[Graphic]
RICHARD B. FISHER
President
Federated World Utility Fund
President's Message
Dear Fellow Shareholder:
Federated World Utility Fund was created in 1994, and I am pleased to present
its sixth Semi-Annual Report. As of May 31, 1999, the fund's net assets totaled
$89.5 million, and were invested in over 60 stocks (both domestic and
international holdings) in 14 countries. 1 These companies provide electric ity,
heat, water and telecommunications services in both developed and emerg ing
markets. Ownership of utilities of developed countries can earn attractive
dividends, while utilities in the emerging markets offer growth potential.
This report covers the first half of the fund's fiscal year which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with the fund's portfolio manager, Richard Lazarchic, Vice
President of Federated Global Investment Management Corp. Following his dis
cussion are three additional items of shareholder interest. First is a series of
graphs showing the fund's long-term investment performance. Second is a
complete listing of the fund's utility investments, and third is the publication
of the fund's financial statements.
The fund continued its record of strong performance and was one of the most
competitive global utility funds in the country during the reporting period. Due
to a strong environment for international utilities and good security selection,
the fund recorded double-digit total return performance. In fact, the fund
outperformed the overall global utilities market as well as the average return
of the 100 utility funds tracked by Lipper Analytical Services, Inc. 2
1 Funds whose investments are concentrated in a specific industry may be sub
ject to a higher degree of market risk than funds whose investments are
diversified. Foreign investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards.
2 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as fall ing into
the category indicated. Lipper returns do not take sales charges into account.
Individual share class total return performance for the six-month reporting
period, including capital gains, follows. 3
<TABLE>
<CAPTION>
TOTAL RETURN CAPITAL GAIN NET ASSET VALUE INCREASE
<S> <C> <C> <C>
Class A Shares 15.26% $1.30 $16.24 to $17.20 = 6%
Class B Shares 14.94% $1.30 $16.19 to $17.14 = 6%
Class C Shares 14.86% $1.30 $16.21 to $17.15 = 6%
</TABLE>
We trust that you were pleased with the positive performance of your invest ment
in Federated World Utility Fund. Thank you for joining the fund's grow ing
number of shareholders.
Remember, adding to your account on a regular basis and reinvesting your
dividends in additional shares is a convenient, painless way to "pay yourself
first" and enjoy the benefit of compounding from the shares you buy today. 4
As always we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
3 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the six-month reporting period,
based on offering price (i.e., less any applicable sales charge), for Class A,
B, and C Shares were 8.89%, 9.44%, and 13.86%, respectively.
4 Systematic investing does not ensure a profit or protect against loss in
declining markets.
[Graphic]
Richard Lazarchic
Vice President
Federated Global Investment Management Corp.
Investment Review
GLOBAL UTILITIES CONTINUED TO PERFORM WELL THROUGH THE FIRST HALF OF THE
FUND'S FISCAL YEAR. WHAT ARE YOUR COMMENTS ON THE REPORTING PERIOD?
There was a dichotomy in the utility area during this reporting period with
telecommunications and related stocks doing well, and electric utility stocks
lagging until late in the reporting period, when a rotation developed to
cyclical and yield stocks.
HOW DID FEDERATED WORLD UTILITY FUND PERFORM OVER THE SIX-MONTH REPORTING
PERIOD?
For the six-month reporting period ended May 31, 1999, the fund delivered strong
total returns of 15.26% for Class A Shares, 14.94% for Class B Shares and 14.86%
for Class C Shares, based on net asset value. 1 These returns were greater than
the 11.66% return of the 100 utility funds tracked by Lipper Analytical
Services, Inc. The fund's returns were also greater than the 13.43% return of
the overall world utility market as measured by FT Actuaries/S&P Global Utility
Index.2
1 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 (i.e., less any
applicable sales charge), for Class A, B, and C Shares were 8.89%, 9.44%, and
13.86%, respectively.
2 The FT/S&P Actuaries Global Utility Index is an unmanaged, market cap-
weighted index of utility securities from 24 countries, both developed and
emerging markets, with approximately 174 companies. Investments cannot be made
in an index.
WHAT ACCOUNTED FOR THE FUND'S OUTPERFORMANCE DURING THE REPORTING PERIOD?
Federated World Utility Fund had large weightings in companies like Frontier and
Airtouch Communications which were subsequently sold, and MCI WORLDCOM (5.46% of
net assets), which owns fiber networks that are being used to run internet
applications and transmit corporate data. We benefited from having large
weightings in telephone equipment companies like LUCENT (1.78% of net assets)
and CISCO (1.83% of net assets).
WHAT WERE SOME OF THE FUND'S RECENT UTILITY PURCHASES?
Our recent purchases included the following:
CABLE & WIRELESS OPTUS (0.87% of net assets): Cable & Wireless provides com
munication and telecommunication services in Australia. Services provided by the
company include: mobile communications services, national and interna tional
long distance services, local telephone services, business network services,
internet services, premium television services, home and business services, and
enterprise and industry services.
GLOBAL TELESYSTEMS GROUP, INC. (2.38% of net assets): Global is a European
integrated telecommunications services company. The company provides: broad
band and internet protocol-based services, carriers' carrier and internet
service provider services, international and domestic long distance, local
exchange carrier services, mobile, and internet services.
SPRINT CORPORATION (2.96% of net assets): Sprint provides telecommunications
services which include: long distance service, local service, product dis
tribution, and directory publishing activities. Sprint's other activities
include: emerging businesses, interests in international telecommunications
companies, and interest in an internet service provider.
METROMEDIA FIBER NETWORK, INC. (1.08% of net assets): Metromedia provides
high-bandwidth, fiber optic communications infrastructures to carrier and
corporate/government customers in the United States and Europe.
WHAT WERE THE FUND'S TOP TEN HOLDINGS AS OF MAY 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COUNTRY NET ASSETS
<S> <C> <C>
MCI Worldcom, Inc. United States 5.5%
Peco Energy Co. United States 4.0%
GTE Corp. United States 3.4%
Ameritech Corp. United States 3.3%
AT&T Corp. United States 3.2%
Sprint Corp. United States 3.0%
British Telecommunications PLC United Kingdom 2.5%
Global TeleSystems Group, Inc. Belgium 2.4%
Telefonica, SA Spain 2.2%
Texas Utilities Co. United States 2.2%
TOTAL 31.7%
</TABLE>
WHAT WERE THE FUND'S SECTOR AND REGION WEIGHTINGS AS OF MAY 31, 1999?
We continue to be fully invested, with the vast percentage of assets (over 65%)
in evolving telecommunication-related securities. We continue to hold a core
group of electric and natural gas stocks for yield and for defensive purposes,
but a portion of this weighting could be substituted for more tele
communication-related securities in the Pacific Rim and Latin America.
Currently, we are primarily invested in the United States and Europe and will
most likely continue to maintain this overweighted position. However, we are
re-evaluating the Pacific Rim and Latin America for potential opportunities.
Both could see their combined weighting creep up to possibly 5%-7% of the fund's
assets.
As of May 31, 1999, the fund's regional and country weightings were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
REGION NET ASSETS
<S> <C>
United States 62.9%
Europe 20.1%
Canada 3.1%
Asia (ex-Japan) 3.1%
Japan 2.9%
Australia 1.7%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
United States 62.9%
United Kingdom 7.6%
Netherlands 3.2%
Canada 3.1%
Japan 2.9%
France 2.5%
Belgium 2.4%
Spain 2.2%
Germany 1.8%
Australia 1.7%
Philippines 1.5%
Korea 1.1%
Hong Kong 0.5%
Denmark 0.4%
Brazil 0.0% 3
</TABLE>
3 Amount represents less than 0.1%.
AS WE REACH THE MIDPOINT OF 1999, WHAT ARE YOUR COMMENTS ON TELECOMMUNICA TIONS
AND INTERNET-RELATED STOCKS, WHICH HAVE TAKEN CENTER STAGE IN THE UTIL ITY
INDUSTRY?
Although many believe that worldwide markets are overvalued, others feel that we
are in a new era of investing-possibly like the "Nifty-Fifty" era of the 1980s.
Internet stocks continue to defy gravity and large blue-chip companies, such as
IBM, Microsoft, MCI Worldcom, Cisco, and Lucent continue to lead the large-cap
preference over small-cap stocks.
With respect to the utility markets, we believe that some areas (both domes tic
and international), i.e., wireless, fiber backbone, and selected tele phone
carriers, will continue to drastically outperform. We will continue to invest
the fund in the areas that we believe are evolving, like telecommuni cations and
internet-related securities around the world.
We have seen a change in investor sentiment over the last two months, away from
large-cap and internet securities and toward smaller cap and cyclical stocks due
to high prices of the former, and also due to interest rate wor ries brought
about by more growth overseas. We expect the wall of worry to disappear as the
Federal Reserve Board raised rates 25 basis points, and bond yields have, as
yet, not deterred equity buyers.
Last Meeting of Shareholders
A Special Meeting of shareholders of Federated World Utility Fund (the "Fund"),
a portfolio of World Investment Series, Inc., was held on February 23, 1999. The
following item was approved by shareholders at this meeting:
AGENDA ITEM
To approve or disapprove a charter amendment reclassifying all of the Fund's
Class F Shares as Class A Shares:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
<S> <C> <C>
386,326 4,997 6,186
</TABLE>
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
IF YOU HAD MADE AN INITIAL INVESTMENT OF $6,000 IN THE CLASS A SHARES OF FED
ERATED WORLD UTILITY FUND ON 4/22/94, REINVESTED DIVIDENDS AND CAPITAL GAINS,
AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $12,840 ON
5/31/99. YOU WOULD HAVE EARNED A 16.07% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends and
you gain the benefit of compounding.
As of 6/30/99, the Class A Shares' 1-year, 5-year and since inception (4/22/94)
average annual total returns were 14.38%, 17.96% and 16.28%, respectively. Class
B Shares' 1-year and since inception (7/27/95) average annual total returns were
14.74% and 19.90%, respectively. Class C Shares' 1- year and since inception
(7/27/95) average annual total returns were 19.22% and 20.31%, respectively. 2
[The graphic presentation here displayed consists of a 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 5/31/99. The
"y" axis is measured in increments of $3,000 ranging from $0 to $15,000 and
indicates that the ending value of a hypothetical initial investment of $6,000
in the fund's Class A Shares, assuming all sales charges and the reinvestment of
capital gains and dividends, would have grown to $12,840 on 5/31/99.] 1 Total
return represents the change in the value of an investment after reinvesting all
income and capital gains, and takes into account the 5.50% sales charge
applicable to an initial investment in Class A Shares. Data quoted represents
past performance and does not guarantee future results. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 5.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.
ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR
FIVE YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $9,498.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Feder ated
World Utility Fund on 4/22/94, reinvested your dividends and capital gains, and
did not redeem any shares, you would have invested only $6,000, but your account
would have reached a total value of $9,498 1 by 5/31/99. You would have earned
an average annual total return of 17.66%.
A practical investment plan helps you pursue income through a diversified
portfolio primarily invested in domestic and international utility securi ties.
Through systematic investing, you buy shares on a regular basis and reinvest all
earnings. An investment plan works for you when you invest only $1,000 annually.
You can take it one step at a time. Put time, money, and compounding to work.
[The graphic presentation here displayed consists of a 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 5/31/99. The
"y" axis is measured in increments of $2,000 ranging from $0 to $10,000 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, after five years, would have grown to $9,498 on 5/31/99.]
1 This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets.
Hypothetical Investor Profile-Investing for Growth
Bill and Sarah McNally-a dual-income suburban couple-are building a nest egg for
their son Cal's college education.
Bill and Sarah invested $10,000 in the Class A Shares of Federated World Utility
Fund on April 22, 1994. At the end of each April thereafter, Bill and Sarah have
added $2,000 to their investment. By May 31, 1999, their account had grown to
$36,115, giving them an annual total return of 16.69%.
Now the McNally's can feel confident that they can afford a quality education
for Cal-whether or not he gets the lacrosse scholarship that he is hoping for.
The couple is fictional, but the figures are real.
[The graphic presentation here displayed consists of a 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 5/31/99. The
"y" axis is measured in increments of $5,000 ranging from $0 to $40,000 and
indicates that the ending value of hypothetical initial investment of $10,000 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $36,115 on 5/31/99.]
This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-93.8%
CELLULAR TELEPHONE-3.3%
39,000 1 Crown Castle International
Corp. $ 784,875
79,899 Vodafone Group PLC 1,518,391
25,000 1 Western Wireless Corp.,
Class A 612,500
TOTAL 2,915,766
ELECTRIC UTILITIES:
CENTRAL-4.9%
31,000 CMS Energy Corp. 1,441,500
37,000 NiSource, Inc. 1,033,687
45,000 Unicom Corp. 1,904,063
TOTAL 4,379,250
ELECTRIC UTILITIES: EAST-
6.0%
42,000 DQE, Inc. 1,795,500
73,000 Peco Energy Co. 3,572,438
TOTAL 5,367,938
ELECTRIC UTILITIES: SOUTH-
7.4%
32,000 Duke Energy Corp. 1,930,000
30,000 Entergy Corp. 973,125
59,000 Reliant Energy, Inc. 1,799,500
43,000 Texas Utilities Co. 1,935,000
TOTAL 6,637,625
ELECTRIC UTILITIES: WEST-
1.6%
34,000 Pinnacle West Capital Corp. 1,423,750
ENERGY MINERALS-0.8%
6,100 Total SA 740,852
FINANCE-2.2%
18,000 Citigroup, Inc. 1,192,500
207,785 Colonial Ltd. 742,019
TOTAL 1,934,519
MAJOR
U.S. TELECOMMUNICATIONS-
20.0%
51,750 AT&T Corp. 2,872,125
45,000 Ameritech Corp. 2,961,563
32,000 BellSouth Corp. 1,510,000
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
MAJOR
U.S. TELECOMMUNICATIONS-
CONTINUED
48,000 GTE Corp. $ 3,027,000
56,500 1 MCI Worldcom, Inc. 4,880,187
23,500 Sprint Corp. 2,649,625
TOTAL 17,900,500
MULTI-INDUSTRY-1.7%
9,000 Suez Lyonnaise des Eaux 1,490,879
NON-U.S. UTILITIES-3.4%
135,000 British Energy PLC 1,202,725
240 DDI Corp. 1,107,967
210,000 Manila Electric Co., Class B 722,996
TOTAL 3,033,688
PRODUCER MANUFACTURING-1.8%
12,000 Mannesmann AG 1,638,809
TECHNOLOGY-13.2%
4,500 1 America Online, Inc. 537,188
15,000 1 Cisco Systems, Inc. 1,635,000
17,500 1 Equant NV, ADR 1,451,406
26,000 1 General Instrument Corp. 1,005,875
28,000 Lucent Technologies, Inc. 1,592,500
18,800 Motorola, Inc. 1,556,875
21,000 Nortel Networks Corp. 1,576,123
15,700 1 PsiNet, Inc. 698,650
31,000 1 Teligent AB, Class A 1,522,875
1,860 1 Yahoo, Inc. 275,280
TOTAL 11,851,772
TELECOMMUNICATIONS-27.5%
2,713,000 1 Benpres Holdings Corp. 641,708
25,000 BCE, Inc. 1,151,601
132,500 British Telecommunications
PLC 2,195,301
83,000 1 Cable & Wireless
Communications PLC 788,661
406,500 1 Cable & Wireless Optus Ltd. 777,574
50,000 1 COLT Telecom Group PLC 1,055,949
32,000 Comcast Corp., Class A 1,232,000
34,000 1 Cox Communications, Inc.,
Class A 1,328,125
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
TELECOMMUNICATIONS-
CONTINUED
28,000 1 Global TeleSystems Group,
Inc. $ 2,128,000
21,000 1 IXC Communications, Inc. 756,000
12,000 KDD Corp. 650,285
9,500 KPN NV 458,543
9,000 1 Level 3 Communications, Inc. 706,500
24,000 1 Metromedia Fiber Network,
Inc. 969,000
19,100 1 McLeodUSA, Inc., Class A 1,021,850
197,000 New World Development Co.,
Ltd. 481,395
90 Nippon Telegraph &
Telephone Corp. 878,630
35,000 1 Qwest Communications
International, Inc. 1,485,312
39,000 1 RCN Corp. 1,620,938
780 SK Telecom Co., Ltd. 983,345
41,514 Telefonica SA 1,989,937
3,700 Tele Danmark AS, Class B 377,890
15,000 1 United Pan-Europe
Communications NV, ADR 924,375
TOTAL 24,602,919
TOTAL COMMON STOCKS
(IDENTIFIED COST $69,472,300) 83,918,267
PREFERRED STOCKS-0.0%
FOREST PRODUCTS & PAPER-0.0%
260,000,000 1 Texpar SA, Preference
(identified cost $1,797) 1,500
REPURCHASE AGREEMENT-5.4% 2
$ 4,840,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999 (at amortized
cost) 4,840,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$74,314,097) 3 $ 88,759,767
</TABLE>
1 Non-income producing security.
2 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
3 The cost of investments for federal tax purposes amounts to $74,314,097. The
net unrealized appreciation of investments on a federal tax basis amounts to
$14,445,670 which is comprised of $15,826,862 appreciation and $1,381,192
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($89,452,039) at May 31, 1999.
The following acronym is used throughout this portfolio:
ADR -American Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$74,314,097) $ 88,759,767
Cash 4,356
Income receivable 153,298
Receivable for investments
sold 994,906
Receivable for shares sold 622,943
Prepaid expenses 78,623
TOTAL ASSETS 90,613,893
LIABILITIES:
Payable for investments
purchased $ 934,421
Payable for shares
redeemed 136,529
Payable for taxes withheld 4,953
Net payable for foreign
currency exchange
contracts 5,468
Payable for distribution
services fee 23,500
Accrued expenses 56,983
TOTAL LIABILITIES 1,161,854
Net assets for 5,208,161
shares outstanding $ 89,452,039
NET ASSETS CONSIST OF:
Paid in capital $ 68,153,832
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in
foreign currency 14,426,005
Accumulated net realized
gain on investments and
foreign currency
transactions 7,005,634
Distributions in excess of
net investment income (133,432)
TOTAL NET ASSETS $ 89,452,039
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($51,844,256 / 3,013,726
shares outstanding) $17.20
Offering Price Per Share
(100/94.50 of $17.20) 1 $18.20
Redemption Proceeds Per
Share $17.20
CLASS B SHARES:
Net Asset Value Per Share
($32,920,895 / 1,921,223
shares outstanding) $17.14
Offering Price Per Share $17.14
Redemption Proceeds Per
Share (94.50/100 of
$17.14) 1 $16.20
CLASS C SHARES:
Net Asset Value Per Share
($4,686,888 / 273,212
shares outstanding) $17.15
Offering Price Per Share $17.15
Redemption Proceeds Per
Share (99.00/100 of
$17.15) 1 $16.98
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of $11,949) $ 654,693
Interest (net of foreign
taxes withheld of $1,250) 47,784
TOTAL INCOME 702,477
EXPENSES:
Investment advisory fee $ 387,539
Administrative personnel
and services fee 99,644
Custodian fees 13,668
Transfer and dividend
disbursing agent fees and
expenses 56,126
Directors' fees 887
Auditing fees 12,040
Legal fees 2,637
Portfolio accounting fees 44,687
Distribution services fee-
Class B Shares 103,071
Distribution services fee-
Class C Shares 15,287
Distribution services fee-
Class F Shares 1 27,284
Shareholder services fee-
Class A Shares 49,759
Shareholder services fee-
Class B Shares 34,357
Shareholder services fee-
Class C Shares 5,096
Shareholder services fee-
Class F Shares 1 7,673
Share registration costs 21,827
Printing and postage 21,562
Insurance premiums 1,336
Taxes 2,646
Miscellaneous 15,223
TOTAL EXPENSES 922,349
WAIVERS:
Waiver of investment
advisory fee $ (158,815)
Waiver of distribution
services fee-Class F
Shares 1 (27,284)
TOTAL WAIVERS (186,099)
Net expenses 736,250
Net operating loss (33,773)
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTI
ONS:
Net realized gain on
investments and foreign
currency transactions 7,370,304
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 3,001,674
Net realized and
unrealized gain on
investments and
foreign currency transacti
ons 10,371,978
Change in net assets
resulting from operations $ 10,338,205
</TABLE>
1 Reflects operations for the period from December 1, 1998, to February 28,
1999. On March 1, 1999, Class F Shares were reclassified as Class A Shares.
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income (net
operating loss) $ (33,773) $ 839,139
Net realized gain on investments and foreign currency transactions ($7,370,304
and $5,269,145, respectively, as computed for federal tax
purposes) 7,370,304 4,756,296
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 3,001,674 4,575,698
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 10,338,205 10,171,133
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (86,379) (406,244)
Class B Shares - (185,403)
Class C Shares - (24,143)
Class F Shares (17,931) (199,273)
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares (2,236,994) (636,415)
Class B Shares (1,829,279) (482,016)
Class C Shares (272,174) (60,899)
Class F Shares (930,397) (331,248)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS TO
SHAREHOLDERS (5,373,154) (2,325,641)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 35,874,977 20,601,669
Net asset value of shares
issued to shareholders in
payment of distributions
declared 4,734,083 1,993,595
Cost of shares redeemed (21,878,765) (12,856,840)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 18,730,295 9,738,424
Change in net assets 23,695,346 17,583,916
NET ASSETS:
Beginning of period 65,756,693 48,172,777
End of period (including
undistributed net
investment income of $0 and
$4,651, respectively) $ 89,452,039 $ 65,756,693
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $16.24 $14.16 $12.69 $10.96 $ 9.67 $10.06
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.02 0.23 0.28 0.43 0.42 0.24
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 2.28 2.55 2.00 1.67 1.27 (0.46)
TOTAL FROM
INVESTMENT OPERATIONS 2.30 2.78 2.28 2.10 1.69 (0.22)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.04) (0.26) (0.38) (0.37) (0.40) (0.17)
Distributions from net
realized gain on
investments and foreign
currency transactions (1.30) (0.44) (0.43) - - -
TOTAL DISTRIBUTIONS (1.34) (0.70) (0.81) (0.37) (0.40) (0.17)
NET ASSET VALUE, END OF
PERIOD $17.20 $16.24 $14.16 $12.69 $10.96 $ 9.67
TOTAL RETURN 2 15.26% 20.42% 19.08% 19.54% 17.94% (3.00%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 2.00% 4 2.33% 2.89% 4.16% 5.03% 4.68% 4
Net investment income (net
operating loss) 3 (0.19%) 4 0.90% 0.67% 0.76% (0.39%) 0.67% 4
Expenses (after waivers
and reimbursements) 1.59% 4 1.52% 1.40% 1.05% 0.25% 0.25% 4
Net investment income
(after waivers and
reimbursements) 0.22% 4 1.71% 2.16% 3.87% 4.39% 5.10% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $51,844 $28,022 $20,394 $12,671 $8,875 $4,948
Portfolio turnover 81% 139% 52% 50% 46% 7%
</TABLE>
1 Reflects operations for the period from April 22, 1994 (date of initial public
investment) to November 30, 1994. For the period from the start of business,
March 17, 1994 to April 21, 1994, Class A had no public investment.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $16.19 $14.12 $12.68 $10.95 $10.53
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) (0.03) 0.12 0.21 0.35 0.11
Net realized and
unrealized gain on
investments and foreign
currency transactions 2.28 2.54 1.95 1.67 0.41
TOTAL FROM INVESTMENT
OPERATIONS 2.25 2.66 2.16 2.02 0.52
LESS DISTRIBUTIONS:
Distributions from net
investment income - (0.15) (0.29) (0.29) (0.10)
Distributions from net
realized gain
on investments and foreign
currency transactions (1.30) (0.44) (0.43) - -
TOTAL DISTRIBUTIONS (1.30) (0.59) (0.72) (0.29) (0.10)
NET ASSET VALUE, END OF
PERIOD $17.14 $16.19 $14.12 $12.68 $10.95
TOTAL RETURN 2 14.94% 19.53% 18.04% 18.79% 5.00%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 2.75% 4 3.08% 3.64% 4.91% 5.78% 4
Net investment income (net
operating loss) 3 (0.94%) 4 0.15% (0.13%) 0.07% (1.79%) 4
Expenses (after waivers
and reimbursements) 2.34% 4 2.27% 2.15% 1.80% 1.00% 4
Net investment income (net
operating loss) (after
waivers
and reimbursements) (0.53)% 4 0.96% 1.36% 3.18% 2.99% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $32,921 $22,793 $15,177 $4,091 $1,068
Portfolio turnover 81% 139% 52% 50% 46%
</TABLE>
1 Reflects operations for the period from July 27, 1995 (date of initial pub lic
investment) to November 30, 1995.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $16.21 $14.14 $12.67 $10.95 $10.53
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) (0.03) 0.12 0.19 0.33 0.15
Net realized and
unrealized gain
on investments and foreign
currency transactions 2.27 2.54 2.00 1.68 0.37
TOTAL FROM
INVESTMENT OPERATIONS 2.24 2.66 2.19 2.01 0.52
LESS DISTRIBUTIONS:
Distributions from net
investment income - (0.15) (0.29) (0.29) (0.10)
Distributions from net
realized gain
on investments and foreign
currency transactions (1.30) (0.44) (0.43) - -
TOTAL DISTRIBUTIONS (1.30) (0.59) (0.72) (0.29) (0.10)
NET ASSET VALUE, END OF
PERIOD $17.15 $16.21 $14.14 $12.67 $10.95
TOTAL RETURN 2 14.86% 19.50% 18.24% 18.61% 4.92%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 2.75% 4 3.08% 3.64% 4.91% 5.77% 4
Net investment income (net
operating loss) 3 (0.94%) 4 0.15% (0.10%) 0.06% (1.74%) 4
Expenses (after waivers
and reimbursements) 2.34% 4 2.27% 2.15% 1.80% 1.00% 4
Net investment income (net
operating loss) (after
waivers
and reimbursements) (0.53%) 4 0.96% 1.39% 3.17% 3.03% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $4,687 $3,276 $1,923 $1,072 $374
Portfolio turnover 81% 139% 52% 50% 46%
</TABLE>
1 Reflects operations for the period from July 27, 1995 (date of initial public
investment) to November 30, 1995.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
(unaudited)
FEBRUARY 28, YEAR ENDED NOVEMBER 30,
1999 1 1998 1997 1996 1995 1994 2
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $16.24 $14.16 $12.70 $10.96 $ 9.66 $10.04
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.01 0.24 0.29 0.43 0.43 0.21
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 1.33 2.54 1.98 1.67 1.25 (0.43)
TOTAL FROM
INVESTMENT OPERATIONS 1.34 2.78 2.27 2.10 1.68 (0.22)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.03) (0.26) (0.38) (0.36) (0.38) (0.16)
Distributions from net
realized gain
on investments and foreign
currency transactions (1.30) (0.44) (0.43) - - -
TOTAL DISTRIBUTIONS (1.33) (0.70) (0.81) (0.36) (0.38) (0.16)
NET ASSET VALUE, END OF
PERIOD $16.25 $16.24 $14.16 $12.70 $10.96 $ 9.66
TOTAL RETURN 3 8.79% 20.42% 18.99% 19.55% 17.79% (3.07%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 2.25% 5 2.58% 3.14% 4.41% 5.28% 4.93% 5
Net investment income (net
operating loss) 4 (0.44%) 5 0.65% 0.47% 0.53% (0.59%) 0.16% 5
Expenses (after waivers
and reimbursements) 6 1.59% 5 1.52% 1.40% 1.07% 0.50% 0.50% 5
Net investment income
(after waivers and
reimbursements) 6 0.22% 5 1.71% 2.17% 3.87% 4.19% 4.59% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $12,672 $11,666 $10,679 $8,396 $6,028 $4,821
Portfolio turnover 31% 139% 52% 50% 46% 7%
</TABLE>
1 Reflects operations for the period from December 1, 1998, to February 28,
1999. On March 1, 1999, Class F Shares were reclassified as Class A Shares.
2 Reflects operations for the period from April 22, 1994 (date of initial public
investment) to November 30, 1994. For the period from the start of business,
March 28, 1994, to April 21, 1994, Class F had no public invest ment..
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
5 Computed on an annualized basis.
6 For the periods ended November 30, 1995 and 1994, the adviser waived all of
its investment advisory fee, 1.00% and 1.00%, respectively, and reimbursed other
operating expenses, 0.34% and 0.86%, respectively, to comply with certain state
expense limitations. The remainder of the reimbursement was voluntary.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end, man
agement investment company. The Corporation consists of ten portfolios. The
financial statements included herein are only those of Federated World Util ity
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. Prior to March 1, 1999, the Fund offered a fourth class of
shares, Class F Shares. On February 23, 1999, shareholders approved reclassi
fying all of the Fund's Class F Shares as Class A Shares. The Fund's invest ment
objective is to provide total return.
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
Market values of the Fund's foreign and domestic equity securities are deter
mined according to the last reported sale price on a recognized securities
exchange, if available. If unavailable, or if the securities trade over the
counter, the securities are generally valued according to the mean between the
last closing bid and asked prices. Short-term foreign and domestic secu rities
are valued at the prices provided by an independent pricing service. However,
short-term foreign and domestic securities with remaining maturi ties 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 posses sion,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of
collateral at least equals the repurchase price to be paid under the 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 posi
tions such that sufficient liquid assets will be available to make payment for
the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 man
aging foreign exchange 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 port
folio 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 contracts are "marked to
market" daily at the applicable translation rates resulting in unrealized gains
and losses. Realized gains or losses are recorded at the time the foreign
currency exchange contracts are offset by entering into a closing transaction or
by the delivery or receipt of the currency. Risks may arise upon entering into
these contracts from the potential inability of 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.
At May 31, 1999, the Fund had an outstanding foreign currency commitment as set
forth below:
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT DATE CONTRACT TO DELIVER IN EXCHANGE FOR CONTRACT AT VALUE DEPRECIATION
<S> <C> <C> <C> <C>
Contract Sold:
6/1/1999 1,853,663 New Zealand Dollars $988,003 $993,471 $(5,468)
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. Dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. Dollars based on the rate of exchange of such currencies against U.S.
Dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of 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 period end,
resulting from changes in the exchange rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR
VALUE CAPITAL
SHARE CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A Shares 200,000,000
Class B Shares 100,000,000
Class C Shares 100,000,000
TOTAL 400,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,474,976 $ 20,000,026 674,271 $ 10,358,556
Shares issued to
shareholders in payment of
distributions declared 138,770 2,105,371 63,845 908,693
Shares redeemed (325,476) (5,379,226) (452,824) (7,011,945)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 1,288,270 $ 16,726,171 285,292 $ 4,255,304
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 561,455 $ 9,278,336 482,173 $ 7,384,627
Shares issued to
shareholders in payment of
distributions declared 108,531 1,642,077 42,810 602,399
Shares redeemed (156,221) (2,581,640) (192,078) (2,972,663)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 513,765 $ 8,338,773 332,905 $ 5,014,363
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 87,931 $ 1,461,800 83,159 $ 1,286,705
Shares issued to
shareholders in payment of
distributions declared 16,370 248,016 5,453 76,836
Shares redeemed (33,133) (562,763) (22,587) (335,483)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS 71,168 $ 1,147,053 66,025 $ 1,028,058
<CAPTION>
PERIOD ENDED YEAR ENDED
FEBRUARY 28, 1999 1 NOVEMBER 30, 1998
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 55,364 $ 5,134,815 103,149 $ 1,571,781
Shares issued to
shareholders in payment of
distributions declared 48,754 738,619 28,598 405,667
Shares redeemed (822,654) (13,355,136) (167,605) (2,536,749)
NET CHANGE RESULTING FROM
CLASS F
SHARE TRANSACTIONS (718,536) $ (7,481,702) (35,858) $ (559,301)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 1,154,667 $ 18,730,295 648,364 $ 9,738,424
</TABLE>
1 On February 23, 1999, shareholders approved reclassifying all of the Fund's
Class F Shares as Class A Shares.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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 volun tarily
choose to waive any portion of its fee. The Adviser can modify or ter minate
this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the
period. The administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Feder ated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class B
Shares and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disburs ing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $75,061 and start-up administrative expenses of
$39,069 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, 1999, the Fund expensed $10,770 of its organiza tional
expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $70,176,022
Sales $60,456,231
</TABLE>
CONCENTRATION OF CREDIT RISK
The Fund invests a portion of its assets 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, 1999, the diversification of countries was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
United Kingdom 7.6%
Netherlands 3.2%
Canada 3.1%
Japan 2.9%
France 2.5%
Belgium 2.4%
Spain 2.2%
Germany 1.8%
Australia 1.7%
Philippines 1.5%
Korea 1.1%
Hong Kong 0.5%
Denmark 0.4%
Brazil 0.0% 1
</TABLE>
1 Amount represents less than 0.01%.
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated World Utility Fund
Established 1994
6TH SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated World Utility Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487101
Cusip 981487309
Cusip 981487408
G00259-05 (7/99)
[Graphic]
SEMI-ANNUAL REPORT
[Graphic]
Richard B. Fisher
President
Federated Asia Pacific Growth Fund
President's Message
Dear Fellow Shareholder:
Federated Asia Pacific Growth Fund was created in 1996, and I am pleased to
present its third Semi-Annual Report. As of May 31,1999, the fund's net assets
totaled $15.4 million with 54% of the fund's investments in Japan, whose
recovery has helped to fuel the fund's performance. The fund's ten largest
holdings were in Japan and represented 24% of the fund's assets. Nine other
countries were represented in the fund's more than 70 issues.
This report covers the first half of the fund's fiscal year which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with the fund's portfolio manager, Alexandre de Bethmann, Vice
President of Federated Global Investment Management 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.
For almost the first time in four years, there was a significantly brighter
period for investors in the Asia Pacific marketplace. Shortly after the fund's
creation, the Asia Pacific region suffered economically and politi cally. This
turmoil continued, severely testing the resolve of investors. However, as we
have continued to emphasize, investing in the international marketplace is a
long-term proposition. While there will inevitably be peri ods of unpleasant
volatility, we believe that the rewards go to the patient investor who rides out
the periods of negative returns. 1 Fund shareholders have been rewarded by
competitive year-to-date total returns in 1999 after a not too pleasant history
from 1996 through 1998.
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
Growth forecasts for the Asia Pacific markets appear positive, and investor
sentiment contributed to highly positive returns across the region. During the
six-month reporting period, the fund's returns outperformed the average Asia
Pacific region fund, as well as the fund's benchmark index. Individual share
class total return performance for the six-month reporting period fol lows. 2
<TABLE>
<CAPTION>
TOTAL RETURN NET ASSET VALUE INCREASE <S> <C> <C> Class A
Shares 26.41% $6.40 to $8.09 = 26% Class B Shares 26.07% $6.29 to $7.93 = 26%
Class C Shares 25.99% $6.31 to $7.95 = 26% </TABLE>
Remember, this Asia Pacific stock fund provides investors with significant
long-term opportunities from an extremely well-researched portfolio of more than
70 corporations across 10 Asia and Pacific Rim countries. The stocks selected,
in many cases, are internationally recognized industry leaders with a median
market capitalization of over $2 billion, for example HSBC Holdings, China
Telecom (Hong Kong) Ltd., Toshiba and Nintendo.
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 invest ing. 3
By investing the same amount on a regular basis, you buy more fund shares when
prices are low-and fewer when prices are high.
As we continue to emerge from a volatile period, I thank you for the patience
you have shown as a shareholder of Federated Asia Pacific Growth Fund.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
2 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the six-month reporting
period, based on offering price (i.e., less any applicable sales charge), for
Class A, B, and C Shares were 19.50%, 20.57% and 24.99%, respectively.
3 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost averaging involves continuous investment
regardless of fluctuating price levels, investors should con sider their
financial ability to continue to purchase during periods of low price levels.
[Graphic]
Alexandre de Bethmann
Vice President
Federated Global Investment Management Corp.
Investment Review
WHAT ARE YOUR COMMENTS ON THE FIRST HALF OF THE FUND'S FISCAL YEAR, WHICH SAW
INVESTOR SENTIMENT CONTRIBUTE TO A MUCH-WELCOMED RALLY IN THE ASIA PACIFIC
REGION, PARTICULARLY IN JAPAN?
The rally is attributable to three factors:
* recovery in Asia;
* corporate restructurings;
* and a turn in investors' sentiment.
The Asia Pacific Rim appears to be on the path to recovery, as the economies in
the region are expected to return to growth this year and accelerate growth next
year. This was not expected last year, when the consensus gross domestic product
("GDP") growth forecast for the region was negative. Corpo rate restructuring is
underway in countries such as Japan, Korea and Thai land, which has been
well-received by the markets. Investor sentiment toward the Asian markets has
improved as evidenced by the return of capital flow. We expect this trend to
continue as the global funds reassess the region's favorable potential.
IN THIS IMPROVED ENVIRONMENT, HOW DID FEDERATED ASIA PACIFIC GROWTH FUND PER
FORM FOR THE SIX-MONTH REPORTING PERIOD?
For the reporting period ended May 31, 1999, the fund's total returns, based on
net asset value, were 26.41%, 26.07%, and 25.99% for Class A, B, and C Shares,
respectively. 1 The fund's returns outperformed the 20.59% total return of 50
Asia Pacific funds tracked by Lipper Analytical Services, Inc.2 and were also
significantly above the 17.52% total return of the fund's benchmark, the Morgan
Stanley Capital International Asia Pacific Index.3
WHAT IS YOUR CURRENT STRATEGY?
We will continue to identify attractively priced companies with solid finan cial
positions, improving market share, and good earnings growth. NATSTEEL
ELECTRONICS (1.41% of net assets) is an example, as it is one of the largest
contract manufacturers in the world. Natsteel's growth is driven by the trend
towards outsourcing and its key client relationships with IBM, Apple Comput ers
and Hewlett-Packard.
Also, the portfolio has overweighted positions in companies that are restruc
turing, such as ASAHI CHEMICAL (1.13% of net assets), a leading Japanese
chemical manufacturer. This company is liquidating eight of its unprofitable
food subsidiaries to Japan Tobacco, which should enhance shareholder value.
WHAT COUNTRIES WERE REPRESENTED IN THE FUND'S PORTFOLIO AS OF MAY 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Japan (developed) 53.9%
Australia (developed) 10.5%
Hong Kong (developed) 9.4%
Singapore (developed) 7.4%
Indonesia (emerging) 5.2%
Korea (emerging) 3.2%
Philippines (emerging) 2.2%
India (emerging) 1.9%
Taiwan (emerging) 1.1%
China (emerging) 1.1%
</TABLE>
1 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 six-month reporting period, based on offering price
(i.e., less any applicable sales charge), for Class A, B, and C Shares
were19.50%, 20.57% and 24.99%, respectively.
2 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as fall ing into
the category indicated. Lipper returns do not take sales charges into account.
3 The Morgan Stanley Capital International Asia Pacific Index is an unman aged,
market value-weighted average of the performance of securities listed on the
stock exchange of 15 countries in the Pacific and Asian regions. Investments
cannot be made in an index.
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF MAY 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COUNTRY NET ASSETS INDUSTRY
<S> <C> <C> <C>
Kao Corp. Japan 3.2% Health & Personal Care
Chugai Pharmaceutical Co., Ltd. Japan 3.2% Health & Personal Care
Murata Manufacturing Co., Ltd. Japan 2.5% Electrical Components, Instruments
Matsushita Communication Japan 2.5% Electrical & Electronics
NTT Mobile Communication Network, Inc. Japan 2.5% Telecommunications
Olympus Optical Co. Japan 2.3% Electrical Components, Instruments
Softbank Corp. Japan 2.2% Wholesale & International Trade
Nintendo Corp., Ltd. Japan 2.1% Recreation, Other Consumer Goods
Minebea Co. Japan 2.1% Industrial Components
Tokyo Seimitsu Co., Ltd. Japan 1.9% Electrical Components, Instruments
TOTAL 24.5%
</TABLE>
DO THE SIGNS POINT TO CONTINUING IMPROVEMENT IN THE ASIA PACIFIC MARKETS?
In Asia (excluding Japan), economic data would indicate that these economies are
recovering and that the macro-economic environment is expected to improve in the
coming quarters. The Asian equity markets may benefit from lower inflation,
strengthening currencies, and corporate restructuring that is underway across
the board. Lower interest rates should continue to lower the debt burden of the
Asian countries and corporations. Current account balances are improving in most
Asian countries, strengthening the currencies.
The equity market in Japan is expected to remain firm due to the perception of
financial system stability and high investor receptivity to restructuring
announcements.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-95.9%
APPLIANCES & HOUSEHOLD
DURABLES-1.4%
12,000 Matsushita Electric
Industrial Co. $ 217,424
AUTOMOBILE-2.2%
120,000 Inchcape Motors Ltd. 192,223
491,000 PT Astra International 151,077
TOTAL 343,300
BANKING-4.1%
17,000 Australia & New Zealand
Banking Group, Melbourne 123,426
7,600 Commonwealth Bank of
Australia 122,206
2,400 HSBC Holdings PLC 78,609
6,300 Housing & Commercial Bank,
Korea 172,661
18,100 Oversea-Chinese Banking
Corp. Ltd. 141,817
TOTAL 638,719
BEVERAGE & TOBACCO-1.3%
16,000 Chukyo Coca-Cola Bottling
Co., Ltd. 206,503
BROADCASTING & PUBLISHING-
1.0%
11,000 Singapore Press Holdings
Ltd. 150,667
BUILDING MATERIALS &
COMPONENTS-0.9%
80,000 PT Semen Gresik 133,908
BUSINESS & PUBLIC
SERVICES-6.5%
5,700 Brambles Industries Ltd. 152,087
8,000 Capcom Co., Ltd. 123,107
20,000 Daiwabo Information System
Co., Ltd. 205,345
2,100 Infosys Technologies Ltd. 155,181
146,000 1 LibertyOne Ltd. 81,972
7,000 N I C Corp. 153,471
2,800 Pacific Internet Ltd., ADR 126,700
TOTAL 997,863
CHEMICALS-1.1%
32,000 Asahi Chemical Industry
Co., Ltd. 173,674
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
CONSTRUCTION & HOUSING-
1.6%
23,000 Daiwa House Industry Co.,
Ltd. $ 248,134
280 1 Hyundai Engineering &
Construction Co. 2,019
TOTAL 250,153
DATA PROCESSING &
REPRODUCTION-2.8%
16,000 Fujitsu Ltd. 267,395
232,000 Legend Holdings Ltd. 160,054
TOTAL 427,449
ELECTRICAL & ELECTRONICS-
4.3%
6,000 Matsushita Communication 385,207
45,000 Toshiba Corp. 278,109
TOTAL 663,316
ELECTRONIC COMPONENTS,
INSTRUMENTS-13.2%
13,700 Computershare Ltd. 125,261
215,000 Flextech Holdings Ltd. 213,378
3,200 Hirose Electric 274,808
7,000 Murata Manufacturing Co.,
Ltd. 386,283
65,000 Natsteel Electronics Ltd. 216,918
29,000 Olympus Optical Co. 359,891
6,400 1 Taiwan Semiconductor
Manufacturing Co., ADR 167,600
6,000 Tokyo Seimitsu Co., Ltd. 290,891
TOTAL 2,035,030
ENERGY SOURCES-0.9%
13,800 Broken Hill Proprietary
Co., Ltd. 141,699
FINANCIAL SERVICES-6.1%
39,600 Challenger International
Ltd. 179,936
6,000 Mycal Card, Inc. 203,028
3,078,500 PT Lippo Securities 113,667
2,944 Samsung Securities Co.,
Ltd. 129,096
280 Shohkoh Fund & Co. 156,598
1,700 Takefuji Corp. 149,789
TOTAL 932,114
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
FOOD & HOUSEHOLD PRODUCTS-
3.8%
266,000 Cafe De Coral Holdings $ 79,750
458,000 China Foods Holdings Ltd. 103,355
710,400 PT Astra Agro Lestari 196,726
205,000 PT Indofood Sukses Makmur 203,108
TOTAL 582,939
HEALTH & PERSONAL CARE-8.6%
43,000 Chugai Pharmaceutical Co.,
Ltd. 485,249
18,000 Kao Corp. 494,416
1,716,000 Sa Sa International
Holdings 165,960
4,000 Takeda Chemical Industries 177,712
TOTAL 1,323,337
INDUSTRIAL COMPONENTS-3.7%
32,600 Minebea Co. 324,193
22,000 Sumitomo Electric
Industries 246,447
TOTAL 570,640
INSURANCE-0.7%
28,375 Qbe Ins. Group 111,148
MERCHANDISING-3.8%
17,000 Catena Corp. 147,679
277,500 China EB-IHD Holdings Ltd. 148,504
208,000 Tianjin Development
Holdings Ltd. 122,040
4,000 Yamada Denki 166,460
TOTAL 584,683
METALS - NON FERROUS-3.0%
6,400 Korea Zinc 194,291
255,500 Mim Holdings Ltd. 138,447
129,000 Pasminco Ltd. 126,326
TOTAL 459,064
MISCELLANEOUS MATERIALS &
COMMODITIES-1.0%
3,800 Circle K Japan Co., Ltd. 154,679
MULTI-INDUSTRY-1.4%
914,000 1 Benpres Holdings Corp. 216,188
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
REAL ESTATE-3.0%
7,200 Meiwa Estate $ 232,316
33,000 Pacific Century Regional
Developments Ltd. 100,551
240,000 Sino Land Co. 129,209
TOTAL 462,076
RECREATION, OTHER CONSUMER
GOODS-3.7%
35,000 Casio Computer Co. 239,472
2,800 Nintendo Corp., Ltd. 328,948
TOTAL 568,420
TELECOMMUNICATIONS-9.3%
46,923 1 AAPT Ltd. 169,711
2,950,000 Champion Technology
Holdings Ltd. 186,399
70,000 1 China Telecom (Hong Kong)
Ltd. 147,585
7 NTT Mobile Communication
Network, Inc. 382,808
204,170 One. Tel Ltd. 142,623
4,600 Philippine Long Distance
Telephone Co. 129,356
42,500 Smartone
Telecommunications 131,805
12,600 Videsh Sanchar Nigam Ltd.,
GDR 143,325
TOTAL 1,433,612
TRANSPORTATION - SHIPPING-
1.0%
260,000 Cosco Pacific Ltd. 153,388
UTILITIES - ELECTRICAL &
GAS-1.5%
10,400 Tokyo Electric Power Co. 226,723
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
WHOLESALE & INTERNATIONAL
TRADE-4.0%
1,400 Ryohin Keikaku Co., Ltd. $ 275,552
2,900 Softbank Corp. 333,499
TOTAL 609,051
TOTAL COMMON STOCKS
(IDENTIFIED COST
$12,619,617) 14,767,767
Repurchase Agreement-0.3% 2
$ 40,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999 (at amortized
cost) 40,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$12,659,617) 3 $ 14,807,767
</TABLE>
1 Non-income producing security.
2 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
3 The cost of investments for federal tax purposes amounts to $12,659,617. The
net unrealized appreciation of investments on a federal tax basis amounts to
$2,148,150 which is comprised of $2,504,807 appreciation and $356,657
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($15,406,840) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ADR -American Depositary Receipt
GDR -Global Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$12,659,617) $ 14,807,767
Cash 1,764
Cash denominated in
foreign currencies
(identified cost $203) 202
Income receivable 47,688
Receivable for investments
sold 467,897
Receivable for shares sold 229,584
Deferred organizational
costs 20,915
Prepaid Expenses 84,183
TOTAL ASSETS 15,660,000
LIABILITIES:
Payable for investments
purchased $ 164,304
Payable for shares
redeemed 35,986
Payable for taxes withheld 6,668
Net payable for foreign
currency exchange
contracts 1,538
Payable for custodian fees 17,634
Payable for portfolio
accounting fees 7,972
Payable for distribution
services fee 4,714
Payable for shareholder
services fee 3,359
Accrued expenses 10,985
TOTAL LIABILITIES 253,160
Net assets for 1,921,925
shares outstanding $ 15,406,840
NET ASSETS CONSIST OF:
Paid in capital $ 18,115,455
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in
foreign currency 2,145,456
Accumulated net realized
loss on investments and
foreign currency
transactions (4,690,119)
Accumulated net operating
loss (163,952)
TOTAL NET ASSETS $ 15,406,840
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($8,114,387 / 1,002,505
shares outstanding) $8.09
Offering Price Per Share
(100/94.50 of $8.09) 1 $8.56
Redemption Proceeds Per
Share $8.09
CLASS B SHARES:
Net Asset Value Per Share
($6,321,852 / 797,399
shares outstanding) $7.93
Offering Price Per Share $7.93
Redemption Proceeds Per
Share (94.50/100 of $7.93) 1 $7.49
CLASS C SHARES:
Net Asset Value Per Share
($970,601 / 122,021 shares
outstanding) $7.95
Offering Price Per Share $7.95
Redemption Proceeds Per
Share (99.00/100 of $7.95) 1 $7.87
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of $9,059) $ 73,855
Interest 14,164
TOTAL INCOME 88,019
EXPENSES:
Investment advisory fee $ 69,561
Administrative personnel
and services fee 92,247
Custodian fees 23,790
Transfer and dividend
disbursing agent fees and
expenses 37,543
Directors' fees 1,070
Auditing fees 10,816
Legal fees 1,552
Portfolio accounting fees 40,990
Distribution services fee-
Class B Shares 18,851
Distribution services fee-
Class C Shares 2,908
Shareholder services fee-
Class A Shares 8,556
Shareholder services fee-
Class B Shares 6,284
Shareholder services fee-
Class C Shares 969
Share registration costs 14,976
Printing and postage 14,993
Insurance premiums 1,194
Taxes 566
Miscellaneous 7,994
TOTAL EXPENSES 354,860
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (69,561)
Reimbursement of other
operating expenses (146,297)
TOTAL WAIVERS AND
REIMBURSEMENTS (215,858)
Net expenses 139,002
Net operating loss (50,983)
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on
investments and foreign
currency transactions (net
of foreign taxes withheld
$2,739) 2,042,124
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 782,633
Net realized and
unrealized gain on
investments and foreign
currency transactions 2,824,757
Change in net assets
resulting from operations $ 2,773,774
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
(unaudited) NOVEMBER 30,
MAY 31, 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net operating loss $ (50,983) $ (74,553)
Net realized gain (loss) on
investments and foreign
currency
transactions ($2,042,124
and $(4,986,850),
respectively, as computed
for federal tax purposes) 2,042,124 (5,092,522)
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 782,633 2,916,524
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 2,773,774 (2,250,551)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 19,131,326 21,406,107
Cost of shares redeemed (17,605,723) (19,462,204)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 1,525,603 1,943,903
Change in net assets 4,299,377 (306,648)
NET ASSETS:
Beginning of period 11,107,463 11,414,111
End of period $ 15,406,840 $ 11,107,463
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 6.40 $ 7.81 $10.25 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.02) (0.05) (0.03) 0.00
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 1.71 (1.36) (2.41) 0.25
Total from investment
operations 1.69 (1.41) (2.44) 0.25
NET ASSET VALUE, END OF
PERIOD $ 8.09 $ 6.40 $ 7.81 $10.25
TOTAL RETURN 2 26.41% (18.05%) (23.80%) 2.50%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 5.27% 4 5.63% 6.62% 8.87% 4
Net operating loss 3 (3.88%)4 (4.13%) (5.30%) (7.02%)4
Expenses (after waivers
and reimbursements) 1.85%4 1.85% 1.85% 1.85% 4
Net operating loss (after
waivers and
reimbursements) (0.46%)4 (0.35%) (0.53%) -
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $8,114 $6,345 $7,297 $4,593
Portfolio turnover 176% 347% 193% 99%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 6.29 $ 7.73 $10.19 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.02) (0.07) (0.08) (0.03)
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 1.66 (1.37) (2.38) 0.22
Total from investment
operations 1.64 (1.44) (2.46) 0.19
NET ASSET VALUE, END OF
PERIOD $ 7.93 $ 6.29 $ 7.73 $10.19
TOTAL RETURN 2 26.07% (18.63%) (24.14% ) 1.90%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 6.02% 4 6.38% 7.37% 9.62% 4
Net operating loss 3 (4.63%)4 (4.88%) (6.02% ) (7.88%)4
Expenses (after waivers
and reimbursements) 2.60% 4 2.60% 2.60% 2.60% 4
Net operating loss (after
waivers and
reimbursements) (1.21%)4 (1.10%) (1.25%) (0.86%) 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $6,322 $4,154 $3,606 $2,273
Portfolio turnover 176% 347% 193% 99%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 6.31 $ 7.74 $10.20 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.02) (0.08) (0.12) (0.05)
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 1.66 (1.35) (2.34) 0.25
Total from investment
operations 1.64 (1.43) (2.46) 0.20
NET ASSET VALUE, END OF
PERIOD $ 7.95 $ 6.31 $ 7.74 $10.20
TOTAL RETURN 2 25.99% (18.48%) (24.12% ) 2.00%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 6.02% 4 6.38% 7.37% 9.62% 4
Net operating loss 3 (4.63%) 4 (4.88%) (5.99%) (7.92%)4
Expenses (after waivers
and reimbursements) 2.60% 4 2.60% 2.60% 2.60% 4
Net operating loss (after
waivers and
reimbursements) (1.21%) 4 (1.10%) (1.22%) (0.90%)4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $971 $608 $511 $397
Portfolio turnover 176% 347% 193% 99%
</TABLE>
1 Reflects operations for the period from February 28,1996 (date of initial
public investment) to November 30, 1996.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end, man
agement investment company. The Corporation consists of ten 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 portfo lio 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.
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 posses sion,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repur chase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other rec
ognized financial institutions, such as broker/dealers, which are deemed by the
Fund's adviser to be creditworthy pursuant to the guidelines and/or stan dards
reviewed or established by the Board of Directors (the "Directors"). Risks may
arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $6,725,078, which will reduce the Fund's taxable income aris ing
from future net realized gain on investments, if any, to the extent per mitted
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 carryfor ward
will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2005 $1,738,228
2006 $4,986,850
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security posi
tions such that sufficient liquid assets will be available to make payment for
the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN EXCHANGE CONTRACTS
The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. 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 these transactions from the potential inability of
counterparties to meet the terms of their commitments and from unantici pated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underly ing currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the settlement date.
At May 31, 1999, the Fund had outstanding foreign currency commitments as set
forth below:
<TABLE>
<CAPTION>
CONTRACTS REALIZED
SETTLEMENT DATE CONTRACTS TO DELIVER IN EXCHANGE FOR AT VALUE DEPRECIATION
<S> <C> <C> <C> <C>
Contracts Sold:
6/1/1999 4,447,255 Thailand Baht $119,678 $119,872 $ (194)
6/2/1999 315,109 Singapore Dollar 181,934 182,884 (950)
6/3/1999 746,339,935 Indonesian Rupiah 91,471 91,865 (394)
NET UNREALIZED DEPRECIATION ON
FOREIGN EXCHANGE CONTRACTS $(1,538)
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. Dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. Dollars based on the rate of exchange of such currencies against U.S.
Dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of div idends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at period end, resulting from
changes in the exchange rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and rev enues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as fol
lows:
NUMBER OF SHARES
OF PAR VALUE
CAPITAL STOCK
SHARE CLASS NAME AUTHORIZED
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 50,000,000
TOTAL 250,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 765,083 $ 5,788,717 1,537,695 $ 9,480,938
Shares redeemed (753,482) (5,519,537) (1,481,346) (8,972,254)
NET CHANGE RESULTING FROM CLASS A
SHARE TRANSACTIONS 11,601 $ 269,180 56,349 $ 508,684
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,380,188 $ 10,037,911 1,179,297 $ 7,632,317
Shares redeemed (1,242,802) (8,985,473) (985,742) (6,370,208)
NET CHANGE RESULTING FROM CLASS B
SHARE TRANSACTIONS 137,386 $ 1,052,438 193,555 $ 1,262,109
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 489,164 $ 3,304,698 681,864 $ 4,292,852
Shares redeemed (463,493) (3,100,713) (651,541) (4,119,742)
NET CHANGE RESULTING FROM CLASS C
SHARE TRANSACTIONS 25,671 $ 203,985 30,323 $ 173,110
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 174,658 $ 1,525,603 280,227 $ 1,943,903
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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 volun tarily
choose to waive any portion of its fee and/or reimburse certain oper ating
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 Administra tive Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Feder ated
Securities Corp. ("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 annu ally, 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 six months
ended May 31, 1999, and has no present intention of paying or accruing a dis
tribution services fee.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disburs ing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ, maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
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, 1999, the Fund expensed $6,241 of
organizational expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
Purchases $ 21,619,306
Sales $ 20,910,870
CONCENTRATION OF CREDIT RISK
The Fund invests a portion of its assets in securities of non-U.S. issuers.
Although the Fund maintains a diversified investment portfolio, the politi cal
or economic developments within a particular country or region may have an
adverse effect on the ability of domiciled issuers to meet their obliga tions.
Additionally, political or economic developments may have an effect on the
liquidity and volatility of portfolio securities and currency hold ings.At May
31, 1999, the diversification of countries for the Fund was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
Japan 53.9%
Australia 10.5%
Hong Kong 9.4%
Singapore 7.4%
Indonesia 5.2%
Korea, Republic of 3.2%
Philippines 2.2%
India 1.9%
Taiwan 1.1%
China 1.1%
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking mea sures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other gov
ernment agency. Investment in mutual funds involves investment risk, includ ing
the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts con
cerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated Asia Pacific Growth Fund
Established 1996
3RD SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Asia Pacific Growth Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487507
Cusip 981487606
Cusip 981487705
G01934-02 (7/99)
[Graphic]
[Graphic]
Richard B. Fisher
President
Federated Emerging Markets Fund
President's Message
Dear Fellow Shareholder:
Federated Emerging Markets Fund was created in 1996, and I am pleased to present
its third Semi-Annual Report. The fund offers shareholders significant long-term
investment opportunities from a select portfolio of many large and small company
stocks issued by international companies in the emerging markets. 1 The
countries are found in Africa, Latin America, most of Asia and parts of Europe.
Currently, the fund's holdings represent 25 countries and more than 180
corporations. The fund's net assets totaled $53.1 million as of May 31, 1999.
This report covers the first half of the fund's fiscal year which is the
six-month period from December 1, 1998 through May 31, 1999. It begins with a
discussion by the fund's portfolio manager, Christopher Matyszewski. Following
that discussion are two additional items of shareholder interest. First is a
complete listing of the fund's diversified international portfolio holdings, and
second is the publication of the fund's financial statements.
The fund's extremely strong total return performance over the first half of its
fiscal year reflected a return of investor confidence to emerging markets in
general, and the fund's good security selection in particular. During the
reporting period, the fund outperformed its benchmark, the International Finance
Corporation ("IFC") Investable Composite Index 2 as well as the average emerging
markets fund by a significant margin. Individual share class total return
performance for the six-month reporting period follows. 3
<TABLE>
<CAPTION>
TOTAL RETURN NET ASSET VALUE INCREASE <S> <C> <C> Class A
Shares 26.55% $8.40 to $10.63 = 27% Class B Shares 26.12% $8.23 to $10.38 = 26%
Class C Shares 26.25% $8.23 to $10.39 = 26%
</TABLE>
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. In addition, emerging markets structures may be less
diverse and mature, and their political systems may be less stable.
2 The International Finance Corporation Investable Composite Index is an
unmanaged market-capitalization index of over 1,000 securities in 26 emerging
markets. Investments cannot be made in an index.
3 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the period, based on offering
price (i.e., less any applicable sales charge), for Class A, B, and C Shares
were 19.57%, 20.62%, and 25.25%, respectively.
Investing in the emerging foreign markets, in which there is so much potential,
is clearly a long-term proposition. There will inevitably be periods of
unfriendly volatility, which we have experienced, and strong gains, as we just
experienced during the reporting period. 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 basis, you buy more fund shares when prices are low-and fewer when
prices are high. Adding to your account regularly and reinvesting your annual
dividends in additional shares is a convenient, painless way to "pay yourself
first" and enjoy the benefit of compounding. 4
I would also like to point out that the U.S. market's performance, although very
positive, has been surpassed by the market returns in many other nations. Now,
indeed, is an excellent time to consider a commitment to increasing the
percentage of your international stock holdings. Stock prices and ratios
measuring a stock's attractiveness in the U.S. are overvalued in comparison to
many international markets. After about seven years of lagging the domestic
stock market, opportunities outside the U.S. are compelling.
Thank you for 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
with the fund.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
4 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost averaging involves continuous investment
regardless of fluctuating price levels, investors should consider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
Christopher Matyszewski
Portfolio Manager
Investment Review
WHAT ARE YOUR COMMENTS ON THE EMERGING MARKETPLACE, WHICH RECORDED EXTREMELY
STRONG PERFORMANCE FOR THE FIRST HALF OF THE FUND'S FISCAL YEAR?
Throughout the last six months, the emerging markets have continued to benefit
from the coordinated easing of global monetary policy initiated in the fourth
quarter of 1998. In addition, a period which began with oil prices in decline,
ended with this commodity rebounding nearly 60%. These factors have allowed many
emerging markets' economies the necessary breathing room to begin restructuring,
and they have given equity investors reason for optimism.
The Asian markets provided some of the strongest gains during the reporting
period. From Indonesia's banking recapitalization plan to successful corporate
restructuring in Korea, positive investor sentiment gave way to liquidity-driven
rallies throughout the first half of the year. Indian markets also turned in a
strong performance, with changes in the capital gains tax structure providing a
positive catalyst.
Select Latin American equities also participated in the emerging market rally.
The Mexican bourse (stock exchange) pushed higher throughout most of the
reporting period, accompanied by falling interest rates, higher oil prices, and
strong corporate earnings. In Brazil, however, investors witnessed dramatic
market moves. The long battle to defend its currency ended, and the "Real Plan"
was abandoned in January 1999. Though sharp declines ensued, the newly appointed
head of the central bank and hopes of a strong recovery in the second half of
the year restored a considerable amount of confidence.
On other fronts, Russian equities benefited tremendously from rebounding oil
prices and optimism toward debt rescheduling, despite low liquidity. Optimism
ahead of Turkey's national elections brought foreigners back to the Istanbul
market as well, helping to push the exchange to the highest levels since the
Russian crisis. Central European markets, however, battled with the effects of
weak current account figures and slowing corporate earnings. The war in Kosovo
was also cause for concern.
HOW DID THE FUND'S TOTAL RETURN COMPARE TO THAT OF ITS BENCHMARK INDEX OVER THE
SIX-MONTH REPORTING PERIOD ENDED MAY 31, 1999?
The fund recorded very strong six-month returns, which were greater than the
21.91% return of its benchmark, the IFC Investable Composite Index. Returns for
the fund, based on net asset value, were: Class A Shares, 26.55%; Class B
Shares, 26.12%; and Class C Shares 26.25%.1 The fund's returns were
significantly better than the 19.01% average total return of the 172 emerging
market funds tracked by Lipper Analytical Services, Inc. 2
WHAT STRATEGIES INFLUENCED THE FUND'S GOOD SHORT-TERM PERFORMANCE DURING THE
SIX-MONTH REPORTING PERIOD?
Federated Emerging Markets Fund has maintained broad exposure to the asset class
while targeting below-average volatility. This continues to be a key driver for
performance. Given the dramatic shifts among individual markets, exaggerated by
the existing levels of liquidity, a broadly diversified approach remains the
most prudent.
With regard to the specific markets, Turkey, Korea, and Indonesia helped
contribute to the fund's positive performance, while relative underweighted
positions in select Latin American and European markets served to cushion
volatility.
WHAT WERE THE FUND'S COUNTRY ALLOCATIONS AS OF MAY 31, 1999?
The portfolio was well diversified across the following 25 countries:
PERCENTAGE OF
COUNTRY NET ASSETS
Korea 10.5%
Indonesia 9.8%
Turkey 7.2%
Greece 7.1%
Hong Kong 5.1%
Mexico 5.1%
Brazil 5.0%
Ghana 4.9%
Philippines 4.9%
India 4.4%
Poland 3.7%
Thailand 3.2%
Hungary 2.9%
Lebanon 2.5%
Kenya 2.1%
South Africa 2.1%
Argentina 1.9%
Peru 1.7%
Egypt 1.5%
Mauritius 1.3%
Russia 1.2%
Chile 1.0%
Zimbabwe 1.0%
Malawi 0.3%
Pakistan 0.3%
1 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 (i.e., less any
applicable sales charge), for Class A, B, and C Shares were 19.57%, 20.62%, and
25.25%, respectively.
2 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. These returns do not take sales charges into account.
WHAT WERE THE FUND'S TOP TEN HOLDINGS AS OF MAY 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COUNTRY NET ASSETS INDUSTRY
<S> <C> <C> <C>
Social Security Bank Ltd. Ghana 3.6% Banking
Telefonos de Mexico, Class L, ADR Mexico 2.0% Telecommunications
Lippo Bank Indonesia 1.7% Banking
PT Bank Internasional Indonesia Indonesia 1.5% Banking
Banque Audi, Class B, GDR Lebanon 1.3% Banking
SOLIDERE, GDR Lebanon 1.2% Real Estate
Aksigorta Turkey 1.1% Insurance
Turkiye Garanti Bankasi AS Turkey 1.0% Banking
Companhia Paranaense de Energia-Copel, ADR Brazil 1.0% Utilities - Electrical & Gas
Telefonica de Argentina SA, ADR Argentina 1.0% Telecommunications
TOTAL 15.4%
</TABLE>
AS WE REACH THE MIDPOINT OF 1999, WHAT IS YOUR OUTLOOK FOR THE EMERGING MARKETS
FOR THE REST OF THE YEAR?
We remain bullish on the emerging market asset class as a whole. Strength in oil
prices and select commodities should help prolong this upward bias. Furthermore,
sustained growth in developed countries may provide the catalyst for global
demand, helping to bolster the recovery now being witnessed.
This sentiment will in part be driven by a healthy U.S. economy and the benign
interest rate environment. This is not to say that a change in U.S. interest
rates should reverse these gains. It is worth noting that the external financing
for many emerging countries has improved since the period prior to the crisis.
With short-term debt being less of a burden, many emerging markets are in a much
better position to weather higher rates.
We believe that the Asian markets should again witness healthy capital inflows.
Japan, an important engine for the region, turned in very healthy returns for
the reporting period. Strong performance there, coupled with the successful
recapitalization story of southeast Asia, should continue to provide upward
impetus for the region's emerging markets.
In Latin America, Mexican equities stand to benefit from recent earnings
upgrades, while they continue to take cues from a strong U.S. economy.
Attractive valuations in Brazil, which met with hopes of a quickening recovery,
may bring optimism to this market in the second half of the year.
While select Eastern European, Middle Eastern, and African companies provide
excellent valuation for the long term, investors in those regions must still
weigh political and economic concerns against the fundamental signs of a
corporate earnings recovery.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-87.9%
AEROSPACE & MILITARY
TECHNOLOGY-0.4%
27,970 Samsung Aerospace
Industries $ 214,637
APPLIANCES & HOUSEHOLD
DURABLES-1.5%
236,000 Guangdong Kelon Electrical
Holdings Co., Class H 181,074
16,000 L.G. Electronics, Inc. 304,929
2 1, 2 Samsung Electronics Co.,
GDR 75
200 1 Samsung Electronics Co.,
Rights 2,125
2,636,300 Vestel Elektronik Sanayi
ve Ticaret AS 300,986
TOTAL 789,189
AUTOMOBILE-0.5%
33,700 Mahindra & Mahindra Ltd. 162,546
8,844 1 North American Bus
Industries 127,499
TOTAL 290,045
BANKING-17.6%
2,700 Alpha Credit Bank 183,167
2,700 Alpha Credit Bank, Rights 9,223
3,800 Banco Santiago, ADR 67,925
18,000 Bank Handlowy w. Warszawie 211,499
4,440 Bank Slaski SA 211,800
30,500 1, 2 Banque Audi, Class B, GDR 671,000
5,867,100 Demirbank TAS 31,688
2,900 Ergo Bank SA 260,267
1,767 Grupo Financiero Banamex
Accival, SA de CV, Class L 3,431
74,900 Grupo Financiero Banamex
Accival, SA de CV, Class O 150,030
1,100,000 Grupo Financiero Bancomer,
SA de CV 373,223
390 Grupo Financiero Inbursa,
SA de CV 1,136
1,011,000 HKCB Bank Holding Co. Ltd. 277,036
19,400 Hana Bank 256,027
15,250,000 Lippo Bank 891,530
62,800 1 Mauritius Commercial Bank 237,075
7,200 Misr International Bank 159,813
3,410 National Bank of Greece 237,896
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
BANKING-CONTINUED
6,000 National Societe Generale
Bank $ 101,971
10,700 OTP Bank RT 471,710
27,800,000 PT Bank Internasional
Indonesia 769,846
500 PT Bank Negara Indonesia 32
500 PT Bank Niaga Tbk 31
500 1 PT Bank Universal 9
73,000 1 Philippine National Bank 168,830
33,405 Shinhan Bank 325,360
2,785,276 1 Social Security Bank Ltd. 1,906,262
277,500 State Bank Mauritius 176,435
220,600 Thai Military Bank PCL 136,760
94,339,600 Turk Dis Ticaret Bankasi AS 440,094
13,163,000 Turkiye Garanti Bankasi AS 541,328
3,990,000 Yapi ve Kredi Bankasi AS 50,940
TOTAL 9,323,374
BEVERAGE & TOBACCO-4.8%
128,000 Beijing Enterprises 207,973
31,000 1 Boutaris Wine Co. SA 321,669
4,600 Compania Cervecerias
Unidas SA, ADR 128,800
2,600 Embotelladora Andina SA,
Class A, ADR 50,050
1,400 Embotelladora Andina SA,
Class B, ADR 21,875
80,000 Fomento Economico
Mexicano, SA de CV 263,260
14,480 1 Guiness Ghana Ltd. 5,568
6,000 Hellenic Bottling Co. SA 175,132
219,000 La Tondena Distillers,
Inc. 253,246
55,000 PT Gudang Garam 106,277
240,000 PT Hanjaya Mandala
Sampoerna 386,954
11,800 Pan American Beverage,
Inc., Class A 273,613
293,672 Sasini Tea & Coffee Ltd. 216,609
368,752 Union de Cervecerias
Backus y Johnston SAA,
Class T 160,712
TOTAL 2,571,738
BROADCASTING & PUBLISHING-
0.6%
8,000 Grupo Televisa SA, GDR 334,500
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
BUILDING MATERIALS &
COMPONENTS-2.9%
55,200,000 Adana Cimento Sanayii $ 216,826
2,150,000 PT Mulia Industrindo 218,307
4,845,000 PT Semen Cibinong Tbk 253,431
179,000 PT Semen Gresik (Persero)
Tbk 299,618
85,200 Siam City Cement 321,509
2,600 Titan Cement Co. SA 240,181
TOTAL 1,549,872
BUSINESS & PUBLIC
SERVICES-3.6%
5,260 Cheil Communications, Inc. 275,009
10,000 1 ComputerLand Poland SA 140,598
3,460 Delta Informatics 160,922
539,280 1 Home Finance Co. Ltd. 166,341
127,400 1 Ixchange Technology
Holdings Ltd. 324,009
3,662 NIIT 154,499
16,000 Satyam Computer Services 500,232
6,800 Softbank SA 198,042
TOTAL 1,919,652
CHEMICALS-1.0%
8,800 Egyptian Financial &
Industrial 120,419
8,150 Pannonplast RT 161,086
6,300 Sociedad Quimica Y Minera
De Chile, ADR 219,713
364 Sociedad Quimica Y Minera
De Chile, Class A, ADR 12,740
TOTAL 513,958
CONSTRUCTION & HOUSING-
3.4%
6,373,000 1 DMCI Holdings 345,028
12,455,000 1 Empire East Land Holdings,
Inc. 333,869
41,000 Exbud SA 300,577
19,725 Hydrobudowa SA 185,216
138,000 Italian-Thai Development 368,248
23,500 Sambu Construction 284,773
TOTAL 1,817,711
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
DATA PROCESSING &
REPRODUCTION-0.7%
13,600 1 DataTec Ltd. $ 183,524
6,100 Intrasoft SA 167,289
TOTAL 350,813
ELECTRICAL & ELECTRONICS-
2.5%
1,100 DSQ Software Ltd. 5,476
39,470 1 Hi-Tron Systems 332,841
11,840 1 Hi-Tron Systems, Rights 43,931
8,100 1 Infoquest SA 146,144
34,100 Infotech Enterprises Ltd. 181,518
3,000 Intracom SA 215,643
1,570,000 Vanda Systems and
Communications Holdings
Ltd. 186,257
10,800 1 Visualsoft (India) Ltd. 238,983
TOTAL 1,350,793
ELECTRONIC COMPONENTS,
INSTRUMENTS-1.2%
4,515 Aptech Ltd. 85,640
720 Dae Duck Electronics Co. 6,922
172 1 Dae Duck Electronics Co.,
Rights 566
22,800 HCL Infosystems Ltd. 214,114
15,040 Saehan Precision Co. 306,926
TOTAL 614,168
ENERGY SOURCES-3.5%
110,300 Banpu Public Co. Ltd. 258,655
35,000 Gulf Indonesia Resources
Ltd. 336,875
6,850 Lukoil Holding Co., ADR 254,820
20,300 MOL Magyar Olaj-es
Gazipari RT 494,967
735,000 PT Medco Energi Corp. 280,430
3,000 PTT Exploration and
Production Public Co. 24,420
2,010,000 Petron Corp. 221,866
TOTAL 1,872,033
FINANCIAL SERVICES-2.1%
10,500 1 Daewoo Securities Co. 208,079
545 1 Hyundai Securities 17,097
131 1 Hyundai Securities, Rights 1,171
30,400 1 Lg Securities Co. 512,712
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
FINANCIAL SERVICES-
CONTINUED
222 Samsung Securities Co.,
Ltd. $ 9,735
776,700 Securities One 173,763
63,000 1 Theta Group Ltd. 193,078
TOTAL 1,115,635
FISHERIES-0.0%
188,902 Austral Group 22,711
FOOD & HOUSEHOLD PRODUCTS-
3.3%
11,200 Britannia Industries 344,917
8,700 Delta Dairy SA 184,038
5,900 Goody's SA 166,346
51,000 Grupo Industrial Maseca SA
de CV, Class B 32,315
71,500 Innscor Africa Ltd. 18,367
32,100 1 International Food
Industries Co. (Hostess) 372,851
762,500 1 PT Bintuni Minaraya 166,577
1,110,000 Ultrajaya Milk Ind 119,538
17,100 Woo Sung Feed Co. 340,313
TOTAL 1,745,262
FOREST PRODUCTS & PAPER-
0.8%
68,300 Sappi Ltd. 416,450
GOLD MINES-0.4%
30,800 Ashanti Goldfields Co.,
GDR 231,000
HEALTH & PERSONAL CARE-
1.3%
1,600 Athens Medic Center 37,977
814,500 PT Darya Varia Laboratoria 100,245
12,900 Pacific Corp. 271,957
15,450 Sarantis SA 253,730
TOTAL 663,909
INDUSTRIAL COMPONENTS-0.1%
3,800 Madeco SA, ADR 37,050
14,064 1 Samsung Aerospace
Industries, Rights 18,976
TOTAL 56,026
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
INSURANCE-2.0%
18,368,000 Aksigorta $ 586,270
11,000 1 Enterprise Insurance Co.
Ltd. 9,048
520 Samsung Fire & Marine
Insurance 269,284
116,394 Swan Insurance Co., Ltd. 180,384
TOTAL 1,044,986
LEISURE & TOURISM-0.2%
1,334,000 PT Sona Topas Tourism
Industry Tbk 106,720
MACHINERY & ENGINEERING-
1.4%
10,000 Punjab Tractors Ltd. 315,225
141,300 Shin Sung ENG 405,127
TOTAL 720,352
MERCHANDISING-2.1%
13,400 Companhia Brasileira de
Distribuicao Groupo Pao de
Acucar, ADR 242,875
23,800 Keum Kang Devel 275,962
280,000 Migros Turk 357,489
439,500 PT Ramayana Lestari
Sentosa 238,006
1,800 Santa Isabel SA, ADR 19,575
TOTAL 1,133,907
METALS - NON FERROUS-1.6%
221,942 1 Aluworks Ghana Ltd. 255,578
41,532 Cia de Minas Buenaventura
SA, Class B 298,601
50,000 Grupo Mexico SA, Class B 169,136
50,657 Minsur SA 102,776
TOTAL 826,091
METALS - STEEL-1.1%
19,500,000 Eregli Demir Ve Celik
Fabrikalari TAS 373,445
10,400 Mytilineos SA 209,825
TOTAL 583,270
MINING-0.1%
483,461 Athi River Mining Ltd. 39,774
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
MISCELLANEOUS MATERIALS &
COMMODITIES-1.2%
1,741,000 Delta Corp. $ 458,637
5,250 Hellas Can Packaging SA 166,544
200 National Aluminium Co.
Ltd. 135
953,500 PT Fiskaragung Perkasa 32,272
TOTAL 657,588
MULTI-INDUSTRY-4.3%
4,018,000 1 Aboitiz Equity Ventures,
Inc. 236,536
1,415,000 1 Benpres Holdings Corp. 334,690
21,900 Citic Pacific Ltd. 262,436
1,415,000 Elektrim Spolka Akcyjna SA 503,048
1,691,500 Enka Holding Yatirim 348,860
43,089 First Pacific Co. 220,507
5,600 2 Grupo Carso SA de CV, ADR 45,119
8,280,000 Haci Omer Sabanci Holding 203,291
21,830 1, 2 Press Corp., GDR 144,733
TOTAL 2,299,220
PHARMACEUTICALS-1.0%
23,450,400 Eczacibasi Ilac 362,731
21,900 Jelfa SA 186,945
TOTAL 549,676
REAL ESTATE-4.5%
457,000 Ayala Land, Inc. 147,128
4,940,000 1 Belle Corp. 288,219
190,000 China Resources
Enterprises Ltd. 276,859
5,670,000 1 Megaworld Properties &
Holdings, Inc. 286,103
3,355,000 PT Jaya Real Property Tbk 361,307
11,400,000 Putra Surya Perkas 175,385
775,000 Quality House Public Co.
Limited 214,117
61,000 1, 2 SOLIDERE, GDR 642,025
TOTAL 2,391,143
TELECOMMUNICATIONS-8.8%
3,200,000 Champion Technology
Holdings Ltd. 202,195
100,000 1 China Telecom (Hong Kong)
Ltd. 210,836
558,000 City Telecom (HK) Ltd. 165,496
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
TELECOMMUNICATIONS-
CONTINUED
13,800 1 Embratel Participacoes SA,
ADR $ 189,750
16,200 Hellenic Telecommunication
Organization SA 350,745
50,900 Matav RT 284,373
110,065 1 Tele 2000 SA 46,315
31,000 1 Tele Norte Leste
Participacoes SA, ADR 507,625
17,800 Telecom Argentina SA, ADR 507,300
16,000 Telefonica de Argentina
SA, ADR 518,000
13,000 Telefonos de Mexico, Class
L, ADR 1,039,188
14,200 Tiletypos SA 293,779
17,200 1 Vimpel-Communications, ADR 363,350
TOTAL 4,678,952
TEXTILES & APPAREL-0.3%
158,550 Madura Coats 156,818
TRANSPORTATION - AIRLINES-
1.9%
100,000 Air Mauritius Ltd. 99,344
4,079,000 Kenya Airways Ltd. 468,649
18,950 Korean Air 228,515
109,000 Thai Airways International
PCL 185,094
TOTAL 981,602
TRANSPORTATION - ROAD &
RAIL-0.4%
1,222,000 GZI Transportation Ltd. 220,610
TRANSPORTATION - SHIPPING-
1.2%
30,880 Korea Line Co. 377,586
1,722,500 PT Berlian Laju Tanker Tbk 238,499
TOTAL 616,085
UTILITIES - ELECTRICAL &
GAS-2.7%
69,300 Companhia Paranaense de
Energia-Copel, ADR 519,750
573,289 Edegel SA, Class B 118,897
900 Egypt Gas 43,968
922,000 1 Huaneng Power
International, Inc. 273,454
15,200 Hub Power Co., GDR 136,800
225,000 Kenya Power & Lighting Co.
Ltd. 363,830
TOTAL 1,456,699
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
WHOLESALE & INTERNATIONAL
TRADE-0.9%
180,080 Ferreyros SA $ 133,960
2,475,900 Interfresh 51,917
18,210 Samsung Co. 284,087
TOTAL 469,964
TOTAL COMMON STOCKS
(IDENTIFIED COST
$44,572,699) 46,696,933
PREFERRED STOCKS-3.2%
BANKING-0.8%
9,400,000 Banco Est Sao Paulo,
Preference 400,842
ENERGY SOURCES-0.8%
3,135,000 Petroleo Brasileiro SA,
Preference 443,205
TELECOMMUNICATIONS-0.8%
1,300,000 Telecomunicacoes de Sao
Paulo SA, Preference 158,280
6,300,000 Telesp Celular
Participacoes SA, Series B 290,425
TOTAL 448,705
TEXTILES & APPAREL-0.0%
49,000,000 1 Texpar SA, Preference 282
UTILITIES - ELECTRICAL &
GAS-0.8%
20,100,000 Companhia Energetica de
Minas Gerais, Preference 419,958
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$1,283,905) 1,712,992
CORPORATE BOND-0.0%
METALS - STEEL-0.0%
$ 10,100 Companhia Vale Do Rio Doce,
Conv. Deb., 12/31/1999
(IDENTIFIED COST $79) 58
REPURCHASE AGREEMENT-2.6% 3
1,375,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999 (at amortized
cost) 1,375,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$47,231,683) 4 $ 49,784,983
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's Board of Directors. At May 31, 1999, these
securities amounted to $1,502,952 which represents 2.8% of net assets.
3 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
4 The cost of investments for federal tax purposes amounts to $47,231,683. The
net unrealized appreciation of investments on a federal tax basis amounts to
$2,553,300 which is comprised of $6,920,893 appreciation and $4,367,593
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($53,095,446) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ADR -American Depositary Receipt
GDR -Global Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$47,231,683) $ 49,784,983
Cash denominated in
foreign currencies
(identified cost
$1,911,050) 1,908,584
Income receivable 286,728
Receivable for investments
sold 3,605,726
Receivable for shares sold 90,210
Deferred organizational
costs 18,362
TOTAL ASSETS 55,694,593
LIABILITIES:
Payable for investments
purchased $ 2,230,612
Payable for shares
redeemed 128,963
Payable to bank 3,916
Payable for taxes withheld 182,201
Net payable for foreign
currency exchange
contracts 970
Accrued expenses 52,485
TOTAL LIABILITIES 2,599,147
Net assets for 5,024,930
shares outstanding $ 53,095,446
NET ASSETS CONSIST OF:
Paid in capital $ 67,683,416
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in
foreign currency 2,546,135
Accumulated net realized
loss on investments and
foreign currency
transactions (17,157,765)
Undistributed net
investment income 23,660
TOTAL NET ASSETS $ 53,095,446
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($38,970,562 / 3,664,508
shares outstanding) $10.63
Offering Price Per Share
(100/94.50 of $10.63) 1 $11.25
Redemption Proceeds Per
Share $10.63
CLASS B SHARES:
Net Asset Value Per Share
($11,795,126 / 1,136,235
shares outstanding) $10.38
Offering Price Per Share $10.38
Redemption Proceeds Per
Share (94.50/100 of
$10.38) 1 $ 9.81
CLASS C SHARES:
Net Asset Value Per Share
($2,329,758 / 224,187
shares outstanding) $10.39
Offering Price Per Share $10.39
Redemption Proceeds Per
Share (99.00/100 of
$10.39) 1 $10.29
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of $53,071) $ 664,357
Interest 9,678
TOTAL INCOME 674,035
EXPENSES:
Investment advisory fee $ 290,897
Administrative personnel
and services fee 92,247
Custodian fees 133,095
Transfer and dividend
disbursing agent fees and
expenses 93,783
Directors' fees 1,201
Auditing fees 11,210
Legal fees 1,714
Portfolio accounting fees 36,976
Distribution services fee-
Class B Shares 39,869
Distribution services fee-
Class C Shares 7,394
Shareholder services fee-
Class A Shares 42,424
Shareholder services fee-
Class B Shares 13,290
Shareholder services fee-
Class C Shares 2,465
Share registration costs 14,453
Printing and postage 23,079
Insurance premiums 1,213
Taxes 2,368
Miscellaneous 6,452
TOTAL EXPENSES 814,130
WAIVER:
Waiver of investment
advisory fee (167,761)
Net expenses 646,369
Net investment income 27,666
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain on
investments and foreign
currency transactions (net
of foreign taxes withheld
of $286,222) 8,244,219
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 2,517,431
Net realized and
unrealized gain on
investments and foreign
currency transactions 10,761,650
Change in net assets
resulting from operations $ 10,789,316
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 27,666 $ 39,525
Net realized gain (loss) on
investments and foreign
currency transactions
($8,244,219 and
$(20,651,562)
respectively, as computed
for federal tax purposes) 8,244,219 (22,632,585)
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 2,517,431 3,529,082
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 10,789,316 (19,063,978)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 22,038,028 36,333,951
Cost of shares redeemed (24,490,135) (44,913,771)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (2,452,107) (8,579,820)
Change in net assets 8,337,209 (27,643,798)
NET ASSETS:
Beginning of period 44,758,237 72,402,035
End of period (including
undistributed net
investment income of
$23,660
and $0, respectively) $ 53,095,446 $ 44,758,237
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.40 $11.64 $11.10 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.02 0.03 0.01 0.02
Net realized and
unrealized gain (loss) on
investments and foreign
currency 2.21 (3.27) 0.53 2 1.08
TOTAL FROM INVESTMENT
OPERATIONS 2.23 (3.24) 0.54 1.10
NET ASSET VALUE, END OF
PERIOD $10.63 $ 8.40 $11.64 $11.10
TOTAL RETURN 3 26.55% (28.02%) 4.86% 11.00%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 3.29% 5 2.84% 2.79% 5.31% 5
Net investment income (net
operating loss) 4 (0.40%) 5 0.05% (0.52%) (3.03%) 5
Expenses (after waivers
and reimbursements) 2.57% 5 2.59% 2.14% 1.97% 5
Net investment income
(after waivers and
reimbursements) 0.32% 5 0.30% 0.13% 0.31% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $38,971 $32,002 $48,525 $17,327
Portfolio turnover 134% 163% 102% 32%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 The amount shown in this caption for a share outstanding did 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.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.23 $11.50 $11.04 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.04) (0.08) (0.04) (0.02)
Net realized and
unrealized gain (loss) on
investments and foreign
currency 2.19 (3.19) 0.50 2 1.06
TOTAL FROM INVESTMENT
OPERATIONS 2.15 (3.27) 0.46 1.04
NET ASSET VALUE, END OF
PERIOD $10.38 $ 8.23 $11.50 $11.04
TOTAL RETURN 3 26.12% (28.56%) 4.17% 10.40%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 4.04% 5 3.59% 3.54% 6.06% 5
Net operating loss 4 (1.15%) 5 (0.70%) (1.34%) (4.05%) 5
Expenses (after waivers
and reimbursements) 3.32% 5 3.34% 2.89% 2.72% 5
Net operating loss (after
waivers and
reimbursements) (0.43%) 5 (0.45%) (0.69%) (0.71%) 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $11,795 $10,884 $19,951 $3,747
Portfolio turnover 134% 163% 102% 32%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 The amount shown in this caption for a share outstanding did 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.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.23 $11.50 $11.05 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.02) (0.09) (0.04) (0.02)
Net realized and
unrealized gain (loss) on
investments and foreign
currency 2.18 (3.18) 0.49 2 1.07
TOTAL FROM INVESTMENT
OPERATIONS 2.16 (3.27) 0.45 1.05
NET ASSET VALUE, END OF
PERIOD $10.39 $ 8.23 $11.50 $11.05
TOTAL RETURN 3 26.25% (28.62%) 4.07% 10.50%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 4.04% 5 3.59% 3.54% 6.06% 5
Net operating loss 4 (1.15%) 5 (0.70%) (1.30%) (4.11%) 5
Expenses (after waivers
and reimbursements) 3.32% 5 3.34% 2.89% 2.72% 5
Net operating loss (after
waivers and
reimbursements) (0.43%) 5 (0.45%) (0.65%) (0.77%) 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $2,330 $1,872 $3,943 $847
Portfolio turnover 134% 163% 102% 32%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 The amount shown in this caption for a share outstanding did 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.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
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 ten 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.
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 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.
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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $24,298,795, 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
2003 $ 3,130,096 1
2004 310,725
2005 206,412
2006 20,651,562
1 Capital loss carryforward is attributable to the acquisition of the assets of
The Blanchard Worldwide Emerging Market Fund and is limited to $391,262 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
counterparties to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the settlement date.
At May 31, 1999, the Fund had outstanding forward commitments set forth below:
<TABLE>
<CAPTION>
CONTRACTS TO UNREALIZED
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR CONTRACTS AT VALUE DEPRECIATION
<S> <C> <C> <C> <C>
Contract Purchased:
6/1/1999 766,585,680 Indonesian Rupiah $ 94,757 $ 94,349 $(408)
Contracts Sold:
6/1/1999 11,508,201 Thailand Baht 309,951 310,194 (243)
6/2/1999 6,286,709 Thailand Baht 169,134 169,453 (319)
NET UNREALIZED DEPRECIATION ON FOREIGN EXCHANGE CONTRACTS $(970)
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. Dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. Dollars based on the rate of exchange of such currencies against U.S.
Dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of 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 period end, resulting from
changes in the exchange rate.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, 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 YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,029,589 $ 19,498,700 3,094,151 $ 32,142,225
Shares redeemed (2,175,184) (20,435,838) (3,449,888) (35,473,078)
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS (145,595) $ (937,138) (355,737) $ (3,330,853)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 214,639 $ 2,085,887 306,994 $ 3,184,513
Shares redeemed (401,558) (3,603,229) (717,998) (7,271,596)
NET CHANGE RESULTING FROM
CLASS B SHARE TRANSACTIONS (186,919) $ (1,517,342) (411,004) $ (4,087,083)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 47,189 $ 453,441 94,488 $ 1,007,213
Shares redeemed (50,491) (451,068) (210,000) (2,169,097)
NET CHANGE RESULTING FROM
CLASS C SHARE TRANSACTIONS (3,302) $ 2,373 (115,512) $ (1,161,884)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (335,816) $ (2,452,107) (882,253) $ (8,579,820)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A,
Class B, and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
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 six months
ended May 31, 1999, 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
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 six months ended May 31, 1999, the Fund expensed $9,076 of
organizational expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
Purchases $61,815,478
Sales $72,230,383
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, 1999, the diversification of countries was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
Korea, Republic of 10.5%
Indonesia 9.8%
Turkey 7.2%
Greece 7.1%
Hong Kong 5.1%
Mexico 5.1%
Brazil 5.0%
Ghana 4.9%
Philippines 4.9%
India 4.4%
Poland 3.7%
Thailand 3.2%
Hungary 2.9%
Lebanon 2.5%
Kenya 2.1%
South Africa 2.1%
Argentina 1.9%
Peru 1.7%
Egypt 1.5%
PERCENTAGE OF
COUNTRY NET ASSETS
Mauritius 1.3%
Russia 1.2%
Chile 1.0%
Zimbabwe 1.0%
Malawi 0.3%
Pakistan 0.3%
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking 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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated Emerging Markets Fund
Established 1996
3RD SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Emerging Markets Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487804
Cusip 981487887
Cusip 981487879
G01967-02 (7/99)
[Graphic]
SEMI-ANNUAL REPORT
[Graphic]
RICHARD B. FISHER
President
Federated European Growth Fund
President's Message
Dear Fellow Shareholder:
Federated European Growth Fund was created in 1996, and I am pleased to present
its third Semi-Annual Report. As of May 31, 1999, the fund's net assets totaled
$53.3 million and were invested in over 70 securities in Europe selected for
their capital appreciation potential.
This report covers the first half of the fund's fiscal year which is the
six-month period from December 1, 1998 through May 31, 1999. It begins with an
interview with the fund's portfolio manager, Frank Semack, Vice President of
Federated Global Investment Management Corp. Following his discussion, which
presents his outlook on European economic and market conditions and the fund's
strategy, you will find two additional items of shareholder interest. First is a
complete listing of the fund's common stock investments, and sec ond is the
publication of the fund's financial statements.
The fund offers shareholders significant long-term investment opportunities from
a broadly diversified $53.3 million portfolio of more than 70 stocks in 15
European countries in both developed and emerging markets. The United Kingdom
represents the largest weighting in the fund's portfolio, with approximately 25%
of the fund's assets, followed by France (14.7%), Italy (10.1%) and Germany
(9.2%). 1 The European market overall took a breather and recorded a flat return
during the first half of the fund's fiscal year due to a weak euro and weaker
investor sentiment. However, there are reasons for optimism. As Frank explains,
the currently weak euro, while a short-term neg ative, may prove to be a
long-term plus. Stock valuations in the European market are currently lower than
the fully priced U.S. market.
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
Individual share class total return performance for the six-month reporting
period, including capital gains, follows. 2
TOTAL RETURN CAPITAL GAINS NET ASSET VALUE DECREASE
Class A Shares (1.80%) $0.60 $15.79 to $14.94 = (5%)
Class B Shares (2.18%) $0.60 $15.48 to $14.58 = (6%)
Class C Shares (2.18%) $0.60 $15.43 to $14.53 = (6%)
While the fund has provided shareholders with strong returns since its incep
tion on February 28, 1996, it is important to remember that, as we have just
experienced, there will inevitably be periods of short-term fluctuation and
negative, as well as positive returns. My recommendation to all mutual fund
shareholders is to 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. 3
Thank you for your confidence in Federated European Growth Fund. We will con
tinue to keep you up-to-date on the details of your investment on a regular
basis.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
2 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the period, based on the
offering price (i.e., less any applicable sales charge), for Class A, B, and C
Shares were (7.21%), (7.36%), and (3.12%), respectively.
3 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost averaging involves continuous investment
regardless of fluctuating price levels, investors should con sider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
FRANK SEMACK
Vice President
Federated Global Investment Management Corp.
Investment Review
IN 1998, THE FUND'S SHARE PRICE INCREASED OVER 21%. 1999 SEEMS TO BE A
DIFFERENT STORY. WHY?
1999 is a different set of circumstances. In the first two months of the
reporting period, European markets benefited from lower interest rates and the
launch of the euro. After an initial burst of euphoria, however, the new
currency quickly began to weaken against the backdrop of the deteriorating
situation in Kosovo, and, more importantly, indications that gross domestic
product ("GDP") growth in the United States would continue to be much stron ger
than in the Eurozone (3.50% versus 2.00%). Last but not least, the Euro pean
Central Bank agreed in late May 1999 to loosen Italian fiscal deficit criteria.
By the end of May, the euro had lost approximately 12% against the U.S. dollar.
In an effort to spur GDP growth, the European Central Bank cut interest rates in
early April to 2.50% from 3.00%, the Bank of England cut rates several times to
5.25%, and Sweden cut rates from 3.15% to 2.90%.
On the political front, German Finance Minister Oskar Lafontaine resigned in
early March 1999, followed by a mass resignation of the European Commission. The
German market reacted favorably for a short period to Mr. Lafontaine's
departure, whereas the European Commission news had virtually no impact.
In part due to falling interest rates, the United Kingdom's market outper formed
most European markets, on a U.S. dollar basis, as fears of a full- blown
recession proved unfounded. Consumer confidence in France as well as Spain
remained high, but much less so in Germany and Italy. Finally, the num ber and
size of initial and secondary public offerings led to a substantial increase in
equity supply at a time when demand from investors for European equities
declined sharply.
WHAT WERE THE HIGHLIGHTS AS FAR AS SECTOR PERFORMANCE WAS CONCERNED?
After the euphoria surrounding the euro faded, European investors began to shift
funds from growth stocks into cyclical stocks, to take advantage of the wide
disparity in valuations. In particular, the materials and capital equip ment
sectors saw relatively strong performance, while the consumer goods and finance
sectors were relatively weak.
Mergers and acquisitions continued to dominate the headlines, with a record $435
billion of corporate transactions involving European companies. The banking
sector saw the most activity, although only at the country level.
In France, Paribas and SOCIETE GENERALE (1.47% of net assets) agreed to merge,
only to receive a competing offer from Banque Nationale de Paris. As of this
writing, the outcome remains wide open. In Italy, two separate large mergers
were announced between BCI and Unicredito and between San-Paolo-IMI and Banca di
Roma, but both failed to be finalized. The only banking merger that has actually
gone through successfully was in Spain, between BANCO SANTANDER (1.45% of net
assets) and BCH. In the telecommunications sector, Olivetti made a bid for
TELECOM ITALIA (1.07% of net assets), which it even tually won despite Telecom
Italia's preference for a merger with Deutsche Telecom. VODAFONE (2.46% of net
assets) and Airtouch also merged to create a global cellular telephone
powerhouse. Other corporate activity involved Renault and Nissan, British
Petroleum, Amoco and Arco, and ABB and Alstom.
HOW DID FEDERATED EUROPEAN GROWTH FUND PERFORM DURING THE SIX-MONTH REPORTING
PERIOD ENDED MAY 31, 1999?
Reflecting flat market conditions, Federated European Growth Fund produced total
returns of (1.80%), (2.18%), and (2.18%), based on net asset value, for Class A,
B, and C Shares, respectively, for the six-month reporting period ended May 31,
1999. 1 These returns slightly underperformed the (0.96%) total return of the
107 European region funds tracked by Lipper Analytical Ser vices, Inc.2 The
overall return of the European market, as measured by the Morgan Stanley Capital
International ("MSCI") Europe Index, was 0.31%.3
1 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 the offering price (i.e., less any
applicable sales charge), for Class A, B, and C Shares were (7.21%), (7.36%),
and (3.12%), respectively.
2 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. These returns do not take sales charges into account.
3 The MSCI Europe Index is an unmanaged, market value-weighted index of over 580
securities listed on the stock exchanges of 15 countries in the Euro pean
region. Investments cannot be made in an index.
HOW WAS THE EUROPEAN GROWTH FUND ALLOCATED AMONG COUNTRIES AND SECTORS AS OF MAY
31, 1999?
PERCENTAGE OF
COUNTRY NET ASSETS
United Kingdom 25.9%
France 14.7%
Italy 10.1%
Germany 9.2%
Netherlands 7.8%
Spain 5.8%
Finland 5.2%
Portugal 5.1%
Switzerland 3.9%
Greece 2.3%
Sweden 2.2%
Belgium 1.6%
Norway 0.9%
Ireland 0.6%
Hungary 0.2%
PERCENTAGE OF
SECTOR NET ASSETS
Finance 36.1%
Telecommunications 15.2%
Services 14.7%
Consumer Goods 10.2%
Capital Equipment 6.6%
Multi-Industry 6.2%
Energy 2.7%
Materials 1.1%
Other 2.9%
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF MAY 31, 1999?
MARKET
PERCENTAGE OF CAPITALIZATION
NAME COUNTRY NET ASSETS ($ BILLIONS)
Mannesmann Germany 3.6% 53.8
Barclays United Kingdom 3.2% 45.8
Mondadori Italy 2.9% 2.2
BMW Germany 2.9% 15.1
KPN Netherlands 2.6% 23.0
Sanofi-Synthelabo France 2.5% 30.9
Glaxo Wellcome United Kingdom 2.5% 101.8
Vodafone United Kingdom 2.5% 58.9
Reed United Kingdom 2.1% 8.3
Securicor United Kingdom 1.7% 5.4
TOTAL 26.5%
WHAT WERE SOME OF THE FUND'S RECENT STOCK PURCHASES?
Our recent purchases included the following:
ASM LITHOGRAPHY (0.98% of net assets): ASML is a semiconductor equipment man
ufacturer with leading edge technology that is gaining market share at a time
when the semiconductor cycle is poised for an upturn.
BANCO PINTO & SOTTO MAYOR (1.12% of net assets): BPSM is a major player in the
Portuguese banking sector. It is cheap versus its peers, and it should be a
likely beneficiary of the forthcoming consolidation in the industry.
GLOBAL TELESYSTEMS (1.60% of net assets): GTS is a European alternative tele
communications provider participating in the rapid growth in data services. It
has a head start over its competitors in cross-border traffic connections for
small- and medium-sized businesses.
WHAT ISSUES DO YOU EXPECT TO AFFECT THE EUROPEAN MARKETS THROUGH THE BALANCE OF
1999?
The euro will clearly be an important factor for the foreseeable future. While a
weak euro is a short-term negative for total returns, it is in fact a plus for
the European economy for two reasons: 1) European exporters benefit because
their products are cheaper; and 2) every one-cent change in the U.S. dollar/euro
exchange rate is equal to a 1% shift in earnings growth. For this reason we have
continued to see a number of earnings upgrades over the course of the year as
the euro has declined. Exports in the Eurozone repre sent around 12% of GDP
(which is the same as in the United States), while imports account for around
10% of GDP. This is a much lower figure than for the individual EU-11 members,
and consequently, it enables the Eurozone to adopt a policy of "benign neglect"
with respect to the euro. In the meantime, European valuations continue to be
much lower than in the U.S. market (23X 1999 earnings in Europe and 27X 1999
earnings in the United States), and equity fund flows have begun to improve
again after several months of weak ness. The United Kingdom has room for further
rate cuts as the risk of infla tion, as in the Eurozone, appears minimal.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-95.5%
AEROSPACE & MILITARY TECHNOLOGY-1.1%
88,895 British Aerospace PLC $ 586,857
APPLIANCES & HOUSEHOLD DURABLES-0.4%
20,000 1 Moulinex 229,767
AUTOMOBILE-2.9%
2,405 Bayerische Motoren Werke AG 1,539,428
BANKING-19.1%
31,200 Argentaria 698,983
108,636 Banca Intesa SPA 552,674
30,000 Banco Pinto & Sotto Mayor 594,225
12,040 Banco Popular Espanol SA 879,874
34,500 Banco Portugues do Atlantico 544,529
37,099 Banco Santander Central Hispano, SA 773,514
56,465 Barclays PLC 1,714,534
6,380 Compagnie Financiere de Paribas, Class A 691,719
6,710 DePfa Deutsche Pfandbriefbank AG 580,599
11,600 Deutsche Bank, AG 604,650
2,700 Ergo Bank SA 242,317
72,000 Merita Ltd., Class A 426,341
22,000 Rolo Banca 1473 SPA 519,478
4,300 Societe Generale, Paris 780,895
2,020 UBS AG 584,224
TOTAL 10,188,556
BROADCASTING & PUBLISHING-5.3%
7,000 1 Antenna Hungaria 134,992
90,000 Arn Mondadori Edit 1,562,186
155,000 Reed International PLC 1,133,783
TOTAL 2,830,961
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
BUSINESS & PUBLIC SERVICES-8.1%
15,250 Dassault Systemes SA $ 500,314
6,400 Delta Informatics 297,660
7,500 1 Equant NV, ADR 622,031
390,500 1 Eurotunnel SA 598,431
100,400 Securicor PLC 900,906
3,100 Suez Lyonnaise des Eaux 513,525
13,800 Unique International NV 315,065
7,500 Vivendi 555,131
7,500 1 Vivendi, Rights 7,819
TOTAL 4,310,882
ELECTRICAL & ELECTRONICS-3.4%
23,400 1 BE Semiconductor Industries NV 178,080
10,850 1 Infoquest SA 195,760
11,600 Nokia Oy 824,742
23,450 Telefonaktiebolaget LM Ericsson 625,919
TOTAL 1,824,501
ELECTRONIC COMPONENTS, INSTRUMENTS-2.0%
11,800 1 ASM Lithography Holding NV 519,738
150 1 Kudelski SA 564,371
TOTAL 1,084,109
ENERGY SOURCES-2.7%
38,539 BP Amoco PLC 689,163
5,000 Elf Aquitaine SA 723,495
TOTAL 1,412,658
FINANCIAL SERVICES-1.1%
11,000 ING Groep, NV 587,709
FOOD & HOUSEHOLD PRODUCTS-1.7%
500 Nestle SA 898,086
HEALTH & PERSONAL CARE-7.0%
47,385 Glaxo Wellcome PLC 1,329,489
32,000 1 Sanofi Synthelabo SA 1,347,743
13,840 Sarantis SA 227,289
64,535 Smithkline Beecham Corp. 840,188
TOTAL 3,744,709
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
INSURANCE-14.8%
6,800 AEGON NV $ 549,397
45,000 1 Allied Zurich PLC 573,602
25,000 Assicurazioni Generali 888,731
6,820 Axa 785,638
96,400 Mediolanum 656,245
29,700 1 Mundial Confianca 853,938
55,700 2 Norwich Union PLC 394,935
60,952 Prudential Corp. PLC 800,865
74,545 Royal & Sun Alliance Insurance Group PLC 607,628
22,000 Sampo Insurance Co. Ltd., Class A 665,115
54,300 SAI 608,533
75,000 1 Storebrand ASA 502,891
TOTAL 7,887,518
MERCHANDISING-1.3%
19,500 Estabelecimentos Jeronimo Martins & Filho SGPS, SA 695,446
METALS - NON FERROUS-1.1%
14,700 Pechiney SA, Class A 569,468
MULTI-INDUSTRY-2.6%
24,900 Kinnevik AB, Class B 518,376
24,900 1 Kinnevik AB, Rights 17,376
38,900 Metra Oy, Class B 865,812
TOTAL 1,401,564
REAL ESTATE-1.1%
230,000 Countrywide Assured Group PLC 560,182
RECREATION, OTHER CONSUMER GOODS-1.0%
9,300 Societe BIC SA 533,723
TELECOMMUNICATIONS-18.8%
37,000 British Telecommunication PLC 613,027
24,000 1 COLT Telecom Group PLC 506,856
68,100 1 Cable & Wireless Communications PLC 647,082
49,800 Cable & Wireless PLC 612,842
9,000 1 Esat Telecom Group PLC, ADR 333,000
11,200 1 Global TeleSystems Group, Inc. 851,200
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
TELECOMMUNICATIONS-CONTINUED
28,200 KPN NV $ 1,361,150
14,000 Mannesmann AG 1,911,944
96,650 Telecom Italia Mobile SPA 568,273
15,024 Telefonica SA 720,163
7,000 1 Telegate AG 273,656
13,900 Tiletypos SA 287,572
69,004 Vodafone Group PLC 1,311,343
TOTAL 9,998,108
TOTAL INVESTMENTS (IDENTIFIED COST $48,607,232) 3 $ 50,884,232
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's board of directors. At May 31, 1999, these
securities amounted to $394,935 which represents 0.7% of net assets.
3 The cost of investments for federal tax purposes amounts to $48,607,232. The
net unrealized appreciation of investments on a federal tax basis amounts to
$2,277,000 which is comprised of $4,405,162 appreciation and $2,128,162
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($53,280,385) at May 31, 1999.
The following acronym is used throughout this portfolio:
ADR -American Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$48,607,232) $ 50,884,232
Cash denominated in
foreign currencies
(identified cost $77,473) 77,267
Income receivable 347,833
Receivable for investments
sold 2,200,753
Receivable for shares sold 70,208
Deferred organizational
costs 18,563
TOTAL ASSETS 53,598,856
LIABILITIES:
Payable for investments
purchased $ 115,779
Payable for shares
redeemed 35,893
Payable for taxes withheld 38,497
Accrued expenses 128,302
TOTAL LIABILITIES 318,471
Net assets for 3,603,489
shares outstanding $ 53,280,385
NET ASSETS CONSIST OF:
Paid in capital $ 49,198,268
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 2,268,789
Accumulated net realized
gain on investments and
foreign currency
transactions 1,870,832
Accumulated net operating
loss (57,504)
TOTAL NET ASSETS $ 53,280,385
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($31,080,872 / 2,079,899
shares outstanding) $14.94
Offering Price Per Share
(100/94.50 of $14.94) 1 $15.81
Redemption Proceeds Per
Share $14.94
CLASS B SHARES:
Net Asset Value Per Share
($18,447,652 / 1,265,294
shares outstanding) $14.58
Offering Price Per Share $14.58
Redemption Proceeds Per
Share (94.50/100 of
$14.58) 1 $13.78
CLASS C SHARES:
Net Asset Value Per Share
($3,751,861 / 258,296
shares outstanding) $14.53
Offering Price Per Share $14.53
Redemption Proceeds Per
Share (99.00/100 of
$14.53) 1 $14.38
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of $81,919) $ 566,928
Interest 12,590
TOTAL INCOME 579,518
EXPENSES:
Investment advisory fee $ 298,847
Administrative personnel
and services fee 92,247
Custodian fees 33,233
Transfer and dividend
disbursing agent fees and
expenses 50,833
Directors' fees 1,212
Auditing fees 11,363
Legal fees 1,657
Portfolio accounting fees 40,771
Distribution services fee-
Class B Shares 72,382
Distribution services fee-
Class C Shares 13,445
Shareholder services fee-
Class A Shares 46,103
Shareholder services fee-
Class B Shares 24,127
Shareholder services fee-
Class C Shares 4,482
Share registration costs 20,659
Printing and postage 14,252
Insurance premiums 1,214
Taxes 1,977
Miscellaneous 8,258
TOTAL EXPENSES 737,062
WAIVER:
Waiver of investment
advisory fee (100,040)
Net expenses 637,022
Net operating loss (57,504)
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain on
investments and foreign
currency transactions 1,890,648
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency (2,793,026)
Net realized and
unrealized loss on
investments and foreign
currency transactions (902,378)
Change in net assets
resulting from operations $ (959,882)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income (net
operating loss) $ (57,504) $ 8,236
Net realized gain on investments and foreign currency transactions ($1,890,648
and $2,436,500, respectively, as computed for federal tax
purposes) 1,890,648 2,230,667
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency (2,793,026) 3,436,370
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (959,882) 5,675,273
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares (1,455,403) (537,759)
Class B Shares (704,605) (185,127)
Class C Shares (98,397) (23,411)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (2,258,405) (746,297)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 34,379,952 99,816,917
Net asset value of shares
issued to shareholders in
payment of
distributions declared 2,042,042 675,579
Cost of shares redeemed (40,844,972) (68,056,951)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (4,422,978) 32,435,545
Change in net assets (7,641,265) 37,364,521
NET ASSETS:
Beginning of period 60,921,650 23,557,129
End of period $ 53,280,385 $ 60,921,650
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $15.79 $13.33 $11.80 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.00 2 0.04 0.06 3 0.14
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions (0.25) 2.84 1.93 1.66
TOTAL FROM INVESTMENT
OPERATIONS (0.25) 2.88 1.99 1.80
LESS DISTRIBUTIONS:
Distributions from net
investment income - - (0.09) -
Distributions from net
realized gain on
investments and foreign
currency transactions (0.60) (0.42) (0.37) -
TOTAL DISTRIBUTIONS (0.60) (0.42) (0.46) -
NET ASSET VALUE, END OF
PERIOD $14.94 $15.79 $13.33 $11.80
TOTAL RETURN 4 (1.80% ) 22.13% 17.54% 18.00%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.18% 6 2.48% 4.70% 12.85% 6
Net operating loss 5 (0.24%) 6 (0.39%) (2.29%) (9.50%) 6
Expenses (after waivers
and reimbursements) 1.85% 6 1.85% 1.91% 1.75% 6
Net investment income
(after waivers
and reimbursements) 0.09% 6 0.24% 0.50% 1.60% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $31,081 $40,543 $17,008 $3,318
Portfolio turnover 105% 175% 119% 58%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share amount does not round to $0.01.
3 Per share information is based on average shares outstanding.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $15.48 $13.18 $11.74 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) (0.04) (0.00) 2 (0.03) 3 0.01
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions (0.26) 2.72 1.91 1.73
TOTAL FROM INVESTMENT
OPERATIONS (0.30) 2.72 1.88 1.74
LESS DISTRIBUTIONS:
Distributions from net
investment income - - (0.07) -
Distributions from net
realized gain on
investments and foreign
currency transactions (0.60) (0.42) (0.37) -
TOTAL DISTRIBUTIONS (0.60) (0.42) (0.44) -
NET ASSET VALUE, END OF
PERIOD $14.58 $15.48 $13.18 $11.74
TOTAL RETURN 4 (2.18%) 21.14% 16.61% 17.40%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.93% 6 3.23% 5.45% 13.60% 6
Net operating loss 5 (0.99%) 6 (1.14%) (3.04%) (11.02%) 6
Expenses (after waivers
and reimbursements) 2.60% 6 2.60% 2.66% 2.50% 6
Net investment income (net
operating loss)
(after waivers and
reimbursements) (0.66%) 6 (0.51%) (0.25%) 0.08% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $18,448 $17,952 $5,781 $1,215
Portfolio turnover 105% 175% 119% 58%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share amount does not round to $(0.01).
3 Per share information is based on average shares outstanding.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $15.43 $13.15 $11.73 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) (0.03) (0.00) 2 (0.03) 3 0.01
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions (0.27) 2.70 1.90 1.72
TOTAL FROM INVESTMENT
OPERATIONS (0.30) 2.70 1.87 1.73
LESS DISTRIBUTIONS:
Distributions from net
investment income - - (0.08) -
Distributions from net
realized gain on
investments and foreign
currency transactions (0.60) (0.42) (0.37) -
TOTAL DISTRIBUTIONS (0.60) (0.42) (0.45) -
NET ASSET VALUE, END OF
PERIOD $14.53 $15.43 $13.15 $11.73
TOTAL RETURN 4 (2.18%) 21.03% 16.55% 17.30%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.93% 6 3.23% 5.45% 13.56% 6
Net operating loss 5 (0.99%) 6 (1.14% ) (3.02%) (10.97%) 6
Expenses (after waivers
and reimbursements) 2.60% 6 2.60% 2.66% 2.50% 6
Net investment income (net
operating loss) (after
waivers and
reimbursements) (0.66%) 6 (0.51%) (0.23%) 0.09% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $3,752 $2,426 $768 $176
Portfolio turnover 105% 175% 119% 58%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share amount does not round to $(0.01).
3 Per share information is based on average shares outstanding.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
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 ten 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.
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 posses sion,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the 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.
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 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 port folio 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
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 period end, resulting from
changes in the exchange rate.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense, either upon demand by the Fund
or in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, 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 300,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 871,554 $ 13,618,642 3,402,428 $ 52,837,745
Shares issued to
shareholders in payment of
distributions declared 83,202 1,309,592 35,977 481,005
Shares redeemed (1,442,120) (22,521,359) (2,147,001) (33,498,819)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS (487,364) $ (7,593,125) 1,291,404 $ 19,819,931
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 648,683 $ 9,955,226 1,811,616 $ 27,679,163
Shares issued to
shareholders in payment of
distributions declared 41,728 643,448 13,211 174,502
Shares redeemed (584,567) (8,958,460) (1,104,050) (16,670,573)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 105,844 $ 1,640,214 720,777 $ 11,183,092
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 707,964 $ 10,806,084 1,284,262 $ 19,300,009
Shares issued to
shareholders in payment of
distributions declared 5,793 89,002 1,523 20,072
Shares redeemed (612,750) (9,365,153) (1,186,882) (17,887,559)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS 101,007 $ 1,529,933 98,903 $ 1,432,522
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (280,513) $ (4,422,978) 2,111,084 $ 32,435,545
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A
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
SHARE CLASS NAME 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 six months
ended May 31, 1999 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 Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
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 six months ended May 31, 1999, the Fund expensed $5,539 of
organizational expenses.
GENERAL
Certain of the Officers and Directors of the Corpora-tion are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
Purchases $60,755,474
Sales $71,182,444
CONCENTRATION OF CREDIT RISK
The Fund invests a portion of its assets 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, 1999, the diversification of countries was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
United Kingdom 25.9%
France 14.7%
Italy 10.1%
Germany 9.2%
Netherlands 7.8%
Spain 5.8%
Finland 5.2%
Portugal 5.1%
Switzerland 3.9%
Greece 2.3%
Sweden 2.2%
Belgium 1.6%
Norway 0.9%
Ireland 0.6%
Hungary 0.2%
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated European Growth Fund
Established 1996
3RD SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated European Growth Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487861
Cusip 981487853
Cusip 981487846
G01742-02 (7/99)
[Graphic]
SEMI-ANNUAL REPORT
[Graphic]
RICHARD B. FISHER
President
Federated International Small Company Fund
President's Message
Dear Fellow Shareholder:
Federated International Small Company Fund was created in 1996, and I am pleased
to present its third Semi-Annual Report. This international stock fund is
designed for investors who want to own stock in small companies out side the
United States and take advantage of their very attractive growth opportunities.
1 The fund currently has total net assets of $532.1, million invested in over
200 issues in 32 countries. The fund's growth in assets reflected investors
acceptance of this asset class.
This report covers the first half of the fund's fiscal year, which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with the fund's portfolio manager, Leonardo A. Vila, Vice
President of Federated Global Investment Management Corp. Following his
discussion, which covers international economic and market conditions and fund
strategy, are three additional items of shareholder interest. First is a series
of graphs showing the fund's long-term investment performance. Second is a
complete listing of the fund's diversified international stock holdings, and
third is the publication of the fund's financial statements.
This fund is managed to provide shareholders with significant long-term growth
opportunities from a well-researched portfolio encompassing more than 200
small-cap stocks in 32 countries across 3 continents. The fund's broad
diversification and country allocations have contributed to the fund's
competitive performance since its inception in February of 1996.
1 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.
During the six-month reporting period, the fund continued to deliver very
attractive total return performance that far eclipsed that of its benchmark
index and the average small company mutual fund tracked by Lipper Analytical
Services, Inc. 2 The fund's holdings around the world and its broad diversi
fication across many stock issues helped the net asset value for each class of
shares to increase by over 20%. Individual share class total return performance
for the six-month reporting period, including capital gains, follows.3
<TABLE>
<CAPTION>
TOTAL RETURN CAPITAL GAINS NET ASSET VALUE INCREASE
<S> <C> <C> <C>
Class A Shares 22.87% $0.28 $17.56 to $21.24 = 21%
Class B Shares 22.47% $0.28 $17.20 to $20.73 = 21%
Class C Shares 22.42% $0.28 $17.19 to $20.71 = 20%
</TABLE>
This international small company fund's record of strong returns has contin ued
since the fund began operation on February 28, 1996. 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. Our global group of investment managers are optimistic about many
countries' economic outlooks and continued enthusiasm for capitalism.
In this investment environment, I recommend that you add to your account on a
regular basis to take advantage of price fluctuations by using the dollar-cost
averaging method of investing, and to consider increasing a portion of your
international investable dollars in the world's attractive markets. 4
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 in the fund.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
2 Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category indicated. Lipper returns do not take sales charges into
account.
3 Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the six-month reporting period,
based on offering price (i.e., less any applicable sales charge), for Class A,
B, and C Shares were 16.12%, 16.97%, and 21.42%, respectively.
4 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost averaging involves continuous
investment regardless of fluctuating price levels, investors should consider
their financial ability to continue purchases during periods of low price
levels.
[Graphic]
Leonardo A. Vila
Vice President
Federated Global Investment Management Corp.
Investment Review
WHAT IS YOUR REVIEW OF INTERNATIONAL SMALL-CAP STOCKS OVER THE FIRST HALF OF THE
FUND'S FISCAL YEAR?
The year began with the early recognition of the important role that the
emerging markets were going to play-at least in the earlier part of 1999.
This was soon confirmed as commodity prices climbed and cyclical stocks
benefited. Hence, an early move into Asian securities positively positioned the
fund to gain from the price increases. As we neared the end of the Asian fiscal
year in March, optimism of positive earnings surprises continued to push Asian
stocks higher.
Europe's two largest economies, Germany and Italy, grew at the slowest pace.
A decrease in demand for goods from their primary export regions, Latin America
and Asia, led to lower production and slower growth. The introduction of the
euro on January 1, 1999 fueled expectations that the new currency would dominate
global commerce. However, since its introduction, the euro has fallen steadily.
The resulting positive news is that euro member countries' goods became less
expensive for exporting for the world markets to consume again. Not
surprisingly, the United Kingdom which did not adopt the euro, has done
particularly well, especially the small-cap stocks.
Eager anticipation of interest rate cuts around the world also continued to
benefit small-cap stocks because they are the primary beneficiaries of lower
rates. Many of the larger capitalization stocks have had a tougher time during
this period, as many questioned the sustainability of the United States'
economic growth with continued low inflation. Small-cap stocks, by nature, tend
to be more domestically oriented, and hence offer some protection from global
commerce.
ONCE AGAIN, FEDERATED INTERNATIONAL SMALL COMPANY FUND DELIVERED OUTSTANDING
RELATIVE PERFORMANCE. HOW DID THE FUND'S PERFORMANCE COMPARE TO THE OVERALL
INTERNATIONAL SMALL-CAP STOCK MARKET AND THE AVERAGE INTERNATIONAL SMALL-CAP
FUND?
For the six-month reporting period ended May 31, 1999, the fund's total returns,
based on net asset value, were 22.87%, 22.47%, and 22.42% for Class A, B, and C
Shares, respectively. 1 These returns far surpassed the (5.42%) total return of
the Morgan Stanley Capital International Small Cap World ex- U.S. Index.2 The
fund also significantly outperformed the 13.53% return of the 67 international
small-cap funds as tracked by Lipper Analytical Services, Inc.
WHAT HOLDINGS CONTRIBUTED TO THE FUND'S OUTSTANDING PERFORMANCE?
Stocks held by the fund that experienced substantial gains in the first half of
the year were largely cyclical stocks. These included: DYNAPLAST (0.14% of net
assets) (+68.8%), an Indonesian plastics manufacturer with 1998 net income
increasing 41.40% over 1997 net income; KOREA CHEMICAL (0.50% of net assets)
(+217.1%), a Korean paint manufacturer for the automotive and marine
industries; and BEIJING YANHUA (0.48% of net assets) (+58.6%), a petrochemical
company that produces plastic and rubber.
The personal computer industry is once again growing after a slower than usual
1998. Robust demand for low cost personal computers helped our stocks climb to
new highs. Some of these stocks included: TRIGEM COMPUTEr (0.37% of net assets)
(+643%), a Korean manufacturer of personal computers and printers sold under the
Epson name; and KOREA DATA SYSTEMS (0.27% of net assets) (+511.7%), a Korean
manufacturer of monitors. Together, these two companies sell the "eMachines" in
the United States.
1 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 six-month reporting period, based on offering price
(i.e., less any applicable sales charge), for Class A, B, and C Shares were
16.12%, 16.97%, and 21.42%, respectively.
2 The Morgan Stanley Capital International Small Cap World ex-U.S. Index is an
unmanaged index of companies in 23 developed markets with U.S. dollar market
capitalizations of $200-$800 million. Investments cannot be made in an index.
These products were the first low cost personal computers available which
retailed for $499. In fact, in the fourth quarter of 1998, about 185,000 per
sonal computers were sold for between $499 and $599, and it is estimated that
they sold an additional 300,000 units in the first quarter of 1999.
CAN YOU HIGHLIGHT A FEW NOTEWORTHY ADDITIONS TO THE FUND'S PORTFOLIO DURING THE
REPORTING PERIOD?
A fascinating addition to the fund's portfolio was MOBINIL (0.69% of net
assets): MobiNil is Egypt's number one cellular telephone company. This com pany
is doing so well that it had to suspend its marketing efforts to increase
subscribers while the company upgrades its network infrastructure. How many
times do we see a company turn away business, and then, get it back? MobiNil
currently has 275,000 subscribers and expects to increase to 500,000 subscribers
by year end.
KOREA DATA SYSTEMS (0.27% of net assets): As mentioned above, together with
Trigem, Korea Data Systems sells low cost "eMachines" in the United States.
These personal computers can be bought in retail stores and through the
Internet. Korea Data Systems' sales increased 42% in 1998 over 1997 figures,
while net income rose 71.2% over the same period.
To take advantage of the potential in cyclical stocks like capital equipment,
production, and commodities, we added PUNJAB TRACTORS (0.12% of net assets) to
the fund's portfolio. Punjab is an Indian manufacturer of various types of
agricultural equipment. The company reported a 30% increase in fiscal 1999
profit, while tractor unit sales grew by 22% year-over-year versus the market's
growth of 3%.
HOW WERE THE FUND'S ASSETS INVESTED AS OF MAY 31, 1999, AND WHAT WERE THE FUND'S
TOP TEN HOLDINGS?
The portfolio was well-diversified across the following 32 countries.
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Japan (developed) 13.0%
United Kingdom (developed) 10.0%
Singapore (developed) 9.4%
Hong Kong (developed) 7.6%
Indonesia (emerging) 5.5%
Germany (developed) 4.9%
Australia (developed) 4.6%
Greece (developed) 3.8%
Mexico (emerging) 3.6%
Finland (developed) 3.1%
Switzerland (developed) 3.0%
Sweden (developed) 2.8%
Canada (developed) 2.8%
Brazil (emerging) 2.6%
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Korea (emerging) 2.5%
Thailand (emerging) 2.2%
Turkey (emerging) 1.8%
France (developed) 1.5%
Italy (developed) 1.4%
Israel (emerging) 1.3%
Belgium (developed) 1.1%
Norway (developed) 0.7%
Egypt (emerging) 0.7%
Austria (developed) 0.7%
Spain (developed) 0.7%
Philippines (emerging) 0.7%
China (emerging) 0.7%
India (emerging) 0.6%
Ireland (developed) 0.6%
Netherlands (developed) 0.5%
Chile (emerging) 0.1%
Portugal (developed) 0.0% 3
</TABLE>
3 Amount represents less than 0.1%.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COUNTRY NET ASSETS INDUSTRY
<S> <C> <C> <C>
Trafficmaster PLC United Kingdom 1.7% Telecommunications
JOT Automation Group Oyj Finland 1.7% Machinery & Engineering
Matalan United Kingdom 1.6% Textiles & Apparel
Don Quijote Co. Ltd. Japan 1.2% Merchandising
One. Tel. Ltd. Australia 1.2% Telecommunications
Goldcrest Co., Ltd. Japan 1.1% Real Estate
OMNI Industries Singapore 1.0% Machinery & Engineering
Baltimore Technologies PLC United Kingdom 0.9% Electronic Components, Instruments
Kudelski SA Switzerland 0.9% Electronic Components, Instruments
PT Indofood Sukses Makmur Indonesia 0.9% Food & Household Products
TOTAL 12.2%
</TABLE>
AS WE REACH THE MIDPOINT OF 1999, AFTER A STRONG SIX-MONTH PERFORMANCE BY THE
FUND, WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF THE FUND'S FISCAL YEAR PERIOD,
AND WHAT THEMES WILL DRIVE THE FUND'S STRATEGY?
All eyes were on the Federal Reserve Board when they met at the end of June
1999. The world was correct in anticipating a rate increase, and we believe that
interest rates outside of the United States will remain stable. In addition, we
recently witnessed the Bank of England cut rates by 0.25%; this is in addition
to over 66 other interest rate cuts around the world since September 1998. The
rate cuts have the effect of lower financing costs for companies, which is
particularly important and beneficial for smaller companies.
The Asia Pacific region continues to walk down the road to recovery. Good
things are happening as countries experience economic restructuring and new
governments that want change are put in place. We feel that certain steps have
finally been implemented to correct the economic environment, which positions
this region once again as an area of opportunity and growth. Japan slightly
exceeded our expectations with their reported growth figure of a 1.9% increase
in gross domestic product for the first quarter of 1999 over the previous
quarter. This was the first increase after contracting for five consecutive
quarters. However, one quarter does not make a trend, and we continue to be
cautiously optimistic for the balance of the year.
Thematically, we continue to believe in domestic consumption stocks. Since the
beginning of this year, we have also found a number of Internet stocks that are
going public in Europe and seem interesting. We will continue to evaluate these
investment opportunities on a case-by-case basis.
Overall, we continue to hear positive news and to have high expectations for
this year from the management of international small-cap companies.
Two Ways You May Seek to Invest for Success
INITIAL INVESTMENT
IF YOU HAD MADE AN INITIAL INVESTMENT OF $4,000 IN THE CLASS A SHARES OF
FEDERATED INTERNATIONAL SMALL COMPANY FUND ON 2/28/96, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$8,196 ON 5/31/99. YOU WOULD HAVE EARNED A 24.48% 1 AVERAGE ANNUAL TOTAL RETURN
FOR THE INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/99, the Class A Shares' average annual 1-year, 3-year, and since
inception (2/28/96) total returns were 21.66%, 27.28%, and 29.38%, respec
tively. Class B Shares' average annual 1-year, 3-year, and since inception
(2/28/96) total returns were 22.33%, 27.95%, and 30.12%, respectively. Class C
Shares' average annual 1-year, 3-year, and since inception (2/28/96) total
returns were 26.84%, 28.74%, and 30.59%, respectively. 2
[The graphic presentation here displayed consists of a 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 2/28/96 to 5/31/99. The
"y" axis is measured in increments of $2,000 ranging from $0 to $10,000 and
indicates that the ending value of a hypothetical initial investment of $4,000
in the fund's Class A Shares, assuming all sales charges and the reinvestment of
capital gains and dividends, would have grown to $6,196 on 5/31/99.]
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.50% sales
charge applicable to an initial investment in Class A Shares. Data quoted
represents past performance and does not guarantee future results. Investments
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 5.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.
ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR
THREE YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $5,835.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
International Small Company Fund on 2/28/96, reinvested your dividends and
capital gains, and did not redeem any shares, you have invested only $4,000, but
your account would have reached a total value of $5,835 1 by 5/31/99. You would
have earned an average annual total return of 22.29%.
A practical investment plan helps you pursue long-term capital growth through
stocks of small international companies. Through systematic investing, you buy
shares on a regular basis and reinvest all earnings. An investment plan works
for you when you invest only $1,000 annually. You can take it one step at a
time. Put time, money, and compounding to work.
[The graphic presentation here displayed consists of a 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 2/28/96 to 5/31/99. The
"y" axis is measured in increments of $1,000 ranging from $500 to $6,500 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, after three years, would have grown to $5,835 on 5/31/99.]
1 This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-92.0%
AEROSPACE & DEFENSE-0.3%
12,312,000 1 China National Aviation
Co. $ 1,270,121
48,700 Linea Aerea Nacional Chile
SA, ADR 383,513
TOTAL 1,653,634
APPLIANCES & HOUSEHOLD
DURABLES-0.8%
54,500 1 Dorel Industries, Inc. 1,221,019
27,192,000 Vestel Elektronik Sanayi
ve Ticaret AS 3,104,529
TOTAL 4,325,548
AUTOMOBILE-1.6%
1,771,600 Inchcape Motors Ltd. 2,837,850
11,109,000 PT Astra International 3,418,154
154,920,000 Tofas Turk Otomobil
Fabrikasi 2,206,160
TOTAL 8,462,164
BANKING-2.0%
60,000 1 Dorian Bank SA 2,540,375
10,860 1 EFG Eurobank, Rights 66,184
398,970,000 Finansbank 1,836,721
1,864,000 Grupo Financiero Banorte
SA de CV 2,354,526
200 HDFC Bank Ltd. 352
23,432,500 PT Pan Indonesia Bank 3,749,200
TOTAL 10,547,358
BEVERAGE & TOBACCO-1.5%
642,000 Grupo Continental SA 1,030,086
2,197,000 PT Hanjaya Mandala
Sampoerna 3,542,240
110,820 Remy Cointreau 1,848,477
86,600 Yamaya Corp. 1,318,309
TOTAL 7,739,112
BROADCASTING & PUBLISHING-
6.1%
125,512 Capital Radio 1,763,772
424,000 1 Class Editori SPA 3,558,259
58,000 Euromoney Institutional
Investor PLC 1,545,067
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
BROADCASTING & PUBLISHING-
CONTINUED
164,000 Grupo Radio Centro SA - SP,
ADR $ 840,500
200,000 Gruppo Editoriale L
Espresso 3,294,299
27,500 Kadokawa Shoten Publishing
Co., Ltd. 3,890,544
128,000 1 Lambrakis Media Group 3,058,714
128,780 Matav-Cable Systems Media
Ltd. 2,381,400
199,000 1 Modern Times Group, Class B 4,374,287
3,134,000 1 Panpac Media.com Ltd. 2,983,029
194,700 Talentum 2,740,158
4,234,900 United Broadcasting Corp. 2,083,207
TOTAL 32,513,236
BUILDING MATERIALS &
COMPONENTS-1.1%
1,200,000 Grupo Cementos de
Chihuahua, SA de CV, Class
B 919,776
8,559,500 PT Mulia Industrindo 869,115
1,228,000 PT Semen Gresik 2,055,483
432,800 Siam City Cement 1,633,208
211,333 1 Siam City Cement, Rights 455,705
TOTAL 5,933,287
BUSINESS & PUBLIC
SERVICES-9.5%
81,000 ADB-Gruppen Mandator 555,814
97,200 Altec SA 1,904,935
4,198,000 Automated Systems Holdings
Ltd. 1,596,949
110,100 Capcom Co., Ltd. 1,694,267
60,000 Cybernet Internet Services 1,269,763
257,000 2 Guardian IT 1,997,250
98,300 1 Icon Medialab
International AB 3,658,440
18,970 Intershop Communications 4,479,313
4,800 Koei Co. 53,016
288,400 1 Microforum, Inc. 1,311,843
76,600 Modul 1 Data AB 489,986
52,510 Nichii Gakkan 4,148,842
90,800 Pacific Internet Ltd., ADR 4,108,700
6,390 PubliGroupe AG 3,888,565
4,020 1 Real Software, Rights 84
586,200 SPI Technologies, Inc. 265,754
467,841 1 Sausage Software Ltd. 568,100
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
BUSINESS & PUBLIC
SERVICES-CONTINUED
2,537,696 1 Sausage Software Ltd.,
6/30/1999, Options
Contract $ 2,717,045
411,000 Sembcorp Logistics Ltd. 1,216,541
2,008,000 Singapore Bus Services 3,274,799
528,000 Skillsgroup 2,233,549
722,059 Solution 6 Holdings Ltd. 1,433,045
20,000 Sumisho Computer Systems
Corp. 671,796
1,347,000 Taylor Nelson 3,064,881
74,000 1 Topjobs.net PLC 610,500
20,000 Trans Cosmos 959,709
214,300 1 Versus Technologies, Inc. 2,407,865
25,000 Waste Recycling Group PLC 170,851
TOTAL 50,752,202
CHEMICALS-1.6%
17,328,000 Beijing Yanhua
Petrochemical Co. Ltd.,
Class H 2,569,644
66,000 C. Uyemura & Co., Ltd. 2,184,165
33,000 Korea Chemical Co., Ltd. 2,663,153
553,400 Natl. Petrochemical 484,784
6,580,000 PT Dynaplast 728,860
TOTAL 8,630,606
CONSTRUCTION & HOUSING-
1.1%
455,000 1 Corporacion GEO SA de CV,
Class B 1,720,490
876,000 Empresas ICA Sociedad
Controladora SA 886,296
5,295 Finpro 27,545
780,500 Italian-Thai Development 1,967,028
236,000 Ultraframe 1,481,611
TOTAL 6,082,970
DATA PROCESSING &
REPRODUCTION-2.0%
331,000 Bull 3,274,689
54,775 1 DOCdata NV 428,272
8,630 1 Ion Beam Applications 2,811,491
2,568 1 Ion Beam Applications,
Rights 402
5,196,000 Legend Holdings Ltd. 3,584,673
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
DATA PROCESSING &
REPRODUCTION-CONTINUED
132,000 1 Tandberg Data ASA $ 667,991
TOTAL 10,767,518
ELECTRICAL & ELECTRONICS-
7.3%
113,900 1 BE Semiconductor
Industries NV 866,807
1,657,000 1 Chip Application
Technologies Ltd. 1,352,216
113,000 1 DSP Group, Inc. 3,001,563
445,000 FI Group PLC 2,281,748
90,000 Filtronic PLC 1,057,793
2,208,000 1 IXLA Ltd. 4,605,570
209,400 1 IXLA Ltd., 3/31/2000,
Options Contract 410,120
105,250 1 Ideal Group SA 2,190,985
496,000 Japan Radio Co. 3,204,898
40,950 Korea Data Systems 1,421,000
2,640,000 1 LibertyOne Ltd. ,482,235
3,921,000 PCI Ltd. 1,137,843
502,000 RM PLC 4,263,215
3,475,000 Singapore Computer Systems
Ltd. 4,820,226
15,498,000 Stone Electronic
Technology 2,098,416
27,300 1 Trend Micro, Inc. 2,778,109
56,500 Trigem Computer 1,953,451
TOTAL 38,926,195
ELECTRONIC COMPONENTS,
INSTRUMENTS-5.6%
162,000 1 ARM Holdings PLC, ADR 4,728,375
359,750 1 Baltimore Technologies PLC 4,986,256
3,080 1 CE Consumer Electronic AG 1,433,666
1,151,000 Datacraft Asia Ltd. 4,097,560
30,000 1 Eidos PLC 997,463
48,450 Entra Data AB, Class A 957,933
3,870,000 GES International Ltd. 3,369,124
204,450 1 Industrial & Financial
Systems 1,902,258
30,400 1 Know It 449,024
1,324 1 Kudelski SA 4,981,515
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
ELECTRONIC COMPONENTS,
INSTRUMENTS-CONTINUED
5,500 1 Titus Interactive $ 584,842
67,370 1 Unit 4 1,373,059
TOTAL 29,861,075
ENERGY EQUIPMENT &
SERVICES-0.6%
104,200 Eimo 2,248,609
88,700 Tubos de Acero de Mexico
SA, ADR 820,475
TOTAL 3,069,084
ENERGY SOURCES-0.9%
327,900 Banpu Public Co. Ltd. 768,930
170,200 1 Canadian Hunter
Exploration Ltd. 2,103,018
3,481,000 PT Medco Energi Corp. 1,328,135
31,795,013 1 Providence Resources PLC 414,329
TOTAL 4,614,412
FINANCIAL SERVICES-4.6%
36,290 Alpha Finance SA 1,501,587
482,800 Capital Nomura Securities
Public Co., Ltd. 1,281,827
107,900 Capital Nomura Securities
Public Co., Ltd., Foreign
Shares 303,923
816,400 Challenger International
Ltd. 3,709,589
20,000 Drake Beam Morin Japan,
Inc. 1,221,147
94,400 Mycal Card, Inc. 3,194,308
1,566,000 National Finance and
Securities Co., Ltd. 907,520
77,000 Nissin Co., Ltd. 2,363,448
60,470,500 PT Lippo Securities 2,232,757
80,592 Samsung Securities Co.,
Ltd. 3,533,992
39,925 1 Tecis Holding AG 4,474,343
TOTAL 24,724,441
FOOD & HOUSEHOLD PRODUCTS-
3.1%
325,000 Antofagasta Holdings PLC 1,406,063
2,800 Britannia Industries 86,229
19,000 C Two-Network Co., Ltd. 2,043,518
1,808,000 Cafe De Coral Holdings 542,060
64,560 1 DO & CO Restaurants &
Catering AG 3,432,492
94,194 Kamps AG 2,857,539
86,194 1 Kamps AG, Rights 148,264
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
FOOD & HOUSEHOLD PRODUCTS-
CONTINUED
4,956,000 PT Indofood Sukses Makmur $ 4,910,252
623,000,000 Perdigao SA 880,757
TOTAL 16,307,174
FOREST PRODUCTS & PAPER-
1.2%
212,800 Canfor Corp. 1,119,658
4,559,000 PT Indah Kiat Pulp & Paper
Corp. 2,104,154
370,200 Slocan Forest Products
Ltd. 1,910,126
166,100 1 Tembec, Inc., Class A 1,155,861
TOTAL 6,289,799
HEALTH & PERSONAL CARE-
1.8%
500 Fancl Corp. 59,159
45,500 Glaxo India Ltd. 753,045
244,130 Lavipharm SA 3,359,317
26,400 Medical Support Co. 399,702
290,000 Nestor Healthcare Group
PLC 1,998,132
52,500 1 PowderJect Pharmaceuticals
PLC 668,781
217,000 Seikagaku Corp. 2,387,772
TOTAL 9,625,908
INDUSTRIAL COMPONENTS-0.7%
50,000 McKechnie Group PLC 372,947
104,000 Mirai Industry Co., Ltd. 1,320,758
352,000 Nippon Thompson 2,265,707
TOTAL 3,959,412
INSURANCE-0.4%
69,560,000 Aksigorta 2,220,263
LEISURE & TOURISM-3.3%
36,000 1 Four Seasons Hotels, Inc. 1,515,326
32,293,000 Jakarta International
Hotels & Development 2,980,892
25,187 1 Kinepolis 2,862,061
19,200 Leon De Bruxelles 987,789
379,000 1 Rapala Normark 2,963,305
81,000 Saizeriya Co., Ltd. 4,503,351
2,097,000 Shaw Brothers (Hong Kong)
Ltd. 1,460,221
TOTAL 17,272,945
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
MACHINERY & ENGINEERING-
4.2%
223,578 2 Jot Automation Group Oyj $ 8,833,731
379,000 Larsen & Toubro Ltd. 1,994,551
133,800 Nitto Kohki Co., Ltd. 1,749,020
7,320,000 1 OMNI Industries 5,395,473
20,550 Punjab Tractors Ltd. 647,788
83,100 Rokas SA 1,761,875
86,000 United Dominion Industries
Ltd. 2,227,435
TOTAL 22,609,873
MERCHANDISING-5.8%
4,243,000 China EB-IHD Holdings Ltd. 2,270,637
180,400 Companhia Brasileira de
Distribuicao Groupo Pao de
Acucar, ADR 3,269,750
2,650,000 Controladora Comercial
Mexicana SA de CV 2,545,733
650,500 Dickson Concepts
International Ltd. 377,473
25,800 1 Distefora Holding AG 3,384,856
22,500 Don Quijote Co., Ltd. 6,515,265
65,700 Elkjop Norge ASA 930,936
489,000 Esprit Asia Holdings Ltd. 244,347
5,452,200 Giordano International
Ltd. 2,882,586
4,725,000 Grupo Elektra 2,559,274
6,360 Selecta Group 2,517,786
78,000 Yamada Denki 3,245,967
TOTAL 30,744,610
METALS - NON FERROUS-1.2%
3,125,000 Amtek Engineering Ltd. 2,557,313
58,205 Capral Aluminum Ltd. 84,358
121,150 Korea Zinc 3,677,868
TOTAL 6,319,539
METALS - STEEL-0.7%
252,400 Hylsamex SA, Class B 557,164
1,885,000 Natsteel Ltd. 3,150,783
TOTAL 3,707,947
MISCELLANEOUS MATERIALS &
COMMODITIES-0.1%
82,000 Vitro SA, ADR 486,875
MULTI-INDUSTRY-1.6%
97,000 Arcland Sakamoto Co., Ltd. 1,083,395
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
MULTI-INDUSTRY-CONTINUED
9,494,000 1 Benpres Holdings Corp. $ 2,245,624
283,257 NH Hoteles 3,617,367
914,000 First Philippine Holdings
Corp., Class B 1,153,008
80,000 Grupo Industrial Saltillo
SA de CV, Class B 250,179
TOTAL 8,349,573
REAL ESTATE-2.6%
73,000 Goldcrest Co., Ltd. 5,677,174
4,162,000 Kerry Properties Ltd. 4,293,571
14,080,000 PT Jaya Real Property Tbk 1,516,308
704,000 Pacific Century Regional
Developments Ltd. 2,145,096
TOTAL 13,632,149
RECREATION, OTHER CONSUMER
GOODS-3.4%
172,752 Aristocrat Leisure Ltd. 1,276,683
1,109,000 1 Corporacion Interamericana
de Entretenimiento SA 3,513,438
64,000 1 De Rigo SPA, ADR 400,000
46,700 Folli-Follie 960,918
136,000 Happinet Corp. 3,263,010
175,000 Heiwa Corp. 2,737,859
11,400 1 TAG Heuer International SA 1,055,521
240,100 1 Zapf Creation AG 4,905,961
TOTAL 18,113,390
TELECOMMUNICATIONS-10.0%
1,769,000 Asia Satellite
Telecommunications
Holdings Ltd. 3,741,091
101,000 Audiocodes Ltd. 1,723,313
22,500 1 Autonomy Corp. 146,250
3,202,000 1 CSE Systems & Engineering
Ltd. 3,233,593
54,750,000 Champion Technology
Holdings Ltd. 3,459,448
8,476,000 City Telecom (HK) Ltd. 2,513,888
4,800 1 Esat Telecom Group PLC, ADR 177,600
66,800 1 Grupo Iusacell SA, ADR 826,650
527,509 1 ITG Group PLC 2,873,865
1,672,000 Keppel Telecom & Transport 2,290,145
245,254 1 MobiNil 3,675,851
5,500 NRJ SA 1,175,418
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
TELECOMMUNICATIONS-
CONTINUED
108 Okinawa Cellular Telephone $ 1,474,311
9,025,830 One. Tel. Ltd. 6,304,991
465,000 1 Pracom Ltd. 376,433
222,000 1 SwitchCore AB 1,316,787
185,000 1 Tandberg Television 1,895,803
174,806,130 1 Tele Centro Oeste Celular
Participacoes SA, Rights 35,304
2,214,000 1 Telecomasia Corp. Pub.
Ltd. 1,626,185
21,200 1 Telemig Celular
Participacoes SA, ADR 654,550
377,300 1 Teligent AB 1,404,201
146,800 Tiletypos SA 3,037,095
379,000 1 Trafficmaster PLC 9,063,818
TOTAL 53,026,590
TEXTILES & APPAREL-1.6%
641,000 Matalan 8,566,072
TRANSPORTATION - ROAD &
RAIL-1.0%
1,237,000 Delgro Corporation Ltd. 3,101,473
1,082,000 Kowloon Motor Bus Holdings
Ltd. 2,316,124
TOTAL 5,417,597
TRANSPORTATION - SHIPPING-
1.0%
1,616,000 Hong Kong Ferry Hd. 2,042,180
10,106,000 Shun Tak Holdings 3,160,222
TOTAL 5,202,402
WHOLESALE & INTERNATIONAL
TRADE-1.7%
1,671,000 Li & Fung Ltd. 3,943,248
11,436 1 Medion AG 2,384,405
149,000 Toyo Corp. 2,896,914
TOTAL 9,224,567
TOTAL COMMON STOCKS
(IDENTIFIED COST
$429,416,940) 489,679,527
PREFERRED STOCKS-2.5%
CONSTRUCTION & HOUSING-
0.0%
169,000 Construtora Sultepa SA,
Preference 193,087
FOOD & HOUSEHOLD PRODUCTS-
0.2%
1,333,000 Sadia SA Industria e
Comercio, Preference 830,721
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<S> <C> <C>
PREFERRED STOCKS-continued
FOREST PRODUCTS & PAPER-
0.2%
290,000 Klabin Fabricadora $ 92,037
44,200,000 Votorantim Celulose e
Papel SA, Preference 1,173,226
TOTAL 1,265,263
METALS - STEEL-0.8%
108,250,000 Gerdau SA, Preference 1,624,062
1,006,700 Usinas Siderurgicas de
Minas Gerais SA,
Preference 2,677,949
TOTAL 4,302,011
TELECOMMUNICATIONS-0.5%
1,948,500,000 1 Tele Centro Oeste Celular
Participacoes SA 2,417,354
TEXTILES & APPAREL-0.0%
115,000,000 1 Texpar SA, Preference 664
TRANSPORTATION - ROAD &
RAIL-0.8%
73,704 Sixt AG, Pfd. 4,110,747
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$11,759,562) 13,119,847
REPURCHASE AGREEMENT-4.9%
3
$ 25,890,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999 (at amortized
cost) 25,890,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$467,066,502) 4 $ 528,689,374
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid
based upon criteria approved by the fund's Board of Directors. At May 31, 1999,
these securities amounted to $10,830,981 which represents 2.0% of net assets.
3 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
4 The cost of investments for federal tax purposes amounts to $467,066,502. The
net unrealized appreciation of investments on a federal tax basis amounts to
$61,622,872 which is comprised of $78,802,195 appreciation and $17,179,323
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($532,131,974) at May 31, 1999.
The following acronym is used throughout this portfolio:
ADR -American Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$467,066,502) $ 528,689,374
Cash denominated in
foreign currency
(identified cost
$20,918,787) 20,901,782
Income receivable 2,002,856
Receivable for investments
sold 48,185,820
Receivable for shares sold 4,544,038
Net receivable for foreign
currency exchange
contracts 59,858
Deferred organizational
costs 20,820
TOTAL ASSETS 604,404,548
LIABILITIES:
Payable for investments
purchased $ 70,540,860
Payable for shares
redeemed 382,924
Payable for taxes withheld 1,000,114
Accrued expenses 348,676
TOTAL LIABILITIES 72,272,574
Net assets for 25,422,806
shares outstanding $ 532,131,974
NET ASSETS CONSIST OF:
Paid in capital $ 391,004,693
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 61,670,386
Accumulated net realized
gain on investments and
foreign currency
transactions 81,537,411
Accumulated net operating
loss (2,080,516)
TOTAL NET ASSETS $ 532,131,974
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share
($217,186,537 / 10,224,814
shares outstanding) $21.24
OFFERING PRICE PER SHARE
(100/94.50 OF $21.24) 1 $22.48
Redemption Proceeds Per
Share $21.24
CLASS B SHARES:
Net Asset Value Per Share
($248,154,816 / 11,973,646
shares outstanding) $20.73
OFFERING PRICE PER SHARE $20.73
REDEMPTION PROCEEDS PER
SHARE (94.50/100 OF
$20.73) 1 $19.59
CLASS C SHARES:
Net Asset Value Per Share
($66,790,621 / 3,224,346
shares outstanding) $20.71
Offering Price Per Share $20.71
Redemption Proceeds Per
Share (99.00/100 of
$20.71) 1 $20.50
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of
$340,883) $ 3,481,237
Interest 180,299
TOTAL INCOME 3,661,536
EXPENSES:
Investment advisory fee $ 2,879,810
Administrative personnel
and services fee 171,463
Custodian fees 437,475
Transfer and dividend
disbursing agent fees and
expenses 405,211
Directors' fees 1,880
Auditing fees 11,247
Legal fees 3,276
Portfolio accounting fees 74,519
Distribution services fee-
Class B Shares 823,586
Distribution services fee-
Class C Shares 217,063
Shareholder services fee-
Class A Shares 229,079
Shareholder services fee-
Class B Shares 274,529
Shareholder services fee-
Class C Shares 72,354
Share registration costs 41,553
Printing and postage 48,814
Insurance premiums 1,511
Taxes 11,196
TOTAL EXPENSES 5,704,566
Net operating loss (2,043,030)
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain on
investments and foreign
currency transactions (net
of foreign taxes withheld
of $829,210) 87,516,619
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 3,864,864
Net realized and
unrealized gain on
investments and foreign
currency transactions 91,381,483
Change in net assets
resulting from operations $ 89,338,453
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net operating loss $ (2,043,030) $ (5,038,761)
Net realized gain on investments and foreign currency transactions ($87,516,619
and $17,745,082, respectively, as computed for federal
tax purposes) 87,516,619 8,268,645
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 3,864,864 46,830,198
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 89,338,453 50,060,082
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares (2,408,764) -
Class B Shares (3,131,437) -
Class C Shares (807,825) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (6,348,026) -
SHARE TRANSACTIONS:
Proceeds from sale of
shares 264,646,987 343,889,639
Net asset value of shares
issued to shareholders in
payment of
distributions declared 5,607,304 -
Cost of shares redeemed (206,265,519) (248,855,119)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 63,988,772 95,034,520
Change in net assets 146,979,199 145,094,602
NET ASSETS:
Beginning of period 385,152,775 240,058,173
End of period $ 532,131,974 $ 385,152,775
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $17.56 $14.25 $12.26 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.05) (0.17) 2 (0.11) (0.02)
Net realized and
unrealized gain on
investments and foreign
currency transactions 4.01 3.48 2.10 2.28
TOTAL FROM INVESTMENT
OPERATIONS 3.96 3.31 1.99 2.26
LESS DISTRIBUTIONS:
Distributions from net
realized gains on
investments and foreign
currency transactions (0.28) - - -
NET ASSET VALUE, END OF
PERIOD $21.24 $17.56 $14.25 $12.26
TOTAL RETURN 3 22.87% 23.23% 16.23% 22.60%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 2.02% 5 1.95% 2.33% 5.35% 5
Net operating loss 4 (0.44%) 5 (0.97%) (1.29%) (3.86%) 5
Expenses (after waivers
and reimbursements) 2.02% 5 1.95% 2.12% 1.97% 5
Net operating loss (after
waivers and
reimbursements) (0.44%) 5 (0.97%) (1.08%) (0.48%) 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $217,187 $147,490 $91,707 $16,399
Portfolio turnover 270% 380% 286% 174%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $17.20 $14.07 $12.20 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.11) (0.29) 2 (0.12) (0.04)
Net realized and
unrealized gain on
investments and foreign
currency transactions 3.92 3.42 1.99 2.24
TOTAL FROM INVESTMENT
OPERATIONS 3.81 3.13 1.87 2.20
LESS DISTRIBUTIONS:
Distributions from net
realized gains on
investments and foreign
currency transactions (0.28) - - -
NET ASSET VALUE, END OF
PERIOD $20.73 $17.20 $14.07 $12.20
TOTAL RETURN 3 22.47% 22.25% 15.33% 22.00%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 2.77% 5 2.70% 3.04% 6.10% 5
Net operating loss 4 (1.19%) 5 (1.72%) (1.98%) (4.99%) 5
Expenses (after waivers
and reimbursements) 2.77% 5 2.70% 2.87% 2.72% 5
Net operating loss (after
waivers
and reimbursements) (1.19%) 5 (1.72%) (1.81%) (1.61%) 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $248,155 $189,965 $120,939 $16,721
Portfolio turnover 270% 380% 286% 174%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $17.19 $14.06 $12.19 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.10) (0.29) 2 (0.12) (0.05)
Net realized and
unrealized gain on
investments and foreign
currency transactions 3.90 3.42 1.99 2.24
TOTAL FROM INVESTMENT
OPERATIONS 3.80 3.13 1.87 2.19
LESS DISTRIBUTIONS:
Distributions from net
realized gains on
investments and foreign
currency transactions (0.28) - - -
NET ASSET VALUE, END OF
PERIOD $20.71 $17.19 $14.06 $12.19
TOTAL RETURN 3 22.42% 22.26% 15.34% 21.90%
RATIOS TO AVERAGE NET
ASSETS
Expenses 4 2.77% 5 2.70% 3.04% 6.10% 5
Net operating loss 4 (1.19%) 5 (1.72%) (2.02%) (4.96%) 5
Expenses (after waivers
and reimbursements) 2.77% 5 2.70% 2.87% 2.72% 5
Net operating loss (after
waivers and
reimbursements) (1.19%) 5 (1.72%) (1.85% (1.58%) 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $66,791 $47,697 $27,412 $3,040
Portfolio turnover 270% 380% 286% 174%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
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 ten 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.
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 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.
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
counterparties to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the settlement date.
At May 31, 1999, the Fund had outstanding foreign currency commitments as set
forth below:
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT CONTRACTS TO IN EXCHANGE CONTRACTS APPRECIATION
DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
<S> <C> <C> <C> <C>
Contracts Purchased:
6/1/1999 1,904,644 Euro Currency $1,988,829 $1,985,590 $(3,239)
6/1/1999 1,941,766 Pound Sterling 3,102,941 3,111,390 8,449
6/2/1999 815,661 Pound Sterling 1,309,137 1,306,976 (2,161)
6/3/1999 1,279,004 Pound Sterling 2,041,930 2,049,414 7,484
6/1/1999 1,020,909,740 Japanese Yen 8,368,113 8,446,346 78,233
6/1/1999 9,576,479 Norwegian Krone 1,211,829 1,211,553 (276)
6/1/1999 13,515,833 Swedish Krona 1,570,513 1,571,938 1,425
6/1/1999 10,163,450 Thailand Baht 273,763 273,947 184
Contracts Sold:
6/1/1999 3,330,441 Australian Dollar $2,159,742 $2,174,279 $(14,537)
6/1/1999 504,565 Canadian Dollar 343,335 342,554 781
6/1/1999 39,897 Euro Currency 41,753 41,593 160
6/1/1999 1,334,280,233 Indonesian Rupiah 164,523 164,219 304
6/2/1999 6,430,809,086 Indonesian Rupiah 795,892 791,484 4,408
6/3/1999 9,317,046,476 Indonesian Rupiah 1,143,312 1,146,713 (3,401)
6/1/1999 13,814,397 Japanese Yen 113,374 114,291 (917)
6/1/1999 54,396,301 Philippine Peso 1,425,342 1,429,603 (4,261)
6/2/1999 1,736,386 Singapore Dollar 1,002,532 1,007,769 (5,237)
6/1/1999 104,405,119 Thailand Baht 2,809,610 2,814,154 (4,544)
6/2/1999 59,050,851 Thailand Baht 1,588,670 1,591,667 (2,997)
NET UNREALIZED APPRECIATION ON FOREIGN
EXCHANGE CONTRACTS $59,858
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of 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 period 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 sec ondary 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.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR
VALUE CAPITAL
SHARE CLASS NAME 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>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 7,929,376 $ 161,159,246 12,150,368 $ 213,991,576
Shares issued to shareholders in payment of
distributions declared 110,993 2,000,099 - -
Shares redeemed (6,214,029) (126,678,204) (10,185,264) (179,653,387)
NET CHANGE RESULTING FROM CLASS A
SHARE TRANSACTIONS 1,826,340 $ 36,481,141 1,965,104 $ 34,338,189
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,601,890 $ 51,548,699 5,336,407 $ 95,444,129
Shares issued to shareholders in payment of
distributions declared 162,104 2,859,518 - -
Shares redeemed (1,834,581) (35,442,321) (2,890,107) (49,477,133)
NET CHANGE RESULTING FROM CLASS B
SHARE TRANSACTIONS 929,413 $ 18,965,896 2,446,300 $ 45,966,996
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,735,438 $ 51,939,042 1,987,879 $ 34,453,934
Shares issued to shareholders in payment of
distributions declared 42,410 747,687 - -
Shares redeemed (2,327,733) (44,144,994) (1,163,723) (19,724,599)
NET CHANGE RESULTING FROM CLASS C
SHARE TRANSACTIONS 450,115 $ 8,541,735 824,156 $ 14,729,335
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 3,205,868 $ 63,988,772 5,235,560 $ 95,034,520
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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.
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.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
Class A Shares did not incur a distribution services fee for the six months
ended May 31, 1999, 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 Share
holder Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average
daily net assets of the Fund for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational 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 six months ended May 31, 1999, the Fund expensed $6,212 of
organizational expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 1,261,823,887
Sales $ 1,224,439,519
</TABLE>
CONCENTRATION OF CREDIT RISK
The Fund invests a portion of its assets 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, 1999, the diversification of countries was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Japan 13.0%
United Kingdom 10.0%
Singapore 9.4%
Hong Kong 7.6%
Indonesia 5.5%
Germany 4.9%
Australia 4.6%
Greece 3.8%
Mexico 3.6%
Finland 3.1%
Switzerland 3.0%
Canada 2.8%
Sweden 2.8%
Brazil 2.6%
Korea 2.5%
Thailand 2.2%
Turkey 1.8%
France 1.5%
Italy 1.4%
Israel 1.3%
Belgium 1.1%
Austria 0.7%
China 0.7%
Egypt 0.7%
Norway 0.7%
Philippines 0.7%
Spain 0.7%
India 0.6%
Ireland 0.6%
Netherlands 0.5%
Chile 0.1%
Portugal 0.0% 1
</TABLE>
1 Amount represents less than 0.1%.
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated International Small Company Fund
Established 1996
3RD SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated International Small Company Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487838
Cusip 981487820
Cusip 981487812
G01743-02 (7/99)
[Graphic]
SEMI-ANNUAL REPORT
[Graphic]
RICHARD B. FISHER
President
Federated Latin American Growth Fund
President's Message
Dear Fellow Shareholder:
Federated Latin American Growth Fund was created in 1996, and I am pleased to
present its third Semi-Annual Report. As of May 31, 1999, the fund's net assets
totaled $14.2 million invested in over 40 issues across 5 countries.
This report covers the first half of the fund's fiscal year, which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with the fund's portfolio manager, Alexandre de Bethmann, Vice
President of Federated Global Investment Management Corp. Following his
discussion of 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.
The past six months have certainly been a brighter period for investors in the
Latin American marketplace - an almost surprising recovery in Brazil and Mexico
has attracted the attention and money of institutional and individual investors.
Although there are still political and economic uncertainties in the region, the
Asian "contagion" that caused investors to flee from the emerging markets -
which included Latin American countries - appears to be subsiding. However, as
we have continued to emphasize, investing in the international marketplace is a
long-term proposition. While there will inevitably be periods of unpleasant
volatility, we believe that the rewards go to the patient investor who rides out
the periods of negative returns. 1 In fact, it may make good investment sense to
add money to sector funds when prices are low.
This Latin American fund provides shareholders with significant long-term
opportunities from an extremely well-researched $14.2 million portfolio of which
more than 75% is invested in Brazil and Mexico. Both markets have fared well
through the past six months. The median market capitalization of the fund's
holdings was over $1.7 billion.
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
While the fund's returns were positive during the reporting period, they did not
match the return of the overall Latin American region because the fund has been
focusing on higher quality, liquid stocks that could help the portfolio weather
periods of extreme market volatility. The market did not reward this
conservative, bottom-up approach. Individual share class total return
performance for the six-month reporting period, including income distributions,
follows. 2
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE INCREASE
<S> <C> <C> <C>
Class A Shares 8.03% $0.166 $9.10 to $9.63 = 6%
Class B Shares 7.62% $0.058 $8.92 to $9.53 = 7%
Class C Shares 7.56% $0.047 $8.95 to $9.57 = 7%
</TABLE>
Regardless of the investment climate, adding to your account on a regular basis
and reinvesting your dividends in additional shares is a convenient way to "pay
yourself first" and enjoy the benefit of compounding.
As Alex explains, the Latin American markets now offer some of the most
compelling valuations in the emerging market universe. We remain optimistic
about the prospects of this region, and I recommend that you consider adding to
your account on a regular basis to take advantage of price fluctuations and to
use the dollar-cost averaging method of investing. By investing the same amount
on a regular basis, you will buy more fund shares when prices are low, and less
when prices are high. 3
Thank you for entrusting a portion of your wealth in Federated Latin American
Growth Fund. 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, 1999
2 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the six-month reporting period,
based on offering price (i.e., less any applicable sales charge), for Class A,
B, and C Shares were 2.08%, 2.12%, and 6.56%, respectively.
3 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost averaging involves continuous investment
regardless of fluctuating price levels, investors should consider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
ALEXANDRE DE BETHMANN
Vice President
Federated Global Investment Management Corp.
Investment Review
WHAT ARE YOUR COMMENTS ON THE ECONOMIC AND POLITICAL DEVELOPMENTS IN LATIN
AMERICA THAT MADE AN IMPACT ON THE REGION'S PERFORMANCE?
Increased volatility characterized the Latin American markets during the first
half of the fund's fiscal year following the devaluation of the Brazilian
currency in January. Despite the tough economic environment, Arminio Fraga's
tenure as head of the Central Bank of Brazil, together with the confirmation of
the International Monetary Fund agreement, greatly helped to improve investor
sentiment. Fraga's appointment has improved the economic and political landscape
not only for Brazil, but for all of Latin America. A less painful Brazilian
recession coupled with larger-than- expected reductions in inflation have
improved the outlook.
Mexico continues to stand alone as the country with solid gross domestic product
("GDP") growth for 1999. Fiscal fundamentals for Mexico remain strong. Moreover,
it has managed to maintain a modest fiscal deficit by adjusting expenditures and
revenues.
IN THIS IMPROVED ENVIRONMENT, 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, 1999, the fund delivered total
returns, based on net asset value, of 8.03% for Class A Shares, 7.62% for Class
B Shares, and 7.56%, for Class C Shares. 1 The total return of the Morgan
Stanley Capital International Latin America-Free Index ("MSCI-LAF") was 19.13%,2
and the total return of the Lipper Latin American Funds Average was 10.74%.3
Over the reporting period, Federated Latin American Growth Fund underperformed
the MSCI-LAF as we focused on higher quality, liquid stocks that we felt would
fare better during periods of extreme market volatility. Unfortunately, the
market did not reward a conservative, bottom-up approach. We will continue to
remain focused on fundamentals and to maintain a portfolio that should lower the
risk to a shareholder's capital.
CAN YOU ELABORATE ON THE TYPE OF COMPANY ON WHICH THE FUND FOCUSES?
We remain focused on attractively valued, liquid securities with solid financial
positions, superior market shares and well-defined long-term strategies. In
addition, these securities have high earnings visibility and strong management
capabilities.
WHAT WAS YOUR STRATEGY WITH REGARD TO COUNTRY ALLOCATIONS?
Given their more attractive fundamentals, we maintained overweighted positions
in Mexico and Brazil. In Mexico, we remained focused on retail and consumer
related companies as we have seen a continued and controlled consumption
recovery in 1999. In Brazil, we focused on the telecommunications and utilities
companies whose earnings should benefit from restructuring endeavors.
WHAT WERE SOME OF THE FUND'S MOST RECENT PURCHASES?
We increased our exposure to TELEVISA (3.92% of net assets), the dominant
Spanish language media company in Mexico with a solid balance sheet and growing
operating cash flow.
We also added to our exposure in ARACRUZ (3.53% of net assets), a low cost pulp
and paper producer in Brazil.
1 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 six-month reporting period, based on offering price
(i.e., less any applicable sales charge), for Class A, B, and C Shares were
2.08%, 2.12%, and 6.56%, respectively.
2 The Morgan Stanley Capital International Latin American-Free Index is an
unmanaged, market value-weighted index of the performance of securities listed
on the stock exchanges of seven countries in the Latin American region.
Investments cannot be made in an index.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. Lipper returns do not take sales charges into account.
WHAT COUNTRIES WERE REPRESENTED IN THE PORTFOLIO AS OF MAY 31, 1999, AND WHAT
WERE THE FUND'S TOP TEN HOLDINGS?
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Mexico 42.8%
Brazil 33.6%
Argentina 9.3%
Chile 6.0%
Peru 3.4%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY COUNTRY NET ASSETS INDUSTRY
<S> <C> <C> <C>
Telefonos de Mexico, Class L, ADR Mexico 8.3% Telecommunications
Cemex SA, Class B Mexico 4.9% Building Materials & Components
Petroleo Brasileiro SA, Preference Brazil 4.8% Energy Sources
Grupo Modelo SA de CV, Class C Mexico 4.1% Beverage & Tobacco
Grupo Televisa SA, GDR Mexico 3.9% Broadcasting & Publishing
Embratel Participacoes SA, ADR Brazil 3.9% Telecommunications
Companhia Energetica de Minas Gerais, Preference Brazil 3.8% Utilities-Electrical & Gas
Cifra SA de CV, Class V Mexico 3.5% Merchandising
Aracruz Cellulose, ADR Brazil 3.5% Forest Products & Paper
Fomento Economico Mexicano SA de CV Mexico 3.0% Beverage & Tobacco
TOTAL 43.7%
</TABLE>
ARE YOU OPTIMISTIC ABOUT THE LATIN AMERICAN REGION THROUGH THE REST OF 1999?
Although we expect the region to experience lower growth in 1999, the valuations
are at near historic lows. In fact, the Latin American markets have some of the
most compelling valuations in the emerging market universe. Accordingly, it is
our view that prospects for Latin American stocks are strong. Despite our
optimism, we recognize that Brazil still faces important challenges that are
keeping Brazilian risks high.
Serious structural change has taken place in the region, particularly in the two
largest countries-Brazil and Mexico. Growth is picking up in Mexico resulting in
an increase in 1999 GDP estimates to 3.50% from 2.80%. Additionally, Brazil is
coming out of the recession more rapidly than anticipated as 1999 GDP forecasts
have been revised up from a 4.50% contraction to flat growth, inflation is below
expectations, and interest rates have fallen rapidly.
The most important battle remains the Brazilian Central Bank's ability to
continue its efforts to improve the fiscal situation. It must continue to
pressure its Congress to approve structural measures to balance Brazil's fiscal
account.
We expect a continuation of an improved economic outlook. We remain optimistic
on the prospects for the Latin American markets and expect better earnings
growth as economies start to recover.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-76.0%
AEROSPACE & MILITARY
TECHNOLOGY-0.7%
12,600 Linea Aerea Nacional Chile
SA, ADR $ 99,225
BANKING-3.3%
6,800 Banco de Galicia y Buenos
Aires SA de CV, Class B,
ADR 142,375
950,000 Grupo Financiero Bancomer,
SA de CV 322,330
TOTAL 464,705
BEVERAGE & TOBACCO-12.8%
19,800 Coca-Cola Femsa SA, ADR 357,638
130,000 Fomento Economico Mexicano
SA de CV 427,798
227,200 Grupo Modelo SA de CV,
Class C 585,124
13,700 Pan American Beverage,
Class A 317,669
4,000 Vina Concha y Toro, ADR 130,000
TOTAL 1,818,229
BROADCASTING & PUBLISHING-
3.9%
13,300 Grupo Televisa SA, GDR 556,106
BUILDING MATERIALS &
COMPONENTS-7.5%
13,417 Cementos Lima SA 223,818
156,500 Cemex SA, Class B 698,932
58,632 Juan Minetti SA 149,630
TOTAL 1,072,380
CONSTRUCTION & HOUSING-
1.8%
68,000 1 Corporacion Geo SA de CV,
Class B 257,128
ENERGY EQUIPMENT &
SERVICES-2.9%
17,900 2 Chilectra SA, ADR 407,651
ENERGY SOURCES-2.8%
240,000 1 Gas Natural Ban SA 401,117
FOREST PRODUCTS & PAPER-
3.5%
26,000 Aracruz Cellulose, ADR 500,500
MERCHANDISING-6.1%
291,000 1 Cifra SA de CV, Class V 502,596
95,500 Organizacion Soriana SA de
CV, Class B 357,698
TOTAL 860,294
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS-continued
METALS - NON FERROUS-3.4%
37,000 Cia de Minas Buenaventura
SA, Class B $ 266,017
6,000 Sociedad Quimica y Minera
de Chile, ADR 209,250
346 Sociedad Quimica y Minera
de Chile, Class A, ADR 12,110
TOTAL 487,377
METALS - STEEL-1.2%
140,000 Acindar Industria
Argentina de Aceros SA 168,133
MULTI-INDUSTRY-1.8%
80,000 Grupo Industrial Saltillo
SA de CV, Class B 250,179
RECREATION, OTHER CONSUMER
GOODS-1.8%
83,000 1 Corporacion Interamericana
de Entretenimiento SA 262,954
RETAIL-1.5%
11,650 Companhia Brasileira de
Distribuicao Groupo Pao de
Acucar, ADR 211,156
TELECOMMUNICATIONS-21.0%
40,000 1 Embratel Participacoes SA,
ADR 550,000
24,600 1 Tele Norte Leste
Participacoes SA, ADR 402,825
4,500 Telecom Argentina SA, ADR 128,250
10,000 Telefonica de Argentina
SA, ADR 323,750
14,700 Telefonos de Mexico, Class
L, ADR 1,175,081
3,000 1 Telemig Celular
Participacoes SA, ADR 92,625
14,000,000 Telesp Participacoes SA 305,366
TOTAL 2,977,897
TOTAL COMMON STOCKS
(IDENTIFIED COST
$9,282,536) 10,795,031
PREFERRED STOCKS-19.1%
BANKING-1.6%
5,300,000 Banco do Estado de Sao
Paulo, Preference 226,007
ENERGY SOURCES-4.8%
4,810,000 Petroleo Brasileiro SA,
Preference 680,006
FOREST PRODUCTS & PAPER-
1.1%
6,100,000 Votorantim Celulose e
Papel SA, Preference 161,916
METALS - STEEL-4.0%
16,000,000 Gerdau SA, Preference 240,046
123,000 Usinas Siderurgicas de
Minas Gerais SA,
Preference 327,196
TOTAL 567,242
<CAPTION>
SHARES OR
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<S> <C> <C>
PREFERRED STOCKS-continued
TELECOMMUNICATIONS-1.3%
37,519 Telecomunicacoes Do Rio
Janiero SA, Preference $ 747
1,500,000 Telecomunicacoes de Sao
Paulo SA, Preference 182,631
TOTAL 183,378
UTILITIES - ELECTRICAL &
GAS-6.3%
17,100,000 Centrais Eletricas
Brasileiras SA,
Preference, Series B 357,886
25,512,307 Companhia Energetica de
Minas Gerais, Preference 533,064
TOTAL 890,950
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$2,681,623) 2,709,499
CORPORATE BOND-0.0%
MINING-0.0%
5,800 Companhia Vale Do Rio Doce,
Conv. Deb., 12/31/1999
(identified cost $58) 34
TOTAL INVESTMENTS
(IDENTIFIED COST
$11,964,217) 3 $ 13,504,564
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's Board of Directors. At May 31, 1999, these
securities amounted to $407,651 which represents 2.9% of net assets.
3 The cost of investments for federal tax purposes amounts to $11,964,217. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,540,347 which is comprised of $1,979,656 appreciation and $439,309
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($14,194,944) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ADR -American Depositary Receipt
GDR -Global Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$11,964,217) $ 13,504,564
Cash 360,685
Cash denominated in
foreign currencies
(identified cost $4,464) 4,388
Income receivable 122,107
Receivable for investments
sold 185,552
Receivable for shares sold 40,455
Prepaid expenses 56,203
Deferred organizational
costs 23,002
TOTAL ASSETS 14,296,956
LIABILITIES:
Payable for shares
redeemed $ 61,866
Income distribution
payable 219
Payable for taxes withheld 7,939
Payable for portfolio
accounting fees 19,475
Payable for transfer and
dividend disbursing agent
fees and expenses 5,482
Payable for distribution
services fee 3,394
Accrued expenses 3,637
TOTAL LIABILITIES 102,012
Net assets for 1,478,936
shares outstanding $ 14,194,944
NET ASSETS CONSIST OF:
Paid in capital $ 22,053,648
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in
foreign currency 1,530,046
Accumulated net realized
loss on investments and
foreign currency
transactions (9,448,070)
Undistributed net
investment income 59,320
TOTAL NET ASSETS $ 14,194,944
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($9,246,549 / 959,852
shares outstanding) $9.63
Offering Price Per Share
(100/94.50 of $9.63) 1 $10.19
Redemption Proceeds Per
Share $9.63
CLASS B SHARES:
Net Asset Value Per Share
($4,353,099 / 456,893
shares outstanding) $9.53
Offering Price Per Share $9.53
Redemption Proceeds Per
Share (94.50/100 of $9.53) 1 $9.01
CLASS C SHARES:
Net Asset Value Per Share
($595,296 / 62,191 shares
outstanding) $9.57
Offering Price Per Share $9.57
Redemption Proceeds Per
Share (99.00/100 of $9.57) 1 $9.47
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of $28,428) $ 232,295
Interest 9,116
TOTAL INCOME 241,411
EXPENSES:
Investment advisory fee $ 67,613
Administrative personnel
and services fee 92,247
Custodian fees 19,043
Transfer and dividend
disbursing agent fees and
expenses 34,623
Directors' fees 738
Auditing fees 11,059
Legal fees 1,371
Portfolio accounting fees 39,962
Distribution services fee-
Class B Shares 14,564
Distribution services fee-
Class C Shares 2,134
Shareholder services fee-
Class A Shares 7,957
Shareholder services fee-
Class B Shares 4,855
Shareholder services fee-
Class C Shares 711
Share registration costs 14,133
Printing and postage 15,299
Insurance premiums 1,184
Taxes 637
Miscellaneous 9,976
TOTAL EXPENSES 338,106
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (67,613)
Reimbursement of other
operating expenses (145,375)
TOTAL WAIVERS AND
REIMBURSEMENTS (212,988)
Net expenses 125,118
Net investment income 116,293
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized loss on
investments and foreign
currency transactions (1,120,961)
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 1,527,394
Net realized and
unrealized gain on
investments and foreign
currency transactions 406,433
Change in net assets
resulting from operations $ 522,726
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 116,293 $ 240,289
Net realized loss on
investments and foreign
currency transactions
($(1,120,961) and
$(6,479,097),
respectively, as computed
for federal tax purposes) (1,120,961) (7,074,994)
Net change in unrealized
appreciation
(depreciation) of
investments and
translation of assets and
liabilities in foreign
currency 1,527,394 (672,967)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 522,726 (7,507,672)
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (104,938) -
Class B Shares (28,653) -
Class C Shares (3,607) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (137,198) -
SHARE TRANSACTIONS:
Proceeds from sale of
shares 11,184,635 14,496,314
Net asset value of shares
issued to shareholders in
payment of
distributions declared 118,259 -
Cost of shares redeemed (9,319,670) (20,604,271)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 1,983,224 (6,107,957)
Change in net assets 2,368,752 (13,615,629)
NET ASSETS:
Beginning of period 11,826,192 25,441,821
End of period (including
undistributed net
investment income of
$59,320 and $80,225,
respectively) $ 14,194,944 $ 11,826,192
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.10 $13.39 $11.56 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) 0.11 0.19 2 (0.06) 0.12
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 0.59 (4.48) 2.38 3 1.44
TOTAL FROM INVESTMENT
OPERATIONS 0.70 (4.29) 2.32 1.56
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.17) - (0.08) -
Distributions from net
realized gain on
investments and foreign
currency transactions - - (0.41) -
TOTAL DISTRIBUTIONS (0.17) - (0.49) -
NET ASSET VALUE, END OF
PERIOD $ 9.63 $ 9.10 $13.39 $11.56
TOTAL RETURN 4 8.03% (32.04% ) 20.76% 15.60 %
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 5.94% 6 4.20% 4.08% 8.93% 6
Net operating loss 5 (1.48%) 6 (0.61%) (2.23%) (5.47%) 6
Expenses (after waivers
and reimbursements) 2.00% 6 2.00% 2.17% 1.97% 6
Net investment income (net
operating loss) (after
waivers and
reimbursements) 2.46% 6 1.59% (0.32%) 1.49% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $9,247 $6,400 $14,847 $4,836
Portfolio turnover 66% 201% 79% 38%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 The amount shown in this caption for a share outstanding did 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.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.92 $13.24 $11.50 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) 0.06 0.09 2 (0.04) (0.05)
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 0.61 (4.41) 2.24 3 1.55
TOTAL FROM INVESTMENT
OPERATIONS 0.67 (4.32) 2.20 1.50
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.06) - (0.05) -
Distributions from net
realized gain on
investments and foreign
currency transactions - - (0.41) -
TOTAL DISTRIBUTIONS (0.06) - (0.46) -
NET ASSET VALUE, END OF
PERIOD $ 9.53 $ 8.92 $13.24 $11.50
TOTAL RETURN 4 7.62% (32.63%) 19.72% 15.00%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 6.69% 6 4.95% 4.83% 9.68% 6
Net operating loss 5 (2.23%) 6 (1.36%) (3.19%) (8.16%) 6
Expenses (after waivers
and reimbursements) 2.75% 6 2.75% 2.93% 2.72% 6
Net investment income (net
operating loss)
(after waivers and
reimbursements) 1.71% 6 0.84% (1.29%) (1.20%) 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $4,353 $4,704 $8,814 $1,355
Portfolio turnover 66% 201% 79% 38%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 The amount shown in this caption for a share outstanding did 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.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.95 $13.27 $11.48 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) 0.06 0.09 2 (0.04) (0.08)
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 0.61 (4.41) 2.27 3 1.56
TOTAL FROM INVESTMENT
OPERATIONS 0.67 (4.32) 2.23 1.48
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.05) - (0.03) -
Distributions from net
realized gain on
investments and foreign
currency transactions - - (0.41) -
TOTAL DISTRIBUTIONS (0.05) - (0.44) -
NET ASSET VALUE, END OF
PERIOD $ 9.57 $ 8.95 $13.27 $11.48
TOTAL RETURN 4 7.56% (32.55%) 19.97% 14.80%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 6.69% 6 4.95% 4.83% 9.68% 6
Net operating loss 5 (2.23%) 6 (1.36%) (3.13%) (8.26%) 6
Expenses (after waivers
and reimbursements) 2.75% 6 2.75% 2.93% 2.72% 6
Net investment income (net
operating loss) (after
waivers and
reimbursements) 1.71% 6 0.84% (1.23%) (1.30%) 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $595 $723 $1,781 $260
Portfolio turnover 66% 201% 79% 38%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 The amount shown in this caption for a share outstanding did 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.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
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 ten 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.
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 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.
At November 30, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $7,788,569 which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2005 $1,309,472
2006 6,479,097
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN EXCHANGE CONTRACTS
The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. Purchased contracts are
used to acquire exposure to foreign currencies; whereas, contracts to sell are
used to hedge the Fund's securities against currency fluctuations. Risks may
arise upon entering these transactions from the potential inability of
counterparties to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement 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 period end, resulting from
changes in the exchange rate.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 100,000,000
Class B Shares 100,000,000
Class C Shares 50,000,000
TOTAL 250,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 932,594 $ 8,677,810 996,001 $ 10,742,935
Shares issued to
shareholders in payment of
distributions declared 11,120 88,604 - -
Shares redeemed (687,110) (6,179,788) (1,401,334) (14,621,996)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 256,604 $ 2,586,626 (405,333) $ (3,879,061)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 274,690 $ 2,438,404 298,474 $ 3,058,028
Shares issued to
shareholders in payment of
distributions declared 3,311 26,222 - -
Shares redeemed (348,467) (2,933,364) (436,856) (4,645,411)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS (70,466) $ (468,738) (138,382) $ (1,587,383)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,218 $ 68,421 58,373 $ $695,351
Shares issued to
shareholders in payment of
distributions declared 431 3,433 - -
Shares redeemed (27,199) (206,518) (111,802) (1,336,864)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS (18,550) $ (134,664) (53,429) $ (641,513)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 167,588 $ 1,983,224 (597,144) $ (6,107,957)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
Class A Shares did not incur a distribution services fee for the six months
ended May 31, 1999, 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
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 six months ended
May 31, 1999, 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 9,050,682
Sales $ 7,032,624
</TABLE>
CONCENTRATION OF CREDIT RISK
The Fund invests a portion of its assets 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, 1999, the diversification of countries was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Mexico 42.8%
Brazil 33.6%
Argentina 9.3%
Chile 6.0%
Peru 3.4%
</TABLE>
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated Latin American Growth Fund
Established 1996
3RD SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Latin American Growth Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487796
Cusip 981487788
Cusip 981487770
G01940-02 (7/99)
[Graphic]
[Graphic]
Richard B. Fisher
President
Federated International High Income Fund
President's Message
Dear Fellow Shareholder:
Federated International High Income Fund was created in 1996, and I am pleased
to present its third Semi-Annual Report. The fund is designed for income
investors first and foremost, as it seeks out good income-paying issues outside
the U.S. The fund's managers select international high-yield
bonds issued by companies and governments in both emerging and developed
markets. 1 As of May 31, 1999, the fund's $96.2 million in assets were invested
in 50 government bonds and 50 international corporate issues across 34
countries. These government bonds were issued by Germany, France, Italy, and Nor
way, just to name a few. The average quality rating of the securities in the
portfolio is AA+, and the fund's average maturity is 9.4 years.
This report covers the first half of the fund's fiscal year, which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with Micheal Casey, Vice President, who co-manages
the fund with Robert Kowit, Vice President, both of Federated Global Investment
Management Corp. Following their discussion of international economic and market
conditions and fund strategy, are two additional items of share holder 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.
During the reporting period, the international bond markets were volatile, as
emerging market bond yields rose and prices fell. Nevertheless, due to a
strong U.S. dollar, emerging market bonds (denominated in U.S. dollars) managed
to outperform developed market bonds (denominated in local currencies). While
the fund experienced a 5% decrease in share price, its portfolio out performed
the bond market index of developed countries on a total return basis. The fund
also continued to pay a strong level of income.
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. In addition, emerging market structures may be less diverse
and mature, and their political systems may be less stable.
Individual share class total return performance for the six-month reporting
period, including income distributions, follows. 2
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares 0.91% $0.45 $7.99 to $7.61= (5%)
Class B Shares 0.53% $0.42 $7.99 to $7.61= (5%)
Class C Shares 0.53% $0.42 $7.99 to $7.61= (5%)
</TABLE>
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 invest ing. 3
By investing the same amount on a regular basis, you buy more fund shares when
prices are low and fewer when prices are high. Adding to your
account on a regular basis and reinvesting your monthly dividends in additional
shares is a convenient, painless way to "pay yourself first" and enjoy the
benefit of compounding.
I would also like to point out that the U.S. market's performance, although very
positive, is being surpassed by the market returns in many other nations. In
Federated International High Income Fund, you have an opportunity to increase
your international exposure. The bonds in the fund are not only generous
income-paying issues, but offer the potential for long-term capital appreciation
as banks and governments around the world reduce interest rates.
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, 1999
2 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the six-month reporting period,
based on offering price (i.e., less any applicable sales charge), for Class A,
B, and C Shares were (3.67%), (4.71%), and (0.42%), respectively.
3 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost averaging involves continuous
investment regardless of fluctuating price levels, investors should consider
their financial ability to continue purchases during periods of low price
levels.
[Graphic]
MICHEAL CASEY
Vice President
Federated Global Investment Management Corp.
[Graphic]
ROBERT KOWIT
Vice President
Federated Global Investment Management Corp.
Investment Review
DURING THE FIRST HALF OF THE FUND'S FISCAL YEAR, THE EMERGING BOND MARKETS,
WHILE VOLATILE, SIGNIFICANTLY OUTPERFORMED THE DEVELOPED BOND MARKETS. WHAT
ARE YOUR COMMENTS?
There was considerable volatility in the emerging markets over the first half of
1999. As measured by the J.P. Morgan Emerging Markets Bond Index, 1 the yield
spread between the emerging markets and U.S. Treasuries rose as high as 1,500
basis points in January 1999, narrowed to 980 basis points in early May, then
returned to 1,160 basis points at the end of the reporting period, only slightly
above the 1,100 spread at the start of the reporting period. At the same time,
the U.S. dollar strengthened 10.30% against the euro. There
fore, the developed markets, which are denominated in foreign currency,
significantly underperformed the emerging markets despite the slight spread
widening.
1 The J.P. Morgan Emerging Markets Bond Index is an unmanaged index that tracks
the total returns of external currency denominated debt instruments of 14
emerging market countries. Investments cannot be made in an index.
HOW DID FEDERATED INTERNATIONAL HIGH INCOME FUND PERFORM OVER THE FIRST HALF OF
ITS FISCAL YEAR?
While virtually all of the fund's emerging market positions did well, their
performance was offset by developed market holdings. For the six-month reporting
period ended May 31, 1999, the fund's returns for Class A, B, and C
Shares, based on net asset value, were 0.91%, 0.53%, and 0.53%, respectively. 2
These returns were greater than the (4.55%) return of the developed markets as
measured by the J.P. Morgan Non-Dollar Bond Index3 and lagged the 3.19% return
of the more aggressive emerging bond markets as measured by the J.P. Morgan
Emerging Markets Bond Index.
The average total return of all international high income bond funds tracked
by Lipper Analytical Services, Inc. was 2.72%. 4
INCOME IS A PRIMARY CONSIDERATION FOR FUND SHAREHOLDERS. WHAT LEVEL OF
INCOME DID THE FUND PROVIDE DURING THE SIX-MONTH REPORTING PERIOD ENDED MAY 31,
1999?
While the fund's total returns were impacted by a decrease in net asset value,
the fund paid a healthy income stream totaling $0.45 per share for Class A
Shares, $0.42 for Class B Shares, and $0.42 per share for Class C Shares.
THE FUND SEEKS TO MAINTAIN A GENERAL ALLOCATION OF 20%-30% TO DEVELOPED MARKETS
AND UP TO 70%-80% TO EMERGING MARKETS. WHAT IS THE FUND'S CURRENT ALLOCATION AND
WHY?
The fund was at the very low end of the scale for developed market debt, with
close to 80% in the emerging markets. This reflected our belief that many
emerging market assets continued to be underpriced due to the retreat by U.S.
high-yield investors back into their home market. Within the emerging market
sector, we have been working to improve credit quality by switching out of
corporate debt and into attractively-priced sovereign bonds.
2 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 six-month reporting period, based on offering price
(i.e., less any applicable sales charge), for Class A, B, and C Shares were
(3.67%), (4.71%), and (0.42%), respectively.
3 The J.P. Morgan Non-Dollar Bond Index is a total return, unmanaged trade-
weighted index of over 360 government and high-grade bonds in 12 developed
countries. Investments cannot be made in an index.
4 Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category indicated. Lipper returns do not take sales charges into
account.
WHAT WERE THE FUND'S TOP FIVE GOVERNMENT AND INTERNATIONAL CORPORATE HOLDINGS AS
OF MAY 31, 1999?
The fund's top five international government holdings were:
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTY/COUPON/MATURITY NET ASSETS
<S> <C>
Brazil, Govt. of, Bond
(emerging) 10.125%, due
5/15/2027 3.8%
Argentina, Govt. of, Bond
(emerging) 11.375%, due
1/30/2017 2.7%
Czech, Govt. of, Bond
(emerging) 14.850%, due
2/6/2003 2.3%
Venezuela, Govt. of, Bond
(emerging) 9.250%, due
9/15/2027 2.2%
Turkey, Govt. of,
(emerging), due 4/19/2000 2.1%
TOTAL 13.1%
</TABLE>
The fund's top five international corporate holdings were:
<TABLE>
<CAPTION>
NAME/
COUPON/ PERCENTAGE OF
MATURITY COUNTRY NET ASSETS
<S> <C> <C>
Clearnet Communications,
Inc. Sr. Disc. Note, Zero
Coupon, due 8/13/2007 Canada
(developed) 2.3%
Advance Agro Public Co.,
13.00%, due 11/15/2007 Thailand
(emerging) 1.9%
Companhia Vale Do Rio Doce,
10.00%, due 4/2/2004 Brazil
(emerging) 1.7%
Bancomext Trust, Bank
Guarantee, 11.25%, due
5/30/2006 Mexico
(emerging) 1.4%
Microcell
Telecomunications, Sr.
Disc. Note, 11.125%, due
10/15/2007 Canada
(developed) 1.4%
TOTAL 8.7%
</TABLE>
AS WE REACH THE MIDPOINT OF 1999, WHAT IS YOUR STRATEGY FOR THE FUND?
We have been gradually reducing the fund's developed market allocations and
increasing emerging market positions. Most of the emerging market allocations
continue to be in higher quality, dollar-denominated bonds. Favored countries
continue to be Mexico, Argentina, Turkey, Colombia and the Philippines. While
there are plenty of sources of potential volatility in the markets-including the
Kosovo conflict and potential backsliding in Brazil-it is anticipated that
emerging market debt can weather any of these scenarios with limited volatility.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
CORPORATE BONDS-36.9%
BROADCAST RADIO & TV-0.7%
1,000,000 Globo Communicacoes Part,
Sr. Note, 10.625%,
12/5/2008 $ 692,500
BUILDING & DEVELOPMENT-
1.1%
500,000 Cemex SA, Bond, 12.75%,
7/15/2006 537,727
600,000 Corporacion GEO, SA de CV,
Note, 10.00%, 5/23/2002 543,000
TOTAL 1,080,727
CABLE TELEVISION-1.0%
1,000,000 Cablevision SA, 13.75%,
5/1/2009 950,000
CONGLOMERATE-0.3%
350,000 Mechala Group Jamaica,
Company Guarantee, Series
REGS, 12.00%, 2/15/2002 68,250
1,000,000 Mechala Group Jamaica,
Note, Series B, 12.75%,
12/30/1999 255,000
TOTAL 323,250
CONSUMER PRODUCTS-1.2%
1,500,000 Mastellone Hermanos SA,
Bond, 11.75%, 4/1/2008 1,147,500
CONTAINER & GLASS
PRODUCTS-0.7%
750,000 Vicap SA, Sr. Note,
11.375%, 5/15/2007 693,750
FINANCIAL INTERMEDIARIES-
2.6%
12,000,000 Baden Wurt L-Finance NV,
Sr. Note, Series E, MTN,
13.50%, 6/22/2001 369,039
1,300,000 Bancomext Trust, Bank
Guarantee, 11.25%,
5/30/2006 1,332,500
1,260,000 Brierley Investments Ltd.,
Bond, 9.00%, 3/15/2002 696,839
162,000 Nykredit, Mtg. Bond,
8.00%, 10/1/2029 23,875
1,098,333,333 Polysindo International
Finance Co. BV, 3/16/2000 17,573
101,111,111 Polysindo International
Finance Co. BV, 9/23/1999 1,618
TOTAL 2,441,444
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
CORPORATE BONDS-continued
FOREST PRODUCTS-4.5%
2,300,000 Advance Agro Public Co.,
13.00%, 11/15/2007 $ 1,791,125
1,300,000 Grupo Industrial Durango
SA de CV, 12.625%, 8/1/2003 1,235,000
800,000 Indah Kiat Intl. Finance,
Company Guarantee,
11.875%, 6/15/2002 616,000
950,000 Indah Kiat Intl. Finance,
Company Guarantee, 12.50%,
6/15/2006 703,000
TOTAL 4,345,125
HOME PRODUCTS &
FURNISHINGS-1.6%
1,500,000 American Standard, Inc.,
Company Guarantee, 7.125%,
6/1/2006 1,568,519
INDUSTRIAL PRODUCTS &
EQUIPMENT-2.8%
1,500,000 2 CIA International
Telecommunications, Note,
10.375%, 8/1/2004 1,110,878
500,000 2 Globo Communicacoes Part,
10.625%, 12/5/2008 346,250
500,000 Grupo Minero Mexico,
9.25%, 4/1/2028 390,000
1,250,000 2 Texon International PLC,
Sr. Note, 144A, 10.00%,
2/1/2008 607,978
500,000 Texon International PLC,
Sr. Note, Series REGS,
10.00%, 2/1/2008 243,191
TOTAL 2,698,297
MACHINERY & EQUIPMENT-1.0%
1,750,000 2 Sirona Dental System,
9.125%, 7/15/2008 936,986
METALS & MINING-1.7%
1,650,000 Companhia Vale Do Rio Doce,
Note, 10.00%, 4/2/2004 1,611,225
OIL & GAS-1.0%
1,100,000 Perez Companc SA, Series
REGS, 9.00%, 5/1/2006 990,000
STEEL-0.7%
700,000 Tubos de Acero de Mexico
SA, Unsub., 13.75%,
12/8/1999 704,900
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
CORPORATE BONDS-continued
SURFACE TRANSPORTATION-
1.8%
800,000 Air Canada, 7.25%,
10/1/2007 533,623
2,600,000 Lesotho Water Authority,
Foreign Gov't. Guarantee,
13.00%, 9/15/2010 355,653
450,000,000 Societe Nationale Des
Chemins, Sr. Unsub.,
9.20%, 6/22/2006 243,248
1,100,000 2 Zhuhai Highway, Sub. Note,
11.50%, 7/1/2008 540,802
TOTAL 1,673,326
TELECOMMUNICATIONS-0.7%
1,300,000 Viatel, Inc., 11.15%,
4/15/2008 692,928
TELECOMMUNICATIONS &
CELLULAR-11.9%
500,000 CANTV Finance Ltd.,
Company Guarantee, 9.25%,
2/1/2004 408,750
5,200,000 Clearnet Communications,
Inc., Sr. Disc. Note,
8/13/2007 2,241,789
1,435,000 2 Grupo Televisa SA, Sr.
Disc. Note, 13.25%,
5/15/2008 1,126,475
500,000 2 Jazztel PLC, 14.00%,
4/1/2009 525,159
1,000,000 2 KPN QWEST BV, 7.125%,
6/1/2009 1,032,075
3,200,000 Microcell
Telecommunications, Sr.
Disc. Note, 11.125%,
10/15/2007 1,325,232
500,000 Netia Holdings, Company
Guarantee, 10.25%,
11/1/2007 465,000
1,300,000 Philippine Long Distance
Telephone Co., Deb.,
10.625%, 6/2/2004 1,303,714
1,500,000 Philippine Long Distance
Telephone Co., Sr. Note,
Series E, MTN, 8.35%,
3/6/2017 1,170,000
1,000,000 SK Telecom Co. Ltd., 7.75%,
4/29/2004 969,380
1,000,000 Tricom SA, Sr. Note,
11.375%, 9/1/2004 875,000
TOTAL 11,442,574
UTILITIES-1.6%
1,650,000 AES China Generating Co.,
Note, 10.125%, 12/15/2006 998,250
500,000 2 Empresa Nacional
Electricidad SA, 8.50%,
4/1/2009 503,750
TOTAL 1,502,000
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$42,181,468) 35,495,051
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
SOVEREIGN GOVERNMENTS-
60.4%
3,000,000 Argentina, Government of,
Bond, 11.375%, 1/30/2017 $ 2,631,000
1,000,000 Argentina, Government of,
Global Bond Deb., 9.75%,
9/19/2027 779,500
1,500,000 Argentina, Government of,
Unsub., 11.00%, 10/9/2006 1,352,250
750,000 Argentina, Government of,
Unsub., 8.75%, 7/10/2002 630,498
5,000,000 Brazil, Government of,
10.125%, 5/15/2027 3,642,500
2,000,000 Brazil, Government of,
11.625%, 4/15/2004 1,815,000
2,500,000 Brazil, Government of,
5.9375%, 4/15/2012 1,428,125
2,350,000 Bulgaria, Government of,
Deb., 5.875%, 7/28/2011 1,504,000
1,500,000 Colombia, Government of,
9.75%, 4/23/2009 1,267,500
1,000,000 Colombia, Government of,
Bond, 10.875%, 3/9/2004 940,000
2,250,000 Colombia, Government of,
Unsub., 8.625%, 4/1/2008 1,732,500
66,000,000 Czech, Government of,
Note, 8.375%, 10/2/2002 2,240,175
300,000 Denmark, Government of,
Unsub., 11.625%, 1/23/2000 498,015
1,253,472,222 1 Dharmala 7,714
350,000,000 European Bank for
Reconstruction and
Development, Bond, 10.00%,
5/2/2002 315,805
200,000 European Investment Bank,
Bond, 12.00%, 2/15/2000 334,561
900,000 France, Government of,
8.50%, 4/25/2023 1,379,227
1,000,000 Germany, Government of,
Bond, 6.00%, 6/20/2016 1,201,481
50,000,000 Greece, Government of,
Bond, 12.40%, 11/26/2003 166,231
75,000,000 Greece, Government of,
Bond, 11.90%, 12/31/2003 249,106
270,000,000 Greece, Government of,
Bond, 8.60%, 3/26/2008 1,015,859
225,000,000 Greece, Government of,
Bond, 9.80%, 3/21/2000 723,861
100,000,000 Greece, Government of,
Floating Rate Note,
12.50%, 12/27/2002 333,797
130,000,000 Greece, Government of,
Floating Rate Note,
13.10%, 10/23/2003 433,867
335,000,000 Greece, Government of,
Series, 12.40%, 11/26/2003 1,113,744
100,000,000 Hungary, Government of,
16.50%, 7/24/1999 418,076
172,500,000 Hungary, Government of,
Bond, 14.00%, 12/12/2002 740,644
100,000,000 Hungary, Government of,
Bond, 14.00%, 6/24/2002 423,927
7,500,000 International Finance
Corp., Note, 11.75%,
8/15/1999 166,353
903,798 Italy, Government of,
Bond, 10.50%, 9/1/2005 1,289,602
2,000,000 Kazakhstan, Government of,
Note, 8.375%, 10/2/2002 1,850,000
1,500,000 Lesotho Water Authority,
Bond, 12.50%, 4/15/2002 225,282
1,500,000 Mexico, Government of,
11.375%, 9/15/2016 1,580,250
<CAPTION>
FOREIGN
CURRENCY
PAR AMOUNT
OR PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
SOVEREIGN GOVERNMENTS-
continued
1,500,000 Mexico, Government of,
Bond, 11.50%, 5/15/2026 $ 1,650,000
2,000,000 Mexico, Government of,
Bond, 9.875%, 1/15/2007 1,965,000
1,500,000 2 Nacional Financiera, SNC,
144A, 9.75%, 3/12/2002 1,541,250
317,646 Netherlands, Government
of, Bond, 8.25%, 2/15/2007 422,873
453,780 Netherlands, Government
of, Bond, 8.50%, 6/1/2006 606,233
500,000 New South Wales, State of,
Local Gov't. Guarantee,
12.60%, 5/1/2006 443,040
5,000,000 Norway, Government of,
Bond, 9.50%, 10/31/2002 717,015
1,000,000 Pakistan, Government of,
Bond, 9.08%, 5/30/2000 525,170
1,000,000 Pakistan, Government of,
Deb., 11.50%, 12/22/1999 756,306
1,500,000 Panama, Government of,
Bond, 8.875%, 9/30/2027 1,312,500
4,250,000 Poland, Government of,
15.00%, 10/12/1999 1,068,102
3,500,000 Poland, Government of,
Bond, 12.00%, 10/12/2003 914,763
1,500,000 Poland, Government of,
Bond, 12.00%, 2/12/2002 382,814
1,000,000 Poland, Government of,
Bond, 12.00%, 6/12/2002 257,093
4,000,000 Poland, Government of,
Bond, 12.00%, 6/12/2003 1,038,915
2,000,000 Russia, Government of,
10.00%, 6/26/2007 875,000
1,750,000 2 Russia, Government of,
10.00%, 6/26/2007 752,500
2,000,000 2 Russia, Government of,
9.375%, 3/31/2005 591,654
3,500,000 South Africa, Government
of, 13.50%, 9/15/2015 500,385
2,000,000 South Africa, Government
of, Bond, 12.50%,
1/15/2002 304,695
1,000,000 South Africa, Government
of, Sr. Unsub., 9.125%,
5/19/2009 965,710
5,250,000 Telkom SA Ltd., 10.00%,
3/31/2008 605,432
400,000 Turkey, Government of,
10.00%, 9/19/2007 368,600
15,500,000,000 Turkey, Government of,
4/19/2000 2,012,055
1,000,000 Turkey, Government of,
Note, 12.00%, 12/15/2008 990,000
3,300,000 Venezuela, Government of,
Bond, 9.25%, 9/15/2027 2,108,700
TOTAL SOVEREIGN
GOVERNMENTS (IDENTIFIED
COST $67,771,835) 58,106,255
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
REPURCHASE AGREEMENT-0.9% 3
$ 830,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999
(at amortized cost) 830,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$110,783,303) 4 $ 94,431,306
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At May 31, 1999, these securities amounted to
$9,615,757 which represents 10.0% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $4,884,184 which represents
5.1% of net assets.
3 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
4 The cost of investments for federal tax purposes amounts to $110,783,303. The
net unrealized depreciation of investments on a federal tax basis amounts to
$16,351,997 which is comprised of $278,797 appreciation and $16,630,794
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($96,157,714) at May 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$110,783,303) $ 94,431,306
Income receivable 3,225,811
Receivable for investments
sold 147,761
Receivable for shares sold 356,877
Deferred organizational
costs 25,642
TOTAL ASSETS 98,187,397
LIABILITIES:
Payable for investments
purchased $ 1,034,796
Payable for shares
redeemed 89,056
Income distribution
payable 764,050
Payable for taxes withheld 34,260
Net payable for foreign
currency exchange
contracts 16,437
Accrued expenses 91,084
TOTAL LIABILITIES 2,029,683
Net assets for 12,641,140
shares outstanding $ 96,157,714
NET ASSETS CONSIST OF:
Paid in capital $ 119,143,913
Net unrealized
depreciation of
investments and
translation of assets and
liabilities in foreign
currency (16,399,508)
Accumulated net realized
loss on investments and
foreign currency
transactions (6,233,463)
Distributions in excess of
net investment income (353,228)
TOTAL NET ASSETS $ 96,157,714
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($16,191,314 / 2,128,957
shares outstanding) $7.61
Offering Price Per Share
(100/95.50 of $7.61) 1 $7.97
Redemption Proceeds Per
Share $7.61
CLASS B SHARES:
Net Asset Value Per Share
($73,056,572 / 9,603,757
shares outstanding) $7.61
Offering Price Per Share $7.61
Redemption Proceeds Per
Share (94.50/100 of $7.61) 1 $7.19
CLASS C SHARES:
Net Asset Value Per Share
($6,909,828 / 908,426
shares outstanding) $7.61
Offering Price Per Share $7.61
Redemption Proceeds Per
Share (99.00/100 of $7.61) 1 $7.53
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign
taxes withheld of $32,267) $ 6,327,481
EXPENSES:
Investment advisory fee $ 400,199
Administrative personnel
and services fee 92,247
Custodian fees 35,978
Transfer and dividend
disbursing agent fees and
expenses 63,674
Directors' fees 748
Auditing fees 11,680
Legal fees 6,177
Portfolio accounting fees 42,199
Distribution services fee-
Class B Shares 266,182
Distribution services fee-
Class C Shares 28,032
Shareholder services fee-
Class A Shares 19,636
Shareholder services fee-
Class B Shares 88,727
Shareholder services fee-
Class C Shares 9,344
Share registration costs 20,778
Printing and postage 17,605
Insurance premiums 1,345
Taxes 2,532
Miscellaneous 8,932
TOTAL EXPENSES 1,116,015
WAIVER:
Waiver of investment
advisory fee (390,931)
Net expenses 725,084
Net investment income 5,602,397
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS:
Net realized loss on
investments and foreign
currency transactions (3,676,823)
Net change in unrealized
depreciation of
investments and
translation of assets and
liabilities in foreign
currency (1,515,401)
Net realized and
unrealized loss on
investments and foreign
currency transactions (5,192,224)
Change in net assets
resulting from operations $ 410,173
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 5,602,397 $ 8,583,767
Net realized loss on
investments and foreign
currency transactions
($(3,676,823) and
($2,542,891),
respectively, as computed
for federal tax purposes) (3,676,823) (3,462,957)
Net change in unrealized
depreciation of
investments and
translation of assets and
liabilities in foreign
currency (1,515,401) (11,762,681)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 410,173 (6,641,871)
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (911,416) (1,068,975)
Class B Shares (3,834,173) (6,559,668)
Class C Shares (405,381) (854,790)
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares - (2,557)
Class B Shares - (14,211)
Class C Shares - (1,879)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (5,150,970) (8,502,080)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 27,209,451 59,262,958
Net asset value of shares
issued to shareholders in
payment of
distributions declared 1,253,035 2,695,479
Cost of shares redeemed (17,180,511) (22,236,754)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 11,281,975 39,721,683
Change in net assets 6,541,178 24,577,732
NET ASSETS:
Beginning of period 89,616,536 65,038,804
End of period $ 96,157,714 $ 89,616,536
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 7.99 $ 9.50 $10.12 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.51 0.94 1.18 0.17 2
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions (0.44 (1.49) (0.78) 0.13
TOTAL FROM INVESTMENT
OPERATIONS 0.07 (0.55) 0.40 0.30
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.45) (0.96) (1.02) (0.17)
Distributions in excess of
net investment income - - - (0.01) 3
Distributions from net
realized gain on
investments and foreign
currency transactions - (0.00) 4 - -
TOTAL DISTRIBUTIONS (0.45) (0.96) (1.02) (0.18)
NET ASSET VALUE, END OF
PERIOD $ 7.61 $ 7.99 $ 9.50 $10.12
TOTAL RETURN 5 0.91% (5.95%) 4.02% 2.99%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 6 1.75% 7 1.81% 2.78% 9.21% 7
Net investment income 6 11.69% 7 10.08% 8.51% 0.73% 7
Expenses (after waivers
and reimbursements) 0.92% 7 0.82% 0.75% 0.75% 7
Net investment income
(after waivers and
reimbursements) 12.52% 7 11.07% 10.54% 9.19% 7
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $16,191 $11,052 $9,073 $599
Portfolio turnover 49% 128% 93% 0%
</TABLE>
1 Reflects operations for the period from October 2, 1996 (date of initial
public offering) to November 30, 1996.
2 Per share information is based on the average number of shares outstanding.
3 Distributions in excess of net investment income were a result of certain book
and tax timing differences. These distributions did not represent a return of
capital for federal income tax purposes.
4 Per share amount does not round to $(0.01).
5 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
6 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
7 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 7.99 $ 9.50 $10.12 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.46 0.89 0.96 0.18 2
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions (0.42) (1.50) (0.63) 0.11
TOTAL FROM INVESTMENT
OPERATIONS 0.04 (0.61) 0.33 0.29
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.42) (0.90) (0.95) (0.17)
Distributions from net
realized gain on
investments and foreign
currency transactions - (0.00) 3 - -
TOTAL DISTRIBUTIONS (0.42) (0.90) (0.95) (0.17)
NET ASSET VALUE, END OF
PERIOD $ 7.61 $ 7.99 $ 9.50 $10.12
TOTAL RETURN 4 0.53% (6.67%) 3.24% 2.87%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.50% 6 2.56% 3.53% 9.96% 6
Net investment income 5 10.94% 6 9.38% 7.70% 0.46% 6
Expenses (after waivers
and reimbursements) 1.67% 6 1.57% 1.50% 1.50% 6
Net investment income
(after waivers and
reimbursements) 11.77% 6 10.37% 9.73% 8.92% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $73,057 $70,458 $49,929 $5,397
Portfolio turnover 49% 128% 93% 0%
</TABLE>
1 Reflects operations for the period from October 2, 1996 (date of initial
public offering) to November 30, 1996.
2 Per share information is based on the average number of shares outstanding.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 7.99 $ 9.50 $10.12 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.46 0.85 0.98 0.17 2
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions (0.42) (1.46) (0.65) 0.12
TOTAL FROM INVESTMENT
OPERATIONS 0.04 (0.61) 0.33 0.29
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.42) (0.90) (0.95) (0.17)
Distributions from net
realized gain on
investments and foreign
currency transactions - (0.00) 3 - -
TOTAL DISTRIBUTIONS (0.42) (0.90) (0.95) (0.17)
NET ASSET VALUE, END OF
PERIOD $ 7.61 $ 7.99 $ 9.50 $10.12
TOTAL RETURN 4 0.53% (6.67%) 3.24% 2.87%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.50% 6 2.56% 3.53% 9.96% 6
Net investment income 5 10.94% 6 9.36% 8.01% 0.21% 6
Expenses (after waivers
and reimbursements) 1.67% 6 1.57% 1.50% 1.50% 6
Net investment income
(after waivers and
reimbursements) 11.77% 6 10.35% 10.04% 8.67% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $6,910 $8,106 $6,037 $83
Portfolio turnover 49% 128% 93% 0%
</TABLE>
1 Reflects operations for the period from October 2, 1996 (date of initial
public offering) to November 30, 1996.
2 Per share information is based on the average number of shares outstanding.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
World Investment Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end, man
agement investment company. The Corporation consists of ten 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.
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 60 days or less at the time of purchase
may be valued at amortized cost, which approximates fair market value. With
respect to valuation of foreign securities, trading in foreign cities may be
completed at times which vary from the closing of the
New York Stock Exchange. Therefore, foreign securities are valued at the latest
closing price on the exchange on which they are traded prior to the closing of
the New York Stock Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. Dollars at the foreign exchange rate in effect at noon,
eastern time, on the day the value of the foreign security is determined.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
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 November 30, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $2,542,891, which will reduce the Fund's taxable income arising
from future net realized gains 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 2006.
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 counterparties to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the settlement date.
At May 31, 1999, the Fund had an outstanding foreign currency commitment as set
forth below:
<TABLE>
<CAPTION>
SETTLEMENT DATE CONTRACT TO RECEIVE IN EXCHANGE FOR CONTRACT AT VALUE UNREALIZED DEPRECIATION
<S> <C> <C> <C> <C>
Contract Purchased:
6/2/1999 992,610 euro currency $1,051,233 $1,034,796 $(16,437)
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. Dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. Dollars based on the rate of exchange of such currencies against U.S.
Dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
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, 1999 is as
follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
CIA International
Telecommunications,
Note, 10.375% 3/19/1998-
3/20/1998 $1,377,776
Grupo Televisa SA,
Sr. Disc. Note, 13.25% 9/25/1997-
12/21/1998 1,106,601
Jazztel PLC, 14.00% 4/1/1999 539,537
KPN QWEST BV, 7.125% 5/25/1999-
5/26/1999 1,051,382
Sirona Dental System,
9.125% 6/29/1998-
1/11/1999 964,632
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR
VALUE CAPITAL
SHARE CLASS NAME 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>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,491,210 $ 11,769,488 936,322 $ 7,944,196
Shares issued to
shareholders in payment of
distributions declared 27,680 216,172 45,021 382,483
Shares redeemed (772,691) (6,087,781) (553,678) (4,809,928)
NET CHANGE RESULTING FROM
CLASS A SHARE
TRANSACTIONS 746,199 $ 5,897,879 427,665 $ 3,516,751
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,836,959 $ 14,399,942 4,969,213 $ 44,146,311
Shares issued to
shareholders in payment of
distributions declared 111,754 872,790 224,076 1,913,388
Shares redeemed (1,160,551) (9,073,569) (1,634,221) (13,647,738)
NET CHANGE RESULTING FROM
CLASS B SHARE
TRANSACTIONS 788,162 $ 6,199,163 3,559,068 $ 32,411,961
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 132,329 $ 1,040,021 787,334 $ 7,172,451
Shares issued to
shareholders in payment of
distributions declared 21,013 164,073 46,643 399,608
Shares redeemed (259,162) (2,019,161) (455,208) (3,779,088)
NET CHANGE RESULTING FROM
CLASS C SHARE
TRANSACTIONS (105,820) $ (815,067) 378,769 $ 3,792,971
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 1,428,541 $ 11,281,975 4,365,502 $ 39,721,683
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the
period. The administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A
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.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
Class A Shares did not incur a distribution services fee for the six months
ended May 31, 1999, 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 Share
holder Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average
daily net assets of the Fund for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational and start-up administrative service expenses of $48,027 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, 1999, 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
Purchases $61,271,582
Sales $44,439,563
CONCENTRATION OF CREDIT RISK
The Fund invests a portion of its assets 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, 1999, the diversification of countries was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
Mexico 13.8%
Argentina 10.0%
Brazil 9.9%
Poland 4.3%
Canada 4.3%
Greece 4.2%
Colombia 4.1%
Turkey 3.5%
United States 3.2%
South Africa 3.1%
Venezuela 2.6%
Germany 2.6%
Philippines 2.6%
Czech Republic 2.3%
Russia 2.3%
Netherlands 2.1%
PERCENTAGE OF
COUNTRY NET ASSETS
Kazakhstan 1.9%
Thailand 1.9%
United Kingdom 1.8%
France 1.7%
Hungary 1.7%
China 1.6%
Bulgaria 1.6%
Korea 1.5%
Indonesia 1.4%
Panama 1.4%
Italy 1.3%
Pakistan 1.3%
Dominican Republic 0.9%
Norway 0.8%
New Zealand 0.7%
Denmark 0.5%
Chile 0.5%
Australia 0.5%
Jamaica 0.3%
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and
after January 1, 2000. The Fund's Adviser and administrator are taking 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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated International High Income Fund
Established 1996
3RD SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated International High Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487762
Cusip 981487754
Cusip 981487747
G01949-02 (7/99)
[Graphic]
[Graphic]
RICHARD B. FISHER
President
Federated International Growth Fund
President's Message
Dear Shareholder:
Federated International Growth Fund was created in 1997, and I am pleased to
present its second Semi-Annual Report. As of May 31, 1999, the fund's assets
totaled $31 million and were invested in shares of five international equity
funds all managed by the Federated Global Investment Management Corp., which
include:
Federated Asia Pacific Growth Fund;
Federated Emerging Markets Fund;
Federated European Growth Fund;
Federated International Small Company Fund; and
Federated Latin American Growth Fund.
This fund is a "fund of funds" vehicle which offers shareholders significant
long-term growth opportunities by investing in five different international
stock mutual funds. This $31 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
of the research and quantitative work needed to allocate the fund's assets in
the international arenas. 1
This report covers the first half of the fund's fiscal year which is the
six-month period from December 1, 1998 through May 31, 1999. It begins with an
interview with the fund's portfolio manager, Drew Collins, Senior Vice Pres
ident of Federated Global Investment Management Corp., who presents his out look
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 investments, and second is
the publication of the fund's financial statements.
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
During the six-month reporting period ended May 31, 1999, the fund's perfor
mance was relatively strong as the fund's allocations in the rallying emerg ing
markets and Japan outweighed its holdings in Europe, which experienced a
slowdown. The fund's total returns across all share classes outpaced the return
of the Morgan Stanley Capital International Europe, Australia, and Far East
("EAFE") Index 2 as well as the average return of the 562 international equity
funds tracked by Lipper Analytical Services, Inc.3
Individual share class total return performance for the six-month report
ing period, including income distributions, follows. 4
<TABLE>
<CAPTION>
TOTAL RETURN INCOME DISTRIBUTIONS NET ASSET VALUE INCREASE
<S> <C> <C> <C>
Class A Shares 9.74% $0.062 $8.38 to $9.13 = 9%
Class B Shares 9.41% $0.002 $8.31 to $9.09 = 9%
Class C Shares 9.39% $0.002 $8.33 to $9.11 = 9%
</TABLE>
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 potential future income. I recom mend
that you add to your account on a regular basis to take advantage of price
fluctuations and dollar-cost averaging. 5
Thank you for your investment in Federated's "fund of funds" and for the con
fidence you have placed in our firm.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
2 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. This index is unmanaged and invest ments cannot be
made in an index.
3 Lipper figures represent the average total returns reported by all mutual
funds designated by Lipper Analytical Services, Inc. as falling into the
category indicated. These figures do not reflect sales charges.
4 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 (i.e., less any applicable sales charge), for Class A, B, and C Shares
were 3.67%, 3.91%, and 8.39%, respectively.
5 Systematic investing does not ensure profits or protect against losses in
declining markets. Because dollar-cost averaging involves continuous investment
regardless of fluctuating price levels, investors should con sider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
Drew Collins
Senior Vice President
Federated Global Investment Management Corp.
Investment Review
WHAT IS YOUR ANALYSIS OF THE INTERNATIONAL MARKETPLACE OVER THE FIRST HALF OF
THE FUND'S FISCAL YEAR?
We finally began to see investors focus again on the emerging markets and Japan
after a notable period of underperformance. This turnaround can be attributable
to evidence of an economic bottoming in countries like Japan, Hong Kong,
Singapore, etc., the bailout of the banking system by the Japanese government,
and visible actions of corporate restructuring, specifically in Japan. This
rally, however, came at the expense of the markets in western Europe, which
underperformed in aggregate. Concerns over economic slowdown, a weaker euro,
high valuations, and fund outflows were some of the factors contributing to this
underperformance. However, countries like Greece, which is expected to join the
European Monetary Union, continued to outperform. On a sector basis, the
reporting period also saw cyclicals rally from oversold positions given an
uptick in commodity prices and expectations that Asia is on the road to
recovery.
HOW DID 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 9.74%
for Class A Shares, based on net asset value. 1 The total returns for Class B
Shares and Class C Shares, based on net asset value, were 9.41% and 9.39%,
respectively.1 These returns were more than double the 4.16% return of the
Morgan Stanley Capital International EAFE Index for the same period.
The fund's returns also significantly outpaced the 4.98% average return of the
562 international equity funds tracked by Lipper Analytical Services, Inc.
WHAT FUNDS IN FEDERATED INTERNATIONAL GROWTH FUND'S PORTFOLIO MADE THE GREAT EST
IMPACT ON THE FUND'S OUTPERFORMANCE DURING THE PERIOD?
The fund's outperformance was driven broadly across all regions with the
exception of Europe. In Europe, the continued weakness of the euro and slug gish
economic growth hurt equity performance during the first half of the year in the
Federated European Growth Fund. Meanwhile, a recovery in the emerging markets
propelled the performance of Federated Asia Pacific Growth Fund, Federated Latin
American Growth Fund, and Federated Emerging Markets Fund. In addition, the
Federated International Small Company Fund produced a healthy return, as it was
geared heavily toward southeast Asia and Japan, and thus benefited from the
strong performance in those markets.
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, 1999, the assets of the fund were allocated as follows:
<TABLE>
<CAPTION>
Percentage of
Net Assets
<S> <C>
Federated European Growth Fund 44.4%
Federated International Small Company Fund 34.9%
Federated Asia Pacific Growth Fund 10.0%
Federated Emerging Markets Fund 5.2%
Federated Latin American Growth Fund 3.9%
</TABLE>
1 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 (i.e., less any
applicable sales charge), for Class A, B, and C Shares were 3.67%, 3.91%, and
8.39%, respectively.
The top two holdings per individual fund as of May 31, 1999 were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUND NAME COUNTRY EACH FUND'S NET ASSETS
<S> <C> <C> <C>
Federated Asia Pacific Growth Fund Kao Corp. Japan 3.2%
Chugai Pharmaceutical Co. Ltd. Japan 3.2%
Federated Emerging Markets Fund Social Security Bank Ltd. Ghana 3.6%
Telefonos de Mexico Mexico 2.0%
Federated European Growth Fund Mannesmann AG Germany 3.6%
Barclays PLC United Kingdom 3.2%
Federated Int'l. Small Company Fund Trafficmaster PLC United Kingdom 1.7%
JOT Automation Group Oy Finland 1.7%
Federated Latin American Growth Fund Telefonos de Mexico, Class L Mexico 8.3%
Cemex SA, Class B Mexico 4.9%
</TABLE>
AS WE PASS THE MIDPOINT OF 1999, WHAT IS YOUR OUTLOOK FOR INTERNATIONAL EQUI
TIES FOR THE REMAINDER OF THE YEAR, AND HOW ARE YOU STRUCTURING THE FUND'S
ALLOCATIONS?
We are optimistic about the performance of the international equity markets
during the second half of the year, given our expectations of a stronger euro
and a bottoming-out (turnaround) of the emerging markets and Japan. Further
more, in western Europe, with the formation of the European Monetary Union,
consolidation is expected to accelerate, creating dynamic investment
opportunities. Finally, we continue to believe that some of the best bargains
exist in the international small-cap arena, especially in Japan and Singapore.
As a result, new money coming into the fund is being allocated according to the
following percentages: 46% to the Federated European Growth Fund; 35% to the
Federated International Small Company Fund; 10% to the Federated Asia Pacific
Growth Fund; 4% to the Federated Latin America Growth Fund; and 5%
to the Federated Emerging Markets Fund.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
MUTUAL FUND SHARES-98.4%
381,870 Federated Asia Pacific
Growth Fund, Class A $ 3,089,327
150,217 Federated Emerging Markets
Fund, Class A 1,596,802
923,130 Federated European Growth
Fund, Class A 13,791,573
510,558 Federated International
Small Company Fund, Class A 10,844,253
126,032 Federated Latin American
Growth Fund, Class A 1,213,689
TOTAL MUTUAL FUND SHARES
(IDENTIFIED COST
$27,044,506) 30,535,644
REPURCHASE AGREEMENT-1.1% 1
$ 330,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999 (at amortized
cost) 330,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$27,374,506) 2 $ 30,865,644
</TABLE>
1 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.
2 The cost of investments for federal tax purposes amounts to $27,374,506. The
net unrealized appreciation/depreciation of investments on a federal tax basis
amounts to $3,491,138 which is comprised of $3,593,421 apprecia tion and
$102,283 depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($31,036,006) at May 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$27,374,506) $ 30,865,644
Cash 1,603
Income receivable 181
Receivable for shares sold 60,179
Deferred organizational
costs 28,793
Prepaid expenses 108,141
TOTAL ASSETS 31,064,541
LIABILITIES:
Payable for shares
redeemed $ 9,717
Payable for distribution
services fee 6,305
Payable for share
registration costs 1,908
Payable for portfolio
accounting fees 6,359
Payable for insurance
premiums 1,118
Payable for custodian fees 1,859
Accrued expenses 1,269
TOTAL LIABILITIES 28,535
Net assets for 3,404,508
shares outstanding $ 31,036,006
NET ASSETS CONSIST OF:
Paid in capital $ 32,200,730
Net unrealized
appreciation of
investments 3,491,138
Accumulated net realized
loss on investments (4,667,653)
Undistributed net
investment income 11,791
TOTAL NET ASSETS $ 31,036,006
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($21,524,167 / 2,357,974
shares outstanding) $9.13
Offering Price Per Share
(100/94.50 of $9.13) 1 $9.66
Redemption Proceeds Per
Share $9.13
CLASS B SHARES:
Net Asset Value Per Share
($8,305,607 / 914,114
shares outstanding) $9.09
Offering Price Per Share $9.09
Redemption Proceeds Per
Share (94.50/100 of $9.09) 1 $8.59
CLASS C SHARES:
Net Asset Value Per Share
($1,206,232 / 132,420
shares outstanding) $9.11
Offering Price Per Share $9.11
Redemption Proceeds Per
Share (99.00/100 of $9.11) 1 $9.02
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 201,139
Interest 5,670
TOTAL INCOME 206,809
EXPENSES:
Administrative personnel
and services fee $ 92,247
Custodian fees 2,488
Transfer and dividend
disbursing agent fees and
expenses 34,624
Directors' fees 1,206
Auditing fees 7,762
Legal fees 1,579
Portfolio accounting fees 38,660
Distribution services fee-
Class B Shares 31,616
Distribution services fee-
Class C Shares 4,513
Shareholder services fee-
Class A Shares 25,248
Shareholder services fee-
Class B Shares 10,539
Shareholder services fee-
Class C Shares 1,504
Share registration costs 17,514
Printing and postage 10,217
Insurance premiums 1,118
Taxes 1,053
Miscellaneous 4,708
TOTAL EXPENSES 286,596
WAIVERS AND REIMBURSEMENT:
Waiver of shareholder
services fee-Class A Shares $ (25,248)
Waiver of shareholder
services fee-Class B
Shares (10,539)
Waiver of shareholder
services fee-Class C
Shares (1,504)
Reimbursement of other
operating expenses (202,084)
TOTAL WAIVERS AND
REIMBURSEMENT (239,375)
Net expenses 47,221
Net investment income 159,588
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on
investments 214,330
Net change in unrealized
appreciation of
investments 2,347,098
Net realized and
unrealized gain on
investments 2,561,428
Change in net assets
resulting from operations $ 2,721,016
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 159,588 $ 61,049
Net realized gain (loss) on
investments ($214,330 and
$(4,375,819) respectively,
as computed for federal tax
purposes) 214,330 (4,808,525)
Net change in unrealized
appreciation of
investments 2,347,098 3,171,935
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 2,721,016 (1,575,541)
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (145,394) (74,360)
Class B Shares (2,171) (26,124)
Class C Shares (232) (4,552)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (147,797) (105,036)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 8,110,903 24,330,884
Net asset value of shares
issued to shareholders in
payment of
distributions declared 92,098 77,461
Cost of shares redeemed (8,546,377) (10,199,585)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (343,376) 14,208,760
Change in net assets 2,229,843 12,528,183
NET ASSETS:
Beginning of period 28,806,163 16,277,980
End of period (including
undistributed net
investment income of
$11,791 and $0, respectively) $ 31,036,006 $ 28,806,163
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.38 $ 8.73 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) 0.05 0.04 2 (0.01)
Net realized and
unrealized gain (loss) on
investments 0.76 (0.33) (1.26)
TOTAL FROM INVESTMENT
OPERATIONS 0.81 (0.29) (1.27)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.06) (0.06) -
NET ASSET VALUE, END OF
PERIOD $ 9.13 $ 8.38 $ 8.73
TOTAL RETURN 3 9.74% (3.37%) (12.70%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 1.68% 5 2.00% 4.39% 5
Net operating loss 4 (0.30%) 5 (1.41%) (4.33%) 5
Expenses (after waivers
and reimbursements) 0.07% 5 0.08% 0.07% 5
Net investment income (net
operating loss) (after
waivers
and reimbursements) 1.31% 5 0.51% (0.01%) 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $21,524 $19,440 $10,562
Portfolio turnover 10% 31% 3%
</TABLE>
1 Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.
2 Per share information is based on average shares outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.31 $ 8.71 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) 0.03 (0.02) 2 (0.01)
Net realized and
unrealized gain (loss) on
investments 0.75 (0.34) (1.28)
TOTAL FROM INVESTMENT
OPERATIONS 0.78 (0.36) (1.29)
LESS DISTRIBUTIONS:
Distribution from net
investment income (0.00) 3 (0.04) -
NET ASSET VALUE, END OF
PERIOD $ 9.09 $ 8.31 $ 8.71
TOTAL RETURN 4 9.41% (4.14%) (12.90%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.43% 6 2.75% 3.60% 6
Net operating loss 5 (1.05%) 6 (2.16%) (3.55%) 6
Expenses (after waivers
and reimbursements) 0.82% 6 0.83% 0.82% 6
Net investment income (net
operating loss) (after
waivers
and reimbursements) 0.56% 6 (0.24%) (0.77%) 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $8,306 $8,212 $5,036
Portfolio turnover 10% 31% 3%
</TABLE>
1 Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.
2 Per share information is based on average shares outstanding.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.33 $ 8.72 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) 0.03 (0.02) 2 (0.01)
Net realized and
unrealized gain (loss) on
investments 0.75 (0.33) (1.27)
TOTAL FROM INVESTMENT
OPERATIONS 0.78 (0.35) (1.28)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.00) 3 (0.04) -
NET ASSET VALUE, END OF
PERIOD $ 9.11 $ 8.33 $ 8.72
TOTAL RETURN 4 9.39% (3.99%) (12.80%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.43% 6 2.75% 3.51% 6
Net operating loss 5 (1.05%) 6 (2.16%) (3.46%) 6
Expense (after waivers and
reimbursements) 0.82% 6 0.83% 0.82% 6
Net investment income (net
operating loss) (after
waivers and reimbursements) 0.56% 6 (0.24)% (0.77%) 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $1,206 $1,154 $680
Portfolio turnover 10% 31% 3%
</TABLE>
1 Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.
2 Per share information is based on average shares outstanding.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
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 ten portfolios. The
financial statements included herein are only those of Federated International
Growth Fund (the "Fund"). The financial statements of the other port folios 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 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.
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 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"). 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.
At November 30, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $4,375,819, which will reduce the Fund's taxable income arising
from future net realized gains 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 2006.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as fol
lows:
<TABLE>
<CAPTION>
NUMBER OF PAR
VALUE CAPITAL
SHARE CLASS NAME 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>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 770,348 $ 6,896,612 2,050,819 $ 18,284,432
Shares issued to
shareholders in payment of
distributions declared 10,444 89,816 5,647 48,958
Shares redeemed (741,847) (6,628,935) (947,847) (8,348,289)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 38,945 $ 357,493 1,108,619 $ 9,985,101
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 105,293 $ 941,437 583,808 $ 5,216,521
Shares issued to
shareholders in payment of
distributions declared 241 2,065 2,839 24,563
Shares redeemed (179,310) (1,589,046) (176,735) (1,554,919)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS (73,776) $ (645,544) 409,912 $ 3,686,165
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 30,149 $ 272,854 93,113 $ 829,931
Shares issued to
shareholders in payment of
distributions declared 25 217 454 3,940
Shares redeemed (36,199) (328,396) (33,030) (296,377)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS (6,025) $ (55,325) 60,537 $ 537,494
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (40,856) $ (343,376) 1,579,068 $ 14,208,760
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEE
Federated Global Investment Management Corp. is the Fund's investment adviser
(the "Adviser"). The advisory fee is contingent upon the grant of certain
exemptive relief from the Securities and Exchange Commission. 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 aver age daily net assets
invested in the underlying funds. The Fund did not pay or accrue the asset
allocation fee during the six months ended May 31, 1999.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A,
Class B, and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
Class A Shares did not incur a distribution services fee for the six months
ended May 31, 1999, 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 Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disburs ing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $42,732 were borne initially by 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, 1999, the Fund expensed $4,610 of
organizational expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the six
months ended May 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $3,410,198
Sales $2,900,000
</TABLE>
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated International Growth Fund
Established 1997
2ND SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated International Growth Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487739
Cusip 981487721
Cusip 981487713
G02418-01 (7/99)
[Graphic]
SEMI-ANNUAL REPORT
[Graphic]
Richard B. Fisher
President
Federated Global Equity Income Fund
President's Message
Dear Fellow Shareholder:
Federated Global Equity Income Fund was created in October of 1998, and I am
pleased to present its first Semi-Annual Report. Since the fund's inception, net
assets grew to $25.9 million as of May 31, 1999, and were invested in more than
70 common stocks in 15 countries, of which 71% of the fund's assets were in the
United States and Canada. The fund's managers can invest glo bally, and many of
the fund's holdings as of May 31, 1999 were easily recog nizable names such as
General Electric, Cisco, and MCI Worldcom. The fund is managed for long-term
growth of capital and income by investing in good income-producing stocks from
around the world. 1
This report covers the first half of the fund's fiscal year which is the
six-month period from December 1, 1998 through May 31, 1999. It begins with an
interview with the fund's portfolio manager, Richard J. Lazarchic, Vice
President of Federated Global Investment Management Corp. Following his dis
cussion covering the fund's objective, strategy, and market conditions, 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.
The global environment for equities, while volatile, was relatively strong
during the past six months. The fund's holdings in domestic telecommunica tions
and technology companies helped the fund record double-digit total returns and
outperform the overall global equity market, as well as the aver age global
equity funds tracked by Lipper Analytical Services, Inc. 2
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
2 Lipper figures represent the average total returns reported by all mutual
funds designed by Lipper Analytical Services, Inc. as falling into the cat egory
indicated. These figures do not reflect sales charges.
Individual share class total return performance for the six-month reporting
period, including capital gains and income distributions, follows. 3
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS CAPITAL GAINS NET ASSET VALUE INCREASE
<S> <C> <C> <C> <C>
Class A Shares 13.08% $0.013 $0.006 $10.55 to $11.91 = 13%
Class B Shares 12.84% $0.008 $0.006 $10.55 to $11.89 = 13%
Class C Shares 12.84% $0.008 $0.006 $10.55 to $11.89 = 13%
</TABLE>
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 potential future income.
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 invest ing. 4
By investing the same amount on a regular basis, you buy more fund shares when
prices are low and fewer when prices are high. Adding to your account on a
regular basis and reinvesting your dividends in additional shares is a
convenient, painless way to "pay yourself first" and enjoy the benefit of
compounding.
I would also like to point out that the U.S. market's performance, although very
positive, has been surpassed by the market returns in many other nations. In
Federated Global Equity Income Fund, you have an opportunity to increase your
international exposure. The stocks in the fund have not only been generous
income-paying issues, but offer the potential for long-term capital
appreciation.
Thank you for your investment in Federated Global Equity Income Fund and for the
confidence you have placed in our firm.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
3 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the period, based on offering
price (i.e., less any applicable sales charge), for Class A, B and C Shares were
6.90%, 7.34% and 11.84%, respectively.
4 Systematic investing does not ensure profits or protect against losses in
declining markets. Because dollar-cost averaging involves continuous investment
regardless of fluctuating price levels, investors should con sider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
Richard J. Lazarchic, CFA
Vice President
Federated Global Investment Management Corp.
Investment Review
WHAT IS YOUR VIEW OF THE GLOBAL EQUITY MARKETPLACE DURING THE FIRST HALF OF THE
FUND'S FISCAL YEAR?
For both the domestic and international investor, the past six months have been
rewarding. Liquidity has returned to many international markets (i.e., Mexico,
Brazil, Japan, South Korea). The U.S. economy continues to be alive and well,
and its strength is reflected in the U.S. market indices.
HOW DID THE FUND PERFORM AGAINST ITS PRIMARY BENCHMARK?
Federated Global Equity Income Fund produced a six-month total return of 13.08%
1 for Class A Shares, based on net asset value. The total returns for Class B
Shares and Class C Shares, based on net asset value, were 12.84% and 12.84%,
respectively.1 These returns were greater than the 8.92% return of the Morgan
Stanley Capital International ("MSCI") World Equity Index for the same period.2
The fund's returns were also greater than the 9.95% average return of the 238
global equity funds tracked by Lipper Analytical Services, Inc.
1 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 (i.e., less any
applicable sales charge), for Class A, B and C Shares were 6.90%, 7.34% and
11.84%, respectively.
2 The MSCI World Equity Index is an unmanaged index that reflects the stock
markets of 22 countries, including the United States, Europe, Canada, Australia,
New Zealand and the Far East comprising approximately 1,482 securities with
values expressed in U.S. dollars. Investments cannot be made in an index.
We attribute the fund's outperformance over its benchmark and peers to its large
exposure to the large-cap domestic telecommunications and technology shares that
drove the indices higher during the reporting period. The fund's yield was based
on its moderate exposure to the electric utility industry in the United States
and Europe, and also its exposure to regional banks in the United States.
WHAT WERE THE FUND'S REGION AND COUNTRY WEIGHTINGS ALONG WITH ITS TOP 10 HOLD
INGS AS OF MAY 31, 1999?
PERCENTAGE OF
NET ASSETS
North America 70.9%
Europe 22.5%
Asia (excluding Japan) 4.1%
Japan 3.5%
PERCENTAGE OF
COUNTRY NET ASSETS
United States 68.9%
United Kingdom 6.3%
Netherlands 3.6%
Japan 3.5%
France 3.1%
Spain 2.5%
Germany 2.4%
Belgium 2.1%
Canada 2.0%
Hong Kong 1.5%
Philippines 1.5%
Finland 1.3%
Australia 1.1%
Ireland 0.8%
Denmark 0.4%
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COUNTRY NET ASSETS
<S> <C> <C>
MCI
Worldcom, Inc. United States 3.4%
Peco Energy Co. United States 3.0%
Sprint Corp. United States 3.0%
General
Electric Co. United States 2.7%
Citigroup, Inc. United States 2.7%
Lucent Technologies, Inc. United States 2.6%
Cisco Systems, Inc. United States 2.5%
Ameritech Corp. United States 2.2%
Global TeleSystems Group, Inc. Belgium 2.1%
Nortel
Networks Corp. Canada 2.0%
TOTAL 26.2%
</TABLE>
As the top 10 holdings indicate, the majority of the fund's assets were
allocated to United States' companies.
WHAT WERE SOME OF THE FUND'S RECENT PURCHASES?
Our recent purchases included the following: QWEST COMMUNICATIONS INTERNA
TIONAL INC. (1.80% of net assets; United States): Qwest provides communications
services to business customers, governmental agencies, and consumers. The
company also constructs and installs fiber optic systems for other
communications providers, as well as for its own use. The company's
communications services include Internet and multimedia services, as well as
traditional voice communications services.
TELIGENT, INC. (1.67% of net assets; United States): Teligent offers local,
long distance, high-speed data, and dedicated Internet services over its dig
ital "SmartWave" local networks. The company's local networks integrate
point-to-point and point-to-multipoint wireless technologies with traditional
broadband wireline technology.
ASM LITHOGRAPHY HOLDING N.V. (0.95% of net assets; Netherlands): ASM Lithography
develops, manufactures, markets and services advanced photolithography
projection systems, known as "wafer steppers." The company supplies wafer
steppers to integrated circuit manufacturers in the United States, Asia and
western Europe. ASM also offers its customers a variety of support services.
WHAT IS YOUR OUTLOOK FOR EQUITY-INCOME STOCKS AND YOUR STRATEGY FOR THE FUND AS
WE REACH THE MIDPOINT OF 1999?
As we look at today's worldwide markets, developed markets look expensive-
particularly the financial and high-flying Internet stocks. However, we appear
to be in a transitional market, which is being led by worldwide money flows that
have nowhere else to go for long-term financial performance except into the
world's stock markets.
In general, we will continue to invest in the shares of high-quality companies
with dominant market positions, realizable strategies, consistent cash flow, and
highly visible earnings. We will continue to keep the fund reason ably invested
with a large part of the portfolio positioned in the fast- changing
telecommunications sector. To offset this overweighted position and to keep the
yield of the fund up, we also own electric utilities that should again start to
climb higher as interest rates stabilize. While Federated Global Equity Income
Fund is mainly invested in the United States and Europe, we are beginning to
reevaluate potential investments in the Pacific Rim and Latin America.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-99.0%
AUTOMOBILE-1.1%
5,000 General Motors Corp.,
Class H $ 274,375
BANKING-5.5%
15,000 Allied Irish Banks PLC 199,613
10,000 Banco Santander Central
Hispano, SA 208,500
4,000 BankAmerica Corp. 258,750
5,200 Fleet Financial Group,
Inc. 213,850
7,200 HSBC Holdings PLC 235,827
8,400 Mellon Bank Corp. 299,775
TOTAL 1,416,315
BROADCASTING & PUBLISHING-
4.5%
5,850 1 AT&T Corp. - Liberty Media
Group, Inc., Class A 388,659
11,000 Comcast Corp., Class A 423,500
9,000 1 Cox Communications, Inc.,
Class A 351,562
TOTAL 1,163,721
BUSINESS & PUBLIC
SERVICES-5.2%
1,400 1 America Online, Inc. 167,125
3,500 1 Equant NV, ADR 290,281
8,500 1 General Instrument Corp. 328,844
3,900 1 PsiNet, Inc. 173,550
1,800 Suez Lyonnaise des Eaux 298,176
580 1 Yahoo, Inc. 85,840
TOTAL 1,343,816
DATA PROCESSING &
REPRODUCTION-1.0%
7,500 1 Dell Computer Corp. 258,281
ELECTRICAL & ELECTRONICS-
3.7%
10,000 DQE, Inc. 427,500
7,000 Nortel Networks Corp. 525,374
TOTAL 952,874
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
ELECTRONIC COMPONENTS,
INSTRUMENTS-4.8%
5,600 1 ASM Lithography Holding
NV, ADR $ 247,100
15,000 1 Advanced Micro Devices, Inc. 277,500
4,600 1 Applied Materials, Inc. 252,712
2,700 1 EMC Corp. Mass 268,987
2,500 Motorola, Inc. 207,031
TOTAL 1,253,330
ENERGY SOURCES-0.8%
1,800 Total SA 218,612
FINANCIAL SERVICES-2.6%
10,400 Citigroup, Inc. 689,000
FOOD & HOUSEHOLD PRODUCTS- 1.3%
30,000 Raisio Group PLC 328,075
HEALTH & PERSONAL CARE- 4.0%
7,000 Bristol-Myers Squibb Co. 480,375
3,000 Johnson & Johnson 277,875
4,000 Merck & Co., Inc. 270,000
TOTAL 1,028,250
INSURANCE-3.2%
750 Allianz AG 204,851
3,000 American International
Group, Inc. 342,938
2,500 Axa 287,991
TOTAL 835,780
MERCHANDISING-1.9%
4,500 Home Depot, Inc. 255,938
20,000 Kingfisher PLC 250,608
TOTAL 506,546
MULTI-INDUSTRY-3.4%
775,000 1 Benpres Holdings Corp. 183,311
7,000 General Electric Co. 711,812
TOTAL 895,123
REAL ESTATE-0.6%
59,000 New World Development Co.,
Ltd. 144,174
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
TELECOMMUNICATIONS-41.3%
4,500 AT&T Corp. $ 249,750
8,500 Ameritech Corp. 559,406
8,000 BellSouth Corp. 377,500
14,119 British Telecommunications
PLC 233,928
1,000 British Telecommunications
PLC, ADR 168,000
15,000 1 COLT Telecom Group PLC 316,785
150,000 1 Cable & Wireless Optus Ltd. 286,928
11,000 1 Crown Castle International
Corp. 221,375
65 DDI Corp. 300,074
8,000 GTE Corp. 504,500
7,300 1 Global TeleSystems Group,
Inc. 554,800
6,200 1 IPC Communications, Inc. 364,250
7,000 1 IXC Communications, Inc. 252,000
6,000 KDD Corp. 325,143
3,000 KPN NV 144,803
2,800 1 Level 3 Communications,
Inc. 219,800
10,200 1 MCI Worldcom, Inc. 881,025
3,000 Mannesmann AG 409,702
6,800 1 McLeodUSA, Inc., Class A 363,800
7,000 1 Metromedia Fiber Network,
Inc. 282,625
30 Nippon Telegraph &
Telephone Corp. 292,877
11,000 1 Qwest Communications
International, Inc. 466,813
11,000 1 RCN Corp. 457,188
6,800 Sprint Corp. 766,700
1,100 1 Tele Danmark AS, Class B 112,346
9,347 Telefonica SA 448,040
8,800 1 Teligent AB, Class A 432,300
4,000 1 United Pan-Europe
Communications NV, ADR 246,500
20,098 Vodafone Group PLC 381,940
4,000 1 Western Wireless Corp.,
Class A 98,000
TOTAL 10,718,898
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
TELECOMMUNICATIONS
EQUIPMENT-5.1%
6,000 1 Cisco Systems, Inc. $ 654,000
12,000 Lucent Technologies, Inc. 682,500
TOTAL 1,336,500
UTILITIES - ELECTRICAL &
GAS-9.0%
60,000 Manila Electric Co., Class B 206,570
16,000 Peco Energy Co. 783,000
10,000 Pinnacle West Capital
Corp. 418,750
10,000 Texas Utilities Co. 450,000
11,000 Unicom Corp. 465,438
TOTAL 2,323,758
TOTAL COMMON STOCKS
(IDENTIFIED COST
$23,662,480) 25,687,428
CORPORATE BOND-1.1%
BROADCASTING & PUBLISHING-
1.1%
$ 175,000 2 TeleWest PLC, Bond, 5.25%,
2/19/2007 (IDENTIFIED COST
$286,603) 291,628
REPURCHASE AGREEMENT-0.9%
3
235,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999 (AT AMORTIZED
COST) 235,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$24,184,083) 4 $ 26,214,056
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's board of directors. At May 31, 1999, these
securities amounted to $291,628 which represents 1.1% of net assets.
3 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
4 The cost of investments for federal tax purposes amounts to $24,184,083. The
net unrealized appreciation of investments on a federal tax basis amounts to
$2,029,973 which is comprised of $2,764,451 appreciation and $734,478
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($25,947,369) at May 31, 1999.
The following acronym is used throughout this portfolio:
ADR -American Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$24,184,083) $ 26,214,056
Cash 1,489
Income receivable 22,736
Receivable for investments
sold 297,111
Receivable for shares sold 35,896
TOTAL ASSETS 26,571,288
LIABILITIES:
Payable for investments
purchased $ 589,035
Payable for taxes withheld 330
Payable for custodian fees 16,447
Net payable for foreign
currency exchange
contracts 1,492
Accrued expenses 16,615
TOTAL LIABILITIES 623,919
Net assets for 2,178,310
shares outstanding $ 25,947,369
NET ASSETS CONSIST OF:
Paid in capital $ 22,417,986
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 2,025,044
Accumulated net realized
gain on investments and
foreign currency
transactions 1,562,072
Distributions in excess of
net investment income (57,733)
TOTAL NET ASSETS $ 25,947,369
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($25,523,573 / 2,142,664
shares outstanding) $11.91
Offering Price Per Share
(100/94.50 of $11.91) 1 $12.60
Redemption Proceeds Per
Share $11.91
CLASS B SHARES:
Net Asset Value Per Share
($340,087 / 28,607 shares
outstanding) $11.89
Offering Price Per Share $11.89
Redemption Proceeds Per
Share (94.50/100 of
$11.89) 1 $11.24
CLASS C SHARES:
Net Asset Value Per Share
($83,709 / 7,039 shares
outstanding) $11.89
Offering Price Per Share $11.89
Redemption Proceeds Per
Share (99.00/100 of
$11.89) 1 $11.77
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of $4,463) $ 155,772
Interest 16,319
TOTAL INCOME 172,091
EXPENSES:
Investment advisory fee $ 112,542
Administrative personnel
and services fee 92,247
Custodian fees 21,102
Transfer and dividend
disbursing agent fees and
expenses 41,706
Directors' fees 2,232
Auditing fees 8,808
Legal fees 2,332
Portfolio accounting fees 41,987
Distribution services fee-
Class A Shares 27,931
Distribution services fee-
Class B Shares 524
Distribution services fee-
Class C Shares 89
Shareholder services fee-
Class A Shares 27,931
Shareholder services fee-
Class B Shares 175
Shareholder services fee-
Class C Shares 30
Share registration costs 29,901
Printing and postage 10,307
Insurance premiums 1,380
Taxes 739
Miscellaneous 1,873
TOTAL EXPENSES 423,836
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (112,542)
Reimbursement of other
operating expenses (85,305)
TOTAL WAIVERS AND
REIMBURSEMENTS (197,847)
Net expenses 225,989
Net operating loss (53,898)
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on
investments and foreign
currency transactions 1,562,081
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 1,065,613
Net realized and
unrealized gain on
investments and foreign
currency transactions 2,627,694
Change in net assets
resulting from operations $ 2,573,796
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) PERIOD ENDED
MAY 31, NOVEMBER 30,
1999 1998 1
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income (net
operating loss) $ (53,898) $ 7,658
Net realized gain on
investments and foreign
currency transactions
($1,562,081 and $10,176,
respectively, as computed
for federal tax purposes) 1,562,081 21,907
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 1,065,613 959,431
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 2,573,796 988,996
DISTRIBUTIONS TO
SHAREHOLDERS: 2
Distributions from net
investment income
Class A Shares (23,224) -
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares (10,185) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (33,409) -
SHARE TRANSACTIONS:
Proceeds from sale of
shares 5,274,103 17,871,433
Net asset value of shares
issued to shareholders in
payment of
distributions declared 32,097 -
Cost of shares redeemed (757,729) (2,218)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 4,548,471 17,869,215
Change in net assets 7,088,858 18,858,211
NET ASSETS:
Beginning of period 18,858,511 300
End of period (including
undistributed net
investment income of $0 and
$19,389, respectively) $ 25,947,369 $ 18,858,511
</TABLE>
1 Reflects operations for the period from October 27, 1998 (date of initial
public investment) to November 30, 1998.
2 Distributions from net investment income and distributions from net real ized
gains on investments and foreign currency transactions did not round to $1.00
for Class B Shares or Class C Shares for the six months ended May 31, 1999.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(unaudited) ENDED
MAY 31, NOVEMBER 30,
1999 1998 1
<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.55 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (net
operating loss) (0.02) 0.01
Net realized and
unrealized gain on
investments and foreign
currency transactions 1.40 0.54
TOTAL FROM INVESTMENT
OPERATIONS 1.38 0.55
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.01) -
Distributions from net
realized gain on
investments and foreign
currency transactions (0.01) -
TOTAL DISTRIBUTIONS (0.02) -
NET ASSET VALUE, END OF
PERIOD $11.91 $10.55
TOTAL RETURN 2 13.08% 5.50%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 3.76% 4 6.07% 4
Net operating loss 3 (2.23%)4 (3.63%)4
Expenses (after waivers
and reimbursements) 2.00% 4 2.00% 4
Net investment income (net
operating loss)
(after waivers and
reimbursements) (0.47%)4 0.44% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $25,524 $18,858
Portfolio turnover 73% 3%
</TABLE>
1 Reflects operations for the period from October 27, 1998 (start of
performance) to November 30, 1998.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31,
1999 1
<S> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.55
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.02)
Net realized and
unrealized gain on
investments and foreign
currency transactions 1.38
TOTAL FROM INVESTMENT
OPERATIONS 1.36
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.01)
Distributions from net
realized gain on
investments and foreign
currency transactions (0.01)
TOTAL DISTRIBUTIONS (0.02)
NET ASSET VALUE, END OF
PERIOD $11.89
TOTAL RETURN 2 12.84%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 4.26% 4
Net operating loss 3 (2.74%)4
Expenses (after waivers
and reimbursements) 2.50% 4
Net operating loss (after
waivers and
reimbursements) (0.98%)4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $340
Portfolio turnover 73%
</TABLE>
1 Financial Highlights for Class B Shares and Class C Shares are not presented
for the period from October 27, 1998 (start of performance) to November 30,
1998. Class B Shares and Class C Shares had no public investments during that
period.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31,
1999 1
<S> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.55
INCOME FROM INVESTMENT
OPERATIONS:
Net operating loss (0.02)
Net realized and
unrealized gain on
investments and foreign
currency transactions 1.38
TOTAL FROM INVESTMENT
OPERATIONS 1.36
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.01)
Distributions from net
realized gain on
investments and foreign
currency transactions (0.01)
TOTAL DISTRIBUTIONS (0.02)
NET ASSET VALUE, END OF
PERIOD $11.89
TOTAL RETURN 2 12.84%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 4.26% 4
Net operating loss 3 (2.74%)4
Expenses (after waivers
and reimbursements) 2.50% 4
Net operating loss (after
waivers and
reimbursements) (0.98%)4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $84
Portfolio turnover 73%
</TABLE>
1 Financial Highlights for Class B Shares and Class C Shares are not presented
for the period from October 27, 1998 (start of performance) to November 30,
1998. Class B Shares and Class C Shares had no public investments during that
period.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
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 ten portfolios. The
financial statements included herein are only those of Federated Global Equity
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 Fund offers three classes of shares: Class A Shares, Class
B Shares and Class C Shares. The Fund's objective is to provide capital
appreciation and above-average income.
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
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value. With respect
to valuation of foreign securities, trading in foreign cities may be completed
at times which vary from the closing of the New York Stock Exchange. Therefore,
foreign securities are valued at the latest closing price on the exchange on
which they are traded prior to the closing of the New York Stock Exchange.
Foreign securities quoted in foreign currencies are translated into U.S. Dollars
at the foreign exchange rate in effect at noon, eastern time, on the day the
value of the foreign security is determined.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take posses sion,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repur chase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
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. 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 these transactions from the potential inability
of counterparties to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the settlement date.
At May 31, 1999, the Fund had outstanding foreign currency commitments as set
forth below:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO CONTRACTS AT APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR VALUE (DEPRECIATION)
<S> <C> <C> <C> <C>
Contract Purchased:
6/1/99 32,909 Pound Sterling $52,589 $52,732 $143
Contract Sold:
6/1/99 554,363 New Zealand Dollars $295,476 $297,111 ($1,635)
NET UNREALIZED DEPRECIATION
ON FOREIGN EXCHANGE CONTRACTS ($1,492)
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. Dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. Dollars based on the rate of exchange of such currencies against U.S.
Dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of 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 period end, resulting from
changes in the exchange rate.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, 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 300,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1999 NOVEMBER 30, 1998 1
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 418,431 $ 4,854,173 1,787,143 $ 17,871,433
Shares issued to
shareholders in payment of
distributions declared 2,918 32,097 - -
Shares redeemed (65,616) (756,365) (222) (2,218)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 355,733 $ 4,129,905 1,786,921 $ 17,869,215
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1999 NOVEMBER 30, 1998 2
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 28,653 $ 336,519 - -
Shares redeemed (56) (671) - -
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 28,597 $ 335,848 - -
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1999 NOVEMBER 30, 1998 2
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 7,092 $ 83,411 - -
Shares redeemed (63) (693) - -
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS 7,029 $82,718 - -
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 391,359 $ 4,548,471 1,786,921 $ 17,869,215
</TABLE>
1 For the period from October 27, 1998 (start of performance) to November 30,
1998.
2 For the period from October 27, 1998 (start of performance) to November 30,
1998, Class B Shares and Class C Shares had no public investments.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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 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 Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
Purchases $ 21,647,161
Sales $ 16,295,442
CONCENTRATION OF CREDIT RISK
The Fund invests a portion of its assets 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, 1999, the diversification of countries was as follows:
PERCENTAGE OF
COUNTRY NET ASSETS
United States 68.9%
United Kingdom 6.3%
Netherlands 3.6%
Japan 3.5%
France 3.1%
Spain 2.5%
Germany 2.4%
Belgium 2.1%
Canada 2.0%
Hong Kong 1.5%
Philippines 1.5%
Finland 1.3%
Australia 1.1%
Ireland 0.8%
Denmark 0.4%
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Global Equity Income Fund
Established 1998
1ST SEMI-ANNUAL REPORT
AS OF JULY 31, 1999
[Graphic]
Federated
Federated Global Equity Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487697
Cusip 981487689
Cusip 981487671
G02336-05 (7/99)
[Graphic]
[Graphic]
RICHARD B. FISHER
President
Federated Global Financial Services Fund
President's Message
Dear Fellow Shareholder:
Federated Global Financial Services Fund was created in 1998, and I am pleased
to present its first Semi-Annual Report. As of May 31, 1999, the fund's total
net assets of $12.3 million were invested in over 80 issues, of which 47% was
invested in domestic securities and 53% was invested in securities outside of
the United States. This fund offers investors the opportunity for capital
appreciation by investing in financial services companies-including banks,
insurance companies, brokerage firms and asset management companies-across as
many as five different financial environments, including the United States,
Asia, Europe, Latin America and eastern Europe. 1 The fund may be ideal for
investors seeking some international exposure but not willing to take the risks
associated with investing exclusively outside of the United States.
This report covers the first half of the fund's fiscal year which is the
six-month period from December 1, 1998 through May 31, 1999. It begins with an
interview with the fund's portfolio manager, Marc Halperin, Vice President of
Federated Global Investment Management Corp. Following his discussion, which
covers the fund's objective and strategy, and market conditions, 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. When you review the fund's holdings, you will recognize many names
of the financial institutions.
Federated Global Financial Services Fund offers investors a unique opportunity
within the mutual fund universe. It is one of only a few funds to invest in the
global financial services sector. We feel that this is the right time for such a
fund because the financial services sector is evolving and experiencing rapid
growth - and the majority of financial services are actually based outside of
the United States.
The fund's performance was positive during the first half of its current fiscal
year, primarily due to gains in its holdings in Asia, which is experiencing a
recovery. Of course, when it comes to performance - especially in the
international arena - it is important to remember that what matters most is
years rather than months. There will be periods of short-term fluctuation and
negative as well as positive returns.
1 Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. In addition, funds whose investments are concentrated in a
specific industry may be subject to a higher degree of market risk than funds
whose investments are diversified.
Individual share class total return performance for the six-month reporting
period, including capital gains, follows: 2
<TABLE>
<CAPTION>
TOTAL RETURN CAPITAL GAINS NET ASSET VALUE INCREASE
<S> <C> <C> <C>
Class A Shares 5.75% $0.08 $11.99 to $12.60 = 5%
Class B Shares 5.25% $0.08 $11.98 to $12.53 = 5%
Class C Shares 5.34% $0.08 $11.98 to $12.54 = 5%
</TABLE>
Please take this opportunity to read the fund's investment review. 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 potential future income. I recommend that you add
to your account on a regular basis to take advantage of price fluctuations and
dollar-cost averaging. 3
Thank you for your investment in Federated Global Financial Services Fund and
for the confidence you have placed in our firm.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
2 Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate so 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
(i.e., less any applicable sales charge), for Class A, B, and C Shares were
(0.08%), (0.25%), and 4.34%, respectively.
3 Systematic investing does not ensure profits or protect against losses in
declining markets. Because dollar-cost averaging involves continuous investment
regardless of fluctuating price levels, investors should consider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
MARC HALPERIN
Vice President
Federated Global Investment Management Corp.
Investment Review
WHAT IS YOUR REVIEW OF GLOBAL FINANCIAL SERVICES STOCKS DURING THE FIRST HALF OF
THE FUND'S FISCAL YEAR?
Consolidation continued to dominate the headlines in the financial services
sector. In January 1999, the merger between two of the top three Spanish banks
was announced. Three major French banks soon announced a link up of their own,
and the Italian banks followed with their own merger proposals in the sector.
However, some consolidation efforts in Europe were stalled in the second
quarter. Proposed acquisitions in Italy and Portugal were vetoed by regulators.
The three-way merger in France continued to be mired in disagreement between
each company's management. However, consolidation in the Spanish market
succeeded with no obstacles.
In the U.S., except for the announced merger of Fleet Financial and BankBoston,
large scale merger activity was rather muted as companies continued to
consolidate their large acquisitions from the past two years. Consolidation
continued within the U.S. regional bank universe, with Federated Global
Financial Services Fund owning five of the announced acquisition companies. A
total of $57 billion in bank mergers have been announced in the first half of
1999, which is more than in 1997 but below 1998 levels.
Asian markets continued to outperform and an incipient economic recovery in the
region appears to be underway.
The euro was successfully introduced on January 1, 1999. The new currency
started the year strong but has depreciated 11% against the strong U.S. dollar
since the beginning of the year.
HOW DID THE FUND PERFORM OVER THE SIX-MONTH REPORTING PERIOD COMPARED TO ITS
BENCHMARK?
The fund's total returns, based on net asset value, for Class A, B, and C Shares
were 5.75%, 5.25% and 5.34%, respectively. 1 The fund's benchmark is the Morgan
Stanley Capital International All Country World Finance Index, which produced a
total return of 3.81%.2
HOW ARE THE FUND'S HOLDINGS SELECTED?
The fund has continued to maintain a diversified portfolio of financial services
sector stocks. The fund invests in banks, insurance, securities/brokerage,
consumer finance and asset management companies around the world. Stock
selection is focused on fundamental, bottom-up research. We prefer companies
with strong business franchises, sound asset quality and reputable management
teams. The bias in the portfolio is for stocks with a market capitalization of
$1 billion and above, although we may hold smaller companies that meet our
investment criteria.
WHAT WERE THE FUND'S COUNTRY ALLOCATIONS AS OF MAY 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
United States 47.0%
Hong Kong 14.3%
United Kingdom 6.7%
France 5.0%
Australia 4.0%
Singapore 3.2%
Spain 2.9%
Italy 2.3%
Switzerland 2.3%
Netherlands 1.9%
Finland 1.5%
Japan 1.5%
Germany 1.4%
Ireland 1.2%
Austria 1.0%
Sweden 0.8%
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Panama 0.7%
Portugal 0.7%
Thailand 0.7%
Greece 0.5%
Canada 0.4%
</TABLE>
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF MAY 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COUNTRY NET ASSETS
<S> <C> <C>
Citigroup, Inc. United States 2.6%
Standard Chartered PLC United Kingdom 2.4%
Wharf Holdings Ltd. Hong Kong 2.3%
Mellon Bank Corp. United States 2.2%
Overseas Union Bank Ltd. Singapore 1.9%
PNC Bank Corp. United States 1.9%
SouthTrust Corp. United States 1.8%
Bank One Corp. United States 1.8%
BankAmerica Corp. United States 1.7%
First Virginia Bank, Inc. United States 1.7%
TOTAL 20.3%
</TABLE>
1 Performance quoted represents past performance, and is not indicative of
future results. Investment return and principal value will fluctuate so an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total returns for the period, based on offering price (i.e., less any
applicable sales charge), for Class A, B, and C Shares were (0.08%), (0.25%),
and 4.34%, respectively.
2 The Morgan Stanley Capital International All Country World Finance Index is a
medium-cap to large-cap unmanaged index comprising the banking, financial
services, insurance and real estate industries. It is diversified across 46
countries and more than 400 companies. All values are expressed in U.S. dollars.
Investments cannot be made in an index.
WHAT WERE SOME OF THE FUND'S RECENT PORTFOLIO ADDITIONS?
Our recent purchases included the following:
WHARF HOLDING (2.29% of net assets, Hong Kong): Wharf is Hong Kong's largest
retail landlord and largest property landlord with 7.7 million square feet of
leasable space. It owns Hong Kong's only cable television operation. Wharf has
25,000 subscribers for its Internet service delivered through fiber optic cable.
It recently traded at 50% of book value with a 6.5% dividend yield.
MELLON BANK (2.18% of net assets, United States): Mellon Bank earns over two
thirds of its income through fee income. It is a major asset management company
with over $400 billion in assets. It is a consolidation candidate in the U.S.
financial services industry.
MERITANORDBANKEN (1.47% of net assets, Finland): MeritaNordbanken is the largest
Scandinavian bank, with 6.5 million customers in Sweden and Finland. It has an
attractive valuation of 1.9x book value. It is also attractive for income
purposes with a dividend yield of 3.7%. MeritaNordbanken is a candidate for
further restructuring and for building a Pan-Nordic full service bank. It has
over 700,000 Internet customers.
AS WE REACH THE MID-POINT OF 1999, WHAT IS YOUR OUTLOOK FOR GLOBAL FINANCIAL
SERVICES STOCKS AND YOUR CURRENT STRATEGY?
We continue to be optimistic about the trends in the global financial services
industry. We believe consolidation will continue in both the U.S. and Europe. In
the U.S., we continue to favor the regional banks. Valuations and earnings
prospects for these companies are quite attractive on a relative basis. The
merger and acquisition movement, we believe, will continue during the second
half of the year driven by the expected repeal of pooling-of-interests - a
favorable accounting treatment for mergers. We will maintain our underweighted
position in Japan due to the lack of financial transparency and poor asset
quality. We anticipate adding to our overweighted positions in the Asian markets
as the incipient recovery from the region's economic problems gathers momentum.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-93.4%
BANKING-33.9%
6,776 Allied Irish Banks PLC $ 90,172
4,800 Argentaria SA 107,536
20,422 Australia & New Zealand
Banking Group Ltd.,
Melbourne 148,271
26,136 Banca Intesa SPA 132,964
8,384 1 Banco Bilbao Vizcaya SA 120,879
3,000 Banco Latinoamericano de
Exportaciones SA, Class E 85,313
4,600 Banco Pinto & Sotto Mayor 91,114
6,217 Banco Santander Central
Hispano, SA 129,624
2,490 Bank Austria AG 127,455
2,818 Bank of Ireland 53,060
1,530 Banque Nationale de Paris 128,878
2,635 Barclays PLC 80,011
2,142 Commonwealth Bank of
Australia 34,443
1,120 Credit Commercial de
France 123,182
2,970 Cullen Frost Bankers, Inc. 167,063
42,800 Dah Sing Financial Group 121,973
15,400 Development Bank of
Singapore Ltd. 159,095
790 Dexia France 109,700
1,500 Dorian Bank SA 63,509
1,700 Eaton Vance Corp. 52,063
1,500 First Tennessee National
Corp. 61,781
5,497 HSBC Holdings PLC 180,047
10,723 Lloyds TSB Group PLC 143,126
6,400 Macquarie Bank Ltd. 73,955
7,520 Mellon Bank Corp. 268,370
30,600 MeritaNordbanken Oy 181,195
4,190 National Australia Bank
Ltd., Melbourne 67,872
7,617 National Westminster Bank
PLC, London 172,824
46,200 Overseas Union Bank Ltd. 237,301
470 Societe Generale, Paris 85,354
19,220 Standard Chartered PLC 291,649
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
BANKING-CONTINUED
370 UBS AG $ 107,011
9,192 Westpac Banking Corp. Ltd. 62,950
43,000 Wing Hang Bank Ltd. 121,434
TOTAL 4,181,174
BANKS (MAJOR REGIONAL)-
10.8%
3,840 Bank One Corp. 217,200
2,800 BankBoston Corp. 132,650
2,800 Fleet Financial Group,
Inc. 115,150
5,700 KeyCorp 198,075
2,720 Mercantile Bancorporation,
Inc. 158,950
4,100 PNC Bank Corp. 234,725
1,400 Republic New York Corp. 95,113
4,290 Summit Bancorp 175,622
TOTAL 1,327,485
BANKS (MONEY CENTER)-4.1%
3,310 BankAmerica Corp. 214,116
2,675 Chase Manhattan Corp. 193,937
2,000 First Union Corp. 92,125
TOTAL 500,178
BANKS (REGIONAL)-7.6%
6,250 Compass Bancshares, Inc. 184,961
4,100 First American Corp. 167,331
2,400 First Security Corp. 45,450
4,100 First Virginia Bank, Inc. 203,719
3,520 Keystone Financial, Inc. 112,750
5,760 SouthTrust Corp. 224,280
TOTAL 938,491
BROADCASTING & PUBLISHING-
1.7%
16,000 BEC World Public Company
Ltd. 84,097
30,000 Television Broadcasting 123,793
TOTAL 207,890
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
FINANCIAL (DIVERSIFIED)-
4.1%
1,200 American Express Co. $ 145,425
1,700 Federal National Mortgage
Association 115,600
1,400 Morgan Stanley, Dean
Witter & Co. 135,100
4,400 Waddell & Reed Financial,
Inc., Class A 107,800
TOTAL 503,925
FINANCIAL SERVICES -5.1%
18 Julius Baer Holdings Ltd. 54,415
29,394 Colonial Ltd. 104,969
3,220 ING Groep, NV 172,038
8,300 Pioneer Group, Inc. 146,288
180 Shohkoh Fund & Co. 100,670
2,200 United Assets Management
Corp. 49,088
TOTAL 627,468
HEALTH & PERSONAL CARE-
0.7%
2,000 Takeda Chemical Industries 88,856
INSURANCE-8.3%
6,400 Alleanza Assicurazioni 71,724
648 Allianz AG 176,991
1,465 Axa 168,762
1,990 Fortis NV 64,623
1,700 Marsh & McLennan Cos., Inc. 123,675
12,000 Mediolanum 81,690
3,555 Prudential Corp., PLC 46,710
9,181 Royal & Sun Alliance
Insurance Group PLC 74,836
5,900 Skandia Forsakrings AB 101,213
200 Zurich Allied AG 117,520
TOTAL 1,027,744
INSURANCE (MULTI-LINE)-
5.4%
1,300 American International
Group, Inc. 148,606
1,000 CIGNA Corp. 93,250
4,850 Citigroup, Inc. 321,312
1,600 Hartford Financial
Services Group, Inc. 101,200
TOTAL 664,368
<CAPTION>
SHARES OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS-continued
INVESTMENT
BANKING/BROKERAGE-0.3%
840 Bear Stearns Cos., Inc. $ 37,275
LEISURE & TOURISM-0.3%
56,500 Hong Kong & Shanghai Hotel 41,529
REAL ESTATE-9.0%
137,000 Hang Lung Development Co. 158,997
30,000 Henderson Land Development
Co., Ltd. 151,260
74,000 New World Development Co.,
Ltd. 180,829
272,000 Sino Land Co. 146,437
17,086 Sun Hung Kai Properties
Ltd. 136,603
2,500 Trizec Hahn Corp. 51,427
111,000 Wharf Holdings Ltd. 282,694
TOTAL 1,108,247
SAVINGS & LOAN COMPANIES-
1.2%
3,840 Washington Mutual, Inc. 146,640
UTILITIES - ELECTRICAL &
GAS-0.9%
14,000 Cheung Kong 113,735
TOTAL COMMON STOCKS
(IDENTIFIED COST
$10,314,560) 11,515,005
REPURCHASE AGREEMENT-8.8% 2
$ 1,080,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999 (at amortized
cost) 1,080,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$11,394,560) 3 $ 12,595,005
</TABLE>
1 Non-income producing security.
2 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated Funds.
3 The cost of investments for federal tax purposes amounts to $11,394,560. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,200,445 which is comprised of $1,448,820 appreciation and $248,375
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($12,323,708) at May 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$11,394,560) $ 12,595,005
Cash 409,528
Cash denominated in
foreign currencies
(identified cost $266,168) 266,138
Income receivable 37,953
Receivable for shares sold 187,274
TOTAL ASSETS 13,495,898
LIABILITIES:
Payable for investments
purchased $ 1,168,207
Payable for taxes withheld 3,158
Net payable for foreign
currency exchange
contracts 64
Accrued expenses 761
TOTAL LIABILITIES 1,172,190
Net assets for 981,600
shares outstanding $ 12,323,708
NET ASSETS CONSIST OF:
Paid in capital $ 11,025,451
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 1,200,425
Accumulated net realized
gain on investments and
foreign currency
transactions 67,833
Undistributed net
investment income 29,999
TOTAL NET ASSETS $ 12,323,708
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($4,552,823 / 361,452
shares outstanding) $12.60
Offering Price Per Share
(100/94.50 of $12.60) 1 $13.33
Redemption Proceeds Per
Share $12.60
CLASS B SHARES:
Net Asset Value Per Share
($7,111,520 / 567,584
shares outstanding) $12.53
Offering Price Per Share $12.53
Redemption Proceeds Per
Share (94.50/100 of
$12.53) 1 $11.84
CLASS C SHARES:
Net Asset Value Per Share
($659,365 / 52,564 shares
outstanding) $12.54
Offering Price Per Share $12.54
Redemption Proceeds Per
Share (99.00/100 of
$12.54) 1 $12.41
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of $6,931) $ 98,483
Interest 16,945
TOTAL INCOME 115,428
EXPENSES:
Investment advisory fee $ 41,673
Administrative personnel
and services fee 92,247
Custodian fees 5,639
Transfer and dividend
disbursing agent fees and
expenses 30,259
Directors' fees 746
Auditing fees 8,364
Legal fees 2,295
Portfolio accounting fees 37,802
Distribution services fee-
Class B Shares 16,598
Distribution services fee-
Class C Shares 1,972
Shareholder services fee-
Class A Shares 4,228
Shareholder services fee-
Class B Shares 5,533
Shareholder services fee-
Class C Shares 657
Share registration costs 30,016
Printing and postage 8,112
Insurance premiums 1,459
Taxes 1,058
Miscellaneous 2,482
TOTAL EXPENSES 291,140
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (41,673)
Reimbursement of other
operating expenses (164,038)
TOTAL WAIVERS AND
REIMBURSEMENTS (205,711)
Net expenses 85,429
Net investment income 29,999
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain on
investments and foreign
currency transactions 67,899
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 213,965
Net realized and
unrealized gain on
investments and foreign
currency transactions 281,864
Change in net assets
resulting from operations $ 311,863
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) PERIOD ENDED
MAY 31, NOVEMBER 30,
1999 1998 1
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 29,999 $ 7,002
Net realized gain on
investments and foreign
currency transactions
($67,899 and $46,202,
respectively, as computed
for federal tax purposes) 67,899 39,152
Net change in unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 213,965 986,460
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 311,863 1,032,614
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares (26,326) -
Class B Shares (17,518) -
Class C Shares (2,376) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (46,220) -
SHARE TRANSACTIONS:
Proceeds from sale of
shares 10,213,293 7,814,821
Net asset value of shares
issued to shareholders in
payment of
distributions declared 24,119 -
Cost of shares redeemed (4,527,419) (2,500,188)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 5,709,993 5,314,633
Change in net assets 5,975,636 6,347,247
NET ASSETS:
Beginning of period 6,348,072 825
End of period (including
undistributed net
investment income of
$29,999 and $0,
respectively) $ 12,323,708 $ 6,348,072
</TABLE>
1 Reflects operations for the period from September 30, 1998 (date of initial
public investment) to November 30, 1998.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) PERIOD ENDED
MAY 31, NOVEMBER 30,
1999 1998 1
<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.99 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.01 2
Net realized and
unrealized gain on
investments and foreign
currency transactions 0.64 1.98
TOTAL FROM INVESTMENT
OPERATIONS 0.69 1.99
LESS DISTRIBUTIONS:
Distributions from net
realized gain on
investments and foreign
currency transactions (0.08) -
NET ASSET VALUE, END OF
PERIOD $12.60 $11.99
TOTAL RETURN 3 5.75% 19.90%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 6.54% 5 13.09% 5
Net operating loss 4 (3.77%) 5 (10.64%) 5
Expenses (after waivers
and reimbursements) 1.60% 5 1.60% 5
Net investment income
(after waivers and
reimbursements) 1.17% 5 0.85% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $4,553 $4,094
Portfolio turnover 22% 12%
</TABLE>
1 Reflects operations for the period from September 30, 1998 (date of initial
public investment) to November 30, 1998.
2 Per share information is based on average shares outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred the ratios would have
been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) PERIOD ENDED
MAY 31, NOVEMBER 30,
1999 1998 1
<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.98 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.02 0.00 2
Net realized and
unrealized gain on
investments and foreign
currency transactions 0.61 1.98
TOTAL FROM INVESTMENT
OPERATIONS 0.63 1.98
LESS DISTRIBUTIONS:
Distributions from net
realized gain on
investments and foreign
currency transactions (0.08) -
NET ASSET VALUE, END OF
PERIOD $12.53 $11.98
TOTAL RETURN 3 5.25% 19.80%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 7.29% 5 13.84% 5
Net operating loss 4 (4.52%) 5 (11.39%) 5
Expenses (after waivers
and reimbursements) 2.35% 5 2.35% 5
Net investment income
(after waivers and
reimbursements) 0.42% 5 0.10% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $7,112 $1,911
Portfolio turnover 22% 12%
</TABLE>
1 Reflects operations for the period from September 30, 1998 (date of initial
public investment) to November 30, 1998.
2 Per share information is based on average shares outstanding. Per share amount
does not round to $0.01.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred the ratios would have
been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) PERIOD ENDED
MAY 31, NOVEMBER 30,
1999 1998 1
<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.98 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.01 0.00 2
Net realized and
unrealized gain on
investments and foreign
currency transactions 0.63 1.98
TOTAL FROM INVESTMENT
OPERATIONS 0.64 1.98
LESS DISTRIBUTIONS:
Distributions from net
realized gain on
investments and foreign
currency transactions (0.08) -
NET ASSET VALUE, END OF
PERIOD $12.54 $11.98
TOTAL RETURN 3 5.34% 19.80%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 7.29% 5 13.84% 5
Net operating loss 4 (4.52%) 5 (11.39%) 5
Expenses (after waivers
and reimbursements) 2.35% 5 2.35% 5
Net investment income
(after waivers and
reimbursements) 0.42% 5 0.10% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $659 $343
Portfolio turnover 22% 12%
</TABLE>
1 Reflects operations for the period from September 30, 1998 (date of initial
public investment) to November 30, 1998.
2 Per share information is based on average shares outstanding. Per share amount
does not round to $0.01.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred the ratios would have
been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
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 ten portfolios. The
financial statements included herein are only those of Federated Global
Financial Services 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 capital growth.
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
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value. With respect to valuation
of foreign securities, trading in foreign cities may be completed at times which
vary from the closing of the New York Stock Exchange. Therefore, foreign
securities are valued at the latest closing price on the exchange on which they
are traded prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. Dollars at the
foreign exchange rate in effect at noon, eastern time, on the day the value of
the foreign security is determined.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
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
counterparties to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the settlement date.
At May 31, 1999, the Fund had an outstanding foreign currency commitment as set
forth below:
<TABLE>
<CAPTION>
SETTLEMENT DATE CONTRACT TO RECEIVE IN EXCHANGE FOR CONTRACT AT VALUE UNREALIZED DEPRECIATION
<S> <C> <C> <C> <C>
Contract Purchased:
6/1/99 37,580 Euro Currency $39,241 $39,177 $(64)
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. Dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. Dollars based on the rate of exchange of such currencies against U.S.
Dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of 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 period end, resulting from
changes in the exchange rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
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>
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1999 NOVEMBER 30, 1998 1
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 318,930 $ 3,991,298 562,999 $ 5,709,657
Shares issued to
shareholders in payment of
distributions declared 505 6,189 - -
Shares redeemed (299,592) (3,671,086) (221,423) (2,470,458)
NET CHANGE RESULTING
FROM CLASS A
SHARE TRANSACTIONS 19,843 $ 326,401 341,576 $ 3,239,199
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1999 NOVEMBER 30, 1998 1
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 470,385 $ 5,861,976 159,648 $ 1,768,406
Shares issued to
shareholders in payment of
distributions declared 1,303 15,948 - -
Shares redeemed (63,598) (792,826) (179) (2,008)
NET CHANGE RESULTING
FROM CLASS B
SHARE TRANSACTIONS 408,090 $ 5,085,098 159,469 $ 1,766,398
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1999 NOVEMBER 30, 1998 1
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 28,975 $ 360,019 30,948 $ 336,758
Shares issued to
shareholders in payment of
distributions declared 162 $1,982 - -
Shares redeemed (5,223) (63,507) (2,323) (27,722)
NET CHANGE RESULTING
FROM CLASS C
SHARE TRANSACTIONS 23,914 $ 298,494 28,625 $ 309,036
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS 451,847 $ 5,709,993 529,670 $ 5,314,633
</TABLE>
1 For the period from September 30, 1998 (date of initial public investment) to
November 30, 1998.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Global Investment Management 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.
Under the terms of a sub-advisory agreement between the Adviser and Federated
Advisers (the "Sub-Adviser"), the Sub Adviser receives an allocable portion of
the Fund's advisory fee. Such allocation is based on the amount of U.S.
securities which the Sub-Adviser manages for the Fund. The fee is paid by the
Adviser and is not an incremental Fund expense.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A,
Class B and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
Class A Shares did not incur a distribution services fee for the six months
ended May 31, 1999, 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 6,876,372
Sales $ 1,722,685
</TABLE>
CONCENTRATION OF CREDIT RISK
The Fund invests a portion of its assets 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, 1999, the diversification of countries was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
United States 47.0%
Hong Kong 14.3%
United Kingdom 6.7%
France 5.0%
Australia 4.0%
Singapore 3.2%
Spain 2.9%
Italy 2.3%
Switzerland 2.3%
Netherlands 1.9%
Finland 1.5%
Japan 1.5%
Germany 1.4%
Ireland 1.2%
Austria 1.0%
Sweden 0.8%
Panama 0.7%
Portugal 0.7%
Thailand 0.7%
Greece 0.5%
Canada 0.4%
</TABLE>
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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 and Secretary
DREW J. COLLINS
Vice President
RICHARD J. THOMAS
Treasurer
KAREN M. BROWNLEE
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated Global Financial Services Fund
Established 1998
1ST SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Global Financial Services Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 981487663
Cusip 981487655
Cusip 981487648
G02455-04 (7/99)
[Graphic]
