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
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Pre-Effective Amendment No. ..........................
Post-Effective Amendment No. 34 ....................... X_
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _ X
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Amendment No. 29 ....................................... _X
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INTERNATIONAL SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X_ on January 31, 1999 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
PROSPECTUS
FEDERATED INTERNATIONAL EQUITY FUND
A Portfolio of International Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking to obtain a total return on its assets by investing
primarily in equity securities of companies based outside the United States.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 7
How is the Fund Sold? 9
How to Purchase Shares 9
How to Redeem and Exchange Shares 11
Account and Share Information 13
Who Manages the Fund? 14
Financial Information 15
</TABLE>
JANUARY 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to obtain a total return on its assets. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the strategies and policies described in this
prospectus.
The Fund's total return will consist of two components: (1) changes in the
market value of its portfolio securities (both realized and unrealized
appreciation), and (2) income received from its portfolio securities. The Fund
expects that changes in market value will comprise the largest component of its
total return.
This investment objective may be changed by the Fund's Directors without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The investment
adviser (Adviser) manages the Fund based on the view that international equity
markets are inefficient at pricing securities and that careful security
selection offers the best potential for superior long-term investment returns.
Selection of industry and country are secondary considerations.
Using its own quantitative process, the Adviser ranks the future performance
potential of companies by evaluating each company's earnings potential and
management quality as well as reviewing the company's financial statements and
earnings forecasts. The Adviser then evaluates the sustainability of the
company's current growth trends and potential catalysts for increased growth.
Considering this fundamental analysis, the Adviser selects the most promising
companies for the Fund's portfolio.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. fluctuations in the value of equity securities in foreign securities markets,
and
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies.
An investment in the Fund involves additional risks such as risks of foreign
investing, sector and regional risks and Euro risks.
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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
"Risk/Return Bar Chart and Table omitted. See IEFPROappx.doc."
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, returns would be less than those shown.
Within the period shown in the chart, the Fund's Class A Shares highest
quarterly return was 24.31% (quarter ended March 31, 1998). Its lowest quarterly
return was (19.77)% (quarter ended September 30, 1990).
Average Annual Total Return
Average Annual Return for the Fund's Class A, Class B and Class C Shares,
compared to the Morgan Stanley Capital International Europe, Australia, and Far
East Index (EAFE).
<TABLE>
<CAPTION>
Calendar Period Class A Class B Class C EAFE
<S> <C> <C> <C> <C>
1 Year 17.85% 18.24% 22.79% 20.00%
5 Years 7.39% -- 7.68% 9.19%
10 Years 7.10% -- -- 20.64%
</TABLE>
1 The Fund's Class A, Class B, and Class C Shares start of performance dates
were August 17, 1984, September 28, 1994, and April 1, 1993, respectively.
The table shows the Fund's Class A, Class B and Class C Shares average annual
total returns averaged over a period of years relative to the EAFE.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you
can analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
FEDERATED INTERNATIONAL EQUITY FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
<TABLE>
<CAPTION>
Shareholder Fees
Fees Paid Directly From Your Investment Class A Class B Class C
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or None 5.50% 1.00%
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a None None None
percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 1.00% 1.00% 1.00%
Distribution (12b-1) Fee None 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses 0.38% 0.38% 0.38%
Total Annual Fund Operating Expenses 1.63% 2.38%1 2.38%
</TABLE>
1 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund's Class A, B, and C Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Class A, B, and C
Shares for the time periods indicated and then redeem all of your shares at the
end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that the
Fund's Class A, B, and C Shares operating expenses are as shown in the Table and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
Class A Shares
<S> <C> <C> <C> <C>
Expenses assuming $707 $1,036 $1,388 $2,377
redemption
Expenses assuming no $707 $1,036 $1,388 $2,377
redemption
Class B Shares
Expenses assuming $791 $1,142 $1,470 $2,530
redemption
Expenses assuming no $241 $ 742 $1,270 $2,530
redemption
Class C Shares
Expenses assuming $341 $ 742 $1,270 $2,716
redemption
Expenses assuming no $241 $ 742 $1,270 $2,716
redemption
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The adviser
manages the Fund based on the view that international equity markets are
inefficient at pricing securities and that careful security selection offers the
best potential for superior long-term investment returns. Selection of industry
and country are secondary considerations.
Using its own quantitative process, the Adviser ranks the future performance
potential of companies. The Adviser evaluates each company's earnings potential
in light of its current valuation to narrow the list of attractive companies.
The Adviser then evaluates management quality and may meet with company
representatives, company suppliers, customers, or competitors. The Adviser also
reviews the company's financial statements and forecasts of earnings. Based on
this information, the Adviser evaluates the sustainability of the company's
current growth trends and potential catalysts for increased growth. Using this
type of fundamental analysis, the Adviser selects the most promising companies
for the Fund's portfolio.
With respect to the Fund's investments in developed markets, companies may be
grouped together in broad categories called business sectors. The Adviser may
emphasize certain business sectors in the portfolio that exhibit stronger growth
potential or higher profit margins.
The Fund will not invest more than 20% of its assets in companies located in
emerging markets. In selecting emerging markets countries in which to invest,
the Adviser reviews the country's economic outlook, its interest and inflation
rates, and the political and foreign exchange risk of investing in a particular
country. The Adviser then analyzes companies located in particular emerging
market countries.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
What are the Principal Securities in Which the Fund Invests?
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock.
What are the Specific Risks of Investing in the Fund?
The specific risks associated with foreign securities are as follows:
CURRENCY RISKS
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
RISKS OF FOREIGN INVESTING
, Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack financial controls and reporting standards, or regulatory
requirements comparable to those applicable to U.S. companies. These factors
may prevent the Fund and its Adviser from obtaining information concerning
foreign companies that is as frequent, extensive and reliable as the
information available concerning companies in the United States.
EURO RISKS
. The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
LIQUIDITY RISKS
. Trading opportunities are more limited for equity securities issued by
companies located in emerging markets. This may make it more difficult to
sell or buy a security at a favorable price or time. Consequently, the Fund
may have to accept a lower price to sell a security, sell other securities to
raise cash or give up an investment opportunity, any of which could have a
negative effect on the Fund's performance. Infrequent trading may also lead
to greater price volatility.
The specific risks associated with equity securities are as follows:
STOCK MARKET RISKS
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline and you could lose money.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
SECTOR AND REGIONAL RISKS
. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or as the market as a whole. As the
Adviser allocates more of the Fund's portfolio holdings to a particular
sector, or geographic region, the Fund's performance will be more susceptible
to any economic, business or other developments which generally affect that
sector or geographic region.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV) plus any applicable
front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The Fund's current NAV and public offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
Minimum
Initial/
Subsequent
Investment Maximum Sales Charge
Shares Offered Amounts1
Contingent
Front-End Deferred
Sales Sales
Charge2 Charge3
<S> <C> <C> <C>
Class A $1500/$100 5.50% 0.00%
Class B $1500/$100 None 5.50%
Class C $1500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be invested
in Class A Shares instead of Class B Shares to maximize your return and
minimize the sales charges and marketing fees. Accounts held in the name of
an investment professional may be treated differently. Class B Shares will
automatically convert into Class A Shares after eight full years from the
purchase date. This conversion is a non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering
price.See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than$100,000 4.50% 4.71%
$100,000 but less than$250,000 3.75% 3.90%
$250,000 but less than$500,000 2.50% 2.56%
$500,000 but less than$1million 2.00% 2.04%
$1 million or greater/1/ 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales
charge; combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
- of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales
charge; or
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director [Trustee] or employee of the Fund, the Adviser, the Distributor
and their affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
Class A Shares
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.
<TABLE>
<CAPTION>
Class B Shares
Shares Held Up To: CDSC
<S> <C>
1 year 5.50%
2 years 4.75%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%
</TABLE>
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year
of the purchase date.
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals that did not receive advanced
sales payments; or
. if after you purchase Shares you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account
If your redemption qualifies, you or your investment professional
should notify the Distributor at the time of redemption to eliminate the CDSC.
If the Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC;
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund); and
. then, the CDSC is calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
investors who wish to spread their investments beyond the United States and are
prepared to accept the particular risks associated with these investments,
directly or through investment professionals. When the Distributor receives
sales charges and marketing fees, it may pay some or all of them to investment
professionals. The Distributor and its affiliates may pay out of their assets
other amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class B Shares and Class C Shares.Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the
Class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all Shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last thirty days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction. The Fund may modify or terminate the exchange privilege at
any time. The Fund's management or investment adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading that is detrimental to the Fund and other shareholders. If
this occurs, the Fund may terminate the availability of exchanges to that
shareholder and may bar that shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. your account is at least one year old;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem only at
a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain.Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns.Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund.Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily capital gains.Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. The Adviser manages the
Fund's assets, including buying and selling portfolio securities. The Adviser's
address is 175 Water Street, New York, NY 10038-4965.
The Fund's portfolio managers and investment analysts are:
Drew J. Collins
Drew J. Collins has been the Fund's portfolio manager since September 1995. Mr.
Collins joined Federated in 1995 as a Senior Portfolio Manager and a Senior Vice
President of the Fund's investment adviser. Mr. Collins served as 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.
Henry A. Frantzen
Henry A. Frantzen has been the Fund's portfolio manager since September 1995.
Mr. Frantzen joined Federated in 1995 as an Executive Vice President of the
Fund's investment adviser. Mr. Frantzen is the Chief Investment Officer
responsible for the Global and International funds in the Federated Fund
Complex. Mr. Frantzen served as Chief Investment Officer of international
equities at Brown Brothers Harriman & Co. from 1992 until 1995.
John Quartarolo
John Quartarolo is a Senior Investment Analyst who assists the portfolio
managers in selecting and monitoring the securities in which the Fund invests.
Mr. Quartarolo joined Federated in December 1998. He was an Industry Analyst and
later became an Assistant Vice President/Industry Analyst, Global Securities
Research with Merrill Lynch & Co., Inc. from January 1996 through November 1998.
From July 1993 to January 1996, Mr. Quartarolo was a ratings analyst for
Standard & Poors. Mr. Quartarolo is a Chartered Financial Analyst. He earned his
B.B.A. from Hofstra University.
Anthony Graziano
Anthony Graziano is an Investment Analyst who assists the portfolio managers in
selecting and monitoring the securities in which the Fund invests. Mr. Graziano
joined Federated in July 1997. He earned his M.B.A. from the University of
Virginia.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights_Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.93 $ 17.32 $ 17.89 $ 18.53 $ 16.49
Income from Investment Operations:
Net investment income (loss) (0.01)1 0.041 0.03 0.09 0.15
Net realized and unrealized gain (loss) 2.99 0.95 1.38 0.17 1.96
on investments and foreign currency
TOTAL FROM INVESTMENT 2.98 0.99 1.41 0.26 2.11
OPERATIONS
Less Distributions:
Distributions from net investment income (0.09) (0.003) (0.07)
TOTAL DISTRIBUTIONS FROM NET (0.09) (0.003) (0.07)
INVESTMENT INCOME
Distributions from net realized gain on (1.35) (0.38) (1.89) (0.90)
investments and foreign currency
transactions
TOTAL DISTRIBUTIONS (1.35) (0.38) (1.98) (0.90) (0.07)
Net Asset Value, End of Period $ 19.56 $ 17.93 $ 17.32 $ 17.89 $ 18.53
Total Return/2/ 17.78% 5.89% 8.63% 1.60% 12.82%
Ratios to Average Net Assets:
Expenses 1.63% 1.71% 1.68% 1.57% 1.61%
Net investment income (loss) (0.06%) 0.23% 0.15% 0.42%
Expense waiver/reimbursement/3/ 0.10% 0.15% 0.18%
Supplemental Data:
Net assets, end of period (000 omitted) $172,160 $134,858 $172,938 $191,911 $261,178
Portfolio turnover 243% 210% 119% 166% 73%
</TABLE>
1 Amount based on average outstanding Shares.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 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, dated November 30, 1998, which can be obtained free of charge.
Financial Highlights_Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996 1995 1994/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.48 $ 17.04 $ 17.70 $18.50 $ 19.61
Income from Investment Operations:
Net investment income (loss) (0.16)/2/ (0.10)/2/ (0.03) (0.08) (0.01)
Net realized and unrealized gain (loss) on 2.92 0.92 1.26 0.18 (1.10)
investments and foreign currency
TOTAL FROM INVESTMENT OPERATIONS 2.76 0.82 1.23 0.10 (1.11)
Less Distributions:
Distributions from net investment income
(0.00)/3/
Distributions in excess of net investment 0.00
income
Total distributions from net investment 0.00
income
Distributions from net realized gain on (1.35) (0.38) (1.89) (0.90)
investments and foreign currency
transactions
TOTAL DISTRIBUTIONS (1.35) (0.38) (1.89) (0.90)
Net Asset Value, End of Period $ 18.89 $ 17.48 $ 17.04 $17.70 $ 18.50
Total Return/4/ 16.92% 4.97% 7.59% 0.6%/8/ (5.27%)/5/
Ratios to Average Net Assets:
Expenses 2.38% 2.56% 2.58% 2.52% 2.59%/5/
Net investment income (loss) (0.84%) (0.59%) (0.74%) (0.52%) (0.88%)/5/
Supplemental Data:
Net assets, end of period (000 omitted) $ 35,689 $ 23,629 $ 16,707 $6,370 $ 1,214
Portfolio turnover 243% 210% 119% 166% 73%
</TABLE>
1 Reflects operations for the period from September 19, 1994 (date of initial
public investment) to November 30, 1994.
2 Amount based on average outstanding Shares.
3 Distributions from net investment income is less than $0.01 per share.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated November 30, 1998, which can be obtained free of charge.
Financial HighlightsClass C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.28 $ 16.85 $17.50 $ 18.30 $16.41
Income from Investment Operations:
Net investment income (loss) (0.16)/1/ (0.11)/1/ (0.10) (0.12) (0.05)
Net realized and unrealized gain (loss) on 2.89 0.92 1.34 0.22 1.98
investments and foreign currency
TOTAL FROM INVESTMENT OPERATIONS 2.73 0.81 1.24 0.10 1.93
Less Distributions:
Distributions from net investment income 0.00/2/ (0.00)/2/
Distributions in excess of net investment (0.04)
income/3/
TOTAL DISTRIBUTIONS FROM NET INVESTMENT 0.00 (0.00) (0.04)
INCOME
Distributions from net realized gain on (1.35) (0.38) (1.89) (0.90)
investments and foreign currency transactions
TOTAL DISTRIBUTIONS (1.35) (0.38) (1.89) (0.90) (0.04)
Net Asset Value, End of Period $ 18.66 $ 17.28 $16.85 $ 17.50 $18.30
Total Return/4/ 16.94% 4.96% 7.75% 0.69% 11.75%
Ratios to Average Net Assets:
Expenses 2.38% 2.56 2.57% 2.46% 2.55%
Net investment income (loss) (0.83%) (0.67%) (0.72%) (0.47%) (0.91%)
Expense waiver/reimbursement/5/ 0.00% 0.00% 0.01% 0.04% 0.00%
Supplemental Data:
Net assets, end of period (000 omitted) $ 14,145 $ 8,841 $7,580 $ 7,146 $8,836
Portfolio turnover 243% 210% 119% 166% 73%
</TABLE>
1 Amount based on average outstanding Shares.
2 Distribution from net investment income is less than $0.01 per share.
3 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.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 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, dated November 30, 1998, which can be obtained free of charge.
[FEDERATED LOGO]
Federated
International
Equity Fund
A Portfolio of International Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
JANUARY 31, 1999
A Statement of Additional Information (SAI) dated January 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov.You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[FEDERATED LOGO]
Federated International Equity Fund
Federated Investors Funds
Federated Investors Tower
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-3984
Cusip 46031P308
Cusip 46031P605
Cusip 46031P407
G00692-02-ABC (1/99)
The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class A Shares of Federated
International Equity Fund as of the calendar year-end for each of ten years.
The `y' axis reflects the "% Total Return" beginning with "-20%" and
increasing in increments of 10% up to 40%. The `x' axis represents calculation
periods for the last ten calendar years of the Federated International Equity
Fund's Class A Shares, beginning with December 31, 1989. The chart features ten
distinct vertical bars, each shaded in charcoal, and each visually representing
by height the total return percentages for the calendar year stated directly at
its base. The calculated total return percentage for the Class A Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1989 through 1998. The percentages noted are: 18.34%, (11.55%),
7.53%, (5.89%), 31.29%, 0.49%, 6.52%, 5.76%, 7.08%, and 24.68%, respectively.
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED INTERNATIONAL EQUITY FUND
A Portfolio of International Series, Inc.
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Class A Shares, Class B Shares,
and Class C Shares of Federated International Equity Fund (Fund), dated January
31, 1999. This SAI incorporates by reference the Fund's Annual Report. Obtain
the prospectus or the Annual Report without charge by calling 1-800-341-7400.
January 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
How to Buy Shares
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
CUSIP 46031P308
CUSIP 46031P605
CUSIP 46031P407
1010302B (1/99)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of International Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on February 11,
1991. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities.
The Corporation changed its name from FT Series, Inc., to International
Series, Inc. on March 15, 1994.
The Board of Directors (the Board) has established three classes of shares
of the Fund, known as Class A Shares, Class B Shares, and Class C Shares
(Shares). This SAI relates to all classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United
States. The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced,
services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies.
Along with the risks normally associated with domestic securities of the same
type, foreign securities are subject to currency risks and risks of foreign
investing. Trading in certain foreign markets is also subject to liquidity
risks.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
Receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities 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. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets,
after the issuer pays its liabilities. The Fund cannot predict the income it
will receive from equity securities because issuers generally have discretion as
to the payment of any dividends or distributions. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes additional types of equity securities in which the Fund
invests.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on common
stock. Preferred stocks may also permit the issuer to redeem the stock.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES
Entities such as limited partnerships, limited liability companies,
business trusts and companies organized outside the United States may issue
securities comparable to common or preferred stock.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.
<PAGE>
WARRANTS
Warrants give the Fund the option to buy the issuer's equity securities at
a specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if the
price of the stock does not rise above the exercise price by the expiration
date. This increases the market risks of warrants as compared to the underlying
security. Rights are the same as warrants, except companies typically issue
rights to existing stockholders.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the government of a foreign
country.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a foreign governmental agency
or other government sponsored entity acting under foreign governmental authority
(a GSE). Foreign governments support some GSEs with its full, faith and credit.
Other GSEs receive support through governmental subsidies, loans or other
benefits. A few GSEs have no explicit financial support, but are regarded as
having implied support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risks, but not as low as
treasury securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most prevalent
types of corporate debt securities. The Fund may also purchase interests in bank
loans to companies. The credit risks of corporate debt securities vary widely
among issuers. The credit risk of an issuer's debt security may also vary based
on its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated) securities.
This means that the issuer might not make payments on subordinated securities
while continuing to make payments on senior securities. In addition, in the
event of bankruptcy, holders of senior securities may receive amounts otherwise
payable to the holders of subordinated securities. Some subordinated securities,
such as trust preferred and capital securities notes, also permit the issuer to
defer payments under certain circumstances. For example, insurance companies
issue securities known as surplus notes that permit the insurance company to
defer any payment that would reduce its capital below regulatory
requirements.
<PAGE>
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Fund has the
option to exchange for equity securities at a specified conversion price. The
option allows the Fund to realize additional returns if the market price of the
equity securities exceeds the conversion price. For example, the Fund may hold
fixed income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities. Convertible securities have lower yields
than comparable fixed income securities. In addition, at the time a convertible
security is issued the conversion price exceeds the market value of the
underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment. The Fund treats convertible securities as both fixed income
and equity securities for purposes of its investment policies and limitations,
because of their unique characteristics.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The fixed income securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by Standard & Poor's or A by Moody's
Investors Service, Inc., or, if unrated, judged by the Adviser to be of
comparable quality. The Adviser will determinate whether a security is
investment grade based upon the credit ratings given by one or more nationally
recognized rating services. For example, Standard & Poor's, a rating service,
assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on
their assessment of the likelihood of the issuer's inability to pay interest or
principal (default) when due on each security. Lower credit ratings correspond
to higher credit risk. If a security has not received a rating, the Fund must
rely entirely upon the Adviser's credit assessment that the security is
comparable to investment grade.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based
upon changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities
exchanges. In this case, the exchange sets all the terms of the contract except
for the price. Investors make payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to close out their contracts by entering into offsetting
contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract. The Fund may trade in the following types
of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly referred
to as selling a contract or holding a short position in the asset. Futures
contracts are considered to be commodity contracts. Futures contracts traded OTC
are frequently referred to as forward contracts. The Fund can buy or sell
futures contracts on portfolio securities or indexes and engage in foreign
currency forward contracts.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
Write call options on portfolio securities and securities which the Fund
has the right to obtain without payment of further consideration or for which it
has segregated cash in the amount of any additional consideration to generate
income from premiums, and in anticipation of a decrease or only limited increase
in the value of the underlying asset. 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.
Write put options on all or any portion of its portfolio of securities(to
generate income from premiums, and in anticipation of an increase or only
limited decrease in the value of the underlying asset). In writing puts, there
is a risk that the Fund may be required to take delivery of the underlying asset
when its current market price is lower than the exercise price.
Write call option and purchase put options on financial futures contracts
as a hedge to attempt to protect securities in its portfolio against decreases
in value or as a hedge against rising purchase prices of securities eligible for
purchase by the Fund. When the Fund writes options on futures contracts, it will
be subject to margin requirements similar to those applied to futures contracts.
SWAPS
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
CURRENCY SWAPS
Currency swap agreements provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.
HYBRID INSTRUMENTS
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark. The risks of investing in hybrid instruments
reflect a combination of the risks of investing in securities, options, futures
and currencies, and depend upon the terms of the instrument. Thus, an investment
in a hybrid instrument may entail significant risks in addition to those
associated with traditional fixed income or convertible securities. Hybrid
instruments are also potentially more volatile and carry greater market risks
than traditional instruments.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund
is the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase agreement
may be viewed as a type of borrowing by the Fund. Reverse repurchase agreements
are subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
<PAGE>
WHEN ISSUED TRANSACTIONS
When issued transactions are arrangements in which the Fund buys securities
for a set price, with payment and delivery of the securities scheduled for a
future time. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to buy the securities and reflects their
value in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, when issued
transactions create market risks for the Fund. When issued transactions also
involve credit risks in the event of a counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund may
pay administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker. Securities lending activities are subject to market
risks and credit risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts
or special transactions, the Fund will either own the underlying assets, enter
into an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INVESTMENT RISKS
CURRENCY RISKS
o Exchange rates for currencies fluctuate daily. The combination of
currency risk and market risks tends to make securities traded in foreign
markets more volatile than securities traded exclusively in the U.S.
o The Adviser attempts to manage currency risk by limiting the amount the
Fund invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
<PAGE>
RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections. Securities
in foreign markets may also be subject to taxation policies that reduce returns
for U.S. investors.
o Foreign countries may have restrictions on foreign ownership of
securities or may impose exchange controls, capital flow restrictions or
repatriation restrictions which could adversely affect the liquidity of the
Fund's investments.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack financial controls and reporting standards, or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
EURO RISKS
o The Fund makes significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU). Therefore,
the exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
LIQUIDITY RISKS
o Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower price
to sell a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading may also lead to greater price volatility.
o Liquidity risk also refers to the possibility that the Fund may not be
able to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or keep
the position open, and the Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
STOCK MARKET RISKS
o The value of equity securities in the Fund's portfolio will rise and
fall. These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio stocks
or general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
o The Adviser attempts to manage market risk by limiting the amount the
Fund invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
SECTOR AND REGIONAL RISKS
o Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or as the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, or
geographic region, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector or
geographic region.
<PAGE>
RISKS RELATED TO INVESTING FOR GROWTH
o DUE TO THEIR RELATIVELY HIGH VALUATIONS, GROWTH STOCKS ARE TYPICALLY MORE
VOLATILE THAN VALUE STOCKS. FOR INSTANCE, THE PRICE OF A GROWTH STOCK MAY
EXPERIENCE A LARGER DECLINE ON A FORECAST OF LOWER EARNINGS, A NEGATIVE
FUNDAMENTAL DEVELOPMENT, OR AN ADVERSE MARKET DEVELOPMENT. FURTHER, GROWTH
STOCKS MAY NOT PAY DIVIDENDS OR MAY PAY LOWER DIVIDENDS THAN VALUE STOCKS. THIS
MEANS THEY DEPEND MORE ON PRICE CHANGES FOR RETURNS AND MAY BE MORE ADVERSELY
AFFECTED IN A DOWN MARKET COMPARED TO VALUE STOCKS THAT PAY HIGHER
DIVIDENDS.
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.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. 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.
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, 1998 and 1997, the
portfolio turnover rates were 243% and 210%, respectively.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
for all other securities, at fair value as determined in good faith by the
Board.
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, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are valued
according to the mean between the last bid and the last asked price for the
option as provided by an investment dealer or other financial institution that
deals in the option. The Board may determine in good faith that another method
of valuing such investments is necessary to appraise their fair market value.
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 its NAV, 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 Fund's Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
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.
<PAGE>
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
QUANTITY DISCOUNTS
Larger purchases of the same Share class reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same Share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT (CLASS A SHARES)
You can sign a Letter of Intent committing to purchase a certain amount of
the same class of Shares within a 13 month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the
next determined NAV, without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares
at NAV without any sales charge because there are nominal sales efforts
associated with their purchases:
o the Directors, employees, and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc. (Federated) on
December 31, 1997;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o trusts, pension or profit-sharing plans for these individuals.
FEDERATED LIFE MEMBERS
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
o through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
o as Liberty Account shareholders by investing through an affinity group
prior to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions
have been advanced to the investment professional selling Shares; the
shareholder has already paid a Contingent Deferred Sales Charge (CDSC), or
nominal sales efforts are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC
will be imposed on redemptions:
o following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70-1/2;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements;
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o of Shares held by the Directors, employees, and sales representatives of
the Fund, the Adviser, the Distributor and their affiliates; employees of
any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the
above persons; and
o of Shares originally purchased through a bank trust department, a
registered investment adviser or retirement plans where the third party
administrator has entered into certain arrangements with the Distributor or
its affiliates, or any other investment professional, to the extent that no
payments were advanced for purchases made through these entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales.
The Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual
marketing expenses. In no event will the Fund pay for any expenses of the
Distributor that exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be
paid in any one year may not be sufficient to cover the marketing related
expenses the Distributor has incurred. Therefore, it may take the Distributor a
number of years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the
Distributor and/or Federated Shareholder Services Company (but not out of Fund
assets). The Distributor and/or Federated Shareholder Services Company may be
reimbursed by the Adviser or its affiliates.
Investment professionals receive such fees for providing
distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses relating to attendance at informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
o an amount equal to 0.50% of the NAV of Class A Shares under certain
qualified retirement plans as approved by the Distributor. (Such payments
are subject to a reclaim from the investment professional should the assets
leave the program within 12 months after purchase.)
o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
CLASS A SHARES
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF PUBLIC
OFFERING PRICE
First $1 - $5 0.75%
million
- ---------------------
Next $5 - $20 0.50%
million
- ---------------------
Over $20 million 0.25%
- ---------------------
For accounts with assets over $1 million, the dealer advance payments
resets annually to the first breakpoint on the anniversary of the first
purchase.
Class A Share purchases under this program may be made by Letter of Intent
or by combining concurrent purchases. The above advance payments will be paid
only on those purchases that were not previously subject to a front-end sales
charge and dealer advance payments. Certain retirement accounts may not be
eligible for this program.
A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase. The CDSC does
not apply under certain investment programs where the investment professional
does not receive an advance payment on the transaction including, but not
limited to, trust accounts and wrap programs where the investor pays an account
level fee for investment management.
HOW TO BUY SHARES
SUBACCOUNTING SERVICES
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations
imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940, the Fund is obligated to pay Share redemptions
to any one shareholder in cash only up to the lesser of $250,000 or 1% of the
net assets represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving the portfolio securities and selling them
before their maturity could receive less than the redemption value of the
securities and could incur certain transaction costs.
ACCOUNT AND SHARE 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 the
Corporation have equal voting rights, except that in matters affecting only a
particular Fund or class, only Shares of that Fund or class are entitled to
vote.
Directors may be removed by the Board or by shareholders at a special
meeting. A special meeting of shareholders will be called by the Board upon the
written request of shareholders who own at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
As of January 6, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: The Provident Bank,
Cincinnati, Ohio, 6.54% of Class A Shares; Hubco, Birmingham, Alabama, 33.18% of
Class C Shares; and Merrill Lynch Pierce Fenner & Smith, for the sole benefit of
its customers, Jacksonville, Florida, 14.47% of Class C Shares.
Shareholders owning 25% or more of outstanding Shares may be in control and
be able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income 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. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income 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 the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
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.
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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs
and for exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of two funds and the Federated Fund Complex is
comprised of 56 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.As of January 6, 1999, the Fund's Board and Officers as
a group owned less than 1% of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person
as defined in the Investment Company Act of 1940. The following symbol (#)
denotes a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NAME AGGREGATE TOTAL
BIRTHDATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
- ------------------------ FOR PAST 5 YEARS CORPORATION AND FUND COMPLEX
POSITION WITH
CORPORATION
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and Director or $0 $0 for the
Birthdate: July 28, 1924 Trustee of the Federated Fund Complex; Corporation and
Federated Investors Chairman and Director, Federated Investors, 54 other
Tower Inc.; Chairman and Trustee, Federated investment
1001 Liberty Avenue Advisers, Federated Management, and companies
Pittsburgh, PA Federated Research; Chairman and Director, in the Fund
CHAIRMAN and DIRECTOR Federated Research Corp., and Federated Complex
Global Research Corp.; Chairman, Passport
Research, Ltd.
- -------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
Birthdate: February 3, Complex; Director, Member of Executive the
1934 Committee, Children's Hospital of Corporation and
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, Ernst 54 other
Pittsburgh, PA & Young LLP; Director, MED 3000 Group, investment
DIRECTOR Inc.; Director, Member of Executive companies
Committee, University of Pittsburgh. in the Fund
Complex
- -------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1,405.25 $125,264.48 for
Birthdate: June 23, 1937 Complex; President, Investment Properties the
Wood/IPC Commercial Corporation; Senior Vice President, Corporation and
Dept. John R. Wood and Associates, Inc., 54 other
John R. Wood Realtors; Partner or Trustee in private investment
Associates, Inc. real estate ventures in Southwest Florida; companies
Realtors formerly: President, Naples Property in the Fund
3255 Tamiami Trial Management, Inc. and Northgate Village Complex
North Naples, FL Development Corporation.
DIRECTOR
- -------------------------
WILLIAM J. COPELAND Director or Trustee of the Federated Fund $1,405.25 $125,264.48 for
Birthdate: July 4, 1918 Complex; Director and Member of the the
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; Corporation and
Pittsburgh, PA formerly: Vice Chairman and Director, PNC 54 other
DIRECTOR Bank, N.A., and PNC Bank Corp.; Director, investment
Ryan Homes, Inc. companies
in the Fund
Previous Positions: Director, United Complex
Refinery; Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman, Pittsburgh
Civic Light Opera.
- -------------------------
- -------------------------
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
Birthdate: October 11, Complex; Professor of Medicine, University the
1932 of Pittsburgh; Medical Director, University Corporation and
3471 Fifth Avenue of Pittsburgh Medical Center - Downtown; 54other
Suite 1111 Hematologist, Oncologist, and Internist, investment
Pittsburgh, PA University of Pittsburgh Medical Center; companies
DIRECTOR Member, National Board of Trustees, in the Fund
Leukemia Society of America. Complex
- -------------------------
- -------------------------
PETER E. MADDEN Director or Trustee of the Federated Fund $1,277.32 $113,860.02 for
Birthdate: March 16, Complex; formerly: Representative, the
1942 Commonwealth of Massachusetts General Corporation and
One Royal Palm Way Court; President, State Street Bank and 54 other
100 Royal Palm Way Trust Company and State Street Corporation. investment
Palm Beach, FL companies
DIRECTOR Previous Positions: Director, VISA USA and in the Fund
VISA International; Chairman and Director, Complex
Massachusetts Bankers Association;
Director, Depository Trust Corporation.
- -------------------------
CHARLES F. MANSFIELD, Director or Trustee of some of the $0 $0 for the
JR. Federated Funds; Management Consultant. Corporation and
Birthdate: April 10, 25 other
1945 Previous Positions: Chief Executive investment
80 South Road Officer, PBTC International Bank; Chief companies
Westhampton Beach, NY Financial Officer of Retail Banking Sector, in the Fund
DIRECTOR Chase Manhattan Bank; Senior Vice Complex
President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb School
of Business, Hofstra University.
- -------------------------
JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
J.D., S.J.D. Complex; President, Law Professor, Duquesne the
Birthdate: December 20, University; Consulting Partner, Mollica & Corporation and
1932 Murray. 54 other
President, Duquesne investment
University Previous Positions: Dean and Professor of companies
Pittsburgh, PA Law, University of Pittsburgh School of in the Fund
DIRECTOR Law; Dean and Professor of Law, Villanova Complex
University School of Law.
- -------------------------
- -------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
Birthdate: June 21, 1935 Complex; Public the
4905 Bayard Street Relations/Marketing/Conference Planning. Corporation and
Pittsburgh, PA 54 other
DIRECTOR Previous Positions: National Spokesperson, investment
Aluminum Company of America; business owner. companies
in the Fund
Complex
- -------------------------
JOHN S. WALSH Director or Trustee of some of the $0 $0 for the
Birthdate: November 28, Federated Funds; President and Director, Corporation and
1957 Heat Wagon, Inc.; President and Director, 22 other
2007 Sherwood Drive Manufacturers Products, Inc.; President, investment
Valparaiso, IN Portable Heater Parts, a division of companies
DIRECTOR Manufacturers Products, Inc.; Director, in the Fund
Walsh & Kelly, Inc.; formerly, Vice Complex
President, Walsh & Kelly, Inc.
- -------------------------
GLEN R. JOHNSON Trustee, Federated Investors, Inc.; staff $0 $0 for the
Birthdate: May 2, 1929 member, Federated Securities Corp. Corporation and
Federated Investors 8 other
Tower investment
1001 Liberty Avenue companies
Pittsburgh, PA in the Fund
PRESIDENT Complex
- -------------------------
J. CHRISTOPHER DONAHUE+ President or Executive Vice President of $0 $0 for the
Birthdate: April 11, the Federated Fund Complex; Director or Corporation and
1949 Trustee of some of the Funds in the 16 other
Federated Investors Federated Fund Complex; President and investment
Tower Director, Federated Investors, Inc.; companies
1001 Liberty Avenue President and Trustee, Federated Advisers, in the Fund
Pittsburgh, PA Federated Management, and Federated Complex
EXECUTIVE VICE PRESIDENT Research; President and Director, Federated
Research Corp. and Federated Global
Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.
- -------------------------
<PAGE>
EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the
Birthdate: October 22, the Federated Fund Complex; President, Corporation and
1930 Executive Vice President and Treasurer of 1 other
Federated Investors some of the Funds in the Federated Fund investment
Tower Complex; Vice Chairman, Federated company
1001 Liberty Avenue Investors, Inc.; Vice President, Federated in the Fund
Pittsburgh, PA Advisers, Federated Management, Federated Complex
EXECUTIVE VICE PRESIDENT 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.
- -------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the
Birthdate: October 26, the Federated Fund Complex; Executive Vice Corporation and
1938 President, Secretary, and Director, 54 other
Federated Investors Federated Investors, Inc.; Trustee, investment
Tower Federated Advisers, Federated Management, companies
1001 Liberty Avenue and Federated Research; Director, Federated in the Fund
Pittsburgh, PA Research Corp. and Federated Global Complex
EXECUTIVE VICE Research Corp.; Director, Federated
PRESIDENT and SECRETARY Services Company; Director, Federated
Securities Corp.
- -------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the
Birthdate: June 17, Vice President - Funds Financial Services Corporation and
1954 Division, Federated Investors, Inc.; 54 other
Federated Investors Formerly: various management positions investment
Tower within Funds Financial Services Division of companies
1001 Liberty Avenue Federated Investors, Inc. in the Fund
Pittsburgh, PA Complex
TREASURER
- -------------------------
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birthdate: May 17, 1923 Funds in the Federated Fund Complex; Corporation and
Federated Investors Director or Trustee of some of the Funds in 6 other
Tower the Federated Fund Complex; Executive Vice investment
1001 Liberty Avenue President, Federated Investors, Inc.; companies
Pittsburgh, PA Chairman and Director, Federated Securities in the Fund
VICE PRESIDENT Corp. Complex
- -------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund and $0 $0 for the
Birthdate: November 28, various other Funds in the Federated Fund Corporation and
1942 Complex; Executive Vice President, 3 other
Federated Investors Federated Investment Counseling, Federated investment
Tower Global Research Corp., Federated Advisers, companies
1001 Liberty Avenue Federated Management, Federated Research, in the Fund
Pittsburgh, PA and Passport Research, Ltd.; Registered Complex
CHIEF INVESTMENT OFFICER Representative, Federated Securities Corp.;
Vice President, Federated Investors, Inc.;
Formerly: Executive Vice President,
Federated Investment Counseling
Institutional Portfolio Management Services
Division; Chief Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.
- -------------------------
DREW J. COLLINS Drew J. Collins has been the Fund's $0 $0 for the
Birthdate: December portfolio manager since September 1995. He Corporation and
19, 1956 is Vice President of the Corporation. Mr. one other
Federated Investors Collins joined Federated Investors in 1995 investment
Tower as A SENIOR PORTFOLIO MANAGER AND a Senior company
------------------------------
1001 Liberty Avenue Vice President of the Fund's investment in the Fund
Pittsburgh, PA adviser. Mr. Collins served as Vice Complex
VICE PRESIDENT 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.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for
the Fund.
The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Corporationor any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of Fund
Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser. When the Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at the following annual rate of the average aggregate daily net
assets of all Federated Funds as specified below:
MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250 million
- -------------------------
0.125 of 1% on the next $250 million
- -------------------------
0.100 of 1% on the next $250 million
- -------------------------
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments for a
fee based on Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Foreign instruments purchased by the
Fund are held by foreign banks participating in a network coordinated by State
Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent
subsidiary, Federated Shareholder Services Company, maintains all necessary
shareholder records. The Fund pays the transfer agent a fee based on the size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30,
<S> <C> <C> <C>
1998 1997 1996
Advisory Fee Earned $2,137,661 $1,732,925 $2,004,435
- ---------------------------------
Advisory Fee Reduction $0 $0 $0
- ---------------------------------
Brokerage Commissions $2,652,870 $4,321,392 $1,602,769
- ---------------------------------
Administrative Fee $185,000 $185,000 $185,000
- ---------------------------------
12b-1 Fee
- ---------------------------------
Class B Shares $233,953 ---- ----
- ---------------------------------
Class C Shares $93,921 ---- ----
- ---------------------------------
Shareholder Services Fee
- ---------------------------------
Class A Shares $425,124 ---- ----
- ---------------------------------
Class B Shares $77,984 ---- ----
- ---------------------------------
Class C Shares $31,307 ---- ----
- ---------------------------------
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund
assets, except for marketing (Rule 12b-1) fees and shareholder services fees,
which are borne only by the applicable Class of Shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and
Exchange Commission's (SEC) standard method for calculating performance
applicable to all mutual funds. The SEC also permits this standard performance
information to be accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect
of non-recurring charges, such as maximum sales charges, which, if excluded,
would increase the total return and yield. The performance of Shares depends
upon such variables as: portfolio quality; average portfolio maturity; type and
value of portfolio securities; changes in interest rates; changes or differences
in the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
Total returns given for the one-, five- ten-year and since inception
periods ended NOVEMBER 30, 1998.
<S> <C> <C> <C> <C>
1 Year 5 Years 10 Years Since Inception*
CLASS A SHARES
Total Return 11.32% 7.97% 6.28% 12.45%
1 Year 5 Years 10 Years Since Inception*
CLASS B SHARES
Total Return 11.42% NA NA 5.29%
1 Year 5 Years 10 Years Since Inception*
CLASS C SHARES
Total Return 15.94% 8.28% NA 9.13%
</TABLE>
* Class A Shares inception date was August 17, 1984.
Class B Shares inception date was September 28, 1994.
Class C Shares inception date was April 1, 1993.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value
of Shares over a specific period of time, and includes the investment of income
and capital gains distributions.
The average annual total return for Shares 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 NAV 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 the annual reinvestment of all
dividends and distributions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete
view of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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.
o 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.
o 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.
o 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.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 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.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9
money market funds and 15 bond funds with assets approximating $22.8 billion and
$7.1 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 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 $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated
advisory companies.
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 $5 trillion to the more than 7,300 funds
available, according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety
of investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, 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
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include 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 ratings 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, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November
30, 1998 are incorporated herein by reference to the Annual Report to
Shareholders of Federated International Equity Fund dated November 30, 1998.
INVESTMENT RATINGS
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
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 repayments. 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. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B-rating.
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. 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 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 IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
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 obligor'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 obligor's 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 imminent default in payment of interest or principal.
DDD, DD, and D--Bonds 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.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (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.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation 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.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
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 Investment Management 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
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Federated International Income Fund
A Portfolio of International Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking a high level of current income in U.S. dollars consistent
with prudent investment risk by investing primarily in fixed income securities
of foreign governments and their agencies. The Fund has a secondary objective
of capital appreciation.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What do Shares Cost? 7
How is the Fund Sold? 9
How to Purchase Shares 10
How to Redeem and Exchange Shares 11
Account and Share Information 14
Who Manages the Fund? 14
Financial Information 16
</TABLE>
JANUARY 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
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. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in high quality
fixed income securities with a minimum credit rating of A of foreign governments
and their agencies. The Fund will endeavor to maintain a dollar-weighted average
rating of its portfolio securities of AA. The Fund emphasizes investments in
members of the Organization for Economic Cooperation and Development which have
received investment grade ratings for securities denominated in their local
currency.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies, and
. a general rise in interest rates.
The Fund is non-diversified. Compared to diversified mutual funds, it may invest
a higher percentage of its assets among fewer issuers of portfolio securities.
This increases the Fund's risk by magnifying the impact (positively or
negatively) that any one issuer has on the Fund's Share price and performance.
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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
[Risk/Return Bar Chart and Table]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, returns would be less than those shown.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 11.37% (quarter ended September 30, 1993). Its lowest
quarterly return was (5.19)% (quarter ended March 31, 1997).
Average Annual Total Return
Average Annual Return for the Fund's Class A, Class B and Class C Shares,
compared to the J.P. Morgan Global Traded Index Excluding U.S. (JPMGXUS).
<TABLE>
<CAPTION>
Calendar Period Class A Class B Class C JPMGXUS
<S> <C> <C> <C> <C>
1 Year 9.28% 8.16% 12.74% 18.30%
5 Years 5.22% -- 5.40% 8.79%
Life of Fund/1/ 8.84% 8.23% 8.90% 10.45%
</TABLE>
/1/ The Fund's Class A, Class B, and Class C Shares start of performance dates
were June 4, 1991, September 28, 1994, and April 1, 1993, respectively.
The table shows the Fund's Class A, Class B and Class C Shares average
annual total returns averaged over a period of years relative to the JPMGXUS.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you
can analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
FEDERATED INTERNATIONAL INCOME FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
<TABLE>
<CAPTION>
Shareholder Fees
Fees Paid Directly From Your Investment Class
A Class B Class C
<S>
<C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).............
4.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption
proceeds, as applicable)........................................................................
None 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a
percentage of offering price)...................................................................
None None None
Redemption Fee (as a percentage of amount redeemed, if applicable)...............................
None None None
Exchange Fee.....................................................................................
None None None
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/................................................................................
0.75% 0.75% 0.75%
Distribution (12b-1) Fee/3/......................................................................
0.25% 0.75% 0.75%
Shareholder Services Fee/4/......................................................................
0.25% 0.25% 0.25%
Other Expenses...................................................................................
0.32% 0.32% 0.32%
Total Annual Fund Operating Expenses.............................................................
1.57% 2.07%/5/ 2.07%
</TABLE>
/1/ Although not contractually obligated to do so, the adviser, distributor
and shareholder service provider waived certain amounts. These are shown
below along with the net expenses the Fund actually paid for the fiscal
year ended November 30, 1998.
Waiver of Fund Expenses............................ 0.24% 0.02% 0.02%
Total Actual Annual Fund Operating
Expenses (after waivers)........................... 1.33% 2.05% 2.05%
/2/ The adviser voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management
fee paid by the Fund (after the voluntary waiver) was 0.73% for the year
ended November 30, 1998.
/3/ For shareholders of Class A Shares, the distribution 12b-1 fee has been
reduced to reflect the voluntary waiver of a portion of the 12b-1 fee.
This voluntary reduction can be terminated at any time. The distribution
12b-1 fee paid by the Fund's Class A Shares (after the voluntary
reduction) was 0.10% for the year ended November 30, 1998.
/4/ The shareholder services fee for Class A Shares has been voluntarily
reduced. This voluntary reduction can be terminated at any time. The
shareholder services fee paid by the Fund's Class A Shares (after the
voluntary reduction) was 0.18% for the year ended November 30, 1998.
/5/ Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and C Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, B, and C
Shares for the time periods indicated and then redeem all of your shares at the
end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that the
Fund's Class A, B, and C Shares operating expenses are before waivers as shown
in the Table and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A
Expenses assuming
redemption $603 $ 923 $1,267 $2,233
Expenses assuming no
redemption $603 $ 923 $1,267 $2,233
Class B
Expenses assuming
redemption $760 $1,049 $1,314 $2,272
Expenses assuming no
redemption $210 $ 649 $1,114 $2,272
Class C
Expenses assuming
redemption $310 $ 649 $1,114 $2,400
Expenses assuming no
redemption $210 $ 649 $1,114 $2,400
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing primarily in fixed income
securities of foreign governments and their agencies which are members of the
Organization for Economic Cooperation and Development (OECD). The OECD is an
organization of 29 member countries which share the principles of the market
economy and pluralist democracy. The original 20 members of the OECD are located
in Western Europe and North America. More recently, Japan, Australia, New
Zealand, Finland, Mexico, the Czech Republic, Hungary, Poland and Korea have
joined. The Fund limits its investments to securities with a credit quality
equal to an A rating or better. The Fund endeavors to maintain a dollar-weighted
average credit rating of AA for its portfolio securities.
The investment adviser (Adviser) uses the J.P. Morgan Global Traded Index
Excluding U.S. Index (Index) as a starting point for selecting portfolio
securities. The Adviser looks for opportunities to enhance the Fund's
performance by diverging from the Index. Such opportunities may cause the
Adviser to weight the portfolio differently than the Index or to buy securities
not represented in the Index. Under ordinary market conditions, however, the
duration of the portfolio securities does not deviate more than 25% from the
duration of the Index. Duration measures the price sensitivity of a fixed income
security to changes in interest rates. The Fund will not invest more than 30% of
its assets in any one country.
The Adviser weighs several factors in selecting investments for the portfolio.
First, the Adviser analyzes a country's general economic condition and outlook,
including its interest rates, foreign exchange rates and trade balance. The
Adviser then analyzes the country's financial condition, including its credit
ratings, government budget, tax base, outstanding public debt and the amount of
public debt held outside the country. In connection with this analysis, the
Adviser also considers how developments in other countries in the region or the
world might affect these factors.
Using its analysis, the Adviser tries to identify countries with favorable
characteristics, such as a strengthening economy, favorable inflation rate,
sound budget policy or strong public commitment to repay government debt. The
Adviser then evaluates available investments in these countries based upon its
outlook for interest and foreign exchange rates. The Adviser tries to select
securities that offer the best potential returns consistent with its general
portfolio strategy.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
What are the Principal Securities in Which the Fund Invests?
FOREIGN SECURITIES
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time.
INVESTMENT RATINGS FOR HIGH QUALITY SECURITIES
The Adviser will determine the credit rating of a security based upon the credit
ratings given by one or more nationally recognized rating services. Rating
services assign ratings to securities based on their assessment of the
likelihood of the issuer's ability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to a rated security.
For example, the eligible ratings assigned by Standard & Poor's to high quality
securities are AAA, AA, and A.
What are the Specific Risks of Investing in the Fund?
CURRENCY RISKS
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
EURO RISKS
. The Fund makes significant investments in securities denominated in Euro, the
new single currency of the European Monetary union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
RISKS OF FOREIGN INVESTING
. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack financial controls and reporting standards, or regulatory
requirements comparable to those applicable to U.S. companies. These factors
may prevent the Fund and its Adviser from obtaining information concerning
foreign companies that is as frequent, extensive and reliable as the
information available concerning companies in the United States.
BOND MARKET RISKS
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations.
CREDIT RISKS
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment.
. Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
. The Fund is non-diversified. Compared to diversified mutual funds, it may
invest a higher percentage of its assets among fewer issuers of portfolio
securities. This increases the Fund's risk by magnifying the impact
(positively or negatively) that any one issuer has on the Fund's share
price and performance.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV) plus any applicable
front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The Fund's current NAV and public offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
Minimum Maximum Sales Charge
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Shares Offered Amounts/1/ Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $1500/$100 4.50% 0.00%
Class B $1500/$100 None 5.50%
Class C $1500/$100 None 1.00%
</TABLE>
/1/ The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be
invested in Class A Shares instead of Class B Shares to maximize your
return and minimize the sales charges and marketing fees. Accounts held in
the name of an investment professional may be treated differently. Class B
Shares will automatically convert into Class A Shares after eight full
years from the purchase date. This conversion is a non-taxable event.
/2/ Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."
/3/ See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than$250,000 3.75% 3.90%
$250,000 but less than$500,000 2.50% 2.56%
$500,000 but less than$1million 2.00% 2.04%
$1 million or greater/1/ 0.00% 0.00%
</TABLE>
/1/ A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase under
certain investment programs where an investment professional received an
advance payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales
charge;
. combining concurrent purchases of Shares:
--by you, your spouse, and your children under age 21; or
--of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales
charge; or
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director [Trustee] or employee of the Fund, the Adviser, the
Distributor and their affiliates, and the immediate family members of these
individuals.
If your investment qualifies for a reduction or elimination of the sales
charge, you or your investment professional should notify the Fund's
Distributor, Federated Securities Corp., at the time of purchase. If the
Distributor is not notified, you will receive the reduced sales charge only on
additional purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
Class A Shares
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.
<TABLE>
<CAPTION>
Class B Shares
Shares Held Up To: CDSC
<S> <C>
1 year 5.50%
2 years 4.75%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%
</TABLE>
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund
where the shares were held for the applicable CDSC holding period (other
than a money market fund);
. purchased through investment professionals that did not receive advanced
sales payments; or
. if after you purchase Shares you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC;
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund); and
. then, the CDSC is calculated using the share price at the time of purchase
or redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class
C Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
investors who wish to spread their investment, beyond the United States and are
prepared to accept the particular risks associated with these investments,
directly or through investment professionals. When the Distributor receives
sales charges and marketing fees, it may pay some or all of them to investment
professionals. The Distributor and its affiliates may pay out of their assets
other amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares, and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the
Class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all Shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last thirty days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established
when the account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. your account is at least one year old;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem only at
a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns.Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. The Adviser manages the
Fund's assets, including buying and selling portfolio securities. The Adviser's
address is 175 Water Street, New York, NY 10038-4965.
The Fund's portfolio managers and investment analyst are:
Robert M. Kowit
Robert M. Kowit has been the Fund's portfolio manager since December 1995. Mr.
Kowit joined Federated in 1995 as a Senior Portfolio Manager and 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/Portfolio Manager 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.
Micheal W. Casey, Ph.D.
Micheal W. Casey, Ph.D. has been the Fund's portfolio manager since January
1997. Mr. Casey joined Federated in 1996 as a Senior Investment Analyst and an
Assistant Vice President. Mr. Casey has served as a Portfolio Manager and a Vice
President of the Adviser since 1998. 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.
Roberto Sanchez-Dahl
Roberto Sanchez-Dahl is a Senior Investment Analyst who assists the portfolio
managers in selecting and monitoring the securities in which the Fund invests.
Mr. Sanchez-Dahl joined Federated in December 1997; from 1994 through November
1997, he served as an Emerging Markets Credit Associate with Goldman Sachs & Co.
Mr. Sanchez-Dahl earned his M.B.A. from Columbia School of Business.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights--Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 10.65 $ 11.92 $ 11.38 $ 10.52 $ 11.86
Income from Investment Operations:
Net investment income 0.52/1/ 0.63/1/ 0.74/1/ 0.79 0.70
Net realized and unrealized gain (loss)
on investments and foreign currency 0.53 (1.07) 0.67 0.84 (0.76)
TOTAL FROM INVESTMENT
OPERATIONS 1.05 (0.44) 1.41 1.63 (0.06
Less Distributions:
Distributions from net
investment income (0.48) (0.83) (0.87) (0.77) (0.63)
Total distributions from net realized
gain on investments and foreign
currency transactions -- -- -- -- (0.65)
TOTAL DISTRIBUTIONS (0.48) (0.83) (0.87) (0.77) (1.28)
Net Asset Value, End of Period $ 11.22 $ 10.65 $ 11.92 $ 11.38 $ 10.52
Total Return/2/ 10.22% (3.70)% 13.27% 16.12% (0.84)%
Ratios to Average Net Assets:
Expenses 1.33% 1.30% 1.30% 1.30% 1.30%
Net investment income 5.04% 5.83% 6.58% 6.79% 6.67%
Expense waiver/reimbursement/3/ 0.24% 0.26% 0.34% 0.40% 0.20%
Supplemental Data:
Net assets, end of period (000 omitted) $138,567 $180,415 $200,758 $173,905 $209,008
Portfolio turnover 37% 67% 92% 41% 136%
</TABLE>
/1/ Per share information presented is based upon monthly average number of
shares outstanding.
/2/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/3/ 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, dated November 30, 1998, which can be obtained free of charge.
Financial Highlights--Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996 1995
1994/1/
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.62 $ 11.89 $11.36 $10.51 $
10.21
Income from Investment Operations:
Net investment income 0.46/2/ 0.56/2/ 0.84/2/ 0.77
0.08
Net realized and unrealized gain (loss) on
investments and foreign currency 0.51 (1.08) 0.48 0.78
0.22
TOTAL FROM INVESTMENT OPERATIONS 0.97 (0.52) 1.32 1.55
0.30
Less Distributions:
Distributions from net investment income (0.40) (0.75) (0.79) (0.70)
- --
Net Asset Value, End of Period $ 11.19 $ 10.62 $11.89 $11.36 $
10.51
Total Return/3/ 9.45% (4.43)% 12.41% 15.28%
2.44%
Ratios to Average Net Assets:
Expenses 2.05% 2.06% 2.11% 2.10%
2.11%/4/
Net investment income 4.31% 5.06% 5.76% 5.76%
7.07%/4/
Expense waiver/reimbursement/5/ 0.02% -- 0.02% 0.10%
0.10%/4/
Supplemental Data:
Net assets, end of period (000 omitted) $13,174 $12,521 $8,641 $1,123 $
101
Portfolio turnover 37% 67% 92% 41%
136%
</TABLE>
/1/ Reflects operations for the period from September 19, 1994 (date of initial
public investment) to November 30, 1994.
/2/ Per share information presented is based upon the monthly average number of
shares outstanding.
/3/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/4/ Computed on an annualized basis.
/5/ 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, dated November 30, 1998, which can be obtained free of charge.
Financial Highlights--Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.63 $ 11.89 $ 11.36 $ 10.48 $ 11.84
Income from Investment Operations:
Net investment income 0.46/1/ 0.56/1/ 0.67/1/ 0.60 0.58
Net realized and unrealized gain (loss)
on investments and foreign currency 0.51 (1.08) 0.64 0.95 (0.72)
TOTAL FROM INVESTMENT
OPERATIONS 0.97 (0.52) 1.31 1.55 (0.14)
Less Distributions:
Distributions from net investment income (0.40) (0.74) (0.78) (0.67) (0.57)
Total distributions from net realized
gain on investments and foreign
currency transactions -- -- -- -- (0.65)
TOTAL DISTRIBUTIONS (0.40) (0.74) (0.78) (0.67) (1.22)
Net Asset Value, End of Period $11.20 $ 10.63 $ 11.89 $ 11.36 $ 10.48
Total Return/2/ 9.42% (4.42)% 12.31% 15.32% (1.54)%
Ratios to Average Net Assets:
Expenses 2.05% 2.06 2.09% 2.06% 2.05%
Net investment income 4.32% 5.10 5.80% 5.96% 6.00%
Expense waiver/reimbursement/3/ 0.02% -- 0.04% 0.14% 0.10%
Supplemental Data:
Net assets, end of period (000 omitted) $6,654 $ 8,285 $14,976 $12,015 $ 8,098
Portfolio turnover 37% 67 92% 41% 136%
</TABLE>
/1/ Per share information presented is based upon the monthly average number of
shares outstanding.
/2/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/3/ 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, dated November 30, 1998, which can be obtained free of charge.
[LOGO OF FEDERATED]
Federated International Income Fund
A Portfolio of International Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
JANUARY 31, 1999
A Statement of Additional Information (SAI) dated January 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[LOGO OF FEDERATED]
Federated International Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-3984
Cusip 46031P100
Cusip 46031P506
Cusip 46031P209
G00494-02-ABC (1/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C) Federated Investors, Inc.
[RECYCLE
LOGO]
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a non-diversified portfolio of International Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on February 11,
1991. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Corporation changed its name from FT
Series, Inc., to International Series, Inc. on March 15, 1994.
The Board of Directors (the Board) has established three classes of shares
of the Fund, known as Class A Shares, Class B Shares, and Class C Shares
(Shares). This SAI relates to all classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FOREIGN SECURITIES
o Foreign securities are securities of issuers based outside the United
States. The Fund invests primarily in fixed income securities of foreign
governments and their agencies which 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, Poland, Portugal, Spain,
Sweden, Switzerland, the United Kingdom and the United States.
Foreign securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same type,
foreign securities are subject currency risks and risks of foreign investing.
Trading in certain foreign markets is also subject to liquidity risks.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities 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. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields. The following describes additional types of fixed income
securities in which the Fund invests.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely amount
issuers. The credit risk of an issuer's debt security may also vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are know as ARMs. Mortgage
backed securities come in a variety of forms. Many have extremely complicated
terms. The simplest form of mortgage backed securities are pass-through
certificates. An issuer of pass-through certificates gathers monthly payments
from an underlying pool of mortgages. Then, the issuer deducts its fees and
expenses and passes the balance of the payments onto the certificate holders
once a month. Holders of pass-through certificates receive a pro rata share of
all payments and pre-payments from the underlying mortgages. As a result, the
holders assume all the prepayment risks of the underlying mortgages.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities may also resemble
some types of CMOs, such as Floaters, Inverse Floaters, IOs and POs.
Historically, borrowers are more likely to refinance their mortgage than
any other type of consumer or commercial debt. In addition, some asset backed
securities use prepayment to buy additional assets, rather than paying off the
securities. Therefore, while asset backed securities may have some prepayment
risks, they generally do not present the same degree of risk as mortgage backed
securities.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final
maturity unlike debt securities that provide periodic payments of interest
(referred to as a coupon payment). Investors buy zero coupon securities at a
price below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. An investor must wait until maturity to receive interest and
principal, which increases the market and credit risks of a zero coupon
security.
There are many forms of zero coupon securities. Some are issued at a
discount and are referred to as zero coupon or capital appreciation bonds.
Others are created from interest bearing bonds by separating the right to
receive the bond's coupon payments from the right to receive the bond's
principal due at maturity, a process known as coupon stripping. Treasury STRIPs,
IOs and POs are the most common forms of stripped zero coupon securities. In
addition, some securities give the issuer the option to deliver additional
securities in place of cash interest payments, thereby increasing the amount
payable at maturity. These are referred to as pay-in-kind or PIK securities.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based
upon changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities
exchanges. In this case, the exchange sets all the terms of the contract except
for the price. Investors make payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to close out their contracts by entering into offsetting
contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract. The Fund may trade in the following types
of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.
The Fund can buy or sell futures contracts on portfolio securities or
indexes and engage in foreign currency forward contracts.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
Buy call options on foreign currencies, foreign currency futures, portfolio
securities and securities indices in anticipation of an increase in the value of
the underlying asset.
Buy put options on foreign currencies, foreign currency futures, portfolio
securities and securities indices in anticipation of a decrease in the value of
the underlying asset.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
HYBRID INSTRUMENTS
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies, and
depend upon the terms of the instrument. Thus, an investment in a hybrid
instrument may entail significant risks in addition to those associated with
traditional fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments. Moreover, depending on the structure of the particular hybrid, it
may expose the Fund to leverage risks or carry liquidity risks.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price. Repurchase agreements
are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund
is the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase agreement
may be viewed as a type of borrowing by the Fund. Reverse repurchase agreements
are subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
WHEN ISSUED TRANSACTIONS
When issued transactions are arrangements in which the Fund buys securities
for a set price, with payment and delivery of the securities scheduled for a
future time. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to buy the securities and reflects their
value in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, when issued
transactions create market risks for the Fund. When issued transactions also
involve credit risks in the event of a counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities. The Fund will reinvest cash collateral in securities that qualify as
an acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund may
pay administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker. Securities lending activities are subject to market
risks and credit risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts
or special transactions, the Fund will either own the underlying assets, enter
into an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INVESTMENT RISKS
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
EURO RISKS
The Fund makes significant investments in securities denominated in Euro,
the new single currency of the European Monetary union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign issuers may not provide the same type or amount of information to
investors as U.S. public companies, and the information may not be as
timely or accessable. Foreign financial markets may also have fewer
investor protections. Securities in foreign markets may also be subject to
taxation policies that reduce returns for U.S. investors.
o Foreign countries may have restrictions on foreign ownership of securities
or may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than United
States companies by market analysts and the financial press. In addition,
foreign countries may lack financial controls and reporting standards, or
regulatory requirements comparable to those applicable to U.S. companies.
These factors may prevent the Fund and its Adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
BOND MARKET RISKS
o Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations.
CREDIT RISKS
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.
o The Fund is non-diversified. Compared to diversified mutual funds, it may
invest a higher percentage of its assets among fewer issuers of portfolio
securities. This increases the Fund's risk by magnifying the impact
(positively or negatively) that any one issuer has on the Fund's share
price and performance.
CALL RISKS
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
o Trading opportunities are more limited for fixed income securities
that have not received any credit ratings, have received ratings below
investment grade or are not widely held. These features may make it
more difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance.
Infrequent trading may also lead to greater price volatility.
o Liquidity risk also refers to the possibility that the Fund may not be
able to sell a security or close out a derivative contract when it
wants to. If this happens, the Fund will be required to continue to
hold the security or keep the position open, and the Fund could incur
losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
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.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. 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.
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.
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.
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, 1998 and
1997, the portfolio turnover rates were 37% and 67%, respectively.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent
pricing service;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
for all other securities, at fair value as determined in good faith by the
Board.
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, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are valued
according to the mean between the last bid and the last asked price for the
option as provided by an investment dealer or other financial institution that
deals in the option. The Board may determine in good faith that another method
of valuing such investments is necessary to appraise their fair market value.
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 its NAV, 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 Fund's Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
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.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as
follows.
QUANTITY DISCOUNTS
Larger purchases of the same Share class reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same Share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT (CLASS A SHARES)
You can sign a Letter of Intent committing to purchase a certain amount of
the same class of Shares within a 13 month period in order to combine such
purchases in calculating the sales charge. The Fund's custodian will hold Shares
in escrow equal to the maximum applicable sales charge. If you complete the
Letter of Intent, the custodian will release the Shares in escrow to your
account. If you do not fulfill the Letter of Intent, the custodian will redeem
the appropriate amount from the Shares held in escrow to pay the sales charges
that were not applied to your purchases..
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the
next determined NAV, without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares
at NAV without any sales charge because there are nominal sales efforts
associated with their purchases:
o the Directors, employees, and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc. (Federated) on
December 31, 1997;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o trusts, pension or profit-sharing plans for these individuals.
FEDERATED LIFE MEMBERS
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
o through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
o as Liberty Account shareholders by investing through an affinity group
prior to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions
have been advanced to the investment professional selling Shares; the
shareholder has already paid a Contingent Deferred Sales Charge (CDSC), or
nominal sales efforts are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC
will be imposed on redemptions:
o following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
o representing minimum required distributions from an Individual
Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements;
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o of Shares held by the Directors, employees, and sales representatives
of the Fund, the Adviser, the Distributor and their affiliates;
employees of any investment professional that sells Shares according
to a sales agreement with the Distributor; and the immediate family
members of the above persons; and
o of Shares originally purchased through a bank trust department, a
registered investment adviser or retirement plans where the third
party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other investment professional,
to the extent that no payments were advanced for purchases made
through these entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales.
The Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual
marketing expenses. In no event will the Fund pay for any expenses of the
Distributor that exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be
paid in any one year may not be sufficient to cover the marketing related
expenses the Distributor has incurred. Therefore, it may take the Distributor a
number of years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the
Distributor and/or Federated Shareholder Services Company (but not out of Fund
assets). The Distributor and/or Federated Shareholder Services Company may be
reimbursed by the Adviser or its affiliates.
Investment professionals receive such fees for providing
distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses relating to attendance at informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
o an amount equal to 0.50% of the NAV of Class A Shares under certain
qualified retirement plans as approved by the Distributor. (Such
payments are subject to a reclaim from the investment professional
should the assets leave the program within 12 months after purchase.)
o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B
and C Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
CLASS A SHARES
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF PUBLIC
OFFERING PRICE
First $1 - $5 0.75%
million
- ---------------------
Next $5 - $20 0.50%
million
- ---------------------
Over $20 million 0.25%
- ---------------------
For accounts with assets over $1 million, the dealer advance payments
resets annually to the first breakpoint on the anniversary of the first
purchase.
Class A Share purchases under this program may be made by Letter of Intent
or by combining concurrent purchases. The above advance payments will be paid
only on those purchases that were not previously subject to a front-end sales
charge and dealer advance payments. Certain retirement accounts may not be
eligible for this program.
A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase. The CDSC does
not apply under certain investment programs where the investment professional
does not receive an advance payment on the transaction including, but not
limited to, trust accounts and wrap programs where the investor pays an account
level fee for investment management.
HOW TO BUY SHARES
SUBACCOUNTING SERVICES
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional aboutthe services provided, the
fees charged for those services, and any restrictions and limitations
imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940, the Fund is obligated to pay Share redemptions
to any one shareholder in cash only up to the lesser of $250,000 or 1% of the
net assets represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving the portfolio securities and selling them
before their maturity could receive less than the redemption value of the
securities and could incur certain transaction costs.
ACCOUNT AND SHARE 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 the
Corporation have equal
voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Directors may be removed by the Board or by shareholders at a special
meeting. A special meeting of shareholders will be called by the Board upon the
written request of shareholders who own at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
As of January 6, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Jato, National City
Bank Minneapolis, Minneapolis, Minnesota, 22.31% of Class A Shares; Lacross &
Co., North Central Trust Co., Lacrosse, Wisconsin, 16.50% of Class A Shares;
Charles Schwab & Co., Inc., San Francisco, California, 9.68% of Class A Shares;
Wabank & Co., Waukesha, Wisconsin, 5.56% of Class A Shares; Merrill Lynch Pierce
Fenner & Smith, for the sole benefit of its customers, Jacksonville, Florida,
6.21% of Class B Shares; and Merrill Lynch Pierce Fenner & Smith, for the sole
benefit of its customers, Jacksonville, Florida, 27.42% of Class C Shares.
Shareholders owning 25% or more of outstanding Shares may be in control and
be able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income 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. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income 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 the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
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.
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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs
and for exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of two funds and the Federated Fund Complex is
comprised of 56 investment companies, whose investment advisers are affiliated
with the Fund's Adviser. As of January 6, 1999, the Fund's Board and Officers as
a group owned less than 1% of the Fund's outstanding Class A, B, and C
Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person
as defined in the Investment Company Act of 1940. The following symbol (#)
denotes a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<PAGE>
<TABLE>
<CAPTION>
NAME AGGREGATE TOTAL
BIRTHDATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
- ------------------------ FOR PAST 5 YEARS CORPORATION AND FUND COMPLEX
POSITION WITH
CORPORATION
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and Director or $0 $0 for the
Birthdate: July 28, 1924 Trustee of the Federated Fund Complex; Corporation and
Federated Investors Chairman and Director, Federated Investors, 54 other
Tower Inc.; Chairman and Trustee, Federated investment
1001 Liberty Avenue Advisers, Federated Management, and companies
Pittsburgh, PA Federated Research; Chairman and Director, in the Fund
CHAIRMAN and DIRECTOR Federated Research Corp., and Federated Complex
Global Research Corp.; Chairman, Passport
Research, Ltd.
- -------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
Birthdate: February 3, Complex; Director, Member of Executive the
1934 Committee, Children's Hospital of Corporation and
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, Ernst 54 other
Pittsburgh, PA & Young LLP; Director, MED 3000 Group, investment
DIRECTOR Inc.; Director, Member of Executive companies
Committee, University of Pittsburgh. in the Fund
Complex
- -------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1,405.25 $125,264.48 for
Birthdate: June 23, 1937 Complex; President, Investment Properties the
Wood/IPC Commercial Corporation; Senior Vice President, Corporation and
Dept. John R. Wood and Associates, Inc., 54 other
John R. Wood Realtors; Partner or Trustee in private investment
Associates, Inc. real estate ventures in Southwest Florida; companies
Realtors formerly: President, Naples Property in the Fund
3255 Tamiami Trial Management, Inc. and Northgate Village Complex
North Naples, FL Development Corporation.
DIRECTOR
- -------------------------
WILLIAM J. COPELAND Director or Trustee of the Federated Fund $1,405.25 $125,264.48 for
Birthdate: July 4, 1918 Complex; Director and Member of the the
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; Corporation and
Pittsburgh, PA formerly: Vice Chairman and Director, PNC 54 other
DIRECTOR Bank, N.A., and PNC Bank Corp.; Director, investment
Ryan Homes, Inc. companies
in the Fund
Previous Positions: Director, United Complex
Refinery; Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman, Pittsburgh
Civic Light Opera.
- -------------------------
- -------------------------
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
Birthdate: October 11, Complex; Professor of Medicine, University the
1932 of Pittsburgh; Medical Director, University Corporation and
3471 Fifth Avenue of Pittsburgh Medical Center - Downtown; 54 other
Suite 1111 Hematologist, Oncologist, and Internist, investment
Pittsburgh, PA University of Pittsburgh Medical Center; companies
DIRECTOR Member, National Board of Trustees, in the Fund
Leukemia Society of America. Complex
- -------------------------
- -------------------------
PETER E. MADDEN Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
Birthdate: March 16, Complex; formerly: Representative, the
1942 Commonwealth of Massachusetts General Corporation and
One Royal Palm Way Court; President, State Street Bank and 54 other
100 Royal Palm Way Trust Company and State Street Corporation. investment
Palm Beach, FL companies
DIRECTOR Retired: Director, VISA USA and VISA in the Fund
International; Chairman and Director, Complex
Massachusetts Bankers Association;
Director, Depository Trust Corporation.
- -------------------------
CHARLES F. MANSFIELD, Director or Trustee of some of the $0 $0 for the
JR. Federated Funds; Management Consultant. Corporation and
Birthdate: April 10, 25 other
1945 Previous Positions: Chief Executive investment
80 South Road Officer, PBTC International Bank; Chief companies
Westhampton Beach, NY Financial Officer of Retail Banking Sector, in the Fund
DIRECTOR Chase Manhattan Bank; Senior Vice Complex
President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb School
of Business, Hofstra University.
- -------------------------
JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
J.D., S.J.D. Complex; President, Law Professor, Duquesne the
Birthdate: December 20, University; Consulting Partner, Mollica & Corporation and
1932 Murray. 54 other
President, Duquesne investment
University Previous Positions: Dean and Professor of companies
Pittsburgh, PA Law, University of Pittsburgh School of in the Fund
DIRECTOR Law; Dean and Professor of Law, Villanova Complex
University School of Law.
- -------------------------
- -------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1,277.32 $113,860.22 for
Birthdate: June 21, 1935 Complex; Public the
4905 Bayard Street Relations/Marketing/Conference Planning. Corporation and
Pittsburgh, PA 54 other
DIRECTOR Previous Positions: National Spokesperson, investment
Aluminum Company of America; business owner. companies
in the Fund
Complex
- -------------------------
JOHN S. WALSH Director or Trustee of some of the $0 $0 for the
Birthdate: November 28, Federated Funds; President and Director, Corporation and
1957 Heat Wagon, Inc.; President and Director, 22 other
2007 Sherwood Drive Manufacturers Products, Inc.; President, investment
Valparaiso, IN Portable Heater Parts, a division of companies
DIRECTOR Manufacturers Products, Inc.; Director, in the Fund
Walsh & Kelly, Inc.; formerly, Vice Complex
President, Walsh & Kelly, Inc.
- -------------------------
GLEN R. JOHNSON Trustee, Federated Investors, Inc.; staff $0 $0 for the
Birthdate: May 2, 1929 member, Federated Securities Corp. Corporation and
Federated Investors 8 other
Tower investment
1001 Liberty Avenue companies
Pittsburgh, PA in the Fund
PRESIDENT Complex
- -------------------------
J. CHRISTOPHER DONAHUE+ President or Executive Vice President of $0 $0 for the
Birthdate: April 11, the Federated Fund Complex; Director or Corporation and
1949 Trustee of some of the Funds in the 16other
Federated Investors Federated Fund Complex; President and investment
Tower Director, Federated Investors, Inc.; companies
1001 Liberty Avenue President and Trustee, Federated Advisers, in the Fund
Pittsburgh, PA Federated Management, and Federated Complex
EXECUTIVE VICE PRESIDENT Research; President and Director, Federated
Research Corp. and Federated Global
Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.
- -------------------------
<PAGE>
EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the
Birthdate: October 22, the Federated Fund Complex; President, Corporation and
1930 Executive Vice President and Treasurer of 1 other
Federated Investors some of the Funds in the Federated Fund investment
Tower Complex; Vice Chairman, Federated company
1001 Liberty Avenue Investors, Inc.; Vice President, Federated in the Fund
Pittsburgh, PA Advisers, Federated Management, Federated Complex
EXECUTIVE VICE PRESIDENT 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.
- -------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the
Birthdate: October 26, the Federated Fund Complex; Executive Vice Corporation and
1938 President, Secretary, and Director, 54 other
Federated Investors Federated Investors, Inc.; Trustee, investment
Tower Federated Advisers, Federated Management, companies
1001 Liberty Avenue and Federated Research; Director, Federated in the Fund
Pittsburgh, PA Research Corp. and Federated Global Complex
EXECUTIVE VICE Research Corp.; Director, Federated
PRESIDENT and SECRETARY Services Company; Director, Federated
Securities Corp.
- -------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the
Birthdate: June 17, Vice President - Funds Financial Services Corporation and
1954 Division, Federated Investors, Inc.; 54other
Federated Investors Formerly: various management positions investment
Tower within Funds Financial Services Division of companies
1001 Liberty Avenue Federated Investors, Inc. in the Fund
Pittsburgh, PA Complex
TREASURER
- -------------------------
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birthdate: May 17, 1923 Funds in the Federated Fund Complex; Corporation and
Federated Investors Director or Trustee of some of the Funds in 6 other
Tower the Federated Fund Complex; Executive Vice investment
1001 Liberty Avenue President, Federated Investors, Inc.; companies
Pittsburgh, PA Chairman and Director, Federated Securities in the Fund
VICE PRESIDENT Corp. Complex
- -------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund and $0 $0 for the
Birthdate: November 28, various other Funds in the Federated Fund Corporation and
1942 Complex; Executive Vice President, 3 other
Federated Investors Federated Investment Counseling, Federated investment
Tower Global Research Corp., Federated Advisers, companies
1001 Liberty Avenue Federated Management, Federated Research, in the Fund
Pittsburgh, PA and Passport Research, Ltd.; Registered Complex
CHIEF INVESTMENT OFFICER Representative, Federated Securities Corp.;
Vice President, Federated Investors, Inc.;
Formerly: Executive Vice President,
Federated Investment Counseling
Institutional Portfolio Management Services
Division; Chief Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.
- -------------------------
DREW J. COLLINS Drew J. Collins is Vice President of the $0 $0 for the
Birthdate: December Corporation. Mr. Collins joined Federated Corporation and
19, 1956 Investors in 1995 as A SENIOR PORTFOLIO one other
-------------------
Federated Investors MANAGER AND a Senior Vice President of the investment
-----------
Tower Fund's investment adviser. Mr. Collins company
1001 Liberty Avenue served as Vice President/Portfolio Manager in the Fund
Pittsburgh, PA of international equity portfolios at Complex
VICE PRESIDENT 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.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for
the Fund.
The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of Fund
Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser. When the Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at the following annual rate of the average aggregate daily net
assets of all Federated Funds as specified below:
MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250 million
- -------------------------
0.125 of 1% on the next $250 million
- -------------------------
0.100 of 1% on the next $250 million
- -------------------------
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments for a
fee based on Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Foreign instruments purchased by the
Fund are held by foreign banks participating in a network coordinated by State
Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent
subsidiary, Federated Shareholder Services Company, maintains all necessary
shareholder records. The Fund pays the transfer agent a fee based on the size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30,
1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $1,306,572 $1,615,465 $1,476,050
- ---------------------------------
Advisory Fee Reduction $37,551 $0 $0
- ---------------------------------
Brokerage Commissions $0 $0 $0
- ---------------------------------
Administrative Fee $185,000 $185,000 $184,998
- ---------------------------------
12b-1 Fee
- ---------------------------------
Class A Shares $154,516 ---- ----
- ---------------------------------
Class B Shares $93,308 ---- ----
- ---------------------------------
Class C Shares $54,395 ---- ----
- ---------------------------------
Shareholder Services Fee
- ---------------------------------
Class A Shares $278,129 ---- ----
- ---------------------------------
Class B Shares $31,103 ---- ----
- ---------------------------------
Class C Shares $18,132 ---- ----
- ---------------------------------
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund
assets, except for marketing (Rule 12b-1) fees and shareholder services fees,
which are borne only by the applicable Class of Shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and
Exchange Commission's (SEC) standard method for calculating performance
applicable to all mutual funds. The SEC also permits this standard performance
information to be accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect
of non-recurring charges, such as maximum sales charges, which, if excluded,
would increase the total return and yield. The performance of Shares depends
upon such variables as: portfolio quality; average portfolio maturity; type and
value of portfolio securities; changes in interest rates; changes or differences
in the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELDS
Total returns given for the one-, five-year and since inception periods
ended NOVEMBER 30, 1998.
Yields given for the 30-day period ended NOVEMBER 30, 1998.
30-Day 1 Year 5 Years Since Inception*
Period
CLASS A SHARES
Total Return 5.27% 5.74% 8.62%
Yield 3.05%
1 Year 5 Years Since Inception*
CLASS B SHARES
Total Return 3.95% NA 7.80%
Yield 2.45%
1 Year 5 Years Since Inception*
CLASS C SHARES
Total Return 8.42% 5.93% 8.60%
Yield 2.45%
* Class A Shares inception date was June 4, 1991.
Class B Shares inception date was September 28, 1994.
Class C Shares inception date was April 1, 1993.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value
of Shares over a specific period of time, and includes the investment of income
and capital gains distributions.
The average annual total return for Shares 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 NAV 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 the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment
income per Share earned by the Shares over a thirty-day period; by (ii) the
maximum offering price per Share on the last day of the period. This number 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 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 investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills. The Fund may quote information from reliable
sources regarding individual countries and regions, world stock exchanges, and
economic and demographic statistics.
You may use financial publications and/or indices to obtain a more complete
view of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
o 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.
o SALOMON BROTHERS HIGH GRADE BOND INDEX; SALOMON BROTHERS WORLD GOVERNMENT
BOND INDEX; AND J.P. MORGAN GOVERNMENT BOND INDEX.
o 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.
O 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.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.21 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 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.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9
money market funds and 156 bond funds with assets approximating $22.8 billion
and $7.1 billion, respectively. Federated's corporate bond decision
making--based on intensive, diligent credit analysis--is backed by over 26 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 $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated
advisory companies.
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 $5 trillion to the more than 7,300 funds
available, according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety
of investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, 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
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include 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 ratings 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, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November
30, 1998 are incorporated herein by reference to the Annual Report to
Shareholders of Federated International Income Fund dated November 30, 1998.
<PAGE>
INVESTMENT RATINGS
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
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.
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 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.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection. o Broad margins in earning coverage of fixed financial
charges and high internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation 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.
<PAGE>
ADDRESSES
FEDERATED INTERNATIONAL INCOME FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Global Investment Management 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
225 Franklin Street
Boston, MA 02110-2812
PART C. OTHER INFORMATION
Item 23. EXHIBITS:
(a) Conformed copy of the Articles of Incorporation of the Registrant; (10)
(b) (i) Copy of the By-Laws of the Registrant; (10)
(ii) Copy of Amendment No. 1 to the By-Laws;(21)
(iii) Copy of Amendment No. 2 to the By-Laws
(effective February 23, 1998); (21)
(iv) Copy of Amendment No. 3 to the By-Laws
(effective February 27, 1998); (21)
(v) Copy of Amendment No. 4 to the By-Laws
(effective May 12, 1998); (21)
(c) 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)
(d) (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)
(e) (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);
+ 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).
21. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 33 on Form N-1A filed November 30, 1998 (File Nos. 2-91776
and 811-3984).
<PAGE>
(iv) Conformed Copy of New Distributor's Contract on behalf of Class B Shares
of the Registrant; (20)
(f) Not applicable;
(g) (i) Conformed copy of the Custodian Contract of the Registrant (14);
(ii) Conformed Copy of Fee Schedule for Custodian Contract; (19)
(h) (i) Conformed Copy of Amended and Restated Agreement for Fund
Accounting Services, Administrative Services, Transfer Agency
Services, and Custody Services Procurement; (21)
(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
Commission 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; (20)
(vii) Conformed Copy of Shareholder Services Agreement on behalf of
Class B Shares of the Registrant; (20)
(i) Conformed copy of the Opinion and Consent of Counsel as to
legality of shares being registered; (17)
___
+ All Exhibits have been filed electronically.
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).
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).
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).
20. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 32 on Form N-1A filed January 28, 1998 (File Nos. 2-91776 and
811-3984).
21. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 33 on Form N-1A filed November 30, 1998 (File Nos. 2-91776
and 811-3984).
<PAGE>
(j) Conformed copy of Consent of Independent Public Accountants; +
(k) Not applicable;
(l) Copy of Initial Capital Understanding; (2)
(m) (i) Conformed copy of Rule 12b-1 Plan of the Registrant, through
and including Exhibit B; (14)
(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; (20)
(n) Copy of Financial Data Schedules; +
(o) 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);
(p) (i) Conformed copy of Power of Attorney; (18)
(ii) Conformed copy of Limited Power of Attorney; (20)
(iii) Conformed copy of Power of Attorney of Chief Investment Officer of the
Registrant; +
(iv) Conformed copy of Power of Attorney of Treasurer of the Registrant; +
(v) Conformed copy of Power of Attorney of Director of the Registrant; +
(vi) Conformed copy of Power of Attorney of Director of the Registrant; +
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUNDS:
None
Item 25. INDEMNIFICATION: (13)
+ 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).
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).
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed January 28, 1998 (File Nos. 2-91776 and
811-3984).
<PAGE>
Item 26. Business and Other Connections of the Investment Adviser:
For a description of the other business of the investment adviser, see the
section entitled "Who Manages the Fund?"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 "Who Manages
and Provides Services to the Fund?" 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: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
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
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Keith J. Sabol
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Marc Halperin
<PAGE>
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Gary Farwell
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. Newcamp
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779. These individuals are also officers of a majority of the investment
advisers to the investment companies in the Federated Fund Complex described in
Part B of this Registration Statement.
ITEM 27 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:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series,
Inc.; CCB Funds; 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 Core Trust; 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 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.; Fixed Income Securities, Inc.; ; Hibernia
Funds; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds;
Tax-Free Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal FundsTrust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; High Yield Cash Trust; Investment Series Trust; Star Funds;
Targeted Duration Trust; The Virtus Funds; Trust for Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<TABLE>
<CAPTION>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
<S> <C> <C>
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable.
</TABLE>
<PAGE>
Item 28. 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
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent for Service at the above address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend 1001 Liberty Avenue
Disbursing Agent") Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Global Investment Management
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 29. MANAGEMENT SERVICES: Not applicable.
Item 30. 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.
<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, duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on this 28th day of
January, 1999.
INTERNATIONAL SERIES, INC.
BY: /s/ Karen M. Brownlee
Karen M. Brownlee, Assistant Secretary
Attorney in Fact for John F. Donahue
January 28, 1999
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 M. Brownlee Attorney in Fact January 28, 1998
Karen M. Brownlee for the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Glen R. Johnson* President
Richard J. Thomas* Treasurer
(Principal Financial and
Accounting Officer)
Henry A. Frantzen* Chief Investment Officer
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
Lawrence D. Ellis, M.D.* Director
Peter E. Madden* Director
Charles F. Mansfield, Jr.* Director
John E. Murray, Jr.* Director
Marjorie P. Smuts* Director
John S. Walsh* Director
* By Power of Attorney
Exhibit 23(j) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in
Post-Effective Amendment No. 34 to Form N-1A Registration Statement of
International Series, Inc. of our report dated January 15, 1999, on the
financial statements as of November 30, 1998 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.
By: ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 26, 1999
Exhibit 23(p)(iii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of INTERNATIONAL SERIES, INC. and each
of them, their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/S/HENRY A. FRANTZEN Chief Investment Officer December 14, 1998
- -------------------------------
Henry A. Frantzen
Sworn to and subscribed before me this 14 day of DECEMBER, 1998
/S/CHERI S. GOOD
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit 23(p)(iv) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of INTERNATIONAL SERIES, INC. and each
of them, their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/S/RICHARD J. THOMAS Treasurer December 11, 1998
- --------------------------------
Richard J. Thomas (Principal Financial
and Accounting
Officer)
Sworn to and subscribed before me this 11 day of DECEMBER, 1998
/S/CHERI S. GOOD
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit 23(p)(v) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of INTERNATIONAL SERIES, INC. and each
of them, their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/S/JOHN S. WALSH Director January 13, 1999
John S. Walsh
Sworn to and subscribed before me this 13 day of DECEMBER, 1999
/S/CHERI S. GOOD
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit 23(p)(vi) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of INTERNATIONAL SERIES, INC. and each
of them, their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/S/CHARLES F. MANSFIELD, JR. Director January 13, 1999
- ----------------------------------------
Charles F. Mansfield, Jr.
Sworn to and subscribed before me this 13 day of DECEMBER, 1999
/S/CHERI S. GOOD
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Federated International Equity Fund Class A Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 200,549,554
<INVESTMENTS-AT-VALUE> 235,904,785
<RECEIVABLES> 3,558,795
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,582
<TOTAL-ASSETS> 239,467,162
<PAYABLE-FOR-SECURITIES> 8,639,701
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,833,470
<TOTAL-LIABILITIES> 17,473,171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,221,452
<SHARES-COMMON-STOCK> 8,802,185
<SHARES-COMMON-PRIOR> 7,521,487
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (277,635)
<ACCUMULATED-NET-GAINS> 16,616,129
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,434,045
<NET-ASSETS> 172,160,015
<DIVIDEND-INCOME> 2,888,652
<INTEREST-INCOME> 450,076
<OTHER-INCOME> 0
<EXPENSES-NET> (3,806,340)
<NET-INVESTMENT-INCOME> (467,612)
<REALIZED-GAINS-CURRENT> 15,242,814
<APPREC-INCREASE-CURRENT> 15,948,792
<NET-CHANGE-FROM-OPS> 30,723,994
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (10,030,621)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,112,297
<NUMBER-OF-SHARES-REDEEMED> (18,302,055)
<SHARES-REINVESTED> 470,456
<NET-CHANGE-IN-ASSETS> 54,665,797
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,680,273
<OVERDISTRIB-NII-PRIOR> (1,809,893)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,138,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,806,000
<AVERAGE-NET-ASSETS> 170,049,544
<PER-SHARE-NAV-BEGIN> 17.930
<PER-SHARE-NII> (0.010)
<PER-SHARE-GAIN-APPREC> 2.990
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (1.350)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.560
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Federated International Equity Fund Class B Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 200,549,554
<INVESTMENTS-AT-VALUE> 235,904,785
<RECEIVABLES> 3,558,795
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,582
<TOTAL-ASSETS> 239,467,162
<PAYABLE-FOR-SECURITIES> 8,639,701
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,833,470
<TOTAL-LIABILITIES> 17,473,171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,221,452
<SHARES-COMMON-STOCK> 1,889,456
<SHARES-COMMON-PRIOR> 1,351,711
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (277,635)
<ACCUMULATED-NET-GAINS> 16,616,129
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,434,045
<NET-ASSETS> 35,689,087
<DIVIDEND-INCOME> 2,888,652
<INTEREST-INCOME> 450,076
<OTHER-INCOME> 0
<EXPENSES-NET> (3,806,340)
<NET-INVESTMENT-INCOME> (467,612)
<REALIZED-GAINS-CURRENT> 15,242,814
<APPREC-INCREASE-CURRENT> 15,948,792
<NET-CHANGE-FROM-OPS> 30,723,994
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,891,979)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,517,731
<NUMBER-OF-SHARES-REDEEMED> (1,087,709)
<SHARES-REINVESTED> 107,723
<NET-CHANGE-IN-ASSETS> 54,665,797
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,680,273
<OVERDISTRIB-NII-PRIOR> (1,809,893)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,138,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,806,000
<AVERAGE-NET-ASSETS> 31,193,742
<PER-SHARE-NAV-BEGIN> 17.480
<PER-SHARE-NII> (0.160)
<PER-SHARE-GAIN-APPREC> 2.920
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.350)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.890
<EXPENSE-RATIO> 2.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Federated International Equity Fund Class C Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 200,549,554
<INVESTMENTS-AT-VALUE> 235,904,785
<RECEIVABLES> 3,558,795
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,582
<TOTAL-ASSETS> 239,467,162
<PAYABLE-FOR-SECURITIES> 8,639,701
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,833,470
<TOTAL-LIABILITIES> 17,473,171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,221,452
<SHARES-COMMON-STOCK> 758,006
<SHARES-COMMON-PRIOR> 511,624
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (277,635)
<ACCUMULATED-NET-GAINS> 16,616,129
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,434,045
<NET-ASSETS> 14,144,889
<DIVIDEND-INCOME> 2,888,652
<INTEREST-INCOME> 450,076
<OTHER-INCOME> 0
<EXPENSES-NET> (3,806,340)
<NET-INVESTMENT-INCOME> (467,612)
<REALIZED-GAINS-CURRENT> 15,242,814
<APPREC-INCREASE-CURRENT> 15,948,792
<NET-CHANGE-FROM-OPS> 30,723,994
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (810,275)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,120,914
<NUMBER-OF-SHARES-REDEEMED> (918,179)
<SHARES-REINVESTED> 43,647
<NET-CHANGE-IN-ASSETS> 54,665,797
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,680,273
<OVERDISTRIB-NII-PRIOR> (1,809,893)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,138,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,806,000
<AVERAGE-NET-ASSETS> 12,522,821
<PER-SHARE-NAV-BEGIN> 17.280
<PER-SHARE-NII> (0.160)
<PER-SHARE-GAIN-APPREC> 2.890
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (1.350)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.660
<EXPENSE-RATIO> 2.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Federated International Income Fund Class A Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 157,178,816
<INVESTMENTS-AT-VALUE> 154,450,087
<RECEIVABLES> 3,864,262
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 277,180
<TOTAL-ASSETS> 158,591,529
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 196,026
<TOTAL-LIABILITIES> 196,026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,812,882
<SHARES-COMMON-STOCK> 12,353,533
<SHARES-COMMON-PRIOR> 16,943,417
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,437,667)
<ACCUMULATED-NET-GAINS> (7,285,009)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,694,702)
<NET-ASSETS> 138,567,297
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,102,073
<OTHER-INCOME> 0
<EXPENSES-NET> (2,458,793)
<NET-INVESTMENT-INCOME> 8,643,280
<REALIZED-GAINS-CURRENT> 234,909
<APPREC-INCREASE-CURRENT> 7,248,956
<NET-CHANGE-FROM-OPS> 16,127,145
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,234,725)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,595,435
<NUMBER-OF-SHARES-REDEEMED> (9,378,472)
<SHARES-REINVESTED> 193,153
<NET-CHANGE-IN-ASSETS> (42,824,990)
<ACCUMULATED-NII-PRIOR> 1,879,156
<ACCUMULATED-GAINS-PRIOR> (12,496,276)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,307,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,836,000
<AVERAGE-NET-ASSETS> 154,515,957
<PER-SHARE-NAV-BEGIN> 10.650
<PER-SHARE-NII> 0.540
<PER-SHARE-GAIN-APPREC> 0.510
<PER-SHARE-DIVIDEND> (0.480)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.220
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> Federated Internaional Income Fund Class B Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 157,178,816
<INVESTMENTS-AT-VALUE> 154,450,087
<RECEIVABLES> 3,864,262
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 277,180
<TOTAL-ASSETS> 158,591,529
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 196,026
<TOTAL-LIABILITIES> 196,026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,812,882
<SHARES-COMMON-STOCK> 1,177,165
<SHARES-COMMON-PRIOR> 1,178,482
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,437,667)
<ACCUMULATED-NET-GAINS> (7,285,009)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,694,702)
<NET-ASSETS> 13,173,964
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,102,073
<OTHER-INCOME> 0
<EXPENSES-NET> (2,458,793)
<NET-INVESTMENT-INCOME> 8,643,280
<REALIZED-GAINS-CURRENT> 234,909
<APPREC-INCREASE-CURRENT> 7,248,956
<NET-CHANGE-FROM-OPS> 16,127,145
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (469,562)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 285,642
<NUMBER-OF-SHARES-REDEEMED> (317,928)
<SHARES-REINVESTED> 30,969
<NET-CHANGE-IN-ASSETS> (42,824,990)
<ACCUMULATED-NII-PRIOR> 1,879,156
<ACCUMULATED-GAINS-PRIOR> (12,496,276)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,307,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,837,000
<AVERAGE-NET-ASSETS> 12,441,054
<PER-SHARE-NAV-BEGIN> 10.620
<PER-SHARE-NII> 0.460
<PER-SHARE-GAIN-APPREC> 0.510
<PER-SHARE-DIVIDEND> (0.400)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.190
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> Federated International Income Fund Class C Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 157,178,816
<INVESTMENTS-AT-VALUE> 154,450,087
<RECEIVABLES> 3,864,262
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 277,180
<TOTAL-ASSETS> 158,591,529
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 196,026
<TOTAL-LIABILITIES> 196,026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,812,882
<SHARES-COMMON-STOCK> 594,137
<SHARES-COMMON-PRIOR> 779,440
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,437,667)
<ACCUMULATED-NET-GAINS> (7,285,009)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,694,702)
<NET-ASSETS> 6,654,242
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,102,073
<OTHER-INCOME> 0
<EXPENSES-NET> (2,458,793)
<NET-INVESTMENT-INCOME> 8,643,280
<REALIZED-GAINS-CURRENT> 234,909
<APPREC-INCREASE-CURRENT> 7,248,956
<NET-CHANGE-FROM-OPS> 16,127,145
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (279,458)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 153,899
<NUMBER-OF-SHARES-REDEEMED> (358,323)
<SHARES-REINVESTED> 19,121
<NET-CHANGE-IN-ASSETS> (42,824,990)
<ACCUMULATED-NII-PRIOR> 1,879,156
<ACCUMULATED-GAINS-PRIOR> (12,496,276)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,307,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,836,000
<AVERAGE-NET-ASSETS> 7,252,645
<PER-SHARE-NAV-BEGIN> 10.630
<PER-SHARE-NII> 0.460
<PER-SHARE-GAIN-APPREC> 0.510
<PER-SHARE-DIVIDEND> (0.400)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.200
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
