SEMI-ANNUAL REPORT
[Graphic]
GLEN R. JOHNSON
President
Federated International Equity Fund
President's Message
Dear Shareholder:
Federated International Equity Fund was created in 1984, and I am pleased to
present its 14th Semi-Annual Report. The fund's assets totaled $266 million, and
were invested in 150 issues in 27 countries across 5 continents. The fund's
international stocks are selected for growth opportunities in large, successful
corporations outside of the U.S. in both developed and emerging markets. 1 The
fund's 10 largest holdings are not necessarily recognizable household names in
the U.S., however, they are all large capitalized corpora tions well-known in
their own countries.
This report covers the first half of the fund's fiscal year which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with the fund's portfolio manager, Drew Collins, Senior Vice
President of Federated Global Investment Management Corp. Following his
discussion are three additional items of shareholder interest. First is a series
of graphs showing the fund's long-term investment performance. Second is a
complete listing of the fund's diversified international stock holdings, and
third is the publication of the fund's financial statements.
The first half of the fund's fiscal year was a relatively strong period for
international equities due to a rally in the emerging markets and Japan, which
contrasted the weakness in Europe. It was also a strong period for Fed erated
International Equity Fund, as good security selection and its Japanese holdings
produced competitive six-month total returns. These returns were greater than
the return of the fund's benchmark index, as well as the average total return of
all 562 international equity funds tracked by Lipper Analyt ical Services, Inc.
2
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
2 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. These figures do not reflect sales charges.
Individual share class total return performance for the six-month reporting
period, including capital gains distributions and net asset value changes,
follows. 3
TOTAL RETURN CAPITAL GAINS NET ASSET VALUE CHANGE
Class A Shares 8.12% $1.48 $19.56 to $19.57 = 0.05%
Class B Shares 7.69% $1.48 $18.89 to $18.77 = (0.64%)
Class C Shares 7.68% $1.48 $18.66 to $18.52 = (0.75%)
I recommend that you consider adding to your account on a regular basis to take
advantage of price fluctuations and to use the dollar-cost-averaging method of
investing. By investing the same amount on a regular basis you buy more fund
shares when prices are low-and fewer when prices are high. Adding to your
account on a regular basis and reinvesting your annual dividends in additional
shares is a convenient, painless way to "pay yourself first" and enjoy the
benefit of compounding. 4
I would also like to point out that the U.S. market's performance, although very
positive, has been surpassed by the market returns in many other nations. Now,
indeed, is an excellent time to consider a commitment to increasing the
percentage of your international stock holdings. Stock prices and ratios
measuring a stock's attractiveness in the U.S. are overvalued in comparison to
many international markets. After about seven years of lagging the domestic
stock market, opportunities outside the U.S. are compelling.
Thank you for joining the growing number of Federated International Equity Fund
shareholders who have broadened their equity assets internationally.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
July 15, 1999
3 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the report ing period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, and C
Shares were 2.17%, 2.23%, and 6.68%, respec tively.
4 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost-averaging involves continuous investment
regardless of fluctuating price levels, investors should con sider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
DREW COLLINS
Senior Vice President
Federated Global Investment Management Corp.
Investment Review
THE FIRST HALF OF THE FUND'S FISCAL YEAR WAS POSITIVE FOR INTERNATIONAL EQUITIES
OVERALL, WITH THE EMERGING MARKETS AND JAPAN FINALLY BOTH EXPERIENCING
MUCH-WELCOMED GAINS. WHAT ARE YOUR COMMENTS?
We finally began to see investors focus again on the emerging markets and Japan
after a notable period of underperformance. This turnaround can be attributed to
evidence of an economic bottoming in countries like Japan, Hong Kong, and
Singapore; the bailout of the banking system by the Japanese gov ernment; and
visible actions of corporate restructuring, specifically in Japan. This rally,
however, came at the expense of the markets in western Europe, which
underperformed in aggregate. Concerns over economic slowdown, a weaker euro,
high valuations, and fund outflows were some of the factors contributing to this
underperformance. However, countries like Greece, which is expected to join the
European Monetary Union, continued to outperform. On a sector basis, the period
also saw cyclicals rally from oversold positions given an uptick in commodity
prices and expectations that Asia is on the road to recovery.
HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD COMPARED TO ITS BENCH MARK?
Federated International Equity Fund produced a relatively good six-month total
return of 8.12% for Class A Shares, based on net asset value. 1 The total
returns for Class B Shares and Class C Shares, based on net asset value, were
7.69% and 7.68%, respectively.1 These returns were greater than the 4.16% return
of the Morgan Stanley Capital International Europe, Austra lia, and Far East
Index (the "EAFE Index") for the same period.2 Addition ally, the returns for
Class A, B, and C Shares also outpaced the 4.98% average total return of all 562
international equity funds tracked by Lipper Analytical Services, Inc.
1 Performance quoted is based on net asset value, represents past perfor mance
and is not indicative of future results. Investment return and prin cipal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the reporting period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, and C
Shares were 2.17%, 2.23%, and 6.68%, respectively.
2 The Morgan Stanley Capital International Europe, Australia, and Far East Index
is a market capitalization-weighted foreign securities index widely used to
measure the performance of the European, Australian, New Zealand, and Far
Eastern stock markets. This index is unmanaged, and investments cannot be made
in an index.
WHAT ACCOUNTED FOR THE FUND'S OUTPERFORMANCE?
The fund's outperformance was mainly attributed to security selection, but
looking at the overall makeup of the fund, a few characteristics should be
noted. First, the fund was well-positioned when the Japanese equity market began
to rally, as our positions in economically sensitive sectors, like cap ital
equipment and consumer goods, provided a boost to the fund's perfor mance.
Second, positions in the telecommunications and media sectors in western Europe
continued to pay dividends. We remain bullish on these sectors given the
exponential growth in data demand, and the intrinsic value for
telecommunications infrastructure assets and content. Finally, we also
underweighted the financial and pharmaceutical sectors over this period given
lofty valuations, which proved to be correct.
WHAT INDIVIDUAL STOCKS MADE A SIGNIFICANT IMPACT?
Specifically, NORTEL NETWORKS CORP. (1.24% of net assets), a provider of glo bal
high-capacity data networks, has done exceptionally well. The company is well
positioned to take advantage of the growth in telephone, Internet proto col, and
wireline and wireless networking worldwide.
In addition, our position in ROHM CO. (1.13% of net assets), a Japanese-based
electronic component company, holds great potential given the likely turn around
in the Japanese economy.
HOW WERE THE FUND'S ASSETS DIVERSIFIED AT THE END OF THE REPORTING PERIOD?
Approximately 39% of the fund's assets were invested in the United Kingdom,
France, and Japan. The balance was spread across 24 other countries. The fund's
country and regional weightings and top ten holdings as of May 31, 1999, were as
follows:
PERCENTAGE OF
COUNTRY NET ASSETS
United Kingdom 13.75%
Japan 15.06%
France 10.22%
Canada 8.83%
Italy 6.81%
Germany 4.36%
Netherlands 4.22%
Australia 2.41%
Sweden 3.39%
Switzerland 3.27%
Belgium 3.07%
Hong Kong 2.98%
Greece 2.52%
Finland 2.30%
Singapore 1.89%
Brazil 1.83%
United States 1.40%
Norway 1.29%
Thailand 1.10%
Luxembourg 1.04%
Mexico 1.03%
Indonesia 0.99%
Ireland 0.81%
Israel 0.53%
Panama 0.35%
Spain 0.32%
Portugal 0.00%
PERCENTAGE OF
REGION NET ASSETS
Europe 57.97%
Asia Pacific 25.33%
Canada 8.83%
Latin America 4.07%
Mid-East/Africa 0.53%
PERCENTAGE OF
NAME COUNTRY NET ASSETS
Securicor PLC United Kingdom 1.74%
Bouygues France 1.50%
EMI Group PLC United Kingdom 1.46%
Class Editori SPA Italy 1.44%
TFL-TV Francaise France 1.44%
Modern Times Group, Class B Sweden 1.42%
NTL, Inc. United States 3 1.40%
Cable & Wireless Communications PLC United Kingdom 1.32%
Schibsted A/S Norway 1.29%
Smartone Telecommunications Hong Kong 1.27%
TOTAL 14.28%
3 NTL, Inc., though incorporated in the United States, has 95% of its opera
tions in the United Kingdom.
WHAT WERE SOME OF YOUR NOTABLE RECENT PURCHASES FOR THE FUND?
Our recent purchases included the following:
BOUYGUES (1.50% of net assets): Bouygues is a French industrial company that
includes construction, real estate and telecommunications services. We believe
that Bouygues Telecom, a leading cellular operator in France, is cur rently
undervalued by the market, and we expect a re-rating over time.
PRUDENTIAL CORP. PLC (1.26% of net assets): Prudential is a United Kingdom
company offering a wide range of insurance products. The company is well ahead
of its competitors in offering investment insurance products online through a
separate subsidiary called EGG. We believe this Internet-based business is
currently undervalued by the market.
THOMSON-CSF (0.50% of net assets): Thomson is a French aerospace and defense
company. We view this as a turnaround story given its new, incen tive-driven
management team, improving operating margins, and the fact that it is a likely
participant of consolidation.
AS WE PASS THE MIDPOINT OF 1999, WHAT IS YOUR OUTLOOK FOR INTERNATIONAL EQUI
TIES THROUGH THE REST OF THE YEAR?
In recent months, concerns of a domestic interest rate hike have put a cloud
over the international markets, in general. We believe that the U.S. market is
already discounting a modest interest rate hike by the Federal Reserve Board.
Despite this, we continue to feel good about the interna tional markets,
especially Japan. In Europe, we believe that the recent pull-back has created
some good buying opportunities. With regard to secu rity selection, we continue
to focus on two critical themes-earnings vis ibility and domestic sales.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
IF YOU MADE AN INITIAL INVESTMENT OF $15,000 IN THE CLASS A SHARES OF FEDER ATED
INTERNATIONAL EQUITY FUND ON 8/17/84, REINVESTED DIVIDENDS AND CAPITAL GAINS,
AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $86,752 ON
5/31/99. YOU WOULD HAVE EARNED A 12.60% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/99, the Class A Shares' 1-year, 5-year, and 10-year average annual
total returns were (5.17)%, 8.05%, and 7.55%, respectively. Class B Shares'
1-year and since inception (9/28/94) average annual total returns were (5.47)%
and 7.38%, respectively. Class C Shares' 1-year, 5-year, and since inception
(4/1/93) average annual total returns were (1.34)%, 8.37%, and 10.39%,
respectively. 2
[Graphic] - See Appendix A.
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.50% sales
charge applicable to an initial investment in Class A Shares. Data quoted
represents past performance and does not guarantee future results. Investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 5.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.
ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 14
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $32,251.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Feder ated
International Equity Fund on 8/17/84, reinvested your dividends and cap ital
gains, and did not redeem any shares, you would have invested only $15,000, but
your account would have reached a total value of $32,251 1 by 5/31/99. You would
have earned an average annual total return of 9.34%.
A practical investment plan helps you pursue long-term capital growth through a
diversified portfolio primarily invested in equity securities of non-U.S.
issuers. Through systematic investing, you buy shares on a regular basis and
reinvest all earnings. An investment plan works for you when you invest only
$1,000 annually. You can take it one step at a time. Put time, money and
compounding to work.
[Graphic] - See Appendix B.
1 This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets.
Hypothetical Investor Profile-
Investing for Long-Term Growth
Mark and Rachel Wurman are a two-income suburban couple who, like many others,
want to be able to afford their present lifestyle after they retire.
They decided an international stock fund, though possibly volatile in the
short-term, offered excellent opportunities for long-term growth. They invested
$10,000 in Federated International Equity Fund on August 17, 1984, and have
invested $5,000 every August since.
By May 31, 1999, they were pleased to see that their $80,000 investment had
grown to $191,312 for an average annual total return of 10.01%. Rachel is
already picturing a long Mediterranean cruise to celebrate their retirement.
The couple is fictional, but the figures are real.
[Graphic] - See Appendix C.
This hypothetical scenario is provided for illustrative purposes only and does
not represent the result obtained by any particular shareholder.
Past performance does not guarantee future results.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-95.8%
AUSTRALIA-2.4%
192,000 Australia & New Zealand
Banking Group, Melbourne $ 1,393,987
1,175,374 1 Cable & Wireless Optus Ltd. 2,248,315
1,048,300 Oil Search Ltd. 1,320,859
230,000 Publishing and
Broadcasting Ltd. 1,445,848
TOTAL 6,409,009
BELGIUM-3.1%
39,820 1 Global TeleSystems Group,
Inc. 3,026,320
42,519 Mobistar SA 2,411,337
28,708 1 Roularta Media Group NV 1,542,792
10,443 Telinfo SA 1,193,657
TOTAL 8,174,106
BRAZIL-1.8%
81,100 1 Embratel Participacoes SA,
ADR 1,115,125
81,400 Tele Norte Leste
Participacoes SA, ADR 1,332,925
42,550 1 Tele Sudeste Celular
Participacoes SA, ADR 1,037,156
59,100 1 Telesp Celular
Participacoes SA, ADR 1,377,769
TOTAL 4,862,975
CANADA-8.8%
10,550 1 Alliance Atlantis
Communications, Inc.,
Class B 137,878
87,900 Bombardier, Inc., Class B 1,366,584
32,500 Celestica, Inc. 1,287,813
28,700 JDS Fitel, Inc. 1,946,522
64,400 Le Groupe Videotron Ltee 1,267,932
32,700 1 MetroNet Communications
Corp., Class B 1,875,929
43,800 Nortel Networks Corp. 3,287,342
6,000 1 Phoenix International Life
Sciences, Inc. 50,511
143,500 1 Research in Motion Ltd. 1,997,183
75,400 1 Rogers Communications,
Inc., Class B 1,556,170
65,900 Teleglobe, Inc. 1,995,411
138,675 1 Telesystem International
Wireless, Inc. 2,683,212
61,800 1 The Laser Center, Inc. 2,707,884
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
CANADA-CONTINUED
45,400 Thomson Corp. $ 1,340,779
TOTAL 23,501,150
FINLAND-2.3%
240,400 Merita Ltd., Class A 1,423,504
105,650 Metra OY, Class B 2,351,491
142,000 1 Rapala Normark 1,110,262
40,700 Sampo Insurance Co. Ltd.,
Class A 1,230,462
TOTAL 6,115,719
FRANCE-10.2%
15,100 Bouygues 3,992,106
77,700 Csf(Thomson) 2,499,728
20,500 DEX 2,846,649
5,540 Essilor International 1,940,550
1,746,100 Eurotunnel SA 2,675,854
6,450 Havas Advertising SA 1,260,773
18,600 1 Infogrames Entertainment 1,314,675
13,026 M6 Metropole Television 2,627,653
12,300 Societe Generale, Paris 2,233,722
10,200 Societe du Louvre 781,562
15,934 TFL-TV Francaise 3,820,573
11,120 Transiciel SA 1,217,223
TOTAL 27,211,068
GERMANY, FEDERAL REPUBLIC
OF-4.4%
15,600 1 Consors Discount Broker AG 1,423,012
11,800 1 Debitel 311,843
11,820 Intershop Communications 2,791,011
5,400 1 Kinowelt Medien AG 1,168,121
19,968 Mannesmann AG 2,726,979
2,500 1 Medion AG 521,250
13,990 MobilCom AG 1,123,012
4,111 SER Systeme AG 1,365,000
4,650 1 Telegate AG 181,786
TOTAL 11,612,014
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
GREECE-2.5%
15,970 Commercial Bank of Greece $ 2,883,938
30,900 1 Dorian Bank SA 1,308,293
51,300 1 Lambrakis Media Group 1,225,875
51,585 1 Panafon Hellenic Telecom
SA 1,282,324
TOTAL 6,700,430
HONG KONG-3.0%
2,976,000 China EB-IHD Holdings Ltd. 1,592,603
658,000 1 China Telecom (Hong Kong)
Ltd. 1,387,300
1,086,500 Smartone
Telecommunications 3,369,546
1,383,000 Wheelock & Co. Ltd. 1,569,392
TOTAL 7,918,841
INDONESIA-1.0%
645,000 PT Indosat 1,309,846
772,000 PT Semen Gresik 1,292,209
TOTAL 2,602,055
IRELAND-0.8%
19,600 1 Esat Telecom Group PLC, ADR 725,200
114,800 ICON PLC, ADR 1,435,000
TOTAL 2,160,200
ISRAEL-0.5%
41,000 Tadiran
Telecommunications, Ltd. 1,419,625
ITALY-6.8%
145,830 Arn Mondadori Edit 2,531,261
1,088,100 Banca Nazionale del Lavoro 3,346,314
456,200 1 Class Editori SPA 3,828,486
65,600 Luxottica Group SPA, ADR 1,033,200
323,400 Milano Assicurazioni 856,347
78,800 Rolo Banca 1473 SPA 1,860,674
1,943,540 Seat Pagine Gialle SPA 2,644,112
430,200 Unicredito Italiano SPA 2,022,660
TOTAL 18,123,054
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
JAPAN-15.1%
52,000 Asatsu, Inc. $ 1,312,154
112,700 Capcom Co., Ltd. 1,734,277
41,100 Enix Corp. 1,479,151
85,000 Fujitsu Ltd. 1,420,535
352,100 Furukawa Electric 1,389,524
208,000 Inax Corp. 1,414,545
78,900 Japan Digital Laboratory
Co. Ltd. 1,312,063
56,000 Kao Corp. 1,538,182
10,000 Keyence Corp. 1,447,837
57,000 Matsushita Kotobuk
Electric 1,402,954
40,900 Mycal Card, Inc. 1,383,975
64,500 Namco 1,571,544
32,000 Nippon Broadcasting System 1,376,686
109,000 Olympus Optical Co. 1,352,693
49,700 Paltek Corp. 1,459,709
23,000 Rohm Co. 3,012,245
22,000 Senshukai Co. Ltd. 202,217
129,000 Sharp Corp. 1,432,266
60,800 Shimachu Co. 1,380,789
27,600 Shimamura Co. Ltd. 1,641,797
4,430 Shokoh Fund & Co. 2,477,604
13,400 Softbank Corp. 1,540,995
21,000 Sony Corp. 1,973,691
10,000 Square Co. Ltd. 315,215
6,000 Square Company Ltd. 189,129
33,000 Takeda Chemical Industries 1,466,121
111,000 Tenma 1,487,714
21,200 Union Tool 1,350,542
TOTAL 40,066,154
LUXEMBOURG-1.0%
19,544 Societe Europeenne des
Satellites 2,758,213
MEXICO-1.0%
387,700 1 Corporacion Interamericana
de Entretenimiento SA 1,228,278
36,400 Grupo Televisa SA, GDR 1,521,975
TOTAL 2,750,253
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
NETHERLANDS-4.2%
38,000 1 Benckiser NV $ 2,052,056
37,026 Equant NV, ADR 3,070,844
50,150 ING Groep, NV 2,679,419
51,100 TNT Post Group NV 1,283,849
34,750 1 United Pan-Europe
Communications NV, ADR 2,141,469
TOTAL 11,227,637
NORWAY-1.3%
298,214 Schibsted A/S 3,433,255
PANAMA-0.4%
32,850 Banco Latinoamericano de
Exportaciones SA, Class E 934,172
PORTUGAL-0.0%
110 Telecel - Comunicacoes
Pessoai 13,841
SINGAPORE-1.9%
65,400 Development Bank of
Singapore Ltd. 675,636
319,000 Fraser and Neave Ltd. 1,258,967
1,098,000 Kim Eng Holdings Ltd. 681,869
24,180 Pacific Internet Ltd., ADR 1,094,145
97,000 Singapore Press Holdings
Ltd. 1,328,613
TOTAL 5,039,230
SPAIN-0.3%
38,600 1 Grupo Ferrovial, SA 861,146
SWEDEN-3.4%
290,300 Gambro AB, Class B 2,920,489
171,600 1 Modern Times Group, Class B 3,771,999
758,800 1 Societe Europeenne de
Communication SA, Class B,
ADR 2,338,652
TOTAL 9,031,140
SWITZERLAND-3.3%
6,830 Credit Suisse Group 1,184,328
9,670 1 Interdiscount Hldg. 1,268,664
5,121 Publicitas Holding SA 3,116,329
3,930 UBS AG 1,136,633
3,400 Zurich
Versicherungsgesellschaft 1,997,841
TOTAL 8,703,795
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
THAILAND-1.1%
226,000 BEC World Public Company
Ltd. $ 1,187,871
356,700 Hana Microelectronics Co.,
Ltd. 596,102
677,600 Thai Airways International
Ltd. 1,150,642
TOTAL 2,934,615
UNITED KINGDOM-13.8%
50,100 1 ARM Holdings PLC, ADR 1,462,294
98,600 British Telecommunication
PLC 1,633,635
73,600 1 COLT Telecom Group PLC 1,554,357
370,549 1 Cable & Wireless
Communications PLC 3,520,935
543,424 EMI Group PLC 3,874,864
925,800 Electronics Boutique PLC 1,698,558
105,793 1 Energis PLC 2,559,715
68,000 National Westminster Bank,
PLC, London 1,542,872
254,400 Prudential Corp. PLC 3,342,632
99,200 Reuters Group PLC 1,363,819
515,519 Securicor PLC 4,625,837
200,100 Shire Pharmaceuticals
Group PLC 1,564,676
107,700 Smith, W.H. Group PLC 1,111,371
112,665 Smithkline Beecham Corp. 1,466,797
397,708 1 TeleWest PLC 1,711,064
120,300 United News & Media PLC 1,229,827
168,100 Zergo Holdings PLC 2,329,922
TOTAL 36,593,175
UNITED STATES-1.4%
39,466 1 NTL, Inc. 3,727,070
TOTAL COMMON STOCKS
(IDENTIFIED COST
$234,319,450) 254,883,942
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
PREFERRED STOCKS-2.5%
AUSTRALIA-1.0%
1,839,400 Village Roadshow Ltd. $ 2,761,961
BRAZIL-0.9%
9,091,000 Petroleo Brasileiro SA,
Preference 1,285,225
375,800 Usinas Siderurgicas de
Minas Gerais SA,
Preference 999,676
TOTAL 2,284,901
GERMANY, FEDERAL REPUBLIC
OF-0.6%
2,100 Wella AG, Vorzugsaktien 1,543,421
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$6,726,794) 6,590,283
REPURCHASE AGREEMENT-2.0%
2
$ 5,360,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999 (at amortized
cost) 5,360,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$246,406,244) 3 $ 266,834,225
</TABLE>
1 Non-income producing security.
2 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
3 The cost of investments for federal tax purposes amounts to $246,406,244. The
net unrealized appreciation of investments on a federal tax basis amounts to
$20,427,981 which is comprised of $32,244,557 appreciation and $11,816,576
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($266,128,348) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ADR -American Depositary Receipt
GDR -Global Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$246,406,244) $ 266,834,225
Cash 24,349
Cash denominated in
foreign currencies (at
identified cost $9,025) 9,013
Income receivable 770,651
Receivable for investments
sold 13,515,445
Receivable for shares sold 306,038
Receivable for foreign
currency sold 86,129
TOTAL ASSETS 281,545,850
LIABILITIES:
Payable for investments
purchased $ 15,080,463
Payable for shares
redeemed 62,130
Payable for taxes withheld 79,889
Payable for foreign
currency purchased 4,698
Accrued expenses 190,322
TOTAL LIABILITIES 15,417,502
Net assets for 13,773,612
shares outstanding $ 266,128,348
NET ASSETS CONSIST OF:
Paid in capital $ 212,915,597
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 20,545,090
Accumulated net realized
gain on investments and
foreign currency
transactions 33,480,694
Distributions in excess of
net investment income (813,033)
TOTAL NET ASSETS $ 266,128,348
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($195,712,546 / 10,000,525
shares outstanding) $19.57
Offering Price Per Share
(100/94.50 of $19.57) $20.71
Redemption Proceeds Per
Share $19.57
CLASS B SHARES:
Net Asset Value Per Share
($40,530,686 / 2,159,489
shares outstanding) $18.77
Offering Price Per Share $18.77
Redemption Proceeds Per
Share (94.50/100 of
$18.77) $17.74
CLASS C SHARES:
Net Asset Value Per Share
($29,885,116 / 1,613,598
shares outstanding) $18.52
Offering Price Per Share $18.52
Redemption Proceeds Per
Share (99.00/100 of
$18.52) $18.33
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of
$256,534) $ 1,818,276
Interest 84,234
TOTAL INCOME 1,902,510
EXPENSES:
Investment advisory fee $ 1,317,066
Administrative personnel
and services fee 107,019
Custodian fees 78,302
Transfer and dividend
disbursing agent fees and
expenses 237,089
Directors'/Trustees' fees 3,527
Auditing fees 12,002
Legal fees 2,212
Portfolio accounting fees 51,035
Distribution services fee-
Class B Shares 153,158
Distribution services fee-
Class C Shares 79,937
Shareholder services fee-
Class A Shares 251,568
Shareholder services fee-
Class B Shares 51,053
Shareholder services fee-
Class C Shares 26,646
Share registration costs 21,184
Printing and postage 33,591
Insurance premiums 1,395
Taxes 3,206
Miscellaneous 7,918
TOTAL EXPENSES 2,437,908
Net operating loss (535,398)
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain on
investments and foreign
currency transactions 33,816,721
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency (14,888,955)
Change in net assets
resulting from operations $ 18,392,368
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
(unaudited) NOVEMBER 30,
MAY 31,1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment loss $ (535,398) $ (467,612)
Net realized gain on investments and foreign currency transactions ($33,816,721
and $16,952,671, respectively, as computed for federal
tax purposes) 33,816,721 15,242,814
Net change in unrealized
appreciation/depreciation
of investments and
translation of assets and
liabilities in foreign
currency (14,888,955) 15,948,792
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 18,392,368 30,723,994
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares (13,012,433) (10,030,621)
Class B Shares (2,813,968) (1,891,979)
Class C Shares (1,125,755) (810,275)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (16,952,156) (12,732,875)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 302,199,826 434,539,857
Net asset value of shares
issued to shareholders in
payment of
distributions declared 14,174,839 10,460,757
Cost of shares redeemed (273,680,520) (408,325,936)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 42,694,145 36,674,678
Change in net assets 44,134,357 54,665,797
NET ASSETS:
Beginning of period 221,993,991 167,328,194
End of period $ 266,128,348 $ 221,993,991
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $19.56 $17.93 $17.32 $17.89 $18.53 $16.49
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income
(loss) (0.02) 1 (0.01) 1 0.04 1 0.03 0.09 0.15
Net realized and
unrealized gain on
investments and foreign
currency 1.51 1.56 0.95 1.38 0.17 1.96
TOTAL FROM
INVESTMENT OPERATIONS 1.49 1.57 0.99 1.41 0.26 2.11
LESS DISTRIBUTIONS:
Distributions from net
investment income - - - (0.09) (0.003) (0.07)
Total distributions from
net investment income - - - (0.09) (0.003) (0.07)
Total distributions from
net realized gain on
investments and foreign
currency transactions (1.48) (1.35) (0.38) (1.89) (0.90) -
TOTAL DISTRIBUTIONS (1.48) (1.35) (0.38) (1.98) (0.90) (0.07)
NET ASSET VALUE, END OF
PERIOD $19.57 $19.56 $17.93 $17.32 $17.89 $18.53
TOTAL RETURN 2 8.12% 17.78% 5.89% 8.63% 1.60% 12.82%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.67% 4 1.63% 1.81% 1.83% 1.75% 1.61%
Net investment income
(loss) 3 (0.24% ) 4 (0.06% ) 0.13% 0.00% 1.24% -
Expenses (after waivers) 1.67% 4 1.63% 1.71% 1.68% 1.57% 1.61%
Net investment income
(loss)
(after waivers) (0.24% ) 4 (0.06%) 0.23% 0.15% 0.42% -
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $195,713 $172,160 $134,858 $172,938 $191,911 $261,178
Portfolio turnover 144% 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 con
tingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such voluntary
waivers has not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $18.89 $17.48 $17.04 $17.70 $18.50 $19.61
INCOME FROM
INVESTMENT OPERATIONS:
Net investment loss (0.10) 2 (0.16) 2 (0.10) 2 (0.03) (0.08) (0.01)
Net realized and
unrealized gain (loss) on
investments and foreign
currency 1.46 2.92 0.92 1.26 0.18 (1.10)
TOTAL FROM
INVESTMENT OPERATIONS 1.36 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 income - - 0.00 - - -
Total distributions from
net investment Income - - 0.00 - - -
Distributions from net
realized gain on
investments and foreign
currency transactions (1.48) (1.35) (0.38) (1.89) (0.90) -
TOTAL DISTRIBUTIONS (1.48) (1.35) (0.38) (1.89) (0.90) -
NET ASSET VALUE,
END OF PERIOD $18.77 $18.89 $17.48 $17.04 $17.70 $18.50
TOTAL RETURN 4 7.69% 16.92% 4.97% 7.59% 0.68% (5.27%)
RATIOS TO AVERAGE
NET ASSETS:
Expenses 2.42% 5 2.38% 2.56% 2.58% 2.52% 2.59% 5
Net investment loss (0.99%) 5 (0.84%) (0.59% ) (0.74% ) (0.52% ) (0.88%) 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $40,531 $35,689 $23,629 $16,707 $6,370 $1,214
Portfolio turnover 144% 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 are less than $0.01 per share.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $18.66 $17.28 $16.85 $17.50 $18.30 $16.41
INCOME FROM
INVESTMENT OPERATIONS:
Net investment loss (0.08) 1 (0.16) 1 (0.11) 1 (0.10) (0.12) (0.05)
Net realized and
unrealized gain on
investments and foreign
currency 1.42 2.89 0.92 1.34 0.22 1.98
TOTAL FROM
INVESTMENT OPERATIONS 1.34 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 income 3 - - - - - (0.04)
TOTAL DISTRIBUTIONS FROM
NET INVESTMENT INCOME - - - 0.00 (0.00) (0.04)
Distributions from net
realized gain
on investments and foreign
currency transactions (1.48) (1.35) (0.38) (1.89) (0.90) -
TOTAL DISTRIBUTIONS (1.48) (1.35) (0.38) (1.89) (0.90) (0.04)
NET ASSET VALUE, END OF
PERIOD $18.52 $18.66 $17.28 $16.85 $17.50 $18.30
TOTAL RETURN 4 7.68% 16.94% 4.96% 7.75% 0.69% 11.75%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.42% 6 2.38% 2.56% 2.58% 2.50% 2.55%
Net investment loss 5 (0.86%) 6 (0.83%) (0.67%) (0.73%) (0.51%) (0.91%)
Expenses (after waivers) 2.42% 6 2.38% 2.56% 2.57% 2.46% 2.55%
Net investment loss (after
waivers) (0.86%) 6 (0.83%) (0.67%) (0.72%) (0.47%) (0.91%)
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $29,885 $14,145 $8,841 $7,580 $7,146 $8,836
Portfolio turnover 144% 243% 210% 119% 166% 73%
</TABLE>
1 Amount based on average outstanding shares.
2 Distribution from net investment income is less than $0.001 per share
3 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting
principals. These distributions do not represent a return of capital for
federal tax purposes.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
International Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end, man
agement investment company. The Corporation consists of two portfolios. The
financial statements included herein are only those of Federated Interna tional
Equity Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolio are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
The Fund offers three classes of shares: Class A Shares, Class B Shares, and
Class C Shares. The investment objective is to obtain a total return on its
assets.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Foreign equity securities are valued at the last sale price reported in the
market in which they are primarily traded. If no sale on the recognized exchange
is reported or the security is traded over the counter, the foreign securities
are valued at the mean between the last closing bid and asked prices. Short-term
securities are valued at the prices provided by an inde pendent pricing service.
However, short-term securities with remaining matu rities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value. With respect to valua tion of foreign securities, trading in
foreign cities may be completed at times which vary from the closing of the New
York Stock Exchange. Therefore, foreign securities are valued at the latest
closing price on the exchange on which they are traded prior to the closing of
the New York Stock Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the foreign exchange rate in effect at noon,
Eastern time, on the day the value of the foreign security is determined.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take posses sion,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repur chase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other rec
ognized financial institutions, such as broker/dealers, which are deemed by the
Fund's adviser to be creditworthy pursuant to the guidelines and/or stan dards
reviewed or established by the Board of Directors (the "Directors"). Risks may
arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
However, federal taxes may be imposed on the Fund upon the disposition of
certain investments in passive foreign investment companies. Withholding taxes
on foreign interest and dividends have been provided for in accordance with the
Fund's understanding of the applicable country's tax rules and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security posi
tions such that sufficient liquid assets will be available to make payment for
the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN EXCHANGE CONTRACTS
The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. The Fund enters into
foreign currency contract transactions to protect assets against adverse changes
in foreign currency exchange rates or exchange control regulations. Risks may
arise upon entering these transactions from the potential inability of
counterparts to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying cur rency
and any gains or losses are recorded for financial statement purpose as
unrealized until the settlement date.
At May 31, 1999, the Fund had outstanding forward foreign currency exchange
contracts as set forth below:
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT CONTRACTS TO CONTRACTS APPRECIATION
DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
<S> <C> <C> <C> <C>
Contracts Purchased:
6/1/1999 1,1047,791 Euro $1,153,623 $1,151,744 $ (1,879)
6/2/1999 148,030 British Pound Sterling 237,589 237,197 (392)
6/3/1999 1,190,958 British Pound Sterling 1,901,363 1,908,332 6,969
Contracts Sold:
6/1/1999 19,767,151 Greek Drachma 63,357 63,404 (47)
6/1/1999 822,421,147 Japanese Yen 6,738,395 6,804,180 (65,785)
6/1/1999 408,657,358 Japanese Yen 3,360,669 3,380,966 (20,297)
NET UNREALIZED APPRECIATION (DEPRECIATION) ON FOREIGN EXCHANGE CONTRACTS $(81,431)
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of div idends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and rev enues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.0001 per share) authorized were as fol
lows:
NUMBER OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
TOTAL 1,500,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 12,684,180 $ 255,456,659 19,112,297 $ 382,682,504
Shares issued to
shareholders in payment of
distributions declared 585,523 10,747,133 470,456 7,974,243
Shares redeemed (12,071,363) (244,948,603) (18,302,055) (369,516,756)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 1,198,340 $ 21,255,189 1,280,698 $ 21,139,991
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 768,288 $ 14,904,544 1,517,731 $ 30,124,357
Shares issued to
shareholders in payment of
distributions declared 151,004 2,668,240 107,723 1,775,576
Shares redeemed (649,259) (12,594,639) (1,087,709) (20,903,207)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 270,033 $ 4,978,145 537,745 $ 10,996,726
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,651,218 $ 31,838,623 1,120,914 $ 21,732,996
Shares issued to
shareholders in payment of
distributions declared 43,547 759,466 43,647 710,938
Shares redeemed (839,173) (16,137,278) (918,179) (17,905,973)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS 855,592 $ 16,460,811 246,382 $ 4,537,961
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 2,323,965 $ 42,694,145 2,064,825 $ 36,674,678
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management Corp. (formerly, Federated Global
Research Corp.), the Fund's investment adviser (the "Adviser"), receives for its
services an annual investment advisory fee equal to 1.00% of the Fund's average
daily net assets.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administra tive Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Feder ated
Securities Corp., the principal distributor, from the net assets of the Fund to
finance activities intended to result in the sale of the Fund's Class B and
Class C Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
PERCENTAGE OF
AVERAGE DAILY
NET ASSETS
SHARE CLASS NAME OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discre tion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disburs ing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1999, were as follows:
Purchases $380,653,361
Sales $367,300,067
CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund main tains
a diversified investment portfolio, the political or economic develop ments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, polit ical or
economic developments may have an effect on the liquidity and vola tility of
portfolio securities and currency holdings.
At May 31, 1999, the diversification of industries was as follows:
PERCENTAGE OF
INDUSTRY NET ASSETS
Aerospace & Military Technology 1.8%
Appliances & Household Durables 1.8%
Banking 9.3%
Beverage & Tobacco 0.5%
Broadcasting & Publishing 14.6%
Building Materials & Components 1.0%
Business & Public Services 9.0%
Construction & Housing 1.8%
Data Processing & Reproduction 2.4%
Electrical & Electronics 3.3%
Electronic Components, Instruments 5.9%
Energy Sources 1.0%
Financial Services 3.3%
Food & Household Products 1.9%
Health & Personal Care 6.1%
Industrial Components 0.5%
Insurance 2.8%
Leisure & Tourism 3.4%
Merchandising 3.4%
Metals 0.4%
Miscellaneous 2.0%
Multi-Industry 2.5%
Recreation, Other Consumer Goods 1.9%
Telecommunications 18.3%
Transportation - Airlines 0.4%
Wholesale & International Trade 1.3%
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking mea sures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
SUBSEQUENT EVENT
On May 19, 1999, the Corporation's Board of Directors, upon the recommenda tion
of the Audit Committee of the Board of Directors, dismissed Arthur Andersen LLP
("AA") as the Corporation's independent auditors. During the
six-month period ended May 31, 1999 (the "Period"): (i) AA did not issue any
report on the Corporation's financial statements; (ii) there were no dis
agreements with AA on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which dis
agreements, if not resolved to the satisfaction of AA, would have caused it to
make reference to the subject matter of the disagreements in connection with its
report on the financial statements for such period; and (iii) there were no
"reportable events" of the kind described in Item 304(a)(1)(v) of Regulation S-K
under the Securities Exchange Act of 1934, as amended.
The Corporation, by action of its Board of Directors, engaged Ernst & Young LLP
("E&Y") as the independent auditors for purposes of auditing the Corpora tion's
financial statements for the fiscal year ending November 30, 1999. During the
Period, neither the Corporation, nor anyone on the Corporation's behalf has
consulted E&Y on items which (i) concerned the application of accounting
principles to a specified transaction, either completed or pro posed, or the
type of audit opinion that might be rendered on the Corpora tion's financial
statements or (ii) concerned the subject of a disagreement (as defined in
paragraph (a)(1)(iv) of Item 304 of Regulation S-K) or report able events (as
described in paragraph (a)(1)(v) of said Item 304).
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other gov
ernment agency. Investment in mutual funds involves investment risk, includ ing
the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts con
cerning the fund's objective and policies, management fees, expenses, and other
information.
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated International Equity Fund
Established 1984
14TH SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated International Equity Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 46031P308
Cusip 46031P407
Cusip 46031P605
8070112 (7/99)
[Graphic]
SEMI-ANNUAL REPORT
[Graphic]
GLEN R. JOHNSON
President
Federated International Income Fund
President's Message
Dear Shareholder:
Federated International Income Fund was created in 1991, and I am pleased to
present its eighth Semi-Annual Report. This bond fund is designed for income
investors who want to invest a portion of their wealth outside of the United
States. The bonds selected have generous yields, but are subject to price
volatility and currency fluctuations. As of May 31, 1999, the fund's assets of
over $142 million were broadly diversified in 39 high-quality bond issues of 17
countries. 1 Government bonds owned by the fund were issued by Germany, France,
Italy, and Norway, just to name a few. The average quality rating is AA+ and the
fund's effective maturity is eight years.
This report covers the first half of the fund's fiscal year which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with Robert Kowit, Vice President, who co-manages the fund
with Micheal Casey, Vice President, both of Federated Global Investment
Management Corp. Following their discussion are three additional items of
shareholder interest. First is a series of graphs showing the fund's long-term
investment performance. Second is a complete listing of the fund's diversified
international bond holdings, and third is the publication of the fund's
financial statements.
During the first half of the fund's fiscal year, the strong U.S. dollar had a
negative impact on international bond investments that were denominated, or
valued, in local currencies. As a result, the market's returns as well as the
fund's returns, were negative, although the fund continued to produce a generous
income stream. Individual share class total return performance for the six-month
reporting period, including income distributions, follows. 2
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares (5.45%) $0.22 $11.22 to $10.40 = (7%)
Class B Shares (5.81%) $0.18 $11.19 to $10.37 = (7%)
Class C Shares (5.81%) $0.18 $11.20 to $10.38 = (7%)
</TABLE>
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
2 Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the reporting period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, and C
Shares were (9.72%), (10.90%), and (6.74%), respectively.
I recommend that you consider adding to your account on a regular basis to take
advantage of price fluctuations and to use the dollar-cost-averaging method of
investing. By investing the same amount on a regular basis, you buy more fund
shares when prices are low and fewer when prices are high. Adding to your
account regularly and reinvesting your quarterly dividends in additional shares
is a convenient, painless way to "pay yourself first" and enjoy the benefit of
compounding. 3
I would also like to point out that the U.S. market's performance, although very
positive, has been surpassed by the market returns in many other nations. In
Federated International Income Fund, you have an opportunity to increase your
international exposure. The bonds in the fund have not only been generous
income-paying issues, but offer the potential for long-term capital
appreciation.
Thank you for joining the growing number of Federated International Income Fund
shareholders who have diversified their fixed-income assets internationally.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
July 15, 1999
3 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost-averaging involves continuous investment
regardless of fluctuating price levels, investors should consider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
Robert Kowit
Vice President
Federated Global Investment Management Corp.
[Graphic]
Micheal Casey
Vice President
Federated Global Investment Management Corp.
Investment Review
WHAT ARE YOUR COMMENTS ON THE INTERNATIONAL BOND MARKET, WHICH SAW WEAKER
RETURNS IN THE WAKE OF A STRONG U.S. DOLLAR?
Through May 1999, most markets had outperformed the U.S. market in local
terms, but continued U.S. dollar strength once again wiped out all positive
performance. For example, year-to-date, the U.S. market was down 2.52%.
Other countries were as follows:
<TABLE>
<CAPTION>
COUNTRY LOCAL CURRENCY U.S. DOLLARS
<S> <C> <C>
Germany 0.98% (10.33%)
Italy 0.58% (10.68%)
Sweden 0.11% (5.77%)
Japan 5.47% (2.32%)
United Kingdom (1.70%) (5.27%)
</TABLE>
In terms of U.S. dollars, Canada at 3.68% and Australia at 3.82% were the
biggest absolute gainers year-to-date.
U.S. dollar strength is in reference to specific currencies. While the
U.S. dollar might go up in value versus the euro, it might actually go down
in value versus other currencies.
IN THIS ENVIRONMENT, HOW DID FEDERATED INTERNATIONAL INCOME FUND PERFORM FROM A
TOTAL RETURN PERSPECTIVE?
The fund's total returns for the first half of the fiscal year reflected the
overall international bond market's weakness. Over the six-month reporting
period ended May 31, 1999, the overall international bond market recorded a
(4.55%) total return as measured by the J.P. Morgan Non-Dollar Bond Index. 1
Total returns for the fund, based on net asset value, were: Class A Shares,
(5.45%); Class B Shares, (5.81%); and Class C Shares, (5.81%).2 The fund
underperformed the (2.47%) total return of the average international income fund
as tracked by Lipper Analytical Services, Inc.3
OF COURSE, INCOME IS A PRIMARY CONSIDERATION FOR SHAREHOLDERS. WHAT WAS THE
TOTAL INCOME PAID PER SHARE DURING THE SIX-MONTH REPORTING PERIOD ENDED
MAY 31, 1999?
The fund's two quarterly income dividends totaled $0.22 per share for Class A
Shares, $0.18 for Class B Shares, and $0.18 per share for Class C Shares.
WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF MAY 31, 1999?
<TABLE>
<CAPTION>
COUPON
AND PERCENTAGE OF
ISSUER MATURITY COUNTRY NET ASSETS
<S> <C> <C> <C>
Sovereign 6.00% due
6/20/2016 Germany 7.95%
KFW 6.75% due
6/20/2005 Germany 6.48%
International
Finance
Export-Import 6.50% due
5/19/2000 Japan 5.00%
Bank
Sovereign 7.50% due
4/25/2005 France 3.96%
Sovereign 6.50% due
7/15/2003 Germany 3.35%
TOTAL 26.74%
</TABLE>
HOW WERE THE FUND'S HIGH-QUALITY BOND HOLDINGS DIVERSIFIED AMONG COUNTRIES AS OF
MAY 31, 1999?
Nearly one-fourth of the fund's holdings were concentrated in Germany, with the
balance spread across 16 other countries as indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Germany 23.1%
United States 9.0%
Italy 7.1%
Japan 7.1%
France 6.7%
Poland 4.8%
Canada 4.7%
Sweden 4.5%
Spain 4.1%
Greece 4.0%
Norway 3.3%
Australia 2.7%
Hungary 2.7%
Denmark 2.3%
Portugal 2.1%
United Kingdom 2.0%
Ireland 1.7%
</TABLE>
1 The J.P. Morgan Non-Dollar Bond Index is a total return, unmanaged trade-
weighted index of over 360 government and high-grade bonds in 12 developed
countries. Investments cannot be made in an index.
2 Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the reporting period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, and C
Shares were (9.72%), (10.90%), and (6.74%), respectively.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. Lipper returns do not take sales charges into account.
WHAT WERE SOME INTERESTING ADDITIONS TO THE PORTFOLIO DURING THE REPORTING
PERIOD?
Bonds from POLAND, (10% due 2004; 2.4% of net assets) and HUNGARY (13% due 2003;
2.65% of net assets) represented part of our move into the countries of central
Europe at the start of 1999. We believe that convergence by these countries
towards the standard of living and inflation rates seen in core Europe will be
at least as fast as the southern European countries, such as Italy and Spain,
proved to be. The assets are already investment grade and represent what we
believe to be the best convergence play left in Europe. A third bond, DRESDNER
FUNDING TRUST (5.79% due 2011; 1.5% of net assets) came with a very attractive
yield for its Aa2 rating.
WHAT COUNTRIES DO YOU LIKE, WHICH ONES ARE YOU AVOIDING, AND WHY?
We are most bullish on the convergence plays of central Europe such as Poland
and Hungary. In addition, we are starting to see some recovery from the
commodity-producing countries such as Canada and Australia. Furthermore, all
core government bond markets in Europe could get a strong bid if dislocations in
emerging markets push investors back into the core as they did last year. We
will continue to avoid Japan based on the expected supply of government debt and
low yields.
AS WE REACH THE MIDPOINT OF 1999, WHAT IS YOUR OUTLOOK FOR INTERNATIONAL
BONDS? WHAT DO YOU SEE AHEAD FOR THE EURO?
The United States started its tightening cycle with the Federal Reserve Board
increasing rates by 25 basis points, or 0.25%, in June 1999. We believe that
most of the rest of the world is still 6 months to 18 months away from any rate
hike fears.
While the euro might still have a slight weakness ahead, we expect the massive
U.S. trade deficit and oversold technical condition to move the euro higher over
the next three to six months. The Japanese Yen, in contrast, has recently been
boosted by inflows of money to buy Japanese equities and if these flows subside,
we would expect that currency to weaken somewhat.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
IF YOU HAD MADE AN INITIAL INVESTMENT OF $8,000 IN THE CLASS A SHARES OF
FEDERATED INTERNATIONAL INCOME FUND ON 6/4/91, REINVESTED DIVIDENDS AND CAPITAL
GAINS AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $14,010
ON 5/31/99. YOU WOULD HAVE EARNED A 7.30% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/99, the Class A Shares' 1-year, 5-year, and since inception (6/4/91)
average annual total returns were (3.25)%, 5.12%, and 6.96%, respectively. Class
B Shares' 1-year and since inception (9/28/94) average annual total returns were
(4.74)% and 5.03%, respectively. Class C Shares' 1- year, 5-year, and since
inception (4/1/93) average annual total returns were (0.29)%, 5.32%, and 6.41%,
respectively. 2
[Graphic] - See Appendix A
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.50% sales
charge applicable to an initial investment in Class A Shares. Data quoted
represents past performance and does not guarantee future results. Investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.
INVESTING ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR
SEVEN YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $10,105.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
International Income Fund on 6/4/91, reinvested your dividends and capital gains
and did not redeem any shares, you would have invested only $8,000, but your
account would have reached a total value of $10,105 1 by 5/31/99. You would have
earned an average annual total return of 5.25%.
A practical investment plan helps you pursue a high level of income by investing
in high-quality debt securities denominated primarily in foreign currencies.
Through systematic investing, you buy shares on a regular basis and reinvest all
earnings. An investment plan works for you when you invest only $1,000 annually.
You can take it one step at a time. Put time, money, and compounding to work.
[Graphic] - See Appendix B.
1 This chart assumes that the subsequent annual investments are made on the last
day of each calendar year. No method of investing can guarantee a profit or
protect against loss in down markets.
Hypothetical Investor Profile: Investing for Income from Abroad
Sam and Ann Rollier -a single-income suburban couple-are building a nest egg for
their son Ed's private school education.
Sam and Ann made an initial $10,000 investment in the Class A Shares of
Federated International Income Fund on 6/4/91. At the end of each June, Sam and
Ann have added $2,000 to their investment. As of May 31, 1999, their account
totaled $34,220, giving them an annual total return of 6.31%.
Now they can feel confident about giving Ed a quality education, and Sam figures
his son will get to college even if he never does learn to catch a football.
The couple is fictional, but the figures are real.
[Graphic] - See Appendix C.
This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
CURRENY CREDIT VALUE IN
PAR AMOUNT RATING 1 U.S. DOLLARS
<S> <C> <C> <C>
BONDS-94.9%
AUSTRALIAN DOLLAR-5.8%
AGENCY-3.3%
7,000,000 Federal National
Mortgage Association,
Series EMTN,
6.50%, 7/10/2002 AAA $ 4,655,670
STATE/PROVINCIAL-2.5%
5,500,000 New South Wales
Treasury, Local Gov't.
Guarantee,
6.50%, 5/1/2006 AAA/Aaa 3,634,052
TOTAL AUSTRALIAN DOLLAR 8,289,722
BRITISH POUND-8.6%
SOVEREIGN-8.6%
1,000,000 United Kingdom Treasury,
Foreign Gov't.
Guarantee, 11.75%,
1/22/2007 AAA/Aaa 1,938,845
1,800,000 United Kingdom Treasury,
7.00%, 11/6/2001 AAA/Aaa 3,002,485
1,650,000 United Kingdom Treasury,
8.00%, 6/7/2021 AAA/Aaa 3,750,343
1,600,000 United Kingdom Treasury,
9.00%, 8/6/2012 AAA/Aaa 3,548,246
TOTAL BRITISH POUND 12,239,919
CANADIAN DOLLAR-4.5%
AGENCY-2.6%
4,000,000 Quebec, Province of,
Deb., 9.375%, 1/16/2023 A+/A2 3,788,995
SOVEREIGN-1.9%
3,000,000 Canada, Goverment of,
Deb., 8.00%, 6/1/2023 AAA/Aa1 2,690,519
TOTAL CANADIAN DOLLAR 6,479,514
DANISH KRONE-2.6%
FINANCIAL
INTERMEDIARIES-1.0%
9,784,000 Nykredit, Mtg. Bond,
8.00%, 10/1/2026 NR/Aa3 1,452,227
SOVEREIGN-1.6%
11,200,000 Kingdom of Denmark,
Bond, 7.00%, 11/10/2024 AAA/Aaa 1,903,749
1,750,000 Kingdom of Denmark,
Bond, 8.00%, 3/15/2006 AAA/Aaa 299,400
TOTAL 2,203,149
TOTAL DANISH KRONE 3,655,376
<CAPTION>
FOREIGN
CURRENY CREDIT VALUE IN
PAR AMOUNT RATING 1 U.S. DOLLARS
<S> <C> <C> <C>
BONDS-continued
DEUTSCHE MARK-8.2%
AGENCY-5.0%
13,000,000 Export-Import Bank
Japan, Foreign Gov't.
Guarantee, 6.50%,
5/19/2000 AAA/Aaa $ 7,147,553
FINANCIAL
INTERMEDIARIES-3.2%
7,500,000 Baden Wurt L-Finance NV,
Bank Guarantee, 6.75%,
6/22/2005 AAA/Aaa 4,589,316
TOTAL DEUTSCHE MARK 11,736,869
EUROPEAN CURRENCY UNIT
(ECU) -37.1%
AGENCY-6.5%
7,669,378 KFW International
Finance, Bank Guarantee,
6.75%, 6/20/2005 AAA/Aaa 9,261,767
BANKING-1.5%
2,000,000 2 Dresdner Funding Trust,
Series 144A, 5.79%,
6/30/2011 A+/Aa2 2,098,969
SOVEREIGN-27.7%
2,800,000 France, 8.50%,
10/25/2019 AAA/Aaa 4,231,089
4,500,000 France, O.A.T., Bond,
7.50%, 4/25/2005 AAA/Aaa 5,653,892
9,458,899 Deutschland Republic,
Bond, 6.00%, 6/20/2016 AAA/Aaa 11,364,685
4,090,335 Germany (Fed Republic),
6.50%, 7/15/2003 AAA/Aaa 4,784,402
3,316,750 Germany (Fed Republic),
7.375%, 1/3/2005 AAA/Aaa 4,115,367
634,869 Irish Government, 9.00%,
7/15/2001 AA+/Aaa 743,662
1,269,738 Irish Government, Deb.,
9.00%, 9/1/2006 AA+/Aaa 1,746,317
2,020,131 Portuguese Government,
Bond 11.875%, 2/23/2000 AA-/Aa2 2,242,327
648,437 Portuguese Government,
Bond 8.875%, 1/23/2004 AA-/Aa2 826,803
3,200,000 Spain (Government),
Foreign Gov't.
Guarantee,
10.30%, 6/15/2002 AA/Aa2 4,020,826
TOTAL 39,729,370
SOVEREIGN GOVERNMENT -
1.4%
1,682,833 Spain (Government),
6.15%, 1/31/2013 NR/Aa2 1,999,908
TOTAL EUROPEAN CURRENCY
UNIT 53,090,014
GREEK DRACHMA-4.0%
SOVEREIGN-4.0%
500,000,000 Hellenic Republic,
9.20%, 10/31/2002 A-/A2 1,669,527
750,000,000 2 Hellenic Republic,
13.10%, 10/23/2003 A-/A2 2,503,087
400,000,000 Hellenic Republic, Bond,
8.60%, 3/26/2008 A-/A2 1,504,980
TOTAL GREEK DRACHMA 5,677,594
<CAPTION>
FOREIGN
CURRENY CREDIT VALUE IN
PAR AMOUNT RATING 1 U.S. DOLLARS
<S> <C> <C> <C>
BONDS-continued
HUNGARIAN FORINT-2.6%
SOVEREIGN-2.6%
900,000,000 Hungary, Government of,
Bond, 13.00%, 7/24/2003 A/A1 $ 3,779,617
ITALIAN LIRA-7.2%
SOVEREIGN-7.2%
3,750,000 Italy, Government of,
6.75%, 2/1/2007 AA/Aa3 4,582,959
4,131,648 Italy, Government of,
Bond, 10.50%, 11/1/2000 AAA/Aa3 4,759,932
774,684 Italy, Government of,
Deb., 8.50%, 1/1/2004 AAA/Aa3 978,174
TOTAL ITALIAN LIRA 10,321,065
JAPANESE YEN-1.9%
SOVEREIGN-1.9%
320,000,000 Japan, 5.30%, 12/20/1999 Aaa 2,716,307
NORWEGIAN KRONE-3.3%
SOVEREIGN-3.3%
36,000,000 Norway Government
Foreign Gov't.
Guarantee, 5.75%,
11/30/2004 AAA/Aaa 4,693,395
POLISH ZLOTY-4.6%
SOVEREIGN-4.6%
14,000,000 Poland, Government of,
10.00%, 2/12/2004 A-/A2 3,437,610
12,000,000 Poland, Government of,
Bond, 12.00%, 6/12/2002 A-/A2 3,085,112
TOTAL POLISH ZLOTY 6,522,722
SWEDISH KRONA-4.5%
SOVEREIGN-4.5%
28,000,000 Sweden (Kingdom of),
Government of, 6.00%,
2/9/2005 AAA/Aa1 3,565,791
18,600,000 Swedish, Government
Deb., 9.00%, 4/20/2009 AAA/Aa1 2,907,377
TOTAL SWEDISH KRONA 6,473,168
TOTAL BONDS
(IDENTIFIED COST
$150,535,213) 135,675,282
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-
2.0% 3
$ 2,840,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999
(at amortized cost) $ 2,840,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$153,375,213) 4 $ 138,515,282
</TABLE>
1 Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
2 Denotes variable rate securities which show current rate and next demand date.
3 The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio. The investment in the
repurchase agreement is through participation in a joint account with other
Federated funds.
4 The cost of investments for federal tax purposes amounts to $153,375,213. The
net unrealized depreciation of investments on a federal tax basis amounts to
$14,859,931 which is comprised of $1,061,531 appreciation and $15,921,462
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($142,912,149) at May 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$153,375,213) $ 138,515,282
Cash 3,839
Income receivable 4,397,480
Receivable for shares
sold 94,990
TOTAL ASSETS 143,011,591
LIABILITIES:
Payable for shares
redeemed $ 27,684
Income distribution
payable 552
Payable for taxes
withheld 15,418
Accrued expenses 55,788
TOTAL LIABILITIES 99,442
Net assets for
13,747,405 shares
outstanding $ 142,912,149
NET ASSETS CONSIST OF:
Paid in capital $ 166,562,904
Net unrealized
depreciation of
investments and
translation of assets
and liabilities in
foreign currency (15,111,850)
Accumulated net realized
loss on investments and
foreign currency
transactions (6,889,998)
Distributions in excess
of net investment income (1,648,907)
TOTAL NET ASSETS $ 142,912,149
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE
CLASS A SHARES:
Net Asset Value Per Share
($124,649,824 /
11,987,436 shares
outstanding) $10.40
Offering Price Per Share
(100/95.50 of $10.40) 1 $10.89
Redemption Proceeds Per
Share $10.40
CLASS B SHARES:
Net Asset Value Per Share
($12,532,482 / 1,208,131
shares outstanding) $10.37
Offering Price Per Share $10.37
Redemption Proceeds Per
Share (94.50/100 of
$10.37) 1 $9.80
CLASS C SHARES:
Net Asset Value Per Share
($5,729,843 / 551,838
shares outstanding) $10.38
Offering Price Per Share $10.38
Redemption Proceeds Per
Share (99.00/100 of
$10.38) 1 $10.28
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign
taxes withheld of
$22,579) $ 4,943,387
EXPENSES:
Investment advisory fee $ 569,387
Administrative personnel
and services fee 84,756
Custodian fees 44,107
Transfer and dividend
disbursing agent fees
and expenses 79,760
Directors'/Trustees'
fees 2,555
Auditing fees 11,528
Legal fees 3,729
Portfolio accounting
fees 40,195
Distribution services
fee-Class A Shares 165,140
Distribution services
fee-Class B Shares 49,539
Distribution services
fee-Class C Shares 24,428
Shareholder services
fee-Class A Shares 165,140
Shareholder services
fee-Class B Shares 16,513
Shareholder services
fee-Class C Shares 8,143
Share registration costs 17,180
Printing and postage 15,326
Insurance premiums 1,190
Taxes 3,083
Miscellaneous 9,634
TOTAL EXPENSES 1,311,333
WAIVERS:
Waiver of distribution
services fee-Class A
Shares $ (99,084)
Waiver of shareholder
services fee-Class A
Shares (46,239)
TOTAL WAIVERS (145,323)
Net expenses 1,166,010
Net investment income 3,777,377
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on
investments and foreign
currency transactions 395,011
Net change in unrealized
depreciation of
investments and
translation of assets
and liabilities in
foreign currency (12,417,148)
Net realized and
unrealized loss on
investments and foreign
currency (12,022,137)
Change in net assets
resulting from
operations $ (8,244,760)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 3,777,377 $ 8,643,280
Net realized gain on
investments and foreign
currency
transactions ($395,011
and ($2,474,371),
respectively, as
computed for federal tax
purposes) 395,011 234,909
Net change in unrealized
appreciation/depreciatio
n of investments and
translation of assets
and liabilities in
foreign currency (12,417,148) 7,248,956
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS (8,244,760) 16,127,145
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (2,664,472) (7,234,725)
Class B Shares (215,709) (469,562)
Class C Shares (108,436) (279,458)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (2,988,617) (7,983,745)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 38,752,095 53,208,304
Net asset value of shares
issued to shareholders
in payment of
distributions declared 917,223 2,553,943
Cost of shares redeemed (43,919,295) (106,730,637)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (4,249,977) (50,968,390)
Change in net assets (15,483,354) (42,824,990)
NET ASSETS:
Beginning of period 158,395,503 201,220,493
End of period $ 142,912,149 $ 158,395,503
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.22 $10.65 $11.92 $11.38 $10.52 $11.86
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.28 1 0.52 1 0.63 1 0.74 1 0.79 0.70
Net realized and
unrealized gain (loss)
on investments and
foreign currency (0.88) 0.53 (1.07) 0.67 0.84 (0.76)
TOTAL FROM
INVESTMENT OPERATIONS (0.60) 1.05 (0.44) 1.41 1.63 (0.06)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.22) (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 (0.22) (0.48) (0.83) (0.87) (0.77) (1.28)
NET ASSET VALUE, END OF
PERIOD $10.40 $11.22 $10.65 $11.92 $11.38 $10.52
TOTAL RETURN 2 (5.45%) 10.22% (3.70%) 13.27% 16.12% (0.84%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.65% 4 1.57% 1.56% 1.64% 1.70% 1.50%
Net investment income 3 4.85% 4 4.80% 5.57% 6.24% 6.39% 6.47%
Expense (after waivers) 1.43% 4 1.33% 1.30% 1.30% 1.30% 1.30%
Net investment income
(after waivers) 5.07% 4 5.04% 5.83% 6.58% 6.79% 6.67%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $124,650 $138,567 $180,415 $200,758 $173,905 $209,008
Portfolio turnover 25% 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 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.19 $10.62 $11.89 $11.36 $10.51 $10.21
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.24 2 0.46 2 0.56 2 0.84 2 0.77 0.08
Net realized and
unrealized gain (loss)
on investments and
foreign currency (0.88) 0.51 (1.08) 0.48 0.78 0.22
TOTAL FROM
INVESTMENT OPERATIONS (0.64) 0.97 (0.52) 1.32 1.55 0.30
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.18) (0.40) (0.75 ) (0.79) (0.70) -
NET ASSET VALUE, END OF
PERIOD $10.37 $11.19 $10.62 $11.89 $11.36 $10.51
TOTAL RETURN 3 (5.81%) 9.45% (4.43% ) 12.41% 15.28% 2.44%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 2.15% 5 2.07% 2.06% 2.13% 2.20% 2.21%
Net investment income 4 4.35% 5 4.29% 5.06% 5.74% 5.66% 6.97%
Expense (after waivers) 2.15% 5 2.05% 2.06% 2.11% 2.10% 2.11%5
Net investment income
(after waivers) 4.35% 5 4.31% 5.06% 5.76% 5.76% 7.07% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $12,532 $13,174 $12,521 $8,641 $1,123 $101
Portfolio turnover 25% 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 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.20 $10.63 $11.89 $11.36 $10.48 $11.84
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.24 1 0.46 1 0.56 1 0.67 1 0.60 0.58
Net realized and
unrealized gain (loss)
on investments and
foreign currency (0.88) 0.51 (1.08) 0.64 0.95 (0.72)
TOTAL FROM
INVESTMENT OPERATIONS (0.64) 0.97 (0.52) 1.31 1.55 (0.14)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.18) (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 (0.18) (0.40) (0.74) (0.78) (0.67) (1.22)
NET ASSET VALUE,
END OF PERIOD $10.38 $11.20 $10.63 $11.89 $11.36 $10.48
TOTAL RETURN 2 (5.81%) 9.42% (4.42% ) 12.31% 15.32% (1.54%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 2.15% 4 2.07% 2.06% 2.13% 2.20% 2.15%
Net investment income 3 4.35% 4 4.30% 5.10% 5.76% 5.82% 5.90%
Expense (after waivers) 2.15% 4 2.05% 2.06% 2.09% 2.06% 2.05%
Net investment income
(after waivers) 4.35% 4 4.32% 5.10% 5.80% 5.96% 6.00%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $5,730 $6,654 $8,285 $14,976 $12,015 $8,098
Portfolio turnover 25% 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 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statement
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
International Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of two portfolios. The
financial statements included herein are only those of Federated International
Income Fund (the "Fund"), a non-diversified portfolio. The financial statements
of the other portfolio are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers three classes of shares: Class A Shares, Class
B Shares and Class C Shares. The Fund's objective is to seek a high level of
current income in the U.S. dollars consistent with prudent investment risk. The
Fund has a secondary investment objective of capital appreciation.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Foreign government securities, listed foreign corporate bonds, are valued
according to the latst reported sale price on a recognized securities exchange,
if available. If no sale on a recognized exchange is reported or if the security
is traded over the counter, a security is valued according to the last reported
bid price. Short-term securities are valued at the prices provided by an
independent pricing service. However, short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value. With respect to valuation
of foreign securities, trading in foreign cities may be completed at times which
vary from the closing of the New York Stock Exchange. Therefore, foreign
securities are valued at the latest closing price on the exchange on which they
are traded prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. Dollars at the
foreign exchange rate in effect at noon, eastern time, on the day the value of
the foreign security is determined.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
Withholding taxes on foreign interest have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.
At November 30, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $10,021,905, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $5,255,753
2003 4,766,152
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN EXCHANGE CONTRACTS
The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. The Fund may enter into
foreign currency contract transactions to protect assets against adverse changes
in foreign currency exchange rates or exchange control regulations. Purchased
contracts are used to acquire exposure to foreign currencies; whereas, contracts
to sell are used to hedge the Fund's securities against currency fluctuations.
Risks may arise upon entering these transactions from the potential inability of
counterparts to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purpose as
unrealized until the settlement date. At May 31, 1999, the Fund had no
outstanding foreign currency commitments.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
SHARES CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
TOTAL 1,500,000,000
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,324,192 $ 36,264,307 4,595,435 $ 48,567,577
Shares issued to
shareholders in payment
of
distributions declared 62,982 695,521 193,153 2,028,259
Shares redeemed (3,753,271) (41,126,438) (9,378,472) (99,619,319)
NET CHANGE RESULTING
FROM CLASS A
SHARE TRANSACTIONS (366,097) $ (4,166,610) (4,589,884) $ (49,023,483)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 140,300 $ 1,546,054 285,642 $ 3,017,521
Shares issued to
shareholders in payment
of
distributions declared 12,834 141,326 30,969 325,089
Shares redeemed (122,168) (1,330,018) (317,928) (3,355,129)
NET CHANGE RESULTING
FROM CLASS B
SHARE TRANSACTIONS 30,966 $ 357,362 (1,317) $ (12,519)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 84,748 $ 941,734 153,899 $1,623,206
Shares issued to
shareholders in payment
of
distributions declared 7,298 80,376 19,121 200,595
Shares redeemed (134,345) (1,462,839) (358,323) (3,756,189)
NET CHANGE RESULTING
FROM CLASS C
SHARE TRANSACTIONS (42,299) $ (440,729) (185,303) $ (1,932,388)
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS (377,430) $ (4,249,977) (4,776,504) $ (50,968,390)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management Corp. (formerly, Federated Global
Research Corp.), the Fund's investment adviser (the "Adviser"), receives for its
services an annual investment advisory fee equal to 0.75% of the Fund's average
daily net assets. The Adviser may voluntarily choose to waive any portion of its
fee. The Adviser can modify or terminate this voluntary waiver at any time at
its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A,
Class B and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 35,210,907
Sales $ 82,455,553
</TABLE>
CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. The political or economic
developments within a particular country or region may have an adverse effect on
the ability of domiciled issuers to meet their obligations. Additionally,
political or economic developments may have an effect on the liquidity and
volatility of portfolio securities and currency holdings.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
SUBSEQUENT EVENT
On May 19, 1999, the Corporation's Board of Directors, upon the recommendation
of the Audit Committee of the Board of Directors, dimissed Arthur Anderson LLP
("AA") as the Corporation's independent auditors. During the six-month period
ended May 31, 1999 (the "Period"): (i) AA did not issue any report on the
Corporation's financial statements; (ii) there were no disagreements with AA on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreements, if no resolved to the
satisfaction of AA, would have caused it to make reference to the subject matter
of the disagreements in connection with its report on the financial statements
for such period; and (iii) there were no "reportable events" of the kind
described in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange
Act of 1934, as amended.
The Corporation, by action of its Board of Directors, engaged Ernst & Young LLP
("E&Y") as the independent auditors for purposes of auditing the Corporation's
financial statements for the fiscal year ending November 30, 1999. During the
Period, neither the Corporation, nor anyone on the Corporation's behalf has
consulted E&Y on items which (i) concerned the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Corporation's financial
statements or (ii) concerned the subject of a disagreement (as defined in
paragraph (a)(1)(iv) of Item 304 of Regulation S- K) or reportable events (as
described in paragraph (a)(1)(v) of said Item 304).
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated International Income Fund
Established 1991
8TH SEMI-ANNUAL REPORT
[Graphic]
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
Cusip 46031P100
Cusip 46031P209
Cusip 46031P506
2061602 (7/99)
[Graphic]
APPENDIX
Federated International Equity Fund
A. The graphic representation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The lighter-shaded portion represents the value of Reinvested Income for
the Class A Shares of Federated International Equity Fund (the "Fund"). The
darker-shaded portion reflects the Principal Value of a $15,000 investment in
the Fund. The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that an initial investment of $15,000/1,449
Shares in the Fund on 8/17/84, would have a reinvested total worth of
$86,752/4,433 Shares on 5/31/99. The "x" axis reflects annual computation
periods from 8/17/84 to 5/31/99. The right margin of the chart reflects the
ending values of a hypothetical investment of $15,000 in the Fund measured in
increments of $20,000 ranging from $0 to $100,000.
B. The graphic representation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The lighter-shaded portion represents the value of Reinvested Income for
the Class A Shares of Federated International Equity Fund (the "Fund"). The
darker-shaded portion reflects the Principal Value of Annual $1,000 investments
in the Fund (totaling $15,000 by 5/31/99). The color-coded mountain chart is a
visual representation of the narrative text above it, which shows that $1,000
annual investments in the Fund beginning on 8/17/84 would have a reinvested
total value of $32,251/1,648 Shares on 5/31/99. The "x" axis reflects
computation periods from 8/17/84 to 5/31/99. The right margin of the chart
reflects the ending values of hypothetical annual investments of $1,000 in the
Fund measured in increments of $5,000 ranging from $0 to $35,000.
C. The graphic representation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The lighter-shaded portion represents the value of Reinvested Income for
the Class A Shares of Federated International Equity Fund (the "Fund"). The
darker-shaded portion represents the Principal Value of Original and Subsequent
Investments (totaling $80,000 by 5/31/99). The color-coded mountain is a visual
representation of the narrative text above it, which shows that an original
$10,000 investment in the Fund on 8/17/84 and additional investments of $5,000
every August following for fourteen years would have grown to a reinvested total
value of $191,312/9,776 Shares on 5/31/99. The "x" axis reflects computation
periods from 8/17/84 to 5/31/99. The right margin of the chart reflects the
ending values of a hypothetical original investment and subsequent annual
investments in the Fund measured in increments of $50,000 ranging from $0 to
$200,000.
<PAGE>
Federated International Income Fund
A. The graphic representation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The lighter-shaded portion represents the value of Reinvested Income for
the Class A Shares of Federated International Income Fund (the "Fund"). The
darker-shaded portion reflects the Principal Value of $8,000 investment in the
Fund. The color-coded mountain chart is a visual representation of the narrative
text above it, which shows that an initial investment of $8,000 in the Fund on
6/4/91, would have a reinvested total worth of $14,010/ 1,347 Shares on 5/31/99.
The "x" axis reflects annual computation periods from 6/4/91 to 5/31/99. The
right margin of the chart reflects the ending values of a hypothetical
investment of $8,000 in the Fund measured in increments of $4,000 ranging from
$0 to $16,000.
B. The graphic representation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The lighter-shaded portion represents the value of Reinvested Income for
the Class A Shares of Federated International Income Fund (the "Fund"). The
darker-shaded portion reflects the Principal Value of Annual $1,000 investments
in the Fund (totaling $8,000 by 5/31/99). The color-coded mountain chart is a
visual representation of the narrative text above it, which shows that $1,000
annual investments in the Fund beginning on 6/4/91 would have a reinvested total
value of $10,105/972 Shares on 5/31/99. The "x" axis reflects computation
periods from 6/4/91 to 5/31/99. The right margin of the chart reflects the
ending values of hypothetical annual investments of $1,000 in the Fund measured
in increments of $2,000 ranging from $0 to $12,000.
C. The graphic representation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The lighter-shaded portion represents the value of Reinvested Income for
the Class A Shares of Federated International Income Fund (the "Fund"). The
darker-shaded portion represents the Principal Value of Systematic Investments.
The color-coded mountain is a visual representation of the narrative text above
it, which shows that an original $10,000 investment in the Fund on 6/4/91 and
additional investments of $2,000 every June following would have grown to a
reinvested total value of $34,220/3,290 Shares on 5/31/99. The "x" axis reflects
computation periods from 6/4/91 to 5/31/99. The right margin of the chart
reflects the ending values of a hypothetical original investment and subsequent
annual investments in the Fund measured in increments of $5,000 ranging from $0
to $45,000.
