1933 Act File No. 2-91776
1940 Act File No. 811-3984
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. .............................
Post-Effective Amendment No. 35 .......................... X_
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _ X
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Amendment No. 30 ............................................ _X
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INTERNATIONAL SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
_ on _________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i) on _________________
pursuant to paragraph (a) (i) 75 days after filing pursuant to paragraph
(a)(ii) on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
FEDERATED INTERNATIONAL EQUITY FUND
A Portfolio of Federated International Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking to obtain a total return on its assets by investing
primarily in equity securities of companies based outside the United States.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS Risk/Return
Summary What are the Fund's
Fees and Expenses?
What are the Fund's
Investment Strategies? What
are the Principal
Securities in Which the
Fund Invests? What are the
Specific Risks of Investing
in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem [and Exchange] Shares
Account and Share Information
Who Manages the Fund?
Last Meeting of Shareholders
Financial Information
March 31, 2000
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to obtain a total return on its assets. The
Fund's total return will consist of two components: (1) changes in the market
value of its portfolio securities (both realized and unrealized appreciation),
and (2) income received from its portfolio securities. The Fund expects that
changes in market value will comprise the largest component of its total return.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
prospectus.
This investment objective may be changed by the Fund's Directors without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The investment
adviser (Adviser) manages the Fund based on the view that international equity
markets are inefficient at pricing securities and that careful security
selection offers the best potential for superior long-term investment returns.
The Adviser uses a "bottom-up" approach to stock selection and selection of
industry and country are secondary considerations.
The Adviser attempts to purchase securities with a mix of growth and value
characteristics. Using its own quantitative process, the Adviser ranks the
future performance potential of companies by evaluating each company's earnings
potential and management quality as well as reviewing the company's financial
statements and earnings forecasts. The Adviser then evaluates the sustainability
of the company's current growth trends and potential catalysts for increased
growth. Considering this fundamental analysis, the Adviser selects the most
promising companies for the Fund's portfolio.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
o fluctuations in the value of equity securities in foreign securities markets,
and o fluctuations in the exchange rate between the U.S. dollar and foreign
currencies. An investment in the Fund involves additional risks such as risks of
foreign investing, sector and regional risks and Euro risks.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated International Equity Fund (Fund) as of the
calendar year-end for each of ten years. The `y' axis reflects the "% Total
Return" beginning with "-20.00%" and increasing in increments of 10.00% up to
80.00%. The `x' axis represents calculation periods from the earliest calendar
year end of the Fund's start of business through the calendar year ended
December 31,1999. The light gray shaded chart features ten distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund which appear directly above each
respective bar, for the calendar years 1990 through 1999, are -11.55%, 7.53%,
- -5.89%, 31.29%, 0.49%, 6.52%, 5.76%, 7.08%, 24.68% and 78.36%, respectively.
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis. The Fund's Class A Shares are sold subject to a
sales charge (load). The impact of the sales charges are not reflected in the
total returns above, and if these amounts were reflected, returns would be less
than those shown. Within the period shown in the chart, the Fund's Class A
Shares highest quarterly return was 55.35% (quarter ended December 31, 1999).
Its lowest quarterly return was (19.77)% (quarter ended September 30, 1990).
Average Annual Total Return Average Annual Return for the Fund's Class A, Class
B and Class C Shares, compared to the Morgan Stanley Capital International
Europe, Australia, and Far East Index (EAFE). The table shows the Fund's Class
A, Class B and Class C Shares average annual total returns averaged over a
period of years relative to the EAFE.
Calendar Period Class A Class B Class C EAFE
1 Year 16.52% 18.24% 22.79% 20.00%
5 Years 20.45% -- 7.68% 9.19%
10 Years 11.59% -- -- 20.64%
Start of Performance1 NA 18.01% 18.42% NA
1 The Fund's Class A, Class B, and Class C Shares start of performance dates
were August 17, 1984, September 28, 1994, and April 1, 1993, respectively. Past
performance does not necessarily predict future performance. This information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED INTERNATIONAL EQUITY FUND
Fees and ExPenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment Class A Class B Class C
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of 5.50% None None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None 5.50% 1.00%
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None None None
Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
</TABLE>
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets (as a percentage of average net
assets)
Management Fee 1.00% 1.00% 1.00% Distribution (12b-1) Fee None 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25% Other Expenses 0.38% 0.38% 0.38%
Total Annual Fund Operating Expenses 1.63%2.38%1 2.38% 1 Class B Shares convert
to Class A Shares (which pay lower ongoing expenses) approximately eight
years after purchase.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and C Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, B, and C
Shares for the time periods indicated and then redeem all of your shares at the
end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that the
Fund's Class A, B, and C Shares operating expenses are as shown in the Table and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
Share Class 1 Year 3 Years 5 Years 10 Years
Class A Shares
Expenses assuming
redemption $707 $1,036 $1,388 $2,377
Expenses assuming
no redemption $707 $1,036 $1,388 $2,377
Class B Shares
Expenses assuming
redemption $791 $1,142 $1,470 $2,530
Expenses assuming
no redemption $241 $742 $1,270 $2,530
Class C Shares
Expenses assuming
redemption $341 $742 $1,270 $2,716
Expenses assuming
no redemption $241 $742 $1,270 $2,716
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The adviser
manages the Fund based on the view that international equity markets are
inefficient at pricing securities and that careful security selection offers the
best potential for superior long-term investment returns. Selection of industry
and country are secondary considerations.
The Adviser emphasizes growth stocks at a reasonable price. The market
capitalization of portfolio securities is not a determinative factor. Rather,
the Adviser takes a "bottom-up" approach and looks for companies under-valued in
the market place.
Using its own quantitative process, the Adviser ranks the future performance
potential of companies. The Adviser evaluates each company's earnings potential
in light of its current valuation to narrow the list of attractive companies.
The Adviser reviews such factors as the company's price-to-earnings ratio,
enterprise value, organic growth rates, product niche and its pricing power. The
Adviser then evaluates management quality and may meet with company
representatives, company suppliers, customers, or competitors. The Adviser also
reviews the company's financial statements and forecasts of earnings. Based on
this information, the Adviser evaluates the sustainability of the company's
current growth trends and potential catalysts for increased growth. Using this
type of fundamental analysis, the Adviser selects the most promising companies
for the Fund's portfolio.
The Adviser frequently identifies benchmarks for certain securities such as
price-to-earnings ratios or stock prices. Once those benchmarks are achieved,
the Adviser will often consider selling all or a portion of the Fund's holdings
to lock in profit. Holdings will also be sold if they fail to meet performance
expectations or better investment opportunities are identified.
With respect to the Fund's investments in developed markets, companies may be
grouped together in broad categories called business sectors. The Adviser may
emphasize certain business sectors in the portfolio that exhibit stronger growth
potential or higher profit margins. The Fund will not invest more than 20% of
its assets in companies located in emerging markets. In selecting emerging
markets countries in which to invest, the Adviser reviews the country's economic
outlook, its interest and inflation rates, and the political and foreign
exchange risk of investing in a particular country. The Adviser then analyzes
companies located in particular emerging market countries.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
<PAGE>
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
FOREIGN SECURITIES
Foreign equity securities are securities of issuers based outside the United
States. The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country; o the principal trading market for its securities is in another
country; or o it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets,
capitalization, gross revenue or profit from goods produced, services
performed, or sales made in another country.
Foreign equity securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same type,
foreign securities are subject to currency risks and risks of foreign investing.
Trading in certain foreign markets is also subject to liquidity risks.
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks Preferred stocks have the right to receive specified dividends
or distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on common
stock. Preferred stocks may also permit the issuer to redeem the stock.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
The specific risks associated with foreign securities are as follows:
CURRENCY RISKS
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
o The Adviser attempts to manage currency risk by limiting the amount the
Fund invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Foreign countries may have restrictions on foreign ownership of securities
or may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
o Legal remedies available to investors in certain foreign countries may be
more limited than those available with respect to investments in the U.S.
or in other foreign countries.
<PAGE>
Custodial services and other costs relating to investment in international
securities markets are generally more expensive than in the U.S. Such
markets have settlement and clearance procedures that differ from those in
the U.S. In certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making
it difficult to conduct such transactions. The inability of the Fund to
make intended securities purchases due to settlement problems could cause
the Fund to miss attractive investment opportunities. The inability to
dispose of a portfolio security caused by settlement problems could result
either in losses to the Fund due to a subsequent decline in value of the
portfolio security or could result in possible liability to the Fund. In
addition, security settlement and clearance procedures in some emerging
countries may not fully protect the Fund against loss or theft of its
assets.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
financial controls and reporting standards, or regulatory requirements
comparable to those applicable to U.S. companies. These factors may prevent the
Fund and its Adviser from obtaining information concerning foreign companies
that is as frequent, extensive and reliable as the information available
concerning companies in the United States.
EURO RISKS
o The Fund makes significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU).
Therefore, the exchange rate between the Euro and the U.S. dollar will have
a significant impact on the value of the Fund's investments.
LIQUIDITY RISKS
o Trading opportunities are more limited for equity securities issued by
companies located in emerging markets. This may make it more difficult to
sell or buy a security at a favorable price or time. Consequently, the Fund
may have to accept a lower price to sell a security, sell other securities
to raise cash or give up an investment opportunity, any of which could have
a negative effect on the Fund's performance. Infrequent trading may also
lead to greater price volatility.
o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security when it wants to. If this happens, the Fund will be
required to continue to hold the security and the Fund could incur losses.
The specific risks associated with equity securities are as follows:
STOCK MARKET RISKS
o The foreign exchanges on which foreign equity securities are traded or are
listed may be less technologically developed or less regulated than those
in the U.S. possibly increasing the volatility and decreasing the
efficiency of those markets.
o The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's
share price may decline and you could lose money.
o The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
SECTOR AND REGIONAL RISKS
o Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or as the market as a whole. As the
Adviser allocates more of the Fund's portfolio holdings to a particular
sector, or geographic region, the Fund's performance will be more
susceptible to any economic, business or other developments which generally
affect that sector or geographic region.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV) plus any applicable
front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The Fund's current NAV and public offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
Minimum Maximum Sales Charge
Initial/ Contingent
Subsequent Front-End Deferred
Shares Investment Sales Sales
Offered Amount1 Charge2 Charge3
- ------------------------------------------------------------------------
Class A $1500/$100 5.50% 0.00%
Class B $1500/$100 None 5.50%
Class C $1500/$100 None 1.00%
1 The minimum initial and subsequent investment amounts for retirement plans are
$250 and $100, respectively. The minimum subsequent investment amounts for
Systematic Investment Programs is $50. Investment professionals may impose
higher or lower minimum investment requirements on their customers than those
imposed by the Fund. Orders for $250,000 or more will be invested in Class A
Shares instead of Class B Shares to maximize your return and minimize the sales
charges and marketing fees. Accounts held in the name of an investment
professional may be treated differently. Class B Shares will automatically
convert into Class A Shares after eight full years from the purchase date. This
conversion is a non-taxable event. 2 Front-End Sales Charge is expressed as a
percentage of public offering price.See "Sales Charge When You Purchase." 3 See
"Sales Charge When You Redeem."
<PAGE>
SALES CHARGE WHEN YOU PURCHASE
Class A Shares
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
Less than $50,000 5.50% 5.82%
$50,000 but less 4.50% 4.71%
than$100,000
$100,000 but less 3.75% 3.90%
than$250,000
$250,000 but less 2.50% 2.56%
than$500,000
$500,000 but less 2.00% 2.04%
than$1million
$1 million or greater1 0.00% 0.00%
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance payment
on the transaction. The sales charge at purchase may be reduced or eliminated
by:
o purchasing Shares in greater quantities to reduce the applicable sales charge;
o combining concurrent purchases of Shares: - by you, your spouse, and your
children under age 21; or - of the same share class of two or more Federated
Funds (other than money market funds); o accumulating purchases (in calculating
the sales charge on an additional purchase, include the current
value of previous Share purchases still invested in the Fund); or
o signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
o within 120 days of redeeming Shares of an equal or lesser amount;
o by exchanging shares from the same share class of another Federated
Fund (other than a money market fund);
through wrap accounts or other investment programs where you pay the investment
professional directly for services;through investment professionals that
receive no portion of the sales charge; or
o as a Federated Life Member (Class A Shares only) and their immediate family
members; or o as a Director [Trustee] or employee of the Fund, the Adviser, the
Distributor and their affiliates, and
the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase.
If the Distributor is not notified, you will receive the reduced sales charge
only on additional purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
Class A Shares
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.
Class B Shares
Shares Held Up To: CDSC
1 year 5.50%
2 years 4.75%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
You will not be charged a CDSC when redeeming Shares:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
o that you exchanged into the same share class of another Federated Fund
where the shares were held for the applicable CDSC holding period (other
than a money market fund);
o purchased through investment professionals that did not receive advanced sales
payments; or o if after you purchase Shares you become disabled as defined by
the IRS.
In addition, you will not be charged a CDSC:
o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement; o if your redemption is a required retirement plan
distribution; upon the death of the last surviving shareholder of the accountIf
your redemption qualifies, you or your investment professional
should notify the Distributor at the time of redemption to eliminate the CDSC.
If the Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:Shares that are not subject to a CDSC;
o Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund); and
then, the CDSC is calculated using the share price at the time of purchase or
redemption, whichever is lower.HOW IS THE FUND SOLD?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
investors who wish to spread their investments beyond the United States and are
prepared to accept the particular risks associated with these investments,
directly or through investment professionals. When the Distributor receives
sales charges and marketing fees, it may pay some or all of them to investment
professionals. The Distributor and its affiliates may pay out of their assets
other amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated).
<PAGE>
RULE 12B-1 PLANThe Fund has adopted a Rule 12b-1 Plan, which allows it to pay
marketing fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Fund's Class B Shares and Class C
Shares.Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the Class
choice on your New Account Form or form of payment (e.g., Federal Reserve wire
or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within
three business days. You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
o Establish your account with the Fund by submitting a completed New Account
Form; and o Send your payment to the Fund by Federal Reserve wire or check. You
will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
<PAGE>
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTSYou may purchase Shares as retirement investments (such as
qualified plans and IRAs or transfer or rollover of assets). Call your
investment professional or the Fund for information on retirement investments.
We suggest that you discuss retirement investments with your tax adviser. You
may be subject to an annual IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARESYou should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or o directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
<PAGE>
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600Send requests by private courier or overnight delivery
service to:
Federated Shareholder Services Company 1099 Hingham Street Rockland, MA
02370-3317All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all Shareholders exactly as registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last thirty days;
o a redemption is payable to someone other than the shareholder(s) of record;
or
o if exchanging (transferring) into another fund with a different shareholder
registration. A signature guarantee is designed to protect your account
from fraud. Obtain a signature guarantee from a bank or trust company,
savings association, credit union or broker, dealer, or securities exchange
member. A notary public cannot provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
o to allow your purchase to clear;
o during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.You will not accrue interest or dividends on
uncashed checks from the Fund if those checks are undeliverable and returned to
the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTSIn the absence of your specific
instructions, 10% of the value of your redemption from a retirement account in
the Fund may be withheld for taxes. This withholding only applies to certain
types of retirement accounts.
<PAGE>
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical; o meet any minimum
initial investment requirements; and o receive a prospectus for the fund into
which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction. The Fund may modify or terminate the exchange privilege at
any time. The Fund's management or investment adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading that is detrimental to the Fund and other shareholders. If
this occurs, the Fund may terminate the availability of exchanges to that
shareholder and may bar that shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES You will not be charged a
CDSC on SWP redemptions if:
o you redeem 12% or less of your account value in a single year;
o your account is at least one year old;
o you reinvest all dividends and capital gains distributions; and
o your account has at least a $10,000 balance when you establish the SWP.
(You cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem only at
a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINSThe Fund declares and pays any dividends annually to
shareholders. Dividends are paid to all shareholders invested in the Fund on the
record date. The record date is the date on which a shareholder must officially
own shares in order to earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATIONThe Fund sends an annual statement of your account activity to
assist you in completing your federal, state and local tax returns.Fund
distributions of dividends and capital gains are taxable to you whether paid in
cash or reinvested in the Fund.Dividends are taxable as ordinary income; capital
gains are taxable at different rates depending upon the length of time the Fund
holds its assets.
Fund distributions are expected to be primarily capital gains. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
WHO MANAGES THE FUND?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. The Adviser manages the
Fund's assets, including buying and selling portfolio securities. The Adviser's
address is 175 Water Street, New York, NY 10038-4965.
The Fund's portfolio managers and investment analysts are:
Henry A. Frantzen
Henry A. Frantzen has been the Fund's Portfolio Manager since September 1995.
Mr. Frantzen joined Federated in 1995 as an Executive Vice President of the
Fund's Adviser and has overseen the operations of the Adviser since its
formation. Mr. Frantzen served as Chief Investment Officer of international
equities at Brown Brothers Harriman & Co. from 1992-1995. Mr. Frantzen earned
his bachelors degree in Business Administration from the University of North
Dakota.
Alexandre de Bethmann
Alexandre de Bethmann has been the Fund's Portfolio Manager since October 1999.
Mr. de Bethmann joined Federated in 1995 as a Senior Portfolio Manager and a
Vice President of the Fund's Adviser. Mr. de Bethmann served as Assistant Vice
President/Portfolio Manager for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. Mr. de Bethmann received his M.B.A.
in Finance from Duke University.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating
expenses.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report dated
November 30, 1999.
<PAGE>
FEDERATED INTERNATIONAL EQUITY FUND
A Portfolio of Federated International Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 2000
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at1-800-341-7400.You can obtain information about the
Fund (including the SAI) by visiting or writing the Public Reference Room of the
Securities and Exchange Commission in Washington, DC 20549-6009 or from the
Commission's Internet site at http://www.sec.gov.You can call 1-800-SEC-0330 for
information on the Public Reference Room's operations and copying charges.
Investment Company Act File No. 811-3984
Cusip 31420G101
Cusip 31420G200
Cusip 31420G309
G00692-02-ABC (3/00)
FEDERATED INTERNATIONAL EQUITY FUND
A Portfolio of Federated International Series, Inc.
Class A Shares
Class B Shares
Class C Shares
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Class A Shares, Class B Shares, and
Class C Shares of Federated International Equity Fund (Fund), dated March 31,
2000. This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-800-341-7400.
MARCh 31, 2000
1010302B (3/00)
Contents
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated International Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on February 11,
1991. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Corporation changed its name from FT
Series, Inc., to International Series, Inc. on March 15, 1994 and from
International Series, Inc. to Federated International Series, Inc. on March 31,
2000.
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares, and Class C Shares (Shares).
This SAI relates to all classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities, in addition to those described in the Prospectus, for any purpose
that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
Receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the expiration
date). The Fund may buy the designated securities by paying the exercise price
before the expiration date. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying security.
Rights are the same as warrants, except companies typically issue rights to
existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the government of a foreign
country.
<PAGE>
Agency Securities
Agency securities are issued or guaranteed by a foreign governmental agency or
other government sponsored entity acting under foreign governmental authority (a
GSE). Foreign governments support some GSEs with its full, faith and credit.
Other GSEs receive support through governmental subsidies, loans or other
benefits. A few GSEs have no explicit financial support, but are regarded as
having implied support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risks, but not as low as
treasury securities.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers. The credit risk of an issuer's debt security may also vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Investment Ratings for Investment Grade Securities
The fixed income securities in which the Fund will invest will possess a minimum
credit rating of A as assigned by Standard & Poor's or A by Moody's Investors
Service, Inc., or, if unrated, judged by the Adviser to be of comparable
quality. The Adviser will determinate whether a security is investment grade
based upon the credit ratings given by one or more nationally recognized rating
services. For example, Standard & Poor's, a rating service, assigns ratings to
investment grade securities (AAA, AA, A, and BBB) based on their assessment of
the likelihood of the issuer's inability to pay interest or principal (default)
when due on each security. Lower credit ratings correspond to higher credit
risk. If a security has not received a rating, the Fund must rely entirely upon
the Adviser's credit assessment that the security is comparable to investment
grade.
Options
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
Write call options on portfolio securities and securities which the Fund has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration to generate income
from premiums, and in anticipation of a decrease or only limited increase in the
value of the underlying asset. If a call written by the Fund is exercised, the
Fund foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received.
Write put options on all or any portion of its portfolio of securities (to
generate income from premiums, and in anticipation of an increase or only
limited decrease in the value of the underlying asset). In writing puts, there
is a risk that the Fund may be required to take delivery of the underlying asset
when its current market price is lower than the exercise price.
Write call option and purchase put options on financial futures contracts as a
hedge to attempt to protect securities in its portfolio against decreases in
value or as a hedge against rising purchase prices of securities eligible for
purchase by the Fund.
When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
<PAGE>
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the risks
of investing in securities, options, futures and currencies, and depend upon the
terms of the instrument. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional fixed income
or convertible securities. Hybrid instruments are also potentially more volatile
and carry greater market risks than traditional instruments.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
When Issued Transactions
When issued transactions are arrangements in which the Fund buys securities for
a set price, with payment and delivery of the securities scheduled for a future
time. During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value in
determining the price of its shares. Settlement dates may be a month or more
after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, when issued
transactions create market risks for the Fund. When issued transactions also
involve credit risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Hedging Transactions
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Inter-Fund Borrowing and Lending Arrangements
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
or both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase
agreements(the "Repo Rate") AND more attractive to the borrowing fund than the
rate of interest that would be charged by an unaffiliated bank for short-term
borrowings(the "Bank Loan Rate"), as determined by the Board. The interest rate
imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan
Rate."
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
Investment Risks
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its Prospectus. Additional risk factors are
outlined below.
Risks Related to Investing for Growth
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
INVESTMENT LIMITATIONS
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
Underwriting
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
Lending Cash or Securities
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
Concentration of Investments
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act of 1940. The following limitations, however, may be changed by the
Board without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Concentration of Investments
As a matter of non-fundamental operating policy, for purposes of the commodities
policy, investments in transactions involving futures contracts and options,
forward currency contracts, swap transactions and other financial contracts that
settle by payment of cash are not deemed to be investments in commodities.
(a) utility companies will be divided according to their services (for example,
gas, gas transmission, electric and telephone will be considered a separate
industry); (b) financial service companies will be classified according to the
end users of their services (for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry); and (c)
asset-backed securities will be classified according to the underlying assets
securing such securities. To conform to the current view of the SEC staff that
only domestic bank instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the Fund will not exclude
foreign bank instruments from industry concentration limitation tests so long as
the policy of the SEC remains in effect. In addition, investments in bank
instruments, and investments in certain industrial development bonds funded by
activities in a single industry, will be deemed to constitute investment in an
industry, except when held for temporary defensive purposes. The investment of
more than 25% of the value of the Fund's total assets in any one industry will
constitute "concentration."
Buying on Margin
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investing in Restricted and Illiquid Securities
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including securities of affiliated investment companies, as an efficient means
of carrying out its investment policies and managing its uninvested cash."
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Portfolio securities will be sold when the
Adviser believes it is appropriate, regardless of how long those securities have
been held. For the fiscal years ended November 30, 1998 and 1997, the portfolio
turnover rates were 243% and 210%, respectively.
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing
bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at
the time of purchase may be valued at amortized cost or at fair market
value as determined in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board. Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
Quantity Discounts
Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse, and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same Share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent (Class A Shares)
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13 month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
Reinvestment Privilege
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV, without any sales charge.
Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
o the Directors, employees, and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc.
(Federated) on December 31, 1997;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o trusts, pension or profit-sharing plans for these individuals.
Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
o through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family
of Funds are no longer marketed); or
o as Liberty Account shareholders by investing through an affinity group
prior to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements;
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o of Shares held by the Directors, employees, and sales representatives of
the Fund, the Adviser, the Distributor and their affiliates; employees of
any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the
above persons; and
o of Shares originally purchased through a bank trust department, a
registered investment adviser or retirement plans where the third party
administrator has entered into certain arrangements with the Distributor or
its affiliates, or any other investment professional, to the extent that no
payments were advanced for purchases made through these entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
o an amount equal to 0.50% of the NAV of Class A Shares under certain
qualified retirement plans as approved by the Distributor. (Such payments
are subject to a reclaim from the investment professional should the assets
leave the program within 12 months after purchase.)
o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares. In addition, the Distributor may pay investment professionals 0.25% of
the purchase price of $1 million or more of Class A Shares that its customer has
not redeemed over the first year.
<PAGE>
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
Advance Payments
as a Percentage of
Amount Public Offering Price
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
HOW TO BUY SHARES
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of the Corporation
have equal voting rights, except that in matters affecting only a particular
Fund or class, only Shares of that Fund or class are entitled to vote.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of ______, 2000, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Shares: [To be filed by amendment.]
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of two funds and the Federated Fund Complex is
comprised of 56 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of _____, 2000, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Aggregate Total
Birthdate Compensation Compensation
Address Principal Occupations From From Corporation
Position With Corporation for Past 5 Years Corporation and Fund Complex
John F. Donahue* Chief Executive Officer and Director or Trustee $0 $0 for the Corporation and
Birthdate: July 28, 1924 of the Federated Fund Complex; Chairman and 54 other investment
Federated Investors Tower Director, Federated Investors, Inc.; Chairman companies in the Fund
1001 Liberty Avenue and Trustee, Federated Advisers, Federated Complex
Pittsburgh, PA Management, and Federated Research; Chairman
CHAIRMAN and DIRECTOR and Director, Federated Research Corp., and
Federated Global Research Corp.; Chairman,
Passport Research, Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Thomas G. Bigley Director or Trustee of theFederated Fund $ $ for the Corporation
Birthdate: February 3, 1934 Complex; Director, Member of Executive and 54 other investment
15 Old Timber Trail Committee, Children's Hospital of Pittsburgh; companies in the Fund
Pittsburgh, PA formerly: Senior Partner, Ernst & Young LLP; Complex
DIRECTOR Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University
ofPittsburgh.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Director or Trustee of the Federated Fund $ $ for the Corporation
Birthdate: June 23, 1937 Complex; President, Investment Properties and 54 other investment
Wood/IPC Commercial Dept. Corporation; Senior Vice President, JohnR.Wood companies in the Fund
John R. Wood Associates, Inc. and Associates, Inc., Realtors; Partner or Complex
Realtors Trustee in private real estate ventures in
3255 Tamiami Trail North Southwest Florida; formerly: President, Naples
Naples, FL Property Management, Inc. and Northgate Village
DIRECTOR Development Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
Director or Trustee of the Federated Fund
Nicholas P. Constantakis Complex; Director, Michael Baker Corporation $ $ for the
Birth Date: September 3, 1939 (engineering, construction, operations and Corporation and
175 Woodshire Drive technical services); formerly: Partner, 37 other investment companies
Pittsburgh, PA Andersen Worldwide SC. in the Fund Complex
DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Director or Trustee of some of the Federated
John F. Cunningham Fund Complex; Chairman, President and Chief $ $ for the
Birth Date: March 5, 1943 Executive Officer, Cunningham & Co., Inc. Corporation and
353 El Brillo Way (strategic business consulting); Trustee 37 other investment companies
Palm Beach, FL Associate, Boston College; Director, Iperia in the Fund Complex
DIRECTOR Corp. (communications/software); formerly:
Director, Redgate Communications and EMC
Corporation (computer storage systems).
Previous Positions: Chairman of the Board and
Chief Executive Officer, Computer Consoles,
Inc.; President and Chief Operating Officer,
Wang Laboratories; Director, First National
Bank of Boston; Director, Apollo Computer, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue President or Executive Vice President of the $0 $0 for the Corporation and
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of 16 other investment
Federated Investors Tower some of the Funds in the Federated Fund companies in the Fund
1001 Liberty Avenue Complex; President and Director, Federated Complex
Pittsburgh, PA Investors, Inc.; President and Trustee,
EXECUTIVE VICE PRESIDENT Federated Advisers, Federated Management, and
and DIRECTOR Federated Research; President and Director,
Federated Research Corp. and Federated Global
Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.* Birthdate: Director or Trustee of the Federated Fund $ $ for the Corporation
October 11, 1932 3471 Fifth Avenue Complex; Professor of Medicine, University of and 54 other investment
Suite 1111 Pittsburgh, PA Pittsburgh; Medical Director, University of companies in the Fund
DIRECTOR Pittsburgh Medical CenterDowntown; Complex
Hematologist, Oncologist, and Internist,
University of Pittsburgh Medical Center;
Member, National Board of Trustees,
Leukemia Society of America.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Director or Trustee of the Federated Fund $ $ for the Corporation
Birthdate: March 16, 1942 Complex; formerly: Representative, Commonwealth and 54 other investment
One Royal Palm Way 100 of Massachusetts General Court; President, companies in the Fund
Royal Palm Way State Street Bank and Trust Company and State Complex
Palm Beach, FL Street Corporation. Retired: Director, VISA USA
DIRECTOR and VISA International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated $0 $0 for the Corporation and
Birthdate: April 10, 1945 Funds; ManagementConsultant. 25 other investment
80 South Road Previous Positions: Chief Executive Officer, companies in the Fund
Westhampton Beach, NY PBTC International Bank; Chief Financial Complex
DIRECTOR Officer of Retail Banking Sector, Chase
Manhattan Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra
University.
- --------------------------------------------------------------------------------------------------------------------------------
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of theFederated Fund $ $ for the Corporation
Birthdate: December 20, 1932 Complex; President, LawProfessor, Duquesne and 54 other investment
President, Duquesne University University; Consulting Partner, Mollica & companies in the Fund
Pittsburgh, PA Murray. Previous Positions: Dean and Professor Complex
DIRECTOR of Law, University of Pittsburgh School of Law;
Dean and Professor of Law, Villanova University
School of Law.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Director or Trustee of the Federated Fund $ $ for the Corporation
Birthdate: June 21, 1935 Complex; Public Relations/Marketing/Conference and 54 other investment
4905 Bayard Street Planning. Previous Positions: National companies in the Fund
Pittsburgh, PA Spokesperson, Aluminum Company of America; Complex
DIRECTOR business owner.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
John S. Walsh Director or Trustee of some of the Federated $0 $0 for the Corporation and
Birthdate: November 28, 1957 Funds; President and Director, Heat Wagon, 22 other investment
2007 Sherwood Drive Inc.; President and Director, Manufacturers companies in the Fund
Valparaiso, IN Products, Inc.; President, Portable Heater Complex
DIRECTOR Parts, a division of Manufacturers
Products, Inc.; Director, Walsh & Kelly,
Inc.; formerly, Vice President, Walsh &
Kelly, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Glen R. Johnson Trustee, Federated Investors, Inc.; staff $0 $0 for the Corporation and
Birthdate: May 2, 1929 member, Federated Securities Corp. 8 other investment
Federated Investors Tower companies in the Fund
1001 Liberty Avenue Complex
Pittsburgh, PA
PRESIDENT
- --------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Trustee or Director of some of the Funds in the $0 $0 for the Corporation
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive and 1 other investment
Federated Investors Tower Vice President and Treasurer of some of the company in the Fund
1001 Liberty Avenue Funds in the Federated Fund Complex; Vice Complex
Pittsburgh, PA Chairman, Federated Investors, Inc.; Vice
EXECUTIVE VICE PRESIDENT President, Federated Advisers, Federated
Management, Federated Research, Federated
Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice
President and Director, Federated Securities
Corp.; Trustee, Federated Shareholder Services
Company.
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Birthdate: October Executive Vice President and Secretary of the $0 $0 for the Corporation
26, 1938 Federated Fund Complex; Executive Vice and 54 other
Federated Investors Tower President, Secretary, and Director, Federated investment companies
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Advisers, in the Fund Complex
Pittsburgh, PA Federated Management, and Federated Research;
EXECUTIVE VICE PRESIDENT Director, Federated Research Corp. and
and SECRETARY Federated Global Research Corp.; Director,
Federated Services Company; Director, Federated
Securities Corp.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Richard J. Thomas Birthdate: June 17, Treasurer of the Federated Fund Complex; Vice $0 $0 for the Corporation
1954 PresidentFunds Financial Services Division, and 54 other
Federated Investors Tower Federated Investors, Inc.; Formerly: various investment companies
1001 Liberty Avenue management positions within Funds Financial in the Fund Complex
Pittsburgh, PA Services Division of Federated Investors, Inc.
TREASURER
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher President or Vice President of some of the $0 $0 for the Corporation
Birthdate: May 17, 1923 Funds in the Federated Fund Complex; Director and 6 other investment
Federated Investors Tower or Trustee of some of the Funds in the companies in the Fund
1001 Liberty Avenue Federated Fund Complex; Executive Vice Complex
Pittsburgh, PA President, Federated Investors, Inc.; Chairman
VICE PRESIDENT and Director, Federated Securities Corp.
- --------------------------------------------------------------------------------------------------------------------------------
Henry A. Frantzen Chief Investment Officer of this Fund and $0 $0 for the Corporation
Birthdate: November 28, 1942 various other Funds in the Federated Fund and 3 other investment
Federated Investors Tower Complex; Executive Vice President, Federated companies in the Fund
1001 Liberty Avenue Investment Counseling, Federated Global Complex
Pittsburgh, PA Research Corp., Federated Advisers, Federated
CHIEF INVESTMENT OFFICER Management, Federated Research, and Passport
Research, Ltd.; Registered Representative,
Federated Securities Corp.; Vice
President, Federated Investors, Inc.;
Formerly: Executive Vice President,
Federated Investment Counseling
Institutional Portfolio Management
Services Division; Chief Investment
Officer/Manager, International Equities,
Brown Brothers Harriman & Co.; Managing
Director, BBH Investment Management
Limited.
- --------------------------------------------------------------------------------------------------------------------------------
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Corporation.
</TABLE>
<PAGE>
iNVESTMENT adviser
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT Auditors
Ernst & Young LLP is the independent auditor for the Fund.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
November30 1999 1998 1997
Advisory Fee Earned $2,137,661 $1,732,925
Advisory Fee Reduction 0 0
Brokerage Commissions 2,652,870 4,321,392
Administrative Fee 185,000 185,000
12b-1 Fee
Class B Shares 233,953
Class C Shares 93,921
Shareholder Services Fee
Class A Shares 425,124
Class B Shares 77,984
Class C Shares 31,307
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
Average Annual Total Returns
Total returns given for the one-, five- ten-year and since inception periods
ended November 30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception on
August 17,
Share Class 1 Year 5 Years 10 Years 1984
Class A
Total Return
Since
Inception on
September 28,
Share Class 1 Year 5 Years 10 Years 1994
Class B
Total Return
Since
Inception on
Share Class 1 Year 5 Years 10 Years April 1, 1993
Class C
Total Return
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o ........references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the
Investment Company Institute. The Fund may compare its performance, or
performance for the types of securities in which it invests, to a variety
of other investments, including federally insured bank products such as
bank savings accounts, certificates of deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Lipper Analytical Services, Inc.
Lipper Analytical Services, Inc., for example, makes comparative calculations
for one-month, three-month, one-year, and five-year periods which assume the
reinvestment of all capital gains distributions and income dividends.
Europe, Australia, and Far East (EAFE) Index
Europe, Australia, and Far East (EAFE) Index is a market capitalization weighted
foreign securities index, which is widely used to measure the performance of
European, Australian, New Zealand, and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the above
regions. The index values its securities daily in both U.S. dollars and local
currency and calculates total returns monthly. EAFE U.S. dollar total return is
a net dividend figure less Luxembourg withholding tax. The EAFE is monitored by
Capital International, S.A., Geneva, Switzerland.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks
Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite
index of common stocks in industry, transportation, and financial and public
utility companies, can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the Standard &
Poor's index assumes reinvestments of all dividends paid by stocks listed on its
index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
Morningstar, Inc.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
federated funds overview
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
Government Funds
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield--J. Thomas
Madden; U.S. fixed income--William D. Dawson, III; and global equities and fixed
income--Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
Federated Clients Overview
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/ liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November 30,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Equity Fund dated November 30, 1999.
<PAGE>
INVESTMENT RATINGS
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. BB--Debt rated BB has less near-term, vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating. CCC--Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating. CC--The rating CC typically is applied to debt
subordinated to senior debt that is assigned an actual or implied CCC debt
rating. C--The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued. CI--The rating CI is reserved for income bonds
on which no interest is being paid. D--Debt rated D is in payment default. The D
rating category is used when interest payments or principal payments are not
made on the date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. CA--Bonds which are rated CA represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C--Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Fitch IBCA, Inc. Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+. A--Bonds considered to
be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. BBB--Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements. B--Bonds are considered
highly speculative. While bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment. CC--Bonds are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
DDD, DD, and D--Bonds in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and ample
asset protection. o Broad margins in earning coverage of fixed financial charges
and high internal cash generation. o Well established access to a range of
financial markets and assured sources of alternate liquidity. Prime-2--Issuers
rated Prime-1 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
federated international equity fund
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
FEDERATED INTERNATIONAL INCOME FUND
A Portfolio of Federated International Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking a high level of current income in U.S. dollars consistent
with prudent investment risk by investing primarily in fixed income securities
of foreign governments and their agencies. The Fund has a secondary objective of
capital appreciation.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What do Shares Cost? 7
How is the Fund Sold? 9
How to Purchase Shares 10
How to Redeem and Exchange Shares 11
Account and Share Information 14
Who Manages the Fund? 14
Financial Information 16
MARCH 31, 2000
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek a high level of current income in
U.S. dollars consistent with prudent investment risk. The Fund has a secondary
objective of capital appreciation. The ability of the Fund to achieve its
investment objective is dependent on the continuing ability of issuers of the
debt securities in which the Fund invests to meet their obligation for the
payment of interest and principal when due. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in high quality
fixed income securities with a minimum credit rating of A of foreign governments
and their agencies. The Fund will endeavor to maintain a dollar-weighted average
rating of its portfolio securities of AA. The Fund emphasizes investments in
members of the Organization for Economic Cooperation and Development which have
received investment grade ratings for securities denominated in their local
currency.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
g fluctuations in the exchange rate between the U.S. dollar and foreign
currencies, and g a general rise in interest rates. The Fund is non-diversified.
Compared to diversified mutual funds, it may invest a higher percentage of its
assets among fewer issuers of portfolio securities. This increases the Fund's
risk by magnifying the impact (positively or negatively) that any one issuer has
on the Fund's Share price and performance.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated International Income Fund (Fund) as of the
calendar year-end for each of eight years. The `y' axis reflects the "% Total
Return" beginning with "-15.00%" and increasing in increments of 5.00% up to
30.00%. The `x' axis represents calculation periods from the earliest calendar
year end of the Fund's start of business through the calendar year ended
December 31,1999. The light gray shaded chart features eight distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund which appear directly above each
respective bar, for the calendar years 1992 through 1999, are -1.43%, 26.96%,
- -4.64%, 17.50%, 10.84%, -5.01%, 14.46% and -11.73%, respectively.
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis. The Fund's Class A Shares are sold subject to a
sales charge (load). The impact of the sales charges are not reflected in the
total returns above, and if these amounts were reflected, returns would be less
than those shown. Within the period shown in the Chart, the Fund's Class A
Shares highest quarterly return was 11.37% (quarter ended September 30, 1993).
Its lowest quarterly return was (5.19)% (quarter ended March 31, 1997).
Average Annual Total Return
Average Annual Return for the Fund's Class A, Class B and Class C Shares,
compared to the J.P. Morgan Global Traded Index Excluding U.S. (JPMGXUS). The
table shows the Fund's Class A, Class B and Class C Shares average annual total
returns averaged over a period of years relative to the JPMGXUS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Calendar Period Class A Class B Class C JPMGXUS
1 Year -15.73% -17.04% -13.23% -6.17%
5 Years 3.60% 3.50% 3.80% 6.37%
Start of Performance1 6.22% 4.10% 5.44% 8.42%
</TABLE>
1 The Fund's Class A, Class B, and Class C Shares start of performance dates
were June 4, 1991, September 28, 1994, and April 1, 1993, respectively.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED INTERNATIONAL INCOME FUND
fees and expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment Class A Class B Class C
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of 4.50% None None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None 5.50% 1.00%
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None None None
Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
</TABLE>
Annual Fund Operating Expenses (Before Waivers)1
<PAGE>
Expenses That are Deducted From Fund Assets (as a percentage of average net
assets)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Management Fee2 0.75% 0.75% 0.75%
Distribution (12b-1) Fee3 0.25% 0.75% 0.75%
Shareholder Services Fee4 0.25% 0.25% 0.25%
Other Expenses 0.32% 0.32% 0.32%
Total Annual Fund Operating Expenses 1.57% 2.07%5 2.07%
- ---------------------------------------------------------------------------- ---------- ---------- ----------
</TABLE>
1 Although not contractually obligated to do so, the adviser, distributor and
shareholder service provider waived certain amounts. These are shown below along
with the net expenses the Fund actually paid for the fiscal year ended November
30, 1998. Waiver of Fund Expenses 0.24% 0.02% 0.02% Total Actual Annual Fund
Operating Expenses (after waivers) 1.33% 2.05% 2.05% 2 The adviser voluntarily
waived a portion of the management fee. The adviser can terminate this voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary
waiver) was 0.73% for the year ended November 30, 1998. 3 For shareholders of
Class A Shares, the distribution 12b-1 fee has been reduced to reflect the
voluntary waiver of a portion of the 12b-1 fee. This voluntary reduction can be
terminated at any time. The distribution 12b-1 fee paid by the Fund's Class A
Shares (after the voluntary reduction) was 0.10% for the year ended November 30,
1998. 4 The shareholder services fee for Class A Shares has been voluntarily
reduced. This voluntary reduction can be terminated at any time. The shareholder
services fee paid by the Fund's Class A Shares (after the voluntary reduction)
was 0.18% for the year ended November 30, 1998. 5 Class B Shares convert to
Class A Shares (which pay lower ongoing expenses) approximately eight years
after purchase.
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and C Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, B, and C
Shares for the time periods indicated and then redeem all of your shares at the
end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that the
Fund's Class A, B, and C Shares operating expenses are before waivers as shown
in the
Table and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Share Class 1 Year 3 Years 5 Years 10 Years
Class A
Expenses assuming redemption $603 $923 $1,267 $2,233
Expenses assuming no redemption $603 $923 $1,267 $2,233
Class B
Expenses assuming redemption $760 $1,049 $1,314 $2,272
Expenses assuming no redemption $210 $649 $1,114 $2,272
Class C
Expenses assuming redemption $310 $649 $1,114 $2,400
Expenses assuming no redemption $210 $649 $1,114 $2,400
</TABLE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in fixed income
securities of foreign governments and their agencies which are members of the
Organization for Economic Cooperation and Development (OECD). The OECD is an
organization of 29 member countries which share the principles of the market
economy and pluralist democracy. The original 20 members of the OECD are located
in Western Europe and North America. More recently, Japan, Australia, New
Zealand, Finland, Mexico, the Czech Republic, Hungary, Poland and Korea have
joined. The Fund limits its investments to securities with a credit quality
equal to an A rating or better. The Fund endeavors to maintain a dollar-weighted
average credit rating of AA for its portfolio securities.
The investment adviser (Adviser) uses the J.P. Morgan Global Traded Index
Excluding U.S. Index (Index) as a starting point for selecting portfolio
securities. The Adviser looks for opportunities to enhance the Fund's
performance by diverging from the Index. Such opportunities may cause the
Adviser to weight the portfolio differently than the Index or to buy securities
not represented in the Index. Under ordinary market conditions, however, the
duration of the portfolio securities does not deviate more than 25% from the
duration of the Index. Duration measures the price sensitivity of a fixed income
security to changes in interest rates. The Fund will not invest more than 30% of
its assets in any one country.
The Adviser weighs several factors in selecting investments for the portfolio.
First, the Adviser analyzes a country's general economic condition and outlook,
including its interest rates, foreign exchange rates and trade balance. The
Adviser then analyzes the country's financial condition, including its credit
ratings, government budget, tax base, outstanding public debt and the amount of
public debt held outside the country. In connection with this analysis, the
Adviser also considers how developments in other countries in the region or the
world might affect these factors.
Using its analysis, the Adviser tries to identify countries with favorable
characteristics, such as a strengthening economy, favorable inflation rate,
sound budget policy or strong public commitment to repay government debt. The
Adviser then evaluates available investments in these countries based upon its
outlook for interest and foreign exchange rates. The Adviser tries to select
securities that offer the best potential returns consistent with its general
portfolio strategy.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate.
INVESTMENT RATINGS for high quality securities
The Adviser will determine the credit rating of a security based upon the credit
ratings given by one or more nationally recognized rating services. Rating
services assign ratings to securities based on their assessment of the
likelihood of the issuer's ability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to a rated security.
For example, the eligible ratings assigned by Standard & Poor's to high quality
securities are AAA, AA, and A.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
EURO RISKS
The Fund makes significant investments in securities denominated in Euro, the
new single currency of the European Monetary union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Foreign countries may have restrictions on foreign ownership of securities
or may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than United
States companies by market analysts and the financial press. In addition,
foreign countries may lack financial controls and reporting standards, or
regulatory requirements comparable to those applicable to U.S. companies.
These factors may prevent the Fund and its Adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
o Some companies are less well developed, overly reliant on particular
industries, and more vulnerable to the cyclical nature of international
trade. Some countries have histories of hyperinfluction and currency
devaluations versus the dollar (which adversely affects returns to U.S.
investors) and may be overly dependent on foreign capital.
BOND MARKET RISKS
o Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations.
CREDIT RISKS
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment.
o After purchase by the Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require a sale of such security by the Fund. The adviser will
consider such an event in its determination of whether the Fund should
continue to hold the security.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.
o The Fund is non-diversified. Compared to diversified mutual funds, it may
invest a higher percentage of its assets among fewer issuers of portfolio
securities. This increases the Fund's risk by magnifying the impact
(positively or negatively) that any one issuer has on the Fund's share
price and performance.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV) plus any applicable
front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The Fund's current NAV and public offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Maximum Sales Charge
Shares Offered Minimum Front-EndSalesCharge2 Contingent Deferred
Initial/Subsequent Sales Charge3
Investment Amounts1
</TABLE>
Class A $1500/$100 4.50% 0.00% Class B $1500/$100 None 5.50% Class C $1500/$100
None 1.00% 1 The minimum initial and subsequent investment amounts for
retirement plans are $250 and $100, respectively. The minimum subsequent
investment amounts for Systematic Investment Programs is $50. Investment
professionals may impose higher or lower minimum investment requirements on
their customers than those imposed by the Fund. Orders for $250,000 or more will
be invested in Class A Shares instead of Class B Shares to maximize your return
and minimize the sales charges and marketing fees. Accounts held in the name of
an investment professional may be treated differently. Class B Shares will
automatically convert into Class A Shares after eight full years from the
purchase date. This conversion is a non-taxable event. 2 Front-End Sales Charge
is expressed as a percentage of public offering price. See "Sales Charge When
You Purchase." 3 See "Sales Charge When You Redeem." SALES CHARGE WHEN YOU
PURCHASE Class A Shares
<TABLE>
<CAPTION>
<S> <C> <C>
Purchase Amount Sales Charge as a Percentage of Sales Charge as a Percentage of
Public Offering Price NAV
Less than $100,000 4.50% 4.71%
$100,000 but less than$250,000 3.75% 3.90%
$250,000 but less than$500,000 2.50% 2.56%
$500,000 but less than$1million 2.00% 2.04%
$1 million or greater1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance payment
on the transaction. The sales charge at purchase may be reduced or eliminated
by:
g purchasing Shares in greater quantities to reduce the applicable sales charge;
g combining concurrent purchases of Shares: g by you, your spouse, and your
children under age 21; or g of the same share class of two or more Federated
Funds (other than money market funds); g accumulating purchases (in calculating
the sales charge on an additional purchase, include the current
value of previous Share purchases still invested in the Fund); or
g signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
g within 120 days of redeeming Shares of an equal or lesser amount;
g by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
g through wrap accounts or other investment programs where you pay the
investment professional directly for services;
g through investment professionals that receive no portion of the sales charge;
or g as a Federated Life Member (Class A Shares only) and their immediate family
members; or g as a Director [Trustee] or employee of the Fund, the Adviser, the
Distributor and their affiliates, and
the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase.
If the Distributor is not notified, you will receive the reduced sales charge
only on additional purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
Class A Shares
A CDSC of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after
purchase under certain investment programs where an
investment professional received an advance payment
on the transaction.
Class B Shares
Shares Held Up To: CDSC
1 year 5.50%
2 years 4.75%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within
one year of the purchase date.
You will not be charged a CDSC when redeeming Shares:
g purchased with reinvested dividends or capital gains;
g purchased within 120 days of redeeming Shares of an equal or lesser
amount;
g that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
g purchased through investment professionals that did not receive advanced sales
payments; or g if after you purchase Shares you become disabled as defined by
the IRS.
In addition, you will not be charged a CDSC:
g if the Fund redeems your Shares and closes your account for g not meeting the
minimum balance requirement; g if your redemption is a required retirement plan
distribution; g upon the death of the last surviving shareholder g of the
account. If your redemption qualifies, you or your investment professional
should notify the Distributor at the time of redemption to eliminate the CDSC.
If the Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
g Shares that are not subject to a CDSC;
g Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund); and
g then, the CDSC is calculated using the share price at the time of purchase or
redemption, whichever is lower.
HOW IS THE FUND SOLD?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
investors who wish to spread their investment, beyond the United States and are
prepared to accept the particular risks associated with these investments,
directly or through investment professionals. When the Distributor receives
sales charges and marketing fees, it may pay some or all of them to investment
professionals. The Distributor and its affiliates may pay out of their assets
other amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares, and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the Class
choice on your New Account Form or form of payment (e.g., Federal Reserve wire
or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment. Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account Form;
and
Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
g through an investment professional if you purchased Shares through an
investment professional; or g directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
g Fund Name and Share Class, account number and account registration;
g amount to be redeemed or exchanged;
g signatures of all Shareholders exactly as registered; and
g if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
g your redemption will be sent to an address other than the address of record;
g your redemption will be sent to an address of record that was changed within
the last thirty days; g a redemption is payable to someone other than the
shareholder(s) of record; or g if exchanging (transferring) into another fund
with a different shareholder registration. A signature guarantee is designed to
protect your account from fraud. Obtain a signature guarantee from a bank or
trust company, savings association, credit union or broker, dealer, or
securities exchange member. A notary public cannot provide a signature
guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established
g when the account was opened:
g an electronic transfer to your account at a financial institution that is an
ACH member; or g wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
g to allow your purchase to clear;
g during periods of market volatility; or
g when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets. You will not accrue interest or dividends on
uncashed checks from the Fund if those checks are undeliverable and returned to
the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
g ensure that the account registrations are identical; g meet any minimum
initial investment requirements; and g receive a prospectus for the fund into
which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES You will not be charged a
CDSC on SWP redemptions if:
g you redeem 12% or less of your account value in a single year;
g your account is at least one year old;
g you reinvest all dividends and capital gains distributions; and
g your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem only at
a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.
WHO MANAGES THE FUND?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. The Adviser manages the
Fund's assets, including buying and selling portfolio securities. The Adviser's
address is 175 Water Street, New York, NY 10038-4965.
The Fund's portfolio managers and investment analyst are:
Robert M. Kowit
Robert M. Kowit has been the Fund's Portfolio Manager since December 1995. Mr.
Kowit joined Federated in 1995 as a Senior Portfolio Manager and a Vice
President of the Fund's Adviser. Mr. Kowit served as a Managing Partner of
Copernicus Global Asset Management from January 1995 through October 1995. From
1990 to 1994, he served as Senior Vice President/Portfolio Manager of
International Fixed Income and Foreign Exchange for John Hancock Advisers. Mr.
Kowit received his M.B.A. from Iona College with a concentration in finance.
Micheal W. Casey, Ph.D.
Micheal W. Casey, Ph.D. has been the Fund's Portfolio Manager since January
1997. Mr. Casey joined Federated in 1996 as a Senior Investment Analyst and an
Assistant Vice President. Mr. Casey currently serves as a Senior Portfolio
Manager and has been a Vice President of the Adviser since 1998. Mr. Casey
served as an International Economist and Portfolio Strategist for Maria Fiorini
Ramirez Inc. from 1990 to 1996. Mr. Casey earned a Ph.D. concentrating in
economics from The New School for Social Research and a M.Sc. from the London
School of Economics.
Henry A. Frantzen
Henry A. Frantzen has been the Fund's Portfolio Manager since December 1995. Mr.
Frantzen joined Federated in 1995 as an Executive Vice President of the Fund's
Adviser and has overseen the operations of the Adviser since its formation. Mr.
Frantzen served as Chief Investment Officer of international equities at Brown
Brothers Harriman & Co. from 1992-1995. Mr. Frantzen earned his bachelors degree
in Business Administration from the University of North Dakota.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report dated
November 30, 1999.
<PAGE>
FEDERATED INTERNATIONAL INCOME FUND
A Portfolio of Federated International Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 2000
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Investment Company Act File No. 811-3984
Cusip 31420G408
Cusip 31420G507
Cusip 31420G606
G00494-02-ABC (3/00)
FEDERATED INTERNATIONAL INCOME FUND
A Portfolio of Federated International Series, Inc.
Class A Shares
Class B Shares
Class C Shares
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Class A Shares, Class B Shares, and
Class C Shares of Federated International Income Fund (Fund), dated January 31,
1999. This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-800-341-7400.
march 31, 2000
1051602B (3/00)
Contents
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a non-diversified portfolio of Federated International Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on February 11,
1991. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Corporation changed its name from FT
Series, Inc., to International Series, Inc. on March 15, 1994 and from
International Series, Inc. to Federated International Series, Inc. on March 31,
2000.
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares, and Class C Shares (Shares).
This SAI relates to all classes of the above-mentioned Shares.
The investment objective, the principal investment policies and the main risks
of the Fund are described in the Prospectus. This SAI contains supplemental
information about those policies and risks and the types of securities that the
Fund's adviser can select for the Fund.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
additional securities, in addition to those described in the Prospectus, for any
purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
Yields on short, intermediate, and long-term securities are dependent on a
variety of factors, including the general conditions of the money, bond and
foreign exchange markets, the size of a particular offering, the maturing of the
obligation, and the rating of the issue. Debt securities with longer maturities
tend to produce higher yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with shorter maturities
and lower yields.
The following describes additional types of fixed income securities in which the
Fund invests.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely amount
issuers. The credit risk of an issuer's debt security may also vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.
<PAGE>
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are know as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.
Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities may also resemble
some types of CMOs, such as Floaters, Inverse Floaters, IOs and POs.
Historically, borrowers are more likely to refinance their mortgage than any
other type of consumer or commercial debt. In addition, some asset backed
securities use prepayments to buy additional assets, rather than paying off the
securities. Therefore, while asset backed securities may have some prepayment
risks, they generally do not present the same degree of risk as mortgage backed
securities.
Zero Coupon Securities
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security. An
investor must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.
Bank Instruments
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
Options
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
Buy call options on foreign currencies, foreign currency futures, portfolio
securities and securities indices in anticipation of an increase in the value of
the underlying asset.
Buy put options on foreign currencies, foreign currency futures, portfolio
securities and securities indices in anticipation of a decrease in the value of
the underlying asset.
When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
<PAGE>
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the risks
of investing in securities, options, futures and currencies, and depend upon the
terms of the instrument. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional fixed income
or convertible securities. Hybrid instruments are also potentially more volatile
and carry greater market risks than traditional instruments. Moreover, depending
on the structure of the particular hybrid, it may expose the Fund to leverage
risks or carry liquidity risks.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
When Issued Transactions
When issued transactions are arrangements in which the Fund buys securities for
a set price, with payment and delivery of the securities scheduled for a future
time. During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value in
determining the price of its shares. Settlement dates may be a month or more
after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, when issued
transactions create market risks for the Fund. When issued transactions also
involve credit risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Hedging Transactions
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Inter-Fund Borrowing and Lending Arrangements
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
or both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase
agreements(the "Repo Rate") AND more attractive to the borrowing fund than the
rate of interest that would be charged by an unaffiliated bank for short-term
borrowings(the "Bank Loan Rate"), as determined by the Board. The interest rate
imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan
Rate."
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INVESTMENT RISKS
The following risks of investing in the Fund are in addition to those primary
risks disclosed in the Prospectus.
Call Risks
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Liquidity Risks
o Trading opportunities are more limited for fixed income securities that
have not received any credit ratings, have received ratings below
investment grade or are not widely held. These features may make it more
difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security,
sell other securities to raise cash or give up an investment opportunity,
any of which could have a negative effect on the Fund's performance.
Infrequent trading may also lead to greater price volatility.
o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
<PAGE>
INVESTMENT LIMITATIONS
Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
Underwriting
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
Lending Cash or Securities
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
Concentration of Investments
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act of 1940. The following limitations, however, may be changed by the
Board without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Concentration of Investments
As a matter of non-fundamental operating policy, for purposes of the commodities
policy, investments in transactions involving futures contracts and options,
forward currency contracts, swap transactions and other financial contracts that
settle by payment of cash are not deemed to be investments in commodities.
(a) utility companies will be divided according to their services (for example,
gas, gas transmission, electric and telephone will be considered a separate
industry); (b) financial service companies will be classified according to the
end users of their services (for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry); and (c)
asset-backed securities will be classified according to the underlying assets
securing such securities. To conform to the current view of the SEC staff that
only domestic bank instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the Fund will not exclude
foreign bank instruments from industry concentration limitation tests so long as
the policy of the SEC remains in effect. In addition, investments in bank
instruments, and investments in certain industrial development bonds funded by
activities in a single industry, will be deemed to constitute investment in an
industry, except when held for temporary defensive purposes. The investment of
more than 25% of the value of the Fund's total assets in any one industry will
constitute "concentration."
Buying on Margin
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investing in Restricted and Illiquid Securities
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including securities of affiliated investment companies, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
Diversification of Investments
With respect to 75% of the value of its total assets, the Fund will not purchase
securities of any one issuer (other than securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities) if as a
result more than 5% of the value of its total assets would be invested in the
securities of that issuer.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its total assets during the last fiscal year and has no present intent to do
so in the coming fiscal year.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objectives, without regard to the length of time a particular security may have
been held. The Adviser does not anticipate that portfolio turnover will result
in adverse tax consequences. For the fiscal years ended November 30, 1998 and
1997, the portfolio turnover rates were 37% and 67%, respectively.
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing
bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at
the time of purchase may be valued at amortized cost or at fair market
value as determined in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board. Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
Quantity Discounts
Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse, and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same Share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent (Class A Shares)
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13 month period in order to combine such purchases
in calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
Reinvestment Privilege
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV, without any sales charge.
Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
o the Directors, employees, and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc.
(Federated) on December 31, 1997;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and o trusts, pension or profit-sharing plans for
these individuals.
Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
o through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family
of Funds are no longer marketed); or
o as Liberty Account shareholders by investing through an affinity group
prior to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements;
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o of Shares held by the Directors, employees, and sales representatives of
the Fund, the Adviser, the Distributor and their affiliates; employees of
any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the
above persons; and
o of Shares originally purchased through a bank trust department, a
registered investment adviser or retirement plans where the third party
administrator has entered into certain arrangements with the Distributor or
its affiliates, or any other investment professional, to the extent that no
payments were advanced for purchases made through these entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
n an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject
to a reclaim from the investment professional should the assets leave the
program within 12 months after purchase.)
n an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares. In addition, the Distributor may pay investment professionals 0.25% of
the purchase price of $1 million or more of Class A Shares that its customer has
not redeemed over the first year.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
Advance Payments
as a Percentage
of Public
Amount Offering Price
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
HOW TO BUY SHARES
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of the Corporation
have equal voting rights, except that in matters affecting only a particular
Fund or class, only Shares of that Fund or class are entitled to vote.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of _____, 2000, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Shares: [To be filed by amendment.]
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of two funds and the Federated Fund Complex is
comprised of 56 investment companies, whose investment advisers are affiliated
with the Fund's Adviser. As of ______, 2000, the Fund's Board and Officers as a
group owned less than 1% of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Aggregate Total
Birthdate Compensation Compensation
Address Principal Occupations From From Corporation
Position With Corporation for Past 5 Years Corporation and Fund Complex
John F. Donahue* Chief Executive Officer and Director or Trustee $0 $0 for the Corporation and
Birthdate: July 28, 1924 of the Federated Fund Complex; Chairman and 54 other investment
Federated Investors Tower Director, Federated Investors, Inc.; Chairman companies in the Fund
1001 Liberty Avenue and Trustee, Federated Advisers, Federated Complex
Pittsburgh, PA Management, and Federated Research; Chairman
CHAIRMAN and DIRECTOR and Director, Federated Research Corp., and
Federated Global Research Corp.; Chairman,
Passport Research, Ltd.
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- --------------------------------------------------------------------------------------------------------------------------------
Thomas G. Bigley Director or Trustee of theFederated Fund $ $ for the Corporation
Birthdate: February 3, 1934 Complex; Director, Member of Executive and 54 other investment
15 Old Timber Trail Committee, Children's Hospital of Pittsburgh; companies in the Fund
Pittsburgh, PA formerly: Senior Partner, Ernst & Young LLP; Complex
DIRECTOR Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University
ofPittsburgh.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Director or Trustee of the Federated Fund $ $ for the Corporation
Birthdate: June 23, 1937 Complex; President, Investment Properties and 54 other investment
Wood/IPC Commercial Dept. Corporation; Senior Vice President, JohnR.Wood companies in the Fund
John R. Wood Associates, Inc. and Associates, Inc., Realtors; Partner or Complex
Realtors Trustee in private real estate ventures in
3255 Tamiami Trail North Southwest Florida; formerly: President, Naples
Naples, FL Property Management, Inc. and Northgate Village
DIRECTOR Development Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
Director or Trustee of the Federated Fund
Nicholas P. Constantakis Complex; Director, Michael Baker Corporation $ $ for the
Birth Date: September 3, 1939 (engineering, construction, operations and Corporation and
175 Woodshire Drive technical services); formerly: Partner, 37 other investment companies
Pittsburgh, PA Andersen Worldwide SC. in the Fund Complex
DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Director or Trustee of some of the Federated
John F. Cunningham Fund Complex; Chairman, President and Chief $ $ for the
Birth Date: March 5, 1943 Executive Officer, Cunningham & Co., Inc. Corporation and
353 El Brillo Way (strategic business consulting); Trustee 37 other investment companies
Palm Beach, FL Associate, Boston College; Director, Iperia in the Fund Complex
DIRECTOR Corp. (communications/software); formerly:
Director, Redgate Communications and EMC
Corporation (computer storage systems).
Previous Positions: Chairman of the Board and
Chief Executive Officer, Computer Consoles,
Inc.; President and Chief Operating Officer,
Wang Laboratories; Director, First National
Bank of Boston; Director, Apollo Computer, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue President or Executive Vice President of the $0 $0 for the Corporation and
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of 16 other investment
Federated Investors Tower some of the Funds in the Federated Fund companies in the Fund
1001 Liberty Avenue Complex; President and Director, Federated Complex
Pittsburgh, PA Investors, Inc.; President and Trustee,
EXECUTIVE VICE PRESIDENT Federated Advisers, Federated Management, and
and DIRECTOR Federated Research; President and Director,
Federated Research Corp. and Federated Global
Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
- --------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Lawrence D. Ellis, M.D.* Birthdate: Director or Trustee of the Federated Fund $ $ for the Corporation
October 11, 1932 3471 Fifth Avenue Complex; Professor of Medicine, University of and 54 other investment
Suite 1111 Pittsburgh, PA Pittsburgh; Medical Director, University of companies in the Fund
DIRECTOR Pittsburgh Medical CenterDowntown; Complex
Hematologist, Oncologist, and Internist,
University of Pittsburgh Medical Center;
Member, National Board of Trustees,
Leukemia Society of America.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Director or Trustee of the Federated Fund $ $ for the Corporation
Birthdate: March 16, 1942 Complex; formerly: Representative, Commonwealth and 54 other investment
One Royal Palm Way 100 of Massachusetts General Court; President, companies in the Fund
Royal Palm Way State Street Bank and Trust Company and State Complex
Palm Beach, FL Street Corporation. Retired: Director, VISA USA
DIRECTOR and VISA International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated $0 $0 for the Corporation and
Birthdate: April 10, 1945 Funds; ManagementConsultant. 25 other investment
80 South Road Previous Positions: Chief Executive Officer, companies in the Fund
Westhampton Beach, NY PBTC International Bank; Chief Financial Complex
DIRECTOR Officer of Retail Banking Sector, Chase
Manhattan Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra
University.
- --------------------------------------------------------------------------------------------------------------------------------
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of theFederated Fund $ $ for the Corporation
Birthdate: December 20, 1932 Complex; President, LawProfessor, Duquesne and 54 other investment
President, Duquesne University University; Consulting Partner, Mollica & companies in the Fund
Pittsburgh, PA Murray. Previous Positions: Dean and Professor Complex
DIRECTOR of Law, University of Pittsburgh School of Law;
Dean and Professor of Law, Villanova University
School of Law.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Director or Trustee of the Federated Fund $ $ for the Corporation
Birthdate: June 21, 1935 Complex; Public Relations/Marketing/Conference and 54 other investment
4905 Bayard Street Planning. Previous Positions: National companies in the Fund
Pittsburgh, PA Spokesperson, Aluminum Company of America; Complex
DIRECTOR business owner.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
John S. Walsh Director or Trustee of some of the Federated $0 $0 for the Corporation and
Birthdate: November 28, 1957 Funds; President and Director, Heat Wagon, 22 other investment
2007 Sherwood Drive Inc.; President and Director, Manufacturers companies in the Fund
Valparaiso, IN Products, Inc.; President, Portable Heater Complex
DIRECTOR Parts, a division of Manufacturers
Products, Inc.; Director, Walsh & Kelly,
Inc.; formerly, Vice President, Walsh &
Kelly, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Glen R. Johnson Trustee, Federated Investors, Inc.; staff $0 $0 for the Corporation and
Birthdate: May 2, 1929 member, Federated Securities Corp. 8 other investment
Federated Investors Tower companies in the Fund
1001 Liberty Avenue Complex
Pittsburgh, PA
PRESIDENT
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Trustee or Director of some of the Funds in the $0 $0 for the Corporation
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive and 1 other investment
Federated Investors Tower Vice President and Treasurer of some of the company in the Fund
1001 Liberty Avenue Funds in the Federated Fund Complex; Vice Complex
Pittsburgh, PA Chairman, Federated Investors, Inc.; Vice
EXECUTIVE VICE PRESIDENT President, Federated Advisers, Federated
Management, Federated Research, Federated
Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice
President and Director, Federated Securities
Corp.; Trustee, Federated Shareholder Services
Company.
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Birthdate: October Executive Vice President and Secretary of the $0 $0 for the Corporation
26, 1938 Federated Fund Complex; Executive Vice and 54 other
Federated Investors Tower President, Secretary, and Director, Federated investment companies
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Advisers, in the Fund Complex
Pittsburgh, PA Federated Management, and Federated Research;
EXECUTIVE VICE PRESIDENT Director, Federated Research Corp. and
and SECRETARY Federated Global Research Corp.; Director,
Federated Services Company; Director, Federated
Securities Corp.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Richard J. Thomas Birthdate: June 17, Treasurer of the Federated Fund Complex; Vice $0 $0 for the Corporation
1954 PresidentFunds Financial Services Division, and 54 other
Federated Investors Tower Federated Investors, Inc.; Formerly: various investment companies
1001 Liberty Avenue management positions within Funds Financial in the Fund Complex
Pittsburgh, PA Services Division of Federated Investors, Inc.
TREASURER
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher President or Vice President of some of the $0 $0 for the Corporation
Birthdate: May 17, 1923 Funds in the Federated Fund Complex; Director and 6 other investment
Federated Investors Tower or Trustee of some of the Funds in the companies in the Fund
1001 Liberty Avenue Federated Fund Complex; Executive Vice Complex
Pittsburgh, PA President, Federated Investors, Inc.; Chairman
VICE PRESIDENT and Director, Federated Securities Corp.
- --------------------------------------------------------------------------------------------------------------------------------
Henry A. Frantzen Chief Investment Officer of this Fund and $0 $0 for the Corporation
Birthdate: November 28, 1942 various other Funds in the Federated Fund and 3 other investment
Federated Investors Tower Complex; Executive Vice President, Federated companies in the Fund
1001 Liberty Avenue Investment Counseling, Federated Global Complex
Pittsburgh, PA Research Corp., Federated Advisers, Federated
CHIEF INVESTMENT OFFICER Management, Federated Research, and Passport
Research, Ltd.; Registered Representative,
Federated Securities Corp.; Vice
President, Federated Investors, Inc.;
Formerly: Executive Vice President,
Federated Investment Counseling
Institutional Portfolio Management
Services Division; Chief Investment
Officer/Manager, International Equities,
Brown Brothers Harriman & Co.; Managing
Director, BBH Investment Management
Limited.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
INVESTMENT adviser
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
<PAGE>
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT Auditors
Ernst & Young LLP is the independent auditor for the Fund.
<PAGE>
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended November 30 1999 1998 1997
Advisory Fee Earned $1,306,572 $1,615,465
Advisory Fee Reduction 37,551 0
Brokerage Commissions 0 0
Administrative Fee 185,000 185,000
12b-1 Fee
Class A Shares 154,516
Class B Shares 93,308
Class C Shares 54,395
Shareholder Services Fee
Class A Shares 278,129
Class B Shares 31,103
Class C Shares 18,132
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
Average Annual Total Returns and Yields
Total returns given for the one-, five-year and since inception periods ended
November 30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Yields given for the 30-day period ended November 30, 1998.
Since
30-Day Inception on
Share Class Period 1 Year 5 Years June 4, 1991
Class A
Total Return
Yield
Since
Inception on
30-Day September 28,
Share Class Period 1 Year 5 Years 1994
Class B
Total Return
Yield
Since
30-Day Inception on
Share Class Period 1 Year 5 Years April 1, 1993
Class C
Total Return
Yield
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o ........references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute. The Fund may compare its performance, or performance for the
types of securities in which it invests, to a variety of other investments,
including federally insured bank products such as bank savings accounts,
certificates of deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
<PAGE>
Lipper Analytical Services, Inc.
Lipper Analytical Services, Inc., for example, makes comparative calculations
for one-month, three-month, one-year, and five-year periods which assume the
reinvestment of all capital gains distributions and income dividends.
Salomon Brothers High Grade Bond Index; Salomon Brothers World Government Bond
Index; and J.P. Morgan Government Bond Index.
Morningstar, Inc.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Lehman Brothers Government/Corporate Bond Index
Lehman Brothers Government/Corporate Bond Index is comprised of approximately
5,000 issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate, nonconvertible
domestic bonds of companies in industry, public utilities, and finance. The
average maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one-month, three-month,
twelve-month, and ten-year periods and year-to-date.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
federated funds overview
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.21 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 156 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
Government Funds
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2billion in government funds within
these maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield--J. Thomas
Madden; U.S. fixed income--William D. Dawson, III; and global equities and fixed
income--Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
federated clients overview
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/ liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November 30,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Income Fund dated November 30, 1999.
<PAGE>
INVESTMENT RATINGS
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured sources
of alternate liquidity.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
<PAGE>
ADDRESSES
federated international income fund
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
PART C. OTHER INFORMATION
Item 23. Exhibits:
(a) Conformed copy of the Articles of Incorporation of the Registrant; (10)
(b) (i) Copy of the By-Laws of the Registrant; (10)
(ii) Copy of Amendment No. 1 to the By-Laws;(21)
(iii) Copy of Amendment No. 2 to the By-Laws (effective February 23,
1998); (21)
(iv) Copy of Amendment No. 3 to the By-Laws (effective
February 27, 1998); (21)
(v) Copy of Amendment No. 4 to the By-Laws
(effective May 12, 1998); (21)
(c) Copy of Specimen Certificate for Shares of Common Stock for Class A
Shares, Class B Shares, and Class C Shares of International Equity Fund
and International Income Fund; (14)
(d) (i) Conformed copy of Investment Advisory Contract of the
Registrant dated March 15, 1994; (15)
(ii) Conformed copy of Assignment of Investment Advisory
Contract; (16)
(e) (i) Conformed copy of Distributor's Contract of the Registrant
dated February 11, 1991, through and
including Exhibit E; (14) (ii) Conformed
copy of Exhibit F to the Distributor's
Contract of the
Registrant adding Class B Shares to the current existing
Distributor's Contract; (16)
(iii) The Registrant hereby incorporates
the conformed copy of the specimen
Mutual Funds and Service Agreement;
Mutual Funds Service Agreement; and
Plan Trustee/Mutual Funds Service
Agreement from Item 24(b) (6) of
the Cash Trust Series II
Registration Statement on Form N-1A
filed with the Commission on July
24, 1995. (File Nos. 2-91776 and
811-3984);
+ All Exhibits have been filed electronically.
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed February 13, 1991 (File Nos. 2-91776
and 811-3984).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed July 29, 1994 (File Nos. 2-91776 and
811-3984).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed February 9, 1995 (File Nos. 2-91776 and
811-3984).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 27 on Form N-1A filed January 31, 1996 (File Nos. 2-91776 and
811-3984).
21. Response is incorporated by reference to Registrant's Post-.....Effective
Amendment No. 33 on Form N-1A filed November 30, 1998 (File Nos. 2-91776
and 811-3984).
<PAGE>
(iv) Conformed Copy of New Distributor's Contract
on behalf of Class B Shares of the
Registrant; (20)
(f) Not applicable;
(g) (i) Conformed copy of the Custodian
Contract of the Registrant (14); (ii)
Conformed Copy of Fee Schedule for
Custodian Contract; (19)
(h) (i) Conformed Copy of Amended and
Restated Agreement for Fund
Accounting Services, Administrative
Services, Transfer Agency Services,
and Custody Services
Procurement; (21)
(ii) The responses described in
Item 24(b)(6) are hereby
incorporated by reference;
(iii) The Registrant hereby incorporates
the conformed copy of the
Shareholder Services Sub-Contract
between National Pensions Alliance,
Ltd. and Federated Shareholder
Services from Item 24(b)(9)(ii) of
the Federated GNMA Trust
Registration Statement on Form
N-1A, filed with the Commission on
March 25, 1996. (File Nos.
2-75670 and 811-3375);
(iv) The Registrant hereby incorporates
the conformed copy of the
Shareholder Services Sub-Contract
between Fidelity and Federated
Shareholder Services from Item
24(b)(9) (iii) of the Federated
GNMA Trust Registration Statement
on Form N-1A, filed with the
Commission on March 25, 1996. (File
Nos. 2-75670 and 811-3375);
(v) Conformed Copy of Amended and
Restated Shareholder Services
Agreement; (19)
(vi) Conformed Copy of Principal
Shareholder Servicer's Agreement on
behalf of Class B Shares of the
Registrant; (20)
(vii)Conformed Copy of Shareholder Services Agreement on
behalf of Class B Shares of the Registrant; (20)
(i) Conformed copy of the Opinion and
Consent of Counsel as to legality of shares
being registered; (17)
___
+ All Exhibits have been filed electronically.
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed July 29, 1994 (File Nos. 2-91776 and
811-3984).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 28 on Form N-1A filed April 25, 1996 (File Nos. 2-91776 and
811-3984).
19. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 31 on Form N-1A filed November 24, 1997 (File Nos. 2-91776
and 811-3984).
20. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 32 on Form N-1A filed January 28, 1998 (File Nos. 2-91776 and
811-3984).
21. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 33 on Form N-1A filed November 30, 1998 (File Nos. 2-91776
and 811-3984).
<PAGE>
(j) Conformed copy of Consent of Independent Public
Accountants; (22) (k) Not applicable; (l) Copy of
Initial Capital Understanding; (2) (m) (i) Conformed
copy of Rule 12b-1 Plan of the Registrant, through
and
including Exhibit B; (14)
(ii) Conformed copy of Exhibit C to Rule
12b-1 Plan of the Registrant adding
Class B Shares to the current
existing Rule 12b-1 Plan; (16)
(iii) Copy of 12b-1 Agreement, through and
including Exhibit C; (14) (iv) The
responses described in Item 24(b) (6) are
hereby incorporated by
reference;
(v) Conformed Copy of Amendment No. 1 and Schedule A to the
12b-1 Plan on behalf of Class B Shares of the
Registrant; (20)
(n) Copies of Financial Data Schedules; (not
included per footnote 60 of Release No. 33-7684)
(o) The Registrant hereby incorporates the conformed
copy of the specimen Multiple Class Plan from Item
24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the
Commission on January 26, 1996. (File Nos. 33-52149 and
811-07141);
(p) (i) Conformed copy of Power of Attorney; (18)
(ii) Conformed copy of Limited Power of Attorney; (20)
Item 24. Persons Controlled By or Under Common Control with the Funds:
None
Item 25. Indemnification: (13)
+ All Exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1 filed August 17, 1984 (File Nos. 2-91776 and
811-3984).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed July 29, 1994 (File Nos. 2-91776 and
811-3984).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 27 on Form N-1A filed January 31, 1996 (File Nos. 2-91776 and
811-3984).
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed January 27, 1997 (File Nos. 2-91776 and
811-3984).
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed January 28, 1998 (File Nos. 2-91776 and
811-3984).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed January 29, 1999
<PAGE>
Item 26. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment adviser,
see the section entitled "Who Manages the Fund?" in Part A. The
affiliations with the Registrant of four of the Trustees and one
of the Officers of the investment adviser are included in Part B
of this Registration Statement under "Who Manages and Provides
Services to the Fund?" The remaining Trustee of the investment
adviser, his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson (Partner,
Wilson, Halbrook & Bayard), 107 W. Market Street, Georgetown,
Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
David A. Briggs
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Jeffrey A. Kozemchak
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
G. Andrew Bonnewell
Micheal W. Casey
Robert E. Cauley
Alexandre de Bethmann
B. Anthony Delserone, Jr.
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
James E. Grefenstette
Marc Halperin
Patricia L. Heagy
Susan R. Hill
William R. Jamison
Constantine J. Kartsonas
Robert M. Kowit
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
William M. Painter
Jeffrey A. Petro
Keith J. Sabol
Frank Semack
Aash M. Shah
Michael W. Sirianni, Jr.
Christopher Smith
Edward J. Tiedge
Leonardo A. Vila
Paige M. Wilhelm
George B. Wright
<PAGE>
Assistant Vice Presidents: Arminda Aviles
Nancy J. Belz
Lee R. Cunningham, II
James H. Davis, II
Jacqueline A. Drastal
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
Gary E. Farwell
Eamonn G. Folan
John T. Gentry
John W. Harris
Nathan H. Kehm
John C. Kerber
Grant K. McKay
Christopher Matyszewski
Natalie F. Metz
Thomas Mitchell
Joseph M. Natoli
Trent Neville
Ihab Salib
Roberto Sanchez-Dahl, Sr.
James W. Schaub
John Sheehy
John Sidawi
Matthew K. Stapen
Diane Tolby
Timothy G. Trebilcock
Steven J. Wagner
Lori A. Wolff
Secretary: G. Andrew Bonnewell
Treasurer: Thomas R. Donahue
Assistant Secretaries: C. Grant Anderson
Karen M. Brownlee
Leslie K. Ross
Assistant Treasurer: Dennis McAuley, III
The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of a majority of the investment advisers to the
investment companies in the Federated Fund Complex described in
Part B of this Registration Statement.
Item 27. Principal Underwriters:
(a)......Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
.............open-end investment companies, including the Registrant:
Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated High
Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated
U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; Fixed Income
Securities, Inc.; Hibernia Funds; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Managed Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds;
SouthTrust Funds; Tax-Free Instruments Trust; The Planters Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Vision Group of Funds, Inc.; World
Investment Series, Inc.; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
DG Investor Series; High Yield Cash Trust; Investment Series Trust; Star Funds;
Targeted Duration Trust; The Virtus Funds; and Trust for Financial Institutions.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Chairman, Chief Executive [Insert Title(s)]
Federated Investors Tower Officer, Chief Operating
1001 Liberty Avenue Officer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Arthur L. Cherry Director, [Insert Title(s)]
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales [Insert Title(s)]
Federated Investors Tower and Director,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary [Insert Title(s)]
Federated Investors Tower and Treasurer,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer and --
Federated Investors Tower Director,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Senior Vice President,
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew W. Brown Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert J. Deuberry Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark A. Gessner Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President,
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Amy Michalisyn Vice President,
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peter III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Larry Sebbens Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Edward J. Segura Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Donald C. Edwards Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kirk A. Montgomery Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy S. Johnson Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Victor R. Siclari Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley III Assistant Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
<PAGE>
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent for Service at the above address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend 1001 Liberty Avenue
Disbursing Agent") Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Global Investment Management
Corp. 175 Water Street
("Adviser") New York, New York
10038-4965
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, INTERNATIONAL SERIES, INC., has
duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on this 31st day of January, 2000.
INTERNATIONAL SERIES, INC.
BY: /s/ James O. Perry
James O. Perry, Assistant Secretary
Attorney in Fact for John F. Donahue
January 31, 2000
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/ James O. Perry Attorney in Fact January 31, 2000
James O. Perry for the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Glen R. Johnson* President
Richard J. Thomas* Treasurer
(Principal Financial and
Accounting Officer)
Henry A. Frantzen* Chief Investment Officer
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
Nicholas P. Constantakis* Director
John F. Cunningham* Director
J. Christopher Donahue* Director
Lawrence D. Ellis, M.D.* Director
Peter E. Madden* Director
Charles F. Mansfield, Jr.* Director
John E. Murray, Jr.* Director
Marjorie P. Smuts* Director
John S. Walsh* Director
* By Power of Attorney
</TABLE>
