STRATEGIC
INCOME
FUND
CLASS A SHARES
SUPPLEMENT TO PROSPECTUS
DATED APRIL 5, 1994
September 22, 1994
[LOGO] FEDERATED SECURITIES CORP.
----------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
338319700
G00531-01 (9/94)
STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES
- --------------------------------------------------------------------------------
SUPPLEMENT TO PROSPECTUS DATED APRIL 5, 1994
A. Please insert the following "Financial Highlights--Class A Shares" table
as page 2 of the prospectus following the "Summary of Fund Expenses" and
before the section entitled "General Information." In addition, please add
the heading "Financial Highlights--Class A Shares" to the Table of
Contents page after the heading "Summary of Fund Expenses."
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ----------------------------------------------------------------------------------------- -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.17
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.16)
- ----------------------------------------------------------------------------------------- --------
Total from investment operations 0.01
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- ----------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.84
- ----------------------------------------------------------------------------------------- --------
TOTAL RETURN+ 0.07%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.25%(b)
- -----------------------------------------------------------------------------------------
Net investment income 7.19%(b)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 9.12%(b)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $940
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- -----------------------------------------------------------------------------------------
</TABLE>
* For the period from May 3, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
+ Based on net asset value, which does not reflect sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
B. Please delete the first two sentences of the section entitled "Liberty
Family of Funds", including the list of funds included in the Liberty
Family of Funds which begins on page 2 of the prospectus and replace them
with the following:
"This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
. American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
. Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
. Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
. International Equity Fund, providing long-term capital growth and income
through international securities;
. International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
. Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
. Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated, corporate bonds;
. Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
. Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
. Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
. Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
. Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
. Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
. Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
. Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
. World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries."
C. Please insert the following as the second sentence of the final paragraph
in the section entitled "Acceptable Investments" on page 4 of the
prospectus: "The prices of fixed income securities fluctuate inversely to
the direction of interest rates."
D. Please delete the section entitled "When-Issued and Delayed Delivery
Transactions" on page 14 of the prospectus and replace it with the
following:
"WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/ less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments."
E. Please delete the table under the heading "What Shares Cost" on page 17 of
the prospectus and replace it with the following:
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS DEALER CONCESSION AS
A PERCENTAGE OF A PERCENTAGE OF A PERCENTAGE OF
"AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED PUBLIC OFFERING PRICE
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or more 0.00% 0.00% 0.25%*
</TABLE>
*See subsection entitled "Dealer Concession" below."
F. Please delete the first paragraph in the subsection entitled "Dealer
Concession" on page 18 of the prospectus and replace it with the
following:
"DEALER CONCESSION. In addition to the dealer concession as noted in the table
above, the distributor will, from time to time, offer to pay dealers up to 100%
of the sales load retained by it. Such payments may take the form of cash or
promotional incentives, such as reimbursement of certain expenses of qualified
employees and their spouses to attend informational meetings about the Fund or
other special events at recreational-type facilities, or items of material
value. In some instances, these incentives will be made available only to
dealers whose employees have sold or may sell a significant amount of Shares. On
purchases of $1 million or more, the investor pays no sales load; however, the
distributor will make twelve monthly payments to the dealer totalling 0.25% of
the public offering price over the first year following the purchase. Such
payments are based on the original purchase price of Shares outstanding at each
month end."
G. Please delete the section entitled "Retirement Plans" on page 20 of the
prospectus and replace it with the following:
"RETIREMENT PLANS
Shares can be purchased as an investment for retirement plans or for IRA
accounts. For further details, contact the Fund and consult a tax adviser."
H. Please delete the section entitled " Other Payments to Financial
Institutions" on page 25 of the prospectus and replace it with the
following:
"OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Shareholder Services Plan, the distributor may
offer to pay a fee from its own assets to financial institutions as financial
assistance for providing substantial marketing and sales support. The support
may include sponsoring sales, educational and training seminars for their
employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates."
I. Please delete the second and third paragraphs included in the section
entitled "Shareholder Services Plan" on page 25 of the prospectus.
J. Please insert the following "Financial Highlights--Class C Shares" and
"Financial Highlights--Fortress Shares" tables immediately following the
section entitled "Other Classes of Shares" but preceding the section
entitled "Appendix." In addition, please add the headings "Financial
Highlights--Class C Shares" and "Financial Highlights--Fortress Shares" to
the Table of Contents page after the heading "Other Classes of Shares."
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.14
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.00
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)(a)
- ---------------------------------------------------------------------------------------- --------
Total distributions (0.15)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.85
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN+ (0.01%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 1.00%(c)
- ----------------------------------------------------------------------------------------
Net investment income 7.01%(c)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $419
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to
July 31, 1994 (unaudited).
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.14
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.00
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)(a)
- ---------------------------------------------------------------------------------------- --------
Total distributions (0.16)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.84
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN+ (0.05%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.75%(c)
- ----------------------------------------------------------------------------------------
Net investment income 7.35%(c)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $591
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from May 9, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
K. Please insert the following financial statements immediately following the
"Financial Highlights" tables previously added but preceding the section
entitled "Appendix." In addition, please add the heading "Financial
Statements" to the Table of Contents page immediately before the heading
"Appendix."
STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--31.5%
- ---------------------------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--2.6%
-----------------------------------------------------------------------------------
$50,000 Bell & Howell Co., Sr. Sub. Note, 10.75%, 10/1/2002 $ 50,000
----------------------------------------------------------------------------------- -------------
CABLE TV--2.3%
-----------------------------------------------------------------------------------
50,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 44,937
----------------------------------------------------------------------------------- -------------
CHEMICALS & PLASTICS--2.6%
-----------------------------------------------------------------------------------
50,000 Arcadian Partners L.P., Sr. Note (Series B), 10.75%, 5/1/2005 50,250
----------------------------------------------------------------------------------- -------------
CLOTHING & TEXTILES--2.3%
-----------------------------------------------------------------------------------
50,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 45,563
----------------------------------------------------------------------------------- -------------
CONTAINERS & GLASS PRODUCTS--2.6%
-----------------------------------------------------------------------------------
50,000 Owens Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 50,875
----------------------------------------------------------------------------------- -------------
ECOLOGICAL SERVICES & EQUIPMENT--2.5%
-----------------------------------------------------------------------------------
49,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%,
2/15/2003 49,000
----------------------------------------------------------------------------------- -------------
FOOD & DRUG RETAILERS--4.6%
-----------------------------------------------------------------------------------
50,000 Grand Union Co., Sr. Sub. Note, 12.25%, 7/15/2002 43,625
-----------------------------------------------------------------------------------
45,750 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 45,750
----------------------------------------------------------------------------------- -------------
Total 89,375
----------------------------------------------------------------------------------- -------------
FOOD SERVICE--2.4%
-----------------------------------------------------------------------------------
50,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 46,750
----------------------------------------------------------------------------------- -------------
FOREST PRODUCTS--2.4%
-----------------------------------------------------------------------------------
50,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 46,500
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN U.S.
CURRENCY DOLLAR
PAR AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
HOME PRODUCTS & FURNISHINGS--1.6%
-----------------------------------------------------------------------------------
$50,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 $ 31,750
----------------------------------------------------------------------------------- -------------
STEEL--2.4%
-----------------------------------------------------------------------------------
50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 47,250
----------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--3.2%
-----------------------------------------------------------------------------------
100,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%,
9/1/2003 61,750
----------------------------------------------------------------------------------- -------------
TOTAL U.S. CORPORATE BONDS
(IDENTIFIED COST $627,437) 614,000
----------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT AGENCY--32.7%
- ---------------------------------------------------------------------------------------------------
637,895 Federal National Mortgage Association, TBA, 8.00%, 4/1/2024
(identified cost $634,634) 637,895
----------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--34.0%
- ---------------------------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--2.1%
-----------------------------------------------------------------------------------
STATE/PROVINCIAL--2.1%
-----------------------------------------------------------------------------------
50,000 State Bank of New South Wales, 12.25%, 2/26/2001 41,312
----------------------------------------------------------------------------------- -------------
BRITISH POUND--3.6%
-----------------------------------------------------------------------------------
CORPORATE--3.6%
-----------------------------------------------------------------------------------
50,000 Abbey National Treasury, 8.00%, 4/2/2003 71,192
----------------------------------------------------------------------------------- -------------
CANADIAN DOLLAR--3.6%
-----------------------------------------------------------------------------------
AGENCY--3.6%
-----------------------------------------------------------------------------------
100,000 Ontario Hydro, 9.00%, 6/24/2002 69,184
----------------------------------------------------------------------------------- -------------
DANISH KRONE--2.5%
-----------------------------------------------------------------------------------
SOVEREIGN--2.5%
-----------------------------------------------------------------------------------
300,000 Kingdom of Denmark, 8.00%, 5/15/2003 48,198
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN U.S.
CURRENCY DOLLAR
PAR AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
DEUTSCHE MARK--3.4%
-----------------------------------------------------------------------------------
SOVEREIGN--3.4%
-----------------------------------------------------------------------------------
$100,000 Federal Republic of Germany, 8.00%, 7/22/2002 $ 66,591
----------------------------------------------------------------------------------- -------------
FRENCH FRANC--3.8%
-----------------------------------------------------------------------------------
AGENCY--3.8%
-----------------------------------------------------------------------------------
400,000 KFW International Finance, Inc., 7.00%, 5/12/2000 73,439
----------------------------------------------------------------------------------- -------------
JAPANESE YEN--6.1%
-----------------------------------------------------------------------------------
CORPORATE--6.1%
-----------------------------------------------------------------------------------
10,000,000 Bank of Tokyo Cayman Finance, Sub. Note, 4.25%, 12/31/99 119,196
----------------------------------------------------------------------------------- -------------
NEW ZEALAND DOLLAR--3.3%
-----------------------------------------------------------------------------------
AGENCY--3.3%
-----------------------------------------------------------------------------------
100,000 Electricity Corp. of New Zealand, 10.00%, 10/15/2001 64,548
----------------------------------------------------------------------------------- -------------
U.S. DOLLAR--5.6%
-----------------------------------------------------------------------------------
AGENCY--2.2%
-----------------------------------------------------------------------------------
50,000 Banco Nacional de Comercio Exterior Mexico, 8.00%, 8/5/2003 42,797
----------------------------------------------------------------------------------- -------------
SOVEREIGN--3.4%
-----------------------------------------------------------------------------------
100,000 Argentina Bonos de Consolidacion (Pre 4), 4.375%, 9/1/2002 67,200
----------------------------------------------------------------------------------- -------------
Total U.S. Dollar 109,997
----------------------------------------------------------------------------------- -------------
TOTAL INTERNATIONAL BONDS
(IDENTIFIED COST $677,808) 663,657
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
*REPURCHASE AGREEMENT--15.9%
- ---------------------------------------------------------------------------------------------------
$310,000 J.P. Morgan Securities, Inc., 4.25%, dated 7/29/94, due 8/1/94
(at amortized cost) (Note 2B) $ 310,000
----------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $2,249,879) $ 2,225,552+
----------------------------------------------------------------------------------- -------------
</TABLE>
* 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.
+ The cost for federal tax purposes amounts to $2,249,879. The net unrealized
depreciation of investments on a federal tax basis amounts to $24,327, which
is comprised of $7,768 appreciation and $32,095 depreciation at July 31, 1994.
The following abbreviation is used in this portfolio:
TBA-- To be announced.
Note: The categories of investments are shown as a percentage of net assets
($1,951,232) at July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------------
Investments in other securities, at value (Note 2A) $ 1,915,552
- ----------------------------------------------------------------------------------------
Investments in repurchase agreements, at amortized cost (Note 2B) 310,000
- ---------------------------------------------------------------------------------------- -----------
Total investments (identified & tax cost $2,249,879) $ 2,225,552
- -----------------------------------------------------------------------------------------------------
Cash 3,733
- -----------------------------------------------------------------------------------------------------
Receivable for foreign currency sold 75,341
- -----------------------------------------------------------------------------------------------------
Interest receivable 28,788
- -----------------------------------------------------------------------------------------------------
Receivable for capital stock sold 15,683
- ----------------------------------------------------------------------------------------------------- -----------
Total assets 2,349,097
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased 290,828
- ----------------------------------------------------------------------------------------
Payable for currency purchased 76,140
- ----------------------------------------------------------------------------------------
Dividends payable 7,054
- ----------------------------------------------------------------------------------------
Accrued expenses 23,843
- ---------------------------------------------------------------------------------------- -----------
Total liabilities 397,865
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 198,212 shares of capital stock outstanding $ 1,951,232
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------
Paid-in capital $ 1,980,067
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation of investments (24,327)
- -----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (526)
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (3,982)
- ----------------------------------------------------------------------------------------------------- -----------
Total Net Assets $ 1,951,232
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE:
Class C Shares (net assets of $419,352 / 42,590 SHARES OF CAPITAL STOCK OUTSTANDING) $9.85
- ----------------------------------------------------------------------------------------------------- -----------
CLASS A SHARES (NET ASSETS OF $940,437 / 95,546 SHARES OF CAPITAL STOCK OUTSTANDING) $9.84
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares (net assets of $591,443 / 60,076 SHARES OF CAPITAL STOCK OUTSTANDING) $9.84
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE:
Class C Shares Offering Price Per Share $9.85
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Offering Price Per Share (100/95.5 of $9.84)* $10.30
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Offering Price Per Share (100/99 of $9.84)* $9.94
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF REDEMPTION PROCEEDS:
Class C Shares Redemption Proceeds Per Share (99/100 of $9.85)** $9.75
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Redemption Proceeds Per Share $9.84
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Redemption Proceeds Per Share (99/100 of $9.84)** $9.74
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
PERIOD ENDED JULY 31, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 27,745
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 3,084
- -----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 27,650
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 1,700
- -----------------------------------------------------------------------------------------
Printing and postage 100
- -----------------------------------------------------------------------------------------
Legal 350
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares (Note 4) 606
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares (Note 4) 125
- -----------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares (Note 4) 176
- -----------------------------------------------------------------------------------------
Distribution fees--Class C Shares (Note 4) 375
- -----------------------------------------------------------------------------------------
Distribution fees--Fortress Shares (Note 4) 352
- -----------------------------------------------------------------------------------------
Miscellaneous 200
- ----------------------------------------------------------------------------------------- ---------
Total expenses 34,718
- -----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) $ 3,084
- ------------------------------------------------------------------------------
--Reimbursement of other operating expenses (Note 4) 30,000 33,084
- ------------------------------------------------------------------------------ --------- ---------
Net expenses 1,634
- ---------------------------------------------------------------------------------------------------- ----------
Net investment income 26,111
- ---------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (3,982)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,327)
- ---------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments (28,309)
- ---------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ (2,198)
- ---------------------------------------------------------------------------------------------------- ----------
</TABLE>
*For the period from April 29, 1994 (date of initial public investment) to July
31, 1994.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------
Net investment income $ 26,111
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investments (Note 2D) (3,982)
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,327)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from operations (2,198)
- ---------------------------------------------------------------------------------------- ------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------------------------
Class A Shares (16,721)
- ----------------------------------------------------------------------------------------
Fortress Shares (5,176)
- ----------------------------------------------------------------------------------------
Class C Shares (3,504)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 2C):
- ----------------------------------------------------------------------------------------
Fortress Shares (844)
- ----------------------------------------------------------------------------------------
Class C Shares (391)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from distributions to shareholders (26,636)
- ---------------------------------------------------------------------------------------- ------------------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ----------------------------------------------------------------------------------------
Proceeds from sale of shares 3,487,420
- ----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 10,486
- ----------------------------------------------------------------------------------------
Cost of shares redeemed (1,486,475)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets from capital stock transactions 2,011,431
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets 1,982,597
- ----------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------- ------------------------
End of period $ 1,982,597
- ---------------------------------------------------------------------------------------- ------------------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fixed Income Securities, 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 five diversified
portfolios. The financial statements included herein are only those of Strategic
Income Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers three classes of shares (Class A Shares, Class C Shares and Fortress
Shares).
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed-income and
asset backed securities) are valued at last sale price reported on national
securities exchanges. Unlisted bonds and securities and short-term
obligations are valued at the prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or
less may be stated at amortized cost, which approximates value.
B. 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 in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
at least equals the principal amount of the repurchase agreement, including
accrued interest.
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 guidelines established
by the Board of 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.
C. 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.
Distributions are determined in accordance with income tax regulations
which may
differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.
D. 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 taxable 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 dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates.
E. 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.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At July 31, 1994, there were 4,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares, 1,000,000,000 have been designated as Class C
Shares, 1,000,000,000 as Class A Shares, and 1,000,000,000 as Fortress Shares.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
----------------------
CLASS C SHARES SHARES DOLLARS
<S> <C> <C>
- -------------------------------------------------------------------------------------- --------- -----------
Shares sold 45,588 $ 451,902
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 196 1,943
- --------------------------------------------------------------------------------------
Shares redeemed -- --
- -------------------------------------------------------------------------------------- --------- -----------
Net change resulting from Class C Shares transactions 45,784 $ 453,845
- -------------------------------------------------------------------------------------- --------- -----------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to July
31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
-------------------------
CLASS A SHARES SHARES DOLLARS
<S> <C> <C>
- --------------------------------------------------------------------------------- ---------- -------------
Shares sold 245,374 $ 2,442,038
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 471 4,658
- ---------------------------------------------------------------------------------
Shares redeemed (150,299) (1,486,416)
- --------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Class A Shares transactions 95,546 $ 960,280
- --------------------------------------------------------------------------------- ---------- -------------
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994**
-------------------------
FORTRESS SHARES SHARES DOLLARS
<S> <C> <C>
- --------------------------------------------------------------------------------- ---------- -------------
Shares sold 59,690 $ 593,480
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 392 3,885
- ---------------------------------------------------------------------------------
Shares redeemed (6) (59)
- --------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Fortress Shares transactions 60,076 $ 597,306
- --------------------------------------------------------------------------------- ---------- -------------
Total net change resulting from Fund Shares transactions 201,406 $ 2,011,431
- --------------------------------------------------------------------------------- ---------- -------------
</TABLE>
* For the period from May 3, 1994 (date of initial public investment) to July
31, 1994.
** For the period from May 9, 1994 (date of initial public investment) to July
31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.85 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
DISTRIBUTION AND SHAREHOLDER 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 C Shares and Fortress Shares. The Plan
provides that the Fund may incur distribution expenses up to .75 of 1% and .50
of 1% of the average daily net assets to the Class C Shares and Fortress Shares,
respectively, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average net assets of
each class of Shares for the period. This fee is to obtain certain personal
services for shareholders and to maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ fee is
based on the size, type, and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative
service expenses will be borne initially by the Adviser and are estimated at
$44,600 and $46,630, respectively. The Fund has agreed to reimburse the Adviser
for the organizational expenses and start-up administrative expenses during the
five year period following April 5, 1994 (date the Fund first became effective).
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
July 31, 1994, were as follows:
<TABLE> <S>
<C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 2,173,720
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 220,918
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
September 22, 1994
STRATEGIC
INCOME
FUND
CLASS C SHARES
SUPPLEMENT TO PROSPECTUS
DATED APRIL 5, 1994
September 22, 1994
[LOGO] FEDERATED SECURITIES CORP.
----------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
338319809
G00531-02 (9/94)
STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS C SHARES
- --------------------------------------------------------------------------------
SUPPLEMENT TO PROSPECTUS DATED APRIL 5, 1994
A. Please insert the following "Financial Highlights--Class C Shares" table
as page 2 of the prospectus following the "Summary of Fund Expenses" and
before the section entitled "General Information." In addition, please add
the heading "Financial Highlights--Class C Shares" to the Table of
Contents page after the heading "Summary of Fund Expenses."
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ----------------------------------------------------------------------------------------- -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.14
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ----------------------------------------------------------------------------------------- --------
Total from investment operations 0.00
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- -----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)(a)
- ----------------------------------------------------------------------------------------- --------
Total distributions (0.15)
- ----------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.85
- ----------------------------------------------------------------------------------------- --------
TOTAL RETURN+ (0.01%)
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 1.00%(c)
- -----------------------------------------------------------------------------------------
Net investment income 7.01%(c)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $419
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- -----------------------------------------------------------------------------------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to
July 31, 1994 (unaudited).
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
B. Please delete the first two sentences of the section entitled "Liberty
Family of Funds", including the list of funds included in the Liberty
Family of Funds which begins on page 2 of the prospectus and replace them
with the following:
"This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
. American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
. Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
. Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
. International Equity Fund, providing long-term capital growth and income
through international securities;
. International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
. Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
. Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated, corporate bonds;
. Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
. Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
. Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
. Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
. Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
. Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
. Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
. Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
. World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries."
C. Please insert the following as the second sentence of the final paragraph
in the section entitled "Acceptable Investments" on page 4 of the
prospectus: "The prices of fixed income securities fluctuate inversely to
the direction of interest rates."
D. Please delete the section entitled "When-Issued and Delayed Delivery
Transactions" on page 14 of the prospectus and replace it with the
following:
"WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/ less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments."
E. Please delete the section entitled "Retirement Plans" on page 18 of the
prospectus and replace it with the following:
"RETIREMENT PLANS
Shares can be purchased as an investment for retirement plans or for IRA
accounts. For further details, contact the Fund and consult a tax adviser."
F. Please delete the section entitled "Other Payments to Financial
Institutions" on page 24 of the prospectus and replace it with the
following:
"OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp. will pay
financial institutions an amount equal to 1% of the net asset value of Shares
purchased by their clients or customers at the time of purchase (except for
participants in the Liberty Family Retirement Program). Financial institutions
may elect to waive the initial payments described above; such waiver will result
in the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include participating in sales,
educational and training seminars at recreational-type facilities, providing
sales literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates."
G. Please insert the following "Financial Highlights--Class A Shares" and
"Financial Highlights--Fortress Shares" tables immediately following the
section entitled "Other Classes of Shares" but preceding the section
entitled "Appendix." In addition, please add the headings "Financial
Highlights--Class A Shares" and "Financial Highlights--Fortress Shares" to
the Table of Contents page after the heading "Other Classes of Shares."
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.17
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.16)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.01
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.84
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN+ 0.07%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.25%(b)
- ----------------------------------------------------------------------------------------
Net investment income 7.19%(b)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 9.12%(b)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $940
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from May 3, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.14
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.00
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)(a)
- ---------------------------------------------------------------------------------------- --------
Total distributions (0.16)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.84
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN+ (0.05%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.75%(c)
- ----------------------------------------------------------------------------------------
Net investment income 7.35%(c)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $591
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from May 9, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
H. Please insert the following financial statements immediately following the
"Financial Highlights" tables previously added but preceding the section
entitled "Appendix." In addition, please add the heading "Financial
Statements" to the Table of Contents immediately before the heading
"Appendix."
STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--31.5%
- ---------------------------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--2.6%
-----------------------------------------------------------------------------------
$50,000 Bell & Howell Co., Sr. Sub. Note, 10.75%, 10/1/2002 $ 50,000
----------------------------------------------------------------------------------- -------------
CABLE TV--2.3%
-----------------------------------------------------------------------------------
50,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 44,937
----------------------------------------------------------------------------------- -------------
CHEMICALS & PLASTICS--2.6%
-----------------------------------------------------------------------------------
50,000 Arcadian Partners L.P., Sr. Note (Series B), 10.75%, 5/1/2005 50,250
----------------------------------------------------------------------------------- -------------
CLOTHING & TEXTILES--2.3%
-----------------------------------------------------------------------------------
50,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 45,563
----------------------------------------------------------------------------------- -------------
CONTAINERS & GLASS PRODUCTS--2.6%
-----------------------------------------------------------------------------------
50,000 Owens Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 50,875
----------------------------------------------------------------------------------- -------------
ECOLOGICAL SERVICES & EQUIPMENT--2.5%
-----------------------------------------------------------------------------------
49,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%,
2/15/2003 49,000
----------------------------------------------------------------------------------- -------------
FOOD & DRUG RETAILERS--4.6%
-----------------------------------------------------------------------------------
50,000 Grand Union Co., Sr. Sub. Note, 12.25%, 7/15/2002 43,625
-----------------------------------------------------------------------------------
45,750 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 45,750
----------------------------------------------------------------------------------- -------------
Total 89,375
----------------------------------------------------------------------------------- -------------
FOOD SERVICE--2.4%
-----------------------------------------------------------------------------------
50,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 46,750
----------------------------------------------------------------------------------- -------------
FOREST PRODUCTS--2.4%
-----------------------------------------------------------------------------------
50,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 46,500
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN U.S.
CURRENCY DOLLAR
PAR AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
HOME PRODUCTS & FURNISHINGS--1.6%
-----------------------------------------------------------------------------------
$50,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 $ 31,750
----------------------------------------------------------------------------------- -------------
STEEL--2.4%
-----------------------------------------------------------------------------------
50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 47,250
----------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--3.2%
-----------------------------------------------------------------------------------
100,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%,
9/1/2003 61,750
----------------------------------------------------------------------------------- -------------
TOTAL U.S. CORPORATE BONDS
(IDENTIFIED COST $627,437) 614,000
----------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT AGENCY--32.7%
- ---------------------------------------------------------------------------------------------------
637,895 Federal National Mortgage Association, TBA, 8.00%, 4/1/2024
(identified cost $634,634) 637,895
----------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--34.0%
- ---------------------------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--2.1%
-----------------------------------------------------------------------------------
STATE/PROVINCIAL--2.1%
-----------------------------------------------------------------------------------
50,000 State Bank of New South Wales, 12.25%, 2/26/2001 41,312
----------------------------------------------------------------------------------- -------------
BRITISH POUND--3.6%
-----------------------------------------------------------------------------------
CORPORATE--3.6%
-----------------------------------------------------------------------------------
50,000 Abbey National Treasury, 8.00%, 4/2/2003 71,192
----------------------------------------------------------------------------------- -------------
CANADIAN DOLLAR--3.6%
-----------------------------------------------------------------------------------
AGENCY--3.6%
-----------------------------------------------------------------------------------
100,000 Ontario Hydro, 9.00%, 6/24/2002 69,184
----------------------------------------------------------------------------------- -------------
DANISH KRONE--2.5%
-----------------------------------------------------------------------------------
SOVEREIGN--2.5%
-----------------------------------------------------------------------------------
300,000 Kingdom of Denmark, 8.00%, 5/15/2003 48,198
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN U.S.
CURRENCY DOLLAR
PAR AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
DEUTSCHE MARK--3.4%
-----------------------------------------------------------------------------------
SOVEREIGN--3.4%
-----------------------------------------------------------------------------------
$100,000 Federal Republic of Germany, 8.00%, 7/22/2002 $ 66,591
----------------------------------------------------------------------------------- -------------
FRENCH FRANC--3.8%
-----------------------------------------------------------------------------------
AGENCY--3.8%
-----------------------------------------------------------------------------------
400,000 KFW International Finance, Inc., 7.00%, 5/12/2000 73,439
----------------------------------------------------------------------------------- -------------
JAPANESE YEN--6.1%
-----------------------------------------------------------------------------------
CORPORATE--6.1%
-----------------------------------------------------------------------------------
10,000,000 Bank of Tokyo Cayman Finance, Sub. Note, 4.25%, 12/31/99 119,196
----------------------------------------------------------------------------------- -------------
NEW ZEALAND DOLLAR--3.3%
-----------------------------------------------------------------------------------
AGENCY--3.3%
-----------------------------------------------------------------------------------
100,000 Electricity Corp. of New Zealand, 10.00%, 10/15/2001 64,548
----------------------------------------------------------------------------------- -------------
U.S. DOLLAR--5.6%
-----------------------------------------------------------------------------------
AGENCY--2.2%
-----------------------------------------------------------------------------------
50,000 Banco Nacional de Comercio Exterior Mexico, 8.00%, 8/5/2003 42,797
----------------------------------------------------------------------------------- -------------
SOVEREIGN--3.4%
-----------------------------------------------------------------------------------
100,000 Argentina Bonos de Consolidacion (Pre 4), 4.375%, 9/1/2002 67,200
----------------------------------------------------------------------------------- -------------
Total U.S. Dollar 109,997
----------------------------------------------------------------------------------- -------------
TOTAL INTERNATIONAL BONDS
(IDENTIFIED COST $677,808) 663,657
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
*REPURCHASE AGREEMENT--15.9%
- ---------------------------------------------------------------------------------------------------
$310,000 J.P. Morgan Securities, Inc., 4.25%, dated 7/29/94, due 8/1/94
(at amortized cost) (Note 2B) $ 310,000
----------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $2,249,879) $ 2,225,552+
----------------------------------------------------------------------------------- -------------
</TABLE>
* 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.
+ The cost for federal tax purposes amounts to $2,249,879. The net unrealized
depreciation of investments on a federal tax basis amounts to $24,327, which
is comprised of $7,768 appreciation and $32,095 depreciation at July 31, 1994.
The following abbreviation is used in this portfolio:
TBA-- To be announced.
Note: The categories of investments are shown as a percentage of net assets
($1,951,232) at July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------------
Investments in other securities, at value (Note 2A) $ 1,915,552
- ----------------------------------------------------------------------------------------
Investments in repurchase agreements, at amortized cost (Note 2B) 310,000
- ---------------------------------------------------------------------------------------- -----------
Total investments (identified & tax cost $2,249,879) $ 2,225,552
- -----------------------------------------------------------------------------------------------------
Cash 3,733
- -----------------------------------------------------------------------------------------------------
Receivable for foreign currency sold 75,341
- -----------------------------------------------------------------------------------------------------
Interest receivable 28,788
- -----------------------------------------------------------------------------------------------------
Receivable for capital stock sold 15,683
- ----------------------------------------------------------------------------------------------------- -----------
Total assets 2,349,097
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased 290,828
- ----------------------------------------------------------------------------------------
Payable for currency purchased 76,140
- ----------------------------------------------------------------------------------------
Dividends payable 7,054
- ----------------------------------------------------------------------------------------
Accrued expenses 23,843
- ---------------------------------------------------------------------------------------- -----------
Total liabilities 397,865
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 198,212 shares of capital stock outstanding $ 1,951,232
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------
Paid-in capital $ 1,980,067
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation of investments (24,327)
- -----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (526)
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (3,982)
- ----------------------------------------------------------------------------------------------------- -----------
Total Net Assets $ 1,951,232
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE:
Class C Shares (net assets of $419,352 / 42,590 SHARES OF CAPITAL STOCK OUTSTANDING) $9.85
- ----------------------------------------------------------------------------------------------------- -----------
CLASS A SHARES (NET ASSETS OF $940,437 / 95,546 SHARES OF CAPITAL STOCK OUTSTANDING) $9.84
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares (net assets of $591,443 / 60,076 SHARES OF CAPITAL STOCK OUTSTANDING) $9.84
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE:
Class C Shares Offering Price Per Share $9.85
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Offering Price Per Share (100/95.5 of $9.84)* $10.30
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Offering Price Per Share (100/99 of $9.84)* $9.94
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF REDEMPTION PROCEEDS:
Class C Shares Redemption Proceeds Per Share (99/100 of $9.85)** $9.75
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Redemption Proceeds Per Share $9.84
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Redemption Proceeds Per Share (99/100 of $9.84)** $9.74
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
PERIOD ENDED JULY 31, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 27,745
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 3,084
- -----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 27,650
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 1,700
- -----------------------------------------------------------------------------------------
Printing and postage 100
- -----------------------------------------------------------------------------------------
Legal 350
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares (Note 4) 606
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares (Note 4) 125
- -----------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares (Note 4) 176
- -----------------------------------------------------------------------------------------
Distribution fees--Class C Shares (Note 4) 375
- -----------------------------------------------------------------------------------------
Distribution fees--Fortress Shares (Note 4) 352
- -----------------------------------------------------------------------------------------
Miscellaneous 200
- ----------------------------------------------------------------------------------------- ---------
Total expenses 34,718
- -----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) $ 3,084
- ------------------------------------------------------------------------------
--Reimbursement of other operating expenses (Note 4) 30,000 33,084
- ------------------------------------------------------------------------------ --------- ---------
Net expenses 1,634
- ---------------------------------------------------------------------------------------------------- ----------
Net investment income 26,111
- ---------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (3,982)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,327)
- ---------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments (28,309)
- ---------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ (2,198)
- ---------------------------------------------------------------------------------------------------- ----------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to
July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------
Net investment income $ 26,111
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investments (Note 2D) (3,982)
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,327)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from operations (2,198)
- ---------------------------------------------------------------------------------------- ------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------------------------
Class A Shares (16,721)
- ----------------------------------------------------------------------------------------
Fortress Shares (5,176)
- ----------------------------------------------------------------------------------------
Class C Shares (3,504)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 2C):
- ----------------------------------------------------------------------------------------
Fortress Shares (844)
- ----------------------------------------------------------------------------------------
Class C Shares (391)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from distributions to shareholders (26,636)
- ---------------------------------------------------------------------------------------- ------------------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ----------------------------------------------------------------------------------------
Proceeds from sale of shares 3,487,420
- ----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 10,486
- ----------------------------------------------------------------------------------------
Cost of shares redeemed (1,486,475)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets from capital stock transactions 2,011,431
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets 1,982,597
- ----------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------- ------------------------
End of period $ 1,982,597
- ---------------------------------------------------------------------------------------- ------------------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fixed Income Securities, 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 five diversified
portfolios. The financial statements included herein are only those of Strategic
Income Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers three classes of shares (Class A Shares, Class C Shares and Fortress
Shares).
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed-income and
asset backed securities) are valued at last sale price reported on national
securities exchanges. Unlisted bonds and securities and short-term
obligations are valued at the prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or
less may be stated at amortized cost, which approximates value.
B. 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 in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
at least equals the principal amount of the repurchase agreement, including
accrued interest.
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 guidelines established
by the Board of 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.
C. 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.
Distributions are determined in accordance with income tax regulations
which may
differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.
D. 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 taxable 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 dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates.
E. 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.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At July 31, 1994, there were 4,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares, 1,000,000,000 have been designated as Class C
Shares, 1,000,000,000 as Class A Shares, and 1,000,000,000 as Fortress Shares.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
----------------------
CLASS C SHARES SHARES DOLLARS
<S> <C> <C>
- -------------------------------------------------------------------------------------- --------- -----------
Shares sold 45,588 $ 451,902
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 196 1,943
- --------------------------------------------------------------------------------------
Shares redeemed -- --
- -------------------------------------------------------------------------------------- --------- -----------
Net change resulting from Class C Shares transactions 45,784 $ 453,845
- -------------------------------------------------------------------------------------- --------- -----------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to July
31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
-------------------------
CLASS A SHARES SHARES DOLLARS
<S> <C> <C>
- --------------------------------------------------------------------------------- ---------- -------------
Shares sold 245,374 $ 2,442,038
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 471 4,658
- ---------------------------------------------------------------------------------
Shares redeemed (150,299) (1,486,416)
- --------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Class A Shares transactions 95,546 $ 960,280
- --------------------------------------------------------------------------------- ---------- -------------
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994**
-------------------------
FORTRESS SHARES SHARES DOLLARS
<S> <C> <C>
- --------------------------------------------------------------------------------- ---------- -------------
Shares sold 59,690 $ 593,480
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 392 3,885
- ---------------------------------------------------------------------------------
Shares redeemed (6) (59)
- --------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Fortress Shares transactions 60,076 $ 597,306
- --------------------------------------------------------------------------------- ---------- -------------
Total net change resulting from Fund Shares transactions 201,406 $ 2,011,431
- --------------------------------------------------------------------------------- ---------- -------------
</TABLE>
* For the period from May 3, 1994 (date of initial public investment) to July
31, 1994.
** For the period from May 9, 1994 (date of initial public investment) to July
31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.85 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
DISTRIBUTION AND SHAREHOLDER 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 C Shares and Fortress Shares. The Plan
provides that the Fund may incur distribution expenses up to .75 of 1% and .50
of 1% of the average daily net assets to the Class C Shares and Fortress Shares,
respectively, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average net assets of
each class of shares for the period. This fee is to obtain certain personal
services for shareholders and to maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ fee is
based on the size, type, and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative
service expenses will be borne initially by the Adviser and are estimated at
$44,600 and $46,630, respectively. The Fund has agreed to reimburse the Adviser
for the organizational expenses and start-up administrative expenses during the
five year period following April 5, 1994 (date the Fund first became effective).
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended July 31, 1994, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 2,173,720
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 220,918
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
September 22, 1994
STRATEGIC
INCOME
FUND
FORTRESS SHARES
SUPPLEMENT TO PROSPECTUS
DATED APRIL 5, 1994
September 22, 1994
[LOGO] FEDERATED SECURITIES CORP.
----------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
338319882
G00531-03 (9/94)
STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
FORTRESS SHARES
- --------------------------------------------------------------------------------
SUPPLEMENT TO PROSPECTUS DATED APRIL 5, 1994
A. Please insert the following "Financial Highlights--Fortress Shares" table
as page 2 of the prospectus following the "Summary of Fund Expenses" and
before the section entitled "General Information." In addition, please add
the heading "Financial Highlights--Fortress Shares" to the Table of
Contents page after the heading "Summary of Fund Expenses."
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ------------------------------------------------------------------------------------------ -----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------
Net investment income 0.14
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ------------------------------------------------------------------------------------------ -------
Total from investment operations 0.00
- ------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)(a)
- ------------------------------------------------------------------------------------------ -------
Total distributions (0.16)
- ------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 9.84
- ------------------------------------------------------------------------------------------ -------
TOTAL RETURN+ (0.05%)
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Expenses 0.75%(c)
- ------------------------------------------------------------------------------------------
Net investment income 7.35%(c)
- ------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $591
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ------------------------------------------------------------------------------------------
</TABLE>
* For the period from May 9, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
B. Please delete the first two sentences of the section entitled "Fortress
Investment Program", including the list of funds included in the Fortress
Investment Program which begins on page 2 of the prospectus and replace
them with the following:
"Fortress Shares is a member of a family of funds, collectively known as the
Fortress Investment Program. The other funds in the Program are:
. American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
. California Municipal Income Fund, providing current income exempt from
federal regular income tax and California personal income taxes;
. Fortress Adjustable Rate U.S. Government Fund, Inc., providing current
income consistent with lower volatility of principal through a
diversified portfolio of adjustable and floating rate mortgage securities
which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
. Fortress Bond Fund, providing current income primarily through
high-quality corporate debt;
. Fortress Municipal Income Fund, Inc., providing a high level of current
income generally exempt from the federal regular income tax by investing
primarily in a diversfied portfolio of municipal bonds;
. Fortress Utility Fund, Inc., providing high current income and moderate
capital appreciation primarily through equity and debt securities of
utility companies;
. Government Income Securities, Inc., providing current income through
long-term U.S. government securities;
. Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
. Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value;
. Limited Term Municipal Fund, providing a high level of current income
which is exempt from federal regular income tax consistent with the
preservation of capital;
. Money Market Management, Inc., providing current income consistent with
stability of principal through high-quality money market instruments;
. New York Municipal Income Fund, providing current income exempt from
federal regular income tax, New York personal income taxes, and New York
City income taxes;
. Ohio Municipal Income Fund, providing current income exempt from federal
regular income tax and Ohio personal income taxes; and
. World Utility Fund, providing total return by investing primarily in
securities issued by domestic and foreign companies in the utilities
industry."
C. Please insert the following as the second sentence of the final paragraph
in the section entitled "Acceptable Investments" on page 4 of the
prospectus: "The prices of fixed income securities fluctuate inversely to
the direction of interest rates."
D. Please delete the section entitled "When-Issued and Delayed Delivery
Transactions" on page 14 of the prospectus and replace it with the
following:
"WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/ less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments."
E. Please delete the section entitled "Retirement Plans" on page 19 of the
prospectus and replace it with the following:
"RETIREMENT PLANS
Shares can be purchased as an investment for retirement plans or for IRA
accounts. For further details, contact the Fund and consult a tax adviser."
F. Please delete the section entitled "Other Payments to Financial
Institutions" on page 25 of the prospectus and replace it with the
following:
"OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp. will pay
financial institutions an amount equal to 1% of the net asset value of Shares
purchased by their clients or customers at the time of purchase. Financial
institutions may elect to waive the initial payments described above; such
waiver will result in the waiver by the Fund of the otherwise applicable
contingent deferred sales charge.
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include participating in sales,
educational and training seminars at recreational-type facilities, providing
sales literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates."
G. Please insert the following "Financial Highlights--Class A Shares" and
"Financial Highlights--Class C Shares" tables immediately following the
section entitled "Other Classes of Shares" but preceding the section
entitled "Appendix." In addition, please add the headings "Financial
Highlights--Class A Shares" and "Financial Highlights--Class C Shares" to
the Table of Contents page after the heading "Other Classes of Shares."
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.17
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.16)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.01
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.84
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN+ 0.07%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.25%(b)
- ----------------------------------------------------------------------------------------
Net investment income 7.19%(b)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 9.12%(b)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $940
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from May 3, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
+ Based on net asset value, which does not reflect sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.14
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.00
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)(a)
- ---------------------------------------------------------------------------------------- --------
Total distributions (0.15)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 9.85
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN+ (0.01%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 1.00%(c)
- ----------------------------------------------------------------------------------------
Net investment income 7.01%(c)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 9.12%(c)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $419
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to
July 31, 1994 (unaudited).
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
H. Please insert the following financial statements immediately following the
"Financial Highlights" tables previously added but preceding the section
entitled "Appendix." In addition, please add the heading "Financial
Statements" to the Table of Contents immediately before the heading
"Appendix."
STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--31.5%
- ---------------------------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--2.6%
-----------------------------------------------------------------------------------
$50,000 Bell & Howell Co., Sr. Sub. Note, 10.75%, 10/1/2002 $ 50,000
----------------------------------------------------------------------------------- -------------
CABLE TV--2.3%
-----------------------------------------------------------------------------------
50,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 44,937
----------------------------------------------------------------------------------- -------------
CHEMICALS & PLASTICS--2.6%
-----------------------------------------------------------------------------------
50,000 Arcadian Partners L.P., Sr. Note (Series B), 10.75%, 5/1/2005 50,250
----------------------------------------------------------------------------------- -------------
CLOTHING & TEXTILES--2.3%
-----------------------------------------------------------------------------------
50,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 45,563
----------------------------------------------------------------------------------- -------------
CONTAINERS & GLASS PRODUCTS--2.6%
-----------------------------------------------------------------------------------
50,000 Owens Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 50,875
----------------------------------------------------------------------------------- -------------
ECOLOGICAL SERVICES & EQUIPMENT--2.5%
-----------------------------------------------------------------------------------
49,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%,
2/15/2003 49,000
----------------------------------------------------------------------------------- -------------
FOOD & DRUG RETAILERS--4.6%
-----------------------------------------------------------------------------------
50,000 Grand Union Co., Sr. Sub. Note, 12.25%, 7/15/2002 43,625
-----------------------------------------------------------------------------------
45,750 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 45,750
----------------------------------------------------------------------------------- -------------
Total 89,375
----------------------------------------------------------------------------------- -------------
FOOD SERVICE--2.4%
-----------------------------------------------------------------------------------
50,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 46,750
----------------------------------------------------------------------------------- -------------
FOREST PRODUCTS--2.4%
-----------------------------------------------------------------------------------
50,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 46,500
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN U.S.
CURRENCY DOLLAR
PAR AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
HOME PRODUCTS & FURNISHINGS--1.6%
-----------------------------------------------------------------------------------
$50,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 $ 31,750
----------------------------------------------------------------------------------- -------------
STEEL--2.4%
-----------------------------------------------------------------------------------
50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 47,250
----------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--3.2%
-----------------------------------------------------------------------------------
100,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%,
9/1/2003 61,750
----------------------------------------------------------------------------------- -------------
TOTAL U.S. CORPORATE BONDS
(IDENTIFIED COST $627,437) 614,000
----------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT AGENCY--32.7%
- ---------------------------------------------------------------------------------------------------
637,895 Federal National Mortgage Association, TBA, 8.00%, 4/1/2024
(identified cost $634,634) 637,895
----------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--34.0%
- ---------------------------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--2.1%
-----------------------------------------------------------------------------------
STATE/PROVINCIAL--2.1%
-----------------------------------------------------------------------------------
50,000 State Bank of New South Wales, 12.25%, 2/26/2001 41,312
----------------------------------------------------------------------------------- -------------
BRITISH POUND--3.6%
-----------------------------------------------------------------------------------
CORPORATE--3.6%
-----------------------------------------------------------------------------------
50,000 Abbey National Treasury, 8.00%, 4/2/2003 71,192
----------------------------------------------------------------------------------- -------------
CANADIAN DOLLAR--3.6%
-----------------------------------------------------------------------------------
AGENCY--3.6%
-----------------------------------------------------------------------------------
100,000 Ontario Hydro, 9.00%, 6/24/2002 69,184
----------------------------------------------------------------------------------- -------------
DANISH KRONE--2.5%
-----------------------------------------------------------------------------------
SOVEREIGN--2.5%
-----------------------------------------------------------------------------------
300,000 Kingdom of Denmark, 8.00%, 5/15/2003 48,198
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN U.S.
CURRENCY DOLLAR
PAR AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
DEUTSCHE MARK--3.4%
-----------------------------------------------------------------------------------
SOVEREIGN--3.4%
-----------------------------------------------------------------------------------
$100,000 Federal Republic of Germany, 8.00%, 7/22/2002 $ 66,591
----------------------------------------------------------------------------------- -------------
FRENCH FRANC--3.8%
-----------------------------------------------------------------------------------
AGENCY--3.8%
-----------------------------------------------------------------------------------
400,000 KFW International Finance, Inc., 7.00%, 5/12/2000 73,439
----------------------------------------------------------------------------------- -------------
JAPANESE YEN--6.1%
-----------------------------------------------------------------------------------
CORPORATE--6.1%
-----------------------------------------------------------------------------------
10,000,000 Bank of Tokyo Cayman Finance, Sub. Note, 4.25%, 12/31/99 119,196
----------------------------------------------------------------------------------- -------------
NEW ZEALAND DOLLAR--3.3%
-----------------------------------------------------------------------------------
AGENCY--3.3%
-----------------------------------------------------------------------------------
100,000 Electricity Corp. of New Zealand, 10.00%, 10/15/2001 64,548
----------------------------------------------------------------------------------- -------------
U.S. DOLLAR--5.6%
-----------------------------------------------------------------------------------
AGENCY--2.2%
-----------------------------------------------------------------------------------
50,000 Banco Nacional de Comercio Exterior Mexico, 8.00%, 8/5/2003 42,797
----------------------------------------------------------------------------------- -------------
SOVEREIGN--3.4%
-----------------------------------------------------------------------------------
100,000 Argentina Bonos de Consolidacion (Pre 4), 4.375%, 9/1/2002 67,200
----------------------------------------------------------------------------------- -------------
Total U.S. Dollar 109,997
----------------------------------------------------------------------------------- -------------
TOTAL INTERNATIONAL BONDS
(IDENTIFIED COST $677,808) 663,657
----------------------------------------------------------------------------------- -------------
</TABLE>
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ----------------------------------------------------------------------------------- -------------
*REPURCHASE AGREEMENT--15.9%
- ---------------------------------------------------------------------------------------------------
$310,000 J.P. Morgan Securities, Inc., 4.25%, dated 7/29/94, due 8/1/94
(at amortized cost) (Note 2B) $ 310,000
----------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $2,249,879) $ 2,225,552+
----------------------------------------------------------------------------------- -------------
</TABLE>
* 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.
+ The cost for federal tax purposes amounts to $2,249,879. The net unrealized
depreciation of investments on a federal tax basis amounts to $24,327, which
is comprised of $7,768 appreciation and $32,095 depreciation at July 31, 1994.
The following abbreviation is used in this portfolio:
TBA-- To be announced.
Note: The categories of investments are shown as a percentage of net assets
($1,951,232) at July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------------
Investments in other securities, at value (Note 2A) $ 1,915,552
- ----------------------------------------------------------------------------------------
Investments in repurchase agreements, at amortized cost (Note 2B) 310,000
- ---------------------------------------------------------------------------------------- -----------
Total investments (identified & tax cost $2,249,879) $ 2,225,552
- -----------------------------------------------------------------------------------------------------
Cash 3,733
- -----------------------------------------------------------------------------------------------------
Receivable for foreign currency sold 75,341
- -----------------------------------------------------------------------------------------------------
Interest receivable 28,788
- -----------------------------------------------------------------------------------------------------
Receivable for capital stock sold 15,683
- ----------------------------------------------------------------------------------------------------- -----------
Total assets 2,349,097
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased 290,828
- ----------------------------------------------------------------------------------------
Payable for currency purchased 76,140
- ----------------------------------------------------------------------------------------
Dividends payable 7,054
- ----------------------------------------------------------------------------------------
Accrued expenses 23,843
- ---------------------------------------------------------------------------------------- -----------
Total liabilities 397,865
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 198,212 shares of capital stock outstanding $ 1,951,232
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------
Paid-in capital $ 1,980,067
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation of investments (24,327)
- -----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (526)
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (3,982)
- ----------------------------------------------------------------------------------------------------- -----------
Total Net Assets $ 1,951,232
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE:
Class C Shares (net assets of $419,352 / 42,590 SHARES OF CAPITAL STOCK OUTSTANDING) $9.85
- ----------------------------------------------------------------------------------------------------- -----------
CLASS A SHARES (NET ASSETS OF $940,437 / 95,546 SHARES OF CAPITAL STOCK OUTSTANDING) $9.84
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares (net assets of $591,443 / 60,076 SHARES OF CAPITAL STOCK OUTSTANDING) $9.84
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE:
Class C Shares Offering Price Per Share $9.85
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Offering Price Per Share (100/95.5 of $9.84)* $10.30
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Offering Price Per Share (100/99 of $9.84)* $9.94
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF REDEMPTION PROCEEDS:
Class C Shares Redemption Proceeds Per Share (99/100 of $9.85)** $9.75
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Redemption Proceeds Per Share $9.84
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Redemption Proceeds Per Share (99/100 of $9.84)** $9.74
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
PERIOD ENDED JULY 31, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 27,745
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 3,084
- -----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 27,650
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 1,700
- -----------------------------------------------------------------------------------------
Printing and postage 100
- -----------------------------------------------------------------------------------------
Legal 350
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares (Note 4) 606
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares (Note 4) 125
- -----------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares (Note 4) 176
- -----------------------------------------------------------------------------------------
Distribution fees--Class C Shares (Note 4) 375
- -----------------------------------------------------------------------------------------
Distribution fees--Fortress Shares (Note 4) 352
- -----------------------------------------------------------------------------------------
Miscellaneous 200
- ----------------------------------------------------------------------------------------- ---------
Total expenses 34,718
- -----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) $ 3,084
- ------------------------------------------------------------------------------
--Reimbursement of other operating expenses (Note 4) 30,000 33,084
- ------------------------------------------------------------------------------ --------- ---------
Net expenses 1,634
- ---------------------------------------------------------------------------------------------------- ----------
Net investment income 26,111
- ---------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (3,982)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,327)
- ---------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments (28,309)
- ---------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ (2,198)
- ---------------------------------------------------------------------------------------------------- ----------
</TABLE>
*For the period from April 29, 1994 (date of initial public investment) to July
31, 1994.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------
Net investment income $ 26,111
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investments (Note 2D) (3,982)
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,327)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from operations (2,198)
- ---------------------------------------------------------------------------------------- ------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------------------------
Class A Shares (16,721)
- ----------------------------------------------------------------------------------------
Fortress Shares (5,176)
- ----------------------------------------------------------------------------------------
Class C Shares (3,504)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 2C):
- ----------------------------------------------------------------------------------------
Fortress Shares (844)
- ----------------------------------------------------------------------------------------
Class C Shares (391)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from distributions to shareholders (26,636)
- ---------------------------------------------------------------------------------------- ------------------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ----------------------------------------------------------------------------------------
Proceeds from sale of shares 3,487,420
- ----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 10,486
- ----------------------------------------------------------------------------------------
Cost of shares redeemed (1,486,475)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets from capital stock transactions 2,011,431
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets 1,982,597
- ----------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------- ------------------------
End of period $ 1,982,597
- ---------------------------------------------------------------------------------------- ------------------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to July
31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fixed Income Securities, 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 five diversified
portfolios. The financial statements included herein are only those of Strategic
Income Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers three classes of shares (Class A Shares, Class C Shares and Fortress
Shares).
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed-income and
asset backed securities) are valued at last sale price reported on national
securities exchanges. Unlisted bonds and securities and short-term
obligations are valued at the prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or
less may be stated at amortized cost, which approximates value.
B. 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 in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
at least equals the principal amount of the repurchase agreement, including
accrued interest.
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 guidelines established
by the Board of 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.
C. 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.
Distributions are determined in accordance with income tax regulations
which may
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.
D. 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 taxable 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 dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates.
E. 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.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At July 31, 1994, there were 4,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares, 1,000,000,000 have been designated as Class C
Shares, 1,000,000,000 as Class A Shares, and 1,000,000,000 as Fortress Shares.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
----------------------
CLASS C SHARES SHARES DOLLARS
<S> <C> <C>
- -------------------------------------------------------------------------------------- --------- -----------
Shares sold 45,588 $ 451,902
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 196 1,943
- --------------------------------------------------------------------------------------
Shares redeemed -- --
- -------------------------------------------------------------------------------------- --------- -----------
Net change resulting from Class C Shares transactions 45,784 $ 453,845
- -------------------------------------------------------------------------------------- --------- -----------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to July
31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
-------------------------
CLASS A SHARES SHARES DOLLARS
<S> <C> <C>
- --------------------------------------------------------------------------------- ---------- -------------
Shares sold 245,374 $ 2,442,038
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 471 4,658
- ---------------------------------------------------------------------------------
Shares redeemed (150,299) (1,486,416)
- --------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Class A Shares transactions 95,546 $ 960,280
- --------------------------------------------------------------------------------- ---------- -------------
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994**
-------------------------
FORTRESS SHARES SHARES DOLLARS
<S> <C> <C>
- --------------------------------------------------------------------------------- ---------- -------------
Shares sold 59,690 $ 593,480
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 392 3,885
- ---------------------------------------------------------------------------------
Shares redeemed (6) (59)
- --------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Fortress Shares transactions 60,076 $ 597,306
- --------------------------------------------------------------------------------- ---------- -------------
Total net change resulting from Fund Shares transactions 201,406 $ 2,011,431
- --------------------------------------------------------------------------------- ---------- -------------
</TABLE>
* For the period from May 3, 1994 (date of initial public investment) to July
31, 1994.
** For the period from May 9, 1994 (date of initial public investment) to July
31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.85 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
DISTRIBUTION AND SHAREHOLDER 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 C Shares and Fortress Shares. The Plan
provides that the Fund may incur distribution expenses up to .75 of 1% and .50
of 1% of the average daily net assets to the Class C Shares and Fortress Shares,
respectively, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average net assets of
each class of shares for the period. This fee is to obtain certain personal
services for shareholders and to maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ fee is
based on the size, type, and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative
service expenses will be borne initially by the Adviser and are estimated at
$44,600 and $46,630, respectively. The Fund has agreed to reimburse the Adviser
for the organizational expenses and start-up administrative expenses during the
five year period following April 5, 1994 (date the Fund first became effective).
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended July 31, 1994, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 2,173,720
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 220,918
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
September 22, 1994
STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS A SHARES
Supplement to Statement of Additional Information dated
April 5, 1994
A. Please delete the section entitled "When-Issued and
Delayed Delivery Transactions" on page 6 and replace it
with the following:
"When-Issued and Delayed Delivery
Transactions
These transactions are made to secure what is
considered to be an advantageous price or
yield for the Fund. Settlement dates may be
a month or more after entering into these
transactions, and the market values of the
securities purchased may vary from the
purchase prices. No fees or other expenses,
other than normal transaction costs, are
incurred. However, liquid assets of the Fund
sufficient to make payment for the securities
to be purchased are segregated on the Fund's
records at the trade date. These assets are
marked to market daily and are maintained
until the transaction has been settled. The
Fund does not intend to engage in when-issued
and delayed delivery transactions to an
extent that would cause the segregation of
more than 20% of the total value of its
assets."
B. Please insert the following as the final sentence under
the section entitled "Portfolio Turnover" on page 7:
"During the period from April 29, 1994 (date
of initial public investment), through July
31, 1994, the Fund's portfolio turnover rate
was 13%."
C. Please delete J. Christopher Donahue's name and
biographical information from the list of Officers and
Directors which begins on page 10 and replace it with
the following:
"J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors;
Trustee and President, Federated Advisers,
Federated Management, and Federated Research;
Director and President, Federated Research
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services,
Federated Services Company, and Federated
Shareholder Services; President or Vice
President of the Funds; Director, Trustee, or
Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Director of the Fund."
D. In the Officers and Directors table which begins on
page 10, please add a "**" after the name of John A.
Staley, IV, which appears on page 12. Accordingly,
please add the following as a third footnote following
the table, immediately before the subsection entitled
"The Funds:"
"** Effective July 1, 1994, John A. Staley,
IV, has resigned his position with the Fund."
E. Please delete the section entitled "Fund Ownership" on
page 12 and replace it with the following:
"As of September 6, 1994, Officers and
Directors as a group owned approximately
9,798 shares (2.7%) of the outstanding shares
of the Fund.
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Class A Shares of the Fund:
Merrill Lynch Pierce Fenner & Smith (as
record owner holding Class A Shares for its
clients), Jacksonville, Florida, owned
approximately 22,097 shares (14.0%); Richard
B. Fisher Revocable Trust, Richard B. Fisher,
Trustee, Pittsburgh, Pennsylvania, owned
approximately 9,798 shares (6.3%); Sara F.
Little, Kenova, West Virginia, owned
approximately 9,944 shares (6.5%); and Edward
D. Jones and Co., for the account of Kenneth
R. Lineberg, Maryland Heights, Missouri,
owned approximately 7,709 shares (5.0%).
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Class C Shares of the Fund:
Mary A. Secrest and Marian L. Hightower,
Joint Tennants, Arvada, Colorado, owned
approximately 5,062 shares (6.8%); William
Terrell, Shawna Terrell, Carolyn Roy, Michael
Terrell, Cynthia Shroer and Judith Terrell-
Huffman, Denver, Colorado, owned
approximately 5,107 shares (6.8%); James E.
and Elsie M. Meeker, Joint Tennants, Denver,
Colorado, owned approximately 4,499 shares
(6.0%); Joseph T. Henshaw and Josephine E.
Krieger, Joint Tennants, Denver, Colorado,
owned approximately 5,889 shares (7.8%);
NFSC, for the exclusive benefit of Winifred
M. Briggs, Birmingham, Alabama, owned
approximately 5,000 shares (6.7%);
Painewebber for the Benefit of Clayton D. and
Virginia R. Beattie, Joint Tennants,
Edwardsville, Illinois, owned approximately
4,239 shares (5.7%); and Donaldson Lufkin
Jenrette Securities Corporation, Inc., Jersey
City, New Jersey, owned approximately 4,097
shares (5.5%).
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Fortress Shares of the Fund:
Ella M. and Fredric E. Clark, Joint Tennants,
Topeka, Kansas, owned approximately 7,518
shares (5.6%); and Merrill Lynch Pierce
Fenner & Smith (as record owner holding
Fortress Shares for its clients),
Jacksonville, Florida, owned approximately
72,003 shares (53.5%)."
F. Please delete the section entitled "Adviser to the
Fund" on page 13 and replace it with the following:
"Adviser to the Fund
The Fund's investment adviser is Federated
Advisers (the "Adviser"). It is a subsidiary
of Federated Investors. All of the voting
securities of Federated Investors are owned
by a trust, the trustees of which are John F.
Donahue, his wife and his son, J. Christopher
Donahue."
G. Please insert the following as the second paragraph in
the section entitled "Advisory Fees" on page 13:
"During the period from April 29, 1994 (date
of initial public investment), through July
31, 1994, the Adviser earned $3,084, all of
which was voluntarily waived."
H. Please delete the section entitled "Shareholder
Servicing" from page 13 and delete its reference from
the Table of Contents.
I. Please delete the section entitled "Administrative
Services" on page 13 and replace it with the following:
"Administrative Services
Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative
personnel and services to the Fund for a fee as
described in the prospectus. During the period
from April 29, 1994 (date of initial public
investment), through July 31, 1994, no fees were
paid to Federated Administrative Services. Dr.
Henry J. Gailliot, an officer of Federated
Advisers, the adviser to the Fund, holds
approximately 20% of the outstanding common stock
and serves as a director of Commercial Data
Services, Inc., a company which provides computer
processing services to Federated Administrative
Services."
J. Please insert the following as the second paragraph of
the section entitled "Shareholder Services Plan" on
page 14:
"During the period from May 3, 1994 (date of
initial public investment) through July 31, 1994,
payment in the amount of $606 was made pursuant to
the Shareholder Services Plan for Class A Shares.
During the period from April 29, 1994 (date of
initial public investment), through July 31, 1994,
payment in the amount of $125 was made pursuant to
the Shareholder Services Plan for Class C Shares.
During the period from May 9, 1994 (date of
initial public investment), through July 31, 1994,
payment in the amount of $176 was made pursuant to
the Shareholder Services Plan for Fortress
Shares."
K. Please insert the following information as the first
paragraph under the section entitled "Total Return" on
page 16:
"The Class A Shares' cumulative total return
from May 3, 1994 (date of initial public
investment), through July 31, 1994, was
(4.42%). The Class C Shares' cumulative
total return from April 29, 1994 (date of
initial public investment), through July 31,
1994, was (1.03%). The Fortress Shares'
cumulative total return from May 9, 1994
(date of initial public investment), through
July 31, 1994, was (2.05%). Cumulative total
return reflects the Shares' total performance
over a specific period of time. This total
return assumes and is reduced by the payment
of the maximum sales load and any contingent
deferred sales charge. The Shares'
cumulative total return is representative of
approximately three months of Fund activity
since the Shares' date of initial public
investment."
L. Please insert the following information as the first
paragraph under the section entitled "Yield" on page
16:
"The yields for Class A Shares, Class C
Shares and Fortress Shares for the thirty-day
period ended July 31, 1994, were 7.91%,
7.52% and 7.70%, respectively."
September 22, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated
Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
338319700
G00531-04-A (9/94)
STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
CLASS C SHARES
Supplement to the Statement of Additional Information dated
April 5, 1994
A. Please delete the section entitled "When-Issued and
Delayed Delivery Transactions" on page 6 and replace it
with the following:
"When-Issued and Delayed Delivery
Transactions
These transactions are made to secure what is
considered to be an advantageous price or
yield for the Fund. Settlement dates may be
a month or more after entering into these
transactions, and the market values of the
securities purchased may vary from the
purchase prices. No fees or other expenses,
other than normal transaction costs, are
incurred. However, liquid assets of the Fund
sufficient to make payment for the securities
to be purchased are segregated on the Fund's
records at the trade date. These assets are
marked to market daily and are maintained
until the transaction has been settled. The
Fund does not intend to engage in when-issued
and delayed delivery transactions to an
extent that would cause the segregation of
more than 20% of the total value of its
assets."
B. Please insert the following as the final sentence under
the section entitled "Portfolio Turnover" on page 7:
"During the period from April 29, 1994 (date
of initial public investment), through July
31, 1994, the Fund's portfolio turnover rate
was 13%."
C. Please delete J. Christopher Donahue's name and
biographical information from the list of Officers and
Directors which begins on page 10 and replace it with
the following:
"J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors;
Trustee and President, Federated Advisers,
Federated Management, and Federated Research;
Director and President, Federated Research
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services,
Federated Services Company, and Federated
Shareholder Services; President or Vice
President of the Funds; Director, Trustee, or
Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Director of the Fund."
D. In the Officers and Directors table which begins on
page 10, please add a "**" after the name of John A.
Staley, IV, which appears on page 12. Accordingly,
please add the following as a third footnote following
the table, immediately before the subsection entitled
"The Funds:"
"** Effective July 1, 1994, John A. Staley,
IV, has resigned his position with the Fund."
E. Please delete the section entitled "Fund Ownership" on
page 13 and replace it with the following:
"As of September 6, 1994, Officers and
Directors as a group owned approximately
9,798 shares (2.7%) of the outstanding shares
of the Fund.
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Class A Shares of the Fund:
Merrill Lynch Pierce Fenner & Smith (as
record owner holding Class A Shares for its
clients), Jacksonville, Florida, owned
approximately 22,097 shares (14.0%); Richard
B. Fisher Revocable Trust, Richard B. Fisher,
Trustee, Pittsburgh, Pennsylvania, owned
approximately 9,798 shares (6.3%); Sara F.
Little, Kenova, West Virginia, owned
approximately 9,944 shares (6.5%); and Edward
D. Jones and Co., for the account of Kenneth
R. Lineberg, Maryland Heights, Missouri,
owned approximately 7,709 shares (5.0%).
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Class C Shares of the Fund:
Mary A. Secrest and Marian L. Hightower,
Joint Tennants, Arvada, Colorado, owned
approximately 5,062 shares (6.8%); William
Terrell, Shawna Terrell, Carolyn Roy, Michael
Terrell, Cynthia Shroer and Judith Terrell-
Huffman, Denver, Colorado, owned
approximately 5,107 shares (6.8%); James E.
and Elsie M. Meeker, Joint Tennants, Denver,
Colorado, owned approximately 4,499 shares
(6.0%); Joseph T. Henshaw and Josephine E.
Krieger, Joint Tennants, Denver, Colorado,
owned approximately 5,889 shares (7.8%);
NFSC, for the exclusive benefit of Winifred
M. Briggs, Birmingham, Alabama, owned
approximately 5,000 shares (6.7%);
Painewebber for the Benefit of Clayton D. and
Virginia R. Beattie, Joint Tennants,
Edwardsville, Illinois, owned approximately
4,239 shares (5.7%); and Donaldson Lufkin
Jenrette Securities Corporation, Inc., Jersey
City, New Jersey, owned approximately 4,097
shares (5.5%).
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Fortress Shares of the Fund:
Ella M. and Fredric E. Clark, Joint Tennants,
Topeka, Kansas, owned approximately 7,518
shares (5.6%); and Merrill Lynch Pierce
Fenner & Smith (as record owner holding
Fortress Shares for its clients),
Jacksonville, Florida, owned approximately
72,003 shares (53.5%)."
F. Please delete the section entitled "Adviser to the
Fund" on page 13 and replace it with the following:
"Adviser to the Fund
The Fund's investment adviser is Federated
Advisers (the "Adviser"). It is a subsidiary
of Federated Investors. All of the voting
securities of Federated Investors are owned
by a trust, the trustees of which are John F.
Donahue, his wife and his son, J. Christopher
Donahue."
G. Please insert the following as the second paragraph in
the section entitled "Advisory Fees" on page 13:
"During the period from April 29, 1994 (date
of initial public investment), through July
31, 1994, the Adviser earned $3,084, all of
which was voluntarily waived."
H.Please delete the section entitled "Shareholder Servicing" from page 13
and delete its
reference from the Table of Contents.
I.Please delete the section entitled "Administrative Services" on page 14
and replace it
with the following:
"Administrative Services
Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative
personnel and services to the Fund for a fee as
described in the prospectus. During the period
from April 29, 1994 (date of initial public
investment), through July 31, 1994, no fees were
paid to Federated Administrative Services. Dr.
Henry J. Gailliot, an officer of Federated
Advisers, the adviser to the Fund, holds
approximately 20% of the outstanding common stock
and serves as a director of Commercial Data
Services, Inc., a company which provides computer
processing services to Federated Administrative
Services."
J.Please insert the following as the fourth paragraph of the section entitled
"Distribution and Shareholder Services Plans" which begins on
page 14:
"During the period from April 29, 1994 (date of
initial public investment), through July 31, 1994,
payment in the amount of $375 was made pursuant
to the Distribution Plan, for Class C Shares.
During the period from May 9, 1994 (date of
initial public investment), through July 31, 1994,
payment in the amount of $352 was made pursuant to
the Distribution Plan, for Fortress Shares. In
addition, for these periods, payments in the
amount of $125 and $176 were made pursuant to the
Shareholder Services Plan for Class C Shares and
Fortress Shares, respectively. During the period
from May 3, 1994 (date of initial public
investment), through July 31, 1994, payment in the
amount of $606 was made pursuant to the
Shareholder Services Plan for Class A Shares."
K. Please insert the following information as the first
paragraph under the section entitled "Total Return" on
page 16:
"The Class A Shares' cumulative total return
from May 3, 1994 (date of initial public
investment), through July 31, 1994, was
(4.42%). The Class C Shares' cumulative
total return from April 29, 1994 (date of
initial public investment), through July 31,
1994, was (1.03%). The Fortress Shares'
cumulative total return from May 9, 1994
(date of initial public investment), through
July 31, 1994, was (2.05%). Cumulative total
return reflects the Shares' total performance
over a specific period of time. This total
return assumes and is reduced by the payment
of the maximum sales load and any contingent
deferred sales charge. The Shares'
cumulative total return is representative of
approximately three months of Fund activity
since the Shares' date of initial public
investment."
L. Please insert the following information as the first
paragraph under the section entitled "Yield" on page
16:
"The yields for Class A Shares, Class C
Shares and Fortress Shares for the thirty-day
period ended July 31, 1994, were 7.91%,
7.52% and 7.70%, respectively."
September 22, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated
Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
338319809
G00531-05-C (9/94)
STRATEGIC INCOME FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
FORTRESS SHARES
Supplement to Statement of Additional Information dated
April 5, 1994
A. Please delete the section entitled "When-Issued and
Delayed Delivery Transactions" on page 6 and replace it
with the following:
"When-Issued and Delayed Delivery
Transactions
These transactions are made to secure what is
considered to be an advantageous price or
yield for the Fund. Settlement dates may be
a month or more after entering into these
transactions, and the market values of the
securities purchased may vary from the
purchase prices. No fees or other expenses,
other than normal transaction costs, are
incurred. However, liquid assets of the Fund
sufficient to make payment for the securities
to be purchased are segregated on the Fund's
records at the trade date. These assets are
marked to market daily and are maintained
until the transaction has been settled. The
Fund does not intend to engage in when-issued
and delayed delivery transactions to an
extent that would cause the segregation of
more than 20% of the total value of its
assets."
B. Please insert the following as the final sentence under
the section entitled "Portfolio Turnover" on page 7:
"During the period from April 29, 1994 (date
of initial public investment), through July
31, 1994, the Fund's portfolio turnover rate
was 13%."
C. Please delete J. Christopher Donahue's name and
biographical information from the list of Officers and
Directors which begins on page 10 and replace it with
the following:
"J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors;
Trustee and President, Federated Advisers,
Federated Management, and Federated Research;
Director and President, Federated Research
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services,
Federated Services Company, and Federated
Shareholder Services; President or Vice
President of the Funds; Director, Trustee, or
Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Director of the Fund."
D. In the Officers and Directors table which begins on
page 10, please add a "**" after the name of John A.
Staley, IV, which appears on page 12. Accordingly,
please add the following as a third footnote following
the table, immediately before the subsection entitled
"The Funds:"
"** Effective July 1, 1994, John A. Staley,
IV, has resigned his position with the Fund."
E. Please delete the section entitled "Fund Ownership" on
page 13 and replace it with the following:
"As of September 6, 1994, Officers and
Directors as a group owned approximately
9,798 shares (2.7%) of the outstanding shares
of the Fund.
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Class A Shares of the Fund:
Merrill Lynch Pierce Fenner & Smith (as
record owner holding Class A Shares for its
clients), Jacksonville, Florida, owned
approximately 22,097 shares (14.0%); Richard
B. Fisher Revocable Trust, Richard B. Fisher,
Trustee, Pittsburgh, Pennsylvania, owned
approximately 9,798 shares (6.3%); Sara F.
Little, Kenova, West Virginia, owned
approximately 9,944 shares (6.5%); and Edward
D. Jones and Co., for the account of Kenneth
R. Lineberg, Maryland Heights, Missouri,
owned approximately 7,709 shares (5.0%).
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Class C Shares of the Fund:
Mary A. Secrest and Marian L. Hightower,
Joint Tennants, Arvada, Colorado, owned
approximately 5,062 shares (6.8%); William
Terrell, Shawna Terrell, Carolyn Roy, Michael
Terrell, Cynthia Shroer and Judith Terrell-
Huffman, Denver, Colorado, owned
approximately 5,107 shares (6.8%); James E.
and Elsie M. Meeker, Joint Tennants, Denver,
Colorado, owned approximately 4,499 shares
(6.0%); Joseph T. Henshaw and Josephine E.
Krieger, Joint Tennants, Denver, Colorado,
owned approximately 5,889 shares (7.8%);
NFSC, for the exclusive benefit of Winifred
M. Briggs, Birmingham, Alabama, owned
approximately 5,000 shares (6.7%);
Painewebber for the Benefit of Clayton D. and
Virginia R. Beattie, Joint Tennants,
Edwardsville, Illinois, owned approximately
4,239 shares (5.7%); and Donaldson Lufkin
Jenrette Securities Corporation, Inc., Jersey
City, New Jersey, owned approximately 4,097
shares (5.5%).
As of September 6, 1994, the following
shareholders of record owned 5% or more of
the outstanding Fortress Shares of the Fund:
Ella M. and Fredric E. Clark, Joint Tennants,
Topeka, Kansas, owned approximately 7,518
shares (5.6%); and Merrill Lynch Pierce
Fenner & Smith (as record owner holding
Fortress Shares for its clients),
Jacksonville, Florida, owned approximately
72,003 shares (53.5%)."
F. Please delete the section entitled "Adviser to the
Fund" on page 13 and replace it with the following:
"Adviser to the Fund
The Fund's investment adviser is Federated
Advisers (the "Adviser"). It is a subsidiary
of Federated Investors. All of the voting
securities of Federated Investors are owned
by a trust, the trustees of which are John F.
Donahue, his wife and his son, J. Christopher
Donahue."
G. Please insert the following as the second paragraph in
the section entitled "Advisory Fees" on page 13:
"During the period from April 29, 1994 (date
of initial public investment), through July
31, 1994, the Adviser earned $3,084, all of
which was voluntarily waived."
H. Please delete the section entitled "Shareholder
Servicing" from page 13 and delete its reference from
the Table of Contents.
I. Please delete the section entitled "Administrative
Services" on page 14 and replace it with the following:
"Administrative Services
Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative
personnel and services to the Fund for a fee as
described in the prospectus. During the period
from April 29, 1994 (date of initial public
investment), through July 31, 1994, no fees were
paid to Federated Administrative Services. Dr.
Henry J. Gailliot, an officer of Federated
Advisers, the adviser to the Fund, holds
approximately 20% of the outstanding common stock
and serves as a director of Commercial Data
Services, Inc., a company which provides computer
processing services to Federated Administrative
Services."
J. Please insert the following as the fourth paragraph of
the section entitled "Distribution and Shareholder
Services Plans" which begins on page 14:
"During the period from April 29, 1994 (date of
initial public investment), through July 31, 1994,
payment in the amount of $375 was made pursuant
to the Distribution Plan, for Class C Shares.
During the period from May 9, 1994 (date of
initial public investment), through July 31, 1994,
payment in the amount of $352 was made pursuant to
the Distribution Plan, for Fortress Shares. In
addition, for these periods, payments in the
amount of $125 and $176 were made pursuant to the
Shareholder Services Plan for Class C Shares and
Fortress Shares, respectively. During the period
from May 3, 1994 (date of initial public
investment), payment in the amount of $606 was
made pursuant to the Shareholder Services Plan for
Class A Shares."
K. Please insert the following information as the first
paragraph under the section entitled "Total Return" on
page 16:
"The Class A Shares' cumulative total return
from May 3, 1994 (date of initial public
investment), through July 31, 1994, was
(4.42%). The Class C Shares' cumulative
total return from April 29, 1994 (date of
initial public investment), through July 31,
1994, was (1.03%). The Fortress Shares'
cumulative total return from May 9, 1994
(date of initial public investment), through
July 31, 1994, was (2.05%). Cumulative total
return reflects the Shares' total performance
over a specific period of time. This total
return assumes and is reduced by the payment
of the maximum sales load and any contingent
deferred sales charge. The Shares'
cumulative total return is representative of
approximately three months of Fund activity
since the Shares' date of initial public
investment."
L. Please insert the following information as the first
paragraph under the section entitled "Yield" on page
16:
"The yields for Class A Shares, Class C
Shares and Fortress Shares for the thirty-day
period ended July 31, 1994, were 7.91%,
7.52% and 7.70%, respectively."
September 22, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated
Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
338319882
G00531-06-FS (9/94)
