eliminate the sales charge paid. For example, the Fund will combine all Class
A Shares purchases made on the same day, by the investor, the investor's spouse,
and the investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase into the same Share class is made, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares having a current value at the public
offering price of $90,000 and he purchases $10,000 more at the current public
offering price, the sales charge on the additional purchase, according to the
schedule now in effect, would be 3.75%, not 4.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce or eliminate the sales charge
after it confirms the purchases.
CONCURRENT PURCHASES
Shareholders have the privilege of combined concurrent purchases of the same
Share class of two or more funds in the Federated Complex in calculating the
applicable sales charge.
To receive a sales charge reduction of elimination, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial intermediary
at the time the concurrent purchases are made. The Fund will reduce or eliminate
the sales charge after it confirms the purchases.
LETTER OF INTENT
A shareholder can sign a letter of intent committing to purchase a certain
amount of the same Share class within a 13-month period in order to combine such
purchases in calculating the applicable sales charge. The Fund's custodian will
hold Shares in escrow equal to the maximum applicable sales charge. If the
shareholder completes the commitment, the escrowed Shares will be released to
their account. If the commitment is not completed within 13 months, the
custodian will redeem an appropriate number of escrowed Shares to pay for the
applicable sales charge.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Funds, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted.
REINVESTMENT PRIVILEGE
The reinvestment privilege is available for all Shares of the Fund within the
same Share class.
Class A shareholders who redeem from the Fund may reinvest the redemption
proceeds back into the same Share class at the next determined net asset value
without any sales charge. The original shares must have been subject to a sales
charge and the reinvestment must be within 120 days.
Similarly, Class C shareholders who redeem may reinvest their redemption
proceeds in the same Share class within 120 days. Class B Shares also may be
reinvested within 120 days of redemption, although such reinvestment will be
made into Class A Shares. Shareholders would not be entitled to a reimbursement
of the contingent deferred sales charge if paid at the time of redemption on any
Share class. However, reinvested Shares would not be subject to a contingent
deferred sales charge, if otherwise applicable, upon later redemption.
In addition, if Shares were reinvested through a financial intermediary, the
financial intermediary would not be entitled to an advanced payment from
Federated Securities Corp. on the reinvested Shares, if otherwise applicable.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial intermediary of the reinvestment in order to eliminate a sales
charge or a contingent deferred sales charge. If the shareholder redeems Shares
in the Fund, there may be tax consequences.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
15th of the month eight full years from the purchase date and will no longer be
subject to a fee under the distribution plan. For purposes of conversion to
Class A Shares, Shares purchased through the reinvestment of dividends and
distributions paid on Class B Shares will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account will also convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversions will not constitute taxable events for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B Shares to Class A Shares will not
occur if such a ruling or opinion is not available. In such event, Class B
Shares would continue to be subject to higher expenses than Class A Shares for
an indefinite period.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities may include, but are not limited to, marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objective. By identifying potential
investors whose needs are served by the Fund's objective, and properly servicing
these accounts, it may be possible to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1997, the Class A Shares, Class B Shares,
and Class C Shares incurred $479,089, $80,964, and $97,233, respectively, in
distribution services fees, of which $311,106, $0, and $0, respectively were
waived. In addition, for the fiscal year ended November 30, 1997, the Class A
Shares, Class B Shares, and Class C Shares, paid shareholder services fees in
the amount of $479,089, $26,988, and $32,411, respectively, of which $186,763,
$0, and $0, respectively, were waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds. PURCHASES BY SALES
REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
The following individuals and their immediate family members may buy Class A
Shares at net asset value without a sales charge:
* Directors, employees, and sales representatives of the Fund, Federated
Global Research Corp., and Federated Securities Corp. and its
affiliates;
* Federated Life Members (Class A Shares only);
* any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp.; and
* trusts, pensions, or profit-sharing plans for these individuals.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE
The Fund's net asset value per Share fluctuates and is based on the market value
of all securities and other assets of the Fund. The net asset value for each
class of Shares may differ due to the variance in daily net income realized by
each class.
Net asset value is not determined on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its
net asset value might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received; or (iii) the following holidays: New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
DETERMINING MARKET VALUE OF SECURITIES
Market or appraised values of the Fund's portfolio securities are determined as
follows:
* according to the prices provided by an independent pricing service, if
available, or at fair value as determined in good faith by the Directors;
or
* for short-term obligations with remaining maturities of 60 days or less at
the time of purchase, at amortized cost, unless the Directors determine
that particular circumstances of the security indicate otherwise.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities; yield; quality; coupon rate; maturity; type of
issue; trading characteristics; and other market data.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange ("NYSE"). In computing the net asset
value, the Fund values foreign securities at the latest closing price on the
exchange on which they are traded immediately prior to the closing of the NYSE.
Certain foreign currency exchange rates may also be determined at the latest
rate prior to the closing of the NYSE. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at current rates. Occasionally,
events that affect these values and exchange rates may occur between the times
at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Directors,
although the actual calculation may be done by others.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
prospectus under "Redeeming and Exchanging Shares." Although the transfer agent
does not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price, in whole or in part, by
a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Directors determine to be fair and
equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem Shares for any shareholder
in cash up to the lesser of $250,000 or 1% of the Fund's net asset value during
any 90-day period. Redemption in kind is not as liquid as a cash
redemption. If redemption is made is kind, shareholders receiving their
securities and selling them before their maturity could receive less than the
redemption value of their securities and could incur certain transaction costs.
CONTINGENT DEFERRED SALES CHARGE
In computing the amount of the applicable Contingent Deferred Sales Charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
Shares held for more than six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares; (3) Shares held for fewer than six years with respect to Class B
Shares and for less than one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
To qualify for elimination of the contingent deferred sales charge through a
Systematic Withdrawal Program, the redemptions of Class B Shares must be from an
account that is at least 12 months old, has all Fund distributions reinvested in
Fund Shares, and has an account value of at least $10,000 when the Systematic
Withdrawal Program is established. Qualifying redemptions may not exceed 1.00%
monthly of the account value as periodically determined by the Fund. The amounts
that a shareholder may withdraw under a Systematic Withdrawal Program that
qualify for elimination of the Contingent Deferred Sales Charge may not exceed
12% annually with reference initially to the value of the Class B Shares upon
establishment of the Systematic Withdrawal Program and then as calculated at the
annual valuation date. Redemptions on a qualifying Systematic Withdrawal Program
can be made at a rate of 1.00% monthly, 3.00% quarterly, or 6.00% semi-annually
with reference to the applicable account valuation amount. Amounts that exceed
the 12.00% annual limit for redemption, as described, may be subject to the
Contingent Deferred Sales Charge. To the extent that a shareholder exchanges
Shares for Class B 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 12-month holding
requirement. However, for purposes of meeting the $10,000 minimum account value
requirement, Class B Share accounts will be not be aggregated. Any Shares
purchased prior to the termination of this program would have the contingent
deferred sales charge eliminated as provided in the Fund's prospectus at the
time of the purchase of the Shares.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
* invest in securities within certain statutory limits; and * distribute to
its shareholders at least 90% of its net income earned
during the year.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The Fund's dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term capital
gains distributed to them regardless of how long they have held the Fund Shares.
TOTAL RETURN
The Fund's average annual total returns based on offering price for the
following periods ended November 30, 1997, were:
SHARE CLASS INCEPTION DATE ONE-YEAR FIVE-YEARS TEN-YEARS SINCE INCEPTION Class A
06/04/91 (3.70%) 9.08% N/A 9.14% Class B 09/28/94 (4.43%) N/A N/A 7.79% Class C
04/01/93 (4.42%) N/A N/A 8.42% The average annual total returnfor all classes of
Shares of the Fund is the average compounded rate ofreturn for a given period
that would equate a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the offering price per Share
at the end of the period. The number of Shares owned at the end of the period is
based on the number of Shares purchased at the beginning of the period with
$1,000, less any applicable sales charge, adjusted over the period by any
additional Shares, a reinvestment of all dividends, and distributions. Any
applicable contingent deferred sales charge is deducted from the ending value of
the investment based on the lesser of the original purchase price or the
offering price of Shares redeemed. YIELD The Fund's yields for the
thirty-day period ended November 30, 1997, were:
SHARE CLASS YIELD
Class A 4.19%
Class B 3.65%
Class C 3.65%
The yield for all classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by any class of
Shares over a thirty-day period by the maximum offering price per Share of any
class of Shares on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income generated
during the thirty-day period is assumed to be generated each month over a
12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by any class of Shares because of
certain adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS
The Fund's performance of each class of Shares depends upon such variables as:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested; * changes in
interest rates on money market instruments; * changes in the Fund's or a
class of Shares' expenses; and * various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* Lipper Analytical Services, Inc., for example, makes comparative
calculations for one-month, three-month, one-year, and five-year periods
which assume the reinvestment of all capital gains distributions and income
dividends.
* Salomon Brothers High Grade Bond Index; Salomon Brothers World
Government Bond Index; and J.P. Morgan Government Bond Index.
* Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
* Lehman Brothers Government/Corporate Bond Index is comprised of
approximately 5,000 issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly issued,
fixed rate, nonconvertible domestic bonds of companies in industry, public
utilities, and finance. The average maturity of these bonds approximates
nine years. Tracked by Lehman Brothers, Inc., the index calculates total
returns for one-month, three-month, twelve-month, and ten-year periods and
year-to-date.
Advertisements and sales literature for all three classes of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge or contingent deferred sales charge, as applicable.
Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging, and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI, 27% of
American households are pursuing their financial goals through mutual funds.
These investors, as well as businesses and institutions, have entrusted over $3
trillion to the more than 5,500 funds available. ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the corporate bond sector, as of December 31,
1997, Federated Investors managed 12 money market funds and 16 bond funds with
assets approximating $22.5 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
J. Thomas Madden, Executive Vice President, oversees Federated Investor's equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investor's domestic fixed-income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investor's international portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high rankings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended November 30, 1997, are
incorporated by reference to the Annual Report of the Fund dated November
30, 1997 (File Nox. 2-91776 and 811-3984). A copy of the Report may be
obtained without charge by contacting the Fund.
* Source: Investment Company Institute
APPENDIX
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1-Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
* Leading market positions in well-established industries;
* High rates of return on funds employed;
* Conservative capitalization structures with moderate reliance on debt
and ample asset protection;
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* Well-established access to a range of financial markets and assured sources
of alternate liquidity.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
MOODY'S INVESTORS SERVICE, INC., LONG-TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
STANDARD AND POOR'S RATINGS GROUP LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: Incorporated by
reference from the Funds' Annual Reports
dated November 30, 1997 (File No. 811-3984).
(b) Exhibits:
(1) Conformed copy of the Articles of Incorporation of the
Registrant (10);
(2) Copy of the By-Laws of the Registrant (10);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Common Stock
for Class A Shares, Class B Shares, and Class C Shares
of International Equity Fund and International Income
Fund (14);
(5) (i) Conformed copy of Investment Advisory Contract
of the Registrant dated March 15, 1994 (15);
(ii) Conformed copy of Assignment of Investment
Advisory Contract (16);
(6) (i) Conformed copy of Distributor's Contract of the
Registrant dated February 11, 1991, through and
including Exhibit E (14);
(ii) Conformed copy of Exhibit F to the Distributor's
Contract of the Registrant adding Class B Shares
to the current existing Distributor's Contract
(16);
(iii) The Registrant hereby incorporates the conformed
copy of the specimen Mutual Funds and Service
Agreement; Mutual Funds Service Agreement; and
Plan Trustee/Mutual Funds Service Agreement from
Item 24(b) (6) of the Cash Trust Series II
Registration Statement on Form N-1A filed with
the Commission on July 24, 1995. (File Nos.
2-91776 and 811-3984);
(iv) Conformed Copy of New Distributor's Contract on
behalf of Class B Shares of the Registrant (+);
(7) Not applicable;
(8) (i) Conformed copy of the Custodian Contract of the
Registrant (14);
(ii) Conformed Copy of Fee Schedule for Custodian
Contract; (17)
+ All Exhibits have been filed electronically.
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed February 13, 1991 (File Nos. 2-91776
and 811-3984).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed July 29, 1994 (File Nos. 2-91776 and
811-3984).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed February 9, 1995 (File Nos. 2-91776 and
811-3984).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 27 on Form N-1A filed January 31, 1996 (File Nos. 2-91776 and
811-3984).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed November 24, 1997 (File Nos. 2-91776
and 811-3984).
<PAGE>
(9) (i) Conformed Copy of Agreement for Fund Accounting
Services, Administrative Services, Transfer
Agency Services, and Custody Services
Procurement; (19)
(ii) The responses described in Item 24(b)(6) are
hereby incorporated by reference;
(iii) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract
between National Pensions Alliance, Ltd. and
Federated Shareholder Services from Item
24(b)(9)(ii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with
the Commission on March 25, 1996. (File Nos.
2-75670 and 811-3375);
(iv) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract
between Fidelity and Federated Shareholder
Services from Item 24(b)(9) (iii) of the
Federated GNMA Trust Registration Statement on
Form N-1A, filed with the Commissioin on March
25, 1996. (File Nos. 2-75670 and 811-3375);
(v) Conformed Copy of Amended and Restated
Shareholder Services Agreement; (19)
(vi) Conformed Copy of Principal Shareholder Servicer's
Agreement on behalf of Class B Shares of the Registrant
(+); (vii) Conformed Copy of Shareholder Services
Agreement on behalf of Class B Shares of the Registrant
(+);
(10) Conformed copy of the Opinion and Consent of Counsel as
to legality of shares being registered (17); (11) Conformed
copy of Consent of Independent Public Accountants (+); (12)
Not applicable. (13) Copy of Initial Capital Understanding
(2); (14) Not applicable; (15) (i) Conformed copy of Rule
12b-1 Plan of the Registrant, through and including Exhibit B
(14);
+ All Exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1 filed August 17, 1984 (File Nos. 2-91776 and
811-3984).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed July 29, 1994 (File Nos. 2-91776 and
811-3984).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 28 on Form N-1A filed April 25, 1996 (File Nos. 2-91776 and
811-3984).
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed November 24, 1997 (File Nos. 2-91776
and 811-3984).
<PAGE>
(ii) Conformed copy of Exhibit C to Rule 12b-1 Plan of
the Registrant adding Class B Shares to the
current existing Rule 12b-1 Plan (16);
(iii) Copy of 12b-1 Agreement, through and including
Exhibit C (14); (iv) The responses described in
Item 24(b) (6) are hereby incorporated by
reference;
(v) Conformed Copy of Amendment No. 1 and Schedule A
to the 12b-1 Plan on behalf of Class B Shares of
the Registrant (+);
(16) (i) Copy of Schedule for Computation of Fund
Performance Data for International Equity
Fund (8);
(ii) Copy of Schedule for Computation of Fund
Performance Data for International Income
Fund (12);
(17) Financial Data Schedules (+);
(18) The Registrant hereby incorporates the conformed copy of
the specimen Multiple Class Plan from Item 24(b)(18) of the World
Investment Series, Inc. Registration Statement on Form N-1A,
filed with the Commission on January 26, 1996. (File Nos.
33-52149 and 811-07141);
(19) (i) Conformed copy of Power of Attorney (18); (ii)
Conformed Copy of Limited Power of Attorney (+);
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of January 7, 1998
Federated International Equity Fund
Class A Shares 12,232
Class B Shares 3,806
Class C Shares 1,196
Federated International Income Fund
Class A Shares 2,609
Class B Shares 959
Class C Shares 520
Item 27. Indemnification: (13)
+ All Exhibits have been filed electronically.
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed January 24, 1989 (File Nos. 2-91776 and
811-3984).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed November 25, 1991 (File Nos. 2-91776
and 811-3984).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed February 2, 1993 (File Nos. 2-91776 and
811-3984).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed July 29, 1994 (File Nos. 2-91776 and
811-3984).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 27 on Form N-1A filed January 31, 1996 (File Nos. 2-91776 and
811-3984).
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed January 27, 1997 (File Nos. 2-91776 and
811-3984)
<PAGE>
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "International Series, Inc. Information"in Part A.
The affiliations with the Registrant of four of the Trustees and one of
the Officers of the investment adviser are included in Part B of this
Registration Statement under "International Series, Inc. Management."
The remaining Trustee of the investment adviser, his position with the
investment adviser, and, in parentheses, his principal occupation is:
Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107 W. Market
Street, Georgetown, Delaware 19947. The remaining Officers of the
investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Peter R. Anderson
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David F. Belton
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
<PAGE>
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.
Item 29. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
111 Corcoran Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated
Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund:
1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty
U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market
<PAGE>
Management, Inc.; Money Market Obligations Trust; Money Market Obligations Trust
II; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds;
Peachtree Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual
Funds; Trust for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
<PAGE>
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant 5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Services Company Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Federated Global Research Corp. 175 Water Street
("Adviser") New York, New York 10038-4965
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the 1940 Act with respect to the removal of Directors and the calling of
special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered, a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, INTERNATIONAL SERIES, INC.,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on this
27th day of January, 1998.
INTERNATIONAL SERIES, INC.
BY: /s/ Karen Brownlee
Karen Brownlee, Assistant Secretary
Attorney in Fact for John F. Donahue
January 27, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Karen Brownlee Attorney in Fact January 27, 1998
Karen Brownlee for the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Glen R. Johnson* President
John W. McGonigle* Treasurer, Executive Vice
President and Secretary
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 6(iv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 24th day of October, 1997, by and between those
Investment Companies on behalf of the Portfolios and Classes of Shares
listed on Schedule A to Exhibit 1, as may be amended from time to time,
having their principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement, and FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania
Corporation. Each of the Exhibits hereto is incorporated herein in its
entirety and made a part hereof. In the event of any inconsistency between
the terms of this Agreement and the terms of any applicable Exhibit, the
terms of the applicable Exhibit shall govern.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. Each of the Investment Companies hereby appoint FSC as agent to sell and
distribute shares of the Investment Companies which may be offered in
one or more series (the "Funds") consisting of one or more classes (the
"Classes") of shares (the "Shares"), as described and set forth on one
or more exhibits to this Agreement, at the current offering price
thereof as described and set forth in the current Prospectuses of the
Funds. FSC hereby accepts such appointment and agrees to provide such
other services for the Investment Companies, if any, and accept such
compensation from the Investment Companies, if any, as set forth in the
applicable exhibits to this Agreement.
2. The sale of any Shares may be suspended without prior notice whenever in
the judgment of the applicable Investment Company it is in its best
interest to do so.
3. Neither FSC nor any other person is authorized by the Investment Companies
to give any information or to make any representation relative to any
Shares other than those contained in the Registration Statement,
Prospectuses, or Statements of Additional Information ("SAIs") filed with
the Securities and Exchange Commission, as the same may be amended from
time to time, or in any supplemental information to said Prospectuses or
SAIs approved by the Investment Companies. FSC agrees that any other
information or representations other than those specified above which it or
any dealer or other person who purchases Shares through FSC may make in
connection with the offer or sale of Shares, shall be made entirely without
liability on the part of the Investment Companies. No person or dealer,
other than FSC, is authorized to act as agent for the Investment Companies
for any purpose. FSC agrees that in offering or selling Shares as agent of
the Investment Companies, it will, in all respects, duly conform to all
applicable state and federal laws and the rules and regulations of the
National Association of Securities Dealers, Inc., including its Rules of
Fair Practice. FSC will submit to the Investment Companies copies of all
sales literature before using the same and will not use such sales
literature if disapproved by the Investment Companies.
4. This Agreement is effective with respect to each Class as of the date of
execution of the applicable exhibit and shall continue in effect with
respect to each Class presently set forth on an exhibit and any subsequent
Classes added pursuant to an exhibit during the initial term of this
Agreement for one year from the date set forth above, and thereafter for
successive periods of one year if such continuance is approved at least
annually by the Trustees/Directors of the Investment Companies including a
majority of the members of the Board of Trustees/Directors of the
Investment Companies who are not interested persons of the Investment
Companies and have no direct or indirect financial interest in the
operation of any Distribution Plan relating to the Investment Companies or
in any related documents to such Plan ("Disinterested Trustees/Directors")
cast in person at a meeting called for that purpose. If a Class is added
after the first annual approval by the Trustees/Directors as described
above, this Agreement will be effective as to that Class upon execution of
the applicable exhibit and will continue in effect until the next annual
approval of this Agreement by the Trustees/Directors and thereafter for
successive periods of one year, subject to approval as described above.
5. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees/Directors or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement.
6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the
Investment Company Act of 1940, as amended, provided, however, that FSC
may employ such other person, persons, corporation or corporations as it
shall determine in order to assist it in carrying out its duties under
this Agreement.
7. FSC shall not be liable to the Investment Companies for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
by this Agreement.
8. This Agreement may be amended at any time by mutual agreement in writing
of all the parties hereto, provided that such amendment is approved by
the Trustees/Directors of the Investment Companies including a majority
of the Disinterested Trustees/Directors of the Investment Companies cast
in person at a meeting called for that purpose.
9. This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Investment Companies
agree to indemnify and hold harmless FSC and each person, if any, who
controls FSC within the meaning of Section 15 of the Securities Act of 1933
and Section 20 of the Securities Act of 1934, as amended, against any and
all loss, liability, claim, damage and expense whatsoever (including but
not limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, any Prospectuses or SAIs (as from time to
time amended and supplemented) or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Investment Companies about FSC by or on behalf
of FSC expressly for use in the Registration Statement, any Prospectuses
and SAIs or any amendment or supplement thereof.
If any action is brought against FSC or any controlling person
thereof with respect to which indemnity may be sought against any
Investment Company pursuant to the foregoing paragraph, FSC shall
promptly notify the Investment Company in writing of the
institution of such action and the Investment Company shall assume
the defense of such action, including the employment of counsel
selected by the Investment Company and payment of expenses. FSC or
any such controlling person thereof shall have the right to employ
separate counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of FSC or such controlling
person unless the employment of such counsel shall have been
authorized in writing by the Investment Company in connection with
the defense of such action or the Investment Company shall not
have employed counsel to have charge of the defense of such
action, in any of which events such fees and expenses shall be
borne by the Investment Company. Anything in this paragraph to the
contrary notwithstanding, the Investment Companies shall not be
liable for any settlement of any such claim of action effected
without their written consent. The Investment Companies agree
promptly to notify FSC of the commencement of any litigation or
proceedings against the Investment Companies or any of their
officers or Trustees/Directors or controlling persons in
connection with the issue and sale of Shares or in connection with
the Registration Statement, Prospectuses, or SAIs.
(b) FSC agrees to indemnify and hold harmless the Investment Companies,
each of its Trustees/Directors, each of its officers who have signed
the Registration Statement and each other person, if any, who controls
the Investment Companies within the meaning of Section 15 of the
Securities Act of 1933, but only with respect to statements or
omissions, if any, made in the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof in reliance
upon, and in conformity with, information furnished to the Investment
Companies about FSC by or on behalf of FSC expressly for use in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof. In case any action shall be brought against any
Investment Company or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof, and with respect to which indemnity may be sought
against FSC, FSC shall have the rights and duties given to the
Investment Companies, and the Investment Companies and each other
person so indemnified shall have the rights and duties given to FSC by
the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any person
against liability to the Investment Companies or their
shareholders to which such person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in
the performance of the duties of such person or by reason of the
reckless disregard by such person of the obligations and duties of
such person under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted pursuant
to Section 17 of the Investment Company Act of 1940, as amended, for
Trustees/Directors, officers, FSC and controlling persons of the
Investment Companies by the Trustees/Directors pursuant to this
Agreement, the Investment Companies are aware of the position of the
Securities and Exchange Commission as set forth in the Investment
Company Act Release No. IC-11330. Therefore, the Investment Companies
undertakes that in addition to complying with the applicable
provisions of this Agreement, in the absence of a final decision on
the merits by a court or other body before which the proceeding was
brought, that an indemnification payment will not be made unless in
the absence of such a decision, a reasonable determination based upon
factual review has been made (i) by a majority vote of a quorum of
non-party Disinterested Trustees/Directors, or (ii) by independent
legal counsel in a written opinion that the indemnitee was not liable
for an act of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties. The Investment Companies further
undertakes that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an officer,
Trustees/Directors, FSC or controlling person of the Investment
Companies will not be made absent the fulfillment of at least one of
the following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Investment Companies is insured against losses
arising by reason of any lawful advances; or (iii) a majority of a
quorum of non-party Disinterested Trustees/Directors or independent
legal counsel in a written opinion makes a factual determination that
there is reason to believe the indemnitee will be entitled to
indemnification.
11. If at any time the Shares of any Fund are offered in two or more
Classes, FSC agrees to adopt compliance standards as to when a class of
shares may be sold to particular investors.
12. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
<PAGE>
Exhibit 1
to the
Distributor's Contract
The following provisions are hereby incorporated and made part of the
Distributor's Contract (the "Distributor's Contract") dated October 24, 1997,
between the Investment Companies and Federated Securities Corp. as principal
distributor (the "Principal Distributor") with respect to the Class B Shares of
the portfolios (the "Funds") set forth on the attached Schedule A. References
herein to this Distributor's Contract refer to the Distributor's Contract as
supplemented hereby and made applicable hereby to the Class B Shares of the
Funds. In the event of any inconsistency between the terms of this Exhibit and
the terms of the Distributor's Contract, the terms of this Exhibit will govern.
Once effective in respect of the Class of Shares of any Fund set forth above,
the Distributors Contract as amended by this Exhibit shall be effective in
respect of all shares of such class outstanding whether issued prior to or after
such effectiveness.
1. The Investment Companies hereby appoints the Principal Distributor to
engage in activities principally intended to result in the sale of Class B
Shares ("Class B Shares") of each Fund. Pursuant to this appointment, the
Principal Distributor is authorized to select a group of financial
institutions ("Financial Institutions") to sell Class B Shares of a Fund
at the current offering price thereof as described and set forth in the
respective prospectuses of the Fund.
2. (a) In consideration of the Principal Distributor's services under this
Distributor's Contract in respect of each Fund the Investment Companies
on behalf of the Fund agree: (I) to pay the Principal Distributor or at
its direction its "Allocable Portion" (as hereinafter defined) of a fee
(the "Distribution Fee") equal to 0.75 of 1% per annum of the average
daily net asset value of the Class B Shares of the Fund outstanding
from time to time, and (II) to withhold from redemption proceeds in
respect of Class B Shares of the Fund such Principal Distributor's
Allocable Portion of the Contingent Deferred Sales Charges ("CDSCs")
payable in respect of such redemption as provided in the Prospectus for
the Fund and to pay the same over to such Principal Distributor or at
its direction at the time the redemption proceeds in respect of such
redemption are payable to the holder of the Class B Shares redeemed.
(b)The Principal Distributor will be deemed to have performed all
services required to be performed in order to be entitled to receive
its Allocable Portion of the Distribution Fee payable in respect of the
Class B Shares of a Fund upon the settlement of each sale of a
"Commission Share" (as defined in the Allocation Schedule attached
hereto as Schedule B) of the Fund taken into account in determining
such Principal Distributor's Allocable Portion of such Distribution
Fees.
(c)Notwithstanding anything to the contrary set forth in this Exhibit,
the Distributor's Contract or (to the extent waiver thereof is
permitted thereby) applicable law, the Investment Companies' obligation
to pay the Principal Distributor's Allocable Portion of the
Distribution Fees payable in respect of the Class B Shares of a Fund
shall not be terminated or modified for any reason (including a
termination of this Distributor's Contract as it relates to Class B
Shares of a Fund) except to the extent required by a change in the
Investment Company Act of 1940 (the "Act") or the Conduct Rules of the
National Association of Securities Dealers, Inc., in either case
enacted or promulgated after May 1, 1997, or in connection with a
"Complete Termination" (as hereinafter defined) of the Distribution
Plan in respect of the Class B Shares of a Fund.
(d)The Investment Companies will not take any action to waive or change
any CDSC in respect of the Class B Shares of a Fund, except as provided
in the Investment Companies' prospectus or statement of additional
information as in effect as of the date hereof without the consent of
the Principal Distributor and the permitted assigns of all or any
portion of its right to its Allocable Portion of the CDSCs.
(e)Notwithstanding anything to the contrary set forth in this Exhibit,
the Distributor's Contract, or (to the extent waiver thereof is
permitted thereby) applicable law, neither the termination of the
Principal Distributor's role as principal distributor of the Class B
Shares of a Fund, nor the termination of this Distributor's Contract
nor the termination of the Distribution Plan will terminate such
Principal Distributor's right to its Allocable Portion of the CDSCs in
respect of the Class B Shares of a Fund.
(f)Notwithstanding anything to the contrary in this Exhibit, the
Distributor's Contract, or (to the extent waiver thereof is permitted
thereby) applicable law, the Principal Distributor may assign, sell or
pledge (collectively, a "Transfer") its rights to its Allocable Portion
of the Distribution Fees and CDSCs earned by it (but not its
obligations to the Investment Companies under this Distributor's
Contract) in respect of the Class B Shares of a Fund to raise funds to
make the expenditures related to the distribution of Class B Shares of
the Fund and in connection therewith upon receipt of notice of such
Transfer, the Investment Companies shall pay, or cause to be paid to
the assignee, purchaser or pledgee (collectively with their subsequent
transferees, "Transferees") such portion of the Principal Distributor's
Allocable Portion of the Distribution Fees and CDSCs in respect of the
Class B Shares of the Fund so Transferred. Except as provided in (c)
above and notwithstanding anything to the contrary set forth elsewhere
in this Exhibit, the Distributor's Contract, or (to the extent waiver
thereof is permitted thereby) applicable law, to the extent the
Principal Distributor has Transferred its rights thereto to raise funds
as aforesaid, the Investment Companies' obligation to pay to the
Principal Distributor's Transferees the Principal Distributor's
Allocable Portion of the Distribution Fees payable in respect of the
Class B Shares of each Fund shall be absolute and unconditional and
shall not be subject to dispute, offset, counterclaim or any defense
whatsoever, including without limitation, any of the foregoing based on
the insolvency or bankruptcy of the Principal Distributor (it being
understood that such provision is not a waiver of the Investment
Companies' right to pursue such Principal Distributor and enforce such
claims against the assets of such Principal Distributor other than the
Distributor's right to the Distribution Fees, CDSCs and servicing fees,
in respect of the Class B Shares of any Fund which have been so
transferred in connection with such Transfer). The Fund agrees that
each such Transferee is a third party beneficiary of the provisions of
this clause (f) but only insofar as those provisions relate to
Distribution Fees and CDSCs transferred to such Transferee.
(g)For purposes of this Distributor's Contract, the term Allocable
Portion of Distribution Fees payable in respect of the Class B Shares
of any Fund shall mean the portion of such Distribution Fees allocated
to such Principal Distributor in accordance with the Allocation
Schedule attached hereto as Schedule B.
(h)For purposes of this Distributor's Contract, the term "Complete
Termination" of the Plan in respect of any Fund means a termination of
the Plan involving the complete cessation of the payment of
Distribution Fees in respect of all Class B Shares of such Fund, and
the termination of the distribution plans and the complete cessation of
the payment of distribution fees pursuant to every other Distribution
Plan pursuant to rule 12b-1 of the Investment Companies in respect of
such Fund and any successor Fund or any Fund acquiring a substantial
portion of the assets of such Fund and for every future class of shares
which has substantially similar characteristics to the Class B Shares
of such Fund including the manner of payment and amount of sales
charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.
3. The Principal Distributor may enter into separate written agreements with
various firms to provide certain of the services set forth in Paragraph 1
herein. The Principal Distributor, in its sole discretion, may pay
Financial Institutions a lump sum fee on the settlement date for the sale
of each Class B Share of the Fund to their clients or customers for
distribution of such share. The schedules of fees to be paid such firms or
Financial Institutions and the basis upon which such fees will be paid
shall be determined from time to time by the Principal Distributor in its
sole discretion.
4. The Principal Distributor will prepare reports to the Board of
Trustees/Directors of the Investment Companies on a quarterly basis
showing amounts expended hereunder including amounts paid to Financial
Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Distributor's
Contract between the Investment Companies and the Principal Distributor, the
Principal Distributor and the Investment Companies hereby execute and deliver
this Exhibit with respect to the Class B Shares of the Fund.
<PAGE>
Witness the due execution hereof this 24th day of October, 1997.
ATTEST: INVESTMENT COMPANIES (listed on Schedule A)
By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary` Title: Executive Vice President
ATTEST: FEDERATED SECURITIES CORP.
By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
<PAGE>
Schedule A
Date: 10/24/97 DISTRIBUTOR'S CONTRACT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of DECEMBER 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B shares
EXHIBIT 9(VI) UNDER FORM N-1A
EXHIBIT 10 UNDER ITEM 601/REG S-K
PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT
THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between
those Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement and Federated Securities Corp. as the principal shareholder servicer
(the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein
in its entirety and made a part hereof. In the event of any inconsistency
between the terms of this Agreement and the terms of any applicable Exhibit, the
terms of the applicable Exhibit shall govern.
In consideration of the mutual covenants hereinafter contained it is hereby
agreed by and between the parties hereto as follows.
1. The Investment Companies hereby appoint the Principal Servicer as their
agent to select, negotiate and contract for the performance of and arrange
for the rendition of personal services to shareholders and/or the
maintenance of accounts of shareholders of each Class of the Funds as to
which this Agreement is made applicable (The Principal Servicer's duties
hereunder are referred to as "Services"). The Principal Servicer hereby
accepts such appointment and agrees to perform or cause to be performed the
Services in respect of the Classes of the Funds to which this Agreement has
been made applicable by an Exhibit. The Principal Servicer agrees to cause
to be provided shareholder services which, in its best judgment (subject to
supervision and control of the Investment Companies' Boards of Trustees or
Directors, as applicable), are necessary or desirable for shareholders of
the Funds. The Principal Servicer further agrees to provide the Investment
Companies, upon request, a written description of the shareholder services
for which the Principal Servicer is arranging hereunder.
2. During the term of this Agreement, each Investment Company will pay the
Principal Servicer and the Principal Servicer agrees to accept as full
compensation for its services rendered hereunder a fee as set forth on the
Exhibit applicable to the Class of each Fund subject to this Agreement.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Class of a Fund, there shall be an
appropriate proration of the monthly fee on the basis of the number of
days that this Agreement is in effect with respect to such Class of the
Fund during the month.
3. This Agreement is effective with respect to each Class of a Fund as of the
date of execution of the applicable Exhibit and shall continue in effect
for one year from the date of its execution, and thereafter for successive
periods of one year only if the form of this Agreement is approved at
least annually by the Board of each Investment Company, including a
majority of the members of the Board of the Investment Company who are not
interested persons of the Investment Company ("Independent Board Members")
cast in person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated with regard to
a particular Class of a Fund as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Investment Company
or by a vote of a majority of the outstanding voting securities of
any Fund as defined in the Investment Company Act of 1940 on sixty
(60) days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
5. The Principal Servicer agrees to arrange to obtain any taxpayer
identification number certification from each shareholder of the Funds to
which it provides Services that is required under Section 3406 of the
Internal Revenue Code, and any applicable Treasury regulations, and to
provide each Fund or its designee with timely written notice of any
failure to obtain such taxpayer identification number certification in
order to enable the implementation of any required backup withholding.
6. The Principal Servicer shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any Investment Company in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement. the Principal Servicer
shall be entitled to rely on and may act upon advice of counsel (who may be
counsel for such Investment Company) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such
advice. Any person, even though also an officer, trustee, partner, employee
or agent of the Principal Servicer, who may be or become a member of such
Investment Company's Board, officer, employee or agent of any Fund, shall
be deemed, when rendering services to such Fund or acting on any business
of such Fund (other than services or business in connection with the duties
of the Principal Servicer hereunder) to be rendering such services to or
acting solely for such Fund and not as an officer, trustee, partner,
employee or agent or one under the control or direction of the Principal
Servicer even though paid by the Principal Servicer.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. The Principal Servicer is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of each Investment
Company that is a Massachusetts business trust and agrees that the
obligations assumed by each such Investment Company pursuant to this
Agreement shall be limited in any case to such Investment Company and its
assets and that the Principal Servicer shall not seek satisfaction of any
such obligations from the shareholders of such Investment Company, the
Trustees, Officers, Employees or Agents of such Investment Company, or any
of them.
9. The execution and delivery of this Agreement have been authorized by the
Directors of the Principal Servicer and signed by an authorized officer of
the Principal Servicer, acting as such, and neither such authorization by
such Directors nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, and the obligations of this Agreement
are not binding upon any of the Directors or shareholders of the Principal
Servicer, but bind only the property of the Principal Servicer as provided
in the Articles of Incorporation of the Principal Servicer.
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Investment Company at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to the
Principal Servicer at Federated Investors Tower, Pittsburgh, PA
15222-3779, Attention: President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of the Principal Servicer in the case of assignment by any
Investment Company, or of the Investment Companies in the case of
assignment by the Principal Servicer, except that any party may assign to
a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 13 shall prevent the Principal Servicer from
delegating its responsibilities to another entity to the extent provided
herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Investment Companies (listed on Schedule
A)
Attest: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary Title: Executive Vice President
Federated Securities Corp.
Attest: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
<PAGE>
Exhibit 1
to the
Principal Shareholder Servicer's Agreement
Related to Class B Shares of
the Funds
The following provisions are hereby incorporated and made part of the
Principal Shareholder Servicer's Agreement (the "Principal Shareholder
Servicer's Agreement") as of the 24th day of October, 1997, by and between those
Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement and Federated Securities Corp. as the principal shareholder servicer
(the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein
in its entirety and made a part hereof. In the event of any inconsistency
between the terms of this Exhibit and the terms of the Principal Shareholder
Servicer's Agreement, the terms of this Exhibit shall govern.
1. Each Investment Company hereby appoints the Principal Servicer to arrange
for the rendition of the shareholder services in respect of Class B Shares
("Class B Shares") of each Fund. Pursuant to this appointment, the
Principal Servicer is authorized to select various companies including but
not limited to Federated Shareholder Services ("Companies or a Company ")
to provide such services.
2. (a) In consideration of the Principal Servicer's Services under this
Agreement in respect of the Class B Shares each Fund agrees to pay the
Principal Servicer or at its direction its "Allocable Portion" (as
hereinafter defined) of a fee (the "Servicing Fee") equal to 0.25 of 1%
per annum of the average daily net asset value of the Class B Shares of
the Fund outstanding from time to time, provided however, that in the
event the Fund operates as a fund of funds (a "FOF Fund") by investing
the proceeds of the issuance of its Class B Shares in Class A Shares of
another fund (the "Other Fund") and the Principal Shareholder Servicer
receives a servicing fee in respect of the Class A Shares of the Other
Fund so acquired by the FOF Fund, the Servicing Fee payable in respect
of such Class B Shares of the FOF Fund will be reduced by the amount of
the servicing fee actually received by the Principal Shareholder
Servicer or its assign from the Other Fund in respect of the Class A
Shares of the Other Fund acquired with the proceeds of such Class B
Shares of the FOF Fund.
(b)(i) The Principal Servicer will be deemed to have fully earned its
Allocable Portion (computed as of any date) of the Servicing Fee
payable in respect of the Class B Shares of a Fund (and to have
satisfied its obligation to arrange for shareholder services in respect
of such Class B Shares) on the date it has arranged for shareholder
services to be performed by Federated Shareholder Services by payment
of the lump sum contemplated by Alternative A to Exhibit 1 to the
Shareholder Services Agreement among the Principal Servicer, Federated
Shareholder Services and the Fund dated as of the date hereof (the
"Shareholder Services Agreement") to Federated Shareholder Services
(whose obligations are fully supported by its parent company) in
respect of each "Commission Share" (as defined in the Allocation
Schedule attached hereto in Schedule B) of the Fund, taken into account
in determining such Principal Servicer's Allocable Portion of such
Servicing Fees as of such date. The Principal Servicer shall not be
deemed to have any other duties in respect of the Shares and its
Allocable Portion of the Servicing Fees to which the preceding sentence
applies and such arrangements shall be deemed a separate and distinct
contractual arrangement from that described in clause (ii).
(ii) The Principal Servicer will be deemed to have fully earned any
Servicing Fees not included in its Allocable Portion (i.e., those
attributable to Shares in respect of which Alternative A under Exhibit
1 to the Shareholder Services Agreement is not applicable) as such
services are performed in respect of such Shares.
(c)Notwithstanding anything to the contrary set forth in this Exhibit,
the Principal Shareholder Agreement, or (to the extent waiver thereof
is permitted thereby) applicable law, each Investment Company's
obligation to pay the Principal Servicer's Allocable Portion of the
Servicing Fees payable in respect of the Class B Shares of a Fund shall
not be terminated or modified for any reason (including a termination
of this Principal Shareholder Servicer's Agreement as it relates to the
Fund) except to the extent required by a change in the Investment
Company Act of 1940 (the "Act") or the Conduct Rules of the National
Association of Securities Dealers, Inc., in either case enacted or
promulgated after May 1, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) in respect of the Class B Shares
of such Fund.
(d)Notwithstanding anything to the contrary in this Exhibit, the
Principal Shareholder Agreement, or (to the extent waiver thereof is
permitted thereby) applicable law, the Principal Servicer may assign,
sell or pledge (collectively, "Transfer") its rights to its Allocable
Portion of the Servicing Fees (but not its obligations to the
Investment Companies under this Principal Shareholder Servicer's
Agreement) in respect of the Class B Shares of a Fund to raise funds to
make the expenditures related to the Services and in connection
therewith upon receipt of notice of such Transfer, the Investment
Company shall pay to the assignee, purchaser or pledgee (collectively
with their subsequent transferees, "Transferees") such portion of the
Principal Servicer's Allocable Portion of the Servicing Fees in respect
of the Class B Shares of the Fund so Transferred. Except as provided in
(c) above and notwithstanding anything to the contrary set forth
elsewhere in this Exhibit, the Principal Shareholder Agreement, or (to
the extent waiver thereof is permitted thereby) applicable law, to the
extent the Principal Servicer has Transferred its rights thereto to
raise funds as aforesaid, the Investment Companies' obligation to pay
to the Principal Servicer's Transferees the Principal Servicer's
Allocable Portion of the Servicing Fees payable in respect of the Class
B Shares of each Fund shall be absolute and unconditional and shall not
be subject to dispute, offset, counterclaim or any defense whatsoever,
including without limitation, any of the foregoing based on the
insolvency or bankruptcy of the Principal Servicer, Federated
Shareholder Services (or its parent) or the failure of Federated
Shareholder Services (or its parent) to perform its Irrevocable Service
Commitment (it being understood that such provision is not a waiver of
the Investment Companies' right to pursue such Principal Servicer and
enforce such claims against the assets of such Principal Servicer other
than the Principal Servicer's right to the Distribution Fees, Servicing
Fees and CDSCs in respect of the Class B Shares of the Fund which have
been so transferred in connection with such Transfer). The Fund agrees
that each such Transferee is a third party beneficiary of the
provisions of this clause (d) but only insofar as those provisions
relate to Servicing Fees transferred to such Transferee.
(e)For purposes of this Principal Shareholder Servicer's Agreement, the
term Allocable Portion of Servicing Fees payable in respect of the
Class B Shares of any Fund shall mean the portion of such Servicing
Fees allocated to such Principal Servicer in accordance with the
Allocation Schedule attached hereto as Schedule B.
(f)For purposes of this Principal Shareholder Servicer's Contract, the
term "Complete Termination" of shareholder servicing arrangements in
respect of Class B Shares of a Fund means a termination of shareholder
servicing arrangements involving the complete cessation of payments of
Servicing Fees in respect of all Class B Shares, and the complete
cessation of payments of servicing fees for every existing and future
class of shares of the Fund and any successor Fund or any Fund
acquiring a substantial portion of the assets of the Fund ,which has
substantially similar characteristics to the Class B Shares taking into
account the manner and amount of sales charge, servicing fee,
contingent deferred sales charge or other similar charge borne directly
or indirectly by the holders of such shares.
3. The Principal Servicer may enter into separate written agreements with
Companies to provide the services set forth in Paragraph 1 herein. The
schedules of fees to be paid such Companies and the basis upon which such
fees will be paid shall be determined from time to time by the Principal
Servicer in its sole discretion.
4. The Principal Servicer will prepare reports to the Board of
Trustees/Directors of the Investment Companies on a quarterly basis
showing amounts expended hereunder including amounts paid to Companies and
the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Principal
Shareholder Servicer's Contract, the Principal Servicer and the Investment
Companies hereby execute and deliver this Exhibit with respect to the Class B
Shares of each Fund.
<PAGE>
Witness the due execution hereof this 24th day of October, 1997.
ATTEST: INVESTMENT COMPANIES (listed on Schedule A)
By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary Title: Executive Vice President
ATTEST: FEDERATED SECURITIES CORP.
By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
<PAGE>
Schedule A
Date: 10/24/97 PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of DECEMBER 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
Exhibit 9(vii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between
those Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as it may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, PA 15222-3779 and who have approved this form of Agreement
and Federated Securities Corp.("FSC"), a Pennsylvania Corporation, having its
principal office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS"). Each of the Exhibits hereto
is incorporated herein in its entirety and made a part hereof. In the event of
any inconsistency between the terms of this Agreement and the terms of any
applicable Exhibit, the terms of the applicable Exhibit shall govern.
1. FSC as Principal Servicer (Principal Servicer") hereby contracts with FSS
to render or cause to be rendered personal services to shareholders and/or
the maintenance of accounts of shareholders of each Class of the Funds to
which this Agreement is made applicable by an Exhibit hereto ("Services").
In addition to providing Services directly to shareholders of the Funds,
FSS is hereby appointed the Investment Companies' agent to select,
negotiate and subcontract for the performance of Services. FSS hereby
accepts such appointment. FSS agrees to provide or cause to be provided
Services which, in its best judgment (subject to supervision and control of
the Investment Companies' Boards of Trustees or Directors, as applicable),
are necessary or desirable for shareholders of the Funds. FSS further
agrees to provide the Investment Companies, upon request, a written
description of the Services which FSS is providing hereunder. The
Investment Companies, on behalf of the Funds and each Class subject hereto
consents to the appointment of FSS to act in its capacity as described
herein and agrees to look solely to FSS for performance of the Services.
2. The term of the undertaking of FSS to render services hereunder in respect
of any Class of any Fund and the manner and amount of compensation to be
paid in respect thereof shall be specified in respect of each Class of the
Funds to which this Agreement is made applicable by an Exhibit hereto. FSS
agrees to look solely to the Principal Servicer for its compensation
hereunder.
3. This Agreement shall become effective in respect of any Class of Shares of
a Fund upon execution of an Exhibit relating to such Class of the Fund.
Once effective in respect of any Class of shares, this Agreement shall
continue in effect for one year from the date of its execution, and
thereafter for successive periods of one year only if the form of this
Agreement is approved at least annually by the Board of each Investment
Company, including a majority of the members of the Board of the
Investment Company who are not interested persons of the Investment
Company ("Independent Board Members") cast in person at a meeting called
for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:
(a) By any Investment Company as to any Fund at any time, without the
payment of any penalty, by the vote of a majority of the Independent
Board Members of any Investment Company or by a vote of a majority of
the outstanding voting securities of any Fund as defined in the
Investment Company Act of 1940 on sixty (60) days' written notice to
the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Investment Company or
its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Investment Company in connection with the matters
to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and
duties under this Agreement. FSS shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for such Investment Company) on
all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. Any person, even though also an
officer, trustee, partner, employee or agent of FSS, who may be or become a
member of such Investment Company's Board, officer, employee or agent of
any Investment Company, shall be deemed, when rendering services to such
Investment Company or acting on any business of such Investment Company
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such
Investment Company and not as an officer, trustee, partner, employee or
agent or one under the control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Investment Company that is a
Massachusetts business trust and agrees that the obligations assumed by
each such Investment Company pursuant to this Agreement shall be limited
in any case to such Investment Company and its assets and that FSS shall
not seek satisfaction of any such obligations from the shareholders of
such Investment Company, the Trustees, Officers, Employees or Agents of
such Investment Company, or any of them.
9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
<PAGE>
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Investment Company at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of the parties hereto. Nothing in this Section 13 shall
prevent FSS from delegating its responsibilities to another entity to the
extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Investment Companies (listed on Schedule
A)
Attest: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary Title: Executive Vice President
Federated Shareholder Services
Attest:/s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
Federated Securities Corp.
Attest: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
<PAGE>
EXHIBIT 1
TO SHAREHOLDER SERVICES AGREEMENT
FOR CLASS B SHARES OF
THE INVESTMENT COMPANIES
1. The Shareholder Services Agreement for Shares of the Investment
Companies on behalf of the portfolios (individually referred to as a "Fund" and
collectively as "Funds") and the classes of shares ("Classes") listed on the
attached Schedule A dated October 24, 1997 among Federated Securities Corp.
("Principal Servicer"), Federated Shareholder Services ("Class Servicer") and
the Investment Companies is hereby made applicable on the terms set forth herein
to the Class B Shares of the above-referenced Funds. In the event of any
inconsistency between the terms of this Exhibit and the Shareholder Services
Agreement, the terms of this Exhibit shall govern.
2. In connection with the Services to be rendered to holders of Class B
Shares of each Fund, the Principal Servicer and Class Servicer agree that the
Principal Servicer shall retain and compensate the Class Servicer for its
Services in respect of the Class B Shares of the Fund on one of the following
alternative basis as the Principal Servicer shall elect:
ALTERNATIVE A3: The Principal Servicer shall pay the Class Servicer
a dollar amount as set forth on Schedule A per Class B Commission Share
(as defined in the Principal Shareholder Servicer's Agreement) of the
Fund. Class Servicer agrees that upon receipt of such payment (which shall
be deemed to be full and adequate consideration for an irrevocable service
commitment (the "Irrevocable Service Commitment") of Class Servicer
hereunder), Class Servicer shall be unconditionally bound and obligated to
either: (1) provide the Services in respect of such Commission Share and
all other Shares derived therefrom via reinvestment of dividends, free
exchanges or otherwise for so long as the same is outstanding or (2) in
the event the Class Servicer for the Class B Shares is terminated by the
Investment Company, to arrange for a replacement Class Servicer
satisfactory to the Investment Company to perform such services, at no
additional cost to the Fund.
ALTERNATIVE B4: If Alternative A is not elected, the Principal
Servicer shall pay the Class Servicer twenty five basis points (0.25%) per
annum on the average daily net asset value of each Class B Share of the
Fund monthly in arrears. The Class Servicer agrees that such payment is
full and adequate consideration for the Services to be rendered by it to
the holder of such Class B Share.
3. In the event pursuant to paragraph 2 above, Alternative A has been
elected and the Class Servicer is terminated as Class Servicer for the Class B
Shares of the Fund, the Class Servicer agrees to pay to any successor Class
Servicer for the Class B Shares of the Fund any portion of the excess, if any,
of (A) the Servicing Fees received by it hereunder in respect of Class B Shares
of the Fund plus interest thereon at the percent as set forth on Schedule A per
annum minus (B) the costs it incurred hereunder in respect of the Class B Shares
of the Fund prior to such termination.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
Attest: FEDERATED SECURITIES CORP.
By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
Attest: FEDERATED SHAREHOLDER SERVICES
By:/s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
Attest: INVESTMENT COMPANIES
(listed on Schedule A)
By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary Title: Executive Vice President
<PAGE>
Schedule A
Date: 10/24/97 SHAREHOLDER SERVICES AGREEMENT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of DECEMBER 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
ARTHUR ANDERSON LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Post-Effective Amendment No. 32 to Form N-1A Registration Statement
of International Series, Inc. of our report dated January 15, 1998, on the
financial statements as of November 30, 1997, of Federated International Equity
Fund and Federated International Income Fund (the two portfolios comprising the
International Series, Inc.), included in or made a part of this registration
statement.
/s/ Arthur Anderson LLP
ARTHUR ANDERSON LLP
Pittsburgh, Pennsylvania
January 26, 1998
Exhibit 15(v) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit 1
Amendment to the
Distribution Plan for
the Investment Companies
Class B Shares
1. This amendment to the Distribution Plan, ("Plan") is adopted by the
Board of Trustees/Directors of the Investment Companies with respect to the
Class of Shares of the portfolios ("Funds") of the Investment Companies set
forth on the attached Schedule A as to which the Plan has been adopted. This
Exhibit is hereby incorporated into the Plan in its entirety and made a part
thereof. In the event of any inconsistency between the terms of this Exhibit and
the terms of the Plan, the terms of this Exhibit shall govern. References herein
to the Plan shall mean the Plan as amended by this Exhibit. The terms of the
Plan as amended when effective in respect of the Class of Shares set forth above
shall apply to all amounts payable to the Principal Distributor in respect of
such Class of Shares whether arising out of sales of such Class of Shares before
or after such effective date.
2. In compensation for the services provided pursuant to this Plan, the
Investment Companies on behalf of the Fund shall pay the Principal Distributor
its "Allocable Portion" (as defined in its Distributor's Contract as it relates
to the Class B Shares of the Fund) of a fee (the "Distribution Fee") computed at
the annual rate of 0.75 of 1% per annum on the average daily aggregate net asset
value of the Class B Shares of those Funds listed on Schedule A outstanding,
which fee shall be paid monthly in arrears.
3. The Distributor's Contract in respect of the Class B Shares of each
Fund set forth above shall provide that: (I) the Principal Distributor in
respect of such Distributor's Contract will be deemed to have performed all
services required to be performed in order to be entitled to receive its
Allocable Portion of the Distribution Fees payable in respect of the Class B
Shares of such Fund upon the settlement date of each sale of a "Commission
Share" (as defined below) of such Fund taken into account in determining such
Principal Distributor's Allocable Portion of such Distribution Fees; (II) the
Investment Companies' obligation to pay such Principal Distributor its Allocable
Portion of the Distribution Fees payable in respect of the Class B Shares of
such Fund shall not be terminated or modified for any reason (including a
termination of the Distributor's Contract between such Principal Distributor and
such Fund) except to the extent required by a change in the Act or the Conduct
Rules of the National Association of Securities Dealers, Inc., in each case
enacted or promulgated after May 1, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) of this Plan in respect of the Class B
Shares of such Fund; (III) the Investment Companies will not take any action to
waive or change any CDSC in respect of the Class B Shares of such Fund, except
as provided in the Funds' prospectus or statement of additional information
without the consent of the Principal Distributor and its assigns; (IV) neither
the termination of such Principal Distributor's role as Principal Distributor of
the Class B Shares of such Fund, nor the termination of such Distributor's
Contract nor the termination of this Plan will terminate such Principal
Distributor's right to its Allocable Portion of the CDSCs; and (V) such
Principal Distributor may assign, sell or pledge (collectively, "Transfer") its
rights to its Allocable Portion of the Distribution Fees and CDSCs (but not such
Principal Distributor's obligations to the Investment Companies under the
Distributor's Contract) to raise funds to make the expenditures related to the
distribution of Class B Shares of such Fund and in connection therewith, upon
receipt of notice of such Transfer, the Investment Companies shall pay to the
assignee, purchaser or pledgee (collectively with their subsequent transferees,
"Transferees") or third party beneficiaries such portion of the Principal
Distributor's Allocable Portion of the Distribution Fees or CDSCs in respect of
the Class B Shares of such Fund so sold or pledged and except as provided in
(II) above and notwithstanding anything of the contrary set forth in this
Exhibit or the Plan or in the Distributor's Contract, to the extent the
Principal Distributor has Transferred its right thereto as aforesaid, the
Investment Companies' obligation to pay to the Principal Distributor's
Transferee such Principal Distributor's Allocable Portion of the Distribution
Fees and CDSCs payable in respect of the Class B Shares of such Fund shall be
absolute and unconditional and shall not be subject to dispute, offset,
counterclaim or any defense whatsoever, including without limitation, any of the
foregoing based on the insolvency or bankruptcy of the Principal Distributor (it
being understood that such provision is not a waiver of the Investment
Companies' right to pursue such Principal Distributor and enforce such claims
against the assets of such Principal Distributor other than its right to the
Distribution Fees, CDSCs and servicing fees, in respect of the Class B Shares of
any Fund transferred in connection with such Transfer. For purposes of this
Plan, the term Allocable Portion of Distribution Fees or CDSCs payable in
respect of the Class B Shares of any Fund as applied to any Principal
Distributor shall mean the portion of such Distribution Fees or CDSCs payable in
respect of such Fund allocated to such Principal Underwriter in accordance with
the Allocation Schedule (as defined in the Distributor's Contract as it relates
to the Class B Shares of the Fund)). For purposes of this Plan, the term
"Complete Termination" of this Plan in respect of any Fund means a termination
of this Plan involving the complete cessation of the payment of Distribution
Fees in respect of all Class B Shares of such Fund, and the termination of the
distribution plans and the complete cessation of the payment of distribution
fees pursuant to every other Distribution Plan pursuant to rule 12b-1 of the
Investment Companies in respect of such Fund and any successor Fund or any Fund
acquiring a substantial portion of the assets of such Fund and for every future
class of shares which has substantially similar characteristics to the Class B
Shares of such Fund taking into account the manner of payment and amount of
sales charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.
Witness the due execution hereof this execution date.
Investment Companies (listed on Schedule A)
By: /s/ John W. McGonigle
Title: Executive Vice President
Date: October 24,1997
<PAGE>
Schedule A
Date: 10/24/97 DISTRIBUTION PLAN
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of DECEMBER 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
Exhibit 19(ii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, dated as of September 1, 1995, that
International Series, Inc., a corporation duly organized under the laws of the
State of Maryland (the "Corporation") does hereby nominate, constitute and
appoint Federated Global Research Corp., a business trust duly organized under
the laws of the State of Delaware (the "Adviser"), to act hereunder as the true
and lawful agent and attorney-in-fact of the Corporation, acting on behalf of
each of the series portfolios for which the Adviser acts as investment adviser
shown on Schedule 1 attached hereto and incorporated by reference herein (each
such series portfolio being hereinafter referred to as a "Fund" and collectively
as the "Funds"), for the specific purpose of executing and delivering all such
agreements, instruments, contracts, assignments, bond powers, stock powers,
transfer instructions, receipts, waivers, consents and other documents, and
performing all such acts, as the Adviser may deem necessary or reasonably
desirable, related to the acquisition, disposition and/or reinvestment of the
funds and assets of a Fund of the Corporation in accordance with Adviser's
supervision of the investment, sale and reinvestment of the funds and assets of
each Fund pursuant to the authority granted to the Adviser as investment Adviser
of each Fund under that certain investment advisory contract dated March 15,
1994, as amended (such investment advisory contract, as may be amended,
supplemented or otherwise modified from time to time is hereinafter referred to
as the "Investment Advisory Contract").
The Adviser shall exercise or omit to exercise the powers and authorities
granted herein in each case as the Adviser in its sole and absolute discretion
deems desirable or appropriate under existing circumstances. The Corporation
hereby ratifies and confirms as good and effectual, at law or in equity, all
that the Adviser, and its officers and employees, may do by virtue hereof.
However, despite the above provisions, nothing herein shall be construed as
imposing a duty on the Adviser to act or assume responsibility for any matters
referred to above or other matters even though the Adviser may have power or
authority hereunder to do so. Nothing in this Limited Power of Attorney shall be
construed (i) to be an amendment or modifications of, or supplement to, the
Investment Advisory Contract, (ii) to amend, modify, limit or denigrate any
duties, obligations or liabilities of the Adviser under the terms of the
Investment Advisory Contract or (iii) exonerate, relieve or release the Adviser
any losses, obligations, penalties, actions, judgments and suits and other
costs, expenses and disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Adviser (x) under the terms of
the Investment Advisory Contract or (y) at law, or in equity, for the
performance of its duties as the investment Adviser of any of the Funds.
The Corporation hereby agrees to indemnify and save harmless the Adviser
and its trustees, officers and employees (each of the foregoing an "Indemnified
Party" and collectively the "Indemnified Parties") against and from any and all
losses, obligations, penalties, actions, judgments and suits and other costs,
expenses and disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against an Indemnified Party, other than as a
consequence of gross negligence or willful misconduct on the part of an
Indemnified Party, arising out of or in connection with this Limited Power of
Attorney or any other agreement, instrument or document executed in connection
with the exercise of the authority granted to the Adviser herein to act on
behalf of the Corporation, including without limitation the reasonable costs,
expenses and disbursements in connection with defending such Indemnified Party
against any claim or liability related to the exercise or performance of any of
the Adviser's powers or duties under this Limited Power of Attorney or any of
the other agreements, instruments or documents executed in connection with the
exercise of the authority granted to the Adviser herein to act on behalf of the
Corporation, or the taking of any action under or in connection with any of the
foregoing. The obligations of the Corporation under this paragraph shall survive
the termination of this Limited Power of Attorney with respect to actions taken
by the Adviser on behalf of the Corporation during the term of this Limited
Power of Attorney. No Fund shall have any joint or several obligation with any
other Fund to reimburse or indemnify an Indemnified Party for any action, event,
matter or occurrence performed or omitted by or on behalf of the Adviser in its
capacity as agent or attorney-in-fact of Corporation acting on behalf of any
other Fund hereunder.
Any person, partnership, corporation or other legal entity dealing with
the Adviser in its capacity as attorney-in-fact hereunder for the Corporation is
hereby expressly put on notice that the Adviser is acting solely in the capacity
as an agent of the Corporation and that any such person, partnership,
corporation or other legal entity must look solely to the Corporation in
question for enforcement of any claim against the Corporation, as the Adviser
assumes no personal liability whatsoever for obligations of the Corporation
entered into by the Adviser in its capacity as attorney-in-fact for the
Corporation.
Each person, partnership, corporation or other legal entity which deals
with a Fund of the Corporation through the Adviser in its capacity as agent and
attorney-in-fact of the Corporation, is hereby expressly put on notice (i) that
all persons or entities dealing with the Corporation must look solely to the
assets of the Fund of the Corporation on whose behalf the Adviser is acting
pursuant to its powers hereunder for enforcement of any claim against the
Corporation, as the directors, officers and/or agents of such Corporation, the
shareholders of the various classes of shares of the Corporation and the other
Funds of the Corporation assume no personal liability whatsoever for obligations
entered into on behalf of such Fund of the Corporation, and (ii) that the
rights, liabilities and obligations of any one Fund are separate and distinct
from those of any other Fund of the Corporation.
The execution of this Limited Power of Attorney by the Corporation acting
on behalf of the several Funds shall not be deemed to evidence the existence of
any express or implied joint undertaking or appointment by and among any or all
of the Funds. Liability for or recourse under or upon any undertaking of the
Adviser pursuant to the power or authority granted to the Adviser under this
Limited Power of Attorney under any rule of law, statute or constitution or by
the enforcement of any assessment or penalty or by legal or equitable
proceedings or otherwise shall be limited only to the assets of the Fund of the
Corporation on whose behalf the Adviser was acting pursuant to the authority
granted hereunder.
The Corporation hereby agrees that no person, partnership, corporation or
other legal entity dealing with the Adviser shall be bound to inquire into the
Adviser's power and authority hereunder and any such person, partnership,
corporation or other legal entity shall be fully protected in relying on such
power or authority unless such person, partnership, corporation or other legal
entity has received prior written notice from the Corporation that this Limited
Power of Attorney has been revoked. This Limited Power of Attorney shall be
revoked and terminated automatically upon the cancellation or termination of the
Investment Advisory Contract between the Corporation and the Adviser. Except as
provided in the immediately preceding sentence, the powers and authorities
herein granted may be revoked or terminated by the Corporation at any time
provided that no such revocation or termination shall be effective until the
Adviser has received actual notice of such revocation or termination in writing
from the Corporation.
This Limited Power of Attorney constitutes the entire agreement between
the Corporation and the Adviser, may be changed only by a writing signed by both
of them, and shall bind and benefit their respective successors and assigns;
provided, however, the Adviser shall have no power or authority hereunder to
appoint a successor or substitute attorney in fact for the Corporation.
This Limited Power of Attorney shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania without reference
to principles of conflicts of laws. If any provision hereof, or any power or
authority conferred upon the Adviser herein, would be invalid or unexercisable
under applicable law, then such provision, power or authority shall be deemed
modified to the extent necessary to render it valid or exercisable while most
nearly preserving its original intent, and no provision hereof, or power or
authority conferred upon the Adviser herein, shall be affected by the invalidity
or the non-exercisability of another provision hereof, or of another power or
authority conferred herein.
<PAGE>
This Limited Power of Attorney may be executed in as many identical
counterparts as may be convenient and by the different parties hereto on
separate counterparts. This Limited Power of Attorney shall become binding on
the Corporation when the Corporation shall have executed at least one
counterpart and the Adviser shall have accepted its appointment by executing
this Limited Power of Attorney. Immediately after the execution of a counterpart
original of this Limited Power of Attorney and solely for the convenience of the
parties hereto, the Corporation and the Adviser will execute sufficient
counterparts so that the Adviser shall have a counterpart executed by it and the
Corporation, and the Corporation shall have a counterpart executed by the
Corporation and the Adviser. Each counterpart shall be deemed an original and
all such taken together shall constitute but one and the same instrument, and it
shall not be necessary in making proof of this Limited Power of Attorney to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the Corporation has caused this Limited Power of
Attorney to be executed by its duly authorized officer as of the date first
written above.
ATTEST: International Series, Inc.
By /s/ John W. McGonigle By: /s/Richard B. Fisher
Title: Secretary Title: Vice President
Accepted and agreed to this
1st day of September, 1995
Federated Global Research Corp.
By: /s/ J. Thomas Madden
Title: Executive Vice President
<PAGE>
Schedule 1
to Limited Power of Attorney
dated as of September 1, 1995
by International Series, Inc.
(the "Corporation"), acting on
behalf of each of the series portfolios
listed below, and appointing
Federated Global Research Corp.
the attorney-in-fact of the
Corporation
List of Series Portfolios
Federated International Equity Fund
Federated International Income Fund
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> International Series, Inc.
Federated International
Equity Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 148,452,766
<INVESTMENTS-AT-VALUE> 167,971,775
<RECEIVABLES> 4,645,652
<ASSETS-OTHER> 21,668
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172,639,095
<PAYABLE-FOR-SECURITIES> 2,082,406
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,228,495
<TOTAL-LIABILITIES> 5,310,901
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,972,561
<SHARES-COMMON-STOCK> 7,521,487
<SHARES-COMMON-PRIOR> 9,982,601
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,809,893)
<ACCUMULATED-NET-GAINS> 12,680,273
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,485,253
<NET-ASSETS> 134,857,913
<DIVIDEND-INCOME> 3,116,430
<INTEREST-INCOME> 248,237
<OTHER-INCOME> 0
<EXPENSES-NET> 3,197,121
<NET-INVESTMENT-INCOME> 167,546
<REALIZED-GAINS-CURRENT> 10,781,853
<APPREC-INCREASE-CURRENT> 1,272,361
<NET-CHANGE-FROM-OPS> 12,221,760
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3,655,308
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,656,518
<NUMBER-OF-SHARES-REDEEMED> 14,255,933
<SHARES-REINVESTED> 138,301
<NET-CHANGE-IN-ASSETS> (29,896,142)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,004,870
<OVERDISTRIB-NII-PRIOR> 862,540
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,732,925
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,347,045
<AVERAGE-NET-ASSETS> 172,752,625
<PER-SHARE-NAV-BEGIN> 17.320
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.950
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.380
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.930
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> International Series, Inc.
Federated International
Equity Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 148,452,766
<INVESTMENTS-AT-VALUE> 167,971,775
<RECEIVABLES> 4,645,652
<ASSETS-OTHER> 21,668
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172,639,095
<PAYABLE-FOR-SECURITIES> 2,082,406
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,228,495
<TOTAL-LIABILITIES> 5,310,901
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,972,561
<SHARES-COMMON-STOCK> 1,351,711
<SHARES-COMMON-PRIOR> 980,572
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,809,893)
<ACCUMULATED-NET-GAINS> 12,680,273
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,485,253
<NET-ASSETS> 23,628,922
<DIVIDEND-INCOME> 3,116,430
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<OTHER-INCOME> 0
<EXPENSES-NET> 3,197,121
<NET-INVESTMENT-INCOME> 167,546
<REALIZED-GAINS-CURRENT> 10,781,853
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<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 788,772
<NUMBER-OF-SHARES-REDEEMED> 440,071
<SHARES-REINVESTED> 22,438
<NET-CHANGE-IN-ASSETS> (29,896,142)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 862,540
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,347,045
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<PER-SHARE-NAV-BEGIN> 17.040
<PER-SHARE-NII> (0.100)
<PER-SHARE-GAIN-APPREC> 0.920
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.380
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.480
<EXPENSE-RATIO> 2.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> International Series,
Inc.
Federated International
Equity Fund
Class C Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 148,452,766
<INVESTMENTS-AT-VALUE> 167,971,775
<RECEIVABLES> 4,645,652
<ASSETS-OTHER> 21,668
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<TOTAL-ASSETS> 172,639,095
<PAYABLE-FOR-SECURITIES> 2,082,406
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,228,495
<TOTAL-LIABILITIES> 5,310,901
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,972,561
<SHARES-COMMON-STOCK> 511,624
<SHARES-COMMON-PRIOR> 449,814
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,809,893)
<ACCUMULATED-NET-GAINS> 12,680,273
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<ACCUM-APPREC-OR-DEPREC> 19,485,253
<NET-ASSETS> 8,841,359
<DIVIDEND-INCOME> 3,116,430
<INTEREST-INCOME> 248,237
<OTHER-INCOME> 0
<EXPENSES-NET> 3,197,121
<NET-INVESTMENT-INCOME> 167,546
<REALIZED-GAINS-CURRENT> 10,781,853
<APPREC-INCREASE-CURRENT> 1,272,361
<NET-CHANGE-FROM-OPS> 12,221,760
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 169,128
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 482,587
<NUMBER-OF-SHARES-REDEEMED> 430,628
<SHARES-REINVESTED> 9,851
<NET-CHANGE-IN-ASSETS> (29,896,142)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,004,870
<OVERDISTRIB-NII-PRIOR> 862,540
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<GROSS-ADVISORY-FEES> 1,732,925
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<GROSS-EXPENSE> 3,347,045
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<PER-SHARE-NII> (0.110)
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> International Series, Inc.
Federated International
Income Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 204,460,057
<INVESTMENTS-AT-VALUE> 194,546,600
<RECEIVABLES> 6,556,432
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<TOTAL-ASSETS> 201,450,340
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229,847
<TOTAL-LIABILITIES> 229,847
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 221,781,271
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<SHARES-COMMON-PRIOR> 16,848,333
<ACCUMULATED-NII-CURRENT> 1,879,156
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,496,276)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (9,943,658)
<NET-ASSETS> 180,414,901
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,365,232
<OTHER-INCOME> 0
<EXPENSES-NET> 2,990,568
<NET-INVESTMENT-INCOME> 12,374,664
<REALIZED-GAINS-CURRENT> 2,723,605
<APPREC-INCREASE-CURRENT> (23,621,509)
<NET-CHANGE-FROM-OPS> (8,523,240)
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<DISTRIBUTIONS-OF-INCOME> 14,451,238
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 9,374,565
<NUMBER-OF-SHARES-REDEEMED> 9,757,111
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<NET-CHANGE-IN-ASSETS> (23,154,325)
<ACCUMULATED-NII-PRIOR> 5,287,565
<ACCUMULATED-GAINS-PRIOR> (14,956,181)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,615,465
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,488,437
<AVERAGE-NET-ASSETS> 215,650,463
<PER-SHARE-NAV-BEGIN> 11.920
<PER-SHARE-NII> 0.630
<PER-SHARE-GAIN-APPREC> (1.070)
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<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> International Series,
Inc.
Federated International
Income Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 204,460,057
<INVESTMENTS-AT-VALUE> 194,546,600
<RECEIVABLES> 6,556,432
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<TOTAL-ASSETS> 201,450,340
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229,847
<TOTAL-LIABILITIES> 229,847
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 221,781,271
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<SHARES-COMMON-PRIOR> 726,640
<ACCUMULATED-NII-CURRENT> 1,879,156
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,496,276)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (9,943,658)
<NET-ASSETS> 12,520,986
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,365,232
<OTHER-INCOME> 0
<EXPENSES-NET> 2,990,568
<NET-INVESTMENT-INCOME> 12,374,664
<REALIZED-GAINS-CURRENT> 2,723,605
<APPREC-INCREASE-CURRENT> (23,621,509)
<NET-CHANGE-FROM-OPS> (8,523,240)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 678,030
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 652,967
<NUMBER-OF-SHARES-REDEEMED> 242,871
<SHARES-REINVESTED> 41,746
<NET-CHANGE-IN-ASSETS> (23,154,325)
<ACCUMULATED-NII-PRIOR> 5,287,565
<ACCUMULATED-GAINS-PRIOR> (14,956,181)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,615,465
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,488,437
<AVERAGE-NET-ASSETS> 215,650,463
<PER-SHARE-NAV-BEGIN> 11.890
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> (1.080)
<PER-SHARE-DIVIDEND> 0.750
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.620
<EXPENSE-RATIO> 2.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> International Series,
Inc.
Federated International
Income Fund
Class C Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 204,460,057
<INVESTMENTS-AT-VALUE> 194,546,600
<RECEIVABLES> 6,556,432
<ASSETS-OTHER> 347,308
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 201,450,340
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229,847
<TOTAL-LIABILITIES> 229,847
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 221,781,271
<SHARES-COMMON-STOCK> 779,440
<SHARES-COMMON-PRIOR> 1,259,204
<ACCUMULATED-NII-CURRENT> 1,879,156
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,496,276)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (9,943,658)
<NET-ASSETS> 8,284,606
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,365,232
<OTHER-INCOME> 0
<EXPENSES-NET> 2,990,568
<NET-INVESTMENT-INCOME> 12,374,664
<REALIZED-GAINS-CURRENT> 2,723,605
<APPREC-INCREASE-CURRENT> (23,621,509)
<NET-CHANGE-FROM-OPS> (8,523,240)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 917,505
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 417,391
<NUMBER-OF-SHARES-REDEEMED> 967,042
<SHARES-REINVESTED> 69,887
<NET-CHANGE-IN-ASSETS> (23,154,325)
<ACCUMULATED-NII-PRIOR> 5,287,565
<ACCUMULATED-GAINS-PRIOR> (14,956,181)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,615,465
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,488,437
<AVERAGE-NET-ASSETS> 215,650,463
<PER-SHARE-NAV-BEGIN> 11.890
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> (1.080)
<PER-SHARE-DIVIDEND> 0.740
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.630
<EXPENSE-RATIO> 2.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
