[PHOTO OF GLEN R. JOHNSON] [LOGO OF FEDERATED INVESTORS]
Glen R. Johnson World-Class Investment Manager(R)
President
Federated International Equity Fund
President's Message
Dear Valued Shareholder:
Federated International Equity Fund was created in 1984, and I am pleased to
present its 16th Annual Report. This international stock fund is designed to
obtain a total return on its assets. 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 largest 10
holdings are not necessarily recognizable household names in the U.S., however,
they are all large, well capitalized corporations that are well-known in their
own countries.
This report covers the 12-month reporting period from December 1, 1998 through
November 30, 1999. It begins with an interview with the fund's portfolio
manager, Alexandre deBethmann, 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.
As of November 30, 1999, the fund's $494 million portfolio was invested in 24
countries on 4 continents across 171 securities. Japan was the largest
commitment, and it served the fund well as that country's stock market
experienced a strong recovery. The fund's focus in the Asia Pacific region, and
strong security selection in Europe, produced extremely strong performance that
was far beyond that of the fund's benchmark index and the average international
equity fund.
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
Individual share class total return performance for the 12-month reporting
period, including realized gains, follows./2/
<TABLE>
<CAPTION>
Total Return Capital Gains Net Asset Value Increase
<S> <C> <C> <C>
Class A Shares 61.10% $1.48 $19.56 to $29.16 = 49%
Class B Shares 59.90% $1.48 $18.89 to $27.87 = 48%
Class C Shares 59.89% $1.48 $18.66 to $27.50 = 47%
</TABLE>
Thank you for joining the growing number of Federated International Equity Fund
shareholders who have diversified their equity assets internationally and
entrusted this fund with more than $494 million. I recommend that shareholders
add to their investment accounts on a regular basis, using the dollar-cost
averaging method of investing, to take advantage of price fluctuations.3
As always, we welcome your comments and suggestions.
Sincerely,
/s/ Glen R. Johnson
Glen R. Johnson
President
January 15, 2000
2 Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 52.23%, 54.40%, and 58.89%, respectively.
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.
[PHOTO OF ALEXANDRE DEBETHMANN]
Alexandre deBethmann
Vice President
Federated Global Investment Management Corp.
Investment Review
Overall, it was a another positive year for the international equity
marketplace. What are your comments?
The international equity markets as measured by the Morgan Stanley Capital
International Europe, Australia and Far East Index ("EAFE Index")/1/ showed good
appreciation. Markets in Europe were driven by the technology, telecommunication
and media sectors while anecdotal evidence of economic bottoming in Japan helped
that market recover strongly. Other positive factors in Japan included company
restructuring, mergers and acquisitions and the emergence of "New Japan"
companies. In Eastern Europe, Greece was the big winner given the convergence
theme in front of acceptance into the European Community. In Asia, economic
recovery plus fund flow into technology in Hong Kong, Singapore and Korea helped
drive those markets higher.
In this environment, how did the fund perform during the reporting period
compared to its benchmarks?
For the fiscal year ended November 30, 1999, the fund's Class A, B, and C Shares
produced strong total returns, based on net asset value, of 61.10%, 59.90% and
59.89%, respectively./2/ These returns far outpaced the 21.10% return of the
EAFE Index for the same period. Additionally, the returns also far outpaced the
29.04% return of all 678 international equity funds tracked by Lipper Analytical
Services, Inc./3/
1 The EAFE 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.
2 Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 52.23%, 54.40%, and 58.89%, 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. These figures do not take sales charges into
account.
What were the major influences on the fund's outperformance?
The fund's strong performance can be attributed to stock selection in Europe
where technology, telecommunications and media were the key sector overweights.
We also took a significant overweighted position in Japan early in the year
which provided strong performance. Companies geared to aggressive restructuring,
technology, and "New Japan" names were prevalent in the portfolio. Finally, we
also benefited from stock selections in Canada and parts of Asia, like Hong
Kong, Singapore and Korea.
What individual stocks made a significant impact?
Stocks that made a noticeable impact on the portfolio included Eidos (1.18% of
net assets), a game software developer in the United Kingdom, Intershop
Communications (1.32% of net assets), an Internet site developer in Germany, and
ARM Holdings (2.06% of net assets), a maker of microprocessors used for
handsets.
In Japan, Sony (1.58% of net assets) and CSK (1.35% of net assets), an
information technology companies, were strong performers. In Canada, JDS
Uniphase (0.79% of net assets) and Nortel Networks (0.77% of net assets), two
leading telecommunications equipment companies, showed very strong performance.
Finally, in Asia, Taiwan Semiconductor (0.93% of net assets), and Haansoft
(0.95% of net assets), a word processing company in Korea, also performed well.
How were the fund's assets diversified at the end of the reporting period, and
what were the fund's top 10 holdings?
As of November 30, 1999, the fund's assets were invested across 24 countries
with 38.4% invested in Japan. Details on the fund's country and regional
weightings along with the fund's top ten holdings as of November 30, 1999
follows:
<TABLE>
<CAPTION>
Country Percentage of Net Assets
<S> <C>
Japan 38.4%
United Kingdom 8.1%
Canada 7.6%
Germany 7.4%
Netherlands 7.1%
Korea, Republic of 4.8%
France 4.2%
Singapore 3.0%
Taiwan, Province of China 2.3%
Sweden 2.3%
Greece 2.0%
Australia 1.5%
Israel 1.2%
Switzerland 1.2%
India 1.1%
Italy 1.0%
Belgium 0.9%
Hong Kong 0.9%
Denmark 0.7%
Thailand 0.3%
Finland 0.3%
Ireland 0.2%
Spain 0.2%
Norway 0.2%
<CAPTION>
Region Percentage of Net Assets
<S> <C>
Asia Pacific 50.8%
Europe 35.8%
Canada 7.6%
Mid-East/Australia 2.7%
</TABLE>
The fund's top ten holdings as of November 30, 1999 were:
<TABLE>
<CAPTION>
Name
Country Percentage of Net Assets
<S>
<C> <C>
ARM Holdings PLC, ADR United
Kingdom 2.1%
Matsushita Communication
Japan 1.8%
CGI Group, Inc, Class A
Canada 1.6%
Sony Corp.
Japan 1.6%
Sharp Corp.
Japan 1.5%
Sega Enterprises
Japan 1.5%
CSK Corp
Japan 1.3%
Intershop Communications AG Germany, Federal Republic
of 1.3%
NTT Mobile Communication Network, Inc.
Japan 1.3%
STMicroelectronics NV
Netherlands 1.3%
TOTAL
15.3%
</TABLE>
What were some of your notable recent purchases for the fund during the
reporting period?
Eidos (1.18% of net assets): Eidos is a game software developer in the United
Kingdom.
CSK (1.35% of net assets): CSK is an information technology company in Japan
that owns parts of Sega and Bell System24.
JDS Uniphase (0.79% of net assets): JDS is a leading telecommunications
equipment company in Canada.
TFL (1.04% of net assets): TFL is a leading broadcasting company in France.
As we leave what has been an outstanding year for the fund, what is your outlook
and strategy?
We continue to stress that stock selection remains a critical part of our
investment process. With that, we continue to remain bullish on the technology,
telecommunications and media sectors on a global basis. Key themes within
technology include finding situations related to the growth in mobile handsets,
growth in bandwidth capital expenditures, and a new round of international
technology spending as the year 2000 overhang will be behind us. Finally, we
also continue to remain bullish on the economic recovery in Asia and Japan.
Two Ways You May Seek to Invest for Success:
Initial Investment
If you had made an initial investment of $16,000 in the Class A Shares of
Federated International Equity Fund on 8/17/84, reinvested dividends and capital
gains, and did not redeem any shares, your account would have been worth
$137,881 on 11/30/99. You would have earned a 15.13%/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 12/31/99, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were 68.52%, 20.45%, and 11.59%, respectively. Class B Shares'
average annual 1-year, 5-year and since inception (9/28/94) total returns were
71.40% 20.58% and 18.01%, respectively. Class C Shares' average annual 1-year,
5-year, and since inception (4/1/93) total returns were 76.18%, 20.86%, and
18.42%, respectively./2/
[GRAPH APPEARS HERE] - See Appendix A1
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 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 charges; 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 15
years (reinvesting all dividends and capital gains) grew to $49,321.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated International Equity Fund on 8/17/84, reinvested your dividends and
capital gains and did not redeem any shares, you would have invested only
$16,000 but your account would have reached a total value of $49,321/1/ by
11/30/99. You would have earned an average annual total return of 13.27%.
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 can work 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.
[GRAPH APPEARS HERE] - See Appendix A2
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:
Dan and Gigi Hardwick are a two-income suburban couple who, like many others,
want to be able to afford their present lifestyle after they retire.
They decided an international stock fund, though possibly volatile in the
short-term, offered excellent opportunities for long-term growth. They invested
$10,000 in Federated International Equity Fund (Class A Shares) on August 17,
1984 and have invested $5,000 every August since.
By November 30, 1999, they were pleased to see that their $85,000 investment
had grown to $291,511 for an average annual total return of 13.68%. Gigi's
already picturing a long Mediterranean cruise to celebrate their retirement.
The couple is fictional, but the figures are real.
[GRAPH APPEARS HERE] - See Appendix A3
This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated International Equity Fund-Class A Shares
Growth of A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated International Equity Fund (Class A Shares) (the "Fund") from November
30, 1989 to November 30, 1999 compared to the Morgan Stanley Capital
International Europe Australia Far East Index (EAFE)./2/
<TABLE>
<CAPTION>
Average Annual Total Returns/3/ for the Period Ended
November 30, 1999
<S> <C>
1 Year 52.23%
5 Years 15.95%
10 Years 10.26%
Start of Performance (8/17/84) 15.13%
</TABLE>
[GRAPH APPEARS HERE] - See Appendix A4
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund with no sales
charge. As of October 1, 1994, the maximum sales charge is 5.50%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
EAFE has been adjusted to reflect reinvestment of dividends on securities in
the index.
2 The EAFE is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
3 Total return quoted reflects all applicable sales charges.
Federated International Equity Fund-Class B Shares
Growth of A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated International Equity Fund (Class B Shares) (the "Fund") from September
28, 1994 (start of performance) to November 30, 1999 compared to the Morgan
Stanley Capital International Europe Australia Far East Index (EAFE)./2/
<TABLE>
<CAPTION>
Average Annual Total Returns/3/ for the Period Ended
November 30, 1999
<S> <C>
1 Year 54.40%
5 Years 16.06%
Start of Performance (9/28/94) 14.37%
</TABLE>
[GRAPH APPEARS HERE] - See Appendix A5
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than six years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than one year from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The EAFE has been adjusted to reflect
reinvestment of dividends on securities in the index.
2 The EAFE is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
3 Total return quoted reflects all applicable contingent deferred sales
charges.
Federated International Equity Fund-Class C Shares
Growth of A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated International Equity Fund (Class C Shares) (the "Fund") from April 1,
1993 (start of performance) to November 30, 1999 compared to the Morgan Stanley
Capital International Europe Australia Far East Index (EAFE)./2/
<TABLE>
<CAPTION>
Average Annual Total Returns/3/ For The Period Ended
November 30, 1999
<S> <C>
1 Year 58.89%
5 Years 16.32%
Start of Performance (4/1/93) 15.57%
</TABLE>
[GRAPH APPEARS HERE] - See Appendix A6
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less than
one year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The EAFE has been adjusted
to reflect reinvestment of dividends on securities in the index.
2 The EAFE is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
3 Total return quoted reflects all applicable contingent deferred sales
charges. Portfolio of Investments
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Value
in U.S.
Shares Dollars
<S> <C> <C>
COMMON STOCKS--96.9%
Australia--1.5%
2,328,000 /1/Davnet Ltd. $ 2,326,382
862,400 /1/LibertyOne Ltd. 1,070,389
385,000 Sonic Healthcare Ltd. 1,568,336
315,400 /1/Telstra Corp., Ltd. 1,170,786
2,294,188 /1/Westel Group Ltd. 1,460,251
TOTAL 7,596,144
Belgium--0.9%
146,000 /1/Global TeleSystems Group, Inc. 4,662,875
949 /1/Telinfo S.A. 10
TOTAL 4,662,885
Canada--7.6%
313,400 /1/CGI Group, Inc., Class A 8,070,843
84,800 Canfor Corp. 919,046
446,300 /1/Descartes Systems Group, Inc. 4,563,984
128,900 /1/International Forest Products Ltd., Class A 385,378
17,040 /1/JDS Uniphase Corp. 3,897,900
93,700 Lumenon Innovative Lightwave 2,024,798
332,000 /1/Mosaic Group, Inc. 2,334,851
51,800 Nortel Networks Corp. 3,818,917
53,150 /1/Research in Motion Ltd. 2,744,717
192,145 /1/Telesystem International Wireless, Inc. 4,647,932
195,500 /1/The Laser Eye Centers, Inc. 3,639,804
8,000 /1/The Laser Eye Centers, Inc., ADR 149,500
63,200 /1/Ulster Petroleums Ltd. 515,322
TOTAL 37,712,992
Denmark--0.7%
25,800 Novo-Nordisk, Class B 3,372,206
Finland--0.3%
68,600 /1/Perlos OYJ 1,209,803
France--4.2%
26,200 Alcatel 5,082,585
21,700 Ciments Francais, Class A 1,333,958
36,000 Lagardere S.C.A. 1,697,857
14,120 TFL - TV Francaise 5,122,593
53,100 Thomson CSF 1,541,666
130,245 /1/Wavecom S.A. 5,906,445
TOTAL 20,685,104
Germany, Federal Republic of--7.4%
18,840 /1/ADVA AG Optical Networking 2,563,110
32,490 Aixtron AG 4,387,399
98,270 Baader Wertpapierhandelsbank AG 2,921,431
29,700 /1/Consors Discount Broker AG 1,915,531
7,009 DIS Deutsche Industrie Service 529,749
40,000 /1/Epcos AG 2,458,909
8,700 /1/GFK AG 289,325
31,970 Intershop Communications AG 6,507,986
18,297 Mannesmann AG 3,805,767
9,200 /1/Medion AG 2,827,745
14,970 Pfeiffer Vacuum Technology AG 407,322
34,150 Siemens AG 3,444,906
39,300 /1/Singulus Technologies AG 2,277,262
54,700 /1/Telegate AG 2,304,179
TOTAL 36,640,621
Greece--2.0%
15,411 Commercial Bank of Greece 1,134,013
50,000 Intracom S.A. 2,212,905
63,600 Lambrakis Press S.A. 4,083,286
82,320 Tiletipos S.A. 2,246,318
68,600 /1/Tiletipos S.A., Rights 420,659
TOTAL 10,097,181
Hong Kong--0.9%
490,000 /1/China Telecom (Hong Kong) Ltd. 2,618,296
2,089,000 /1/Pacific Century CyberWorks Ltd. 1,788,688
TOTAL 4,406,984
India--1.1%
134,500 /1/Gas Authority of India Ltd., GDR $ 1,276,069
44,600 NIIT Ltd. 2,414,699
35,500 Satyam Computer Services Ltd. 1,568,690
TOTAL 5,259,458
Ireland--0.2%
32,644 /1/ICON PLC, ADR 452,936
13,500 /1/Ryanair Holdings PLC, ADR 673,313
TOTAL 1,126,249
Israel--1.2%
206,900 /1/Orckit Communications, Inc. 6,000,100
Italy--1.0%
216,700 Bulgari SPA 1,670,602
116,050 Pininfarina SPA 2,993,903
TOTAL 4,664,505
Japan--38.4%
17,000 Alpha Systems, Inc. 3,039,442
80,000 Bandai Co., Ltd. 2,899,946
75,300 Capcom Co., Ltd. 4,445,729
124,000 Credit Saison Co., Ltd. 2,509,357
47,800 CSK Corp. 6,667,911
393,000 Daiwa Securities Co., Ltd. 5,628,902
73,500 Daiwabo Information System Co., Ltd. 2,028,931
20,100 Enix Corp. 1,877,804
6,300 Fancl Corp. 2,240,385
143,000 Fuji Bank, Ltd., Tokyo 1,716,646
33,500 Fuji Machine Manufacturing Co. 1,961,393
158,000 Fujitec Co. 1,861,015
82,000 Fujitsu Ltd. 2,916,057
582,100 Furukawa Electric 6,238,726
60 Goodwill Group, Inc. 4,420,650
64,000 Hosiden Corp. 2,640,601
30,000 ISB Corp. 1,031,485
4,000 /1/InterQ, Inc. 3,222,162
34,000 /1/Internet Initiative Japan, Inc., ADR 3,247,531
139,000 Japan Airport Terminal 1,816,101
142 Japan Telecom Co., Ltd. 5,579,842
17,000 Kokusai Den(Kdd) 2,354,733
40,500 Komatsu Electronic Metals Co., Ltd. 298,394
15,200 Konami Co., Ltd. 2,045,680
638,000 Marubeni Corp. 2,488,197
45,000 Matsushita Communication 8,664,473
50,000 Megachips Corp. 3,855,789
3 Mobilephone Telecommunications International Ltd. 2,284,002
34,000 Murata Manufacturing Co., Ltd. 5,651,358
189,000 NEC Corp. 4,428,165
184 NTT Mobile Communication Network, Inc. 6,471,045
624,000 /1/New Japan Securities Co. 1,808,341
508,000 Nikko Securities Co., Ltd. 6,337,836
196,000 Nikon Corp. 4,986,886
16,300 Nintendo Corp., Ltd. 2,723,739
32,000 Nippon Broadcasting System 2,357,680
3,400 Nippon TV Network 3,243,185
5,140 Obic Co., Ltd. 3,635,542
28,600 Paris Miki, Inc. 2,593,232
18,000 Pasona Softbank, Inc. 1,927,403
395,000 Sakura Bank Ltd., Tokyo 2,929,663
23,000 Sanix, Inc. 2,553,171
213,000 Sega Enterprises 7,490,938
368,000 Sharp Corp. 7,537,502
58,900 Shinkawa 1,915,212
5,200 Softbank Corp. 3,764,822
1,000 Softbank Technology Corp. 1,945,086
42,000 Sony Corp. 7,798,026
115,000 Sumitomo Electric Industries 1,305,958
127,000 Suruga Bank Ltd. 2,346,746
105,000 Taiyo Yuden Co. 4,600,423
436,000 Toho Bank Ltd. 1,983,084
436,000 Toyo Trust & Banking 2,321,450
1,170,000 Wako Securities Co., Ltd. 3,528,563
83,000 Yokowo Co., Ltd. 1,663,343
TOTAL 189,830,283
Korea, Republic of--4.8%
237,600 /1/Haansoft Inc. 4,714,082
197,000 Hansol Paper Manufacturing 2,888,937
95,000 Hyundai Electronics Industries Co. 1,950,399
68,262 /1/Hyundai Electronics Industries Co., Rights 370,973
197,900 Kookmin Bank 3,294,777
159,000 Korea Technology Banking Co. 2,167,091
7,650 /1/Korea Thrunet Co., Ltd., Class A 425,531
24,000 Samsung Electronics Co. 4,968,730
116,000 /1/Telson Electronics Co., Ltd. 2,951,909
TOTAL 23,732,429
Netherlands--7.1%
61,650 /1/ASM Lithography Holding NV 5,771,981
68,850 /1/BE Semiconductor Industries NV 780,565
49,520 Benckiser NV 3,019,178
40,346 /1/Equant NV, (New York Registered Share) 3,802,611
34,250 /1/KPN QWEST NV 1,310,063
6,900 OpenTV Corp., ADR 533,025
46,890 STMicroelectronics NV 6,379,206
119,640 /1/Toolex International NV 1,808,507
31,400 /1/United Pan-Europe Communications NV 3,085,225
34,750 /1/United Pan-Europe Communications NV, ADR 3,362,063
129,900 VNU - Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit 5,151,178
TOTAL 35,003,602
Norway--0.2%
75,500 /1/Tandberg Television 983,610
Singapore--3.0%
359,000 Chartered Semiconductor Manufacturing 2,029,456
3,100 /1/Chartered Semiconductor Manufacturing, ADR 165,075
178,000 DBS Group Holdings Ltd. 2,309,075
2,174,000 DBS Land Ltd. 4,243,213
1,098,000 Kim Eng Holdings Ltd. 731,782
616,000 /1/MediaRing.com Ltd. 608,485
710,000 Natsteel Electronics Ltd. 2,936,329
1,478,000 OMNI Industries 1,890,925
TOTAL 14,914,340
Spain--0.2%
36,800 /1/Sogecable S.A. 1,166,329
Sweden--2.3%
97,500 ForeningsSparbanken AB 1,501,234
47,000 /1/HIQ International AB 1,966,620
36,400 /1/Modern Times Group, Class B 1,210,767
150,450 /1/Readsoft AB, Class B 2,033,586
128,740 /1/Societe Europeenne de Communication S.A., Class B, ADR 801,977
74,900 Telefonaktiebolaget LM Ericsson, Class B 3,631,436
TOTAL 11,145,620
Switzerland--1.2%
620 /1/Agefi Groupe S.A. 222,278
6,185 /1/Charles Voegele Holding AG 1,048,404
4,723 Publicitas Holding S.A. 4,396,528
TOTAL 5,667,210
Taiwan, Province of China--2.3%
54,900 /1/ASE Test Ltd. 1,221,525
75,900 /1/Advanced Semiconductor Engineering, Inc., GDR 1,684,980
34,400 /1/Macronix International Co., Ltd., ADR 460,100
35,300 /1/Mosel Vitelic, Inc., GDR 372,415
118,000 /1//2/Ritek Incorporation, GDR, 144A 1,327,500
128,483 /1/Taiwan Semiconductor Manufacturing Co., ADR 4,601,297
93,500 Winbond Electronics Corp., GDR 1,624,563
TOTAL 11,292,380
<CAPTION>
Shares or Value
Principal in U.S.
Amount Dollars
<S> <C> <C>
COMMON STOCKS--continued
Thailand--0.3%
356,700 Hana Microelectronics Co., Ltd. $ 1,473,097
United Kingdom--8.1%
68,900 /1/ARM Holdings PLC, ADR 10,197,200
170,000 British Sky Broadcasting Group PLC 2,236,496
65,300 /1/Eidos PLC 5,810,489
120,100 /1/Energis PLC 4,893,270
203,300 Enterprise Oil 1,458,865
24,300 Filtronic PLC 708,737
751,300 /1/Imagination Technologies Group PLC 3,953,599
351,300 Invensys PLC 1,596,571
169,188 Prudential Corp., PLC 2,792,384
86,520 Psion PLC 3,387,141
274,400 /1/Shire Pharmaceuticals Group PLC 2,936,106
16 Smithkline Beecham Corp. 215
TOTAL 39,971,073
TOTAL COMMON STOCKS (IDENTIFIED COST $326,744,160) 478,614,205
Repurchase Agreement--5.4%/3/
$26,915,000 J.P. Morgan & Co., Inc., 5.71%, dated 11/30/1999, due 12/1/1999
(AT AMORTIZED COST) 26,915,000
TOTAL INVESTMENTS (IDENTIFIED COST $353,659,160)/4/ $ 505,529,205
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. These securities have been determined to be
liquid according to guidelines established by the Board of Directors. At
November 30, 1999, these securities amounted to $1,327,500 which represents
0.3% of net assets.
3 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.
4 The cost of investments for federal tax purposes amounts to $355,021,263. The
net unrealized appreciation of investments on a federal tax basis amounts to
$150,507,942 which is comprised of $158,163,336 appreciation and $7,655,394
depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($493,980,375) at November 30, 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
NOVEMBER 30, 1999
<TABLE>
<S>
<C> <C>
Assets:
Total investments in securities, at value (identified cost
$353,659,160 $ 505,529,205
andtaxcost$355,021,263)
Cash
2,072
Income
receivable
424,127
Receivable for investments
sold 6,613,523
Receivable for shares
sold
2,271,135
TOTAL
ASSETS
514,840,062
Liabilities:
Payable for investments purchased $ 15,301,701
Payable for shares redeemed 5,000,445
Payable for taxes withheld 232,059
Net payable for foreign currency exchange contracts purchased 23,045
Accrued expenses 302,437
TOTAL
LIABILITIES
20,859,687
Net Assets for 17,124,272 shares
outstanding $ 493,980,375
Net Assets Consist of:
Paid-in
capital
$ 284,506,746
Net unrealized appreciation of investments and translation of assets and
liabilities 151,816,659
in foreign currency
Accumulated net realized gain on investments and foreign currency
transactions 58,016,895
Accumulated net operating
loss (359,925)
TOTAL NET
ASSETS
$ 493,980,375
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($389,592,371 / 13,358,217 shares
outstanding) $ 29.16
Offering Price Per Share (100/94.50 of
$29.16)/1/ $ 30.86
Redemption Proceeds Per
Share $ 29.16
Class B Shares:
Net Asset Value Per Share ($62,785,961 / 2,253,155 shares
outstanding) $ 27.87
Offering Price Per
Share $
27.87
Redemption Proceeds Per Share (94.50/100 of
$27.87)/1/ $ 26.34
Class C Shares:
Net Asset Value Per Share ($41,602,043 / 1,512,900 shares
outstanding) $ 27.50
Offering Price Per
Share $
27.50
Redemption Proceeds Per Share (99.00/100 of
$27.50)/1/ $ 27.23
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<S>
<C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of
$378,948) $ 2,778,200
Interest
603,347
TOTAL
INCOME
3,381,547
Expenses:
Investment adviser fee $ 3,036,053
Administrative personnel and services fee 228,145
Custodian fees 247,808
Transfer and dividend disbursing agent fees and expenses 471,146
Directors'/Trustees' fees 7,410
Auditing fees 24,174
Legal fees 10,824
Portfolio accounting fees 124,562
Distribution services feeClass B Shares 330,551
Distribution services feeClass C Shares 206,060
Shareholder services feeClass A Shares 580,143
Shareholder services feeClass B Shares 110,183
Shareholder services feeClass C Shares 68,687
Share registration costs 44,264
Printing and postage 98,984
Insurance premiums 1,733
Taxes 16,950
Miscellaneous 13,581
TOTAL EXPENSES 5,621,258
Net operating
loss
(2,239,711)
Realized and Unrealized Gain on Investments and Foreign CurrencyTransactions:
Net realized gain on investments and foreign currency
transactions 60,509,183
Net change in unrealized appreciation of investments and translation of assets
and 116,382,614
liabilities in foreign currency
Net realized and unrealized gain on investments and foreign currency
transactions 176,891,797
Change in net assets resulting from
operations $ 174,652,086
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
<S>
<C> <C>
Increase (Decrease) in Net Assets
Operations:
Net operating loss $
(2,239,711) $ (467,612)
Net realized gain on investments and foreign currency transactions ($63,468,724
60,509,183 15,242,814
and $16,952,671, respectively, as computed for federal tax purposes)
Net change in unrealized appreciation of investments and translation of assets and
116,382,614 15,948,792
liabilities in foreign currency
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
174,652,086 30,723,994
Distributions to Shareholders:
Distributions from net realized gains on investments and foreign
currencytransactions
Class A Shares
(13,010,842) (10,030,621)
Class B Shares
(2,814,398) (1,891,979)
Class C Shares
(1,125,756) (810,275)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TOSHAREHOLDERS
(16,950,996) (12,732,875)
Share Transactions:
Proceeds from sale of shares
709,047,839 434,539,857
Net asset value of shares issued to shareholders in payment of
14,175,113 10,460,757
distributionsdeclared
Cost of shares redeemed
(608,937,658) (408,325,936)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
114,285,294 36,674,678
Change in net assets
271,986,384 54,665,797
Net Assets:
Beginning of period
221,993,991 167,328,194
End of period $
493,980,375 $ 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>
Year Ended November 30 1999/1/ 1998
1997 1996 1995
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 19.56 $ 17.93 $
17.32 $ 17.89 $ 18.53
Income From Investment
Operations:
Net investment income (net operating loss) (0.12)/2/ (0.01)/2/
0.04/2/ 0.03 0.09
Net realized and unrealized gain on investments 11.20 2.99
0.95 1.38 0.17
and foreign currency
transactions
TOTAL FROM INVESTMENT OPERATIONS 11.08 2.98
0.99 1.41 0.26
Less
Distributions:
Distributions from net investment
income (0.09) (0.00)/3/
Distributions from net realized gain on (1.48) (1.35)
(0.38) (1.89) (0.90)
investments and foreign currency
transactions
TOTAL DISTRIBUTIONS (1.48) (1.35)
(0.38) (1.98) (0.90)
Net Asset Value, End of Period $ 29.16 $ 19.56 $
17.93 $ 17.32 $ 17.89
Total Return/4/ 61.10% 17.78%
5.89% 8.63% 1.60%
Ratios to Average Net
Assets:
Expenses 1.67% 1.63%
1.71% 1.68% 1.57%
Net investment income (net operating loss) (0.57%) (0.06%)
0.23% 0.15% 0.42%
Expense waiver/reimbursement/5/
0.10% 0.15% 0.18%
Supplemental
Data:
Net assets, end of period (000 omitted) $ 389,592 $ 172,160 $ 134,858
$ 172,938 $ 191,911
Portfolio turnover 297% 243%
210% 119% 166%
</TABLE>
1 For the year ended November 30, 1999, the Fund was audited by Ernst & Young
LLP. Each of the previous years was audited by other auditors.
2 Amount based on average outstanding shares.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in both the expense and the net
investment income (net operating loss) ratios shown above.
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>
Year Ended November 30 1999/1/ 1998
1997 1996 1995
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 18.89 $ 17.48 $
17.04 $ 17.70 $18.50
Income From Investment
Operations:
Net operating loss (0.26)/2/ (0.16)/2/
(0.10)/2/ (0.03) (0.08)
Net realized and unrealized gain on 10.72 2.92
0.92 1.26 0.18
investments and
foreign
currencytransactions
TOTAL FROM INVESTMENT OPERATIONS 10.46 2.76
0.82 1.23 0.10
Less
Distributions:
Distributions from net investment
income (0.00)/3/
Distributions in excess of net
(0.00)/3/
investmentincome
Distributions from net realized gain on (1.48) (1.35)
(0.38) (1.89) (0.90)
investments and foreign
currency
transactions
TOTAL DISTRIBUTIONS (1.48) (1.35)
(0.38) (1.89) (0.90)
Net Asset Value, End of Period $ 27.87 $ 18.89 $
17.48 $ 17.04 $17.70
Total Return/4/ 59.90% 16.92%
4.97% 7.59% 0.68%
Ratios to Average Net
Assets:
Expenses 2.42% 2.38%
2.56% 2.58% 2.52%
Net operating loss (1.28%) (0.84%)
(0.59%) (0.74%) (0.52%)
Supplemental
Data:
Net assets, end of period (000 omitted) $62,786 $35,689
$23,629 $16,707 $6,370
Portfolio turnover 297% 243%
210% 119% 166%
</TABLE>
1 For the year ended November 30, 1999, the Fund was audited by Ernst & Young
LLP. Each of the previous years was audited by other auditors.
2 Amount based on average outstanding shares.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
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>
Year Ended November 30 1999/1/ 1998
1997 1996 1995
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 18.66 $ 17.28 $16.85
$17.50 $18.30
Income From Investment Operations:
Net operating loss (0.26)/2/ (0.16)/2/ (0.11)/2/
(0.10) (0.12)
Net realized and unrealized gain on 10.58 2.89
0.92 1.34 0.22
investments and foreign
currencytransactions
TOTAL FROM INVESTMENT OPERATIONS 10.32 2.73
0.81 1.24 0.10
Less Distributions:
Distributions from net investment income
(0.00)/3/ (0.00)/3/
Distributions from net realized gain on (1.48) (1.35) (0.38)
(1.89) (0.90)
investments and foreign currency
transactions
TOTAL DISTRIBUTIONS (1.48) (1.35) (0.38)
(1.89) (0.90)
Net Asset Value, End of Period $ 27.50 $ 18.66 $17.28
$16.85 $17.50
Total Return/4/ 59.89% 16.94%
4.96% 7.75% 0.69%
Ratios to Average Net Assets:
Expenses 2.42% 2.38%
2.56% 2.57% 2.46%
Net operating loss (1.27%) (0.83%) (0.67%)
(0.72%) (0.47%)
Expense
waiver/reimbursement/5/
0.01% 0.04%
Supplemental Data:
Net assets, end of period (000 omitted) $ 41,602 $ 14,145 $8,841
$7,580 $7,146
Portfolio turnover 297% 243%
210% 119% 166%
</TABLE>
1 For the year ended November 30, 1999, the Fund was audited by Ernst & Young
LLP. Each of the previous years was audited by other auditors.
2 Amount based on average outstanding shares.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in both the expense and the net
operating loss ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
NOVEMBER 30, 1999
Organization
International Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of two portfolios. The
financial statements included herein are only those of Federated International
Equity Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolio are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers three classes of shares: Class A Shares, Class
B Shares and Class C Shares. The 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. Listed
corporate bonds, unlisted securities and private placement securities are
generally valued at the mean of the latest bid and asked price as furnished by
an independent pricing service. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 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.
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. The Fund, along with
other affiliated investment companies, may utilize a joint trading account for
the purpose of entering into one or more repurchase agreements.
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 of 1986, as
amended (the "Code"). Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Non-cash dividends included in dividend
income, if any, are recorded at fair value. The Fund offers multiple classes of
shares, which differ in their respective distribution and service fees. All
shareholders bear the common expenses of the Fund based on average daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions and net operating loss. The following reclassifications have been
made to the financial statements.
<TABLE>
<CAPTION>
Increase (Decrease)
Accumulated Undistributed Net
Net Realized Gain (Loss) Investment Income
<S> <C>
$(2,157,421) $2,157,421
</TABLE>
Net investment income, net realized gains (losses), and net assets were not
affected by this reclassification.
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 provision for federal tax is
necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the applicable country's tax rules and rates.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date. Losses may occur on these transactions due to changes in market
conditions or the failure of counterparties to perform under the contract.
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
counterparties 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 November 30, 1999, the Fund had outstanding forward foreign currency exchange
contracts as set forth below:
<TABLE>
<CAPTION>
Unrealized
Foreign Currency Units
Contracts Appreciation
Settlement Date to Deliver/Receive In Exchange for at
Value (Depreciation)
Contracts
Purchased:
<S> <C> <C> <C>
<C> <C>
12/1/99 776,067 British Pound Sterling $1,248,304
$1,237,556 $ (10,748)
12/1/99 5,036,497 Singapore Dollar 3,016,770
2,997,023 (19,747)
Contracts
Sold:
12/1/99 1,043,333 European Currency Units 1,052,421
1,051,117 $ 1,304
12/1/99 2,717,722 Japanese Yen 26,535
26,698 (163)
12/3/99 2,021,887 European Currency Units 2,043,865
2,037,556 6,309
Net Unrealized Depreciation on Foreign Exchange
Contracts $ (23,045)
</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 rates 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. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Restricted Securities
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
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 a trade date basis.
Capital Stock
At November 30, 1999, par value shares ($0.0001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
Number of Par Value
Share 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>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
Class A Shares Shares Amount
Shares Amount
<S> <C> <C>
<C> <C>
Shares sold 28,803,985 $ 619,264,555
19,112,297 $ 382,682,504
Shares issued to shareholders in payment of 585,524 10,747,160
470,456 7,974,243
distributions
declared
Shares redeemed (24,833,477) (536,713,187)
(18,302,055) (369,516,756)
NET CHANGE RESULTING FROM CLASSASHARETRANSACTIONS 4,556,032 $ 93,298,528
1,280,698 $ 21,139,991
</TABLE>
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
Class B Shares Shares Amount
Shares Amount
<S> <C> <C>
<C> <C>
Shares sold 1,370,586 $ 28,176,266
1,517,731 $ 30,124,357
Shares issued to shareholders in payment of 151,016 2,668,485
107,723 1,775,576
distributions
declared
Shares redeemed (1,157,903) (23,656,978)
(1,087,709) (20,903,207)
NET CHANGE RESULTING FROM CLASS B SHARETRANSACTIONS 363,699 $ 7,187,773
537,745 $ 10,996,726
</TABLE>
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
Class C Shares Shares Amount
Shares Amount
<S> <C> <C>
<C> <C>
Shares sold 3,038,188 $ 61,607,018
1,120,914 $ 21,732,996
Shares issued to shareholders in payment of distributions 43,548 759,468
43,647 710,938
declared
Shares redeemed (2,326,842) (48,567,493)
(918,179) (17,905,973)
NET CHANGE RESULTING FROM CLASS C SHARETRANSACTIONS 754,894 $ 13,798,993
246,382 $ 4,537,961
NET CHANGE RESULTING FROM SHARETRANSACTIONS 5,674,625 $ 114,285,294
2,064,825 $ 36,674,678
</TABLE>
Investment Adviser Fee and Other Transactions with Affiliates
Investment Adviser Fee
Federated Global Investment Management Corp., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment adviser 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 a scale that ranges from 0.15% to 0.075% of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per
each additional class.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class B
and Class C Shares. The Plan provides that the Fund may incur distribution
expenses according to the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
Percentage of Average Daily
Share Class Name Net Assets of Class
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services 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.
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 (and in-kind
contributions), for the year ended November 30, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $941,307,136
Sales $870,747,783
</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.
At November 30, 1999, the diversification of industries was as follows:
<TABLE>
<CAPTION>
Percentage
of Percentage of
Industry Net Assets
Industry Net Assets
<S> <C>
<C> <C>
Aerospace & Military Technology 0.3% Forest Products &
Paper 0.8%
Appliances & Household Durables 4.1% Health & Personal
Care 2.9%
Automobiles 0.6% Industrial
Components 2.1%
Banking 10.0%
Insurance 0.6%
Broadcasting & Publishing 4.7% Leisure &
Tourism 0.7%
Building Materials & Components 0.3% Machinery &
Engineering 2.5%
Business & Public Services 13.5%
Merchandising 0.5%
Computer Software 1.1%
Multi-Industry 0.7%
Data Processing & Reproduction 2.3% Real
Estate 1.2%
Electrical & Electronics 12.0% Recreation, Other Consumer
Goods 3.0%
Electronic Components, Instruments 15.9%
Telecommunications 14.4%
Energy Sources 0.7% Transportation -
Airlines 0.1%
Financial Services 5.4% Wholesale & International
Trade 1.3%
Food & Household Products 0.6%
</TABLE>
Line of Credit Agreement
Effective November 29, 1999, the Corporation entered into a $75,000,000
unsecured committed revolving line of credit ("LOC") agreement with State Street
Corporation. The LOC was made available for extraordinary or emergency purposes,
primarily for financing redemption payments. Borrowings are charged interest at
a rate of 0.50% over the Federal Funds Rate. The LOC includes a commitment fee
of 0.08% per annum on the daily unused portion. The Corporation did not make any
borrowings under the LOC during the year ended November 30, 1999.
CHANGE OF INDEPENDENT AUDITORS (Unaudited)
On May 19, 1999, the Fund's Directors, upon recommendation of its Audit
Committee, requested and subsequently accepted the resignation of Arthur
Andersen LLP ("AA") as the Fund's independent auditors. AA's reports on the
Fund's financial statements for the fiscal years ended November 30, 1997 and
November 30, 1998 contained no adverse opinion or disclaimer of opinion nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. During the Fund's fiscal years ended November 30, 1997 and November
30, 1998: (i) 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 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 reports on the financial statements for such years; and (ii)
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 Fund, by action of its Directors, upon the recommendation of the Audit
Committee, has engaged Ernst & Young LLP ("E&Y") as the independent auditors to
audit the Fund's financial statements for the fiscal year ended November 30,
1999. During the Fund's fiscal years ended November 30, 1997 and November 30,
1998, neither the Fund nor anyone on its 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 Fund's financial statements, or (ii) concerned the
subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 or
Regulation S-K) of reportable events (as described in paragraph (a)(1)(v) of
said Item 304).
Report of Ernst & Young LLP, Independent Auditors
TO THE BOARD OF DIRECTORS OF INTERNATIONAL SERIES, INC. AND
SHAREHOLDERS OF FEDERATED INTERNATIONAL EQUITY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated International Equity Fund (the
"Fund") (one of the portfolios constituting the International Series, Inc.) as
of November 30, 1999, and the related statement of operations, the statement of
changes in net assets, and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended November 30, 1998, and the financial
highlights for the four years then ended, were audited by other auditors whose
report dated January 15, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1999, by correspondence with the custodian and brokers
or other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated International Equity Fund of International Series, Inc. at November
30, 1999, and the results of its operations, the changes in its net assets, and
the financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 21, 2000
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
J. Christopher Donahue
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
Henry A. Frantzen
Chief Investment Officer
James O. Perry
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.
ANNUAL REPORT AS OF NOVEMBER 30, 1999
[LOGO OF FEDERATED INVESTORS]
World-Class Investment Manager(R)
Federated
International
Equity Fund
Established 1984
16th Annual Report
[LOGO OF FEDERATED INVESTORS]
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 46031P605
Cusip 46031P407
G00267-01 (1/00)
Federated is a registered mark
of Federated Investors, Inc.
2000 (C)Federated Investors, Inc.
[LOGO OF FEDERATED INVESTORS]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and a subsidiary of Federated Investors.
027128107
027128206
027128305
027128404
8042504 (5/96)
[LOGO OF FEDERATED]
[PICTURE OF GLEN R. JOHNSON]
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 ninth Annual Report. This bond fund is designed for income investors
who want to invest a portion of their wealth outside of the U.S. The bonds
selected have had generous yields, but are subject to price volatility and
currency fluctuations. As of November 30, 1999, the fund's net assets of $130
million were broadly diversified among 39 bond issues of issuers in 18
countries.1 Government bonds owned by the fund are issued by Germany, France,
Italy, and Canada, just to name a few. The fund's securities have an average
quality rating of AA+, and an effective maturity of 7.13 years.
This report covers the 12-month reporting period from December 1, 1998 through
November 30, 1999. It begins with an interview with Robert M. 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 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.
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
Individual share class total return performance for the 12-month reporting
period, including income distributions, follows./2/
Total Return Income Net Asset Value Change
Class A Shares (9.87%) $0.46 $11.22 to $9.68 = (14%)
Class B Shares (10.47%) $0.38 $11.19 to $9.66 = (14%)
Class C Shares (10.46%) $0.38 $11.20 to $9.67 = (14%)
I recommend that you add to your account on a regular basis to take advantage of
price fluctuations and to use the dollar-cost averaging method of investing./3/
By investing the same amount regularly, you buy more fund shares when prices are
low and fewer when prices are high. Adding to your account and reinvesting your
quarterly dividends in additional shares is a convenient, painless way to "pay
yourself first" and enjoy the benefit of compounding.
I would also like to point out that, while it has been a difficult year for bond
investors--in the U.S. and abroad--Federated International Income Fund gives you
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 shareholders who have diversified
their fixed-income assets internationally through this fund.
As always, we welcome your comments and suggestions.
Sincerely,
[Signature of Glen R. Johnson]
Glen R. Johnson
President
January 15, 2000
2 Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 (13.94%), (15.22%), and (11.33%), respectively.
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.
[Picture of Robert M. Kowit]
Robert M. Kowit
Vice President
Federated Global Investment Management Corp.
[Picture of Micheal Casey]
Micheal Casey
Vice President
Federated Global Investment Management Corp.
Investment Review
What are your comments on what was a weak period for high-quality international
bonds from a total return perspective?
Once again the overall strength of the U.S. dollar hurt the fund's total
returns. For example, the dollar appreciated over 13% against the euro in 1999,
even though actual bond performance in local currency terms was superior to that
of the U.S. markets. In the fourth quarter of 1999, for example, yields on the
10-year benchmark euro issues rose by about 8 basis points, while similar U.S.
government issues saw yields rise by 33 basis points.
In this environment, how did Federated International Income Fund perform?
The fund's total returns for the fiscal year reflected the overall international
bond market's weakness. Total returns for the fund for the 12-month reporting
period ended November 30, 1999, based on net asset value, were: Class A Shares,
(9.87%); Class B Shares, (10.47%); and Class C Shares, (10.46%)./1/ For the same
period, the overall international bond market recorded a (3.44%) total return as
measured by the J.P. Morgan Global Traded Index Excluding U.S./2/ The average
international income fund as tracked by Lipper Analytical Services, Inc.
produced a (3.19%) total return./3/
1 Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 (13.94%), (15.22%), and (11.33%), respectively.
2 The J.P. Morgan Global Traded Index Excluding U.S. is an unmanaged, total
return, trade-weighted index of over 360 government and high-grade bonds in 12
developed countries. Investments cannot be made in index.
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. These figures do not take sales charges into
account.
What accounted for the fund's underperformance from a total return perspective
during the reporting period?
Dollar strength against most major currencies was the major source of the fund's
underperformance. The exception was the Japanese yen. The fund had sold its
Japanese holdings early in the year on concerns of rising yields as the Japanese
government planned to issue massive amounts of debt. For the fourth quarter of
1998 through November 30, 1999, the yen has appreciated by over 3% while
interest rates have moved up to 1.70% from 1.60%.
Income, of course, is a primary consideration for the fund's shareholders. What
was the total income paid per share during the 12-month reporting period ended
November 30, 1999?
The fund's four quarterly income dividends totaled $0.46 per share for Class A
Shares, $0.38 per share for Class B Shares, and $0.38 per share for Class C
Shares. The yield on the fund--the 30-day SEC yield as of November 30, 1999 was
4.64% for Class A Shares compared to 3.19% a year earlier/1/--is consistent with
the overall yield levels of the international markets.
1 The 30-day SEC yield based on offering price was 4.43%.
How were the fund's high-quality bond holdings diversified among countries as of
November 30, 1999?
Just under 25% of the fund's holdings were concentrated in Germany, while Italy,
France, Canada and Japan comprised the next largest commitments. The balance was
spread across 13 other countries as indicated below:
Country Percentage
of Net
Assets
Germany 24.94%
Italy 7.25%
France 6.80%
Canada 5.61%
Japan 5.21%
United States 4.84%
Poland 4.40%
Netherlands 4.35%
Spain 4.23%
Korea 4.08%
Greece 4.08%
Norway 3.41%
Hungary 2.87%
Australia 2.64%
Denmark 2.27%
Portugal 2.21%
Sweden 2.08%
Ireland 1.73%
Why does Germany represent the fund's largest country commitment? What other
countries are you finding particularly attractive and why?
The German bond market became depressed as a result of political uncertainty
within Germany and concerns about how it would impact the government's finances.
Much of this uncertainty has been resolved. With a strength in currency, German
bonds should provide better-than-average returns this year. We are also positive
on core Europe in general and on Australia and Canada, which have done well as
the prices of the commodities they produce start to rise.
What were the fund's top five holdings as of November 30, 1999?
Percentage
of Net
Issuer Country Coupon and Maturity Assets
Sovereign Germany 6.00% due 6/20/2016 7.78%
KFW Germany 6.75% due 6/20/2005 6.45%
International Finance
Export-Import Japan 6.50% due 5/19/2000 5.21%
Bank of Japan
Sovereign Korea 8.875% due 4/15/2008 4.08%
Sovereign France 7.50% due 4/25/2005 3.91%
TOTAL 27.43%
What is your outlook for high-quality international bonds? As we approach the
year 2000 could the weakness in bond prices be behind us?
While the U.S. faces the prospect of further rate hikes in the year 2000, it is
unlikely that rates in most of the developed markets will rise significantly.
The major potential upside will come from the currency component. The
combination of global growth and the increasing U.S. trade deficit should lead
to a weaker dollar in the year 2000.
Two Ways You May Seek to Invest for Success:
Initial Investment
If you had made an initial investment of $9,000 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 $15,068
on 11/30/99. You would have earned a 6.26%/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 12/31/99, the Class A Shares' 1-year, 5-year, and since inception
(6/4/91) average annual total returns were (15.73%), 3.60% and 6.22%,
respectively. Class B Shares' 1-year, 5-year and since inception (9/28/94)
average annual total returns were (17.04%), 3.50% and 4.10%, respectively. Class
C Shares 1-year, 5-year and since inception (4/1/93) average annual total return
returns were (13.23%), 3.80% and 5.44%, respectively.2
[CHART APPEARS HERE] - See Appendix B1
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 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.
ONE STEP AT A TIME
$1,000 initial investment and subsequent investments of $1,000 each year for
eight years (reinvesting all dividends and capital gains) grew to $10,561.
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
$9,000, but your account would have reached a total value of $10,5611 by
11/30/99. You would have earned an average annual total return of 3.58%.
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 can work 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.
[CHART APPEARS HERE] - See Appendix B2
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.
Federated International Income Fund-Class A Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated International Income Fund (Class A Shares) (the "Fund") from June 4,
1991 (start of performance) to November 30, 1999 compared to J.P. Morgan Global
Traded Index Excluding U.S. (JPMGXUS)./2/
Average Annual Total Returns/3/ for the Period Ended November 30, 1999
1 Year (13.94%)
5 Years 3.73%
Start of Performance (6/4/91) 6.26%
[CHART APPEARS HERE] - See Appendix B3
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions. The JPMGXUS has been adjusted to reflect reinvestment of
income earned on securities in the index.
2 The JPMGXUS is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
3 Total return quoted reflects all applicable sales charges.
Federated International Income Fund-Class B Shares
Growth of A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated International Income Fund (Class B Shares) (the "Fund") from September
28, 1994 (start of performance) to November 30, 1999 compared to the J.P. Morgan
Global Traded Index Excluding U.S. (JPMGXUS)./2/
Average Annual Total Returns3 for the Period Ended November 30, 1999
1 Year (15.22%)
5 Years 3.63%
Start of Performance (9/28/94) 4.14%
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
[CHART APPEARS HERE] - See Appendix B4
1 Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than six years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than one year from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The JPMGXUS has been adjusted to reflect
reinvestment of income earned on securities in the index.
2 The JPMGXUS is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
3 Total return quoted reflects all applicable contingent deferred sales charges.
Federated International Income Fund-Class C Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated International Income Fund (Class C Shares) (the "Fund") from April 1,
1993 (start of performance) to November 30, 1999 compared to the J.P. Morgan
Global Traded Index Excluding U.S. (JPMGXUS)./2/
Average Annual Total Returns3 for the Period Ended November 30, 1999
1 Year (11.33%)
5 Years 3.93%
Start of Performance (4/1/93) 5.50%
[CHART APPEARS HERE] - See Appendix B5
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less than
one year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The JPMGXUS has been
adjusted to reflect reinvestment of dividends on securities in the index.
2 The JPMGXUS is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
3 Total return quoted reflects all applicable contingent deferred sales
charges.
Portfolio of Investments
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NOVEMBER 30, 1999
Foreign
Currency Credit Value in
Par Amount Rating/1/ U.S. Dollars
BONDS-93.0%
AUSTRALIAN DOLLAR-6.1%
Agency-3.4%
7,000,000 Federal National Mortgage Association, Sr. NR/Aaa $4,463,582
Unsub., Series E, Mid Term Note, 6.50%,
7/10/2002
State/Provincial-2.7%
5,500,000 2 New South Wales Treasury, Series 144A, Local 0. AAA/Aaa 3,436,406
Guarantee, 6.50%, 5/1/2006
TOTAL AUSTRALIAN DOLLAR
7,899,988
CANADIAN DOLLAR-4.8%
Sovereign-3.1%
5,800,000 Canadian Government, Bond, 7.00%, 9/1/2001 AAA/Aa1 4,008,491
Telecommunications & Cellular-1.7%
3,500,000 2 Bell Canada, Series 144A, Series D, Medium Term A+/A2 2,285,999
Note, 6.15%, 6/15/2009
TOTAL CANADIAN DOLLAR
6,294,490
DANISH KRONE-2.3%
Financial Intermediaries-0.8%
7,055,000 Nykredit, Mtg. Bond, 8.00%, 10/1/2026 NR/Aa3 991,885
Sovereign-1.5%
11,200,000 Kingdom of Denmark, Bullet, 7.00%, 11/10/2024 AAA/Aaa 1,694,336
1,750,000 Kingdom of Denmark, Bullet, 8.00%, 3/15/2006 AAA/Aaa 269,718
TOTAL
1,964,054
TOTAL DANISH KRONE
2,955,939
DEUTSCHE MARK-8.4%
Agency-5.2%
13,000,000 Export-Import Bank Japan, Foreign Gov't. AAA/Aa1 6,783,509
Guarantee, 6.50%, 5/19/2000
Financial Intermediaries-3.2%
7,500,000 Baden Wurt L-Finance NV, Bank Guarantee, 6.75%, AAA/Aaa 4,131,052
6/22/2005
TOTAL DEUTSCHE MARK
10,914,561
EUROPEAN CURRENCY UNIT (ECU)-49.7%
Agency-6.4%
7,669,378 KFW International Finance, Bank Guarantee, AAA/Aaa $8,396,667
6.75%, 6/20/2005
Banking-1.4%
2,000,000 2 Dresdner Funding Trust, Series 144A, 5.79%, A+/A1 1,841,159
6/30/2011
Sovereign-41.9%
2,800,000 French Government, O.A.T., 8.50%, 10/25/2019 AAA/Aaa 3,766,158
4,500,000 French Government, O.A.T., 7.50%, 4/25/2005 AAA/Aaa 5,084,046
1,800,000 Deutschland Republic, Bond, 4.50%, 7/4/2009 NR/Aaa 1,720,349
9,458,899 Deutschland Republic, Bond, 6.00%, 6/20/2016 AAA/Aaa 10,118,432
4,090,335 Deutschland Republic, Bond, 6.50%, 7/15/2003 NR/Aaa 4,374,302
3,316,750 Deutschland Republic, Bond, 7.375%, 1/3/2005 NR/Aaa 3,712,463
634,869 Irish Government, Debenture, 9.00%, 7/15/2001 NR/Aaa 687,773
1,269,738 Irish Government, Debenture, Deb., 9.00%, NR/Aaa 1,561,280
9/1/2006
3,750,000 Republic of Italy, Bond, 6.75%, 2/1/2007 AA/Aa3 4,156,967
4,131,648 Republic of Italy, Bond, 10.50%, 11/1/2000 AA/Aa3 4,409,323
774,684 Republic of Italy, Debenture, 8.50%, 1/1/2004 AA/Aa3 885,534
4,200,000 Netherlands Government, Bond, 3.75%, 7/15/2009 AAA/Aaa 3,752,154
2,000,000 Netherlands Government, Bond, 5.50%, 1/15/2028 AAA/Aaa 1,906,662
2,020,131 Portuguese Government, Bond, 11.875%, 2/23/2000 AA/Aa2 2,126,379
648,437 Portuguese Government, Bond, 8.875%, 1/23/2004 AA/Aa2 750,384
1,248,000 Spanish Government, Bond, 3.00%, 1/31/2003 NR/Aa2 1,193,690
1,682,833 Spanish Government, Bond, 6.15%, 1/31/2013 NR/Aa2 1,783,785
2,200,000 Spanish Government, Bond, 10.30%, 6/15/2002 NR/Aa2 2,524,869
TOTAL
54,514,550
TOTAL EUROPEAN CURRENCY UNIT
64,752,376
GREEK DRACHMA-4.1%
Sovereign-4.1%
500,000,000 Hellenic Republic, Bond, 9.20%, 10/31/2002 NR/A2 1,582,836
400,000,000 Hellenic Republic, Bond, 8.60%, 3/26/2008 NR/A2 1,374,586
750,000,000 Hellenic Republic, Floating Rate Note, 10.24%, NR/A2 2,355,858
10/23/2003
TOTAL GREEK DRACHMA
5,313,280
HUNGARIAN FORINT-2.9%
Sovereign-2.9%
900,000,000 Hungarian Government, Bond, 13.00%, 7/24/2003 A/NR $3,730,949
TOTAL HUNGARIAN FORINT
3,730,949
NORWEGIAN KRONE-3.4%
Sovereign-3.4%
36,000,000 Norwegian Government, Bond, Foreign Gov't. AAA/Aaa 4,440,369
Guarantee, 5.75%, 11/30/2004
TOTAL NORWEGIAN KRONE
4,440,369
POLISH ZLOTY-4.4%
Sovereign-4.4%
14,000,000 Poland Government, Bond, 10.00%, 2/12/2004 A/NR 3,022,671
12,000,000 Poland Government, Bond, 12.00%, 6/12/2002 A/NR 2,699,401
TOTAL POLISH ZLOTY
5,722,072
SWEDISH KRONA-2.1%
Sovereign-2.1%
18,600,000 Swedish Government, Debenture, 9.00%, 4/20/2009 AAA/Aaa 2,707,975
TOTAL SWEDISH KRONA
2,707,975
U.S. DOLLAR-4.8%
Sovereign-4.1%
5,000,000 Republic of Korea, Unsecured Bond, 8.875%, BBB/Baa2 5,314,250
4/15/2008
State/Provincial-0.7%
1,000,000 Manitoba, Province of, Debenture, 6.875%, AA-/Aa3 1,005,460
9/15/2002
TOTAL U.S. DOLLAR 6,319,710
TOTAL BONDS (IDENTIFIED COST $145,319,361) 121,051,709
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Principal
Value in
Amount
U.S.Dollars
REPURCHASE AGREEMENT-4.2%/3/ $5,490,000
J.P. Morgan & Co., Inc., 5.71%, dated 11/30/1999, due 12/1/1999 (AT AMORTIZED COST) $ 5,490,000
TOTAL INVESTMENTS (IDENTIFIED COST $150,809,361)/4/ $126,541,709
</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 a restricted security which is subject to restrictions on resale
under federal securities laws. These securities have been deemed liquid based
upon criteria approved by the fund's board of directors. At November 30, 1999
these securities amounted to $7,563,564 which represents 5.8% of net assets.
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 $150,809,361. The
net unrealized depreciation of investments on a federal tax basis amounts to
$24,267,652 which is comprised of $126,750 appreciation and $24,394,402
depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($130,138,256) at November 30, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
<S> <C> <C>
NOVEMBER 30, 1999
Assets:
Total investments in securities, at value (identified and tax cost $150,809,361) $ 126,541,709
Cash denominated in foreign currencies (at identified cost $256,836) 256,836
Incomeable 3,533,324
Receivable for shares 284,707
TOTAL ASSETS 130,616,576
Liabilities:
Payable for shares redeemed $ 335,692
Payable to Bank 40,079
Payable for taxes withheld 15,117
Accrued expenses 87,432
TOTAL LIABILITIES 478,320
Net Assets for 13,443,632 shares outstanding $ 130,138,256
Net Assets Consist of:
Paid-in capital 163,560,041
Net unrealized depreciation of investments and translation of assets and liabilities in (24,413,740)
foreign currency
Accumulated net realized loss on investments and foreign currency transactions (9,266,421)
Undistributed net investment income 258,376
TOTAL NET ASSETS $130,138,256
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($115,155,405 / 11,893,150 shares outstanding) $ 9.68
Offering Price Per Share (100/95.50 of $9.68)1 $ 10.14
Redemption Proceeds Per Share $ 9.68
Class B Shares:
Net Asset Value Per Share ($10,701,570 / 1,107,654 shares outstanding) $ 9.66
Offering Price Per Share $ 9.66
Redemption Proceeds Per Share (94.50/100 of $9.66)1 $ 9.13
Class C Shares:
Net Asset Value Per Share ($4,281,281 / 442,828 shares outstanding) $ 9.67
Offering Price Per Share $ 9.67
Redemption Proceeds Per Share (99.00/100 of $9.67)/1/ $ 9.57
1 See "What do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED NOVEMBER 30, 1999
Investment Income:
Interest (net of foreign taxes withheld of $41,377) $ 9,637,601
Expenses:
Investment adviser fee $ 1,087,256
Administrative personnel and services fee 185,000
Custodian fees 94,806
Transfer and dividend disbursing agent fees and expenses 142,550
Directors'/Trustees' fees 7,037
Auditing fees 22,915
Legal Fees 3,351
Portfolio accounting fees 82,499
Distribution services feeClass A Shares 316,491
Distribution services feeClass B Shares 94,016
Distribution services feeClass C Shares 43,767
Shareholder services feeClass A Shares 316,491
Shareholder services feeClass B Shares 31,338
Shareholder services feeClass C Shares 14,589
Share registration costs 36,261
Printing and postage 37,668
Insurance premiums 2,981
Taxes 11,835
Miscellaneous 5,964
TOTAL EXPENSES 2,536,815
Waivers:
Waiver of investment adviser fee $ (10,521)
Waiver of distribution services feeClass A Shares (189,895)
Waiver of shareholder services feeClass A Shares (88,617)
TOTAL WAIVERS (289,033)
Net
expenses
2,247,782
Net investment
income
7,389,819
Realized and Unrealized Loss on Investments and Foreign
CurrencyTransactions:
Net realized loss on investments and foreign currency
transactions
(367,956)
Net change in unrealized depreciation of investments and
translation
(21,719,038)
of assets and liabilities in foreign currency
Net realized and unrealized loss on investments and
foreign
(22,086,994)
currencytransactions
Change in net assets resulting from
operations $ (14,697,175)
See Notes which are an integral part of the Financial Statements
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended November 30 1999 1998
Increase (Decrease) in Net Assets
Operations:
Net investment income $7,389,819 $ 8,643,280
Net realized gain (loss) on investments and foreign currency transactions (367,956) 234,909
($755,484 and $(2,474,371), respectively, as computed for federal tax purposes)
Net change in unrealized depreciation of investments and translation of assets and (21,719,038) 7,248,956
liabilities in foreign currency
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS (14,697,175) 16,127,145
Distributions to Shareholders:
Distributions from net investment income Class A Shares (5,581,917) (7,234,725)
Class B Shares (456,101) (469,562)
Class C Shares (216,077) (279,458)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (6,254,095) (7,983,745)
Share Transactions:
Proceeds from sale of shares 73,906,682 53,208,304
Net asset value of shares issued to shareholders in payment of 1,764,920 2,553,943
distributions declared
Cost of shares redeemed (82,977,579) (106,730,637)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (7,305,977) (50,968,390)
Change in net assets (28,257,247) (42,824,990)
Net Assets:
Beginning of period 158,395,503 201,220,493
End of period (including undistributed net investment income of $258,376 and $130,138,256 $ 158,395,503
$0, respectively)
</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>
<S> <C> <C> <C> <C> <C>
Year Ended November 30 1999/1/ 1998 1997 1996 1995
Net Asset Value, Beginning of Period $ 11.22 $ 10.65 $ 11.92 $11.38 $ 10.52
Income From Investment Operations:
Net investment income 0.55/2/ 0.52/2/ 0.63/2/ 0.74/2/ 0.79
Net realized and unrealized gain (loss) (1.63) 0.53 (1.07) 0.67 0.84
on investments and foreign currency
transactions
TOTAL FROM INVESTMENT OPERATIONS (1.08) 1.05 (0.44) 1.41 1.63
Less Distributions:
Distributions from net investment income (0.46) (0.48) (0.83) (0.87) (0.77)
Net Asset Value, End of Period $ 9.68 $ 11.22 $ 10.65 $11.92 $ 11.38
Total Return3 (9.87%) 10.22% (3.70%) 13.27% 16.12%
Ratios to Average Net Assets:
Expense 1.46% 1.33% 1.30% 1.30% 1.30%
Net investment income 5.19% 5.04% 5.83% 6.58% 6.79%
Expense waiver/reimbursement/4/ 0.23% 0.24% 0.26% 0.34% 0.40%
Supplemental Data:
Net assets, end of period (000 omitted) $115,155 $138,567 $180,415 $200,758 $173,905
Portfolio turnover 52% 37% 67% 92% 41%
</TABLE>
1 For the year ended November 30, 1999, the Fund was audited by Ernst & Young
LLP. Each of the previous years was audited by other auditors.
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 This voluntary expense decrease is reflected in both the expense and the net
investment income ratios shown above.
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>
<S> <C> <C> <C> <C> <C>
Year Ended November 30 1999/1/ 1998 1997 1996 1995
Net Asset Value, Beginning of Period $ 11.19 $ 10.62 $ 11.89 $11.36 $10.51
Income From Investment
Operations:
Net investment income 0.47/2/ 0.46/2/ 0.56/2/ 0.84/2/ 0.77
Net realized and unrealized gain (loss) on (1.62) 0.51 (1.08) 0.48 0.78
investments and foreign currency
transactions
TOTAL FROM INVESTMENT OPERATIONS (1.15) 0.97 (0.52) 1.32 1.55
Less
Distributions:
Distributions from net investment income (0.38) (0.40) (0.75) (0.79) (0.70)
Net Asset Value, End of Period $ 9.66 $ 11.19 $ 10.62 $11.89 $11.36
Total Return/3/ (10.47%) 9.45% (4.43%) 12.41% 15.28%
Ratios to Average Net
Assets:
Expense 2.18% 2.05% 2.06% 2.11% 2.10%
Net investment income 4.47% 4.31% 5.06% 5.76% 5.76%
Expense waiver/reimbursement/4/ 0.01% 0.02% 0.02% 0.10%
Supplemental
Data:
Net assets, end of period (000 omitted) $10,702 $13,174 $12,521 $8,641 $1,123
Portfolio turnover 52% 37% 67% 92% 41%
</TABLE>
1 For the year ended November 30, 1999, the Fund was audited by Ernst & Young
LLP. Each of the previous years was audited by other auditors.
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 This voluntary expense decrease is reflected in both the expense and the net
investment income ratios shown above.
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>
<S> <C> <C> <C> <C> <C>
Year Ended November 30 1999/1/ 1998 1997 1996 1995
Net Asset Value, Beginning of Period $ 11.20 $10.63 $11.89 $ 11.36 $ 10.48
Income From Investment
Operations:
Net investment income 0.47/2/ 0.46/2/ 0.56/2/ 0.67/2/ 0.60
Net realized and unrealized gain (loss) on (1.62) 0.51 (1.08) 0.64 0.95
investments and foreign currency
transactions
TOTAL FROM INVESTMENT OPERATIONS (1.15) 0.97 (0.52) 1.31 1.55
Less
Distributions:
Distributions from net investment income (0.38) (0.40) (0.74) (0.78) (0.67)
Net Asset Value, End of Period $ 9.67 $11.20 $10.63 $ 11.89 $ 11.36
Total Return/3/ (10.46%) 9.42% (4.42%) 12.31% 15.32%
Ratios to Average Net
Assets:
Expense 2.18% 2.05% 2.06% 2.09% 2.06%
Net investment income 4.47% 4.32% 5.10% 5.80% 5.96%
Expense waiver/reimbursement/4/ 0.01% 0.02% - 0.04% 0.14%
Supplemental
Data:
Net assets, end of period (000 omitted) $ 4,281 $6,654 $8,285 $14,976 $12,015
Portfolio turnover 52% 37% 67% 92% 41%
</TABLE>
1 For the year ended November 30, 1999, the Fund was audited by Ernst & Young
LLP. Each of the previous years was audited by other auditors.
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 This voluntary expense decrease is reflected in both the expense and the net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
NOVEMBER 30, 1999
ORGANIZATION
International Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of two portfolios. The
financial statements included herein are only those of Federated International
Income Fund (the "Fund"), a non- diversified portfolio. The financial statements
of the other portfolio are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers three classes of shares: Class A Shares, Class
B Shares and Class C Shares. The Fund's objective is to seek a high level of
current income in U.S. dollars consistent with prudent investment risk. The Fund
has a secondary investment objective of capital appreciation.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
Foreign government securities and listed foreign corporate bonds are valued
according to the last reported sale price on a recognized securities exchange,
if available. If no sale on a recognized exchange is reported or if the security
is traded over-the-counter, a security is valued according to the last reported
bid price. Short-term securities are valued at the prices provided by an
independent pricing service. However, short-term securities with remaining
maturities of 60 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.
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. The Fund, along with
other affiliated investment companies, may utilize a joint trading account for
the purpose of entering into one or more repurchase agreements.
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 of 1986, as
amended (the "Code"). Distributions to shareholders are recorded on the ex-
dividend date. Non-cash dividends included in dividend income, if any, are
recorded at fair value. The Fund offers multiple classes of shares, which differ
in their respective distribution and service fees. All shareholders bear the
common expenses of the Fund based on average daily net assets of each class,
without distinction between share classes. Dividends are declared separately for
each class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions. The following reclassifications have been made to the financial
statements.
Increase (Decrease)
Accumulated Net Undistributed Net
Paid-In Capital Realized Gain (Loss) Investment Income
$53,137 $(1,613,456) $1,560,319
Net investment income, net realized gains (losses), and net assets were not
affected by this reclassification.
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 provision for federal tax is
necessary.
Withholding taxes on foreign interest have been provided for in accordance
with the applicable country's tax rules and rates.
At November 30, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $9,266,421, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
Expiration Year Expiration Amount
2002 $4,500,269
2003 $4,766,152
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date. Losses may occur on these transactions due to change in market
conditions or the failure of counterparties to perform under the contract.
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
counterparties 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 November 30, 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 rates 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. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Restricted Securities
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
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 a trade date basis.
Capital Stock
At November 30, 1999, par value shares ($0.0001 per share) authorized were as
follows:
Share Class Name Number of Par Value 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>
<S> <C> <C> <C> <C>
Year Ended November 30 1999 1998
Class A Shares: Shares Amount Shares Amount
Shares sold 6,664,902 $ 69,874,962 4,595,435 $ 48,567,577
Shares issued to shareholders in payment of 123,821 1,305,383 193,153 2,028,259
distributionsdeclared
Shares redeemed (7,249,106) (76,310,024) (9,378,472) (99,619,319)
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS (460,383) $ (5,129,679) (4,589,884) $ (49,023,483)
Year Ended November 30 1999 1998
Class B Shares: Shares Amount Shares Amount
Shares sold 268,296 $ 2,831,965 285,642 $ 3,017,521
Shares issued to shareholders in payment of 28,581 299,390 30,969 325,089
distributionsdeclared
Shares redeemed (366,388) (3,775,564) (317,928) (3,355,129)
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS (69,511) $ (644,209) (1,317) $ (12,519)
Year Ended November 30: 1999 1998
Class C Shares: Shares Amount Shares Amount
Shares sold 110,503 $ 1,199,755 153,899 $ 1,623,206
Shares issued to shareholders in payment of 15,290 160,147 19,121 200,595
distributionsdeclared
Shares redeemed (277,102) (2,891,991) (358,323) (3,756,189)
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS (151,309) $ (1,532,089) (185,303) $ (1,932,388)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS (681,203) $ (7,305,977) (4,776,504) $ (50,968,390)
</TABLE>
INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Global Investment Management Corp., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment adviser 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 a scale that ranges from 0.15% to 0.075% of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per
each additional class.
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.
Share Class Name Percentage of Average Daily
Net Assets of Class
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services 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. FSSC 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 (and in-kind
contributions), for the year ended November 30, 1999, were as follows:
Purchases $70,356,764
Sales $71,343,925
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.
LINE OF CREDIT AGREEMENT
Effective November 29, 1999, the Corporation entered into a $75,000,000
unsecured committed revolving line of credit ("LOC") agreement with State Street
Corporation. The LOC was made available for extraordinary or emergency purposes,
primarily for financing redemption payments. Borrowings are charged interest at
a rate of 0.50% over the Federal Funds Rate. The LOC includes a commitment fee
of 0.08% per annum on the daily unused portion. The corporation did not make any
borrowings under the LOC during the year ended November 30, 1999.
CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)
On May 19, 1999, the Fund's Directors, upon recommendation of its Audit
Committee, requested and subsequently accepted the resignation of Arthur
Andersen LLP ("AA") as the Fund's independent auditors. AA's reports on the
Fund's financial statements for the fiscal years ended November 30, 1997 and
November 30, 1998 contained no adverse opinion or disclaimer of opinion nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. During the Fund's fiscal years ended November 30, 1997 and November
30, 1998: (i) 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 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 reports on the financial statements for such years; and (ii)
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 Fund, by action of its Directors, upon the recommendation of the Audit
Committee, has engaged Ernst & Young LLP ("E&Y") as the independent auditors to
audit the Fund's financial statements for the fiscal year ended November 30,
1999. During the Fund's fiscal years ended November 30, 1997 and November 30,
1998, neither the Fund nor anyone on its 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 Fund's financial statements, or (ii) concerned the
subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 or
Regulation S-K) of reportable events (as described in paragraph (a)(1)(v) of
said Item 304).
Report of Ernst & Young LLP, Independent Auditors
TO THE BOARD OF DIRECTORS OF INTERNATIONAL SERIES, INC. AND
SHAREHOLDERS OF FEDERATED INTERNATIONAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated International Income Fund (the
"Fund") (one of the portfolios constituting the International Series, Inc.) as
of November 30, 1999, and the related statement of operations, the statement of
changes in net assets, and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The statement
of changes in net assets for the year ended November 30, 1998, and the financial
highlights for the four years then ended, were audited by other auditors whose
report dated January 15, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1999, by correspondence with the custodian and brokers
or other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated International Income Fund of International Series, Inc. at November
30, 1999, and the results of its operations, the changes in its net assets, and
the financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States.
[LOGO OF ERNST & YOUNG]
Boston, Massachusetts
January 21, 2000
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
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
HENRY A. FRANTZEN
Chief Investment Officer
JAMES O. PERRY
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.
NOTES
NOTES
NOTES
ANNUAL REPORT
AS OF NOVEMBER 30, 1999
[LOGO FEDERATED]
Federated International Income Fund
Established 1991
9th Annual Report
[LOGO AND ADDRESS OF FEDERATED]
Cusip 46031P100
Cusip 46031P506
Cusip 46031P209
3010401 (1/00)
Federated is a registered mark
of Federated Investors, Inc.
2000 (c) Federated Investors, Inc.
APPENDIX
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 8/17/84
to 11/30/99. The "y" axis is measured in increments of $30,000 ranging from $0
to $150,000 and indicates that the ending value of hypothetical initial
investment of $16,000 in the Federated International Equity Fund's Class A
Shares, assuming a 5.50% sales charge and the reinvestment of all capital gains
and dividends, would have grown to $137,881 on 11/30/99.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 8/17/84
to 11/30/99. The "y" axis is measured in increments of $10,000 ranging from $0
to $50,000 and indicates that the ending value of hypothetical yearly
investments of $1,000 in the Federated International Equity Fund's Class A
Shares, assuming the reinvestment of all capital gains and dividends, would have
grown to $49,21 on 11/30/99.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text beneath it. The "x" axis reflects computation periods from
8/17/84 to 11/30/99. The "y" axis is measured in increments of $50,000 ranging
from $0 to $300,000 and indicates that the ending value of a hypothetical
initial investment of $10,000 and subsequent investments of $5,000 every August
over 15 years in the Federated International Equity Fund's Class A Shares would
have grown to $291,511 on 11/30/99.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Federated International Equity Fund are represented by a solid
line. The Morgan Stanley Capital International Europe Australia Far-East Index
(EAFE) is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class A Shares of Federated International Equity Fund and the
EAFE. The "x" axis reflects computation periods from 11/30/89 to 11/30/99. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Federated International
Equity Fund's Class A Shares, as compared to the EAFE; the ending values were
$28,092 and $18,751, respectively. The legend in the upper right quadrant of the
graphic presentation indicates the Federated International Equity Fund's Class A
Shares Average Annual Total Returns for the one-year, five-year, 10-year and
start of performance periods ended 11/30/99, which were 52.23%, 15.95%, 10.26%
and 15.13%, respectively.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Federated International Equity Fund are represented by a solid
line. The Morgan Stanley Capital International Europe Australia Far-East
Index(EAFE) is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class B Shares of Federated International Equity Fund and the
EAFE. The "x" axis reflects computation periods from 9/28/94 to 11/30/99. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Federated International
Equity Fund's Class B Shares, as compared to the EAFE; the ending values were
$20,036 and $16,609, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Federated International Equity Fund's Class B
Shares Average Annual Total Returns for the one-year, five-year and the start of
performance periods ended 11/30/99, which were54.40%, 16.06% and 14.37%,
respectively.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of the Federated International Equity Fund are represented by a solid
line. The Morgan Stanley Capital International Europe Australia Far-East
Index(EAFE) is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class C Shares of Federated International Equity Fund and the
EAFE. The "x" axis reflects computation periods from 4/1/93 to 11/30/99. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the Federated International Equity
Fund's Class C Shares, as compared to the EAFE; the ending values were $26,240
and $23,281, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Federated International Equity Fund's Class C Shares
Average Annual Total Returns for the one-year, five-year and start of
performance periods ended 11/30/99, which were 58.89%, 16.32%, and 15.57%,
respectively.
B1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 6/4/91to
11/30/99. The "y" axis is measured in increments of $5,000 ranging from $0 to
$20,000 and indicates that the ending value of hypothetical initial investment
of $9,000 in the Federated International Income Fund's Class A Shares, assuming
a 4.50% sales charge and the reinvestment of all capital gains and dividends,
would have grown to $15.068 on 11/30/99.
B2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 6/4/91to
11/30/99. The "y" axis is measured in increments of $2,000 ranging from $0 to
$12,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 in the Federated International Income Fund's Class A Shares, assuming
the reinvestment of all capital gains and dividends, would have grown to $10,561
on 11/30/99.
B3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Federated International Income Fund are represented by a solid
line. The J.P. Morgan Global Traded Index Excluding U.S. (JPMGXUS) is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
A Shares of Federated International Income Fund and the JPMGXUS. The "x" axis
reflects computation periods from 6/4/91 to 11/30/99. The "y" axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Federated International Income Fund's Class A
Shares, as compared to the JPMGXUS; the ending values were $16,743 and $20,049,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Federated International Income Fund's Class A Shares Average
Annual Total Returns for the one-year, five-year, and start of performance
periods ended 11/30/99, which were (13.94%), 3.73%, and 6.26%, respectively.
B4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Federated International Income Fund are represented by a solid
line. The J.P. Morgan Global Traded Index Excluding U.S. (JPMGXUS) is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
B Shares of Federated International Income Fund and the JPMGXUS. The "x" axis
reflects computation periods from 9/28/94 to 11/30/99. The "y" axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Federated International Income Fund's Class B
Shares, as compared to the JPMGXUS; the ending values were $12,333 and $13,686,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Federated International Income Fund's Class B Shares Average
Annual Total Returns for the one-year, five-year, and start of performance
periods ended 11/30/99, which were (15.22%), 3.63% and 4.14%, respectively.
B5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of the Federated International Income Fund are represented by a solid
line. The J.P. Morgan Global Traded Index Excluding U.S. (JPMGXUS) is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
C Shares of Federated International Income Fund and the JPMGXUS. The "x" axis
reflects computation periods from 4/1/93 to 11/30/99. The "y" axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Federated International Income Fund's Class C
Shares, as compared to the JPMGXUS; the ending values were $14,291 and $15,520,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Federated International Income Fund's Class C Shares Average
Annual Total Returns for the one-year, five-year and start of performance
periods ended 11/30/99, which were (11.33%), 3.93%, and 5.50%, respectively.
