[Graphic]
Federated Investors
Federated Asia Pacific Growth Fund
2ND SEMI-ANNUAL REPORT
MAY 31, 1998
ESTABLISHED 1996
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
Federated Asia Pacific Growth Fund was created in 1996, and I am pleased to
present its second Semi-Annual Report. This fund was one of five international
equity funds created in 1996. In 1997 and 1998, this region of the world
suffered economically and politically. The Gross National Products of this
region have fallen, and government structures in place for decades have changed
dramatically. The outlook for the region is that the turmoil is not over yet.
This report will give you an insight into the various markets in which we have
invested, and needless to say, we are long-term investors.
This report covers the first half of the fund's fiscal year, which is the
six-month period from December 1, 1997 through May 31, 1998. It begins with a
discussion with the fund's portfolio manager, Alexandre de Bethmann, Vice
President of Federated Global Research Corp. Following his discussion, which
covers international economic and market conditions and fund strategy, are two
additional items of shareholder interest. First is a complete listing of the
fund's investments, and second is the publication of the fund's financial
statements.
This international stock fund provides investors significant long-term
opportunities from an extremely well-researched portfolio of approximately 70
corporations in 13 Asian and Pacific Rim countries.* The stocks selected, in
many cases, are internationally recognized industry leaders whose median market
capitalization is over $2 billion.
Of course, the economic troubles in the Asia Pacific region have been well
publicized. With international investing in particular, there will inevitably be
periods of volatility. This region is in the midst of a particularly severe
period. The fund's conservative posture was not rewarded by this troubled
marketplace during the first half of the fund's fiscal year. Individual share
class total return performance follows.**
<TABLE>
<CAPTION>
TOTAL NET ASSET
RETURN VALUE CHANGE
<S> <C> <C>
Class A Shares (22.02%) $7.81 to $6.09 = (22%)
Class B Shares (22.25%) $7.73 to $6.01 = (22%)
Class C Shares (22.22%) $7.74 to $6.02 = (22%)
</TABLE>
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
** Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on offering
price for Class A, B, and C Shares were (26.39%), (26.65%), and (23.13%),
respectively.
While it is difficult for any investor to experience such negative returns,
numerous initiatives are underway to stabilize the financially troubled region
- -- initiatives that may lead investors to the light at the end of the tunnel. In
the current Asia Pacific investment environment, I recommend that you add to
your account on a regular basis to take advantage of price fluctuations and to
use the dollar-cost averaging method of investing. By investing the same amount
on a regular schedule, you buy more fund shares when prices are low -- and fewer
when prices are high.+
Thank you for the patience you have shown as a shareholder of Federated Asia
Pacific Growth Fund. Our international experts are intensely following every
development that may impact this region and are positioning the fund to
participate in the opportunities that will occur when we emerge from this
difficult, volatile period.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1998
+ Dollar-cost averaging does not ensure a profit or protect against loss in
declining markets. Since such a plan of investing involves continuous investing
regardless of fluctuating price levels, investors should consider whether to
continue to invest in periods of low price levels.
INVESTMENT REVIEW
[Graphic]
Alexandre de Bethmann
Vice President
Federated Global
Research Corp.
[Graphic]
OBVIOUSLY, THE FIRST HALF OF THE FUND'S FISCAL YEAR CONTINUED TO BE A
DIFFICULT PERIOD FOR THE ASIA PACIFIC REGION. WHAT IS YOUR APPRAISAL?
The first half of the fund's fiscal year was characterized by dramatic stock
movements that were not all based on fundamentals. Toward the end of 1997,
competitive currency devaluation which, started in the Asian countries, finally
affected North Asia. In December 1997, the Morgan Stanley Capital International
("MSCI") Korea Index* lost 31% in U.S. dollars, and the Asian stock markets
weakened further. Earlier this year, the announcement of the International
Monetary Fund rescue package for Korea reversed the free fall in currencies and
stock markets in Asia. The MSCI Korea Index gained 70% in U.S. dollars in
January 1998, MSCI Thailand Index gained 57% in the first quarter of 1998, and
MSCI Malaysia Index and MSCI Philippines Index gained around 30% in the first
quarter of 1998.* News of economic contraction and corporate bankruptcies
changed investors' perceptions about the problems in Asia. News of riots in
Indonesia, the Yen weakness, and weak Asian Gross Domestic Product numbers
caused another cachet of competitive devaluation. The Asian stock market
declined sharply, and is currently challenging its previous lows.
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IN THIS DIFFICULT ENVIRONMENT, HOW DID FEDERATED ASIA PACIFIC GROWTH FUND
PERFORM FOR THE SIX-MONTH REPORTING PERIOD ENDED MAY 31, 1998?
It was a highly negative period for the fund due to our ultra-conservative
posture. The total returns for the six-month reporting period, were (22.02%),
(22.25%), and (22.22%), based on net asset value, for Class A, B, and C Shares,
respectively.** The fund's returns were more negative than the (10.42%) total
return of the market as measured by the fund's benchmark, the Morgan Stanley
Capital International Combined Asia Pacific Index.*
* The Morgan Stanley Capital International Korea, Thailand, Malaysia and
Philippines Indices are market value-weighted averages of the performance of
securities listed on the stock exchanges of those individual countries. The
Morgan Stanley Capital International Combined Asia Pacific Index is a market
value-weighted average of the performance of securities listed on the stock
exchange of 13 countries in the Pacific and Asian regions. These indices are
unmanaged, and investments cannot be made in an index.
** Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on offering
price for Class A, B, and C Shares were (26.39%), (26.65%), and (23.13%),
respectively.
[Graphic]
HOW DID THE FUND'S CONSERVATIVE POSTURE AFFECT ITS PERFORMANCE DURING THE
SIX-MONTH REPORTING PERIOD ENDED MAY 31, 1998?
The fund was structured to, as much as possible, reduce risk by avoiding the
highest risk areas and focusing on higher quality stocks that were better
positioned to weather difficult times. Unfortunately, during the six-month
reporting period, the market did not reward an ultra-conservative posture.
For example, we stayed out of the Asian and Korean markets in January 1998 when
these countries faced severe sovereign risks. We exercised caution when these
countries faced the threat of political turmoil, social unrest and hyper
inflation. Moreover, we waited for the quarterly earnings reports to assess the
impact of devaluation on the corporate balance sheet and their solvency status.
Our conservative stance hurt the fund's performance in the ensuing technical
rally.
In Japan, temporary technical rebounds occurred for firms with weak
fundamentals, which we avoided. These weak firms outperformed firms with strong
fundamentals and boosted the MSCI Japan Index.+
Also, the market was slow to recognize the value in Hong Kong and China stocks
in which we maintained overweighted positions.
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WHAT IS YOUR CURRENT STRATEGY?
Our theme of investments focuses on exporters that are beneficiaries of currency
devaluation, such as AIWA, a firm that manufactures 70% of its products in Asia
but sells 70% of its products to the U.S., Europe, and Asian contract
manufacturers for the U.S. computer industry. These exporters will see their
costs drop substantially as a result of Asian currency devaluations.
Overall, our strategy will continue to be conservative. Our focus will be on
oversold, large-cap industrial stocks that are better positioned to weather
rough times. The volatile nature of the markets has created opportunities to buy
these blue-chip stocks at bargain prices.
Finally, through rigorous balance sheet analysis, we will continue to identify
and avoid companies in weak financial positions. Current shareholders of these
companies face the threat of dilution because these companies will have to issue
equity to recapitalize their balance sheets.
+ The Morgan Stanley Capital International Japan Index is a market
value-weighted average of the performance of securities listed on the stock
exchange of that country. This index is unmanaged, and investments cannot be
made in an index.
[Graphic]
WHAT COUNTRIES WERE REPRESENTED IN THE FUND'S PORTFOLIO AS OF MAY 31, 1998, AND
WHAT WERE THE FUND'S TOP TEN HOLDINGS?
The portfolio was diversified across the following countries:
<TABLE>
<CAPTION>
PERCENTAGE
OF
COUNTRY NET ASSETS
<S> <C>
Japan (developed) 58.3%
Australia(developed) 9.8%
Hong Kong (developed) 5.4%
Singapore (developed) 4.4%
India (emerging) 3.9%
China (emerging) 3.2%
South Korea (emerging) 2.7%
New Zealand (developed) 1.6%
Indonesia (emerging) 1.5%
Thailand (emerging) 1.1%
Philippines (emerging) 0.6%
Malaysia (emerging) 0.6%
Taiwan (emerging) 0.5%
</TABLE>
The fund's top ten holdings as of May 31, 1998 were:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COUNTRY NET ASSETS INDUSTRY
<S> <C> <C> <C>
Honda Motor Co. Ltd. Japan 3.17% Automobiles
Tokyo Electric Power Co. Japan 2.97% Utilities
Orix Corp. Japan 2.79% Financial Services
Daiichi Japan 2.63% Pharmaceuticals
Pharmaceutical Co.
Olympus Optical Co. Japan 2.28% Consumer Electronics
Kansai Electric Japan 2.07% Utilities
Power
Yamanouchi
Pharmaceutical Japan 2.07% Pharmaceuticals
NTT Japan 2.07% Telecommunication
Kao Corp. Japan 1.95% Cosmetics
Rohm Co. Japan 1.94% Electrical & Electronics
TOTAL PERCENTAGE
OF NET ASSETS 23.94%
</TABLE>
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WHEN DO YOU BELIEVE AN ECONOMIC RECOVERY WILL BEGIN IN ASIA?
I view economic recovery in terms of a sequence of events: closing the troubled
financial institutions, re-capitalizing the banking system, and working out the
overcapacity problem in some industries. Once these steps have been taken, the
Asian economies should be ready to take off again. The Asian countries that have
been hit by the crisis are at various stages of reform and re-capitalization.
[Graphic]
WHAT UPDATES DO YOU HAVE ON INTERNATIONAL MONETARY FUND INVOLVEMENT AND THE
REFORMS AND RESTRUCTURING OF ASIAN PACIFIC FINANCIAL SYSTEMS?
The International Monetary Fund has played an important role in the reform and
restructure of the countries hit by crisis. Under the supervision of the
International Monetary Fund, some countries -- notably Thailand and Korea --have
completed significant reforms. A description of those reforms follows.
THAILAND -- The government permanently closed 56 finance companies, or
two-thirds of the non-banking institutions in operation. The government moved
quickly to protect all depositors by fully insuring deposits of all types.
Measures have been taken to preserve the remaining assets on behalf of
creditors, and auction proceedings are on schedule. To prevent a future crisis,
the government has tightened regulations on banks by setting tighter guidelines
and plans have been made to nationalize four large banks. Recently, two leading
banks raised overseas funds critically needed for re-capitalization.
KOREA -- The speed of reform is remarkable in Korea. Within six months after the
crisis, Korea eliminated its foreign ownership limit on most listed companies,
lifted the limit of daily foreign exchange movement, committed to a full bond
market opening, and lifted limitations on the launch of on-shore funds. To solve
the banking crisis, it suspended or closed insolvent non-bank financial
institutions, re-capitalized two troubled banks, permitted establishment of
brokerage houses and banks, and granted tax incentives for banks to increase
provisions on loans. To restructure the debt-ridden corporations, the government
established corporations specialized in liquidating troubled companies, granted
greater freedom in corporate financing, and committed to fully liberalizing
mergers and acquisitions by the end of June 1998.
[Graphic]
THERE IS AN OLD ADAGE THAT SAYS THE BEST TIME TO BUY IS WHEN THE OUTLOOK IS
MOST BLEAK. IS THIS ASIA'S DARKEST HOUR?
If this is not the darkest hour, we are very close to it. Our strategy is not to
be a momentum investor in the emerging markets. If investments are made when
everything is rosy, you run the risk of investing at the peak of the markets.
Examples include: Hong Kong in 1993, Latin America in 1994, and Russia in 1998.
These markets were hot, and everyone was advised to invest in them. However,
that was precisely the time when these markets peaked. If you were a contrarian,
you would have been rewarded handsomely.
FEDERATED ASIA PACIFIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- 93.6%
APPLIANCES & HOUSEHOLD DURABLES -- 2.3%
26,000 Olympus Optical Co. $ 245,000
AUTOMOBILE -- 3.2%
10,000 Honda Motor Co. Ltd. 340,818
BANKING -- 6.0%
4,000 HSBC Holdings PLC 97,045
89,000 Long-Term Credit Bank of Japan Ltd, Tokyo 129,172
13,000 Macquarie Bank Ltd. 120,898
12,000 Mitsubishi Trust & Banking Corp., Tokyo 106,578
18,000 Oversea-Chinese Banking Corp. Ltd. 71,484
18,000 Westpac Banking Corp. Ltd., Sydney 118,925
Total 644,102
BROADCASTING -- 1.7%
15,000 Tokyo Broadcasting 186,620
BROADCASTING & PUBLISHING -- 2.1%
390 Nippon TV Network 117,431
13,000 Singapore Press Holdings Ltd. 106,360
Total 223,791
BUSINESS & PUBLIC SERVICES -- 1.1%
5,700 Brambles Industries Ltd. 115,656
DATA PROCESSING & REPRODUCTION -- 9.3%
19,000 Amano Corporation 171,081
2,100 Infosys Technologies Ltd. 122,811
5,000 Meitec Corp. 170,770
2,900 Nidec Corp. 164,380
2,100 SMC Corp. 169,832
</TABLE>
FEDERATED ASIA PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
DATA PROCESSING & REPRODUCTION -- CONTINUED
13,000 Terumo Corp. $ 196,657
Total 995,531
ELECTRICAL & ELECTRONICS -- 7.1%
6,000 Aiwa Co. Ltd. 181,096
2,000 Rohm Co. 207,957
12,000 Shinkawa 168,965
2,400 Sony Corp. 202,758
Total 760,776
ELECTRONIC COMPONENTS, INSTRUMENTS -- 5.5%
18,000 Casio Computer Co. 167,666
5,200 (a)Creative Technology Ltd. 103,025
65,000 (a)Natsteel Electronics Ltd. 114,124
2,400 Samsung Display Devices 85,087
38,000 VTech Holdings Ltd. 123,332
Total 593,234
ENERGY - OIL & GAS -- 1.9%
12,300 Bharat Petroleum Corp. Ltd. 104,543
15,000 Honam Petrochem Corp. 93,570
Total 198,113
FINANCIAL SERVICES -- 8.7%
3,000 Aeon Credit Service Ltd. 126,074
2,000 Aiful Corp. 118,276
34,000 Colonial Ltd. 110,082
5,000 JAF Co. 153,441
4,600 Orix Corp. 299,271
2,600 Takefuji 128,789
Total 935,933
</TABLE>
FEDERATED ASIA PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
FOOD & HOUSEHOLD PRODUCTS -- 1.6%
383,000 PT Indofood Sukses Makmur $ 53,383
35,000 Thai Union Frozen Products Public Co. 123,050
Total 176,433
FOREST PRODUCTS & PAPER -- 2.6%
128,000 Fletcher Challenge Paper 171,424
18,180 Hansol Paper Mfg. 109,145
Total 280,569
HEALTH & PERSONAL CARE -- 1.9%
14,000 Kao Corp. 209,257
HOME BUILDING -- 0.6%
830,000 C & P Homes, Inc. 63,683
INSURANCE -- 1.6%
3,000 (a)Fubon Insurance Co., GDR 54,900
28,375 Qbe Ins. Group 116,392
Total 171,292
LEISURE & TOURISM -- 1.5%
9,000 Glory Ltd. 162,792
MERCHANDISING -- 2.8%
4,000 Ito-Yokado Co., Ltd. 199,292
30,000 Woolworth's Ltd. 103,143
Total 302,435
METALS - NON FERROUS -- 2.0%
6,800 Hindalco Industries Ltd. 102,204
35,500 Western Mining Corporation Holdings Ltd. 111,159
Total 213,363
MINING -- 2.0%
50,500 (a)Anaconda Nickel Ltd. 135,990
</TABLE>
FEDERATED ASIA PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
MINING -- CONTINUED
400,000 (a)Yanzhou Coal Mining Co., Class H $ 82,591
Total 218,581
MISCELLANEOUS MATERIALS & COMMODITIES -- 0.0%
60 Circle K Japan Co. Ltd. 2,205
PHARMACEUTICALS -- 2.6%
21,000 Daiichi Pharmaceutical Co. 282,194
REAL ESTATE -- 5.3%
18,000 Cheung Kong 97,329
70,000 DBS Land Ltd. 78,591
15,000 Mitsubishi Estate Co. Ltd. 131,815
44,000 (a)New World Development Co. Ltd. 103,910
33,000 Sun Hung Kai Properties 159,272
Total 570,917
RECREATION, OTHER CONSUMER GOODS -- 4.9%
25,000 Citizen Watch Co 191,169
1,900 Nintendo Corp. Ltd. 177,666
4,000 Sony Music Entertainment, Inc. 160,878
Total 529,713
TELECOMMUNICATIONS -- 5.2%
70,000 (a)China Telecommunications 125,113
17,000 Mahanagar Telephone Nigam Ltd. 93,388
27 Nippon Telegraph & Telephone Corp. 222,254
85,000 PT Indosat 112,456
Total 553,211
TRANSPORTATION - ROAD & RAIL -- 2.4%
21,000 Mayne Nickless Ltd. 115,876
660,000 (a)Shenzhen Expressway Co. Ltd. 137,127
Total 253,003
</TABLE>
FEDERATED ASIA PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
COMMON STOCKS -- CONTINUED
<C> <S> <C>
UTILITIES - ELECTRICAL & GAS -- 5.6%
14,000 Kansai Electric Power Co., Inc. $ 222,904
37,000 Tenaga Nasional Berhad 61,102
16,700 Tokyo Electric Power Co. 319,554
Total 603,560
TOTAL COMMON STOCKS (IDENTIFIED COST $10,639,984) 10,055,181
(B)REPURCHASE AGREEMENT -- 11.4%
1,230,000 BT Securities Corp., 5.57%, dated 5/29/1998, due
6/1/1998 (AT AMORTIZED COST) 1,230,000
TOTAL INVESTMENTS (IDENTIFIED COST $11,869,984)(C) $ 11,285,181
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $11,869,984. The
net unrealized depreciation of investments on a federal tax basis amounts to
$584,803 which is comprised of $295,347 appreciation and $880,150 depreciation
at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($10,747,576) at May 31, 1998.
The following acronyms are used throughout this portfolio:
GDR --Global Depositary Receipt
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED ASIA PACIFIC GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 10,055,181
$11,869,984)
Investment in repurchase agreement 1,230,000
Cash 120,500
Cash denominated in foreign currencies (at identified cost $18,826) 18,422
Income receivable 43,051
Receivable for investments sold 337,864
Receivable for shares sold 43,018
Deferred organizational costs 33,430
Other assets 12,807
Total assets 11,894,273
LIABILITIES:
Payable for investments purchased $ 1,096,297
Payable for shares redeemed 44,840
Payable for taxes withheld 5,560
Total liabilities 1,146,697
NET ASSETS for 1,772,896 shares outstanding $ 10,747,576
NET ASSETS CONSIST OF:
Paid in capital $ 16,912,505
Net unrealized depreciation of investments and translation of assets and
liabilities
in foreign currency (584,675)
Accumulated net realized loss on investments and foreign currency (5,537,582)
transactions
Net operating loss (42,672)
Total Net Assets $ 10,747,576
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($6,781,483 / 1,113,175 shares outstanding) $6.09
Offering Price Per Share (100/94.50 of $6.09)* $6.44
Redemption Proceeds Per Share $6.09
CLASS B SHARES:
Net Asset Value Per Share ($3,541,872 / 589,235 shares outstanding) $6.01
Offering Price Per Share $6.01
Redemption Proceeds Per Share (94.50/100 of $6.01)** $5.68
CLASS C SHARES:
Net Asset Value Per Share ($424,221 / 70,486 shares outstanding) $6.02
Offering Price Per Share $6.02
Redemption Proceeds Per Share (99.00/100 of $6.02)** $5.96
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED ASIA PACIFIC GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $6,267) $ 66,895
Interest 20,529
Total income 87,424
EXPENSES:
Investment advisory fee $ 62,587
Administrative personnel and services fee 92,247
Custodian fees 22,741
Transfer and dividend disbursing agent fees and 37,404
expenses
Directors'/Trustees' fees 745
Auditing fees 9,743
Legal fees 1,236
Portfolio accounting fees 43,678
Distribution services fee -- Class B Shares 13,751
Distribution services fee -- Class C Shares 1,957
Shareholder services fee -- Class A Shares 8,988
Shareholder services fee -- Class B Shares 4,584
Shareholder services fee -- Class C Shares 652
Share registration costs 15,112
Printing and postage 15,708
Insurance premiums 1,765
Taxes 347
Miscellaneous 7,280
Total expenses 340,525
Waivers and reimbursements --
Waiver of investment advisory fee $ (62,587)
Reimbursement of other operating expenses (156,136)
Total waivers and reimbursements (218,723)
Net expenses 121,802
Net operating loss (34,378)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments and foreign (3,794,995)
currency transactions
Net change in unrealized depreciation of
investments and translation of
assets and liabilities in foreign currency 969,026
Net realized and unrealized loss on investments
and foreign currency transactions (2,825,969)
Change in net assets resulting from $ (2,860,347)
operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED ASIA PACIFIC GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net operating loss $ (34,378) $ (76,161)
Net realized loss on investments and foreign currency
transactions ($(3,794,995) and $(1,738,228), respectively,
as computed for federal tax purposes) (3,794,995) (1,806,239)
Net change in unrealized appreciation/(depreciation) of
investments and translation of assets and liabilities
in foreign currency 969,026 (1,681,791)
Change in net assets resulting from operations (2,860,347) (3,564,191)
SHARE TRANSACTIONS --
Proceeds from sale of shares 8,166,125 21,112,630
Cost of shares redeemed (5,972,313) (13,396,404)
Change in net assets resulting from share transactions 2,193,812 7,716,226
Change in net assets (666,535) 4,152,035
NET ASSETS:
Beginning of period 11,414,111 7,262,076
End of period $ 10,747,576 $ 11,414,111
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED ASIA PACIFIC GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.81 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.01) (0.03) 0.00
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (1.71) (2.41) 0.25
Total from investment operations (1.72) (2.44) 0.25
NET ASSET VALUE, END OF PERIOD $ 6.09 $ 7.81 $10.25
TOTAL RETURN(B) (22.02%) (23.80%) 2.50%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85%* 1.85% 1.85%*
Net operating loss (0.34%)* (0.53%) --
Expense waiver/reimbursement(c) 3.85%* 4.77% 7.02%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $6,781 $7,297 $4,593
Average commission rate paid(d) $0.0065 $0.0098 $0.0039
Portfolio turnover 184% 193% 99%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
FEDERATED ASIA PACIFIC GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.73 $10.19 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.02) (0.08) (0.03)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (1.70) (2.38) 0.22
Total from investment operations (1.72) (2.46) 0.19
NET ASSET VALUE, END OF PERIOD $ 6.01 $ 7.73 $10.19
TOTAL RETURN(B) (22.25%) (24.14%) 1.90%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.60%* 2.60% 2.60%*
Net operating loss (1.05%)* (1.25%) (0.86%)*
Expense waiver/reimbursement(c) 3.85%* 4.77% 7.02%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $3,542 $3,606 $2,273
Average commission rate paid(d) $0.0065 $0.0098 $0.0039
Portfolio turnover 184% 193% 99%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
FEDERATED ASIA PACIFIC GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.74 $10.20 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.04) (0.12) (0.05)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (1.68) (2.34) 0.25
Total from investment operations (1.72) (2.46) 0.20
NET ASSET VALUE, END OF PERIOD $ 6.02 $ 7.74 $10.20
TOTAL RETURN(B) (22.22%) (24.12%) 2.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.60%* 2.60% 2.60%*
Net operating loss (1.07%)* (1.22%) (0.90%)*
Expense waiver/reimbursement(c) 3.85%* 4.77% 7.02%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $424 $511 $397
Average commission rate paid(d) $0.0065 $0.0098 $0.0039
Portfolio turnover 184% 193% 99%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
FEDERATED ASIA PACIFIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of nine portfolios. The
financial statements included herein are only those of Federated Asia Pacific
Growth Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers three classes of shares: Class A Shares, Class
B Shares and Class C Shares. The investment objective of the Fund is to provide
long-term growth of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Foreign and domestic equity securities are valued at
the last sale price reported on a national securities exchange or
over-the-counter market. In the absence of recorded sales for equity
securities, they are valued according to the mean between the last closing
bid and asked prices. Short-term foreign and domestic securities are valued
at the prices provided by an independent pricing service. However, short-term
foreign and domestic securities with remaining maturities of 60 days or less
at the time of purchase may be valued at amortized cost, which approximates
fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Certain dividends from foreign securities may be recorded
after the ex-dividend date based upon when the Fund is reasonably able to
obtain information.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. However, federal taxes may be
imposed on the Fund upon the disposition of certain investments in passive
foreign investment companies. Withholding taxes on foreign interest and
dividends have been provided for in accordance with the Fund's understanding
of the applicable country's tax rules and rates.
At November 30, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $1,738,228 which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
EXPIRATION EXPIRATION
YEAR AMOUNT
2005 $1,738,228
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchase contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the Fund's
securities against currency fluctuations. Risks may arise upon entering into
these transactions from the potential inability of counterparts to meet the
terms of their commitments and from unanticipated movements in security
prices or foreign exchange rates. The foreign currency transactions are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded for financial statement purpose as unrealized until
the settlement date.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and
collected or paid are adjusted when reported by the custodian bank. The Fund
does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates
on securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at fiscal year
end, resulting from changes in the exchange rate.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the issuer's
expense either upon demand by the Fund or in connection with another
registered offering of the securities. Many restricted securities may be
resold in the secondary market in transactions exempt from registration. Such
restricted securities may be determined to be liquid under criteria
established by the Board of Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, par value shares ($0.0001) authorized were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF PAR VALUE
CAPITAL STOCK
CLASS NAME AUTHORIZED
<S> <C>
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 100,000,000
Total 300,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 356,595 $ 2,537,364 1,402,382 $ 13,816,205
Shares redeemed (177,975) (1,256,639) (915,907) (8,814,153)
Net change resulting from
Class A Share
transactions 178,620 $ 1,280,725 486,475 $ 5,002,052
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 578,642 $ 4,085,663 543,977 $ 5,461,674
Shares redeemed (455,865) (3,217,719) (300,440) (3,019,014)
Net change resulting from
Class B Share
transactions 122,777 $ 867,944 243,537 $ 2,442,660
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 219,368 $ 1,543,098 181,031 $ 1,834,751
Shares redeemed (214,909) (1,497,955) (153,942) (1,563,237)
Net change resulting from
Class C Share
transactions 4,459 $ 45,143 27,089 $ 271,514
Net change resulting from
share transactions 305,856 $ 2,193,812 757,101 $ 7,716,226
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 1.10% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its fee
and/or reimburse certain operating expenses of the Fund. The Adviser can
modify or terminate this voluntary waiver and/or reimbursement at any time at
its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors, Inc. for the period. The administrative fee received
during the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A Shares, Class B Shares, and Class
C Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
Class A Shares did not incur a distribution services fee for the period ended
May 31, 1998, and has no present intention of paying or accruing the
distribution services fee.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC"), serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $48,248 were borne
initially by the Adviser. The Fund has reimbursed the Adviser for these
expenses. These expenses have been deferred and are being amortized over the
five-year period following the Fund's effective date. For the six months
ended May 31, 1998, the Fund expensed $6,241 of organizational expenses.
GENERAL -- Certain Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term, for the period ended
May 31, 1998, were as follows:
PURCHASES $ 21,683,486
SALES $ 19,699,661
7. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At May 31, 1998, the diversification of countries for the Fund was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
Japan 58.3%
Australia 9.8%
Hong Kong 5.4%
Singapore 4.4%
India 3.9%
China 3.2%
South Korea 2.7%
New Zealand 1.6%
Indonesia 1.5%
Thailand 1.1%
Philippines 0.6%
Malaysia 0.6%
Taiwan 0.5%
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President,
Treasurer, and Secretary
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 981487507
Cusip 981487606
Cusip 981487705
G01934-02 (7/98)
[Graphic]
Federated Emerging Markets
Fund
2ND SEMI-ANNUAL REPORT MAY 31, 1998
ESTABLISHED 1996
Dear Fellow Shareholder:
Federated Emerging Markets Fund was created in 1996, and I am pleased to present
its second semi-annual report. The fund is invested in 29 countries in the
emerging markets of Africa, Asia, South America, and Europe. Private
capitalization is beginning in these countries, however, they are not as
developed as France, Germany, the United Kingdom, or the United States. Their
potential growth lies ahead of their current status, and therein lies the
potential for growth opportunities in the fund's portfolio.
This report covers the first half of the fund's fiscal year, which is the
six-month period from December 1, 1997 through May 31, 1998. It begins with a
discussion with the fund's portfolio manager, Jolanta Wysocka, Vice President of
Federated Global Research Corp. Following her discussion are two additional
items of shareholder interest. First is a complete listing of the fund's
diversified international stock holdings, and second is the publication of the
fund's financial statements.
The fund offers shareholders significant long-term investment opportunities from
a select portfolio of many large- and small-company stocks* issued by
international companies.** Currently, the fund's holdings represent 29 countries
and more than 200 corporations. The fund's assets totaled $65 million as of May
31, 1998.
Since its inception, the fund has significantly outperformed its benchmark, the
International Finance Corporation Investable Composite Index.***
* Small-cap stocks have historically experienced greater volatility than
average.
** Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
*** The International Finance Corporation Investable Composite Index is an
investable, market capitalization-weighted, index of over 1,000 securities
in 26 emerging market countries. This index is unmanaged, and investments
cannot be made in an index.
During the reporting period, the fund's performance more closely reflected the
volatility that emerging markets have experienced.+
TOTAL NET ASSET
RETURN VALUE CHANGE
Class A Shares (4.28%) $11.64 to $11.17 = (4.0%)
Class B Shares (4.69%) $11.50 to $10.98 = (4.5%)
Class C Shares (4.77%) $11.50 to $10.98 = (4.5%)
Investing in emerging foreign markets, in which there is so much potential, is
clearly a long-term proposition. There will inevitably be periods of unfriendly
volatility, as we are currently experiencing. In this investment environment, I
recommend that you add to your account on a regular basis to take advantage of
price fluctuations and to utilize the dollar-cost averaging method of
investing.++
All emerging markets have been adversely affected by very weak currencies -- the
"Asian Contagion," making this a difficult time politically and economically in
many developing countries. However, Jolanta is researching, selecting, and
traveling to determine investments for your fund. It is a time to search out
countries and corporations for investment opportunities.
Thank you for your confidence in Federated Emerging Markets Fund. We will
continue to keep you up-to-date on the details of your investment on a regular
basis. We appreciate the fact that you have entrusted a portion of your wealth
to the fund.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1998
+ Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on
offering price for Class A, B, and C Shares were (9.55%), (9.90%), and
(5.72%), respectively.
++Dollar-cost averaging does not ensure a profit or protect against loss in
declining markets. Since such a plan of investing involves continuous
investing regardless of fluctuating price levels, investors should consider
whether to continue to invest in periods of low price levels.
[Graphic]
EMERGING MARKETS TURNED IN STRONG PERFORMANCE FOR THE FIRST QUARTER OF 1998, BUT
EXPERIENCED CONSIDERABLE DIFFICULTIES DURING THE SUBSEQUENT TWO MONTHS.
WHAT ARE YOUR COMMENTS?
The first five months of 1998 provided emerging markets investors with a roller
coaster ride. At the beginning of the year, expectations diverged from reality
as Asian markets were frantically bought out by investors whose mandates
included Asia, and whose portfolios were, to a large extent, Asia-free.
With very poor liquidity and absence of sellers, buying pressure pushed prices
of many securities up over 100% in U.S. dollar terms in markets such as Korea,
Thailand, and Malaysia, leading to a wave of confidence going into other
emerging market regions. The result was a rather impressive gain for the first
quarter of 1998. As the second quarter began, investors once again woke up to
the reality of deteriorating fundamentals on both corporate as well as macro
levels. This was combined with a wave of uncertainty caused by the events in
Indonesia and the weaker Japanese Yen.
[Graphic]
HOW DID THE FUND'S TOTAL RETURN COMPARE TO THAT OF ITS BENCHMARK INDEX OVER THE
SIX-MONTH REPORTING PERIOD ENDED MAY 31, 1998?
Over the previous fiscal year, the fund recorded positive performance versus the
negative performance of its benchmark, the International Finance Corporation
Investable Composite Index (the "IFC Index"). For the reporting period, the
fund's performance was more consistent with that of the IFC Index, which
produced a negative return of (4.88%). For the six-month reporting period, the
fund produced total returns based on net asset value of (4.28%), (4.69%), and
(4.77%) for Class A, B, and C Shares, respectively.* The fund's returns were
higher than the (6.11%) average total return of the 146 emerging market mutual
funds tracked by Lipper Analytical Services, Inc.+
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for Class
A, B, and C shares were (9.55%), (9.90%), and (5.72%), respectively.
+ Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category indicated. Lipper returns do not take sales charges into
account.
[Graphic]
COUNTRY SELECTION AND ALLOCATION HAS PLAYED A KEY ROLE IN THE FUND'S ABILITY TO
OUTPERFORM THE MARKET, WITH BELOW-AVERAGE VOLATILITY. WHAT FACTORS INFLUENCED
ITS SHORT-TERM PERFORMANCE DURING THE SIX-MONTH REPORTING PERIOD ENDED MAY 31,
1998?
Our focus on risk control proved to be beneficial during the reporting period as
many markets experienced extreme levels of volatility. An integral part of the
risk control process is broad diversification among markets and securities, so
that no single country or region dominates the portfolio allocation. During the
reporting period, the fund's performance enhancements came from underweighting
or entirely avoiding some of the worst-performing markets (mainly in Asia and
Latin America), and overweighting strong markets in Europe and Africa, while
maintaining a balanced exposure to all regions. Examples of countries we
underweighted were: Venezuela, Indonesia, and Colombia. Examples of countries we
overweighted were: Greece, Portugal, and Botswana.
[Graphic]
WHAT WERE THE FUND'S COUNTRY ALLOCATIONS AND TOP TEN HOLDINGS AS OF MAY 31,
1998?
The portfolio was well diversified across the following 29 countries:
PERCENTAGE PERCENTAGE
COUNTRY OF PORTFOLIO COUNTRY OF PORTFOLIO
Turkey 8.28% Lebanon 2.47%
Egypt 8.17% South Africa 2.01%
Brazil 7.80% Hungary 1.64%
Poland 6.65% Philippines 1.53%
Greece 6.24% Zimbabwe 0.98%
Mauritius 6.10% Thailand 0.95%
Russia 5.50% Pakistan 0.86%
Kenya 5.48% Malaysia 0.79%
Ghana 5.36% Botswana 0.73%
Portugal 4.72% Chile 0.65%
Peru 4.69% Hong Kong 0.52%
Korea 4.11% Sri Lanka 0.41%
Mexico 4.05% Ivory Coast 0.33%
India 3.77% Czech Republic 0.30%
Argentina 2.68%
The fund's top ten holdings were:
<TABLE>
<CAPTION>
PERCENTAGE
OF
NAME COUNTRY NET ASSETS INDUSTRY
<S> <S> <C> <S>
Social Security Bank Ltd. Ghana 4.85% Banking
Arabian International Construction Egypt 2.07% Construction & Housing
Lukoil Oil Co. Russia 1.96% Energy - Oil & Gas
Pohang Iron and Steel Co. Ltd. Korea 1.80% Metals - Steel
Telecomunicacoes de Sao Paulo S.A. Brazil 1.58% Telecommunications
Egypt Gas Egypt 1.54% Utilities - Electrical & Gas
Portugal Telecom S.A. Portugal 1.46% Telecommunications
National Bank of Greece Greece 1.31% Banking
Banco Totta & Acores Portugal 1.31% Banking
Telecomunicacoes Brasileiras S.A. Brazil 1.30% Telecommunications
TOTAL PERCENTAGE OF
NET ASSETS 19.18%
</TABLE>
[Graphic]
AS WE APPROACH MID-YEAR, WHAT ARE YOUR EXPECTATIONS FOR THE REST OF THE YEAR,
AND WHERE DO YOU SEE OPPORTUNITIES?
For the long-term, we remain positive on the emerging market asset class as a
whole, with specific strength coming from Eastern Europe and Africa. For the
short-term, we are expecting more volatility and possible further price declines
in a number of markets. As contrarians, we will continue to take advantage of
the price volatility in order to position the fund in attractively priced
assets.
FEDERATED EMERGING MARKETS FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S>
COMMON STOCKS--91.3%
AGRICULTURE--0.4%
5,600,000 (a)Interfresh $ 218,383
24,600 (a)Sefalana 33,519
Total 251,902
APPLIANCES & HOUSEHOLD DURABLES--1.2%
20,951 Samsung Electronics Co. 796,361
2 (a)(b)Samsung Electronics Co., GDR 39
Total 796,400
AUTOMOBILE--0.5%
3,100 Gorkovsky Auto Plant 313,100
BANKING--18.2%
2,726,000 Turkiye Is Bankasi, Class C 235,478
5,600 Alpha Credit Bank 584,256
3,800 Banco Santiago, ADR 70,300
22,900 Banco Totta & Acores Nationalisiert, Class B 847,545
33,000 (a)Bank Handlowy W. Warszawie 567,173
13,700 Bank Rozwoju Eksportu SA 337,496
4,440 Bank Slaski SA 333,223
60,000 Bank of Baroda 136,855
30,500 (a)(b)Banque Audi, Class B, GDR 811,300
127,200 Big Bank Gdanski SA 165,786
74,900 Grupo Financiero Banamex Accivel, Class B 186,825
1,767 Grupo Financiero Banamex Accivel, Class L 3,907
9,400 Housing & Development Bank 242,464
431,168 Kenya Commercial Bank Ltd. 484,227
243 Kookmin Bank 1,200
300 Korea Exchange Bank 618
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
BANKING--CONTINUED
51,000 Kredyt Bank $ 169,464
106,450 (a)Mauritius Commercial Bank 511,886
5,904 National Bank of Greece 849,420
100,000 (a)National Development Bank 266,154
657,419 (a)National Industrial Credit Bank 539,340
4,500 OTP Bank RT 190,348
2,619,178 (a)Social Security Bank Ltd. 3,136,282
6,000 (a)Societe Generale (Egypt) 116,086
6,900 (a)Societe Generale Banq en Cote Ivoire 213,808
888,500 (a)State Bank Mauritius 594,438
2,726,000 Turkiye Is Bankasi, Rights 37,597
19,000 Wbk (Wielkopolski B) 136,064
Total 11,769,540
BEVERAGE & TOBACCO -- 1.0%
295 (a)Baltica Brewery 185,850
11,400 Hellenic Bottling Co., SA 381,559
900 Yar Pivo 40,500
Total 607,909
BEVERAGES--2.8%
368,752 Cervecer Backus & Johnston, Class T 228,094
4,600 Compania Cervecerias Unidas SA, ADR 110,400
2,600 Embotelladora Andina SA, Class A, ADR 48,913
1,400 Embotelladora Andina SA, Class B, ADR 23,800
14,480 (a)Guiness Ghana Ltd. 5,717
74,200 (a)Mauritius Breweries Ltd. 260,623
7,500 Nobleza Piccardo S.A.I.C. y F. 30,389
11,800 Quilmes Industrial SA, ADR 113,575
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS--CONTINUED
<C> <S> <C>
BEVERAGES--CONTINUED
187,115 Sasini Tea & Coffee Ltd. $ 360,668
93,557 Sasini Tea & Coffee Ltd. 180,333
271,400 (a)Sechaba Breweries Ltd. 436,879
Total 1,799,391
BROADCASTING & PUBLISHING--0.3%
9,300 Grupo Televisa SA 182,626
BUILDING MATERIALS & COMPONENTS -- 2.0%
133,964 Cementos Lima SA 283,237
185,905 Cementos Norte Pacasmayo 295,603
11,500 Gorazdze SA 207,534
9,000 (b)Suez Cement Co., GDR 176,850
3,900 Titan Cement Co. 293,828
Total 1,257,052
BUSINESS & PUBLIC SERVICES--0.5%
8,800 Banco Frances del Rio de la Plata SA, ADR 200,200
200,000 Phatra Thanakit Co. 109,557
Total 309,757
CHEMICALS--1.9%
14,177,082 Aksa Akrilik Kimya Sanayii AS 526,905
34,000 (b)Paints & Chemical Industry, GDR 314,500
4,700 Pannonplast RT 157,645
69,004 Polifarb-Cieszyn SA 207,546
Total 1,206,596
CONGLOMERATE--1.9%
25,013 Compania Naviera Perez Companc SA, Class B 137,887
5,400,000 Dogan Sirketler Grubu Holding AS 318,815
9,500 Grupo Carso SA de CV 48,846
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
CONGLOMERATE--CONTINUED
5,600 Grupo Carso SA de CV, ADR $ 56,724
40,000 (a)Rogers and Company Ltd. 260,924
4,300,000 (a)Sabanci Holding 262,195
2,687,000 (a)TA Holdings 149,693
Total 1,235,084
CONSTRUCTION & HOUSING--3.9%
29,300 (a)Arabian International Construction 1,337,257
13,418,000 (a)DMCI Holdings 796,157
225 MISR International Bank 5,442
700 Misr Elgedida for Housing & Reconstruction 79,003
2,120 (a)Nasr City Co. for Housing & Construction 118,546
66,120 Proodeftiki SA 170,968
Total 2,507,373
DATA PROCESSING & REPRODUCTION--1.9%
10,000 (a)ComputerLand Poland SA 196,219
279,600 Founder Hong Kong Ltd. 174,096
5,000 (a)Infosys Technologies Ltd. 292,407
100 Infosys Technologies Ltd. 5,848
462,000 (a)Legend Holdings Ltd. 162,466
9,000 (a)NIIT 359,784
Total 1,190,820
ELECTRICAL & ELECTRONICS--1.0%
19,000 (a)Bharat Heavy Electricals Ltd. 164,454
3,734,000 Vestel Elektronik Sanayi Ve Ticaret AS 505,961
Total 670,415
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
ELECTRONIC COMPONENTS, INSTRUMENTS--2.7%
6,000,000 Aselsan $ 190,476
80,000 Hana Microelectronics Co., Ltd. 277,296
171,000 Mirae Co. 377,840
20,100 Pentafour 504,551
31,400 Satyam Computer Services 420,489
Total 1,770,652
ENERGY - OIL & GAS--2.1%
5,000 AO Tatneft, ADR 56,875
30,800 Lukoil Holding Co., ADR 1,268,242
5,600 (a)Pakistan State Oil 15,000
Total 1,340,117
ENERGY EQUIPMENT & SERVICES--0.1%
8,000 Transportadora de Gas de Sur SA, Class B, ADR 85,500
ENERGY SOURCES--1.2%
15,200 (a)Hub Power Co., GDR 144,400
15,000 MOL Magyar Olaj-es Gazipari RT 342,053
6,400 YPF Sociedad Anonima 199,135
2,600 YPF Sociedad Anonima, ADR 80,763
Total 766,351
ENGINEERING--0.9%
33,300 Exbud SA 352,936
131,000 Mostostal Export SA 236,408
Total 589,344
FINANCIAL SERVICES--1.0%
7,920 Credicorp Ltd. 125,730
8,800 Egyptian Financial & Industrial 219,274
390 Grupo Financiero Inbursa, SA de C.V. 1,030
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
FINANCIAL SERVICES--CONTINUED
1,000 Industrial Development Bank of India Ltd. $ 1,810
62,000 (a)Theta Group Ltd. 303,868
Total 651,712
FOOD & BEVERAGE--1.0%
12,500 Femsab UBD 418,084
6,100 Pan American Beverage, Class A 206,256
Total 624,340
FOOD & HOUSEHOLD PRODUCTS--1.6%
10,000 Chipita International 288,761
100 Egyptian Starch & Gl 974
2,133 Estabelecimentos Jeronimo Martins & Filho SGPS, SA 96,286
110,000 Grupo Industrial Maseca SA de CV, Class B 62,608
298,968 (a)Happy World Foods Ltd. 181,268
15,000 (a)(b)Red October, RDC 210,000
216,830 Uchumi Supermarket Ltd. 155,434
Total 995,331
FOOD PROCESSING--3.5%
12,900 Agros Holding SA 188,456
5,800 (a)Eastern Co. 113,067
10,000 Goody's SA 288,105
30,000 (a)International Foods Co. (Hostess) 571,550
540,000 (a)Mauritius Oil Refineries Ltd. 266,444
8,473,000 (a)Merko Gida Sanayi 142,693
145,000 (a)Mon Tresor & Mon Desert Ltd. 242,526
691,950 Pesquera Austral SA 459,446
Total 2,272,287
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
GOLD MINES--0.0%
238 Ashanti Goldfields Co., GDR $ 2,202
HEALTH & PERSONAL CARE--1.6%
34,000 Athens Medic Center 721,726
3,250 Galena AS 172,331
39,000 Kimberly-Clark de Mexico 162,721
Total 1,056,778
HOUSEHOLD APPLIANCES--0.5%
26,500 Carrier Aircon Ltd. 147,484
22,700 Ellerine Holdings Ltd. 194,311
Total 341,795
INSURANCE--2.0%
5,000,000 Aksigorta 304,878
260,000 (a)British American Insurance Co. 42,944
11,000 (a)Enterprise Insurance Co. Ltd. 11,094
22,000 (a)Mundial Confianca 677,525
116,394 (a)Swan Insurance Co., Ltd. 240,916
Total 1,277,357
LEISURE & TOURISM--2.2%
81,000 (a)Grand Baie Hotel 240,477
7,200,000 Net Holdings A.S. 172,822
185,103 (a)New Mauritius Hotels Ltd. 406,352
165,000 Sun Resorts Ltd. 351,871
63,598 (a)United Docks Ltd. 87,758
686,000 Zimbabwe Sun International Ltd. 126,117
Total 1,385,397
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
MACHINERY & ENGINEERING--0.5%
31,700 Larsen & Toubro Ltd. $ 194,614
15,400 Stalexport SA 127,047
Total 321,661
MANUFACTURING--0.1%
900 Ceska Zbrojovka A.S. 22,527
40,000 Fabryka Mebli Forte SA 64,165
Total 86,692
MEDIA--1.7%
1,228,000 (a)African Media Entertainment Ltd. 357,537
2,500,000 (a)Ihlas Holding 343,593
45,500,000 (a)Medya Holding 409,553
Total 1,110,683
MERCHANDISING--0.3%
22,177 JD Group, Ltd. 193,708
1,800 Santa Isabel SA, ADR 23,513
Total 217,221
METALS - NON FERROUS--2.5%
210,042 (a)Aluworks Ghana Ltd. 311,006
29,532 Cia de Minas Buenaventura SA 187,420
12,000 Cia de Minas Buenaventura SA, Class B 92,259
14,000 Hindalco Industries Ltd. 210,420
71,500 Industrias Penoles SA 244,819
72,000 (a)KGHM Polska Miedz SA 292,867
3,800 Madeco SA, ADR 48,450
48,603 Minsur SA 102,760
40,000 Southern Peru Ltd. 146,427
Total 1,636,428
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
METALS - STEEL--2.0%
28,710 Pohang Iron and Steel Co. Ltd. $ 1,164,963
38,500 Siderar SA, Class A 157,925
Total 1,322,888
MINING--0.2%
483,461 (a)Athi River Mining Ltd. 73,164
6,000 (a)Russia Petroleum 29,400
Total 102,564
MULTI-INDUSTRY--2.2%
1,820,000 Alarko Holding 507,316
61,126 Alfa, SA de C.V., Class A 291,076
467,000 Firestone East Africa Ltd. 171,103
934,000 Firestone East Africa Ltd. 342,205
900,000 (a)Trans Zambezi Industries Ltd. 135,000
100,000 (a)Trans Zambezi Industries Ltd. 6,128
Total 1,452,828
PHARMACEUTICALS--1.6%
5,000,000 Eczacibasi Ilac 241,965
5,540 Egypt International Pharmaceuticals 373,529
2,700 Gedeon Richter RT 226,405
8,300 (a)Jelfa SA 192,581
Total 1,034,480
REAL ESTATE--1.2%
61,000 (a)(b)Solidere, GDR 785,375
RECREATION, OTHER CONSUMER GOODS--1.2%
245,000 Berjaya Sports 512,912
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
RECREATION, OTHER CONSUMER GOODS--CONTINUED
199,700 (a)Millenium Entertainment Group Africa Ltd. $ 246,141
Total 759,053
TELECOMMUNICATIONS--9.1%
41,000 Advanced Information Service PCL 227,383
2,550,000 Alcatel Teletas 325,783
16,600 CPT Telefonica del Peru SA, Class B, ADR 358,975
11,200 Carso Global Telecom, Class A-1 36,825
9,262 Cia Riograndense De Telecomunicacoes, Rights 0
15,500 Hellenic Telecommunications Organization 455,209
25,100 (a)Matav RT 142,653
751,000 (a)Pakistan Telecommunications Corp., Class A 294,197
5,000 Philippine Long Distance Telephone Co. 127,877
18,000 Portugal Telecom SA 946,072
49,700 SK Telecom Co. Ltd., ADR 316,838
85,000 (a)Tele 2000 SA- La Nueva Com de Telefonos 84,658
17,000 Telecom Argentina SA 105,450
10,200 Telecom Argentina SA, ADR 316,200
7,900 Telecomunicacoes Brasileiras SA, ADR 842,338
130,874 Telefonica Del Peru CPT, Class B 281,277
1,900 Telefonica de Argentina SA, ADR 61,869
75,000 Telefonica de Argentina SA, Class B 245,366
15,100 Telefonos de Mexico, Class L, ADR 716,306
Total 5,885,276
TEXTILES & APPAREL--2.2%
10,060,000 Esem Spor Giyim Sanayi 457,627
8,000,000 Koytas Tekstil Sanayi ve Ticaret Anonim Sirketi 363,918
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
TEXTILES & APPAREL--CONTINUED
28,800 (a)Oriental Weavers $ 616,567
Total 1,438,112
TRANSPORTATION - AIRLINES--1.5%
2,250 (a)Aeroflot 225,900
175,401 (a)Air Mauritius Ltd. 253,035
4,079,000 (a)Kenya Airways Ltd. 523,074
Total 1,002,009
UTILITIES - ELECTRICAL & GAS--6.0%
765,000 Companhia de Saneamento Basico do Estado de Sao Paulo 129,706
573,289 Edegel SA, Class B 196,338
10,000 (a)Egypt Gas 996,702
18,510 Electricidade de Portugal SA 486,439
3,700 Enersis SA, ADR 93,888
58,000 Irkutskenergo, RDC 385,439
254,000 (a)Kenya Power & Lighting Co. Ltd. 716,177
21,346 Manila Electric Co., Class B 62,782
437,230 (a)Sui Sthn Gas Pipe 102,475
41,000 (a)Unified Energy System, RDC 721,600
Total 3,891,546
WHOLESALE & INTERNATIONAL TRADE--1.1%
40,000 Elektrim Spolka Akcyina SA 525,924
151,623 Enrique Ferreyros SA 189,164
Total 715,088
TOTAL COMMON STOCKS (IDENTIFIED COST $56,057,278) $ 59,019,032
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
CORPORATE BONDS -- 0.0%
MINING--0.0%
10,100 Companhia Vale Do Rio Doce, Conv. Deb., 12/31/1999 $ 88
TOTAL CORPORATE BONDS (IDENTIFIED COST $79) 88
PREFERRED STOCKS--6.5%
BANKING--0.8%
63,800,000 Banco Bradesco SA, Preference 521,450
ENERGY SOURCES--0.4%
1,200,000 (a)Petroleo Brasileiro SA, Preference 231,631
FOOD & HOUSEHOLD PRODUCTS--0.2%
20,500 (a)(b)Red October 102,500
MERCHANDISING--0.2%
3,000,000 Lojas Renner SA, Preference 100,426
PUBLISHING--0.2%
31,600 (a)Saraiva SA - Liveiros Edit, Preference 129,137
TELECOMMUNICATIONS--3.0%
350,000 (a)Cia Riograndense De Telecomunicacoes, Pfd. 377,358
6,860,000 (a)Telecomunicacoes Do Rio Janiero SA, Preference 572,611
4,781,843 Telecomunicacoes de Sao Paulo SA, Preference 1,022,810
Total 1,972,779
TEXTILES & APPAREL--0.0%
49,000,000 (a)Texpar SA, Preference 426
UTILITIES - ELECTRICAL & GAS--1.7%
16,398,518 Companhia Energetica de Minas Gerais, Preference 541,817
100,000,000 (a)Companhia Energetica do Ceara-Coelce, Preference, 321,711
Series A
</TABLE>
FEDERATED EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
PREFERRED STOCKS--CONTINUED
UTILITIES - ELECTRICAL & GAS--CONTINUED
2,610,000 (a)Companhia Paulista de Forca e Luz, Pfd. $ 249,653
12,000 (a)Permenergo, Pfd. 18,300
Total 1,131,481
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,377,259) 4,189,830
TOTAL INVESTMENTS (IDENTIFIED COST $60,434,616)(C) $63,208,950
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At May 31, 1998, these securities amounted to
$2,400,564 which represents 3.7% of net assets.
(c) The cost of investments for federal tax purposes amounts to $60,434,616. The
net unrealized appreciation of investments on a federal tax basis amounts to
$2,774,334 which is comprised of $11,530,838 appreciation and $8,756,504
depreciation at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($64,652,007) at May 31, 1998.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
GDR --Global Depositary Receipt
SA --Support Agreement
(See Notes which are an integral part of the Financial Statements)
FEDERATED EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 63,208,950
$60,434,616)
Cash denominated in foreign currencies (at identified cost $426,652) 417,927
Income receivable 276,412
Receivable for investments sold 2,631,525
Receivable for shares sold 63,692
Deferred organizational costs 33,777
Total assets 66,632,283
LIABILITIES:
Payable for investments purchased $ 1,093,933
Payable for shares redeemed 64,928
Payable for foreign currency exchange contracts purchased 6,405
Payable to Bank 651,249
Payable for taxes withheld 10,244
Accrued expenses 153,517
Total liabilities 1,980,276
NET ASSETS for 5,821,076 shares outstanding $ 64,652,007
NET ASSETS CONSIST OF:
Paid in capital $ 72,701,697
Net unrealized appreciation of investments and translation of assets
and liabilities in foreign
currency 2,650,365
Accumulated net realized loss on investments and foreign currency (10,782,654)
transactions
Undistributed net investment income 82,599
Total Net Assets $ 64,652,007
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($44,208,174 / 3,958,945 shares outstanding) $11.17
Offering Price Per Share (100/94.50 of $11.17)* $11.82
Redemption Proceeds Per Share $11.17
CLASS B SHARES:
Net Asset Value Per Share ($17,189,383 / 1,565,855 shares outstanding) $10.98
Offering Price Per Share $10.98
Redemption Proceeds Per Share (94.50/100 of $10.98)** $10.38
CLASS C SHARES:
Net Asset Value Per Share ($3,254,450 / 296,276 shares outstanding) $10.98
Offering Price Per Share $10.98
Redemption Proceeds Per Share (99.00/100 of $10.98)** $10.87
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EMERGING MARKETS FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $54,837) $ 1,051,131
Interest 23,220
Total income 1,074,351
EXPENSES:
Investment advisory fee $ 431,487
Administrative personnel and services fee 92,247
Custodian fees 144,604
Transfer and dividend disbursing agent fees and expenses 66,272
Directors' fees 546
Auditing fees 9,712
Legal fees 2,483
Portfolio accounting fees 45,047
Distribution services fee--Class B Shares 70,538
Distribution services fee--Class C Shares 13,216
Shareholder services fee--Class A Shares 58,384
Shareholder services fee--Class B Shares 23,512
Shareholder services fee--Class C Shares 4,406
Share registration costs 22,422
Printing and postage 23,531
Insurance premiums 2,002
Taxes 1,584
Miscellaneous 811
Total expenses 1,012,804
Waivers --
Waiver of investment advisory fee (25,058)
Net expenses 987,746
Net investment income 86,605
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments and foreign currency
transactions (net of foreign taxes withheld of $6,119) (9,219,250)
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency 6,150,743
Net realized and unrealized loss on investments and (3,068,507)
foreign currency transactions
Change in net assets resulting from operations $ (2,981,902)
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EMERGING MARKETS FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income/(operating loss) $ 86,605 $ (66,935)
Net realized loss on investments and foreign
currency transactions ($(9,219,250) and
$(206,412), respectively, as computed for
federal tax purposes) (9,219,250) (2,055,377)
Net change in unrealized appreciation/
depreciation of investments and translation
of assets and liabilities in foreign currency 6,150,743 (4,169,559)
Change in net assets resulting from operations (2,981,902) (6,291,871)
SHARE TRANSACTIONS--
Proceeds from sale of shares 20,917,958 102,012,438
Cost of shares redeemed (25,686,084) (45,239,352)
Change in net assets resulting from share (4,768,126) 56,773,086
transactions
Change in net assets (7,750,028) 50,481,215
NET ASSETS:
Beginning of period 72,402,035 21,920,820
End of period (including undistributed net
investment income and net operating loss of
$82,599 and $(4,006), respectively) $ 64,652,007 $ 72,402,035
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.64 $11.10 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.01 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency (0.50) 0.53(e) 1.08
Total from investment operations (0.47) 0.54 1.10
NET ASSET VALUE, END OF PERIOD $11.17 $11.64 $11.10
TOTAL RETURN(B) (4.28%) 4.86% 11.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.62%* 2.14% 1.97%*
Net investment income 0.50%* 0.13% 0.31%*
Expense waiver/reimbursement(c) 0.07%* 0.65% 3.34%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $44,208 $48,509 $17,327
Average commission rate paid(d) $0.0012 $0.0006 $0.0029
Portfolio turnover 81% 102% 32%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments
and foreign currency for the period ended due to the timing of sales and
repurchases of fund shares in relations to fluctuating market values of the
investments of the fund.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.50 $11.04 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.02) (0.04) (0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency (0.50) 0.50(e) 1.06
Total from investment operations (0.52) 0.46 1.04
NET ASSET VALUE, END OF PERIOD $10.98 $11.50 $11.04
TOTAL RETURN(B) (4.69%) 4.17% 10.40%
RATIOS TO AVERAGE NET ASSETS
Expenses 3.37%* 2.89% 2.72%*
Net operating loss (0.27%)* (0.69%) (0.71%)*
Expense waiver/reimbursement(c) 0.07%* 0.65% 3.34%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,189 $19,950 $3,747
Average commission rate paid(d) $0.0012 $0.0006 0.0029
Portfolio turnover 81% 102% 32%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments
and foreign currency for the period ended due to the timing of sales and
repurchases of fund shares in relations to fluctuating market values of the
investments of the fund.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.50 $11.05 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.02) (0.04) (0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency (0.50) 0.49(e) 1.07
Total from investment operations (0.52) 0.45 1.05
NET ASSET VALUE, END OF PERIOD $10.98 $11.50 $11.05
TOTAL RETURN(B) (4.77%) 4.07% 10.50%
RATIOS TO AVERAGE NET ASSETS
Expenses 3.37%* 2.89% 2.72%*
Net operating loss (0.27%)* (0.65%) (0.77%)*
Expense waiver/reimbursement(c) 0.07%* 0.65% 3.34%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $3,254 $3,943 $847
Average commission rate paid(d) $0.0012 $0.0006 $0.0029
Portfolio turnover 81% 102% 32%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments
and foreign currency for the period ended due to the timing of sales and
repurchases of fund shares in relations to fluctuating market values of the
investments of the fund.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of nine portfolios. The
financial statements included herein are only those of Federated Emerging
Markets Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers three classes of shares: Class A Shares, Class
B Shares, and Class C Shares. The investment objective of the Fund is to provide
long-term growth of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Foreign equity securities, are valued according to the
last sale price reported in the market in which they are primarily traded. If no
sale on a recognized exchange is reported or if the security is traded
over-the-counter, the foreign securities are valued at the mean between the last
closing bid and asked prices. Investments in other mutual funds are valued at
net asset value. Short-term securities are valued at the prices provided by an
independent pricing service. However, short-term securities with remaining
maturity of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS -- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
At May 31, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $666,862, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2004 $3,130,096(a)
2004 310,725
2005 206,412
(a) Capital loss carryforward is attributable to the acquisition of the assets
of The Blanchard Worldwide Emerging Market Fund and is limited to $149,725 that
can be used in future periods to offset income arising from net realized gains.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS--The Fund may enter into foreign currency commitments
for the delayed delivery of securities or foreign currency exchange
transactions. Purchased contracts are used to acquire exposure to foreign
currencies; whereas, contracts to sell are used to hedge the Fund's securities
against currency fluctuations. Risks may arise upon entering these transactions
from the potential inability of counterparts to meet the terms of their
commitments and from unanticipated movements in security prices or foreign
exchange rates. The foreign currency transactions are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purposes as unrealized until the settlement date.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of exchange
of such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
RESTRICTED SECURITIES -- Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Directors. The Fund
will not incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Fund's pricing committee.
Additional information on each restricted security held at May 31, 1998 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Samsung Electronics Co., GDR 2/2/1995 $ 106
Banque Audi, Class B, GDR 4/28/1997 - 6/25/1997 731,800
Suez Cement Co., GDR 11/25/1996 132,750
Paints & Chemical Industry, GDR 9/26/1997 399,500
Red October, RDC 5/19/1997 292,500
Solidere, GDR 4/25/1997 - 6/25/1997 901,750
Red October 7/15/1997 616,125
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, par value shares ($0.001 per share) authorized were as follows:
NUMBER OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 100,000,000
Total 300,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,576,872 $ 18,170,799 5,469,055 $ 72,534,377
Shares issued to shareholders
in payment of distributions declared -- -- -- --
Shares redeemed (1,783,767) (20,445,961) (2,864,255) (37,739,280)
Net change resulting from Class A
Share transactions (206,895) $ (2,275,162) 2,604,800 $ 34,795,097
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 174,775 $ 1,982,470 1,737,682 $ 22,920,945
Shares issued to shareholders in
payment of distributions declared -- -- -- --
Shares redeemed (343,078) (3,925,120) (343,037) (4,467,783)
Net change resulting from Class B
Share transactions (168,303) $ (1,942,650) 1,394,645 $ 18,453,162
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 68,877 $ 764,689 498,984 $ 6,557,116
Shares issued to shareholders in
payment of distributions declared -- -- -- --
Shares redeemed (115,602) (1,315,003) (232,631) (3,032,289)
Net change resulting from Class C
Share transactions (46,725) $ (550,314) 266,353 $ 3,524,827
Net change resulting from share
transactions (421,923) (4,768,126) 4,265,798 $ 56,773,086
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 1.25% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors, Inc. for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class A Shares, Class B Shares, and Class C
Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
Class A Shares did not incur a distribution services fee for the period ended
May 31, 1998, and has no present intention of paying or accruing a distribution
services fee.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $48,748 were borne
initially by the Adviser. The Fund has reimbursed the Adviser for these
expenses. These expenses have been deferred and are being amortized over the
five-year period following the Fund's effective date. For the period ended May
31, 1998, the Fund expensed $6,305 pursuant to this agreement.
GENERAL -- Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
PURCHASES $55,355,814
SALES $57,203,396
7. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At May 31, 1998, the diversification of countries was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
Turkey 8.3%
Egypt 8.2%
Brazil 7.8%
Mauritius 6.1%
Poland 6.7%
Greece 6.2%
Kenya 5.5%
Russia 5.5%
Ghana 5.4%
Peru 4.7%
Portugal 4.7%
Korea, Republic of 4.1%
Mexico 4.1%
India 3.8%
Argentina 2.7%
Lebanon 2.5%
South Africa 2.0%
Hungary 1.6%
Philippines 1.5%
Thailand 1.0%
Pakistan 0.9%
Zimbabwe 0.9%
Malaysia 0.8%
Botswana 0.7%
Chile 0.6%
Hong Kong 0.5%
Sri Lanka 0.4%
Czech Republic 0.3%
Ivory Coast 0.3%
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President,
Treasurer, and Secretary
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including the
possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Securities Corp., Distributor
Federated Investors, Inc.
1001 Liberty Avenue
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 981487804
Cusip 981487887
Cusip 981487879
G01967-02 (7/98)
Federated European Growth Fund
2ND SEMI-ANNUAL REPORT MAY 31, 1998
ESTABLISHED 1996
President's Message
[Graphic]
Dear Fellow Shareholder:
Federated European Growth Fund was created in 1996, and I am pleased to present
its second Semi-Annual Report. This stock fund, with its holdings exclusively in
Europe, has been the place to be. The 17 countries of Europe continue to improve
economically, and this is reflected in their stocks and stock markets. It is
hard not to be optimistic concerning the low interest rate, low inflation
outlook, and worldwide investor interest.
This report covers the first half of the fund's fiscal year which is the
six-month period from December 1, 1997 through May 31, 1998. Frank Semack, Vice
President of Federated Global Research Corp., presents his outlook on European
economic and market conditions and the fund's strategy. Following his
discussion, you will find two additional items of shareholder interest. First is
a complete listing of the fund's common stock investments, and second is the
publication of the fund's financial statements.
The fund offers shareholders very significant long-term investment opportunities
from a broadly diversified $56 million portfolio of more than 100 stocks in 17
European countries in both developed and emerging markets.* Approximately 50% of
the fund's assets are in the United Kingdom, France, and Italy.
During the six-month reporting period ended May 31, 1998, the European stock
market continued to perform well and the fund recorded very positive
performance. Individual share class total return performance, including capital
gains distributions, follows.**
TOTAL CAPITAL
RETURN GAINS NET ASSET VALUE INCREASE
Class A Shares 27.31% $0.41 $13.33 to $16.46 = 23%
Class B Shares 26.77% $0.41 $13.18 to $16.20 = 23%
Class C Shares 26.91% $0.41 $13.15 to $16.18 = 23%
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
** Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns for the period
based on offering price for Class A, B, and C Shares were 20.27%, 21.14%, and
25.89%, respectively.
While the fund has provided shareholders with strong returns since its inception
on February 28, 1996, it is important to remember that there will inevitably be
periods of short-term fluctuation and negative, as well as positive, returns. My
recommendation to all mutual fund shareholders is add to your investment account
on a regular basis to take advantage of price fluctuations and to use the
dollar-cost averaging method of investing.+
Thank you for your confidence in Federated European Growth Fund. We will
continue to keep you up-to-date on the details of your investment on a regular
basis and offer you the highest level of service possible.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1998
+ Dollar-cost averaging does not ensure a profit or protect against loss in
declining markets. Since such a plan of investing involves continuous
investing regardless of fluctuating price levels, investors should consider
whether to continue to invest in periods of low price levels.
Investment Review
[Graphic]
Frank Semack
Vice President
Federated Global Research Corp.
[Graphic]
HOW DID THE EUROPEAN MARKETS PERFORM OVER THE SIX-MONTH REPORTING PERIOD ENDED
MAY 31, 1998?
Equity markets in Europe behaved in a remarkably uniform fashion throughout the
reporting period. They trended erratically higher in December 1997 and January
1998, shaking off the remaining ill effects of the Asian crisis. Thereafter,
powerful rallies took market indices to all-time highs in April 1998. Europe
outperformed the U.S. in both local and U.S. dollar-adjusted terms.
Valuations based on 1998 earnings estimates for continental Europe had by then
surpassed U.S. multiples, and a sharp correction took place in late April 1998.
Renewed uncertainty about Asia was again the trigger. The retreat was most
pronounced in the previously best-performing markets such as Italy, Spain and
Portugal. All three had recorded spectacular gains on the back of falling
interest rates, as it became clear that they would be among the 11 first-round
participants in the implementation of the European Monetary Union ("EMU") as of
January 1, 1999. The formal decision to go ahead with the single currency was
made at the beginning of May 1998, with only the United Kingdom, Sweden, and
Denmark opting out for the time being, and Greece not fully qualifying.
Low interest rates lay at the root of most markets' performance for three
separate but related reasons. First, cash and bonds did not offer sufficiently
compelling alternative investment opportunities to investors, and inflows into
equity products, therefore, accelerated in many markets, most notably in Italy.
Second, the low interest rate environment finally began to have a positive
effect on the two core economies in continental Europe (i.e., Germany and
France) both of which are now showing signs of recovery. Third, the launch of
the common currency, the Euro, in January 1999 is generally expected to be
preceded by further interest rate convergence in Europe. Up to now, the
consensus has been that it is more likely that Spanish and Italian rates will
fall further, rather than Germany and France raising their rates.
As is often the case, the United Kingdom did not neatly fit into this pattern.
Three-month rates were fairly steady amidst uncertainty as to whether the Bank
of England would raise rates because of incipient inflationary pressures. The
answer finally came, somewhat unexpectedly, in early June 1998, when the Bank of
England did raise base rates by 25 basis points to 7.50%. [Graphic]
[Graphic]
WHAT WERE THE HIGHLIGHTS AS FAR AS SECTOR PERFORMANCE WAS CONCERNED?
Banks and insurance stocks continued to perform well, particularly in France,
Italy, and Spain, but often more as a result of ongoing restructuring rather
than the impact of interest rates. As for United Kingdom banks, some faced a
skeptical investor community either because of exposure to Hong Kong and the
rest of Asia, or because of involvement in the competitive mortgage lending
market at home. Telecommunications stocks continued to do well amidst a general
re-rating. Business services such as software and information technology systems
were extremely strong, attaining valuations roughly twice those in the U.S.
market. Indications that continental Europe was beginning to enjoy a more
broadly based recovery (i.e., encompassing Germany and France as well as the
smaller "fringe" markets) also boosted cyclical sectors such as autos, paper,
and building and construction. Utilities, media, pharmaceuticals, and oil along
with other commodities were among the sectors that did not do as well.
[Graphic]
HOW DID FEDERATED EUROPEAN GROWTH FUND PERFORM DURING THE SIX-MONTH REPORTING
PERIOD ENDED MAY 31, 1998?
Reflecting extremely favorable market conditions, Federated European Growth Fund
delivered very strong total returns of 27.31%, 26.77% and 26.91%, based on net
asset value, for Class A, B, and C Shares, respectively.* The fund's returns
were competitive with the 28.69% return of the European market, as measured by
the Morgan Stanley Capital Europe Index.**
* Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on
offering price for Class A, B, and C Shares were 20.27%, 21.14%, and 25.89%,
respectively.
** Morgan Stanley Capital Europe Index is an unmanaged, market value-weighted
average of over 500 securities listed on the stock exchanges of 13 countries
in the European region. This index is unmanaged and investments cannot be
made in an index.
[Graphic]
WHAT COUNTRIES WERE REPRESENTED IN THE PORTFOLIO AS OF MAY 31, 1998, AND WHAT
WERE THE FUND'S TOP TEN HOLDINGS?
The portfolio was diversified across the following countries:
COUNTRY PERCENTAGE OF NET ASSETS
United Kingdom 21.6%
France 16.1%
Italy 10.9%
Germany 9.9%
Spain 7.0%
Switzerland 6.9%
Netherlands 6.9%
Sweden 3.8%
Finland 3.6%
Poland 2.1%
Norway 1.9%
Portugal 1.5%
Ireland 0.9%
Belgium 0.6%
Croatia 0.5%
Greece 0.3%
Turkey 0.1%
In the course of the second quarter of 1998, management significantly increased
exposure to Italy, as well as Spain and Finland, in light of their very positive
markets.
The fund's top ten holdings as of May 31, 1998, were as follows:
MARKET
CAPITALIZATION PERCENTAGE
COUNTRY ($ BILLIONS) OF NET ASSETS
NAME
Alcatel Alsthom France $ 33.8 2.05%
ING Groep, N.V. Netherlands 55.9 1.94%
Mannesmann AG Germany 36.1 1.91%
Nestle SA Switzerland 84.4 1.90%
Assurances Generales
de France France 10.2 1.75%
Telecom Italia SPA Italy 55.7 1.66%
Novartis AG Switzerland 116.2 1.66%
Endesa SA Spain 24.9 1.65%
Arn Mondadori Edit Italy 1.6 1.63%
Eni SPA Italy 62.1 1.49%
TOTAL PERCENTAGE OF
NET ASSETS 17.64%
[Graphic]
WHAT ISSUES DO YOU SEE AS BEING MOST LIKELY TO AFFECT THE EUROPEAN MARKETS FOR
THE REST OF 1998?
Corporate restructuring and consolidation will continue to be significant market
drivers this year and beyond. The countdown to the official start of the
implementation of the EMU on January 1, 1999, will obviously be an important
short-term consideration. We are also concerned with Europe's exposure to Asia,
however, it is less than that of the U.S. and its current account balance is
substantially better. The fundamental background suggests that any flight out of
Asia should be more or less evenly spread between the U.S. and Europe.
Inevitably, the other Euro-related issue to watch will be interest rates. As
convergence has yet to fully happen across short-term rates among the 11
EMU-member states, the key question is whether the Bundesbank will, between now
and the year-end, engineer a rise towards the 4.00% level while rates in Italy
still have considerable room to decline. Convergence may ultimately happen at a
lower than previously expected level of short-term rates, such as 3.75%. This
would give an additional boost to the peripheral European markets.
FEDERATED EUROPEAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--94.6%
AEROSPACE & MILITARY TECHNOLOGY--4.7%
68,396 British Aerospace PLC $ 606,592
12,000 CSF (Thomson) 485,375
14,000 Celsius Industries Corp., Class B 362,625
41,000 Finnair 423,358
164,105 Rolls-Royce 781,986
Total 2,659,936
AUTOMOBILE--1.7%
576 Bayerische Motoren Werke AG 608,256
450 Volkswagen AG 364,943
Total 973,199
BANKING--15.6%
10,000 BPI-SGPS SA 405,146
60,000 Banca Commerciale Italiana 354,266
17,000 Bank Ochrony Srodowiska SA 203,552
5,000 Banque Nationale de Paris 427,043
20,167 Barclays PLC 538,220
375,000 Banca Di Roma 773,251
6,040 Banco Popular Esp 479,055
12,300 Bhf-Bank AG 504,615
72,000 Christiania Bank OG Kreditkasse 308,644
100,000 Credito Italiano 557,736
9,100 Deutsche Bank, AG 783,388
11,610 Dresdner Bank AG, Frankfurt 652,646
42,116 National Westminster Bank, PLC, London 769,739
7,700 (a) Powszechny Bank Kredytowy 207,333
21,000 Skand Enskilda BKN, Class A 349,674
2,200 Societe Generale, Paris 435,735
</TABLE>
FEDERATED EUROPEAN GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
BANKING--CONTINUED
410 UBS - Union Bank of Switzerland $ 689,099
1,950,000 Yapi ve Kredi Bankasi A.S. 37,746
13,500 (a) Zagrebacka Banka, GDR 288,563
Total 8,765,451
BEVERAGE & TOBACCO--1.8%
60,000 Allied Domecq PLC 598,278
18,895 Tabacalera SA 407,075
Total 1,005,353
BROADCASTING & PUBLISHING--2.1%
43,000 Reed International PLC 398,566
5,617 Wolters Kluwer NV 789,042
Total 1,187,608
BUILDING MATERIALS & COMPONENTS--0.8%
12,000 Cimpor Cimentos de Portugal 459,567
CHEMICALS--2.3%
87,500 Croda International 658,833
15,050 Skw Trostberg AG 611,531
Total 1,270,364
CONSTRUCTION & HOUSING--1.1%
800 Holzmann (Philipp) 221,045
10,000 Tarkett Sommer AG 392,322
Total 613,367
DATA PROCESSING & REPRODUCTION--3.4%
14,000 Dassault Systemes SA 652,850
36,000 (a) Industri-Matematik International Corp. 578,250
20,000 Ordina Beheer NV 673,280
800 Ordina Beheer NV, Rights --
Total 1,904,380
</TABLE>
FEDERATED EUROPEAN GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
ELECTRICAL & ELECTRONICS--3.4%
5,400 Alcatel Alsthom $ 1,155,273
32,000 General Electric Co. PLC 262,373
17,600 Telefonaktiebolaget LM Ericsson, Class B, ADR 490,600
Total 1,908,246
ELECTRONIC COMPONENTS, INSTRUMENTS--1.8%
25,000 (a) Industrial & Financial Systems 354,076
7,000 (a) Prokom 250,645
5,600 (a) SGS-Thomas Microelectronics N.V. 433,300
Total 1,038,021
ENERGY EQUIPMENT & SERVICES--0.6%
6,400 Transocean Offshore, Inc. 315,600
ENERGY SOURCES--7.0%
34,001 British Petroleum Co. PLC 499,249
72,000 British-Borneo Petroleum Syndicate PLC 464,511
3,610 Elf Aquitaine SA 501,406
118,200 Eni SPA 835,737
100,000 Lasmo 473,657
12,200 Repsol SA 677,822
3,758 Total SA-B 466,688
Total 3,919,070
FINANCIAL SERVICES--5.5%
21,272 ABN-AMRO Holdings NV 515,145
37,000 Commercial Union PLC 672,610
15,900 ING Groep, N.V. 1,091,862
60,000 Prudential Corp. PLC 797,704
Total 3,077,321
FOOD & HOUSEHOLD PRODUCTS--2.9%
2,055 Groupe Danone 553,335
</TABLE>
FEDERATED EUROPEAN GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
FOOD AND HOUSEHOLD PRODUCTS--CONTINUED
500 Nestle SA $ 1,070,874
Total 1,624,209
FOOD PROCESSING--1.3%
16,000 Agros Holding SA 233,744
20,180 (a) Azucarera Ebro Agricolas, SA 520,645
Total 754,389
HEALTH & PERSONAL CARE--7.4%
8,500 (a) Elan Corp. PLC, ADR 520,094
23,035 Glaxo Wellcome PLC 620,029
550 Novartis AG 931,083
52 Roche Holding AG 534,742
50,059 Smithkline Beecham Corp. 542,487
12,800 (a) Transgene, ADR 230,400
18,800 Zeneca Group 764,274
Total 4,143,109
HOUSEHOLD APPLIANCES--0.2%
4,000 Gardena Holding AG 94,157
INSURANCE--9.5%
4,020 AXA 457,566
25,000 Assicurazioni Generali 803,470
16,000 Assurances Generales de France 986,796
280 Baloise Holdings 666,217
72,959 Guardian Royal Exchange PLC 462,356
76,607 (a) Guardian Royal Exchange PLC, Class B 25,024
125,000 Istituto Nazionale delle Assicurazioni 389,292
610 Muenchener Rueckversicherungs-Gesellschaft AG 277,094
15,000 Sampo Insurance Co. Ltd., Class A 696,993
</TABLE>
FEDERATED EUROPEAN GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
INSURANCE--CONTINUED
9,200 Scor SA $ 579,709
Total 5,344,517
LEISURE & TOURISM--0.5%
40,000 (a) Orbis SA 297,909
MACHINERY & ENGINEERING--2.5%
1,100 Mannesmann AG 1,075,802
14,030 Siebe PLC 351,749
Total 1,427,551
MANUFACTURING--0.2%
20,000 Porvair PLC 107,798
MERCHANDISING--2.1%
15,000 Ahold NV 473,633
1,900 Guyenne & Gascogne 711,349
Total 1,184,982
MISCELLANEOUS MATERIALS & COMMODITIES--0.8%
2,420 Compagnie de St. Gobain 477,286
PHARMACEUTICALS--0.1%
2,000 (a) ICON PLC, ADR 51,000
PUBLISHING--1.6%
75,000 Arn Mondadori Edit 917,235
REAL ESTATE--0.1%
7,600 (a) Sponda Oyj 49,048
RECREATION, OTHER CONSUMER GOODS--0.4%
29,280 EMI Group PLC 247,723
TELECOMMUNICATIONS--8.8%
8,000 (a) Global TeleSystems Group, Inc., ADR 306,500
6,000 Hellenic Telecommunications Organization 176,210
8,700 Helsingin Puhelin Oyj 385,005
</TABLE>
FEDERATED EUROPEAN GROWTH FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
TELECOMMUNICATIONS--CONTINUED
6,101 Koninklijke PTT Nederland NV $ 340,992
7,300 OY Nokia AB, Class A, ADR 474,044
105,000 Securicor PLC 794,029
40,000 (a) Tandberg Television 411,419
123,900 Telecom Italia SPA 936,298
9,490 Telefonica SA 423,935
62,296 Vodafone Group PLC 684,774
Total 4,933,206
UTILITIES - ELECTRICAL & GAS--3.5%
38,780 Endesa SA 928,878
31,150 Iberdrola SA 513,857
120,000 Italgas (Soc. Ital.) 552,901
Total 1,995,636
WHOLESALE & INTERNATIONAL TRADE--0.9%
1,150 Rexel S.A. 480,348
TOTAL COMMON STOCKS (IDENTIFIED COST $47,407,219) 53,227,586
(B)REPURCHASE AGREEMENT--7.7%
$ 4,345,000 BT Securities Corp., 5.57%, dated 5/29/1998, due 6/1/1998
(AT AMORTIZED COST) 4,345,000
TOTAL INVESTMENTS (IDENTIFIED COST $51,752,219)(C) $ 57,572,586
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $51,752,219. The
net unrealized appreciation of investments on a federal tax basis amounts to
$5,820,367 which is comprised of $6,830,106 appreciation and $1,009,739
depreciation at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($56,254,650) at May 31, 1998.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
AG --Aktiengesellschaft
GDR --Global Depositary Receipt
PLC --Public Limited Company
SA --Support Agreement
SPA --Standby Purchase Agreement
(See Notes which are an integral part of the Financial Statements)
FEDERATED EUROPEAN GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 57,572,586
$51,752,219)
Cash 978
Cash denominated in foreign currencies (at identified cost $505,361) 505,764
Income receivable 176,749
Receivable for investments sold 1,715,995
Receivable for shares sold 428,570
Deferred organizational costs 29,701
Total assets 60,430,343
LIABILITIES:
Payable for investments purchased $4,010,331
Payable for shares redeemed 108,234
Payable for taxes withheld 13,113
Accrued expenses 44,015
Total liabilities 4,175,693
NET ASSETS for 3,431,673 shares outstanding $ 56,254,650
NET ASSETS CONSIST OF:
Paid in capital $ 47,059,997
Net unrealized appreciation of investments and translation of assets and
liabilities in foreign currency 5,818,939
Accumulated net realized gain on investments and foreign currency transactions 3,289,906
Undistributed net investment income 85,808
Total net assets $ 56,254,650
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($41,879,022 / 2,544,069 shares outstanding) $16.46
Offering Price Per Share (100/94.50 of $16.46)* $17.42
Redemption Proceeds Per Share $16.46
CLASS B SHARES:
Net Asset Value Per Share ($12,013,123 / 741,585 shares outstanding) $16.20
Offering Price Per Share $16.20
Redemption Proceeds Per Share (94.50/100 of $16.20)** $15.31
CLASS C SHARES:
Net Asset Value Per Share ($2,362,505 / 146,019 shares outstanding) $16.18
Offering Price Per Share $16.18
Redemption Proceeds Per Share (99.00/100 of $16.18)** $16.02
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EUROPEAN GROWTH FUND
STATEMENT OF OPERATIONS
<TABLE>
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $58,210) $ 421,005
Interest 33,943
Total income 454,948
EXPENSES:
Investment advisory fee $165,648
Administrative personnel and services fee 92,247
Custodian fees 30,601
Transfer and dividend disbursing agent fees and expenses 43,699
Directors'/Trustees' fees 546
Auditing fees 9,743
Legal fees 2,599
Portfolio accounting fees 41,431
Distribution services fee--Class B Shares 30,115
Distribution services fee--Class C Shares 4,141
Shareholder services fee--Class A Shares 29,993
Shareholder services fee--Class B Shares 10,038
Shareholder services fee--Class C Shares 1,380
Share registration costs 17,924
Printing and postage 17,710
Insurance premiums 1,765
Taxes 601
Miscellaneous 8,009
Total expenses 508,190
Waivers and reimbursements--
Waiver of investment advisory fee $ (165,648)
Reimbursement of other operating expenses (2,765)
Total waivers and reimbursements (168,413)
Net expenses 339,777
Net investment income 115,171
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on investments and foreign currency transactions 3,260,858
Net change in unrealized appreciation of investments and translation of
assets and liabilities in foreign currency transactions 4,193,494
Net realized and unrealized gain on investments and foreign currency 7,454,352
transactions
Change in net assets resulting from operations $ 7,569,523
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EUROPEAN GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 115,171 $ 40,335
Net realized gain on investments and foreign currency
transactions ($3,260,858 and $775,804, respectively, as
computed for federal tax purposes) 3,260,858 706,296
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency 4,193,494 1,254,529
Change in net assets resulting from operations 7,569,523 2,001,160
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares -- (33,183)
Class B Shares -- (8,052)
Class C Shares -- (1,338)
Distributions from net realized gains on investments and
foreign currency transactions
Class A Shares (537,759) (131,318)
Class B Shares (185,127) (41,600)
Class C Shares (23,412) (6,086)
Change in net assets resulting from distributions to (746,298) (221,577)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 49,493,786 39,304,669
Net asset value of shares issued to shareholders in payment
of distributions declared 673,038 176,299
Cost of shares redeemed (24,292,528) (22,413,018)
Change in net assets resulting from share transactions 25,874,296 17,067,950
Change in net assets 32,697,521 18,847,533
NET ASSETS:
Beginning of period 23,557,129 4,709,596
End of period (including undistributed net investment income
of $85,808 and $(29,363), respectively) $ 56,254,650 $ 23,557,129
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EUROPEAN GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.33 $11.80 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.07(e) 0.06(e) 0.14
Net realized and unrealized gain on
investments and foreign currency 3.47 1.93 1.66
Total from investment operations 3.54 1.99 1.80
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.09) --
Distributions from net realized gain on
investments and foreign currency transactions (0.41) (0.37) --
Total distributions (0.41) (0.46) --
NET ASSET VALUE, END OF PERIOD $16.46 $13.33 $11.80
TOTAL RETURN(B) 27.31% 17.54% 18.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85%* 1.91% 1.75%*
Net investment income 0.91%* 0.50% 1.60%*
Expense waiver/reimbursement(c) 1.02%* 2.79% 11.10%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $41,879 $17,008 $3,318
Average commission rate paid(d) $0.0091 $0.0563 $0.0223
Portfolio turnover 79% 119% 58%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EUROPEAN GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.18 $11.74 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.01(e) (0.03)(e) 0.01
Net realized and unrealized gain on investments
and foreign currency 3.42 1.91 1.73
Total from investment operations 3.43 1.88 1.74
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.07) --
Distributions from net realized gain on
investments and foreign currency transactions (0.41) (0.37) --
Total distributions (0.41) (0.44) --
NET ASSET VALUE, END OF PERIOD $16.20 $13.18 $11.74
TOTAL RETURN(B) 26.77% 16.61% 17.40%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.59%* 2.66% 2.50%*
Net investment income 0.12%* (0.25)% 0.08%*
Expense waiver/reimbursement(c) 1.02%* 2.79% 11.10%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $12,013 $5,781 $1,215
Average commission rate paid(d) $0.0091 $0.0563 $0.0223
Portfolio turnover 79% 119% 58%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EUROPEAN GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.15 $11.73 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.01(e) (0.03)(e) 0.01
Net realized and unrealized gain on
investments and foreign currency 3.43 1.90 1.72
Total from investment operations 3.44 1.87 1.73
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.08) --
Distributions from net realized gain on
investments and foreign currency transactions (0.41) (0.37) --
Total distributions (0.41) (0.45) --
NET ASSET VALUE, END OF PERIOD $16.18 $13.15 $11.73
TOTAL RETURN(B) 26.91% 16.55% 17.30%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.59%* 2.66% 2.50%*
Net investment income 0.18%* (0.23)% 0.09%*
Expense waiver/reimbursement(c) 1.02%* 2.79% 11.06%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,363 $768 $176
Average commission rate paid(d) $0.0091 $0.0563 $0.0223
Portfolio turnover 79% 119% 58%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EUROPEAN GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of nine portfolios. The
financial statements included herein are only those of Federated European Growth
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers three classes of shares: Class A Shares, Class
B Shares, and Class C Shares. The investment objective of the Fund is to provide
long-term growth of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Foreign and domestic equity securities are valued at
the last sale price reported on a national securities exchange or
over-the-counter market. In the absence of recorded sales for equity securities,
they are valued according to the mean between the last closing bid and asked
prices. Short-term foreign and domestic securities are valued at the prices
provided by an independent pricing service. However, short-term foreign and
domestic securities with remaining maturities of 60 days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS -- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
However, federal taxes may be imposed on the Fund upon the disposition of
certain investments in passive foreign investment companies. Withholding taxes
on foreign interest and dividends have been provided for in accordance with the
Fund's understanding of the applicable country's tax rules and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering its shares, have been deferred and are being amortized over a period
not to exceed five years from the Fund's commencement date.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency exchange
contracts as a way of managing foreign exchange rate risk. The Fund may enter
into these contracts for the purchase or sale of a specific foreign currency at
a fixed price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The objective of the Fund's foreign
currency hedging transactions is to reduce the risk that the U.S. dollar value
of the Fund's foreign-currency-denominated securities will decline in value due
to changes in foreign currency exchange rates. All foreign currency exchange
contracts are "marked-to-market" daily at the applicable translation rates
resulting in unrealized gains or losses. Realized gains or losses are recorded
at the time the foreign currency exchange contract is offset into a closing
transaction or by delivery or receipt of the currency. Risks may arise upon
entering into these contracts from the potential inability of the counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of exchange
of such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, income, and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, par value shares ($0.001 per share) authorized were as follows:
NUMBER OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 100,000,000
Total 300,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,920,875 $ 29,828,960 2,044,836 $ 26,359,674
Shares issued to shareholders in payment
of distributions declared 35,977 481,005 10,569 121,753
Shares redeemed (688,642) (10,397,882) (1,060,707) (14,036,778)
Net change resulting from
Class A Share transactions 1,268,210 $ 19,912,083 994,698 $ 12,444,649
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 864,817 $ 12,967,837 658,177 $ 8,379,795
Shares issued to shareholders in payment
of distributions declared 13,018 171,961 4,112 47,162
Shares redeemed (574,923) (8,538,328) (327,141) (4,302,291)
Net change resulting from
Class B Share transactions 302,912 $ 4,601,470 335,148 $ 4,124,666
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C> <C>
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 443,611 $ 6,696,989 357,054 $ 4,565,199
Shares issued to shareholders in payment
of distributions declared 1,522 20,072 643 7,385
Shares redeemed (357,500) (5,356,318) (314,313) (4,073,949)
Net change resulting from
Class C Share transactions 87,633 $ 1,360,743 43,384 $ 498,635
Net change resulting
from share transactions 1,658,755 $ 25,874,296 1,373,230 $ 17,067,950
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 1.00% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors, Inc. for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class A, Class B, and Class C Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
Class A Shares did not incur a distribution services fee for the period ended
May 31, 1998, and has no present intention of paying or accruing the
distribution services fee.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $42,822 were borne
initially by the Adviser. The Fund has reimbursed the Adviser for these
expenses. These expenses have been deferred and are being amortized over the
five-year period following the Fund's effective date. For the period ended May
31, 1998, the Fund paid $5,508 pursuant to this agreement.
GENERAL -- Certain Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
PURCHASES $46,894,224
SALES $25,835,955
7. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At May 31, 1998, the diversification of countries was as follows:
COUNTRY PERCENTAGE OF NET ASSETS
United Kingdom 21.6%
France 16.1%
Italy 10.9%
Germany 9.9%
Spain 7.0%
Switzerland 6.9%
Netherlands 6.9%
Sweden 3.8%
Finland 3.6%
Poland 2.1%
Norway 1.9%
Portugal 1.5%
Ireland 0.9%
Belgium 0.6%
Croatia 0.5%
Greece 0.3%
Turkey 0.1%
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President,
Treasurer, and Secretary
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 981487861
Cusip 981487853
Cusip 981487846
G01742-02 (7/98)
[Graphic]
[Graphic]
Federated Investors
Federated International Small Company Fund
2ND SEMI-ANNUAL REPORT
MAY 31, 1998
ESTABLISHED 1996
PRESIDENT'S MESSAGE
Dear Fellow Shareholder:
Federated International Small Company Fund was created in 1996, and I am pleased
to present its second Semi-Annual Report. This stock fund offers investors
ownership in small companies outside the United States. These types of growth
opportunities are very attractive. Professional and experienced management in
international equities is very important.
This report covers the first half of the fund's fiscal year, which is the
six-month period from December 1, 1997 through May 31, 1998. It begins with a
discussion with the fund's portfolio manager, Tracy Stouffer, Vice President of
Federated Global Research Corp. Following her discussion, which covers
international economic and market conditions and the fund's strategy, are two
additional items of shareholder interest. First is a complete listing of the
fund's diversified international stock holdings, and second is the publication
of the fund's financial statements.
This fund is managed to provide shareholders with significant long-term growth
opportunities from a well-researched $419-million portfolio embracing more than
200 small-cap stocks in 26 countries across three continents.* This broad
diversification is a hallmark of successful international investing.**
During the six-month reporting period ended May 31, 1998, the fund delivered
very attractive total return performance that far eclipsed that of its benchmark
index, and the average international small company fund tracked by Lipper
Analytical Services, Inc. The fund's positions in Europe and its broad
diversification across many stock issues helped the net asset value for each
class of shares to increase by over 38%. Individual share class total return
performance follows.+
<TABLE>
<CAPTION>
TOTAL RETURN NET ASSET VALUE INCREASE
<S> <C> <C>
Class A Shares 39.51% $14.25 to $19.88 = 39.51%
Class B Shares 38.88% $14.07 to $19.54 = 38.88%
Class C Shares 38.90% $14.06 to $19.53 = 38.90%
</TABLE>
* Small-cap stocks have historically experienced greater volatility than
average.
** Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
+ Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price, for Class A, B, and C Shares were 31.83%, 33.40%, and 37.91%,
respectively.
This international small company fund's record of strong returns has continued
since the fund began operation on February 28, 1996. However, it is important to
remember that the true measure of this fund's performance is clearly in years
rather than months. There will inevitably be periods of negative short-term
fluctuation, as well as the highly positive returns we have experienced since
the fund's inception. These positive results have occurred as the investment
selections move freely around the globe, from Asia to Europe, for example.
In this investment environment, I recommend that you add to your account on a
regular basis to take advantage of price fluctuations and to use the dollar-cost
averaging method of investing.++
Thank you for your confidence in Federated International Small Company Fund.
Please review this report and familiarize yourself with the fund's strategy and
holdings. We will continue to keep you up-to-date on the details of your
investment on a regular basis. We appreciate the fact that you have entrusted a
portion of your wealth to the fund.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1998
++ Dollar-cost averaging does not ensure a profit or protect against loss in
declining markets. Since such a plan of investing involves continuous investing
regardless of fluctuating price levels, investors should consider whether to
invest in periods of low price levels.
INVESTMENT REVIEW
[Graphic]
Tracy Stouffer
Vice President
Federated Global
Research Corp.
[Graphic]
WHAT IS YOUR REVIEW OF THE SIX-MONTH REPORTING PERIOD, WHICH SAW
INTERNATIONAL SMALL-CAP STOCKS COME BACK FROM A NEGATIVE YEAR AND, THANKS TO
EUROPE, DELIVER A POSITIVE DOUBLE-DIGIT TOTAL RETURN?
For the six-month reporting period ended May 31, 1998, the Asian and Latin
American markets, as measured in U.S. dollars by the Morgan Stanley Capital
International Small Cap Index,* continued to experience heavy losses in the
following countries: Singapore returned (42.70%), Malaysia returned (34.30%),
Hong Kong returned (32.30%), and New Zealand returned (19.70%). In contrast, the
Morgan Stanley Capital International World, ex-U.S. Small Cap Index* had the
best regional return of 28.10%, followed by the Nordic countries which returned
18.00%. Every country in the Morgan Stanley Capital International World, ex-U.S.
Small Cap Index posted double-digit gains, with Italy leading with a 69.40%
total return for the six-month reporting period ended May 31, 1998.
[Graphic]
HOW WELL DID THE FUND PERFORM COMPARED TO THE OVERALL INTERNATIONAL SMALL-CAP
STOCK MARKET?
For the six-month reporting period ended May 31, 1998, the fund's total returns,
based on net asset value, were 39.51%, 38.88%, and 38.90% for Class A, B, and C
Shares, respectively.** These returns contrasted sharply with the 12.83% return
of the small-cap international market, as represented by the FT/S&P-Actuaries
World, ex-U.S., Medium-Small Cap Index.* The fund also significantly
outperformed the 22.78% return of the 33 small company international funds
tracked by Lipper Analytical Services, Inc.+ It was undoubtedly a good reporting
period, and the fund's investments were in the right places at the right times.
* The Morgan Stanley Capital International Small Cap Index tracks small-cap
stock performance worldwide by defining a consistent market capitalization range
across 23 developed markets. The Morgan Stanley Capital International World,
ex-U.S. Small Cap Index tracks small-cap stock performance by defining a
consistent market capitalization range across 22 developed markets outside of
the U.S. The FT/S&P-Actuaries World, ex-U.S., Medium-Small Cap Index is a total
return, market cap-weighted, index of 1,092 companies from 25 countries. Indices
are unmanaged and investments cannot be made in an index.
** Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the reporting period based
on offering price for Class A, B, and C Shares were 31.83%, 33.40%, and 37.91%,
respectively.
+ Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. These figures do not reflect sales charges.
[Graphic]
WHAT PORTFOLIO HOLDINGS HAD THE GREATEST IMPACT ON THE FUND'S PERFORMANCE?
During the six-month reporting period ended May 31, 1998, the fund benefited
from many strong returns, led by technology-related holdings such as: COLT
TELECOM GROUP PLC (United Kingdom, 0.76% of net assets) which returned 211.2%,
DATATEC LTD. (South Africa, 0.46% of net assets) which returned 206.0%, and CGI
GROUP INC. (Canada, 1.18% of net assets) which returned 199.9%. The fund's
selection of stocks from companies that provide temporary and full-time manpower
continued their fourth quarter 1997 gains as follows: CREYF'S NV (Belgium, 1.30%
of net assets) returned 190.9%, and ROBERT WALTERS PLC (United Kingdom, 0.71% of
net assets) returned 26.80%.
[Graphic]
WHAT STRATEGIES ACCOUNTED FOR THE FUND'S OUTPERFORMANCE?
The fund's performance was achieved by our underweighting the Asian and Latin
American markets. As in the U.S., finance and technology sectors in Europe
continued to contribute to the markets' gains. The fund's management will
continue to search for solid growth companies that are leaders in their
respective industries with excellent management.
[Graphic]
WHERE WERE THE FUND'S ASSETS INVESTED AS OF MAY 31, 1998, AND WHAT WERE THE
FUND'S TOP TEN HOLDINGS?
The portfolio was well-diversified across the following 24 countries.
<TABLE>
<CAPTION>
PERCENTAGE
OF
COUNTRY NET ASSETS
<S> <C>
France 9.88%
United Kingdom 8.63%
Sweden 7.61%
Italy 7.59%
Germany 7.08%
Netherlands 6.79%
Spain 6.52%
Canada 6.17%
Norway 5.52%
Greece 5.45%
Belgium 5.39%
Portugal 5.21%
Ireland 4.22%
Switzerland 3.65%
South Africa 3.29%
Denmark 2.47%
Finland 1.23%
Israel 0.96%
Poland 0.30%
Egypt 0.29%
Austria 0.27%
Brazil 0.18%
Mexico 0.08%
India 0.01%
</TABLE>
At the end of the reporting period, the fund's top ten holdings were:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COUNTRY NET ASSETS INDUSTRY
<S> <C> <C> <C>
Corp Fin Reunida Spain 1.40% Financial Services
Ibersol SGPS SA Portugal 1.33% Food & Household Products
Creyf's NV Belgium 1.30% Business & Public Services
TelePizza SA Spain 1.28% Food Processing
Know It AB Sweden 1.26% Electronic Components,Instruments
CGI Group, Inc. Canada 1.18% Telecommunications
Kinnevik AB, Class B Sweden 1.15% Multi-Industry
Matalan PLC United Kingdom 1.10% Textiles & Apparel
Altran Technologies SA France 1.07% Telecommunications
Koenig & Germany 1.02% Machinery & Engineering
Bauer-Albert AG
TOTAL PERCENTAGE
OF NET ASSETS 12.09%
</TABLE>
[Graphic]
AS WE APPROACH MID-YEAR, WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF THE FUND'S
FISCAL YEAR?
Asia will require more time to get its finances in order. Japan still has not
taken the necessary and long overdue positive steps towards resurrecting their
economy. Other Asian nations are depending on Japan to make the first move.
China, in particular, is weighing the possibility of devaluing its currency, the
Yuan. The fund's management will continue to look towards Europe for investment
opportunities. Three points continue to redefine the European landscape:
* Regulatory changes continue to increase cross-border competition in Europe
(i.e., telecommunications, airlines, etc.);
* Each country's own regulatory environment is changing (i.e., France and
Italy are relaxing labor laws); and
* Privatization of government-run facilities and services.
We believe that the winds of change will continue to create opportunities for
existing companies and entrepreneurs to service those markets more efficiently
and profitably. Europeans today, probably more than at any other time, have more
access to goods and services as a result of having better economic environments.
For example, witness the growth in the number of initial public offerings of
securities that are being made available only to Europeans and not to investors
outside of Europe. This, we believe, will allow its citizens to be a part of the
booming capital markets, thereby enabling them to share in the gains of small
company stocks.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- 96.5%
AEROSPACE & MILITARY TECHNOLOGY -- 0.5%
125,000 (a)Virgin Express Holdings, ADR $ 2,156,250
APPLIANCES & HOUSEHOLD DURABLES -- 0.4%
46,293 Beter Bed Holding NV 1,664,297
AUTOMOBILE -- 2.2%
21,000 Athlon Groep 3,748,788
72,000 Haldex AB 1,041,787
17,500 Kiekert AG 1,105,857
178,900 (a)Spectra Premium Industries 2,578,694
11,300 (a)W.E.T. Automotive Systems 753,650
Total 9,228,776
BANKING -- 6.1%
930,000 Anglo Irish Bank Corp. PLC 2,551,870
196,300 Banca Popolare di Novara 1,875,904
105,000 Banca Populare di Brescia 2,171,075
161,000 Banco Mello SA 2,244,216
39,400 Banco Pastor SA 2,183,834
96,000 Banco de Valencia SA 2,869,548
1,400 Bank Sarasin & Cie 2,535,403
24,400 Bergensbanken ASA 213,725
1,400,000 (a)Business Bank Ltd. 978,280
23,500 HDFC Bank Ltd. 39,016
39,500 Kempen & Co. NV 2,793,019
39,725 Natl. Mortgage Bk. 2,842,993
115,000 (a)Pierwszy Polsko-Amerykanski Bank SA 428,244
600 Vernwaltungs und Privat Bank 1,812,352
Total 25,539,479
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
BEVERAGES -- 1.3%
15,700 (a)Belvedre SA $ 3,214,524
86,700 UNICER-Uniao Cervejeira SA 1,983,681
Total 5,198,205
BROADCASTING & PUBLISHING -- 1.0%
177,700 (a)Atlantis Communications, Inc. 1,829,570
400,000 (a)Lions Gate Entertainment Corp. 1,015,856
50,000 (a)Xeikon N.V., ADR 1,209,375
Total 4,054,801
BUILDING MATERIALS & COMPONENTS -- 1.2%
1,064 Bien-Haus 387,614
47,500 Rinol AG 1,996,637
174,000 Yit Yhytyma 2,662,954
Total 5,047,205
BUSINESS & PUBLIC SERVICES -- 5.5%
54,000 ADB-Gruppen Mandator 1,998,137
48,000 Admiral PLC 964,301
337,000 Capita Group PLC 2,988,794
20,800 Creyf's NV 5,427,562
59,000 Delta Informatics 2,594,258
62,500 Diagonal PLC 1,105,030
250,000 Guardian IT 2,215,165
120,000 (a)Informission Group 1,276,683
62,744 LCI Computer Group 1,042,067
1,300,000 Locazione Attrezature SPA 2,255,404
3,910 Publicitas Holding SA 1,245,710
Total 23,113,111
CONSTRUCTION & HOUSING -- 2.2%
5,295 Finpro 28,990
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
CONSTRUCTION & HOUSING -- CONTINUED
695,000 Immobiliare Metanopoli $ 909,272
241,000 Jarvis PLC 3,011,235
465,000 Kingspan Group 2,136,151
104,200 Mota & Companhia 1,825,568
63,500 Ulstein Holding ASA 1,339,965
Total 9,251,181
CONSUMER SERVICES -- 0.4%
32,000 Falck A/S 1,812,324
DATA PROCESSING & REPRODUCTION -- 3.8%
77,500 (a)C/TAC NV 1,969,245
23,000 (a)Formula Systems (1985) Ltd. 969,296
77,500 (a)IONA Technologies PLC, ADR 2,383,125
67,000 Infowave Wireless Messaging, Inc. 144,862
9,200 (a)Intentia International AB 356,271
60,000 Intrasoft SA 3,995,734
217,500 Merkantildata ASA 3,045,329
153,500 (a)Micro Focus Group PLC 1,416,521
69,800 Protect Datasakerhet AB 1,442,793
Total 15,723,176
DRUGS -- 0.3%
40,000 (a)Biovail Corp. International 1,357,500
ELECTRICAL & ELECTRONICS -- 2.8%
34,000 (a)Algol 831,627
101,000 FI Group PLC 2,804,378
493,800 (a)Sensonor ASA 2,523,099
13,630 Simac Techniek 2,795,741
148,500 (a)Toolex Alpha NV 2,702,618
Total 11,657,463
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
ELECTRONIC COMPONENTS, INSTRUMENTS -- 18.1%
6,050 (a)ARM Holdings PLC, ADR $ 214,775
252,500 (a)Agresso Group 1,156,120
52,000 Artwork Systems Group N.V. 988,000
19,000 (a)Augusta Beteilingungs-AG 1,554,715
14,120 Azkoyen SA 2,180,191
40,000 (a)BCO Technologies 127,215
54,000 Cie des Signaux SA 4,198,696
325,000 (a)Computer Configurations Holdings 1,734,797
13,975 Computer Configurations Holdings, Rights 24,413
12,460 Decan 2,436,604
74,500 EDB Gruppen A/S 3,287,780
49,000 (a)Eidos PLC 910,361
29,250 Enea 2,317,667
175,000 Entra Data AB 3,561,494
200,000 (a)Frontec AB, Class B 2,181,874
56,500 (a)Gruppo Formula 1,606,940
55,000 (a)Guide Konslut AB 996,517
82,500 ICT Automatisering 2,051,167
134,000 Incap Oy 2,223,738
140,000 (a)Intelligent Detection Systems 562,153
157,800 (a)Know It 5,275,235
381 (a)Kudelski SA 2,918,900
48,250 (a)Licenergy A/S 2,697,156
50,000 London Bridge Software Holdings 959,564
550,000 Lynx Group 2,003,244
115,000 (a)Melexis NV 2,242,500
100,000 (a)Provida ASA 2,229,625
8,056 (a)Real Software 2,463,441
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
ELECTRONIC COMPONENTS, INSTRUMENTS -- CONTINUED
41,400 Resco AB, Class B $ 1,368,150
7,210 Sartorius AG-Vorzug 3,636,822
5,310 Sopra SA 1,757,279
72,130 Sysware 3,086,620
43,200 (a)Titus Interactive 3,588,568
4,250 Topcall International AG 1,123,900
23,530 (a)Transiciel SA 2,359,686
121,000 (a)Unit 4 3,910,892
Total 75,936,799
ENERGY SOURCES -- 0.6%
62,000 (a)Vetsus Wind Systems A/S 2,553,730
FINANCIAL SERVICES -- 5.0%
32,000 Amsterdam Options Traders NV 1,922,180
1,564,500 (a)Aquila Growth Ltd. 1,275,432
405,000 Corp Fin Reunida 5,852,524
472,000 DBS Management PLC 1,857,913
133,100 FBC Holdings Ltd. 878,394
3,100,000 Fishers International PLC 1,886,054
20,900 ICICI Banking Corp. 20,749
173,700 M-Web Holdings Ltd. 773,776
441 Nuernberger Beteiligungs AG 585,776
17,000 (a)Perigee, Inc. 254,959
396,000 (a)Theta Group Ltd. 1,940,837
26,000 Van der Moolen Holding NV 1,881,107
1,150 Vontobel Hldgs. AG 1,630,105
Total 20,759,806
FOOD & HOUSEHOLD PRODUCTS -- 3.0%
130,000 (a)Blue Square Chain Stores Properties & Investments 1,608,013
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
FOOD & HOUSEHOLD PRODUCTS -- CONTINUED
900,000 Fyffes $ 2,289,869
49,900 (a)Ibersol SGPS SA 5,551,426
26,700 (a)Leon De Bruxelles 2,963,196
Total 12,412,504
FOOD PROCESSING -- 4.4%
286,000 (a)Autogrill SPA 2,090,500
9,930 (a)Azucarera Ebro Agricolas, SA 256,195
63,000 Goody's SA 1,815,062
59,100 (a)Kamps AG 1,854,897
42,753 Royal Canin 2,651,786
19,346 (a)Saveurs de France 753,404
531,400 (a)TelePizza SA 5,347,311
76,248 Viscofan Envoltura 3,521,848
Total 18,291,003
FOREST PRODUCTS & PAPER -- 1.0%
69,000 Corticeira Amorim SA 1,495,976
69,000 Unipapel, SA 2,454,042
Total 3,950,018
HEALTH & PERSONAL CARE -- 2.5%
870 (a)Carson Holdings 1,858
295,000 Corporativo Fragua SA 334,467
52,000 (a)Innogenetics NV 3,274,440
140,000 Nobel Biocare 2,107,869
19,500 (a)Nocibe SA 1,450,359
53,000 Rilken SA 1,017,391
18,720 Sarantis SA 376,857
125,000 Scholl PLC 1,031,021
53,700 (a)Transgene, ADR 966,600
Total 10,560,862
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
HOUSEHOLD APPLIANCES -- 2.0%
175,000 Ekornes ASA $ 1,730,282
3,000 Keramik Holding 1,721,228
152,000 Merloni Elettrodom 1,149,079
607,000 Pagnossin 3,836,046
Total 8,436,635
INDUSTRIAL COMPONENTS -- 0.9%
105,700 Liraz Systems 1,446,281
6,800 Penauille Polyservices 2,159,452
Total 3,605,733
INSURANCE -- 0.8%
88,000 (a)Mundial Confianca 2,710,101
84,000 Vittoria Assicurazioni 477,816
Total 3,187,917
LEISURE & TOURISM -- 2.4%
100,000 Alliance Communications Corp. 1,904,729
640,000 CIGA Hotels 782,708
28,000 (a)Infogrames Entertainment 1,769,012
15,000 (a)Kinepolis 1,019,299
97,000 (a)Nelvana Ltd. 2,213,776
150,000 (a)Royal Olympic Cruise Lines, ADR 1,968,750
778,500 Tourism Investment Corp. 309,774
Total 9,968,048
MACHINERY & ENGINEERING -- 3.1%
23,000 AGIE Charmilles Holding AG 2,398,583
35,000 (a)Deutsche Babcock AG 2,442,203
695,000 Interpump Group SPA 3,751,734
15,429 Koenig & Bauer-Albert AG 4,280,429
25,875 PT Komatsu Indonesia 2,175
Total 12,875,124
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
MANUFACTURING -- 2.7%
500,000 Barlow Group PLC $ 593,670
89,000 DataTec Ltd. 1,934,820
72,200 (a)Dorel Industries, Inc. 2,428,307
26,300 Samas Groep NV 1,955,123
135,800 Tomra Systems ASA 4,217,335
Total 11,129,255
MEDIA -- 3.0%
9,914,600 (a)African Media Entertainment Ltd. 2,886,683
8,393 (a)EM TV 3,970,123
3,100 Edipresse SA 1,033,682
993,500 (a)MMW Technology Holdings Ltd. 1,041,344
128,500 (a)Modern Times Group, Class B 1,467,438
8,000 Publicis SA 1,182,016
200,000 (a)Salter Street Films Ltd. 940,353
Total 12,521,639
MINING -- 0.7%
720,000 (a)Petrolia Drilling ASA 2,904,883
MISCELLANEOUS MATERIALS & COMMODITIES -- 0.6%
17,879 (a)Serp Recyclage 2,342,827
MULTI-INDUSTRY -- 2.4%
65,000 Italmobilaire 2,377,418
132,000 Kinnevik AB, Class B 4,825,386
350,000 Robert Walters PLC 2,961,175
Total 10,163,979
PHARMACEUTICALS -- 0.3%
100,000 Galen Holdings 792,151
13,000 (a)ICON PLC, ADR 331,500
Total 1,123,651
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
PUBLISHING -- 1.2%
1,500,000 (a)Monrif $ 1,595,563
1,053,000 Poligrafici Editoriale 3,354,266
Total 4,949,829
REAL ESTATE -- 1.4%
192,200 Boardwalk Equities, Inc. 2,902,327
145,000 Mundicenter Sociedade Imobil 2,564,194
37,500 (a)Sponda Oyj 242,011
Total 5,708,532
RECREATION, OTHER CONSUMER GOODS -- 1.7%
67,700 Aldeasa 2,613,296
275,000 First Leisure Corp. 1,805,614
90,000 (a)Folli-Follie 2,864,643
Total 7,283,553
TELECOMMUNICATIONS -- 6.7%
21,844 Altran Technologies SA 4,472,489
240,000 (a)CGI Group, Inc. 4,958,473
97,500 (a)Colt Telecom Group PLC 3,169,012
115,000 (a)Esat Telecom Group PLC, ADR 3,450,000
57,000 (a)Esprit Telecom Group PLC, ADR 997,500
37,800 (a)Global TeleSystems Group, Inc., ADR 1,448,213
214,550 (a)ITG Group 1,026,744
52,000 (a)MetroNet Communications Corp., Class B 1,463,381
2,000 MobilCom AG 1,579,375
26,200 (a)Omnicom SA 3,087,247
23,600 Telinfo SA 2,322,153
Total 27,974,587
TEXTILES & APPAREL -- 2.6%
226,850 Klonatex I.C.S.T. & T.S.A. 2,240,586
1,000,000 Matalan 4,605,909
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
TEXTILES & APPAREL -- CONTINUED
56,190 (a)Oriental Weavers $ 1,202,948
257,800 (a)Simint SPA 2,690,916
Total 10,740,359
TRANSPORTATION - AIRLINES -- 0.3%
35,000 (a)Ryanair Holdings PLC, ADR 1,229,375
TRANSPORTATION - ROAD & RAIL -- 0.7%
503,000 (a)Bilspedition AB, Class B 2,913,784
TRANSPORTATION - SHIPPING -- 0.9%
175,000 (a)Det Sondenfjelds-Norske Dampskibsselskab, Class A
3,750,879 WHOLESALE & INTERNATIONAL TRADE -- 0.2%
78,000 (a)Art Marketing Syndicate SA 824,463
95,000 Atlantis-Cristais de Alcobaca, Rights 217,597
Total 1,042,060
TOTAL COMMON STOCKS (IDENTIFIED COST
$317,159,929) 404,121,139
PREFERRED STOCKS -- 2.3%
CONSTRUCTION & HOUSING -- 0.2%
197,000 Construtora Sultepa SA, Preference 633,771
MACHINERY & ENGINEERING -- 0.7%
9,923 KSB AG, Pfd. 3,003,178
MULTI-INDUSTRY -- 0.8%
225,000 Lusomundo Sociedade Gestora de 3,202,847
Participacoes Sociais SA, Pfd.
TEXTILES & APPAREL -- 0.0%
47,200 Confeccoes Guararapes SA, Pfd. 131,329
115,000,000(a) Texpar SA, Preference 1,000
Total 132,329
TRANSPORTATION - ROAD & RAIL -- 0.6%
19,600 Sixt AG, Pfd. 2,482,612
TOTAL PREFERRED STOCKS (IDENTIFIED COST $8,145,532) 9,454,737
</TABLE>
FEDERATED INTERNATIONAL SMALL COMPANY FUND
<TABLE>
<CAPTION>
<S> <C>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
(B)REPURCHASE AGREEMENT -- 0.1%
$ 310,000 BT Securities Corp., 5.57%, dated 5/29/1998,
due 6/1/1998 (AT AMORTIZED COST) $ 310,000
TOTAL INVESTMENTS (IDENTIFIED COST
$325,615,461)(C) $413,885,876
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $325,615,461.
The net unrealized appreciation of investments on a federal tax basis amounts to
$88,270,415 which is comprised of $94,442,632 appreciation and $6,172,217
depreciation at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($418,569,539) at May 31, 1998.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
AG -- Aktiengesellschaft
PLC -- Public Limited Company
SA -- Support Agreement
SPA -- Standby Purchase Agreement
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax $ 413,885,876
cost $325,615,461)
Cash denominated in foreign currency (at identified cost 1,094,851
$1,095,138)
Income receivable 345,480
Receivable for investments sold 8,947,019
Receivable for shares sold 4,827,926
Receivable for foreign currency exchange contracts sold 5,351
Deferred organizational costs 33,425
Total assets 429,139,928
LIABILITIES:
Payable for investments purchased $8,346,444
Payable for shares redeemed 1,136,450
Payable for taxes withheld 29,372
Payable to bank 768,371
Accrued expenses 289,752
Total liabilities 10,570,389
NET ASSETS for 21,265,473 shares outstanding $ 418,569,539
NET ASSETS CONSIST OF:
Paid in capital $ 306,016,986
Net unrealized appreciation of investments and translation of
assets and liabilities
in foreign currency 88,229,711
Accumulated net realized gain on investments and foreign 26,188,543
currency transactions
Accumulated net investment operating loss (1,865,701)
Total Net Assets $ 418,569,539
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($175,983,281 / 8,851,989 shares $19.88
outstanding)
Offering Price Per Share (100/94.50 of $19.88)* $21.04
Redemption Proceeds Per Share $19.88
CLASS B SHARES:
Net Asset Value Per Share ($192,289,819 / 9,838,515 shares $19.54
outstanding)
Offering Price Per Share $19.54
Redemption Proceeds Per Share (94.50/100 of $19.54)** $18.47
CLASS C SHARES:
Net Asset Value Per Share ($50,296,439 / 2,574,969 shares $19.53
outstanding)
Offering Price Per Share $19.53
Redemption Proceeds Per Share (99.00/100 of $19.53)** $19.33
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL SMALL COMPANY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $241,535) $ 1,667,012
Interest 100,166
Total income 1,767,178
EXPENSES:
Investment advisory fee $1,895,837
Administrative personnel and services fee 114,404
Custodian fees 217,301
Transfer and dividend disbursing agent fees and 191,551
expenses
Directors' fees 1,274
Auditing fees 9,833
Legal fees 2,912
Portfolio accounting fees 57,961
Distribution services fee -- Class B Shares 542,645
Distribution services fee -- Class C Shares 132,729
Shareholder services fee -- Class A Shares 154,042
Shareholder services fee -- Class B Shares 180,882
Shareholder services fee -- Class C Shares 44,243
Share registration costs 52,605
Printing and postage 29,004
Insurance premiums 2,366
Taxes 3,290
Total expenses 3,632,879
Net operating loss (1,865,701)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments and foreign currency
transactions (net of
foreign taxes withheld of $8,318) 29,088,540
Net change in unrealized appreciation of investments
and translation of assets
and liabilities in foreign currency 77,254,387
Net realized and unrealized gain on investments and
foreign currency transactions 106,342,927
Change in net assets resulting from operations $ 104,477,226
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL SMALL COMPANY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net operating loss $ (1,865,701) $ (2,060,106)
Net realized gain (loss) on investments and foreign currency
transactions ($29,088,540 and $(2,291,612), respectively,
as computed for federal tax purposes) 29,088,540 (4,892,895)
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency 77,254,387 8,258,008
Change in net assets resulting from operations 104,477,226 1,305,007
SHARE TRANSACTIONS --
Proceeds from sale of shares 153,779,621 238,766,808
Cost of shares redeemed (79,745,481) (36,173,268)
Change in net assets resulting from share transactions 74,034,140 202,593,540
Change in net assets 178,511,366 203,898,547
NET ASSETS:
Beginning of period 240,058,173 36,159,626
End of period $ 418,569,539 $ 240,058,173
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.25 $12.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.05) (0.11) (0.02)
Net realized and unrealized gain on investments and
foreign currency transactions 5.68 2.10 2.28
Total from investment operations 5.63 1.99 2.26
NET ASSET VALUE, END OF PERIOD $19.88 $14.25 $12.26
TOTAL RETURN(B) 39.51% 16.23% 22.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.95%* 2.12% 1.97%*
Net operating loss (0.76%)* (1.08%) (0.48%)*
Expense waiver/reimbursement(c) -- 0.21% 3.38%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $175,983 $91,707 $16,399
Average commission rate paid(d) $0.0082 $0.0006 $0.0006
Portfolio turnover 166% 286% 174%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.07 $12.20 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.11) (0.12) (0.04)
Net realized and unrealized gain on investments and
foreign currency transactions 5.58 1.99 2.24
Total from investment operations 5.47 1.87 2.20
NET ASSET VALUE, END OF PERIOD $19.54 $14.07 $12.20
TOTAL RETURN(B) 38.88% 15.33% 22.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.70%* 2.87% 2.72%*
Net operating loss (1.56%)* (1.81%) (1.61%)*
Expense waiver/reimbursement(c) -- 0.17% 3.38%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $192,290 $120,939 $16,721
Average commission rate paid(d) $0.0082 $0.0006 $0.0006
Portfolio turnover 166% 286% 174%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.06 $12.19 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.10) (0.12) (0.05)
Net realized and unrealized gain on investments and
foreign currency transactions 5.57 1.99 2.24
Total from investment operations 5.47 1.87 2.19
NET ASSET VALUE, END OF PERIOD $19.53 $14.06 $12.19
TOTAL RETURN(B) 38.90% 15.34% 21.90%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.70%* 2.87% 2.72%*
Net operating loss (1.52%)* (1.85%) (1.58%)*
Expense waiver/reimbursement(c) -- 0.17% 3.38%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $50,296 $27,412 $3,040
Average commission rate paid(d) $0.0082 $0.0006 $0.0006
Portfolio turnover 166% 286% 174%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of nine portfolios. The
financial statements included herein are only those of Federated International
Small Company Fund (the "Fund"), a diversified portfolio. The financial
statements of the other portfolios are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held. The Fund offers three classes of shares:
Class A Shares, Class B Shares, and Class C Shares. The investment objective of
the Fund is to provide long-term growth of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Foreign equity securities are valued at the last
sale price reported in the market in which they are primarily traded. If no
sale on the recognized exchange is reported or the security is traded
over-the-counter, the foreign securities are valued at the mean between the
last closing bid and asked prices. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
foreign and domestic securities with remaining maturities of sixty days or
less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax
rules and rates.
At May 31, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $2,291,612, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 2005.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the Fund's
securities against currency fluctuations. Risks may arise upon entering these
transactions from the potential inability of counterparts to meet the terms
of their commitments and from unanticipated movements in security prices or
foreign exchange rates. The foreign currency transactions are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purpose as unrealized until the settlement
date.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, and income and expenses are translated at
the rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and
collected or paid are adjusted when reported by the custodian bank. The Fund
does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates
on security transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at fiscal year
end, resulting from changes in the exchange rate.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 100,000,000
Total 300,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,968,368 $ 100,565,679 6,748,444 $ 98,446,634
Shares redeemed (3,549,749) (59,396,390) (1,652,514) (23,754,721)
Net change resulting
from Class A Share
transactions 2,418,619 $ 41,169,289 5,095,930 $ 74,691,913
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,289,866 $ 39,552,388 7,830,646 $ 112,172,634
Shares redeemed (1,049,284) (17,401,923) (603,585) (8,739,869)
Net change resulting
from Class B Share
transactions 1,240,582 $ 22,150,465 7,227,061 $ 103,432,765
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30,1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 812,631 $ 13,661,554 1,957,983 $ 28,147,540
Shares redeemed (187,737) (2,947,168) (257,229) (3,678,678)
Net change resulting
from Class C Share
transactions 624,894 $ 10,714,386 1,700,754 $ 24,468,862
Net change resulting
from share
transactions 4,284,095 $ 74,034,140 14,023,745 $ 202,593,540
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 1.25% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its fee
and/or reimburse certain operating expenses of the Fund. The Adviser can
modify or terminate this voluntary waiver and/or reimbursement at any time at
its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors, Inc. for the period. The administrative fee received
during the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A Shares, Class B Shares, and Class
C Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
Class A Shares did not incur a distribution services fee for the period ended
May 31, 1998, and has no present intention of paying or accruing the
distribution services fee.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC"), serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and start-up administrative service
expenses of $47,932 were borne initially by the Adviser. The Fund has
reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's
effective date. For the period ended May 31, 1998, the Fund expensed $6,064
of organizational and start-up administrative service expenses.
GENERAL -- Certain Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
PURCHASES $ 582,124,042
SALES $ 511,686,935
7. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At May 31, 1998, the diversification of countries was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
France 9.88%
United Kingdom 8.63%
Sweden 7.61%
Italy 7.59%
Germany 7.08%
Netherlands 6.79%
Spain 6.52%
Canada 6.17%
Norway 5.52%
Greece 5.45%
Belgium 5.39%
Portugal 5.21%
Ireland 4.22%
Switzerland 3.65%
South Africa 3.29%
Denmark 2.47%
Finland 1.23%
Israel 0.96%
Poland 0.30%
Egypt 0.29%
Austria 0.27%
Brazil 0.18%
Mexico 0.08%
India 0.01%
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President,
Treasurer, and Secretary
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 981487838
Cusip 981487820
Cusip 981487812
G01743-02 (7/98)
[Graphic]
[Graphic]
Federated Investors
Federated Latin American Growth Fund
2ND SEMI-ANNUAL REPORT
MAY 31, 1998
ESTABLISHED 1996
Dear Fellow Shareholder:
Federated Latin American Growth Fund was created in 1996, and I am pleased to
present its second Semi-Annual Report. What a difference a year makes! This
Latin American growth fund was one of five international equity funds created in
1996. In 1997, the fund's share prices had risen significantly. Then, along came
the Asian "contagion." Year-to-date in 1998, the fund's share prices have
dropped, not so much due to the securities held in the fund suffering poor
earnings, but because Latin American countries are primarily emerging markets.
This report covers the first half of the fund's fiscal year, which is the period
from December 1, 1997 through May 31, 1998. It begins with a discussion with the
fund's portfolio manager, Alexandre de Bethmann, Vice President of Federated
Global Research Corp. Following his discussion, which covers international
economic and market conditions and fund strategy, are two additional items of
shareholder interest. First is a complete listing of the fund's investments, and
second is the publication of the fund's financial statements.
This Latin American stock fund provides to shareholders significant long-term
opportunities from an extremely well-researched $18 million portfolio of
approximately 42 securities across 6 Latin American countries. The median market
capitalization of companies represented in the fund's portfolio is over $3
billion.*
Periodic volatility is part of international investing, and the Latin American
market over the past year was an example. Individual share class total return
performance, which was consistent with the market, follows.**
TOTAL NET ASSET
RETURN VALUE CHANGE
Class A Shares (12.55%) $13.39 to $11.71 = (12.5%)
Class B Shares (12.84%) $13.24 to $11.54 = (12.8%)
Class C Shares (12.81%) $13.27 to $11.57 = (12.8%)
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
** Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on offering
price for Class A, B, and C Shares were (17.36%), (17.60%), and (13.72%),
respectively.
International investing has always been volatile, however, regardless of the
investment climate, adding to your account on a regular basis and reinvesting
your annual dividends in additional shares is a convenient way to "pay yourself
first" and enjoy the benefit of compounding.+
We believe an investment in Federated Latin American Growth Fund is a sound
investment. We will continue to keep you up-to-date on the details of your
investment on a regular basis.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1998
+ Systematic investing does not ensure a profit or protect against loss in
declining markets.
INVESTMENT REVIEW
[Graphic]
Alexandre de Bethmann
Vice President
Federated Global Research Corp.
[Graphic]
AFTER ALMOST TWO YEARS OF STRONG RETURNS, THE LATIN AMERICAN REGION RECORDED
NEGATIVE RETURNS FOR THE FIRST HALF OF THE FUND'S FISCAL YEAR. WHAT ARE YOUR
COMMENTS ON THE DIFFICULT AREAS AND BRIGHT SPOTS DURING THE PAST SIX MONTHS?
In our view, the number one factor for the underperformance of the Latin
American markets was the overall negative sentiment toward emerging markets. We
are living in an environment in which markets do not work on fundamentals, but
reflect worries about macro-economic factors in Asia, which spreads concerns
throughout the emerging markets universe.
There are some specific factors that affect each of the Latin American
economies. In Mexico, for example, the fall in oil prices has caused two budget
cuts so far this year. In Brazil, the lack of substantial fiscal deficit
improvements is of major concern. Trade deficits are finally increasing
throughout the region with the exception of Brazil. When these individual
factors are put in the context of non-improving emerging markets and negative
investor sentiment, they become more relevant and cause significant fund
outflows for the region.
The bright spot -- one that needs to be highlighted -- is that Latin America has
continued its trend of controlled inflation, deregulation, and austere economic
policy.
[Graphic]
HOW DID FEDERATED LATIN AMERICAN GROWTH FUND PERFORM COMPARED TO THE OVERALL
LATIN AMERICAN MARKET DURING THE REPORTING PERIOD?
For the six-month reporting period ended May 31, 1998, the fund delivered total
returns, based on net asset value, of (12.55%), (12.84%), and (12.81%) for Class
A, B, and C Shares, respectively.* For the same period, the total return of the
Morgan Stanley Capital International Latin American-Free Index was (9.10%).**
Over the reporting period, the fund underperformed the index primarily due to
security selection within the Brazilian market. The fund was concentrated in
public-related issues and did not fully participate in the stronger performance
of private-related Brazilian equities. We still anticipate that the
public-related issues will outperform the private-related equities for 1998.
[Graphic]
WHY DO YOU THINK THE PUBLIC SECTOR WILL OUTPERFORM THE PRIVATE SECTOR IN BRAZIL?
Privatization of the state-owned companies to a strategic operator should result
in significant efficiency improvements through sizable reduction in employees,
implementation of professional management practices, and technology investment.
Expense reduction is also an important source of margin improvement, as the
former bureaucratic procedures should be replaced by private sector practices.
* Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on offering
price for Class A, B, and C Shares were (17.36%), (17.60%), and (13.72%),
respectively.
** Morgan Stanley Capital International Latin American-Free Index is a market
value-weighted average of the performance of securities listed on the stock
exchanges of seven countries in the Latin American region. This index is
unmanaged, and investments cannot be made in an index.
[Graphic]
HAS THE ECONOMIC TURMOIL IN ASIA UNDERMINED LATIN AMERICAN EXPORTS TO THE
REGION?
The country most affected by the decrease in Asian demand is Chile, because 30%
of its exports go to this region. The other countries' exports do not rely
significantly on Asia and have not been hurt so far. The Asian effect on Latin
America is more important in terms of increased Asian exports that compete
against Latin American production. This effect has not been fully felt yet in
Latin America, as local production has been protected mainly by logistic
barriers. This effect has been most significant on steel and pulp and paper
companies. Cement producers have been relatively protected as well. Mexican
auto-parts producers, which export to the U.S., have been protected by NAFTA and
long-term contracts, but may face pressure going forward.
[Graphic]
ARE EARNINGS EXPECTATIONS BEING LOWERED?
Overall in the region, there have not been downward earnings revisions. Gross
Domestic Product growth in Mexico and Argentina has continued throughout this
year with figures above 6% that are not expected to decrease. For this reason,
no earnings revisions have been made so far for 1998. In Brazil, earnings were
reduced at the end of last year, and faster-than-expected interest rate
reduction should lead to slightly higher-than-expected earnings for the second
half of 1998. In Chile, earnings should be affected by lower exports, commodity
prices, and internally increased interest rates. In Peru, the economy is
recovering significantly with the end of El Ni-o. Venezuela's earnings have been
reduced due to the political and currency risk. In Colombia, recovery will
probably not be seen until 1999.
[Graphic]
WHAT CHANGES TO COUNTRY ALLOCATIONS WERE MADE DURING THE SIX-MONTH REPORTING
PERIOD ENDED MAY 31, 1998?
The fund's portfolio was overweighted in the Brazilian telecommunications sector
because privatization and restructuring could lead to substantial upside when
compared to other investments in the region. Assets were also moved from
Venezuela to Peru, where stronger fundamentals and more attractive valuations
are expected.
[Graphic]
WHAT COUNTRIES WERE REPRESENTED IN THE PORTFOLIO AS OF MAY 31, 1998?
PERCENTAGE OF
COUNTRY NET ASSETS
Brazil 44.0%
Mexico 29.8%
Argentina 12.6%
Peru 4.0%
Chile 3.8%
Venezuela 0.4%
[Graphic]
WHAT WERE THE FUND'S TOP TEN HOLDINGS AS OF MAY 31, 1998?
<TABLE>
<CAPTION>
PERCENTAGE
OF
COMPANY NET ASSETS INDUSTRY
<S> <C> <C>
Telecomunicacoes Brasileiras 6.26% Telecommunications
Telecomunicacoes de Sao Paulo SA 4.80% Telecommunications
Centrais Eletricas Brasileiras SA, Series B 4.24% Utilities -- Electrical & Gas
Unibanco Uniao de Bancos Brasileiros SA 4.08% Banking
Companhia Energetica de Minas Gerais 3.65% Utilities -- Electrical & Gas
Tubos de Acero de Mexico SA 3.47% Metals -- Steel
Pan American Beverage, Class A 3.40% Beverage & Tobacco
Telefonos de Mexico, Class L 3.39% Telecommunications
Apasco SA de CV 2.92% Building Materials & Components
Cemex SA, Class B 2.90% Building Materials & Components
TOTAL PERCENTAGE OF NET ASSETS 39.11%
</TABLE>
[Graphic]
WHAT WERE SOME OF THE FUND'S MOST RECENT PURCHASES?
We are maintaining our strategy of looking for low-valued companies with the
highest upside potential among their peers, locally and regionally. The
following are two examples of companies with high growth potential:
COMERCI (2.4% of net assets): Comerci is a Mexican retail company that has
lagged its peers' strong performance, as management was in the process of
implementing cost control mechanisms. We expect strong margin improvement that
should lead to the stock's re-rating.
GAS NATURAL BAN (1.7% of net assets): Gas Natural, the second largest gas
distribution company in Argentina, is expected to have 23% earnings growth in
1998, accompanied by a 9% dividend yield. This company offers the highest upside
in the Argentine market.
[Graphic]
AS WE REACH THE MID-POINT OF 1998, WHAT DO YOU FORESEE FOR THE LATIN AMERICAN
REGION THROUGH THE REST OF THE YEAR, AND WHERE ARE THE BUYING OPPORTUNITIES?
We may be entering a bearish phase on the back of delayed Asian recovery and an
earnings' growth slowdown in the U.S. This would affect the Latin American
markets in the current global context. However, as investors start looking for
investment opportunities, Latin America's strong fundamentals should emerge as a
viable opportunity. The main upcoming event that may trigger positive sentiment
is the privatization of Telecomunicacoes Brasileiras as scheduled for next
August.
There are many buying opportunities due to the recent market turmoil. However,
we expect high volatility to characterize the markets in the short term. For
this reason, we will focus on protective investments and Latin American
blue-chips, which are most likely to rebound once confidence returns to the
region.
FEDERATED LATIN AMERICAN GROWTH FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- 67.9%
BANKING -- 7.2%
22,700 (a) Banco Rio de la Plata SA, ADR $ 272,400
124,000 Grupo Financiero Banamex Accivel, Class B 309,297
24,400 (a) Unibanco Uniao de Bancos Brasileiros SA, GDR 764,025
Total 1,345,722
BEVERAGE & TOBACCO -- 3.4%
18,800 Pan American Beverage, Class A 635,675
BEVERAGES -- 1.6%
8,800 (a) Fomento Economico Mexicano, SA de C.V., ADR 290,400
BUILDING MATERIALS & COMPONENTS -- 7.2%
89,500 Apasco SA de CV 546,944
12,599 Cementos Lima SA 264,176
110,500 Cemex SA, Class B 542,477
Total 1,353,597
CONGLOMERATE -- 4.4%
66,304 Compania Naviera Perez Companc SA, Class B 365,510
470,000 Controladora Comercial Mexicana SA de CV 458,277
Total 823,787
ENERGY -- OIL & GAS -- 1.7%
240,000 (a) Gas Natural Ban SA 314,550
ENERGY EQUIPMENT & SERVICES -- 2.3%
17,900 (b)Chilectra SA, ADR 435,942
ENERGY SOURCES -- 2.3%
14,000 YPF Sociedad Anonima, ADR 434,875
FINANCIAL SERVICES -- 1.2%
14,000 Credicorp Ltd. 222,250
</TABLE>
FEDERATED LATIN AMERICAN GROWTH FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
FOOD & HOUSEHOLD PRODUCTS -- 2.2%
176,000 Grupo Industrial Bimbo SA de CV, Class A $ 403,084
FOREST PRODUCTS & PAPER -- 2.2%
30,000 Aracruz Cellulose, ADR 405,000
MEDIA -- 2.3%
11,200 Grupo Televisa SA, GDR 437,500
METALS - NON FERROUS -- 1.5%
8,000 Sociedad Quimica Y Minera De Chile, ADR 275,500
METALS - STEEL -- 5.1%
73,000 Siderar SA, Class A 299,442
43,500 (a) Tubos de Acero de Mexico SA, ADR 649,781
Total 949,223
MISCELLANEOUS MATERIALS & COMMODITIES -- 1.7%
19,000 Grupo Imsa SA, ADR 323,000
RETAIL -- 2.7%
21,300 Companhia Brasileira de Distribuicao Grp., ADR 497,888
TELECOMMUNICATIONS -- 16.5%
742,000 (a) Biper S.A. 346,603
12,600 CPT Telefonica del Peru SA, Class B, ADR 272,475
10,400 Telecom Argentina SA, ADR 322,400
11,000 Telecomunicacoes Brasileiras SA, ADR 1,172,875
10,500 Telefonica de Argentina SA, ADR 341,906
13,400 Telefonos de Mexico, Class L, ADR 635,663
Total 3,091,922
TEXTILES & APPAREL -- 0.4%
26,666 Sudamtex de Venezuela, ADR 84,183
</TABLE>
FEDERATED LATIN AMERICAN GROWTH FUND
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
UTILITIES - ELECTRICAL & GAS -- 2.0%
2,700,000 Companhia de Electricidade do Estado da Bahia $ 118,520
1,600,000 (a) Companhia de Saneamento Basico do Estado de Sao Paulo 271,281
Total 389,801
TOTAL COMMON STOCKS (IDENTIFIED COST $13,447,888) 12,713,899
PREFERRED STOCKS -- 26.7%
ENERGY SOURCES -- 2.4%
2,300,000 (a) Petroleo Brasileiro SA, Preference 443,961
MINING -- 2.0%
16,170,000 SA Mineracao da Trinidade 379,610
TELECOMMUNICATIONS -- 13.4%
4,900,000 Telecomunicacoes Brasileiras SA, Preference 519,781
4,160,000 (a) Telecomunicacoes Do Rio Janiero SA, Preference 347,239
3,000,000 Telecomunicacoes de Minas Gerais, Preference, Series B 302,582
4,200,000 Telecomunicacoes de Sao Paulo SA, Preference 898,357
4,800,000 Telesp Celular SA, Series B 442,396
Total 2,510,355
UTILITIES - ELECTRICAL & GAS -- 8.9%
22,200,000 (a) Centrais Eletricas Brasileiras SA, Preference, Series B 793,340
20,712,307 Companhia Energetica de Minas Gerais, Preference 684,347
61,400,000 (a) Companhia Energetica do Ceara-Coelce, Preference, Series A 197,531
Total 1,675,217
TOTAL PREFERRED STOCKS (IDENTIFIED COST $5,266,072) 5,009,144
</TABLE>
FEDERATED LATIN AMERICAN GROWTH FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- 0.0%
MINING -- 0.0%
$ 5,800 Companhia Vale Do Rio Doce, Conv. Deb., 12/31/1999 $ 50
TOTAL CORPORATE BONDS (IDENTIFIED COST $58) 50
(C)REPURCHASE AGREEMENT -- 3.3%
615,000 BT Securities Corp., 5.57%, dated 5/29/1998, due
6/1/1998 (AT AMORTIZED COST) 615,000
TOTAL INVESTMENTS (IDENTIFIED COST $19,329,018)(D) $ 18,338,093
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At May 31, 1998, these securities amounted to
$435,942 which represents 2.33% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $19,329,018. The
net unrealized depreciation of investments on a federal tax basis amounts to
$990,925 which is comprised of $650,294 appreciation and $1,641,219 depreciation
at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($18,726,280) at May 31, 1998.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
GDR --Global Depositary Receipt
SA --Support Agreement
(See Notes which are an integral part of the Financial Statements)
FEDERATED LATIN AMERICAN GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 18,338,093
$19,329,018)
Cash denominated in foreign currencies (at identified cost $44,109) 43,178
Income receivable 225,547
Receivable for investments sold 1,293,248
Receivable for shares sold 116,148
Deferred organizational costs 37,710
Total assets 20,053,924
LIABILITIES:
Payable for investments purchased $ 1,254,890
Payable for shares redeemed 50,497
Payable for taxes withheld 2,951
Payable to bank 19,306
Total liabilities 1,327,644
NET ASSETS for 1,608,497 shares outstanding $ 18,726,280
NET ASSETS CONSIST OF:
Paid in capital $ 22,222,861
Net unrealized depreciation of investments and translation of assets and
liabilities in
foreign currency (989,970)
Accumulated net realized loss on investments and foreign currency (2,729,616)
transactions
Undistributed net investment income 223,005
Total Net Assets $ 18,726,280
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($10,802,647 / 922,229 shares outstanding) $11.71
Offering Price Per Share (100/94.50 of $11.71)* $12.39
Redemption Proceeds Per Share $11.71
CLASS B SHARES:
Net Asset Value Per Share ($6,843,942 / 592,914 shares outstanding) $11.54
Offering Price Per Share $11.54
Redemption Proceeds Per Share (94.50/100 of $11.54)** $10.91
CLASS C SHARES:
Net Asset Value Per Share ($1,079,691 / 93,354 shares outstanding) $11.57
Offering Price Per Share $11.57
Redemption Proceeds Per Share (99.00/100 of $11.57)** $11.45
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LATIN AMERICAN GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $16,812) $ 480,300
Interest 16,684
Total income 496,984
EXPENSES:
Investment advisory fee $ 147,870
Administrative personnel and services fee 92,247
Custodian fees 25,465
Transfer and dividend disbursing agent fees and 34,218
expenses
Directors'/Trustees' fees 546
Auditing fees 9,833
Legal fees 2,548
Portfolio accounting fees 41,063
Distribution services fee -- Class B Shares 31,458
Distribution services fee -- Class C Shares 5,407
Shareholder services fee -- Class A Shares 17,287
Shareholder services fee--Class B Shares 10,486
Shareholder services fee--Class C Shares 1,802
Share registration costs 15,239
Printing and postage 18,739
Insurance premiums 1,759
Taxes 669
Miscellaneous 9,327
Total expenses 465,963
Waivers and reimbursements --
Waiver of investment advisory fee $(147,870)
Reimbursement of other operating expenses (44,114)
Total waivers and reimbursements (191,984)
Net expenses 273,979
Net investment income 223,005
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments and foreign (1,317,437)
currency transactions
Net change in unrealized depreciation of investments
and translation
of assets and liabilities in foreign currency (1,665,589)
Net realized and unrealized loss on investments
and foreign currency transactions (2,983,026)
Change in net assets resulting from $(2,760,021)
operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LATIN AMERICAN GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income/(operating loss) $ 223,005 $ (132,382)
Net realized (loss) on investments and foreign
currency transactions ($(1,317,437) and $(1,309,472),
respectively, as computed for federal tax purposes) (1,317,437) (1,474,894)
Net change in unrealized appreciation/depreciation of
investments and translation of assets and liabilities
in foreign currency (1,665,589) 165,752
Change in net assets resulting from operations (2,760,021) (1,441,524)
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares -- (30,514)
Class B Shares -- (5,869)
Class C Shares -- (443)
Distributions from net realized gains
Class A Shares -- (154,460)
Class B Shares -- (50,158)
Class C Shares -- (7,444)
Change in net assets resulting from distributions -- (248,888)
to shareholders
SHARE TRANSACTIONS --
Proceeds from sale of shares 8,517,420 41,385,804
Net asset value of shares issued to shareholders in -- 159,519
payment of distributions declared
Cost of shares redeemed (12,472,940) (20,864,198)
Change in net assets resulting from share (3,955,520) 20,681,125
transactions
Change in net assets (6,715,541) 18,990,713
NET ASSETS:
Beginning of period 25,441,821 6,451,108
End of period (including undistributed net investment
income of $223,005 and $0, respectively) $ 18,726,280 $ 25,441,821
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LATIN AMERICAN GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.39 $11.56 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(operating loss) 0.17 (0.06) 0.12
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (1.85) 2.38(e) 1.44
Total from investment operations (1.68) 2.32 1.56
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.08) --
Distributions from net realized gain on investments
and foreign currency transactions -- (0.41) --
Total distributions -- (0.49) --
NET ASSET VALUE, END OF PERIOD $11.71 $13.39 $11.56
TOTAL RETURN(B) (12.55%) 20.76% 15.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.00%* 2.17% 1.97%*
Net investment income/(loss) 2.25%* (0.32%) 1.49%*
Expense waiver/reimbursement(c) 1.62%* 1.91% 6.96%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $10,803 $14,847 $4,836
Average commission rate paid(d) $0.0002 $0.0001 $0.0001
Portfolio turnover 95% 79% 38%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income/(loss) ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments and
foreign currency for the period ended due to the timing of sales and repurchases
of Fund shares in relation to fluctuating market values of the investments of
the Fund.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LATIN AMERICAN GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.24 $11.50 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(operating loss) 0.10 (0.04) (0.05)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (1.80) 2.24(e) 1.55
Total from investment operations (1.70) 2.20 1.50
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.05) --
Distributions from net realized gain on investments
and foreign currency transactions -- (0.41) --
Total distributions -- (0.46) --
NET ASSET VALUE, END OF PERIOD $11.54 $13.24 $11.50
TOTAL RETURN(B) (12.84%) 19.72% 15.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.76%* 2.93% 2.72%*
Net investment income/(loss) 1.41%* (1.29%) (1.20%)*
Expense waiver/reimbursement(c) 1.63%* 1.90% 6.96%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $6,844 $8,814 $1,335
Average commission rate paid(d) $0.0002 $0.0001 $0.0001
Portfolio turnover 95% 79% 38%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income/(loss) ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments and
foreign currency for the period ended due to the timing of sales and repurchases
of Fund shares in relation to fluctuating market values of the investments of
the Fund.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LATIN AMERICAN GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.27 $11.48 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(operating loss) 0.10 (0.04) (0.08)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (1.80) 2.27(e) 1.56
Total from investment operations (1.70) 2.23 1.48
LESS DISTRIBUTIONS
Distributions from net investment income -- (0.03) --
Distributions from net realized gain on investments
and foreign currency transactions -- (0.41) --
Total distributions -- (0.44) --
NET ASSET VALUE, END OF PERIOD $11.57 $13.27 $11.48
TOTAL RETURN(B) (12.81%) 19.97% 14.80%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.75%* 2.93% 2.72%*
Net investment income/(loss) 1.33%* (1.23%) (1.30%)*
Expense waiver/reimbursement(c) 1.62%* 1.90% 6.96%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,080 $1,781 $260
Average commission rate paid(d) $0.0002 $0.0001 $0.0001
Portfolio turnover 95% 79% 38%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income/(loss) ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments and
foreign currency for the period ended due to the timing of sales and repurchases
of Fund shares in relation to fluctuating market values of the investments of
the Fund.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LATIN AMERICAN GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of nine portfolios. The
financial statements included herein are only those of Federated Latin American
Growth Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers three classes of shares: Class A Shares, Class
B Shares, and Class C Shares. The investment objective of the Fund is to provide
long-term growth of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Foreign equity securities are valued at the last sales
price reported on a national securities exchange or the over-the-counter market.
In the absence of recorded sales for equity securities, they are recorded
according to the mean between the last closing bid and asked prices.
Fixed-income securities are valued at the latest bid prices as furnished by an
independent pricing service. Short-term foreign and domestic securities are
valued at the prices provided by an independent pricing service. However,
short-term foreign and domestic securities with remaining maturities of sixty
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTION -- Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. However, federal taxes may be imposed
on the Fund upon the disposition of certain investments in passive foreign
investment companies. Withholding taxes on foreign interest and dividends have
been provided for in accordance with the Fund's understanding of the applicable
country's tax rules and rates.
At May 31, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $1,309,472 which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire in
2005.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency exchange
transactions. Purchased contracts are used to acquire exposure to foreign
currencies; whereas, contracts to sell are used to hedge the Fund's securities
against currency fluctuations. Risks may arise upon entering these transactions
from the potential inability of counterparts to meet the terms of their
commitments and from unanticipated movements in security prices or foreign
exchange rates. The foreign currency transactions are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purposes as unrealized until the settlement date.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of exchange
of such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, and income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income and expense amounts recorded and collected or paid
are adjusted when reported by the custodian bank. The Fund does not isolate that
portion of the results of operations resulting from changes in foreign exchange
rates on investments from the fluctuations arising from changes in market prices
of securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
RESTRICTED SECURITIES -- Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Board of Directors.
The Fund will not incur any registration costs upon such resales. The Fund's
restricted securities are valued at the price provided by dealers in the
secondary market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at May 31, 1998 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Chilectra S.A., ADR 2/28/1996 - 7/10/1997 $472,929
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, par value shares ($0.001 per share) authorized were as follows:
NUMBER OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 100,000,000
Total 300,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C> <C>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 471,457 $ 6,260,093 1,717,360 $ 25,725,399
Shares issued to shareholders in payment
of distributions declared 0 0 9,396 107,956
Shares redeemed (657,809) (8,714,448) (1,036,366) (15,394,130)
Net change resulting from
Class A Share transactions (186,352) $ (2,454,355) 690,390 $ 10,439,225
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C> <C>
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 132,870 $ 1,690,226 793,687 $ 11,941,024
Shares issued to shareholders in payment
of distributions declared 0 0 3,855 44,100
Shares redeemed (205,697) (2,666,829) (249,692) (3,519,328)
Net change resulting from
Class B Share transactions (72,827) $ (976,603) 547,850 $ 8,465,796
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C> <C>
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 44,999 $ 567,101 246,035 $ 3,719,381
Shares issued to shareholders in payment
of distributions declared 0 0 652 7,463
Shares redeemed (85,815) (1,091,663) (135,140) (1,950,740)
Net change resulting from
Class C Share transactions (40,816) $ (524,562) 111,547 $ 1,776,104
Net change resulting from
share transactions (299,995) $ (3,955,520) 1,349,787 $ 20,681,125
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 1.25% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors, Inc. for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class A Shares, Class B Shares, and Class C
Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
The Fund does not currently make payments to the distributor or charge a fee
under the Plan for Class A Shares.
PERCENTAGE OF
AVERAGE
DAILY NET ASSETS
SHARE CLASS NAME OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and start-up administrative service
expenses of $53,789 were borne initially by the Adviser. The Fund has reimbursed
the Adviser for these expenses. These expenses have been deferred and are being
amortized over the five-year period following the Fund's effective date. For the
period ended May 31, 1998, the Fund expensed $6,863 of organizational and
start-up administrative service expenses.
GENERAL -- Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
PURCHASES $21,490,168
SALES $24,416,310
7. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At May 31, 1998, the diversification of countries was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
Brazil 44.0%
Mexico 29.8%
Argentina 12.6%
Peru 4.0%
Chile 3.8%
Venezuela 0.4%
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President,
Treasurer, and Secretary
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 981487796
Cusip 981487788
Cusip 981487770
G01940-02 (7/98)
[Graphic]
Federated Investors
Federated International High Income Fund
2ND SEMI-ANNUAL REPORT
MAY 31, 1998
ESTABLISHED 1996
PRESIDENT'S MESSAGE
Dear Fellow Shareholder:
Federated International High Income Fund was created in 1996, and I am pleased
to present its second Semi-Annual Report. This report covers the first half of
the fund's fiscal year, which is the six-month period from December 1, 1997
through May 31, 1998. It begins with a discussion with Robert Kowit, Vice
President, Federated Global Research Corp., who co-manages the fund with Micheal
Casey, Vice President, Federated Global Research Corp. Their discussion covers
international economic and market conditions and fund strategy. Following their
discussion are two additional items of shareholder interest. First is a complete
listing of the fund's international high-yield bond investments, and second is
the publication of the fund's financial statements.
The fund offers shareholders significant income opportunities from a select
portfolio of carefully researched high-yielding international bonds issued by
companies and governments outside the United States.* On May 31, 1998, the
fund's $91 million portfolio included 114 government and corporate bonds, across
35 countries. While the fund experienced a minimal decrease in share price, its
portfolio continued to pay a very strong level of income. Individual share class
performance highlights are as follows.**
TOTAL CAPITAL NET ASSET
RETURN INCOME GAINS VALUE CHANGE
Class A Shares 1.88% $0.49 $0.0026 $9.50 to $9.18 = (3%)
Class B Shares 1.50% $0.46 $0.0026 $9.50 to $9.18 = (3%)
Class C Shares 1.50% $0.46 $0.0026 $9.50 to $9.18 = (3%)
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
** Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on offering
price for Class A, B, and C Shares were (2.73%), (3.98%), and 0.52%,
respectively.
If you are not already doing so, I invite you to join the many shareholders who
reinvest their monthly dividends and add to their accounts on a regular basis to
compound their shares and own more shares for future income.+
Thank you for your investment in Federated International High Income Fund and
for the confidence you have shown by investing a portion of your wealth in the
fund.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1998
+ Systematic investing does not ensure a profit or protect against loss in
declining markets.
INVESTMENT REVIEW
[Graphic]
Robert Kowit
Vice President
Federated Global Research Corp.
[Graphic]
Micheal Casey
Vice President
Federated Global Research Corp.
[Graphic]
TO WHAT EXTENT DID THE STRONG U.S. DOLLAR AND THE ASIAN FINANCIAL CRISIS
IMPACT THE EMERGING AND DEVELOPED BOND MARKETS?
The Asian financial crisis had a very negative impact on emerging market debt.
Concern over devaluations in Thailand, Indonesia, Malaysia, and the Philippines
quickly spread to the rest of Asia and eventually Latin America. Initially, the
J.P. Morgan Emerging Market Bond Index,* which comprises almost 80% of Latin
America, did better than the markets as a whole, because Latin America was seen
as a safe haven. Eventually, even the Latin American countries felt the
pressure, as many of the so called "cross over" buyers, such as insurance
companies and domestic high-yield funds, reduced their exposure.
Developed markets actually had a slight benefit. The U.S. dollar's strength
against Asian currencies was offset by its weakening against continental
European currencies, as investors sought the relative stability of Europe.
[Graphic]
HOW DID THE FEDERATED INTERNATIONAL HIGH INCOME FUND PERFORM OVER THE FIRST HALF
OF ITS FISCAL YEAR?
For the six-month reporting period ended May 31, 1998, the fund produced total
returns, based on net asset value, of 1.88%, 1.50%, and 1.50%, for Class A, B,
and C Shares, respectively.** These returns slightly lagged the 2.03% return of
developed markets as measured by the J.P. Morgan Non-Dollar Bond Index* and
lagged the 5.38% return of the more aggressive emerging markets as measured by
the J.P. Morgan Emerging Market Bond Index. The fund's holdings in the Far East
accounted for its performance relative to the indices.
* The J.P. Morgan Emerging Market Bond Index is an index that tracks the total
returns of external currency denominated debt instruments of 14 emerging markets
countries. The J.P. Morgan Non-Dollar Bond Index is a total return, unmanaged
trade-weighted index of over 360 government and high-grade bonds in 12 developed
countries. These indices are unmanaged, and investments cannot be made in an
index.
** Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on offering
price for Class A, B, and C Shares were (2.73%), (3.98%), and 0.52%,
respectively.
[Graphic]
INCOME IS A PRIMARY CONSIDERATION FOR SHAREHOLDERS. WHAT LEVEL OF INCOME DID
THE FUND PROVIDE DURING THE SIX-MONTH REPORTING PERIOD ENDED MAY 31, 1998?
While the fund's total returns were impacted by a minimal decrease in net asset
value, the fund distributed a very healthy income stream over the reporting
period which totaled $0.49/share for Class A Shares, $0.46/share for Class B
Shares, and $0.46/share for Class C Shares.
[Graphic]
THE FUND SEEKS TO MAINTAIN A GENERAL ALLOCATION OF 20%-30% IN DEVELOPED
MARKETS AND 70%-80% IN EMERGING MARKETS. WHAT IS THE FUND'S CURRENT
ALLOCATION AND WHY?
The fund is currently about 20% invested in developed markets and 80% in
emerging markets. This is because emerging market debt has seen very sharp price
declines over the past month, and we have moved additional resources into that
area to take advantage of the bargain prices. In addition, more of our holdings
in developed markets are being moved into the European high-yield sector, which
is probably the fastest growing fixed-income market in the world this year. Many
of these new issues are priced very attractively compared to similar issues in
the United States. Despite these developments, the overall credit quality of the
fund remained unchanged at BB.
[Graphic]
WHAT WERE THE FUND'S TOP FIVE GOVERNMENT AND CORPORATE HOLDINGS AS OF MAY 31,
1998?
The fund's top five international government holdings were:
PERCENTAGE OF
COUNTRY NET ASSETS
Mexico (emerging) 5.79%
Russia (emerging) 4.80%
Argentina (emerging) 4.50%
Poland (emerging) 4.23%
Venezuela (emerging) 3.59%
The fund's top five international corporate holdings were:
PERCENTAGE
OF
NAME COUNTRY NET ASSETS
Geberit Switzerland (developed) 2.79%
AES China (emerging) 2.15%
Clearnet Canada (developed) 2.04%
Mastellone Argentina (emerging) 1.67%
Grupo Minero Mexico (emerging) 1.57%
[Graphic]
AS WE REACH THE MID-POINT OF 1998, WHAT FACTORS WILL INFLUENCE THE DIRECTION OF
THE INTERNATIONAL BOND MARKET FOR THE REST OF THE YEAR?
International bonds and emerging market debt will be influenced by the events in
Southeast Asia and Russia.
Most of the countries in Southeast Asia were forced into much needed reforms by
the financial crisis. In Korea, the reforms of the financial system, in
Indonesia the resignation of President Suharto, and the Malaysian banking reform
would not have happened without the crisis. Full resolution of the problems are
months away, but modest growth should return to the region by next year.
Russia has a short-term liquidity problem that can probably be addressed with an
International Monetary Fund program while the country implements more efficient
tax collections and reforms its banking system.
As these situations are gradually resolved, we expect the risk premium on
emerging market assets to decline and the spread on fixed-income assets to
narrow at least to the levels seen earlier this year -- 450-500 basis points
over Treasuries from the current 560 basis points over Treasuries.
[Graphic]
WHAT DO YOU FEEL ARE THE BENEFITS OF INVESTING IN THE FEDERATED INTERNATIONAL
HIGH INCOME FUND?
In general, the fund offers a way to gain access to high-yielding fixed-income
opportunities in the overseas markets that are not highly correlated with the
high-yield opportunities in the United States. Therefore, it should be part of a
diversification strategy for many high-yield investors. In addition, emerging
markets are now entering their second year of stress, which began with the Thai
Baht devaluation of July 2, 1997. This stress is the greatest seen in these
markets as a whole in the past 17 years, leaving many asset prices at extremely
attractive levels for longer term investors. Buying shares in the fund is an
easy way for investors to gain access to a well-diversified portfolio containing
many such depressed assets, which have considerable upside as soon as the
immediate crisis in emerging markets is over.
FEDERATED INTERNATIONAL HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
CORPORATE BONDS -- 50.9%
BEVERAGE & TOBACCO -- 1.3%
1,150,000 Empresas La Moderna, 11.375%, 1/25/1999 $ 1,173,000
BUILDING & DEVELOPMENT -- 1.3%
500,000 Cemex SA, Bond, 12.75%, 7/15/2006 590,625
600,000 Corporacion GEO, SA de CV, Note, 10.00%, 618,000
5/23/2002
Total 1,208,625
CONGLOMERATES -- 1.4%
1,000,000,000 Dharmala Intiutama, 25.00%, 2/5/1999 8,850
1,000,000,000(a)(b)Dharmala Intiutama, 2/24/99 8,850
350,000 Mechala Group Jamaica, Company Guarantee,
Series REGs, 12.00%, 2/15/2002 320,250
1,000,000 Mechala Group Jamaica, Note, 12.75%, 12/30/1999 935,000
Total 1,272,950
CONTAINER & GLASS PRODUCTS -- 0.9%
750,000 Vicap SA, Sr. Note, 11.375%, 5/15/2007 804,375
FINANCE -- 0.0%
1,000,000,000(a)(b)P.T. Polysindo Eka Perkasa PN, 3/16/2000 17,699
FINANCIAL INTERMEDIARIES -- 6.9%
1,250,000 Banco Nac De Desen Econo, Bond, 9.00%, 1,135,625
9/24/2007
550,000 Bancomext Trust, Bank Guarantee, 11.25%, 615,725
5/30/2006
1,260,000 Brierley Investments Ltd., Bond, 9.00%, 683,385
3/15/2002
1,600,000 Depfa-Bank, 5.75%, 3/4/2009 941,841
4,000,000 (b)Geberit International, Sr. Sub. Note,
10.125%, 4/15/2007 2,561,300
2,833,000 Nykredit, Mtg. Bond, 8.00%, 10/1/2029 426,540
Total 6,364,416
</TABLE>
FEDERATED INTERNATIONAL HIGH INCOME FUND
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
FOREST PRODUCTS -- 4.2%
500,000 Asia Pulp & Paper Co. Ltd., Company Guarantee,
11.75%, 10/1/2005 $ 436,250
1,300,000 Grupo Industrial Durango SA de CV, 12.625%, 1,443,000
8/1/2003
800,000 Indah Kiat Intl. Finance, Company Guarantee, 666,000
11.875%, 6/15/2002
950,000 Indah Kiat Intl. Finance, Company Guarantee, 790,875
12.50%, 6/15/2006
700,000 TJiwi Kim-Global, Company Guarantee, 13.25%, 563,500
8/1/2001
Total 3,899,625
INDUSTRIAL PRODUCTS & EQUIPMENT -- 11.7%
1,000,000 Advance Agro Public Co., 13.00%, 11/15/2007 1,015,000
1,500,000(b) CIA International Telecommunications, Note, 1,365,649
10.375%, 8/1/2004
500,000(b) Cathay International Ltd., 13.00%, 4/15/2008 476,250
500,000(b) Globo Communicacoes Part, 10.625%, 12/5/2008 486,250
1,000,000 Globo Communicacoes Part, Sr. Note, 10.625%, 968,630
12/5/2008
1,500,000 Grupo Minero Mexico, 9.25%, 4/1/2028 1,443,750
750,000(b) Imasac, SA, 11.00%, 5/2/2005 712,500
1,500,000(b) Mastellone Hermanos SA, 11.75%,4/1/2008 1,530,000
1,000,000 OPP Petroquimica, 11.50%, 2/23/2004 1,005,000
450,000 Sophora Comercio, 11.50%, 11/10/1998 452,250
500,000(b) TM Group Holdings, Sr. Note, 11.00%, 5/15/2008 515,000
750,000(b) TV Bandeirantes, Note, 12.875%, 5/15/2006 728,925
Total 10,699,204
OIL & GAS -- 3.9%
750,000 Bariven SA, Company Guarantee, 10.625%,
3/17/2002 795,000
482,634 Centragas, 10.65%, 12/1/2010 492,287
450,000 Invergas SA, Note, 12.50%, 12/16/1999 472,729
1,000,000(b) LG-Caltex Oil Co., Ltd., Note, 5.89813%,
3/31/2001 985,000
450,000 MetroGas SA, Sr. Note, 12.00%, 8/15/2000 478,687
</TABLE>
FEDERATED INTERNATIONAL HIGH INCOME FUND
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
OIL & GAS -- CONTINUED
400,000 Petroleo Brasileiro SA, 10.525%, 6/8/1998 $ 400,465
Total 3,624,168
STEEL -- 1.4%
300,000 Metalurgica Gerdau, Company Guarantee, 10.25%, 296,700
11/23/2001
200,000 Metalurgica Gerdau, Company Guarantee, 11.125%, 202,000
5/24/2004
700,000 Tubos de Acero de Mexico SA, Unsub., 13.75%, 761,250
12/8/1999
Total 1,259,950
SURFACE TRANSPORTATION -- 3.6%
800,000 Air Canada, 7.25%, 10/1/2007 563,059
500,000(b) Road King Infrastructure, Series 144a, 381,250
9.50%, 7/15/2007
450,000,000 Societe Nationale Des Chemins, Sr. Unsub., 264,932
9.20%, 6/22/2006
2,600,000 Trans Caledon Tunnel Authority, 13.00%,9/15/2010 469,594
3,250,000 Transnet Ltd., Foreign Gov't. Guarantee,
Series T016, 11.50%, 2/15/1999 618,824
1,100,000(b) Zhuhai Highway, Sub. Note, 11.50%, /1/2008 73,500
Total 3,271,159
TELECOMMUNICATIONS & CELLULAR -- 8.8%
500,000 CANTV Finance Ltd., Company Guarantee, 9.25%, 495,000
2/1/2004
4,100,000 Clearnet Communications, Sr. Disc. Note,
8/13/2007 1,871,439
200,000(b) Comtel Brasileir, Note, 10.75%, 9/26/2004 195,250
800,000 Comtel Brasileir, Note, Series REGS, 10.75%, 781,000
9/26/2004
1,185,000 Grupo Televisa SA, Sr. Disc. Note, 13.25%, 933,187
5/15/2008
3,200,000 Microcell Telecommunications, Sr. Disc. Note, 1,400,233
11.125%, 10/15/2007
1,300,000 Philippine Long Distance Telephone Co., Deb., 1,374,750
10.625%, 6/2/2004
1,000,000 Tricom SA, Sr. Note, 11.375%, 9/1/2004 980,000
Total 8,030,859
</TABLE>
FEDERATED INTERNATIONAL HIGH INCOME FUND
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
UTILITIES -- 5.5%
2,150,000 AES China Generating Co., Note, 10.125%, $ 1,967,250
12/15/2006
800,000 Bridas Corp., Sr. Note, 12.50%, 11/15/1999 842,000
1,000,000(b) CIA Saneamento Basico, Bond, 10.00%, 7/28/2005 923,750
600,000 Comp Paranaense De Energ, 9.75%, 5/2/2005 581,820
500,000 National Power Co. PLC, 8.00%, 2/21/2007 348,079
500,000 National Power Corp., Foreign Gov't. Guarantee,
8.40%, 12/15/2016 433,750
Total 5,096,649
TOTAL CORPORATE BONDS
(IDENTIFIED COST $49,269,226) 46,722,679
GOVERNMENT AGENCIES -- 46.1%
2,500,000 Argentina Global, Bond, 11.375%, 1/30/2017 2,667,188
1,500,000 Argentina (Republic of), Note, 11.75%, 1,463,195
2/12/2007
1,350,000 Bulgaria, 6.6875%, 7/28/2011 1,019,250
1,000,000 Bundesrepublic Deutschland, 6.00%, 7/4/2007 605,577
2,000,000,000 Buoni Poliennali Del Tes, Deb., 12.00%, 1,152,560
9/18/1998
51,000,000 Central Bank Kenya, Foreign Gov't. Guarantee,
26.95% accrual,
7/7/1998 790,327
50,050,000 Central Bank Kenya, Foreign Gov't. Guarantee, 753,441
8/24/1998
2,300,000 Denmark, Kingdom of, Bond, 7.00%, 11/10/2024 405,839
300,000 Denmark, Unsub., 11.625%, 1/23/2000 524,290
2,350,000 Ecuador (Republic of), 11.25%, 4/25/2002 2,367,625
350,000,000 European Bank for Reconstruction and
Development, Bond,
10.00%, 5/2/2002 226,288
130,000,000 Hellenic Republic, Bond, 11.00%, 10/23/2003 431,484
50,000,000 Hellenic Republic, Bond, 11/26/2003 165,628
75,000,000 Hellenic Republic, Bond, 12/31/2003 248,687
100,000,000 Hellenic Republic, Bond, 13.50%, 12/27/2002 338,638
150,000,000 Hellenic Republic, Bond, 9.80%, 3/21/2000 488,022
</TABLE>
FEDERATED INTERNATIONAL HIGH INCOME FUND
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
GOVERNMENT AGENCIES -- CONTINUED
100,000,000 Hungary, Bond, 16.50%, 7/24/1999 $ 464,595
172,500,000 Hungary, Bond, 14.00%, 12/12/2002 759,209
100,000,000 Hungary, Bond, 14.00%, 6/24/2002 441,955
100,000,000 Hungary, Bond, 16.50%, 4/12/1999 461,428
7,500,000 International Finance Corp., Note, 11.75%, 197,580
8/15/1999
1,000,000 Islamic Republic of Pakistan, Bond, 9.85625%, 983,800
5/30/2000
1,000,000 Islamic Republic of Pakistan, Deb., 11.50%, 1,000,500
12/22/1999
1,300,000,000 Italy (Republic of), Deb., 10.50%, 4/1/2005 973,817
1,500,000 Lesotho, Bond, 12.50%, 4/15/2002 277,470
500,000 Mexican Cetes, 1/14/1999 500,283
1,000,000 Mexican Cetes, 10/22/1998 1,045,351
700,000 Mexican Cetes, 2/11/1999 688,095
500,000 Mexican Cetes, 5/6/1999 467,914
1,038,000 Mexican Cetes, 9/24/1998 1,101,551
1,750,000(b) Ministry Finance Russia, 10.00%,6/26/2007 1,561,875
2,000,000(b) Ministry Finance Russia, 9.375%, 1,050,189
3/31/2005
2,000,000 Ministry Finance Russia, 10.00%, 6/26/2007 1,795,000
500,000 New South Wales Treasury, Local Gov't.
Guarantee, 12.60%, 5/1/2006 452,951
5,000,000 Norwegian Government, Bond, 9.50%, 10/31/2002 768,292
2,500,000 Poland Gov't. Bond, 12.00%, 2/12/2003 595,102
1,000,000 Poland Gov't. Bond, 12.00%, 6/12/2002 238,327
4,250,000 Poland Gov't. Bond, 15.00%, 10/12/1999 1,135,849
1,500,000 Poland Gov't. Bond, 12.00%, 2/12/2002 357,706
6,500,000 Poland Gov't. Bond, 12.00%, 6/12/2003 1,549,126
2,000,000 South Africa, Republic of, Bond, 12.50%, 372,355
1/15/2002
6,000,000 Sweden (Kingdom of), Deb., 9.00%, 4/20/2009 1,009,327
3,600,000 Sweden (Kingdom of), Bond, 8.00%, 8/15/2007 557,342
5,250,000 Telkom SA Ltd., 10.375%, 3/31/2008 782,107
</TABLE>
FEDERATED INTERNATIONAL HIGH INCOME FUND
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
PAR AMOUNT
OR PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
GOVERNMENT AGENCIES -- CONTINUED
200,000 Turkey, 10.00%, 5/23/2002 $ 209,400
300,000 Turkey, 10.00%, 9/19/2007 300,563
650,000 Turkey, Bond, 9.875%, 2/23/2005 645,125
600,000 Turkey, Deb., 11.50%, 4/27/1999 618,600
1,000,000 United Mexican States, 8.625%, 3/12/2008 987,000
500,000 United Mexican States, Bond, 9.875%, 1/15/2007 524,375
2,800,000 Venezuela, Bond, 9.25%, 9/15/2027 2,345,000
1,000,000(b) Venezuela, Sr. Unsub., 9.125%, 6/18/2007 951,500
17,000,000 World Bank, Unsub., 13.75%, 9/18/1998 508,029
TOTAL GOVERNMENT AGENCIES 42,326,727
(IDENTIFIED COST $44,885,832)
(C)REPURCHASE AGREEMENT -- 2.8%
$ 2,545,000 BT Securities Corp., 5.57%, dated 5/29/1998, 2,545,000
due 6/1/1998
TOTAL INVESTMENTS
(IDENTIFIED COST $96,700,058)(D) $ 91,594,406
</TABLE>
(a) Non-Income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At May 31, 1998, these securities amounted to
$15,424,737 which represents 16.81% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $96,700,058. The
net unrealized depreciation of investments on a federal tax basis amounts to
$5,105,652 which is comprised of $462,660 appreciation and $5,568,312
depreciation at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($91,732,137) at May 31, 1998.
The following acronyms are used throughout this portfolio:
PLC --Public Limited Company
SA --Support Agreement
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL HIGH INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 91,594,406
$96,700,058)
Cash 5,265
Cash denominated in foreign currencies (at identified cost $17,413) 17,154
Income receivable 2,695,900
Receivable for shares sold 713,473
Deferred organizational costs 36,891
Total assets 95,063,089
LIABILITIES:
Payable for investments purchased $ 2,502,822
Payable for shares redeemed 13,935
Income distribution payable 723,691
Payable for taxes withheld 6,781
Accrued expenses 83,723
Total liabilities 3,330,952
NET ASSETS for 9,988,316 shares outstanding $ 91,732,137
NET ASSETS CONSIST OF:
Paid in capital $ 97,653,177
Net unrealized depreciation of investments and translation of assets
and liabilities in foreign currency (5,103,803)
Accumulated net realized loss on investments and foreign currency (206,421)
transactions
Distributions in excess of net investment income (610,816)
Total net assets $ 91,732,137
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($10,276,855 / 1,119,202 shares outstanding) $9.18
Offering Price Per Share (100/95.50 of $9.18)* $9.61
Redemption Proceeds Per Share $9.18
CLASS B SHARES:
Net Asset Value Per Share ($71,569,414 / 7,792,557 shares outstanding) $9.18
Offering Price Per Share $9.18
Redemption Proceeds Per Share (94.50/100 of $9.18)** $8.68
CLASS C SHARES:
Net Asset Value Per Share ($9,885,868 / 1,076,557 shares outstanding) $9.18
Offering Price Per Share $9.18
Redemption Proceeds Per Share (99.00/100 of $9.18)** $9.09
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL HIGH INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign taxes withheld of $15,484) $ 4,236,354
EXPENSES:
Investment advisory fee $ 334,934
Administrative personnel and services fee 92,247
Custodian fees 32,830
Transfer and dividend disbursing agent fees and 55,875
expenses
Directors'/Trustees' fees 924
Auditing fees 9,758
Legal fees 1,092
Portfolio accounting fees 42,509
Distribution services fee -- Class B Shares 229,195
Distribution services fee -- Class C Shares 29,804
Shareholder services fee -- Class A Shares 12,177
Shareholder services fee -- Class B Shares 76,398
Shareholder services fee -- Class C Shares 9,935
Share registration costs 24,513
Printing and postage 18,200
Insurance premiums 2,002
Taxes 742
Miscellaneous 6,607
Total expenses 979,742
Waivers and reimbursements--
Waiver of investment advisory fee $(334,934)
Reimbursement of other operating expenses (74,681)
Total waivers and reimbursements (409,615)
Net expenses 570,127
Net investment income 3,666,227
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments and foreign currency (589,046)
transactions
Net change in unrealized depreciation of investments
and translation of assets and liabilities in foreign
currency (1,982,377)
Net realized and unrealized loss on investments and (2,571,423)
foreign currency transactions
Change in net assets resulting from operations $ 1,094,804
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL HIGH INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 3,666,227 $ 3,157,444
Net realized (loss) on investments and foreign
currency transactions ($589,046) and $401,272 net
gain, respectively, as computed for federal tax
purposes) (589,046) (127,533)
Net change in unrealized depreciation and
translation of assets and liabilities in foreign
currency (1,982,377) (3,203,065)
Change in net assets resulting from operations 1,094,804 (173,154)
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (513,055) (371,540)
Class B Shares (2,975,592) (2,435,667)
Class C Shares (385,317) (217,775)
Distributions from net realized gains
Class A Shares (2,557) 0
Class B Shares (14,211) 0
Class C Shares (1,879) 0
Change in net assets resulting from distributions (3,892,611) (3,024,982)
to shareholders
SHARE TRANSACTIONS --
Proceeds from sale of shares 36,239,461 65,492,534
Net asset value of shares issued to shareholders in
payment
of distributions declared 1,040,843 1,066,512
Cost of shares redeemed (7,789,164) (4,400,916)
Change in net assets resulting from share 29,491,140 62,158,130
transactions
Change in net assets 26,693,333 58,959,994
NET ASSETS:
Beginning of period 65,038,804 6,078,810
End of period $91,732,137 $65,038,804
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL HIGH INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $10.12 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.47(f) 1.18 0.17(e)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.30) (0.78) 0.13
Total from investment operations 0.17 0.40 0.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.49) (1.02) (0.17)
Distributions in excess of net investment income -- -- (0.01)(b)
Distributions from net realized gain on
investments and foreign currency transactions(g) 0.00 0.00 0.00
Total distributions from net investment income (0.49) (1.02) (0.18)
NET ASSET VALUE, END OF PERIOD $ 9.18 $ 9.50 $10.12
TOTAL RETURN(C) 1.88% 4.02% 2.99%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.79%* 0.75% 0.75%*
Net investment income 9.97%* 10.54% 9.19%*
Expense waiver/reimbursement(d) 1.04%* 2.03% 8.46%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $10,277 $9,073 $599
Portfolio turnover 58% 93% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 2, 1996 (date of initial
public offering) to November 30, 1996.
(b) Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a return
of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Per share information is based on the bi-monthly average number of shares
outstanding.
(f) Per share information is based on the average number of shares outstanding.
(g) Amount represents less than 0.01 per share.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL HIGH INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $10.12 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.43(e) 0.96 0.18(b)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.29) (0.63) 0.11
Total from investment operations 0.14 0.33 0.29
LESS DISTRIBUTIONS
Distributions from net investment income (0.46) (0.95) (0.17)
Distributions from net realized gain on
investments and foreign currency transactions(f) 0.00 0.00 0.00
NET ASSET VALUE, END OF PERIOD $ 9.18 $ 9.50 $10.12
TOTAL RETURN(C) 1.50% 3.24% 2.87%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.54%* 1.50% 1.50%*
Net investment income 9.21%* 9.73% 8.92%*
Expense waiver/reimbursement(d) 1.04%* 2.03% 8.46%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $71,569 $49,929 $5,397
Portfolio turnover 58% 93% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 2, 1996 (date of initial
public offering) to November 30, 1996.
(b) Per share information presented is based upon the bi-monthly average number
of shares outstanding.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Per share information is based on the average number of shares outstanding.
(f) Amount represents less than 0.01 per share.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL HIGH INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED PERIOD ENDED
MAY 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $10.12 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.43(e) 0.98 0.17(b)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.29) (0.65) 0.12
Total from investment operations 0.14 0.33 0.29
LESS DISTRIBUTIONS
Distributions from net investment income (0.46) (0.95) (0.17)
Distributions from net realized gain on
investments and foreign currency transactions(f) 0.00 0.00 0.00
NET ASSET VALUE, END OF PERIOD $ 9.18 $ 9.50 $10.12
TOTAL RETURN(C) 1.50% 3.24% 2.87%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.54%* 1.50% 1.50%*
Net investment income 9.19%* 10.04% 8.67%*
Expense waiver/reimbursement(d) 1.04%* 2.03% 8.46%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $9,886 $6,037 $83
Portfolio turnover 58% 93% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 2, 1996 (date of initial
public offering) to November 30, 1996.
(b) Per share information presented is based upon the bi-monthly average number
of shares outstanding.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Per share information is based on the average number of shares outstanding.
(f) Amount represents less than 0.01 per share.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end,
management investment company. The Corporation consists of nine portfolios. The
financial statements included herein are only those of Federated International
High Income Fund (the "Fund"), a diversified portfolio. The financial statements
of the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to seek a high level of
current income.
The Fund offers three classes of shares: Class A Shares, Class B Shares, and
Class C Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- U.S. government securities, listed corporate bonds,
(other fixed-income and asset-backed securities), and unlisted securities and
private placement securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short-term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value. With respect to valuation of foreign securities, trading in
foreign cities may be completed at times which vary from the closing of the New
York Stock Exchange. Therefore, foreign securities are valued at the latest
closing price on the exchange on which they are traded to prior to the closing
of the New York Stock Exchange. Foreign securities quoted in foreign currencies
are translated into U.S. dollars at the foreign exchange rate in effect at noon,
eastern time, on the day the value of the foreign security is determined.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS -- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend Income
and Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency exchange
transactions. Purchased contracts are used to acquire exposure to foreign
currencies; whereas, contracts to sell are used to hedge the Fund's securities
against currency fluctuations. Risks may arise upon entering these transactions
from the potential inability of counterparts to meet the terms of their
commitments and from unanticipated movements in security prices or foreign
exchange rates. The foreign currency transactions are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purpose as unrealized until the settlement date.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of exchange
of such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, income, and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on theFund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
RESTRICTED SECURITIES -- Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense, either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Directors. The Fund
will not incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Fund's pricing committee.
Additional information on each restricted security held at May 31, 1998, is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Cathay International Ltd. 4/3/1998 $ 505,000
CIA International 3/20/1998 460,092
Telecommunications, Note 3/19/1998 917,684
CIA Saneamento Basico, Bond 10/14/1997 507,500
7/23/1997 500,000
Comtel Brasileir, Note 10/01/1996 205,000
Dharmala Intiutama 7/22/1997 353,959
Geberit International, Sr. Sub. 4/22/1998 965,481
4/20/1998 319,131
4/20/1998 798,692
12/12/1997 464,193
Globo Communicacoes Part 3/12/1998 498,250
Imasac, SA 4/24/1998 741,060
LG-Caltex Oil Co., Ltd., Note 3/24/1998 1,000,000
Mastellone Hermanos SA 4/22/1998 1,573,219
Ministry Finance Russia 10.00% 5/19/1998 458,750
10/20/1997 794,250
6/19/1997 495,820
Ministry Finance Russia 9.375% 3/24/1998 1,091,236
P.T. Polysindo Eka Perkasa PN 9/25/1997 287,098
Road King Infrastructure 7/25/1997 510,000
TM Group Holdings, Sr. Note 5/7/1998 500,000
TV Bandeirantes, Note 5/8/1998 745,403
Venezuela, Sr, Unsub 2/17/1998 757,350
2/17/1998 252,450
Zhuhai Highway, Sub. Note 10/01/1996 265,625
3/18/1996 95,000
12/4/1996 763,125
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, par value shares ($0.001 per share) authorized were as follows:
NUMBER OF PAR
VALUE
CAPITAL STOCK
SHARE CLASS NAME AUTHORIZED
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 100,000,000
Total
Authorized 300,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C> <C>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 382,744 $ 3,592,206 947,873 $ 9,368,221
Shares issued to shareholders in
payment of distributions declared 14,827 139,177 16,193 159,561
Shares redeemed (233,462) (2,188,393) (68,227) (673,400)
Net change resulting from
Class A Share transactions 164,109 $ 1,542,990 895,839 $ 8,854,382
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C> <C>
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 2,893,434 $ 27,132,849 4,965,419 $ 49,422,176
Shares issued to shareholders in
payment of distributions declared 80,283 753,437 80,852 796,727
Shares redeemed (437,687) (4,095,278) (322,979) (3,166,390)
Net change resulting from
Class B Share transactions 2,536,030 $ 23,791,008 4,723,292 $ 47,052,513
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C> <C>
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 587,260 $ 5,514,406 673,112 $ 6,702,138
Shares issued to shareholders in
payment of distributions declared 15,800 148,229 11,256 110,223
Shares redeemed (161,980) (1,505,493) (57,081) ( 561,126)
Net change resulting from
Class C Share transactions 441,080 $ 4,157,142 627,287 $ 6,251,235
Net change resulting from
share transactions 3,141,219 $ 29,491,140 6,246,418 $ 62,158,130
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.85% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors, Inc. for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class A Shares, Class B Shares, and Class C
Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
PERCENTAGE OF AVERAGE
DAILY NET ASSETS OF
SHARE CLASS NAME CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion. For the six months ended May 31, 1998, Class A did not incur a
distribution services fee.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and start-up administrative service
expenses of $48,027 were borne initially by the Adviser. The Fund has reimbursed
the Adviser these expenses. These expenses have been deferred and are being
amortized over the five-year period following the Fund's effective date. For the
six months ended May 31, 1998, the Fund expensed $5,609 of organizational and
start-up administrative service expenses.
GENERAL -- Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
PURCHASES $74,433,626
SALES $43,856,327
6. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At May 31, 1998, the diversification of countries was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
Mexico 14.9%
Argentina 10.5%
Brazil 8.8%
Venezuela 5.1%
Russia 4.8%
Canada 4.2%
Poland 4.2%
China 4.1%
South Africa 2.8%
Switzerland 2.8%
Indonesia 2.7%
Ecuador 2.6%
Hungary 2.3%
Italy 2.3%
Pakistan 2.2%
Philippines 2.0%
Turkey 1.9%
Greece 1.8%
Germany 1.7%
Kenya 1.7%
Sweden 1.7%
Denmark 1.5%
Jamaica 1.4%
Korea 1.3%
Bulgaria 1.1%
Dominican Republic 1.1%
Thailand 1.1%
United Kingdom 0.9%
Norway 0.8%
New Zealand 0.7%
Czech Republic 0.6%
Colombia 0.5%
Australia 0.4%
France 0.3%
Slovak Republic 0.2%
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President,
Treasurer, and Secretary
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 981487762
Cusip 981487754
Cusip 981487747
G01949-02 (7/98)
Federated International Growth Fund
1ST SEMI-ANNUAL REPORT
MAY 31, 1998
ESTABLISHED 1997
Dear Shareholder:
Federated International Growth Fund was created in 1997, and I am pleased to
present its first Semi-Annual Report.
This fund is a "fund of funds." It offers shareholders significant long-term
growth opportunities by investing in five different international stock mutual
funds managed by Federated Global Research Corp. This $28 million
"fund-of-funds" approach provides an extremely high level of diversification,
far beyond what a single regional international fund can achieve. It gives
investors one-investment access to a world of regions, industries, companies
(both large-cap and small-cap), and markets (both developed and emerging). The
fund's management team performs all the research and quantitative work needed to
allocate the fund's assets in the various international arenas.*
This report covers the first half of the fund's fiscal year, which is the
six-month period from December 1, 1997 through May 31, 1998. It begins with a
discussion with the fund's portfolio manager, Drew Collins, Senior Vice
President of Federated Global Research Corp., who presents his outlook on
international economic and market conditions and the fund's strategy. Following
his discussion, you will find two additional items of shareholder interest.
First is a complete listing of the fund's mutual fund investments, and second is
the publication of the fund's financial statements.
During the six-month reporting period ended May 31, 1998, the fund's performance
was positive. The fund's investment in the strong-performing European region and
international small company arena outweighed the negative impact of its holdings
in the Asia Pacific and Latin America regions, and emerging markets. Individual
share class total return performance, including income dividends, follows:**
NET ASSET VALUE
TOTAL RETURN INCOME INCREASE
Class A Shares 8.63% $0.058 $8.73 to $9.42 = 8%
Class B Shares 8.09% $0.041 $8.71 to $9.37 = 8%
Class C Shares 8.35% $0.044 $8.72 to $9.40 = 8%
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
** Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on offering
price for Class A, B, and C Shares were 2.63%, 2.55%, and 7.31%, respectively.
We will continue to keep you up-to-date on the details of your investment on a
regular basis. You may add to your investment account at any time and thus
increase the number of shares you own for future income. I recommend you add to
your account on a regular basis to take advantage of price fluctuations and
dollar-cost averaging.+
Thank you for your investment in Federated's "fund of funds" and for the
confidence you have placed in our firm.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1998
+ Dollar-cost averaging does not ensure profits or protect against losses in
declining markets. Since such a plan of investing involves continuous investing
regardless of fluctuating price levels, investors should consider whether to
continue to invest in periods of low price levels.
INVESTMENT REVIEW
[Graphic]
Drew Collins
Senior Vice President
Federated Global Research Corp.
[Graphic]
WHAT IS YOUR ANALYSIS OF THE FIRST HALF OF THE FUND'S FISCAL YEAR, WHICH SAW
INTERNATIONAL EQUITIES OUTPACE THE U.S. EQUITY MARKET?
The international equity markets did indeed outpace the U.S. equity markets
because of the growth witnessed in Europe. Growth in Europe is being spurred by
the introduction of the single currency in 1999, which in turn has kept interest
rates low. European companies, which have taken measures to become more
efficient because of anticipated competition, have seen a dramatic re-evaluation
in their share price over the last six months. Western European companies also
face the realization of deregulation in their home markets, prompting them to
become globally competitive in fears of losing future market share to their U.S.
rivals. Europe has also prospered because investors view the region as a safe
haven from the Asian market turmoil. With the exception of the U.S. market,
Europe is the only region in the world that may offer a haven, or a "flight to
quality" for investments. We expect Europe to continue to provide attractive
returns during the second half of the year.
[Graphic]
HOW DID FEDERATED INTERNATIONAL GROWTH FUND PERFORM DURING THE REPORTING PERIOD
COMPARED TO THE OVERALL INTERNATIONAL EQUITY MARKET?
Federated International Growth Fund produced a six-month total return of 8.63%*
for Class A Shares, based on net asset value. The total returns for Class B and
C Shares, based on net asset value, were 8.09%* and 8.35%,* respectively. These
returns, while positive, lagged the 16.06% return of the Morgan Stanley Capital
International Europe, Australia, and Far East Index
("EAFE Index") for the same period.**
* Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on offering
price for Class A, B, and C Shares were 2.63%, 2.55%, and 7.31%, respectively.
** The EAFE Index is a market capitalization-weighted foreign securities index
widely used to measure the performance of European, Australian, New Zealand, and
Far Eastern stock markets. The index covers approximately 1,600 companies drawn
from 22 countries in the above regions. The index values its securities daily in
both U.S. dollars and local currency and calculates total returns monthly. This
index is unmanaged and investments cannot be made in an index.
[Graphic]
WHAT FUNDS IN FEDERATED INTERNATIONAL GROWTH FUND'S PORTFOLIO WERE POSITIVE AND
NEGATIVE CONTRIBUTORS TO PERFORMANCE VERSUS THE EAFE INDEX?
Federated European Growth Fund and Federated International Small Company Fund
were the dominant contributors in terms of first half performance for Federated
International Growth Fund. The strong growth in mid-to-large capitalization
companies has also spilled over to international small companies. Small
companies have benefited because their larger counterparts have outsourced many
job tasks as a result of becoming more efficient. Also, many small companies
have seen explosive performance because of their expertise in information
technology.
The performance of Federated International Growth Fund has been negatively
impacted by Federated Asia Pacific Growth Fund, Federated Emerging Markets Fund,
and Federated Latin American Growth Fund. The major cause of the Asian debacle
lies in Japan, as their failure to resuscitate their economy has continued to
weaken the Yen, thus forcing downward pressure on most of the Asian currencies.
Investors are fearful that future devaluations could occur without improvement
in the Yen. It is thought that if Asia faces further devaluations, the impact
may spill over into other parts of the world. Hence, Latin America and emerging
markets have both suffered.
[Graphic]
WHAT CHANGES DID YOU MAKE IN THE ALLOCATIONS AMONG THE DIFFERENT FUNDS?
With our first quarter 1998 review, we lowered the target allocation to
Federated Asia Pacific Growth Fund and raised the target allocation to Federated
International Small Company Fund. We continue to believe that some of the best
bargains exist in the international small-cap area.
[Graphic]
HOW WERE THE FUND'S ASSETS DIVERSIFIED AMONG THE FIVE DIFFERENT FEDERATED
MANAGED INTERNATIONAL MUTUAL FUNDS AT THE END OF THE REPORTING PERIOD?
As of May 31, 1998, the assets of Federated International Growth Fund were
allocated as follows:
PERCENTAGE
OF
NET ASSETS
Federated European Growth Fund 36.91%
Federated International Small Company Fund 22.33%
Federated Asia Pacific Growth Fund 14.49%
Federated Emerging Markets Fund 12.64%
Federated Latin American Growth Fund 9.81%
The top two holdings per individual fund as of May 31, 1998 were as follows:
PERCENTAGE
OF
EACH FUND'S
FUND NAME COUNTRY NET ASSETS
Federated European Alcatel Alsthom France 2.05%
Growth Fund ING Groep, N.V. Netherlands 1.94%
Federated Corp Fin Reunida Spain 1.40%
International
Small Company Fund Ibersol SGPS SA Portugal 1.33%
Federated Asia Honda Motor Co. Ltd. Japan 3.17%
Pacific
Growth Fund Tokyo Electric Power Japan 2.97%
Co.
Federated Emerging Social Security Bank Ghana 4.85%
Ltd.
Markets Fund Arabian International
Construction Egypt 2.07%
Federated Latin Telecomunicacoes
American Growth Brasileiras Brazil 6.26%
Fund
Telecomunicacoes
de Sao Paulo
SA, Preference Brazil 4.80%
[Graphic]
AS WE PASS THE MID-POINT OF 1998, WHAT IS YOUR OUTLOOK FOR INTERNATIONAL
EQUITIES FOR THE REMAINDER OF THE YEAR?
We expect Europe to continue to perform well throughout the remainder of the
year. Europe's environment, which consists of low interest rates coupled with
strong productivity gains from companies, should continue to be a positive trend
for investment in international markets. However, our outlook continues to
presume that markets will remain volatile due to the uncertainty that lies in
the Asian economies, most notably in Japan. We will continue to scrutinize Japan
in anticipation of economic reform that must take place to revitalize their
economy. Overall, we expect international markets to continue to perform well
with the bulk of the performance coming from Europe.
FEDERATED INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
MUTUAL FUNDS--96.2%
671,352 (a)Federated Asia Pacific Growth Fund, Class A $ 4,081,823
318,841 (a)Federated Emerging Markets Fund, Class A 3,561,453
631,764 Federated European Growth Fund, Class A 10,398,831
316,457 (a)Federated International Small Company Fund, Class A 6,291,167
236,073 Federated Latin American Growth Fund, Class A 2,764,418
TOTAL MUTUAL FUNDS (IDENTIFIED COST $27,481,842) 27,097,692
(B)REPURCHASE AGREEMENT--3.0%
$ 850,000 BT Securities Corp., 5.57%, dated 5/29/1998, due
6/1/1998 (AT AMORTIZED COST) 850,000
TOTAL INVESTMENTS (IDENTIFIED COST $28,331,842)(C) $ 27,947,692
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $28,331,842. The
net unrealized depreciation of investments on a federal tax basis amounts to
$384,150 which is comprised of $2,915,123 appreciation and $3,299,273
depreciation at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($28,173,471) at May 31, 1998.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 27,947,692
$28,331,842)
Cash 48,308
Income receivable 395
Receivable for shares sold 177,180
Deferred organizational costs 38,080
Total assets 28,211,655
LIABILITIES:
Payable for shares redeemed $ 12,444
Accrued expenses 25,740
Total liabilities 38,184
NET ASSETS for 2,995,565 shares outstanding $ 28,173,471
NET ASSETS CONSIST OF:
Paid in capital $ 28,653,746
Net unrealized depreciation of investments (384,150)
Accumulated net realized loss on investments (79,147)
Distributions in excess of net investment income (16,978)
Total Net Assets $ 28,173,471
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($18,268,927 / 1,939,391 shares outstanding) $9.42
Offering Price Per Share (100/94.50 of $9.42)* $9.97
Redemption Proceeds Per Share $9.42
CLASS B SHARES:
Net Asset Value Per Share ($8,699,590 / 927,959 shares outstanding) $9.37
Offering Price Per Share $9.37
Redemption Proceeds Per Share (94.50/100 of $9.37)** $8.85
CLASS C SHARES:
Net Asset Value Per Share ($1,204,954 / 128,215 shares outstanding) $9.40
Offering Price Per Share $9.40
Redemption Proceeds Per Share (99.00/100 of $9.40)** $9.31
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 118,722
Interest 7,492
Total income 126,214
EXPENSES:
Administrative personnel and services fee $ 92,247
Custodian fees 896
Transfer and dividend disbursing agent fees and expenses 41,244
Auditing fees 8,176
Legal fees 546
Portfolio accounting fees 38,651
Distribution services fee--Class B Shares 26,163
Distribution services fee--Class C Shares 3,868
Shareholder services fee--Class A Shares 17,294
Shareholder services fee--Class B Shares 8,721
Shareholder services fee--Class C Shares 1,289
Share registration costs 18,783
Printing and postage 10,010
Insurance premiums 1,638
Taxes 294
Miscellaneous 7,462
Total expenses 277,282
Waivers and reimbursements--
Waiver of shareholder services fee--Class A Shares $ (17,294)
Waiver of shareholder services fee--Class B Shares (8,721)
Waiver of shareholder services fee--Class C Shares (1,289)
Reimbursement of other operating expenses (211,821)
Total waivers and reimbursements (239,125)
Net expenses 38,157
Net investment income 88,057
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (5,689)
Net change in unrealized depreciation of investments 1,643,745
Net realized and unrealized gain on investments 1,638,056
Change in net assets resulting from operations $1,726,113
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
MAY 31, NOVEMBER 30,
1998 1997*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Net investment income/(operating loss) $ 88,057 $ (9,221)
Net realized loss on investments ($(5,689) and $0, respectively, as
computed for federal tax purposes) (5,689) (73,458)
Net change in unrealized depreciation 1,643,745 (2,027,895)
Change in net assets resulting from operations 1,726,113 (2,110,574)
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (74,360) --
Class B Shares (26,124) --
Class C Shares (4,551) --
Change in net assets resulting from distributions to shareholders (105,035) --
SHARE TRANSACTIONS--
Proceeds from sale of shares 15,720,890 19,590,876
Net asset value of shares issued to shareholders in payment of
distributions declared 77,461 --
Cost of shares redeemed (5,523,938) (1,202,322)
Change in net assets resulting from share transactions 10,274,413 18,388,554
Change in net assets 11,895,491 16,277,980
NET ASSETS:
Beginning of period 16,277,980 --
End of period (including distributions in excess of net investment
income of $(16,978) and $0, respectively) $ 28,173,471 $ 16,277,980
</TABLE>
* For the period from July 1, 1997 (date of initial public investment) to
November 30, 1997.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
MAY 31, NOVEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.73 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(operating loss) 0.06 (0.01)
Net realized and unrealized gain
(loss) on investments 0.69 (1.26)
Total from investment operations 0.75 (1.27)
LESS DISTRIBUTIONS
Distributions from net investment income (0.06) --
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 8.73
TOTAL RETURN(B) 8.63% (12.70%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.07%* 0.07%*
Net investment income/(operating loss) 1.08%* (0.01%)*
Expense waiver/reimbursement(c) 2.19%* 4.32%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $18,269 $10,562
Portfolio turnover 2% 3%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income/(loss) ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
MAY 31, NOVEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.71 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(operating loss) 0.03 (0.01)
Net realized and unrealized gain
(loss) on investments 0.67 (1.28)
Total from investment operations 0.70 (1.29)
LESS DISTRIBUTIONS
Distributions from net investment income (0.04) --
NET ASSET VALUE, END OF PERIOD $ 9.37 $ 8.71
TOTAL RETURN(B) 8.09% (12.90%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.82%* 0.82%*
Net investment income/(operating loss) 0.32%* (0.77%)*
Expense waiver/reimbursement(c) 2.19%* 2.78%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,700 $5,036
Portfolio turnover 2% 3%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income/(loss) ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
MAY 31, NOVEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.72 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(operating loss) 0.03 (0.01)
Net realized and unrealized gain
(loss) on investments 0.69 (1.27)
Total from investment operations 0.72 (1.28)
LESS DISTRIBUTIONS
Distributions from net investment income (0.04) --
NET ASSET VALUE, END OF PERIOD $ 9.40 $ 8.72
TOTAL RETURN(B) 8.35% (12.80%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.82%* 0.82%*
Net investment income/(operating loss) 0.43%* (0.77%)*
Expense waiver/reimbursement(c) 2.22%* 2.69%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,205 $680
Portfolio turnover 2% 3%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 1, 1997 (date of initial
public investment) to November 30, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income/(loss) ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of nine portfolios. The
financial statements included herein are only those of Federated International
Growth Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers three classes of shares: Class A Shares, Class B Shares, and Class C
Shares. The investment objective of the Fund is to provide long-term growth of
capital.
The Fund pursues its investment objective by investing in shares of other
open-end management investment companies for which affiliates of Federated
Investors, Inc. serve as investment adviser, transfer and dividend disbursing
agent, portfolio accountant, and principal underwriter (the "Federated Funds,"
herein referred to as the "underlying funds") that invest primarily in foreign
equity securities. The underlying funds in which the Fund will invest include,
but are not limited to, Federated Asia Pacific Growth Fund, Federated Emerging
Markets Fund, Federated European Growth Fund, Federated International Small
Company Fund and Federated Latin American Growth Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Investments in other open-end regulated investment
companies are valued at net asset value. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS -- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions to
shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, par value shares ($0.001 per share) authorized were as follows:
NUMBER OF PAR
VALUE CAPITAL
SHARE CLASS NAME STOCK AUTHORIZED
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 100,000,000
Total 300,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) PERIOD ENDED
MAY 31, 1998 NOVEMBER 30, 1997(A)
<S> <C> <C> <C> <C>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 1,256,713 $ 11,468,818 1,322,127 $ 12,959,645
Shares issued to shareholders in
payment of
distributions declared 5,647 48,958 -- --
Shares redeemed (533,379) (4,841,804) (111,717) (1,020,921)
Net change resulting from
Class A Share transactions 728,981 $ 6,675,972 1,210,410 $ 11,938,724
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) PERIOD ENDED
MAY 31, 1998 NOVEMBER 30, 1997(A)
<S> <C> <C> <C> <C>
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 411,304 $ 3,719,519 594,767 $ 5,850,398
Shares issued to shareholders in
payment of
distributions declared 2,840 24,563 -- --
Shares redeemed (64,163) (591,974) (16,789) (156,418)
Net change resulting from
Class B Share transactions 349,981 $ 3,152,108 577,978 $ 5,693,980
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) PERIOD ENDED
MAY 31, 1998 NOVEMBER 30, 1997(A)
<S> <C> <C> <C> <C>
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 59,493 $ 532,553 80,472 $ 780,833
Shares issued to shareholders in
payment of
distributions declared 454 3,940 -- --
Shares redeemed (9,640) (90,160) (2,564) (24,983)
Net change resulting from
Class C Share transactions 50,307 $ 446,333 77,908 $ 755,850
Net change resulting from share 1,129,269 $ 10,274,413 1,866,296 $ 18,388,554
transactions
</TABLE>
(a) For the period from July 1, 1997 (date of initial public investment) to
November 30, 1997.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEE -- Federated Global Research Corp. is the Fund's investment
adviser (the "Adviser"). The advisory fee is contingent upon the grant of
certain exemptive relief from the SEC. If the Fund were paying or accruing the
advisory fee, the Fund would be able to pay up to 1.25% of its average daily net
assets which are invested in individual stocks, bonds or money market
investments, and not on those assets invested in shares of the underlying funds.
If an asset allocation fee were to be charged to the Fund, it could range up to
an annual fee of 0.20% of the average daily net assets invested in the
underlying funds. The Fund did not pay or accrue the asset allocation fee during
the period.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors, Inc. for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares. FServ may voluntarily
choose to waive any portion of its fee. FServ can modify or terminate this
voluntary waiver at any time at its sole discretion.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class A, Class B, and Class C Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion. The Class A Shares did not pay or accrue the 12b-1 fee during
the period.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive any portion of its
fee. FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $42,732 were borne
initially by the Adviser. The Fund has reimbursed the Adviser for these
expenses. These expenses have been deferred and are being amortized over the
five-year period following the Fund's effective date. For the period ended May
31, 1998, the Fund expensed $4,652 pursuant to this agreement.
GENERAL -- Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of underlying Funds, excluding short-term securities, for
the period ended May 31, 1998, were as follows:
PURCHASES $9,939,741
SALES $ 330,000
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President,
Treasurer, and Secretary
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 981487739
Cusip 981487721
Cusip 981487713
G02418-01 (7/98)
APPENDIX
A. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 4/22/94
to 5/31/98. The "y" axis is measured in increments of $2,000 ranging from $0 to
$10,000 and indicates that the ending value of hypothetical initial investment
of $5,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $8,866 on 5/31/98.
B. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 4/22/94
to 5/31/98. The "y" axis is measured in increments of $2,000 ranging from $0 to
$8,000 and indicates that the ending value of hypothetical yearly investments of
$1,000 in the fund's Class A Shares, assuming the reinvestment of capital gains
and dividends, would have grown to $7,087 on 5/31/98.
