Multi-State
Municipal
Income
Fund
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
May 31, 1994
ESTABLISHED 1987
(A Diversified Portfolio of
Fixed Income Securities, Inc.
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3032504A (6/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your Semi-Annual Report to Shareholders for Multi-State
Municipal Income Fund (the "Fund"), which covers the six-month period ended May
31, 1994. The Report includes the Investment Review and Financial Statements,
which contain the Portfolio of Investments.
The Fund puts your money to work pursuing a high level of current income which
is exempt from federal regular income tax*. The Fund invests in a diversified
portfolio of short-term bonds issued by municipalities across the country.
On May 31, 1994, the Fund's net assets stood at $6.4 million. Because when
interest rates rise bond prices fall, the Fund's share price stood at $9.38 per
share at the end of the period, compared to $10.22 per share at the beginning of
the period. However, the Fund paid a healthy tax-free dividend stream of $0.30
per share over the period.
Thank you for choosing the Fund as a way to pursue competitive tax-free monthly
income. Please contact your investment representative if you have any questions
about the Fund. We will continue to keep you informed of your investment
progress.
Sincerely,
Richard B. Fisher
President
July 15, 1994
* Income may be subject to the federal alternative minimum tax.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Interview with the Fund's Portfolio Manager, Jonathan C. Conley
Q What has occurred in the long-term, fixed-income markets during the six
month period ending May 31, 1994?
A Interest rates in the long-term, fixed-income markets exhibited
considerable volatility during the past six months. On November 30, 1993,
the yield for the "current" thirty-year U.S. Treasury bond (6 1/4% due
15-Aug-2023) stood at 6.30%. From there, the yield rose to 7.63% by May 9, 1994
before dropping to 7.43% on May 31, 1994.
As for the long-term municipal market, the Bond Buyer Revenue Index,
representing thirty-year "A"-rated municipal issues, registered 5.56% on
November 30, 1993. It then ascended to 6.60% as of May 15, 1994 and fell
thereafter to 6.41% by May 31, 1994.
Q How volatile have long-term bond prices been with these fluctuations in
interest rates?
A From November 30, 1993 to May 31, 1994, the price of the "bell-wether" U.S.
Treasury bond depreciated 13.4%. Long-term municipal bonds were not as
volatile. The Municipal Bond Index of prices declined by 10.1% between
November 30, 1993 and May 31, 1994.
Q How has an investor in the Multi-State Municipal Income Fund (the "Fund")
fared during this period?
A For the six months ending May 31, 1994, an investor in the Fund experienced
a total return of (5.40)%.* This result was composed of a 2.82% income and
reinvestment return (net of expenses) and of 8.22% depreciation in the net
asset value (NAV) per share. These figures are not annualized. During the past
six months, an investor received $0.30 per share in dividends, while the NAV
fell from $10.22 per share on November 30, 1993 to $9.38 per share on May 31,
1994.
Q As the portfolio manager of the Fund, Jonathan, how do you control the
volatility of the net asset value per share?
A I favor, in a variety of interest rate environments, securities which have
coupons or yields greater than the Bond Buyer Revenue Index. For equal
credit quality and maturity, the bond with the higher coupon rate or market
yield will be less price sensitive with respect to market rate changes. The
Fund, accordingly, would typically "swap" into higher coupon or yield issues in
each municipal market sector during rising rates in an attempt to secure
coupon-price "protection" and to book attractive income streams for distribution
to shareholders.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
- --------------------------------------------------------------------------------
Q In what areas of the municipal market has the Fund invested over the past
six months?
A Between November 30, 1993 and May 31, 1994, the Fund purchased $1,500,000
(face amount) of medium-to-upper grade municipal issues. Sectors
represented in the Fund's investment activity included: hospital issues;
pollution control obligations of investor-owned utilities; industrial
development bonds of non-financial corporations; college and university tuition
revenue issues; single-family housing mortgage revenue issues; and resource
recovery project finance obligations. The average yield on issues purchased the
past six months by the Fund was 6.40 percent.
Q What is the composition of the investments of the Fund by credit quality?
A The credit quality of the portfolio of investments of the Fund, as of May
31, 1994, is shown below:
<TABLE>
<CAPTION>
(% OF TOTAL ASSETS)
-------------------
<S> <C>
AAA 13.7%
AA 19.4%
A 19.0%
BBB 44.4%
NR 3.5%
-------
100.00%
</TABLE>
MULTI-STATE MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- ------------ ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--98.8%
- ----------------------------------------------------------------------
CALIFORNIA--4.8%
---------------------------------------------------------
$ 100,000 Los Angeles, CA, 5.90%, Community Redevelopment Finance
Authority, (Grand Central Square)/(Series 1993A)/(Subject
to AMT)/(Original Issue Yield: 6.00%), 12/1/2026 A $ 89,341
---------------------------------------------------------
250,000 Sequoia, CA, 5.375%, Hospital District Revenue Bonds
(Original Issue Yield: 5.55%), 8/15/2013 A- 216,172
--------------------------------------------------------- ----------
Total 305,513
--------------------------------------------------------- ----------
FLORIDA--15.7%
---------------------------------------------------------
250,000 Alachua County, FL, 6.05%, Health Facility Authority
Refunding Revenue Bonds (Santa Fe Healthcare Facility),
11/15/2016 BBB+ 231,318
---------------------------------------------------------
200,000 Escambia County, FL, PCR, 5.875% Revenue Bonds (Champion
International Corp.)/(Original Issue Yield:
5.939%)/(Subject to AMT), 6/1/2022 BBB 178,814
---------------------------------------------------------
100,000 Jacksonville, FL, Electric Authority, 5.25%, Refunding
Revenue Bonds (Electric System)/(Series 3-A)/(Original
Issue Yield: 6.15%), 10/1/2028 AA 85,800
---------------------------------------------------------
100,000 Jacksonville, FL, Health Facilities Authority, 6.40% IDR
Bonds (National Benevolent Association-Cypress),
12/1/2016 Baa-1 94,896
---------------------------------------------------------
100,000 Leesburg, FL, 5.625% Hospital Refunding Revenue Bonds
(Leesburg Regional Medical Center Project)/(Series
1993B)/ (Original Issue Yield: 5.75%), 7/1/2013 BBB+ 88,079
---------------------------------------------------------
100,000 Leesburg, FL, 5.65% Hospital Revenue Refunding Bonds
(Leesburg Regional Medical Center)/(Original Issue Yield:
5.70%), 7/1/2008 BBB+ 90,613
---------------------------------------------------------
</TABLE>
MULTI-STATE MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- ------------ ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
FLORIDA--CONTINUED
---------------------------------------------------------
$ 100,000 Leesburg, FL, 6.125% Hospital Revenue Refunding Bonds
(Leesburg Medical Center)/(Original Issue Yield: 6.375%),
7/1/2018 BBB+ $ 92,954
---------------------------------------------------------
150,000 Palm Beach County, FL, 6.30%, Health Facility Authority
Hospital Revenue Bonds (Good Samaritan Health System, Inc
Project)/(Series 1993), 10/1/2022 A-1 144,286
--------------------------------------------------------- ----------
Total 1,006,760
--------------------------------------------------------- ----------
GEORGIA--1.5%
---------------------------------------------------------
100,000 Fulco County, GA, Hospital Revenue Authority, 6.375%
Revenue Anticipation Certificates, (Georgia Baptist
Health Care)/(Original Issue Yield: 6.55%), 9/1/2022 A 96,750
--------------------------------------------------------- ----------
ILLINOIS--4.9%
---------------------------------------------------------
100,000 Chicago, IL, O'Hare International Airport, 5.60%, Revenue
Bonds (Series A)/(MBIA Insured)/(Original Issue Yield:
5.983%)/(Subject to AMT), 1/1/2014 A 92,603
---------------------------------------------------------
130,000 Illinois Development Finance Authority, 6.10%, (Catholic
Charities Housing Development Corp.)/(Series 1993C)/
(Archdiocese of Chicago Guaranty), 1/1/2020 NR 122,360
---------------------------------------------------------
100,000 Illinois Health Facilities Authority, 6.125% Revenue
Bonds (Lutheran Social Services of Illinois)/(Original
Issue Yield: 6.27%), 8/15/2010 NR 97,095
--------------------------------------------------------- ----------
Total 312,058
--------------------------------------------------------- ----------
LOUISIANA--7.1%
---------------------------------------------------------
500,000 St. Charles Parish, LA, 6.20% Revenue Bonds (Louisiana
Power & Light Co. Project)/(Series 1993A)/(Original Issue
Yield: 6.25%)/(Subject to AMT), 5/1/2023 BBB+ 456,385
--------------------------------------------------------- ----------
MAINE--1.5%
---------------------------------------------------------
100,000 Bucksport, ME, 6.25% Solid Waste Disposal Revenue Bonds
(Champion International Corp.), 5/1/2010 BBB+ 98,273
--------------------------------------------------------- ----------
</TABLE>
MULTI-STATE MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- ------------ ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
MARYLAND--8.8%
---------------------------------------------------------
$ 100,000 Gaithersburg, MD, 5.50% Economic Development Refunding
Revenue Bonds (Asbury Methodist Homes)/(Original Issue
Yield: 6.05%), 1/1/2020 NR $ 87,754
---------------------------------------------------------
100,000 Maryland State Industrial Development Financing
Authority, 6.625% Revenue Bonds, (American Center for
Physics Headquarters Facility)/(Original Issue Yield:
6.80%)/ (Series 1992), 1/1/2017 BBB 99,504
---------------------------------------------------------
100,000 Maryland State, MD, 5.60% Community Administration Multi-
Family Housing Revenue Bonds (Insured Mortgage),
5/15/2026 Aa 89,413
---------------------------------------------------------
350,000 Maryland State, MD, 5.50%, Health & Higher Education
Facility Authority Revenue Bonds (Howard County General
Hospital)/(Original Issue Yield: 5.80%), 7/1/2025 AAA 289,191
--------------------------------------------------------- ----------
Total 565,862
--------------------------------------------------------- ----------
MASSACHUSETTS--1.5%
---------------------------------------------------------
100,000 Massachusetts State HEFA, 6.50% Revenue Bonds (Series B)/
(Holyoke Hospital)/(Original Issue Yield: 6.75%),
7/1/2015 Baa1 95,825
--------------------------------------------------------- ----------
MINNESOTA--1.5%
---------------------------------------------------------
100,000 St. Paul, MN Housing & Redevelopment Authority, 6.625%
Hospital Revenue Bonds, (Health East Project)/(Series A)/
(Original Issue Yield: 6.50%), 11/1/2017 BBB- 95,501
--------------------------------------------------------- ----------
MISSOURI--1.4%
---------------------------------------------------------
100,000 Missouri HEFA, 6.00% Revenue Bonds (National Benevolent
Association)/(Original Issue Yield: 6.15%), 2/1/2024 Baa2 89,497
--------------------------------------------------------- ----------
NEW HAMPSHIRE--1.5%
---------------------------------------------------------
100,000 New Hampshire State Housing Finance Authority, 6.05%,
7/1/2025 A+ 94,018
--------------------------------------------------------- ----------
</TABLE>
MULTI-STATE MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- ------------ ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
NEW JERSEY--2.0%
---------------------------------------------------------
$ 150,000 New Jersey State, 5.50%, Housing & Mortgage Finance
Agency Revenue Bonds, (Home-Buyer Series H)/(MBIA
Insured)/ (Subject to AMT), 10/1/2026 AAA $ 131,275
--------------------------------------------------------- ----------
NEW MEXICO--1.5%
---------------------------------------------------------
100,000 Farmington, NM, 5.875% PCR Refunding Bonds, (Southern
California Edison Co.)/(MBIA Insured), 6/1/2023 AAA 95,135
--------------------------------------------------------- ----------
NEW YORK--1.5%
---------------------------------------------------------
100,000 New York State Energy Research & Development Authority,
6.00%, (Consolidated Edison Co.)/(Original Issue Yield:
6.184%)/(Subject to AMT), 3/15/2028 AA- 93,828
--------------------------------------------------------- ----------
NORTH CAROLINA--1.3%
---------------------------------------------------------
100,000 North Carolina Eastern Municipal Power, NC, 5.00%,
Refunding Revenue Bonds (Series C)/(Original Issue Yield:
5.90%), 1/1/2021 A- 81,131
--------------------------------------------------------- ----------
OHIO--1.5%
---------------------------------------------------------
100,000 Franklin County, OH, 5.75% Hospital Revenue Bonds,
(Riverside United Methodist Hospital)/(Original Issue
Yield: 6.10%), 5/15/2020 Aa 93,737
--------------------------------------------------------- ----------
PENNSYLVANIA--5.5%
---------------------------------------------------------
300,000 Lebanon County, PA, 6.00% Hospital Authority Revenue
Bonds (Good Samaritan Hospital)/(Original Issue Yield:
6.10%), 11/15/2018 BBB+ 264,912
---------------------------------------------------------
100,000 Pennsylvania Housing Finance Agency, 5.60%, SFM Revenue
Bonds (Series 37B)/(Subject to AMT), 10/1/2025 AA 86,819
--------------------------------------------------------- ----------
Total 351,731
--------------------------------------------------------- ----------
PUERTO RICO--4.7%
---------------------------------------------------------
300,000 Puerto Rico Electric Power Authority, 6.375% Revenue
Bonds (Series T)/(Original Issue Yield: 6.58%), 7/1/2024 A- 301,653
--------------------------------------------------------- ----------
</TABLE>
MULTI-STATE MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- ------------ ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
TENNESSEE--2.9%
---------------------------------------------------------
$ 100,000 Memphis-Shelby County, TN, County Airport Authority,
6.20% Revenue Bonds, (Federal Express Co.)/(Subject to
AMT), 7/1/2014 BBB $ 92,693
---------------------------------------------------------
100,000 Tennessee Housing Development Authority, 5.95% SFM
Revenue Bonds, 7/1/2028 A+ 92,232
--------------------------------------------------------- ----------
Total 184,925
--------------------------------------------------------- ----------
TEXAS--18.0%
---------------------------------------------------------
100,000 Brazos River Authority, TX 6.10% PCR Bonds, (Texas
Utilities Electric Co.)/(FSA Insured)/(Original Issue
Yield: 6.152%)/ (Subject to AMT), 4/1/2028 AAA 97,751
---------------------------------------------------------
100,000 Matagorda County, TX, Navigation District, 6.00% PCR
Bonds (Central Power & Light), 7/1/2028 A- 94,473
---------------------------------------------------------
100,000 North Central, TX, Health Facilities Development Corp.,
5.80% Revenue Bonds (Presbyterian Health Care)/(Original
Issue Yield: 5.852%), 6/1/2013 Aa 93,249
---------------------------------------------------------
150,000 North Central, TX, Health Facilities Development Corp.,
5.90% Revenue Bonds (Presbyterian Healthcare)/(Original
Issue Yield: 5.96%), 6/1/2021 Aa 136,322
---------------------------------------------------------
300,000 Sabine River Authority, TX, 5.85%, PCR Bonds (Texas
Utilities Electric Co. Project)/(Original Issue Yield:
5.875%), 5/1/2022 AAA 271,098
---------------------------------------------------------
300,000 Texas State Housing Assistance, 5.70% GO Bonds (Series
1994B), 12/1/2014 AA 271,767
---------------------------------------------------------
100,000 Tyler, TX, 6.75% Health Facility Development Corp.
Revenue Bonds (Series A)/(East Texas Medical Center
Regional Health-A)/(Original Issue Yield: 7.00%),
11/1/2025 Baa 94,297
---------------------------------------------------------
100,000 West Side Calhoun County, TX, Nav. Dist. Solid Waste
Disposal, 6.40%, Revenue Bonds (Union Carbide Chemical)/
(Original Issue Yield: 6.438%), 5/1/2023 BBB 94,590
--------------------------------------------------------- ----------
Total 1,153,547
--------------------------------------------------------- ----------
</TABLE>
MULTI-STATE MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- ------------ ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
UTAH -- 1.4%
---------------------------------------------------------
$ 95,000 Utah State Housing Finance Agency, 6.05% SFM Revenue
Bonds, (Series A), 7/1/2025 AA $ 89,317
--------------------------------------------------------- ----------
VIRGINIA--2.8%
---------------------------------------------------------
200,000 Lynchburg, VA, 5.70% Redevelopment Housing Refunding
Revenue Bonds (Series A)(Waldon II)/(GNMA Guaranty),
7/20/2023 AAA 179,956
--------------------------------------------------------- ----------
WASHINGTON--5.5%
---------------------------------------------------------
150,000 Pierce County, WA, 5.80%, EDC Revenue Bonds (Occidental
Petroleum)/(Subject to AMT)/(Original Issue Yield:
5.90%), 9/1/2029 BBB 131,967
---------------------------------------------------------
250,000 Pilchuck Development Public Corp., WA, 6.00% Special
Facility Airport Revenue Bonds, (BF Goodrich Guarantor)/
(TRAMCO, Inc.)/(Subject to AMT), 8/1/2023 BBB 219,653
--------------------------------------------------------- ----------
Total 351,620
--------------------------------------------------------- ----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST, $6,891,801) $6,324,297+
--------------------------------------------------------- ----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
+ The cost of investments for federal tax purposes amounts to $6,891,801. The
net unrealized depreciation of investments on a federal tax basis amounts to
$567,504, which is comprised of $9,702 appreciation and $577,206 depreciation
at May 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($6,404,213) at May 31, 1994.
MULTI-STATE MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMT -- Alternative Minimum Tax
EDC -- Economic Development Commission
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
HEFA -- Health and Education Facilities Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
SFM -- Single Family Mortgage
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MULTI-STATE MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost;
$6,891,801) $6,324,297
- ---------------------------------------------------------------------------------
Cash 41,181
- ---------------------------------------------------------------------------------
Receivable for capital stock 47,983
- ---------------------------------------------------------------------------------
Interest receivable 110,614
- ---------------------------------------------------------------------------------
Deferred expenses (Note 2E) 1,237
- --------------------------------------------------------------------------------- ----------
Total assets 6,525,312
- ---------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------
Dividends payable $29,894
- -----------------------------------------------------------------------
Payable for capital stock redeemed 1,591
- -----------------------------------------------------------------------
Accrued expenses 89,614
- ----------------------------------------------------------------------- -------
Total liabilities 121,099
- --------------------------------------------------------------------------------- ----------
NET ASSETS for 682,696 shares of capital stock outstanding $6,404,213
- --------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid-in capital $7,008,268
- ---------------------------------------------------------------------------------
Net unrealized depreciation on investments (567,504)
- ---------------------------------------------------------------------------------
Accumulated net realized loss on investments (36,551)
- --------------------------------------------------------------------------------- ----------
Total Net Assets $6,404,213
- --------------------------------------------------------------------------------- ----------
NET ASSET VALUE and Offering Price Per Share:
($6,404,213 / 682,696 shares of capital stock outstanding) $9.38
- --------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share: (97/100 of $9.38)* $9.10
- --------------------------------------------------------------------------------- ----------
</TABLE>
* See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
MULTI-STATE MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------
Interest income (Note 2B) $ 193,513
- --------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 12,742
- --------------------------------------------------------------------------
Distribution services fee (Note 4) 23,892
- --------------------------------------------------------------------------
Administration personnel and services (Note 4) 90,340
- --------------------------------------------------------------------------
Directors' fees 500
- --------------------------------------------------------------------------
Custodian and portfolio accounting fees 39,652
- --------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 9,819
- --------------------------------------------------------------------------
Auditing 12,057
- --------------------------------------------------------------------------
Legal fees 3,000
- --------------------------------------------------------------------------
Printing and postage 6,500
- --------------------------------------------------------------------------
Fund share registration costs 10,862
- --------------------------------------------------------------------------
Insurance premiums 3,500
- --------------------------------------------------------------------------
Taxes 150
- --------------------------------------------------------------------------
Shareholder services fee (Note 4) 7,964
- --------------------------------------------------------------------------
Miscellaneous 1,956
- -------------------------------------------------------------------------- --------
Total expenses 222,934
- --------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 12,742
- ---------------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 186,300 199,042
- --------------------------------------------------------------- -------- --------
Net expenses 23,892
- -------------------------------------------------------------------------------------- ---------
Net investment income 169,621
- -------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (35,576)
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (525,544)
- -------------------------------------------------------------------------------------- ---------
Net realized and unrealized loss on investments (561,120)
- -------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $(391,499)
- -------------------------------------------------------------------------------------- ---------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MULTI-STATE MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------
1994* 1993**
---------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 169,621 $ 66,708
- ----------------------------------------------------------------
Net realized gain (loss) on investments ($35,576 net loss and
$975 net loss, respectively, as computed for federal tax
purposes) (35,576) (975)
- ----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments (525,544) (41,960)
- ---------------------------------------------------------------- ---------- -----------
Change in net assets resulting from operations (391,499) 23,773
- ---------------------------------------------------------------- ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)--
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (169,621) (66,708)
- ----------------------------------------------------------------
Distributions in excess of net investment income (Note 2B) (14,193) (9,699)
- ---------------------------------------------------------------- ---------- -----------
Change in net assets resulting from distributions to
shareholders (183,814) (76,407)
- ---------------------------------------------------------------- ---------- -----------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ----------------------------------------------------------------
Proceeds from sale of shares 1,340,778 7,974,337
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 22,966 8,817
- ----------------------------------------------------------------
Cost of shares redeemed (135,870) (2,178,868)
- ---------------------------------------------------------------- ---------- -----------
Change in net assets resulting from Fund share transactions 1,227,874 5,804,286
- ---------------------------------------------------------------- ---------- -----------
Change in net assets 652,561 5,751,652
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 5,751,652 --
- ---------------------------------------------------------------- ---------- -----------
End of period $6,404,213 $ 5,751,652
- ---------------------------------------------------------------- ---------- -----------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** For the period from June 1, 1993 (date of initial public investment) to
November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
MULTI-STATE MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
--------------------
1994* 1993**
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.22 $10.00
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income 0.27 0.27
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.81) 0.24
- ------------------------------------------------------------------------- ------ ----
Total from investment operations (0.54) 0.51
- ------------------------------------------------------------------------- ------ ----
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.27) (0.27 )
- -------------------------------------------------------------------------
Distributions in excess of net investment income (Note 2B) (0.03) (0.02 )
- ------------------------------------------------------------------------- ------ ----
Total distributions (0.30) (0.29 )
- ------------------------------------------------------------------------- ------ ----
NET ASSET VALUE, END OF PERIOD $ 9.38 $10.22
- ------------------------------------------------------------------------- ------ ----
TOTAL RETURN*** (5.40)% 5.07 %
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 0.75%(a) 0.75 %(a)
- -------------------------------------------------------------------------
Net investment income 5.32%(a) 5.16 %(a)
- -------------------------------------------------------------------------
Expenses waiver/reimbursement (b) 6.25%(a) 3.88 %(a)
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,404 $5,752
- -------------------------------------------------------------------------
Portfolio turnover rate 6% 2 %
- -------------------------------------------------------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** Reflects operations for the period from June 1, 1993 (date of initial public
investment) to November 30, 1993.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
MULTI-STATE MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
MAY 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 present only those of
Multi-State Municipal 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.
(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.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing service
taking into consideration yield, liquidity, risk, credit, quality, coupon, maturity, type
of issue and any other factors or market data it deems relevant in determining valuations
for normal institutional size trading units of debt securities. The independent pricing
service does not rely exclusively on quoted prices. Short-term securities with remaining
maturities of sixty days, or less may be stated at amortized cost, which approximates
value.
B. 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 purpose.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its tax-exempt income. Accordingly, no
provisions for federal tax are necessary.
At November 30, 1993, the Fund, for federal tax purposes, had a capital loss carryforward
of $975 which will reduce the Fund's taxable income arising from future net realized gain
on investments, if any, to the extent permitted by the Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 2001.
</TABLE>
MULTI-STATE MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. A 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.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(3) CAPITAL STOCK
At May 31, 1994, there were 10,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares, 1,000,000,000 have been designated as shares
of the Fund. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
--------------------
1994** 1993*
- ----------------------------------------------------------------------- ------- --------
<S> <C> <C>
Shares sold 131,734 772,641
- -----------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,353 851
- -----------------------------------------------------------------------
Shares redeemed (14,273) (210,610)
- ----------------------------------------------------------------------- ------- --------
Net change resulting from capital stock transactions 119,814 562,882
- ----------------------------------------------------------------------- ------- --------
</TABLE>
* For the period from June 1, 1993 (date of initial public investment) to
November 30, 1993.
** Six months ended May 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
.40 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 at any time
at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received
MULTI-STATE MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
during any fiscal year shall be at least $125,000 per portfolio and $30,000 per
each additional class of shares.
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 shares. The Plan provides that the Fund may
incur distribution expenses up to .75 of 1% of the average daily net assets of
the Fund, 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
the Fund for the period. This fee is to obtain certain personal services for
shareholders and the maintenance of shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--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 ($34,126) and start-up
administrative service expenses ($56,976) were borne initially by Adviser. The
Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following May 24,
1993 (date the Fund's portfolio first became effective). For the six months
ended May 31, 1994, the Fund paid $1,706 and $2,849, respectively, pursuant to
this agreement.
INTERFUND TRANSACTIONS--During the six months ended May 31, 1994, the Fund
engaged in purchase and sale transactions with other affiliated funds pursuant
to Rule 17A-7 of the Act amounting to $750,000 and $1,350,000, respectively.
These purchases and sales were conducted on an arms length basis and transacted
for cash consideration only, at independent current market prices and without
brokerage commissions, fees, or other remuneration.
Certain of the Officers and Directors of the Corporation are Officers and
Directors of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 1994 were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Purchases $1,585,242
- -------------------------------------------------------------------------------- ----------
Sales $ 349,327
- -------------------------------------------------------------------------------- ----------
</TABLE>
DIRECTORS OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
James E. Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Richard B. Fisher Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these
shares involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus, which contains
facts concerning its objective and policies, management fees, expenses
and other information.
LIMITED TERM
MUNICIPAL FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
338319502
338219403
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your Semi-Annual Report to Shareholders for Limited Term
Municipal Fund, (the "Fund") which covers the six-month period ended May 31,
1994. The Report includes the Investment Review and Financial Statements, which
contain the Portfolio of Investments and Financial Highlights for both Class A
Shares and Fortress Shares of the Fund.
The Fund puts your money to work pursuing a high level of current income which
is exempt from federal regular income tax*--with minimal fluctuations in
investment value. The Fund invests in a diversified, quality portfolio of
short-term bonds issued by municipalities across the country.
On May 31, 1994, the Fund's net assets soared to $48.6 million, compared to
$17.0 million at the beginning of the period. Because when interest rates rise
bond prices fall, the net asset value of both Fortress Shares and Class A Shares
of the Fund stood at $9.77 at the end of the period, compared to $10.02 per
share at the beginning of the period. However, this decrease was significantly
less than longer-term funds experienced, and the Fund paid a healthy tax-free
dividend stream of more than $0.20 per share over the period.
Thank you for choosing Limited Term Municipal Fund as a way to pursue
competitive tax-free monthly income. Please contact your investment
representative if you have any questions about the Fund. We will continue to
keep you informed of your investment progress.
Sincerely,
Richard B. Fisher
President
July 15, 1994
*Income may be subject to the federal alternative minimum tax.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
For the six months ended May 31, 1994, investors in the Limited Term Municipal
Fund (the "Fund") (Class A Shares) experienced a total return based on net asset
value of -0.37%* (-1.36% based on offering price). This result was composed of a
2.13% income and reinvestment return (net of expenses) and of 2.50% depreciation
in the net asset value (NAV) per share**. During the same period, the Lehman
Brothers Five-year General Obligation Municipal Bond Index experienced a total
return of -.27%. The negative price component of both the Fund and the index was
the result of the recent rise in interest rates that caused bond prices to drop.
Since early February 1994, the Federal Reserve has moved toward a policy of
higher interest rates. This is an attempt to avoid potentially rising
inflationary pressures caused by the continuing economic recovery.
Interest rates for short-intermediate fixed income issues responded to the
Federal Reserve tightening and economic developments with a sharp increase. From
November 30, 1993, to May 10, 1994, five-year Treasury bonds rose from 5.15% to
7.10%, then fell modestly to 6.77% on May 31, 1994. Over the same period, rates
for five-year "A" rated general obligation bonds ascended from 4.25% to 5.18%,
then fell slightly to 4.98% on May 31, 1994. However, the correction in rates
for both sectors did not begin until late January. For example, five-year "A"
rated general obligation bonds fell to a period low of 3.98% on January 28, 1994
and five-year Treasuries also reached a period low of 5.00% on January 28, 1994.
Municipal securities outperformed government securities during the period as
investors' demand for tax-advantaged investments, coupled with fewer new issues,
caused nominal yield spreads between municipal and governments to widen.
The Fund has an investment policy that constrains the effective average duration
of the portfolio to four years or less. The duration of the Fund has been
reduced towards the low end of its target range (3 to 3-1/2 years) during the
increase in interest rates. The entire Fund has been invested in investment
grade tax-exempt securities with an average credit rating of a single "A". The
Fund has not used derivative securities because of their liquidity and valuation
problems. In an effort to add incremental value for the Fund shareholders,
management is currently focusing on hospital bonds with upper-medium credit
ratings. Credit spreads have widened in hospital bonds far more than is
justified due to the uncertainty of health care reform.
The net assets of the fund increased during the period from $17.0 million to
$48.6 million. The effective average duration of the fund on May 31, 1994 was
2.9 years.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than the
original cost.
** Fortress Shares total return based on net asset value was -0.25%, (-2.24%
based on offering price), which was composed of 2.25% income and reinvestment
return (net of expenses) and of 2.50% depreciation in NAV per share.
LIMITED TERM MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------- ---------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--13.9%
- -------------------------------------------------------------------------------------
$ 700,000 Harris County, TX, IDA Daily VRDNs, (Yokohoma Tire Corp.)/(Industrial
Bank of Japan, Ltd, LOC)/(Subject to AMT) A-1 $ 700,000
----------------------------------------------------------------------
100,000 Harris County, TX, IDA Daily VRDNs, (Yokohoma Tire Corp.)/(Industrial
Bank of Japan, Ltd, LOC)/(Subject to AMT) A-1 100,000
----------------------------------------------------------------------
200,000 Harris County, TX, IDA Daily VRDNs, (Yokohoma Tire Corp.)/(Industrial
Bank of Japan, Ltd, LOC)/(Subject to AMT) A-1 200,000
----------------------------------------------------------------------
1,000,000 Kentucky State Pollution Abatement & Water Residential
Finance Authority, Daily VRDNs, (Toyota Motors Co.)/
(Subject to AMT) A-1+ 1,000,000
----------------------------------------------------------------------
200,000 Kentucky State Pollution Abatement & Water Residential
Finance Authority, Daily VRDNs, (Toyota Motors Co.)/
(Subject to AMT) A-1+ 200,000
----------------------------------------------------------------------
200,000 Kentucky State Pollution Abatement & Water Residential
Finance Authority, Daily VRDNs, (Toyota Motors Co.)/
(Subject to AMT) A-1+ 200,000
----------------------------------------------------------------------
100,000 Kentucky State Pollution Abatement & Water Residential
Finance Authority, Daily VRDNs, (Toyota Motors Co.)/
(Subject to AMT) A-1+ 100,000
----------------------------------------------------------------------
100,000 Kentucky State Pollution Abatement & Water Residential
Finance Authority, Daily VRDNs, (Toyota Motors Co.)/
(Subject to AMT) A-1+ 100,000
----------------------------------------------------------------------
400,000 Kentucky State Pollution Abatement & Water Residential
Finance Authority, Daily VRDNs, (Toyota Motors Co.)/
(Subject to AMT) A-1+ 400,000
----------------------------------------------------------------------
$ 100,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan, Ltd. LOC)/(Subject to AMT) A-1 $ 100,000
----------------------------------------------------------------------
100,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan, Ltd. LOC)/(Subject to AMT) A-1 100,000
----------------------------------------------------------------------
150,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan, Ltd. LOC)/(Subject to AMT) A-1 150,000
----------------------------------------------------------------------
100,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan, Ltd. LOC)/(Subject to AMT) A-1 100,000
----------------------------------------------------------------------
200,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan, Ltd. LOC)/(Subject to AMT) A-1 200,000
----------------------------------------------------------------------
100,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan, Ltd. LOC)/(Subject to AMT) A-1 100,000
----------------------------------------------------------------------
200,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan, Ltd. LOC)/(Subject to AMT) A-1 200,000
----------------------------------------------------------------------
250,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan, Ltd. LOC)/
(Subject to AMT) A-1 250,000
----------------------------------------------------------------------
250,000 Crystal City, MN, IDA Weekly VRDNs, (Crystal Gallery Mall)/(Citibank,
NA LOC) A-1 250,000
----------------------------------------------------------------------
400,000 Government Development of Puerto Rico, Weekly VRDNs, (Credit Suisse,
Zurich LOC) and (Sumitomo Bank, Ltd. LOC) A-1 400,000
----------------------------------------------------------------------
1,900,000 Government Development of Puerto Rico, Weekly VRDNs, (Credit Suisse,
Zurich) and (Sumitomo Bank, Ltd. LOCs) A-1 1,900,000
---------------------------------------------------------------------- --------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (AT AMORTIZED COST) 6,750,000
---------------------------------------------------------------------- --------------
LONG-TERM MUNICIPAL SECURITIES--89.0%
- -------------------------------------------------------------------------------------
ARIZONA--0.9%
----------------------------------------------------------------------
$ 400,000 Maricopa County, AZ, IDA 6.65% Industrial Development Bonds (Citizens
Utilities Co.)/(Subject to AMT), Mandatory Tender 4/1/2001 AAA $ 428,416
---------------------------------------------------------------------- --------------
CALIFORNIA-4.1%
----------------------------------------------------------------------
600,000 California Pollution Control, 8.75% Revenue Bonds (Pacific Gas &
Electric Co.)/(Subject to AMT), Callable 12/1/1997 @102 A1 674,718
----------------------------------------------------------------------
300,000 Long Beach, CA, 7.00% Harbour Revenue Bonds (Series A)/ (Subject to
AMT), Callable 5/15/1998 @102 AA- 323,313
----------------------------------------------------------------------
1,000,000 Orange County, CA, 4.50% Apartment Development Revenue Bonds (Series
1985)/(Villa de La Paz)/(Tokai Bank Ltd. of LA LOC), Optional Tender
8/15/97 A2 986,600
---------------------------------------------------------------------- --------------
Total 1,984,631
---------------------------------------------------------------------- --------------
COLORADO--3.1%
----------------------------------------------------------------------
500,000 Colorado Student Obligation Bond Authority, 5.20% Student Loan Revenue
Bonds (Series J-1994), 9/1/97 A 499,810
----------------------------------------------------------------------
1,000,000 Colorado Student Obligation Bond Authority, 5.40% Student Loan Revenue
Bonds (Series J-1994), 9/1/98 A 999,530
---------------------------------------------------------------------- --------------
Total 1,499,340
---------------------------------------------------------------------- --------------
FLORIDA--1.0%
----------------------------------------------------------------------
275,000 City of Leesburg, FL, 4.60% Hospital Revenue Refunding Bonds (Series
1993B)/(Leesburg Regional Medical Center Project), 7/1/98 BBB+ 267,784
----------------------------------------------------------------------
200,000 Jacksonville, FL, 6.50% Electric Authority Revenue Special Obligations
Bonds (St. Johns Revenue Power Pk System), Callable 10/1/99 @101.5 AA 205,516
---------------------------------------------------------------------- --------------
Total 473,300
---------------------------------------------------------------------- --------------
ILLINOIS--8.0%
----------------------------------------------------------------------
$ 750,000 Chicago, IL, 7.50% Gas Supply Revenue Bonds (Peoples Gas, Light & Coke
Company) Callable 3/1/2000 @102 A+ $ 810,413
----------------------------------------------------------------------
220,000 Chicago, IL, O'Hare International Airport, 8.00% General Airport
Revenue Bonds (Series A), Callable 1/1/1997 @102 A+ 241,243
----------------------------------------------------------------------
500,000 Illinois Development Financial Authority, 5.25% Revenue Bonds (Series
1993C)/(Catholic Charities Housing Development Corp.
Project)/(Archdiocese of Chicago, Guaranty),
1/1/99 NR 494,125
----------------------------------------------------------------------
245,000 Illinois Development Financial Authority, 7.625% Pollution Control
Revenue Bonds (Illinois Power Co.)/(FGIC Insured), Callable 6/1/1997
@103 AAA 268,905
----------------------------------------------------------------------
250,000 Illinois Health Facilities Authority, 4.95% Revenue Refunding Bonds
(Lutheran Social Services of Illinois), 8/15/96 NR 249,428
----------------------------------------------------------------------
220,000 Illinois Health Facilities Authority, 5.30% Revenue Refunding Bonds
(Lutheran Social Services of Illinois), 8/15/98 NR 217,221
----------------------------------------------------------------------
600,000 Illinois Health Facilities Authority, 5.75% Revenue Bonds (Mercy
Hospital & Medical Center), 1/1/98 A- 609,006
----------------------------------------------------------------------
1,000,000 Illinois Student Assistance Commission, 4.60% Student Loan Revenue
Bonds (Senior Series EE)/(Subject to AMT), 3/1/99 Aaa 988,390
---------------------------------------------------------------------- --------------
Total 3,878,731
---------------------------------------------------------------------- --------------
INDIANA--0.5%
----------------------------------------------------------------------
225,000 Marion County, IN, Hospital Authority, 6.50% Revenue
Refunding Bonds (Methodist Hospital of Indiana), Callable
9/1/1999 @102 AA 229,522
---------------------------------------------------------------------- --------------
IOWA--0.7%
----------------------------------------------------------------------
325,000 City of Ottumwa, IA, 4.75% Hospital Facilities Revenue
Refunding & Insp. Bonds (Series 1993)/(Ottumwa Regional Health Center,
Inc.), 10/1/97 BBB+ 319,872
---------------------------------------------------------------------- --------------
MASSACHUSETTS--7.6%
----------------------------------------------------------------------
$ 250,000 Greater New Bedford Regional Refuse Management District, MA, 4.90% GO
Landfill Bonds (Subject to AMT), 5/1/98 NR $ 246,718
----------------------------------------------------------------------
250,000 Massachusetts Education Loan Authority, 6.40% Revenue Bonds (Issue
E)/(Series A)/(AMBAC Insured), 1/1/99 AAA 262,600
----------------------------------------------------------------------
475,000 Massachusetts State College Building, 7.25% Revenue Bonds (Series A),
(Commonwealth of Massachusetts Guaranty), Callable 5/1/1996 @102 A+ 498,897
----------------------------------------------------------------------
495,000 Massachusetts State Health and Educational Facilities
Authority, 4.25% Revenue Bonds (Series B)/(Holyoke
Hospital), 7/1/95 Baa1 493,000
----------------------------------------------------------------------
515,000 Massachusetts State Health and Educational Facilities
Authority, 5.00% Revenue Bonds (Series B)/(Holyoke
Hospital), 7/1/96 Baa1 515,464
----------------------------------------------------------------------
545,000 Massachusetts State Health and Educational Facilities
Authority, 5.25% Revenue Bonds (Series B)/(Holyoke
Hospital), 7/1/97 Baa1 541,158
----------------------------------------------------------------------
565,000 Massachusetts State Health and Educational Facilities
Authority, 5.50% Revenue Bonds (Series B)/(Holyoke
Hospital), 7/1/98 Baa1 559,847
----------------------------------------------------------------------
605,000 Massachusetts State Health and Educational Facilities
Authority, 5.75% Revenue Bonds (Series B)/(Holyoke
Hospital), 7/1/99 Baa1 598,200
---------------------------------------------------------------------- --------------
Total 3,715,884
---------------------------------------------------------------------- --------------
MICHIGAN--0.5%
----------------------------------------------------------------------
235,000 Michigan State Strategic FD, 6.625% Pollution Control Bonds (Series
1987)/(General Motors Corp.), Callable
3/1/1995 BBB+ 243,810
---------------------------------------------------------------------- --------------
MINNESOTA--3.5%
----------------------------------------------------------------------
$ 1,500,000 St. Paul, MN, Housing & Redevelopment Authority, 9.75% Hospital
Revenue Bonds (Series B)/(Healtheast Project), Callable 11/1/1997 @102 BBB- $ 1,683,930
---------------------------------------------------------------------- --------------
MISSOURI--2.1%
----------------------------------------------------------------------
1,000,000 Kansas City, MO, IDA 6.05% Pollution Control Revenue Bonds (General
Motors Corp.), Callable 6/1/1999 @101 Baa1 1,000,060
---------------------------------------------------------------------- --------------
NEW JERSEY--0.5%
----------------------------------------------------------------------
250,000 New Jersey Economical Development Authority, 6.75%
Natural Gas Facilities Revenue Bonds (Elizabethtown Gas
Co. Project), Callable 10/1/1996 @102 A3 258,668
---------------------------------------------------------------------- --------------
NEW YORK--12.4%
----------------------------------------------------------------------
500,000 New York City, NY, 4.45% GO Bonds (Series H), 8/1/96 A- 503,800
----------------------------------------------------------------------
1,000,000 New York City, NY, 4.90% GO Bonds (Series H), 8/1/97 A- 1,001,110
----------------------------------------------------------------------
400,000 New York City, NY, 4.30% UT GO Bonds (Series F), 8/1/97 A- 392,576
----------------------------------------------------------------------
500,000 New York City, NY, 4.30%, UT GO Bonds (Series E),
8/1/97 A- 490,720
----------------------------------------------------------------------
300,000 New York City, NY, 4.875% UT GO Bonds (Series G),
8/1/99 A- 293,346
----------------------------------------------------------------------
350,000 New York City, NY, 4.875%, UT GO Bonds (Series E),
8/1/99 A- 342,237
----------------------------------------------------------------------
200,000 New York City, NY, 4.875%, UT GO Bonds (Series F),
8/1/99 A- 195,564
----------------------------------------------------------------------
300,000 New York State Energy Research & Development Authority, 7.125%
(Brooklyn Union Gas Co. Series 1)/(Subject to AMT), Callable 12/1/96
@102 A 317,346
----------------------------------------------------------------------
200,000 New York State Energy Research & Development Authority, 7.375%
Pollution Control Revenue Bonds (Consolidated
Edison), Callable 7/1/1998 @101 AA- 211,310
----------------------------------------------------------------------
$ 250,000 New York State Energy Research & Development Authority, 8.875%
Pollution Control Revenue Bonds (Niagra Mohawk Power Corp.), Callable
11/1/1995 @102 BBB $ 269,382
----------------------------------------------------------------------
1,750,000 New York State Medical Care Facilities Finance Agency, 8.875% Revenue
Bonds (Series A), Mandatory Tender
(Pre-Refunded 8/15/97 @102) Aaa 2,000,653
---------------------------------------------------------------------- --------------
Total 6,018,044
---------------------------------------------------------------------- --------------
NORTH CAROLINA--2.1%
----------------------------------------------------------------------
830,000 North Carolina Eastern Municipal Power, 7.25% Revenue Refunding Bonds,
Callable 1/1/1997 @102 A 870,712
----------------------------------------------------------------------
145,000 Wake County, NC, 6.50% Hospital Revenue Bonds (MBIA Insured), Callable
10/1/1997 @102 AAA 156,559
---------------------------------------------------------------------- --------------
Total 1,027 271
---------------------------------------------------------------------- --------------
OHIO--4.5%
----------------------------------------------------------------------
1,000,000 Bellefontaine, OH, 5.00% Hospital Revenue Bonds (Mary Rutan Health
Association), 12/1/97 BBB 987,320
----------------------------------------------------------------------
250,000 Marion County, OH, Health Care Facilities, 4.75% Refund-
ing Improvement Revenue Bonds (Series 1993)/(United
Church Homes, Inc.), 11/15/96 BBB- 249,907
----------------------------------------------------------------------
630,000 Marion County, OH, Health Care Facilities, 5.00% Refund-
ing Improvement Revenue Bonds (Series 1993)/(United
Church Homes, Inc.), 11/15/97 BBB- 625,218
----------------------------------------------------------------------
300,000 Ohio State Water Development Authority, 7.25% Pollution Control
Financial Authority (Philip Morris), Callable
12/1/1997 @103 A 325,299
---------------------------------------------------------------------- --------------
Total 2,187,744
---------------------------------------------------------------------- --------------
OKLAHOMA--4.3%
----------------------------------------------------------------------
$ 2,100,000 Jackson County, OK Memorial Hospital Authority, 5.875% Revenue Bonds
(Jackson County Memorial Hospital), 8/1/97 BBB- $ 2,109,219
---------------------------------------------------------------------- --------------
PENNSYLVANIA--15.4%
----------------------------------------------------------------------
500,000 Allegheny County, PA, Residential Financial Authority Mortgage, 4.875%
Revenue Refunding Bonds (Single Family-GNMA/FNMA), Callable 11/1/2003
@102 Aaa 477,865
----------------------------------------------------------------------
750,000 Beaver County, PA, IDA 7.75% Pollution Control Revenue Bonds (Series
A)/(Ohio Edison Project), Callable 9/1/99 @102 BBB- 781,462
----------------------------------------------------------------------
300,000 Butler County, PA, IDA 4.50% Health Center Revenue
Refunding Bonds (Pittsburgh Lifetime Care Community)/
(Sherwood Oaks Project)/(Passavant Hospital Guaranty),
6/1/98 A 290,430
----------------------------------------------------------------------
130,000 Delaware County, PA, 4.80% Authority Hospital Revenue Bonds
(Crozer-Chester Medical Center), 12/15/98 BBB+ 127,757
----------------------------------------------------------------------
120,000 Delaware County, PA, 4.90% Authority Hospital Revenue Bonds
(Crozer-Chester Medical Center), 12/15/99 BBB+ 115,471
----------------------------------------------------------------------
2,000,000 Delaware County, PA, 4.875% Health Care Revenue Bonds (Series B)/
(Mercy Health Corp. of Southeastern PA),
11/15/97 BBB 1,961,020
----------------------------------------------------------------------
2,000,000 Delaware County, PA, 5.125%, Health Facilities Revenue Bonds (Series
B-1993)/(Mercy Health Corp. of Southeastern PA), 11/15/98 BBB 1,948,280
----------------------------------------------------------------------
250,000 Franklin, PA, 10.875% Special Obligation Revenue Bonds (Franklin
Regional Medical Center), Callable 10/1/1994 @101.5 BBB 254,120
----------------------------------------------------------------------
500,000 Northeastern PA Hospital and Educational Authority, 4.60% University
Revenue Bond (Series 1993)/(Wilkes University), 10/1/98 BBB 488,070
----------------------------------------------------------------------
$ 125,000 Philadelphia, PA, Hospital & Higher Education Facilities
Authority, 6.60% Hospital Revenue Bonds (Series B)/
(Children's Seashore House), 8/15/98 BBB+ $ 131,325
----------------------------------------------------------------------
455,000 Pittsburgh, PA, Urban Redevelopment Authority, 4.75% Multi Family
Mortgage Revenue Refunding Bonds (Series 1994)/ (Mellon Bank LOC),
12/1/96 A1 453,940
----------------------------------------------------------------------
250,000 Pittsburgh, PA, Urban Redevelopment Authority, 5.00% Multi Family
Mortgage Revenue Refunding Bonds (Series 1994)/ (Mellon Bank LOC),
6/1/97 A1 249,585
----------------------------------------------------------------------
100,000 West Cornwall Township, PA, Municipal Authority, 3.85% First Mortgage
Refunding Revenue Bonds (Cornwall Manor Project), 6/1/95 NR 99,352
----------------------------------------------------------------------
125,000 West Cornwall Township, PA, Municipal Authority, 4.75% First Mortgage
Refunding Revenue Bonds (Cornwall Manor Project), 6/1/98 NR 124,021
---------------------------------------------------------------------- --------------
Total 7,502,698
---------------------------------------------------------------------- --------------
PUERTO RICO--3.3%
----------------------------------------------------------------------
1,600,000 Puerto Rico Electric Power Authority, 5.00% Revenue Bond (Series
T)/(Commonwealth Water Resource Authority),
7/1/97 Baa1 1,617,328
---------------------------------------------------------------------- --------------
SOUTH DAKOTA--1.5%
----------------------------------------------------------------------
195,000 South Dakota State Health and Educational Facilities Authority, 5.00%
Revenue Bonds (Series 1994)/(Huron Regional Center Issue)/(Subject to
AMT), 4/1/96 BBB- 195,786
----------------------------------------------------------------------
105,000 South Dakota State Health and Educational Facilities Authority, 5.40%
Revenue Bonds (Series 1994)/(Huron Regional Medical Center
Issue)/(Subject to AMT), 4/1/97 BBB- 104,524
----------------------------------------------------------------------
215,000 South Dakota State Health and Educational Facilities Authority, 5.50%
Revenue Bonds (Series 1994)/(Huron Regional Medical Center
Issue)/(Subject to AMT), 4/1/98 BBB- 213,914
----------------------------------------------------------------------
$ 225,000 South Dakota State Health and Educational Facilities Authority, 6.00%
Revenue Bonds (Series 1994)/(Huron Regional Medical Center
Issue)/(Subject to AMT), 4/1/99 BBB- $ 226,717
---------------------------------------------------------------------- --------------
Total 740,941
---------------------------------------------------------------------- --------------
TENNESSEE--1.0%
----------------------------------------------------------------------
250,000 Volunteer State Student Funding Corp., TN, 4.50% Educational Loan
Revenue Bonds (Series B)/(Subject to AMT),
12/1/97 NR 246,818
----------------------------------------------------------------------
250,000 Volunteer State Student Funding Corp., TN, 4.95% Educational Loan
Revenue Bonds (Series B)/(Subject to AMT),
6/1/2000 NR 249,357
---------------------------------------------------------------------- --------------
Total 496,175
---------------------------------------------------------------------- --------------
TEXAS--10.6%
----------------------------------------------------------------------
1,800,000 Brazos River Authority, TX, 8.25% Revenue Bonds (Houston Light & Power
Co., Project B), Callable 5/1/1998 @102 A 1,977,192
----------------------------------------------------------------------
250,000 Brazos River Authority, TX, 8.25% Pollution Control
Revenue Bonds (Texas Utilities Electric Co. Project)/(FGIC
Insured)/(Subject to AMT), Callable 12/1/1996 @102 AAA 274,068
----------------------------------------------------------------------
350,000 Brazos River Authority, TX, 9.875% Pollution Control
Revenue Bonds (Texas Utilities Electric Co. Project)/(FGlC
Insured)/(Subject to AMT), Callable 12/1/1997 @102 BBB 400,235
----------------------------------------------------------------------
250,000 Central Texas Higher Education Authority, 4.65% Student Loan Revenue
Refunding Bonds (Series 1993A), 12/1/99 A 246,073
----------------------------------------------------------------------
250,000 Central Texas Higher Education Authority, 4.35% Student Loan Revenue
Bonds (Senior Series C), 12/1/98 Aaa 245,990
----------------------------------------------------------------------
1,000,000 Dallas, TX, Waterworks & Sewer System, 7.40% Refunding Revenue Bonds,
Mandatory Tender (Pre-Refunded), 4/1/98 Aaa 1,089,590
----------------------------------------------------------------------
225,000 Harris County, TX, 7.00% Toll Road Multi-mode Revenue Bonds (Series
Lien-A), 8/15/99 BBB+ 244,721
----------------------------------------------------------------------
$ 450,000 Lower Neches Valley Authority, TX, 6.85% Revenue Refunding Bonds
(Mobil Oil Refining Corp. Project), Callable
5/1/1997 @102 AA $ 470,322
----------------------------------------------------------------------
200,000 Orange County, TX, Nav. & Port. District, Industrial
Development Corp., 4.75% Solid Waste Revenue Bonds
(Horsehead Residential Development Co. Project)/(Long-
Term Credit Bank-Japan LOC), Optional Tender 10/1/95 A 199,990
---------------------------------------------------------------------- --------------
Total 5,148,181
---------------------------------------------------------------------- --------------
UTAH--0.9%
----------------------------------------------------------------------
200,000 Intermountain Power Agency, UT, 7.875% Special
Obligations Crossover Revenue Refunding Bonds, Callable
7/1/1996 @102 AA- 215,086
----------------------------------------------------------------------
200,000 Intermountain Power Agency, UT, 7.50% Power Supply Revenue Bonds,
Callable 7/1/1996 @102 AA 213,618
---------------------------------------------------------------------- --------------
Total 428,704
---------------------------------------------------------------------- --------------
WASHINGTON--0.5%
----------------------------------------------------------------------
250,000 Seattle, WA, Metropolitan Municipality, 6.875% Limited Sales Tax GO
Bonds, Callable 1/1/1997 @102 Aa 258,405
---------------------------------------------------------------------- --------------
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED COST
$43,883,518) 43,250,874
---------------------------------------------------------------------- --------------
TOTAL LNVESTMENTS (IDENTIFIED COST $50,633,518) $ 50,000,874\
---------------------------------------------------------------------- --------------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings.
\ The costs of investments for federal tax purposes amounts $50,633,518. The net
unrealized depreciation on federal tax cost basis amounts to $632,644, which
is comprised of $47,795 appreciation and $680,439 depreciation at May 31,
1994.
Note: The categories of investments are shown as a percentage of net asset
($48,605,129) at May 31, 1994.
The following abbreviations are used in this portfolio.
AMBAC--American Municipal Bond Assurance Corporation
AMT--Alternative Minimum Tax
FGIC--Financial Guaranty Insurance Company
FNMA--Federal National Mortgage Association
GNMA--Government National Mortgage Association
GO--General Obligation
IDA--Industrial Development Authority
LOC--Letter(s) of Credit
MBIA--Municipal Bond Investors Assurance
UT--Unlimited Tax
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost; $50,633,518) $ 50,000,874
- --------------------------------------------------------------------------------------------------
Cash 88,964
- --------------------------------------------------------------------------------------------------
Receivable for capital stock sold 1,664,103
- --------------------------------------------------------------------------------------------------
Interest receivable 666,179
- --------------------------------------------------------------------------------------------------
Receivable from adviser 8,000
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 12,603
- -------------------------------------------------------------------------------------------------- -------------
Total assets 52,440,723
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $ 3,609,382
- -------------------------------------------------------------------------------------
Payable for capital stock redeemed 146,164
- -------------------------------------------------------------------------------------
Dividends payable 62,879
- -------------------------------------------------------------------------------------
Miscellaneous liabilities 17,169
- ------------------------------------------------------------------------------------- -----------
Total liabilities 3,835,594
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 4,974,210 shares of capital stock $ 48,605,129
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid-in capital $ 50,771,218
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (632,644)
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (1,533,445)
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 48,605,129
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE:
Class A Shares (net assets of $36,874,057 / 3,773,664 SHARES OF CAPITAL STOCK) $9.77
- -------------------------------------------------------------------------------------------------- -------------
Fortress Shares (net assets of $11,731,072 / 1,200,546 SHARES OF CAPITAL STOCK) $9.77
- -------------------------------------------------------------------------------------------------- -------------
COMPUTATION OF OFFERING PRICE:
Class A Shares Offering Price Per Share (100/99 of $9.77)* $9.87
- -------------------------------------------------------------------------------------------------- -------------
Fortress Shares Offering Price Per Share (100/99 of $9.77)* $9.87
- -------------------------------------------------------------------------------------------------- -------------
COMPUTATION OF REDEMPTION PRICE:
Fortress Shares Redemption Price Per Share (99/100 of $9.77)** $9.67
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Contingent Deferred Sales Charge" in the Fortress Shares prospectus.
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM MUNICIPAL FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 969,929
- --------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 81,068
- -------------------------------------------------------------------------------------
Distribution services fee--Class A (Note 4) 41,396
- -------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 19,884
- -------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses (Note 4) 9,491
- -------------------------------------------------------------------------------------
Legal fees 750
- -------------------------------------------------------------------------------------
Administrative personnel and services (Note 4) 13,393
- -------------------------------------------------------------------------------------
Printing and postage 2,500
- -------------------------------------------------------------------------------------
Registration fees 1,000
- -------------------------------------------------------------------------------------
Shareholder service fee (Note 4) 50,889
- -------------------------------------------------------------------------------------
Auditing 1,000
- -------------------------------------------------------------------------------------
Miscellaneous 250
- ------------------------------------------------------------------------------------- -----------
Total expenses 221,621
- -------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 81,068
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 48,000 129,068
- -------------------------------------------------------------------------- --------- -----------
Net expenses 92,553
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 877,376
- -------------------------------------------------------------------------------------------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (569,016)
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (1,533,445)
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ (1,225,085)
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
<S> <C> <C>
1994** 1993*
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------
Net investment income $ 877,376 $ 66,764
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (569,016) (63,628)
- ---------------------------------------------------------------------------------
Net realized loss on investments
($1,533,445 net loss as computed for federal tax purposes) (1,533,445) --
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations (1,225,085) 3,136
- --------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)--
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------------------------
Class A Shares (705,573) (57,771)
- ---------------------------------------------------------------------------------
Fortress Shares (171,803) (8,993)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (877,376) (66,764)
- --------------------------------------------------------------------------------- -------------- --------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ---------------------------------------------------------------------------------
Proceeds from sale of shares 72,876,413 19,912,662
- ---------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 585,814 36,661
- ---------------------------------------------------------------------------------
Cost of shares redeemed (39,756,534) (2,883,798)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from Fund share transactions 33,705,693 17,065,525
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets 31,603,232 17,001,897
- ---------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------
Beginning of period 17,001,897 --
- --------------------------------------------------------------------------------- -------------- --------------
End of period $ 48,605,129 $ 17,001,897
- --------------------------------------------------------------------------------- -------------- --------------
</TABLE>
* For the period from September 1, 1993 (date of initial public offering) to
November 30, 1993.
** For the six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
<S> <C> <C>
1994** 1993*
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.02 $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.24 0.10
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.28) 0.02
- ------------------------------------------------------------------------------------------- ----------- ---------
Total from investment operations (0.04) 0.12
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.21) (0.10)
- ------------------------------------------------------------------------------------------- ----------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 10.02
- ------------------------------------------------------------------------------------------- ----------- ---------
TOTAL RETURN\ (0.37%) 1.20%
- -------------------------------------------------------------------------------------------
RATIOS, TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.50%(a) 0.50%(a)
- -------------------------------------------------------------------------------------------
Net investment income 4.26%(a) 4.30%(a)
- -------------------------------------------------------------------------------------------
Expenses waiver/reimbursment (b) 0.63%(a) 1.71%(a)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $36,874 $13,694
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 109% 0%
- -------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 1, 1993 (date of initial
public offering) to November 30, 1993.
** For the six months ended May 31, 1994 (unaudited).
\ Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
<S> <C> <C>
1994** 1993*
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.02 $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.24 0.11
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.26) 0.02
- ------------------------------------------------------------------------------------------- ----------- ---------
Total from investment operations (0.02) 0.13
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment operations (0.23) (0.11)
- ------------------------------------------------------------------------------------------- ----------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 10.02
- ------------------------------------------------------------------------------------------- ----------- ---------
TOTAL RETURN\ (0.25%) 1.26%
- -------------------------------------------------------------------------------------------
RATIOS, TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.25%(a) 0.25%(a)
- -------------------------------------------------------------------------------------------
Net investment income 4.52%(a) 4.79%(a)
- -------------------------------------------------------------------------------------------
Expenses waiver/reimbursment (b) 0.63%(a) 1.86%(a)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $11,731 $3,307
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 109% 0%
- -------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 1, 1993 (date of initial
public offering) to November 30, 1993.
** For the six months ended May 31, 1994 (unaudited).
\ Based on net asset value which does not reflect the sales load or
contingent deferred sales charge if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
MAY 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 present only those of
Limited Term Municipal 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 two classes of shares ("Fortress Shares" and "Class A Shares").
Class A Shares are identical in all respects to Fortress Shares except that
Class A Shares pays Federated Securities Corp. (the "distributor") a fee at an
annual rate up to .25 of 1% of the average aggregate daily net asset value of
Class A Shares, and Fortress Shares pays Federated Securities Corp. a fee at an
annual rate up to 0.15% of the average aggregate daily net asset value of
Fortress Shares, to finance any activity which is principally intended to result
in the sale of Class A and Fortress Shares. Fortress Shares are also subject to
a contingent deferred sales charge of 1.00%.
(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--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit, quality,
coupon, maturity, type of issue, and any other factors or market data it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Short-term securities with remaining
maturities of sixty days, or less at the time of purchase may be stated at
amortized cost, which approximates value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discounts, 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.
C. 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 tax-exempt income.
Accordingly, no provisions for federal tax are necessary.
D. WHEN-LSSUED 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.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expenses of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1994, there were 10,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares 1,000,000,000 have been designated as Fortress
Shares and 1,000,000,000 as Investment Shares of the Fund. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1994** NOVEMBER 30, 1993*
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
- -------------------------------------------------
Shares sold 6,346,513 $ 63,301,870 1,649,398 $ 16,592,338
- -------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 51,326 506,154 3,323 33,335
- -------------------------------------------------
Shares redeemed (3,991,505) (38,759,772) (285,391) (2,875,556)
- ------------------------------------------------- ------------ --------------- ----------- --------------
Net change resulting from Investment Shares
transactions 2,406,334 $ 25,048,252 1,367,330 $ 13,750,117
- ------------------------------------------------- ------------ --------------- ----------- --------------
<CAPTION>
<S> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1994** NOVEMBER 30, 1993*
FORTRESS SHARES SHARES DOLLARS SHARES DOLLARS
- -------------------------------------------------
Shares sold 964,206 $ 9,574,543 330,714 $ 3,320,324
- -------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 8,084 79,660 331 3,326
- -------------------------------------------------
Shares redeemed (101,974) (996,762) (815) (8,242)
- ------------------------------------------------- ------------ --------------- ----------- --------------
Net change resulting from
Fortress Shares transactions 870,316 $ 8,657,441 330,230 $ 3,315,408
- ------------------------------------------------- ------------ --------------- ----------- --------------
Total net change resulting from
Fund transactions 3,276,650 $ 33,705,693 1,697,560 $ 17,065,525
- ------------------------------------------------- ------------ --------------- ----------- --------------
</TABLE>
* For the period from September 1, 1993 (date of initial public offering) to
November 30, 1993.
** Six months ended May 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
0.40 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.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
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 A and Fortress Shares. The Plan provides
that the Fund may incur distribution expenses up to 0.25 of 1% and 0.15 of 1% of
the average daily net assets of the Class A 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 0.25 of 1% of average net assets of
the Fund for the period. This fee is to obtain certain personal services for
shareholders and the maintenance of shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--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 ($49,536) and start-up
administrative service expenses ($57,000) were borne initially by Adviser. The
Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following August
31, 1993 (date the Fund first became effective). For the six months ended May
31, 1994, the Fund paid $2,057 and $2,375, respectively pursuant to this
agreement.
INTERFUND TRANSACTIONS--During the six months ended May 31, 1994, the Fund
engaged in purchase and sale transactions with other affiliated funds pursuant
to Rule 17a-7 of the Act amounting to $42,600,000 and $62,229,820, respectively.
These purchases and sales were conducted on an arms length basis and transacted
for cash consideration only, at independent current market prices and without
brokerage commissions, fees or other remuneration.
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 six
months ended May 31, 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C>
PURCHASES $ 70,995,036
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 41,585,681
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
James E. Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Richard B. Fisher Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
LIMITED TERM FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
338319106
338219304
3070201 (7/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your Semi-Annual Report to Shareholders for Limited Term
Fund (the "Fund"), which covers the six-month period ended May 31, 1994. The
Report includes the Investment Review and Financial Statements, which contain
the Portfolio of Investments and Financial Highlights for both Class A Shares
and Fortress Shares of the Fund.
The Fund puts your money to work pursuing a high level of current income
consistent with minimal fluctuations in investment value. The Fund invests in a
diversified portfolio of short-term bonds. At least 65% of its assets are
invested in issues rated "A" or better by one or more nationally recognized
statistical rating organizations. All notes and bonds in the Fund's portfolio
must meet or exceed industry standards for "investment grade," which means a
BBB/Baa or better rating. At the end of the reporting period, the Fund's
portfolio focused on asset-backed securities because of their yield advantage.
On May 31, 1994, the Fund's net assets stood to $246.7 million. Because when
interest rates rise bond prices fall, the net asset value of both Class A Shares
and Fortress Shares of the Fund stood at $9.73 per share at the end of the
period, compared to $10.17 per share at the beginning of the period. However,
this decrease was significantly less than longer-term funds experienced, and the
Fund paid a healthy dividend stream of $0.29 per share for Class A Shares and
$0.30 per share for Fortress Shares over the period.
Thank you for choosing Limited Term Fund as a way to pursue competitive monthly
income. Please contact your investment representative if you have any questions
about the Fund. We will continue to keep you informed of your investment
progress.
Sincerely,
Richard B. Fisher
President
July 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Limited Term Fund (the "Fund") invests its assets primarily in a broad range of
investment grade securities rated BBB or better. These include fixed and
floating rate corporate bonds, asset-backed securities, and U.S. government
backed securities which are guaranteed as to the timely payment of principal and
interest by the U.S. government, its agencies or its instrumentalities.
During the past year, the U.S. economy has grown at a very modest pace except
for a spurt of strength in the 4th quarter of '93. Employment seems to be making
modest but steady gains while personal income and spending have experienced
minor upticks. From a manufacturing vantage point, industrial production,
capacity utilization and durable goods orders have all begun to rebound. In this
mild recovery, inflation has remained under control with respect to both the
Consumer Price Index ("CPI") and the Producer Price Index ("PPI").
The Fund has had a target duration of 2.0-3.0 years for the past 12 months. This
reflects our continuing bias that the yield curve is quite steep and offers
value in the 2-3 year sector. The incremental risk taken between the one and
three year parts of the yield curve is modest in light of the large gains in
incremental yield in this short portion of the curve. Emphasis on investment
sectors has been with asset-backed securities, whole-loan mortgage-backed
securities (both fixed rate and floating rate) and, finally, corporate bonds. A
slight barbell continues to be the portfolio configuration of choice using
floating rate securities on the short-end and 5-year securities on the long-end
for defensive positioning.
Defensive positioning has proven helpful since October 1993, as interest rates
in the short and intermediate part of the yield curve have risen 200-250 basis
points. The Federal Reserve has raised short-term rates four times since
February 4, 1994. The Federal Funds target has gone from 3% to 4.25% and the
discount rate has increased from 3% to 3.5%. Despite the fact that CPI and PPI
indicate moderate inflationary levels, the Federal Reserve has begun to fight
"inflation expectations." Given the continued path of recovery, the Federal
Reserve has now declared a neutral stance as long as inflation remains in check.
Long-term bond rates, however, are still very high which could result in a yield
curve flattening with the long-end retreating and the short-end rising modestly.
The performance over the past year for the Fund has been good. The total return
based on net asset value for the six-month period ending May 31, 1994, was -1.49
for Class A Shares and -1.43% for Fortress Shares,* (-2.44% and -3.40%,
respectively, based on offering price). The net asset value of the Fund
decreased from $10.17 per share to $9.73 per share over the 6 month period. The
net assets of the Fund decreased from $256.1 million to $246.7 million. The
effective average duration of the Fund on May 31 was 2.4 years and will be
maintained between 2.0 and 2.5 years in the near term.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
LIMITED TERM FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
CORPORATE BONDS/ASSET BACKED SECURITIES--73.1%
- ------------------------------------------------------------------------------------------------
AUTOMOTIVES--8.9%
--------------------------------------------------------------------------------
$ 2,900,000 Arvin Industries, Inc. 6.875%, 2/15/2001 $ 2,710,688
--------------------------------------------------------------------------------
2,222,353 Capital Auto Receivables Asset Trust 1992-1, Class B, 6.20%,
12/15/97 2,202,219
--------------------------------------------------------------------------------
2,340,757 Capital Auto Receivables Asset Trust 1993-1, Class B, 5.85%,
2/17/98 2,312,410
--------------------------------------------------------------------------------
5,000,000 Ford Credit Auto Loan Master Trust 1992-2, Class A, 7.375%,
4/15/99 5,042,800
--------------------------------------------------------------------------------
2,550,000 *Navistar Financial Dealer Note Trust 1990, Class A-3, 4.80%,
1/25/2003 2,565,938
--------------------------------------------------------------------------------
4,199,942 Premier Auto Trust 1993-4, Class B, 4.95%, 2/22/99 4,098,430
--------------------------------------------------------------------------------
2,999,980 Premier Auto Trust 1993-6, Class B, 4.88%, 1/3/2000 2,893,991
--------------------------------------------------------------------------------
137,142 Select Auto Receivables Trust 1991-5A, 6.25%, 11/15/96 137,000
-------------------------------------------------------------------------------- ---------------
Total 21,963,476
-------------------------------------------------------------------------------- ---------------
BANKING--25.6%
--------------------------------------------------------------------------------
8,000,000 *Bankers Trust New York Corp., 5.38%, 9/24/2002 7,750,000
--------------------------------------------------------------------------------
5,000,000 *Barclays Bank PLC, 6.70%, 6/21/96 5,011,000
--------------------------------------------------------------------------------
15,010,000 *Chase Manhattan Corp., 5.25%, 12/5/2009 14,653,513
--------------------------------------------------------------------------------
3,000,000 Chase Manhattan Credit Card Trust 1991-1, Class A 8.75%, 8/15/99 3,137,490
--------------------------------------------------------------------------------
10,500,000 Chase Manhattan Credit Card Master Trust 1992-1A, 7.40%,
5/15/2000 10,660,020
--------------------------------------------------------------------------------
3,615,000 *Citicorp, 6.00%, 6/29/2005 3,574,331
--------------------------------------------------------------------------------
5,880,000 *Credit Lyonnais, 5.00%, 8/7/97 5,890,290
--------------------------------------------------------------------------------
3,000,000 *First Chicago Corp., 4.38%, 7/28/2003 2,895,000
--------------------------------------------------------------------------------
4,000,000 First USA Credit Card Master Trust 1992-1, Class B, 5.80%, 6/15/98 3,884,360
--------------------------------------------------------------------------------
$ 5,900,000 *Societe Generale, 5.13%, 8/30/2022 $ 5,752,500
-------------------------------------------------------------------------------- ---------------
Total 63,208,504
-------------------------------------------------------------------------------- ---------------
BROADCASTING & CABLE--5.5%
--------------------------------------------------------------------------------
12,500,000 TKR Cable, Inc., Sr. Note, 10.50%, 10/30/2007 13,593,750
-------------------------------------------------------------------------------- ---------------
CONSUMER PRODUCT--3.9%
--------------------------------------------------------------------------------
5,000,000 Black & Decker Corp., 7.50%, 4/1/2003 4,653,150
--------------------------------------------------------------------------------
2,000,000 Encyclopedia Britannica, Dom. Fdg. Corp. 1994-1, 6.76%, 3/15/2002 1,917,380
--------------------------------------------------------------------------------
3,000,000 Fruit of the Loom, Inc., Sr. Note, 7.875%, 10/15/99 3,038,550
-------------------------------------------------------------------------------- ---------------
Total 9,609,080
-------------------------------------------------------------------------------- ---------------
FINANCE--RETAIL--3.9%
--------------------------------------------------------------------------------
1,500,000 Diamond Funding Corp., 6.35%, 11/20/97 1,514,070
--------------------------------------------------------------------------------
5,000,000 Discover Card Trust 1992-B, Class A, 6.80%, 6/16/2000 4,921,400
--------------------------------------------------------------------------------
3,000,000 Discover Card Trust 1991-B, Class B, 8.85%, 7/16/98 3,128,130
-------------------------------------------------------------------------------- ---------------
Total 9,563,600
-------------------------------------------------------------------------------- ---------------
FINANCIAL & INSURANCE--2.6%
--------------------------------------------------------------------------------
7,000,000 Delphi Financial Group, Note, 8.00%, 10/1/2003 6,365,730
-------------------------------------------------------------------------------- ---------------
HOME EQUITY RECEIVABLES--10.5%
--------------------------------------------------------------------------------
2,998,336 Advanta Home Equity Loan Trust 1992-1, Class A, 7.88%, 9/25/2008 3,025,321
--------------------------------------------------------------------------------
3,071,576 Advanta Home Equity Loan Trust 1992-3, Class A, 6.00%, 8/25/2008 2,964,010
--------------------------------------------------------------------------------
500,000 *Capital Home Equity Loan Trust 1991-1, Class B, 4.98%, 11/14/2011 500,550
--------------------------------------------------------------------------------
5,525,441 Conti Mortgage Home Equity Loan Trust 1993-3, Class A-2, 5.54%,
7/15/2020 5,206,844
--------------------------------------------------------------------------------
2,000,000 Conti Mortgage Home Equity Loan Trust 1994-1, Class A-3, 6.07%,
11/15/2013 1,911,200
--------------------------------------------------------------------------------
4,869,679 Conti Mortgage Home Equity Loan Trust 1994-1, Class A-5, 6.12%,
1/15/2024 4,681,807
--------------------------------------------------------------------------------
2,031,482 GE Capital Home Equity Loan, Inc. 1991-1, Class A, 7.20%,
9/15/2011 2,041,172
--------------------------------------------------------------------------------
$ 2,500,000 GE Capital Home Equity Loan, Inc. 1991-1, Class B, 8.70%,
8/30/2011 $ 2,544,225
--------------------------------------------------------------------------------
3,113,315 Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 5.50%,
2/15/2003 3,126,826
-------------------------------------------------------------------------------- ---------------
Total 26,001,955
-------------------------------------------------------------------------------- ---------------
LEASING--0.2%
--------------------------------------------------------------------------------
587,616 Concord Leasing Grantor Trust 1992-C, Class A-1, 5.31%, 1/20/99 569,253
-------------------------------------------------------------------------------- ---------------
MANUFACTURED HOUSING RECEIVABLES--7.6%
--------------------------------------------------------------------------------
3,000,000 CIT Group Manufactured Housing PTC 1993-1, Class A-2, 5.75%,
6/15/2018 2,820,660
--------------------------------------------------------------------------------
6,055,273 CIT Group Manufactured Housing PTC 1993-1, Class B, 6.85%,
6/15/2018 5,648,358
--------------------------------------------------------------------------------
2,380,329 Fleetwood Credit Corp. 1992-1, Class A, 7.10%, 2/15/2007 2,381,804
--------------------------------------------------------------------------------
7,514,662 Merrill Lynch Mortgage Investments, Inc., 1991-A, Class B, 9.25%,
5/15/2011 7,725,933
-------------------------------------------------------------------------------- ---------------
Total 18,576,755
-------------------------------------------------------------------------------- ---------------
MARINE RECEIVABLES--0.3%
--------------------------------------------------------------------------------
815,852 CFC-14 Grantor Trust, Class A, 7.15%, 11/15/2006 820,951
-------------------------------------------------------------------------------- ---------------
PRINTING & PUBLISHING--4.1 %
--------------------------------------------------------------------------------
1,000,000 Valassis Inserts, Inc., Sr. Note, 8.375%, 3/15/97 1,016,760
--------------------------------------------------------------------------------
9,000,000 Valassis Inserts, Inc., Sr. Note, 8.875%, 3/15/99 9,201,960
-------------------------------------------------------------------------------- ---------------
Total 10,218,720
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS/ASSET BACKED SECURITIES
(IDENTIFIED COST $188,608,028) 180,491,774
-------------------------------------------------------------------------------- ---------------
GOVERNMENT AGENCIES--0.2%
- ------------------------------------------------------------------------------------------------
500,000 *Student Loan Marketing Association, 5.06%, 5/8/95
(IDENTIFIED COST $500,000) 500,000
-------------------------------------------------------------------------------- ---------------
MORTGAGE BACKED SECURITIES--22.6%
- ------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY-MORTGAGE BACKED SECURITIES--0.3%
--------------------------------------------------------------------------------
$ 187,057 *Federal National Mortgage Association Pool 087462, 7.49%,
11/1/2017 $ 194,661
--------------------------------------------------------------------------------
486,792 *Federal National Mortgage Association Pool 112514, 5.72%,
12/1/2020 505,149
-------------------------------------------------------------------------------- ---------------
Total 699,810
-------------------------------------------------------------------------------- ---------------
NON-GOVERNMENT AGENCY-MORTGAGE BACKED SECURITIES--22.3%
--------------------------------------------------------------------------------
3,090,000 Chemical Mortgage Securities, Inc. 1993-1, Class A-4, 7.45%,
7/25/2020 3,093,863
--------------------------------------------------------------------------------
1,403,138 *Citicorp Mortgage Securities, Inc., Series 1992-18, Class A-1, 5.28%,
10/25/2022 1,415,415
--------------------------------------------------------------------------------
2,789,926 *DLJ Mortgage Acceptance Corp. Series 93-Q15, Class A-1, 4.84%,
11/25/2023 2,817,826
--------------------------------------------------------------------------------
5,977,428 *GCA 1993-LB2, Class A-1, 5.74%, 8/25/2023 6,111,920
--------------------------------------------------------------------------------
4,685,896 *GCA 1993-LB3, Class A-1, 5.64%, 1/25/2024 4,788,423
--------------------------------------------------------------------------------
8,000,000 *GCA Long Beach Mortgage PTC, Class A-2, 6.08%, 7/25/2022 8,190,000
--------------------------------------------------------------------------------
6,746,929 *GCA REMIC Trust V, 1993-5, Class B, 5.12%, 5/1/2020 6,422,198
--------------------------------------------------------------------------------
4,609,914 GE Capital Mortgage Services, Inc., 1993-9, Class A-1, 6.00%,
8/25/2008 4,234,944
--------------------------------------------------------------------------------
1,372,581 *GMBS 1990-5, Class A, 6.62%, 12/26/2020 1,377,728
--------------------------------------------------------------------------------
6,000,000 Prudential Home Mortgage 1992-5, Class A-6, 7.50%, 4/25/2007 5,808,300
--------------------------------------------------------------------------------
1,935,000 Prudential Home Mortgage 1992-A, Class B1-2, 7.90%, 11/25/2022 1,804,678
--------------------------------------------------------------------------------
753,272 Residential Funding Mortgage Securities, Inc. 1993-S18, Class A-2, 7.50%,
5/25/2023 757,309
--------------------------------------------------------------------------------
2,214,795 Residential Funding Mortgage Security Corp. 1992-S43, Class A-4 8.00%,
12/25/2022 2,217,984
--------------------------------------------------------------------------------
3,270,000 RTC 1992-15, Class B-3, 10.00%, 7/25/2027 3,415,090
--------------------------------------------------------------------------------
2,597,097 Zions Home Refinance Loan Trust 1993-1, 5.15%, 9/25/2003 2,462,438
-------------------------------------------------------------------------------- ---------------
Total 54,918,116
-------------------------------------------------------------------------------- ---------------
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $57,222,278) 55,617,926
-------------------------------------------------------------------------------- ---------------
**REPURCHASE AGREEMENTS-3.5%
- ------------------------------------------------------------------------------------------------
$ 2,611,000 J.P. Morgan Securities, Inc., 4.27%, dated 5/31/94, due 6/1/94 $ 2,611,000
--------------------------------------------------------------------------------
6,000,000 Union Bank Switzerland, 4.30%, dated 5/31/94, due 6/1/94 6,000,000
-------------------------------------------------------------------------------- ---------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) (NOTE 2B) 8,611,000
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENT (IDENTIFIED COST $254,941,306) $ 245,220,700\
-------------------------------------------------------------------------------- ---------------
</TABLE>
* Current rate shown.
** The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in a joint
account with other Federated funds.
\ The cost of investments for federal tax purposes amounts to $254,941,306.
The net unrealized depreciation on a federal tax cost basis amounts to
$9,720,606 and is comprised of $27,182 appreciation and $9,747,788
depreciation at May 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($246,706,741) at May 31, 1994.
The following abbreviations are used in this portfolio:
PTC--Pass Through Certificate
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of Financial Statements)
LIMITED TERM FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B)
(identified cost and tax cost $254,941,306) $ 245,220,700
- ------------------------------------------------------------------------------------------------
Cash 26,860
- ------------------------------------------------------------------------------------------------
Interest receivable 2,023,093
- ------------------------------------------------------------------------------------------------
Receivable for capital stock sold 894,856
- ------------------------------------------------------------------------------------------------
Receivable for investments sold 12,510
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2G) 110,745
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 248,288,764
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for capital stock redeemed $ 1,012,204
- ---------------------------------------------------------------------------------
Dividends payable 339,132
- ---------------------------------------------------------------------------------
Accrued expenses and other liabilities 230,687
- --------------------------------------------------------------------------------- -------------
Total liabilities 1,582,023
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 25,351,809 shares of capital stock outstanding $ 246,706,741
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------
Paid-in capital $ 257,821,724
- ------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (9,720,606)
- ------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (583,632)
- ------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (Note 2C) (810,745)
- ------------------------------------------------------------------------------------------------ ---------------
Total Net Assets $ 246,706,741
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE
- ------------------------------------------------------------------------------------------------
Class A Shares (net assets of $231,102,827 / 23,748,427 shares outstanding) $9.73
- ------------------------------------------------------------------------------------------------ ---------------
Fortress Shares (net assets of $15,603,914 / 1,603,382 shares outstanding) $9.73
- ------------------------------------------------------------------------------------------------ ---------------
OFFERING PRICE PER SHARE:
- ------------------------------------------------------------------------------------------------
Class A Shares (100/99 of $9.73)* $9.83
- ------------------------------------------------------------------------------------------------ ---------------
Fortress Shares (100/99 of $9.73)* $9.83
- ------------------------------------------------------------------------------------------------ ---------------
REDEMPTION PRICE PER SHARE:
- ------------------------------------------------------------------------------------------------
Fortress Shares (99/100 of $9.73)** $9.63
- ------------------------------------------------------------------------------------------------ ---------------
</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)
LIMITED TERM FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 8,410,008
- -------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 516,740
- ----------------------------------------------------------------------------------
Directors' fee 4,975
- ----------------------------------------------------------------------------------
Administrative personnel and services (Note 4) 138,839
- ----------------------------------------------------------------------------------
Custodian and portfolio accounting fees 33,708
- ----------------------------------------------------------------------------------
Transfer agent and dividend disbursing fees and expenses (Note 4) 74,263
- ----------------------------------------------------------------------------------
Registration fees 38,943
- ----------------------------------------------------------------------------------
Audting fees 16,339
- ----------------------------------------------------------------------------------
Legal fees 7,205
- ----------------------------------------------------------------------------------
Printing and postage 92,500
- ----------------------------------------------------------------------------------
Distribution fees--Class A Shares (Note 4) 615,369
- ----------------------------------------------------------------------------------
Distribution fees--Fortress Shares (Note 4) 9,167
- ----------------------------------------------------------------------------------
Insurance premiums 3,726
- ----------------------------------------------------------------------------------
Shareholder service fees (Note 4) 322,962
- ----------------------------------------------------------------------------------
Taxes 15,661
- ----------------------------------------------------------------------------------
Miscellaneous 15,656
- ---------------------------------------------------------------------------------- -------------
Total expenses 1,906,053
- ----------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 183,365
- ---------------------------------------------------------------------
Waiver of distribution services fees--Class A (Note 4) 307,684 491,049
- --------------------------------------------------------------------- ----------- -------------
Net expenses 1,415,004
- ------------------------------------------------------------------------------------------------- ---------------
Net investment income 6,995,004
- ------------------------------------------------------------------------------------------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis)-- (971,111)
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (10,006,400)
- ------------------------------------------------------------------------------------------------- ---------------
Net realized and unrealized gain (loss) on investments (10,977,511)
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets from operations $ (3,982,507)
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
1994* 1993
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 6,995,004 $ 8,178,060
- -------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($971,111 and
$369,906 computed for federal income tax purposes) (Note 2D) (971,111) 369,906
- -------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments (10,006,400) 785,383
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from operations (3,982,507) 9,333,349
- ------------------------------------------------------------------------------- --------------- ---------------
NET EQUALIZATION CREDITS (NOTE 2E)-- 7,402 78,255
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -------------------------------------------------------------------------------
Class A Shares (6,656,145) (8,215,600)
- -------------------------------------------------------------------------------
Fortress Shares (346,261) (36,477)
- -------------------------------------------------------------------------------
Distributions in excess of net investment income
- -------------------------------------------------------------------------------
Class A Shares (220,154) (572,361)
- -------------------------------------------------------------------------------
Fortress Shares (12,184) --
- -------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on investment
transactions
- -------------------------------------------------------------------------------
Class A Shares (356,097) --
- -------------------------------------------------------------------------------
Fortress Shares (12,247) --
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to shareholders (7,603,088) (8,824,438)
- ------------------------------------------------------------------------------- --------------- ---------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 71,583,434 240,663,285
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 5,401,650 6,295,582
- -------------------------------------------------------------------------------
Cost of shares redeemed (74,805,998) (48,664,777)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from capital stock transactions 2,179,086 198,294,090
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (9,399,107) 198,881,256
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 256,105,848 57,224,592
- ------------------------------------------------------------------------------- --------------- ---------------
End of period $ 246,706,741 $ 256,105,848
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
* For the six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994** 1993 1992*
<S> <C> <C> <C>
- --------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.17 $ 10.00 $ 10.01
- ---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment income 0.27 0.63 0.519
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.42) 0.19 (0.008)
- --------------------------------------------------------------------- --------- --------- ---------
Total from investment operations (0.15) 0.82 0.511
- --------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------
Dividends to shareholders from net investment operations (0.28) (0.63) (0.519)
- ---------------------------------------------------------------------
Distributions from net realized gains on investment transactions (0.01) -- --
- ---------------------------------------------------------------------
Distributions in excess of net investment income (Note 2C) -- (0.02) (0.002)
- --------------------------------------------------------------------- --------- --------- ---------
Total distributions (0.29) (0.65) (0.521)
- --------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.73 $ 10.17 $ 10.00
- --------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN\ (1.49%) 8.19% 5.21%
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Expenses 1.10 (a) 1.01% 0.67%(a)
- ---------------------------------------------------------------------
Net investment income 5.41 (a) 5.75% 6.17%(a)
- ---------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.39 (a) 0.49% 1.06%(a)
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Net assets, end of period (000 omitted) $231,103 $248,876 $57,225
- ---------------------------------------------------------------------
Portfolio turnover rate 25% 38% 60%
- ---------------------------------------------------------------------
</TABLE>
* Reflects operations from January 13, 1992 (date of initial public investment)
to November 30, 1992. For the period from the start of business, December 5,
1991, to January 12, 1992, net investment income aggregating $0.03 per share
($332) was distributed to the Fund's investment adviser.
** For the six months ended May 31, 1994 (unaudited).
\ Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM FUND
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
--------------------
1994** 1993*
<S> <C> <C>
- ----------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.17 $ 10.24
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income 0.27 0.15
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.41) (0.07)
- ----------------------------------------------------------------------------------- --------- ---------
Total from investment operations (0.14) (0.08)
- ----------------------------------------------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment operations (0.28) (0.15)
- -----------------------------------------------------------------------------------
Dividends from net realized gains on investment transactions (0.01) --
- -----------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 2C) (0.01) --
- ----------------------------------------------------------------------------------- --------- ---------
Total distributions (0.30) (0.15)
- ----------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.73 $ 10.17
- ----------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN\ (1.43%) 0.78%
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 1.00(a) 1.00%(a)
- -----------------------------------------------------------------------------------
Net investment income 5.55(a) 7.10%(a)
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.14(a) 0.39%(a)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $15,604 $7,230
- -----------------------------------------------------------------------------------
Portfolio turnover rate 25% 38%
- -----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from August 31, 1993 (date of initial
public offering) to November 30, 1993.
** For the six months ended May 31, 1994 (unaudited).
\ Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
LIMITED TERM FUND
NOTES TO FINANCIAL STATEMENTS
MAY 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 present only those of
Limited Term 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 two classes of shares ("Fortress Shares" and "Class A Shares").
Class A Shares are identical in all respects to Fortress Shares except that
Class A Shares pays Federated Securities Corp. (the "distributor") a fee at an
annual rate up to .50 of 1% of the average aggregate daily net asset value of
Class A Shares and Fortress Shares pays Federated Securities Corp. a fee at an
annual rate up to .15 of 1% of the average aggregate daily net asset value of
Fortress Shares, to finance any activity which is principally intended to result
in the sale of Class A 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--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Corporate bonds (and other fixed-income and
asset backed securities) are valued at the last sale price reported on
national securities exchanges on that day, if available. Otherwise,
corporate bonds (and other fixed-income and asset backed 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 at the time of purchase 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 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 adviser to be creditworthy pursuant to guidelines established
by the Board of Directors ("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.
E. EQUALIZATION--The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
redemptions of capital stock equivalent, on a per share basis, to the
amount of undistributed net investment income on the date of the
transaction is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of capital stock.
F. WHEN-LSSUED 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.
G. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
H. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1994, there were 10,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares 1,000,000,000 have been designated as
Investment Shares and 1,000,000,000 as Fortress Shares of the Fund. Transactions
in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994** 1993
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
- ----------------------------------------------- ------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 6,015,534 $ 60,662,766 22,870,569 $ 233,155,755
- -----------------------------------------------
Shares issued to shareholders in
payment of dividends declared 519,355 5,183,622 621,720 6,275,708
- -----------------------------------------------
Shares redeemed (7,250,535) (72,647,091) (4,748,516) (48,395,745)
- ----------------------------------------------- ------------ --------------- -------------- ----------------
Net change resulting from Investment Shares
transactions (715,646) $ (6,800,703) 18,743,773 $ (191,035,718)
- ----------------------------------------------- ------------ --------------- -------------- ----------------
<CAPTION>
YEAR ENDED NOVEMBER 30
1994** 1993*
FORTRESS SHARES SHARES DOLLARS SHARES DOLLARS
- ----------------------------------------------- ------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 1,088,292 $ 10,920,668 735,070 $ 7,507,530
- -----------------------------------------------
Shares issued to shareholders in
payment of dividends declared 21,914 218,028 1,947 19,874
- -----------------------------------------------
Shares redeemed (217,441) (2,158,907) (26,400) (269,032)
- ----------------------------------------------- ------------ --------------- -------------- ----------------
Net change resulting from Fortress Shares
transactions 892,765 8,979,789 710,617 7,258,372
- ----------------------------------------------- ------------ --------------- -------------- ----------------
Total net change resulting from Fund
transactions 177,119 $ 2,179,086 19,454,390 $ (183,777,346)
- ----------------------------------------------- ------------ --------------- -------------- ----------------
</TABLE>
* For the period from August 31, (date of initial public offering) to November
30, 1993.
** Six months ended May 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
.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost.
Effective March 1, 1994, the FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEES--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class A Shares and Fortress Shares. The Plan
provides that the Fund may incur distribution expenses up to 0.50 of 1% of the
average daily net assets of the Class A Shares, and 0.15% of 1% of the average
daily net assets of the Fortress Shares, 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 1% of average net assets of
the Fund for the period. This fee is to obtain certain personal services for
shareholders and the maintenance of shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--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 ($63,956) and start-up
administrative service expenses ($65,386) were borne initially by FAS. The Fund
has agreed to reimburse FAS for the organizational expenses and start-up
administrative expenses during the five year period following December 24, 1991
(date the Fund portfolio first became effective). For the six months ended May
31, 1994, the Fund paid $6,662 and $9,663, respectively pursuant to this
agreement.
INTERFUND TRANSACTIONS--During the six months ended May 31, 1994, the Fund
engaged in purchase and sale transactions with other affiliated funds pursuant
to Rule 17a-7 of the Act amounting to $5,849,308 and $4,980,000, respectively.
These purchases and sales were conducted on an arms length basis and transacted
for cash consideration only, at independent current market prices and without
brokerage commissions, fees or other remuneration.
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 six
months ended May 31,
1994 were as follows:
<TABLE>
<CAPTION>
<S> <C>
PURCHASES $ 63,866,537
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 62,516,224
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
James E. Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Richard B. Fisher Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
STRATEGIC INCOME FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
338319700
338219809
338319882
G00324-01
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your first Semi-Annual Report to Shareholders for
Strategic Income Fund (the "Fund"). This Report covers activity in the Fund
since it began operating on April 29, 1994 through May 31, 1994.
The Report begins with an overview by the portfolio manager on economic and
market conditions and their impact on the Fund's strategy. Following this
overview is a complete list of the Fund's investments and its financial
statements.
The Fund offers its shareholders the opportunity for a high level of current
income by diversifying across U.S. government, international, and high yield
bonds. This approach also offers the potential for less risk than a fund
investing exclusively in international or high yield bonds alone.
The Fund's manager allocates portfolio assets among the various bond markets
based on the expected performance and risk of each. The portfolio manager can
also invest up to 100% of Fund assets in any one market if it has the greatest
potential for a high level of current income without undue risk to principal.
On May 31, 1994, 34.8% of the portfolio assets were invested in U.S. and
international high yield corporate bonds, 43.3% of the assets were invested in
U.S. and international government bonds, and the remainder of the portfolio was
invested in repurchase agreements backed by U.S. government securities. In its
first month of operation, the Fund attracted $3 million in assets.
Thank you for being among the first investors to select Strategic Income Fund to
pursue your financial goals. We will continue to keep you up to date on your
investment as we provide your account with the highest level of personal
service.
Sincerely,
Richard B. Fisher
President
July 15, 1994
STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------------- ----------------------------------------------------------------------------- -------------
CORPORATE BONDS--34.8%
- ---------------------------------------------------------------------------------------------------
BANKING--3.5%
-----------------------------------------------------------------------------
7/850,000 Abbey National Treasury, 8.00%, 4/2/2003 $ 70,630
----------------------------------------------------------------------------- -------------
BROADCAST RADIO & TV--2.5%
-----------------------------------------------------------------------------
US$50,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 51,125
----------------------------------------------------------------------------- -------------
BUSINESS EQUIPMENT & SERVICES--2.5%
-----------------------------------------------------------------------------
US$50,000 Bell & Howell Co., Sr. Sub. Note, 10.75%, 10/1/2002 51,250
----------------------------------------------------------------------------- -------------
CABLE TV--2.3%
-----------------------------------------------------------------------------
US$50,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 46,187
----------------------------------------------------------------------------- -------------
CHEMICALS & PLASTICS--2.4%
-----------------------------------------------------------------------------
US$50,000 Arcadian Partners L.P., Sr. Note, (Series B) 10.75%, 5/1/2005 49,750
----------------------------------------------------------------------------- -------------
CLOTHING & TEXTILES--2.2%
-----------------------------------------------------------------------------
US$50,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 45,375
----------------------------------------------------------------------------- -------------
CONTAINERS & GLASS PRODUCTS--2.5%
-----------------------------------------------------------------------------
US$50,000 Owens Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 51,625
----------------------------------------------------------------------------- -------------
FINANCIAL INTERMEDIARIES--2.6%
-----------------------------------------------------------------------------
SEK 400,000 BMW Finance NV, 10.75%, 10/16/98 53,217
----------------------------------------------------------------------------- -------------
FOOD & DRUG RETAILERS--2.5%
-----------------------------------------------------------------------------
US$50,000 Grand Union Co., Sr. Note, 12.25%, 7/15/2002 50,250
----------------------------------------------------------------------------- -------------
FOOD SERVICE--2.4%
-----------------------------------------------------------------------------
US$50,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 48,688
----------------------------------------------------------------------------- -------------
FOREST PRODUCTS--2.5%
-----------------------------------------------------------------------------
US$50,000 Riverwood International Corp., Sr. Sub. Note, 11.25%, 6/15/2002 52,000
----------------------------------------------------------------------------- -------------
HOME PRODUCTS & FURNISHINGS--1.5%
-----------------------------------------------------------------------------
US$50,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 31,062
----------------------------------------------------------------------------- -------------
STEEL--2.3%
-----------------------------------------------------------------------------
US$50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 $ 47,875
----------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--3.1%
-----------------------------------------------------------------------------
US$100,000 NEXTEL Communications Inc., Sr. Disc. Note, 0/11.50%,
9/1/2003 64,250
----------------------------------------------------------------------------- -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $712,353) 713,284
----------------------------------------------------------------------------- -------------
GOVERNMENT AGENCY--43.3%
- ---------------------------------------------------------------------------------------------------
US$100,000 Argentina Bonos de Consolidacion (Pre 4), 4.375%, 9/1/2002 73,500
-----------------------------------------------------------------------------
US$50,000 Banco Nacional de Commercio Exterior, 8.00%, 8/5/2003 44,125
-----------------------------------------------------------------------------
NZ$100,000 Electricity Corp. of New Zealand, 10.00%, 10/15/2001 66,943
-----------------------------------------------------------------------------
US$499,098 Federal National Mortgage Association, TBA, 8.00%, 4/1/2024 496,758
-----------------------------------------------------------------------------
DM 100,000 Federal Republic of Germany, 8.00%, 7/22/2002 64,691
-----------------------------------------------------------------------------
PTA 10,000,000 Kingdom of Spain, 8.00%, 5/30/2004 66,419
-----------------------------------------------------------------------------
C$100,000 Ontario Hydro, 9.00%, 6/24/2002 72,758
-----------------------------------------------------------------------------
A$50,000 State Bank of New South Wales, 12.25%, 2/26/2001 42,964
----------------------------------------------------------------------------- -------------
TOTAL GOVERNMENT AGENCY (IDENTIFIED COST $928,841) 928,158
----------------------------------------------------------------------------- -------------
*REPURCHASE AGREEMENTS--71.1%
- ---------------------------------------------------------------------------------------------------
400,000 BT Securities Corp., 4.30%, dated 5/31/94, due 6/1/94 400,000
-----------------------------------------------------------------------------
400,000 Harris Trust & Savings Bank, 4.30%, dated 5/31/94, due 6/1/94 400,000
-----------------------------------------------------------------------------
255,000 J.P. Morgan Securities, Inc., 4.27%, dated 5/31/94, due 6/1/94 255,000
-----------------------------------------------------------------------------
$400,000 UBS Securities, Inc., 4.30%, dated 5/31/94, due 6/1/94 $ 400,000
----------------------------------------------------------------------------- -------------
TOTAL REPURCHASE AGREEMENTS, (AT AMORTIZED COST) (NOTE 2B) 1,455,000
----------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $3,096,194) $ 3,096,442\
----------------------------------------------------------------------------- -------------
</TABLE>
* The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in a joint
account with other Federated Funds.
\ The cost for federal tax purposes amounts to $3,096,194. The net unrealized
appreciation of investments on a federal tax basis amounts to $248, which is
comprised of $2,294 appreciation and $2,046 depreciation at May 31, 1994.
TBA--To be announced.
Note: The categories of investments are shown as a percentage of net assets
($2,046,210) at May 31, 1994, which includes a payable for investments
purchased of $1,174,628.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------------
Investments in other securities, at value $ 1,641,442
- ----------------------------------------------------------------------------------------
Investments in repurchase agreements, at amortized cost 1,455,000
- ---------------------------------------------------------------------------------------- -----------
Total investments (Note 2A and 2B) (identified & tax cost $3,096,194) $ 3,096,442
- -----------------------------------------------------------------------------------------------------
Cash 6,154
- -----------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 92,248
- -----------------------------------------------------------------------------------------------------
Interest receivable 34,162
- -----------------------------------------------------------------------------------------------------
Receivable from adviser 7,500
- ----------------------------------------------------------------------------------------------------- -----------
Total assets 3,236,506
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased 1,174,628
- ----------------------------------------------------------------------------------------
Dividends payable 252
- ----------------------------------------------------------------------------------------
Accrued expenses and other liabilities 15,416
- ---------------------------------------------------------------------------------------- -----------
Total liabilities 1,190,296
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 204,593 shares of capital stock outstanding $ 2,046,210
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------
Paid-in capital $ 2,044,381
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation of investments 34
- -----------------------------------------------------------------------------------------------------
Undistributed net investment income 1,795
- ----------------------------------------------------------------------------------------------------- -----------
Total $ 2,046,210
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE:
Class C Shares (net assets of $141,083 / 14,100 SHARES OF CAPITAL STOCK) $10.01
- ----------------------------------------------------------------------------------------------------- -----------
CLASS A SHARES (NET ASSETS OF $1,751,552 / 175,141 SHARES OF CAPITAL STOCK) $10.00
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares (net assets of $153,575 / 15,352 SHARES OF CAPITAL STOCK OUTSTANDING) $10.00
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE:
Class C Shares Offering Price Per Share (100/100 of $10.01) $10.01
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Offering Price Per Share (100/95.5 of $10.00)* $10.47
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Offering Price Per Share (100/99 of $10.00)* $10.10
- ----------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF REDEMPTION PRICE:
Class C Shares Redemption Price Per Share (99/100 of $10.01)** $9.91
- ----------------------------------------------------------------------------------------------------- -----------
Class A Shares Redemption Price Per Share (100/100 of $10.00) $10.00
- ----------------------------------------------------------------------------------------------------- -----------
Fortress Shares Redemption Price Per Share (99/100 of $10.00)** $9.90
- ----------------------------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED MAY 31, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 2,626
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 464
- --------------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 9,000
- --------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 300
- --------------------------------------------------------------------------------------------
Printing and postage 500
- --------------------------------------------------------------------------------------------
Legal 587
- --------------------------------------------------------------------------------------------
Registration fees 2,750
- --------------------------------------------------------------------------------------------
Shareholder services fee 136
- --------------------------------------------------------------------------------------------
Distribution fees--Class C Shares (Note 4) 38
- --------------------------------------------------------------------------------------------
Distribution fees--Fortress Shares (Note 4) 28
- --------------------------------------------------------------------------------------------
Miscellaneous 1,863
- -------------------------------------------------------------------------------------------- ---------
Total expenses 15,666
- ---------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) $ 464
- ---------------------------------------------------------------------------------
- --Reimbursement of other operating expenses (Note 4) 15,000 15,464
- --------------------------------------------------------------------------------- --------- ---------
Net expenses 202
- ------------------------------------------------------------------------------------------------------- ---------
Net investment income 2,424
- ------------------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------------
Net change in appreciation on investments 34
- ------------------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 2,458
- ------------------------------------------------------------------------------------------------------- ---------
</TABLE>
*For the period from April 29, 1994 (date of initial public investment) to May
31, 1994.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------
Net investment income $ 2,424
- ----------------------------------------------------------------------------------------
Change in unrealized appreciation 34
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from operations 2,458
- ---------------------------------------------------------------------------------------- ------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------------------------
Class A Shares (391)
- ----------------------------------------------------------------------------------------
Fortress Shares (142)
- ----------------------------------------------------------------------------------------
Class C Shares (95)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets resulting from distributions to shareholders (628)
- ---------------------------------------------------------------------------------------- ------------------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ----------------------------------------------------------------------------------------
Net proceeds from sale of shares 2,044,034
- ----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment of
dividends in capital stock 377
- ----------------------------------------------------------------------------------------
Cost of shares redeemed (31)
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets from capital stock transactions 2,044,380
- ---------------------------------------------------------------------------------------- ------------------------
Change in net assets 2,046,210
- ----------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------- ------------------------
End of period (including undistributed net investment income of $1,795) $ 2,046,210
- ---------------------------------------------------------------------------------------- ------------------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to May
31, 1994.
(See Notes which are an integral part of the Financial Statements)
STRATEGIC INCOME FUND
CLASS C SHARES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(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 .02
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .01
- ---------------------------------------------------------------------------------------- ------------------------
Total from investment operations .03
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.02)
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, END OF PERIOD $ 10.01
- ---------------------------------------------------------------------------------------- ------------------------
TOTAL RETURN\ 0.25%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.77%(b)
- ----------------------------------------------------------------------------------------
Net investment income 2.69%(b)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 27.16%(b)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $141
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 0%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to May
31, 1994.
\ 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
CLASS A SHARES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(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 .03
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.01)
- ---------------------------------------------------------------------------------------- ------------------------
Total from investment operations .02
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.02)
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, END OF PERIOD $ 10.00
- ---------------------------------------------------------------------------------------- ------------------------
TOTAL RETURN\ 0.21%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.28%(b)
- ----------------------------------------------------------------------------------------
Net investment income 5.20%(b)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 27.13%(b)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,751
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 0%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from May 3, 1994 (date of initial public offering) to May 31,
1994.
\ 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
FORTRESS SHARES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(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 .02
- ---------------------------------------------------------------------------------------- ------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.02)
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, END OF PERIOD $ 10.00
- ---------------------------------------------------------------------------------------- ------------------------
TOTAL RETURN\ 0.17%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 1.09%(b)
- ----------------------------------------------------------------------------------------
Net investment income 5.54%(b)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 26.82%(b)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $154
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 0%
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from May 9, 1994 (date of initial public offering) to May 31,
1994.
\ 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
NOTES TO FINANCIAL STATEMENTS
MAY 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 Trust 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). Class C Shares and Fortress Shares are identical in all
respects to Class A Shares except that where Class A Shares are subject to a
maximum sales load of 4.5%, Class C Shares are subject to a 12b-1 fee of 0.75%
and a contingent deferred sales charge of 1.00%, but are not subject to a sales
load. Fortress Shares are subject to a maximum sales load of 1.00%, a 12b-1 fee
of 0.50%, and a contingent deferred sales charge of 1.00%.
(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 at the time of purchase 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 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 discounts, 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.
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. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 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 AMOUNT
<S> <C> <C>
- -------------------------------------------------------------------------------------- --------- -----------
Shares sold 14,091 $ 140,913
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 9 96
- --------------------------------------------------------------------------------------
Shares redeemed -- --
- -------------------------------------------------------------------------------------- --------- -----------
Net change resulting from Class C Shares transactions 14,100 $ 141,009
- -------------------------------------------------------------------------------------- --------- -----------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to May
31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994*
----------------------
CLASS A SHARES SHARES AMOUNT
<S> <C> <C>
- ----------------------------------------------------------------------------------- --------- -------------
Shares sold 175,121 $ 1,749,692
- -----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 21 204
- -----------------------------------------------------------------------------------
Shares redeemed (1) (7)
- ----------------------------------------------------------------------------------- --------- -------------
Net change resulting from Class A Shares transactions 175,141 $ 1,749,889
- ----------------------------------------------------------------------------------- --------- -------------
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1994**
------------------------
FORTRESS SHARES SHARES AMOUNT
<S> <C> <C>
- ----------------------------------------------------------------------------------- --------- -------------
Shares sold 15,347 $ 153,429
- -----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 8 77
- -----------------------------------------------------------------------------------
Shares redeemed (3) (24)
- ----------------------------------------------------------------------------------- --------- -------------
Net change resulting from Fortress Shares transactions 15,352 $ 153,482
- ----------------------------------------------------------------------------------- --------- -------------
Total net change resulting from Fund transactions 204,593 $ 2,044,380
- ----------------------------------------------------------------------------------- --------- -------------
</TABLE>
* For the period from May 3, 1994 (date of initial public offering) to May 31,
1994.
** For the period from May 9, 1994 (date of initial public offering) to May 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.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
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 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 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 0.25 of 1% of average net assets of
the Fund for the period. This fee is to obtain certain personal services for
shareholders and the maintenance of 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 ($44,600) and start-up
administrative services expenses ($46,630) were borne initially by the Adviser.
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 May 31, 1994 were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 1,641,193
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 0
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
DIRECTORS OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
James E Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Richard B. Fisher Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees, and other information.
