[LOGO] FEDERATED INVESTORS
Limited
Term
Fund
Semi-Annual Report
May 31, 1995
Established 1993
FIXED INCOME
President's Message
- --------------------------------------------------------------------------------
[PHOTO]
Dear Shareholder:
Limited Term Fund was established in 1993, and I am pleased to present
the 1995 Semi-Annual Report to shareholders.
This report features an investment review by the fund's portfolio manager,
Deborah A. Cunningham, Vice President of Federated Advisers, followed by the
fund's Portfolio of Investments and Financial Highlights.
On May 31, 1995, the fund's net assets totaled $162.6 million, and the fund
paid monthly dividends during the six-month period totaling $0.27 per share
for Class A Shares and $0.27 per share for Fortress Shares. The 30-day
yields for Class A Shares and Fortress Shares as of May 31, 1995 were 6.14%
and 6.24%, respectively.
The fund puts your money to work pursuing a high level of current income
consistent with the minimal fluctuations in share value. The fund invests in
a diversified portfolio of short-term bonds with 2 to 3 year maturities. At
least 65% of the fund's 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 or better rating.
The fund's total returns for the six-month period were 5.71% for Class A
Shares and 4.80% for Fortress Shares, up significantly from our last report
in November, 1994.**
Thank you for choosing Limited Term Fund as a way to pursue competitive
monthly income. We appreciate your continued support and welcome your
comments or questions.
Sincerely yours,
/s/ RICHARD B. FISHER
Richard B. Fisher
President
July 14, 1995
* RATINGS ARE ACCORDING TO STANDARD & POOR'S RATINGS GROUP AND ARE SUBJECT
TO CHANGE.
** PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE, THEREFORE AN INVESTORS SHARES WHEN
REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
Investment Review
- --------------------------------------------------------------------------------
[PHOTO]
DEBORAH A. CUNNINGHAM
VICE PRESIDENT,
FEDERATED ADVISERS
The investment objective of the fund is to seek a high level of current
income consistent with minimum fluctuation in principal value through a
portfolio with an effective modified duration of three years or less.
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 that are guaranteed as to the timely payment of principal and
interest by the U.S. government, its agencies or its instrumentalities.
The long anticipated slowdown in the economy finally came in early 1995
bringing with it the perception that The Federal Reserve Board (the "Fed")
had achieved a "soft landing." Housing starts and auto sales have noticeably
softened. Retail sales tumbled; capacity utilization is back down below 85%;
concurrently, inflation has begun to stir, but remains remarkably constrained.
During the past six months, yields declined about 150 basis points in the two
to three year sector of the investment-grade bond market. The Fed has
increased the Fed Funds Rate once from 5.50 percent to 6.00 percent in
February, 1995.
The Two-Year U.S. Treasury Note began the period with a yield of 7.40 percent
and increased to 7.74 percent on December 23, 1994, before decreasing
precipitously to end the period at 5.87 percent on May 31, 1995. Drastic
yield curve flattening occurred with the spread over the One-Year U.S.
Treasury bill decreasing from 49 to 9 basis points. Given this flattening,
the target duration for the fund has increased slightly to the 2.25-year area.
In meeting this target the fund continues to hold a 30 to 40 percent position
in floating rate securities.
The total returns for Class A shares and Fortress shares for the six-month
period ending May 31, 1995, was 5.71% and 4.80%, respectively.** The net asset
value of both the Class A Shares and the Fortress Shares have increased from
$9.48 to $9.85 over the period. The net assets of the fund decreased from
$192.2 to $162.6 million. The 30-day net distribution yield decreased from
5.55% to 5.46% for Class A Shares, and decreased 5.66% to 5.56% for Fortress
Shares. The effective modified duration of the fund on May 31, 1995 was 2.0
years and will be maintained between 2.0 and 2.5 years.
* RATINGS ARE ACCORDING TO STANDARD AND POOR'S RATINGS GROUP AND ARE SUBJECT
TO CHANGE.
** PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE, THEREFORE AN INVESTORS SHARES WHEN
REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
2
LIMITED TERM FUND--
PORTFOLIO UPDATE
- --------------------------------------------------------------------------------
PLEASE SEE APPENDIX A
3
LIMITED TERM FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- -------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS/ASSET BACKED SECURITIES--70.8%
- ------------------------------------------------------------------
AUTOMOTIVE--12.4%
--------------------------------------------------
$ 1,625,940 Capital Auto Receivables Asset Trust 1993-1, Class
B, 5.85%, 2/17/98 $ 1,615,209
--------------------------------------------------
8,000,000 Ford Credit Auto Loan Master Trust 1992-1, 6.88%,
1/15/1999 8,080,960
--------------------------------------------------
2,000,000 General Motors Acceptance Corp., MTN, 7.63%,
3/9/1998 2,047,420
--------------------------------------------------
2,550,000 (a) Navistar Financial Dealer Note 1990, Class
A-3, 6.98%, 1/25/2003 2,579,351
--------------------------------------------------
3,677,601 Navistar Financial Owner Trust 1994-B, Class B,
6.63%, 1/15/2000 3,684,497
--------------------------------------------------
2,000,000 Navistar Financial Owner Trust 1995-1, Class B,
6.85%, 11/20/2001 2,010,920
--------------------------------------------------
55,748 Select Auto Receivables Trust 1991-5, Class A,
6.25%, 11/15/1996 55,603
-------------------------------------------------- ------------
Total 20,073,960
-------------------------------------------------- ------------
BANKING--18.8%
--------------------------------------------------
7,000,000 (a) Chase Manhattan Corp. FRN, 6.44%, 12/05/2009 6,755,000
--------------------------------------------------
5,000,000 (a) Chemical Bank, FRN, 6.25%, 7/29/2003 4,864,500
--------------------------------------------------
3,615,000 (a) Citicorp, EFRN 6.69%, 6/29/2005 3,443,288
--------------------------------------------------
5,000,000 MBNA Master Credit Card Trust 1991-1, Class A,
7.75%, 10/15/1998 5,126,450
--------------------------------------------------
2,000,000 PNC Bank Sub. Note, 7.88%, 4/15/2005 2,104,160
--------------------------------------------------
2,000,000 Standard Credit Card Master Trust 1991-1, Class A,
8.50%, 8/7/1997 2,037,260
--------------------------------------------------
6,000,000 Toronto-Dominion Bank, Sub. Note, 7.88%, 8/15/2004 6,286,200
-------------------------------------------------- ------------
Total 30,616,858
-------------------------------------------------- ------------
CONSUMER PRODUCTS--1.5%
--------------------------------------------------
1,479,217 (b) Encyclopedia Britannica Dom. Funding Corp.,
Series 1994-1, 6.76%, 3/15/2000 1,480,604
--------------------------------------------------
856,697 (a) John Deere Owner Trust 1992-1, Class E, 7.25%,
12/29/1999 861,392
-------------------------------------------------- ------------
Total 2,341,996
-------------------------------------------------- ------------
FINANCE--RETAIL--5.0%
--------------------------------------------------
3,000,000 Discover Credit Card Trust 1991-B, Class B, 8.85%,
7/15/1998 3,082,950
--------------------------------------------------
</TABLE>
4
LIMITED TERM FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- -------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS/ASSET BACKED SECURITIES--CONTINUED
- ------------------------------------------------------------------
FINANCE--RETAIL--CONTINUED
--------------------------------------------------
$ 5,000,000 Household Private Label Credit Card 1994-1, Class
B, 7.55%, 5/20/1997 $ 5,086,719
-------------------------------------------------- ------------
Total 8,169,669
-------------------------------------------------- ------------
HOME EQUITY RECEIVABLES--20.5%
--------------------------------------------------
1,263,472 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%,
8/15/2007 1,266,100
--------------------------------------------------
745,010 Advanta Home Equity Loan Trust 1991-1, Class A,
9.00%, 2/25/2006 781,508
--------------------------------------------------
2,000,016 Advanta Home Equity Loan Trust 1992-4, Class A-2,
7.15%, 12/25/2008 1,983,295
--------------------------------------------------
1,500,000 (a) Capitol Home Equity Loan Trust 1991-1, Class
B, 6.73%, 12/25/2011 1,514,250
--------------------------------------------------
4,303,879 (b) Conti Mortgage Home Equity Loan Trust 1993-3,
Class A-2, 5.54%, 7/15/2020 4,009,794
--------------------------------------------------
2,000,000 (b) Conti Mortgage Home Equity Loan Trust 1994-1,
Class A-3, 6.07%, 11/15/2013 1,892,810
--------------------------------------------------
4,186,621 (b) Conti Mortgage Home Equity Loan Trust 1994-1,
Class A-5, 6.12%, 1/15/2024 3,982,711
--------------------------------------------------
633,008 Fleet Finance Home Equity Trust 1991-2, 6.70%,
10/15/2006 633,812
--------------------------------------------------
4,293,537 (a) Merrill Lynch Home Equity Loan Trust 1991-2,
Class B, 7.00%, 4/15/2006 4,317,582
--------------------------------------------------
2,309,787 (a) Merrill Lynch Home Equity Loan Trust 1993-1,
Class B, 7.06%, 2/15/2003 2,328,912
--------------------------------------------------
3,914,677 TMS Home Equity Loan Trust 1993-C, Class A-3,
5.75%, 10/15/2022 3,703,989
--------------------------------------------------
1,448,704 TMS Home Equity Loan Trust 1992-A, Class A, 6.95%,
12/15/2007 1,440,142
--------------------------------------------------
825,963 TMS Home Equity Loan Trust 1992-B, Class A, 6.90%,
7/15/2007 819,958
--------------------------------------------------
4,658,279 TMS Home Equity Loan Trust 1992-D, Class A-3,
7.55%, 1/15/2018 4,687,393
-------------------------------------------------- ------------
Total 33,362,256
-------------------------------------------------- ------------
INSURANCE--3.2%
--------------------------------------------------
5,000,000 USF&G Corp., Sr. Note, 8.38%, 6/15/2001 5,236,000
-------------------------------------------------- ------------
</TABLE>
5
LIMITED TERM FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- -------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS/ASSET BACKED SECURITIES--CONTINUED
- ------------------------------------------------------------------
LEASING--0.2%
--------------------------------------------------
$ 269,003 (b) Concord Leasing Grantor Trust 1992-C, Class
A-1, 5.31%, 1/20/1999 $ 264,263
-------------------------------------------------- ------------
MANUFACTURED HOUSING RECEIVABLES--3.1%
--------------------------------------------------
5,386,618 CIT Group Manufactured Housing PTC 1993-1, Class
B, 6.85%, 6/15/2018 5,074,626
-------------------------------------------------- ------------
MARINE RECEIVABLES--2.3%
--------------------------------------------------
3,785,282 CBNJ Boat Loan Trust, Series 1994-1, 6.89%,
4/27/2012 3,775,819
-------------------------------------------------- ------------
PUBLISHING--3.8%
--------------------------------------------------
6,000,000 News America Holdings, Inc., 7.50%, 3/1/2000 6,141,960
-------------------------------------------------- ------------
TOTAL CORPORATE BONDS/ASSET BACKED SECURITIES
(IDENTIFIED COST $114,317,135) 115,057,407
-------------------------------------------------- ------------
GOVERNMENT AGENCIES--2.8%
- ------------------------------------------------------------------
2,500,000 Federal Farm Credit Banks, 6.96%, 6/6/2000 2,500,000
--------------------------------------------------
2,000,000 Federal Home Loan Mortgage Corp., 7.84%, 4/26/2000 2,028,580
-------------------------------------------------- ------------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST
$4,515,526) 4,528,580
-------------------------------------------------- ------------
MORTGAGE-BACKED SECURITIES--24.5%
- ------------------------------------------------------------------
GOVERNMENT AGENCY--MORTGAGE-BACKED
SECURITIES--2.2%
--------------------------------------------------
236,310 Federal Home Loan Mortgage Corp. Series 1132,
Class G, 8.00%, 1/15/2005 237,643
--------------------------------------------------
1,240,677 (a) Federal Home Loan Mortgage Corp., Pool 606116,
7.32%, 9/1/2019 1,279,101
--------------------------------------------------
1,364,849 (a) Federal Home Loan Mortgage Corp., Pool 785167,
7.11%, 12/1/2018 1,406,709
--------------------------------------------------
384,391 (a) Federal National Mortgage Association Pool
112514, 7.65%, 12/1/2020 400,804
--------------------------------------------------
181,975 (a) Federal National Mortgage Association Pool
087462, 7.72%, 11/1/2017 190,577
-------------------------------------------------- ------------
Total 3,514,834
-------------------------------------------------- ------------
NON-GOVERNMENT AGENCY--MORTGAGE-BACKED
SECURITIES--22.3%
--------------------------------------------------
4,182,740 (a) Citicorp Mortgage Securities, Inc., Series
1992-18, Class A-1, 7.14%, 10/25/2022 4,250,709
--------------------------------------------------
7,000,000 Citicorp Mortgage Securities, Inc., Series
1993-12, Class A-2, 6.50%, 6/25/2021 6,503,070
--------------------------------------------------
</TABLE>
6
LIMITED TERM FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- -------------------------------------------------- ------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES--CONTINUED
- ------------------------------------------------------------------
NON-GOVERNMENT AGENCY--MORTGAGE-BACKED
SECURITIES--CONTINUED
--------------------------------------------------
$ 6,712,231 (a) GCA REMIC Trust V, 1993-5, Class B, 6.76%,
5/1/2020 $ 6,225,594
--------------------------------------------------
2,950,000 Prudential Home Mortgage 1992-32, Class A-6,
7.50%, 10/25/2022 2,917,274
--------------------------------------------------
3,270,000 RTC 1992-15, Class B-3, 10.00%, 7/25/2027 3,390,581
--------------------------------------------------
3,501,446 (a) Residential Funding Securities, Inc., Series
1993-S38, Class A, 6.88%, 9/25/2023 3,581,322
--------------------------------------------------
6,065,158 Salomon Brothers Mortgage Securities, Series
1993-9, Class A-1, 7.24%, 1/25/2024 6,034,832
--------------------------------------------------
3,208,822 (a) Salomon Brothers Mortgage Securities VII,
Series 1992-6, Class A-1, 7.19%, 11/25/2022 3,344,194
-------------------------------------------------- ------------
Total 36,247,576
-------------------------------------------------- ------------
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED
COST $38,518,772) 39,762,410
-------------------------------------------------- ------------
(C) REPURCHASE AGREEMENT--2.2%
- ------------------------------------------------------------------
3,511,000 J.P. Morgan Securities, Inc. 6.17%, dated
5/31/1995, due 6/1/1995 (at amortized cost) 3,511,000
-------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $160,862,433)
(D) $162,859,397
-------------------------------------------------- ------------
------------
<FN>
(a) Denotes Variable Rate and Floating Rate securities which show current rate.
(b) Indicates private placement securities held at May 31, 1995 with a total
market value of $11,630,182 which represents 7.2% of total net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $160,862,433.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,996,964 which is comprised of $3,838,582 appreciation and
$1,841,618 depreciation at May 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($162,596,925) at May 31, 1995.
</TABLE>
7
LIMITED TERM FUND
- ---------------------------------------------------------
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
EFRN --Euro Floating Rate Note
FRN --Floating Rate Note
MTN --Medium Term Note
PTC --Pass Through Certificate
REMIC --Real Estate Mortgage Investment Conduit
</TABLE>
(See Notes which are an integral part of the Financial Statements)
8
LIMITED TERM FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $160,862,433) $162,859,397
- -------------------------------------------------------------------------------------------
Cash 1,867
- -------------------------------------------------------------------------------------------
Receivable for investments sold 1,789,399
- -------------------------------------------------------------------------------------------
Income receivable 1,780,059
- -------------------------------------------------------------------------------------------
Receivable for shares sold 35,516
- -------------------------------------------------------------------------------------------
Deferred expenses 84,621
- ------------------------------------------------------------------------------------------- ------------
Total assets 166,550,859
- -------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------
Payable for investments purchased $2,500,000
- --------------------------------------------------------------------------------
Payable for shares redeemed 1,013,704
- --------------------------------------------------------------------------------
Income distribution payable 263,586
- --------------------------------------------------------------------------------
Accrued expenses 176,644
- -------------------------------------------------------------------------------- --------
Total liabilities 3,953,934
- ------------------------------------------------------------------------------------------- ------------
NET ASSETS for 16,510,453 shares outstanding $162,596,925
- ------------------------------------------------------------------------------------------- ------------
------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------------------
Paid in capital $173,154,634
- -------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,996,964
- -------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (12,421,594)
- -------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (133,079)
- ------------------------------------------------------------------------------------------- ------------
Total Net Assets $162,596,925
- ------------------------------------------------------------------------------------------- ------------
------------
CLASS A SHARES:
- --------------------------------------------------------------------------------
Net Asset Value Per Share ($151,674,425 DIVIDED BY 15,401,236 shares
outstanding) $ 9.85
- ------------------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/99.00 of $9.85)* $ 9.95
- ------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share $ 9.85
- ------------------------------------------------------------------------------------------- ------------
FORTRESS SHARES:
- -------------------------------------------------------------------------------------------
Net Asset Value Per Share ($10,922,500 DIVIDED BY 1,109,217 shares outstanding) $ 9.85
- ------------------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/99.00 of $9.85)* $ 9.95
- ------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share (99.00/100 of $9.85)** $ 9.75
- ------------------------------------------------------------------------------------------- ------------
------------
</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)
9
LIMITED TERM FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Interest $ 6,295,124
- -------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $ 347,286
- -----------------------------------------------------------------------
Administrative personnel and services fee 77,288
- -----------------------------------------------------------------------
Custodian fees 18,597
- -----------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 87,658
- -----------------------------------------------------------------------
Directors'/Trustees' fees 3,734
- -----------------------------------------------------------------------
Auditing fees 8,190
- -----------------------------------------------------------------------
Legal fees 3,734
- -----------------------------------------------------------------------
Portfolio accounting fees 4,705
- -----------------------------------------------------------------------
Distribution services fee--Class A Shares 404,928
- -----------------------------------------------------------------------
Distribution services fee--Fortress Shares 8,754
- -----------------------------------------------------------------------
Shareholder services fee--Class A Shares 202,464
- -----------------------------------------------------------------------
Shareholder services fee--Fortress Shares 14,590
- -----------------------------------------------------------------------
Share registration costs 39,312
- -----------------------------------------------------------------------
Printing and postage 29,848
- -----------------------------------------------------------------------
Insurance premiums 4,368
- -----------------------------------------------------------------------
Taxes 14,924
- -----------------------------------------------------------------------
Miscellaneous 28,392
- ----------------------------------------------------------------------- ----------
Total expenses 1,298,772
- -----------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------
Waiver of investment advisory fee $103,697
- ------------------------------------------------------------
Waiver of distribution services fee--Class A Shares 242,957
- ------------------------------------------------------------
Waiver of distribution services fee--Fortress Shares 2,334
- ------------------------------------------------------------
Waiver of shareholder services fee--Fortress Shares 584 349,572
- ------------------------------------------------------------ -------- ----------
Net expenses 949,200
- ------------------------------------------------------------------------------------- -----------
Net investment income 5,345,924
- ------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments (2,773,874)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 8,614,730
- ------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments 5,840,856
- ------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $11,186,780
- ------------------------------------------------------------------------------------- -----------
-----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
10
LIMITED TERM FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MAY 31, YEAR ENDED
1995 NOVEMBER 30,
(UNAUDITED) 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 5,345,924 $ 13,252,956
- ----------------------------------------------------------------------
Net realized gain (loss) on investments ($2,773,874 net loss and
$9,607,384 net loss, respectively, as computed for federal income tax
purposes) (2,773,874) (9,647,720)
- ----------------------------------------------------------------------
Net change in unrealized appreciation (depreciation ) of investments 8,614,730 (6,903,560)
- ---------------------------------------------------------------------- -------------- --------------
Change in assets resulting from operations 11,186,780 (3,298,324)
- ---------------------------------------------------------------------- -------------- --------------
NET EQUALIZATION CREDITS (DEBITS) (5,366) 7,025
- ---------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------------------
Class A Shares (4,485,118) (12,483,582)
- ----------------------------------------------------------------------
Fortress Shares (327,076) (776,400)
- ----------------------------------------------------------------------
Distributions in excess of net investment income:
- ----------------------------------------------------------------------
Class A Shares -- (97,229)
- ----------------------------------------------------------------------
Fortress Shares -- (4,798)
- ----------------------------------------------------------------------
Distributions from net realized gains:
- ----------------------------------------------------------------------
Class A Shares -- (356,098)
- ----------------------------------------------------------------------
Fortress Shares -- (12,247)
- ---------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (4,812,194) (13,730,354)
- ---------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------
Proceeds from sale of Shares 4,340,730 82,920,358
- ----------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 3,213,895 9,662,553
- ----------------------------------------------------------------------
Cost of Shares redeemed (43,512,782) (139,481,244)
- ---------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (35,958,157) (46,898,333)
- ---------------------------------------------------------------------- -------------- --------------
Change in net assets (29,588,937) (63,919,986)
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 192,185,862 256,105,848
- ---------------------------------------------------------------------- -------------- --------------
End of period $162,596,925 $192,185,862
- ---------------------------------------------------------------------- -------------- --------------
-------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
11
LIMITED TERM FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MAY 31, YEAR ENDED NOVEMBER 30,
1995 --------------------------------------
(UNAUDITED) 1994 1993 1992(a)
- ----------------------------------------------------------------------- -------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.48 $ 10.17 $ 10.00 $ 10.01
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income 0.29 0.53 0.63 0.519
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.35 (0.66) 0.19 (0.008)
- ----------------------------------------------------------------------- ------ ------ ------ ----------
Total from investment operations 0.64 (0.13) 0.82 0.511
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Distributions from net investment income (0.27) (0.53) (0.63) (0.519)
- -----------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.02) (0.02) (0.002)
- -----------------------------------------------------------------------
Distributions from net realized gain on investment transactions -- (0.01) -- --
- ----------------------------------------------------------------------- ------ ------ ------ ----------
Total distributions (0.27) (0.56) (0.65) (0.521)
- ----------------------------------------------------------------------- ------ ------ ------ ----------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.48 $ 10.17 $ 10.00
- ----------------------------------------------------------------------- ------ ------ ------ ----------
------ ------ ------ ----------
TOTAL RETURN (c) 6.83% (1.30%) 8.19% 5.21%
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 1.10%(d) 1.10% 1.01% 0.67%(d)
- -----------------------------------------------------------------------
Net investment income 6.15%(d) 5.52% 5.75% 6.17%(d)
- -----------------------------------------------------------------------
Expense waiver/reimbursement (e) 0.42%(d) 0.39% 0.49% 1.06%(d)
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $151,674 $178,771 $248,876 $57,225
- -----------------------------------------------------------------------
Portfolio turnover 33 % 63 % 38 % 60 %
- -----------------------------------------------------------------------
<FN>
(a) 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, the net investment income
was distributed to the Fund's investment adviser.
(b) 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.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
12
LIMITED TERM FUND
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED NOVEMBER 30,
ENDED MAY 31,
1995 -----------------------
(UNAUDITED) 1994 1993(a)
- ------------------------------------------------------------------------- ------------- ----------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.48 $ 10.17 $ 10.24
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income 0.30 0.55 0.15
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.34 (0.67) (0.07)
- ------------------------------------------------------------------------- ------ ----------- ----------
Total from investment operations 0.64 (0.12) 0.08
- -------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Distributions from net investment income (0.27) (0.55) (0.15)
- -------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.01) --
- -------------------------------------------------------------------------
Distributions from net realized gain on investment transactions -- (0.01) --
- ------------------------------------------------------------------------- ------ ----------- ----------
Total distributions (0.27) (0.57) (0.15)
- ------------------------------------------------------------------------- ------ ----------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.48 $ 10.17
- ------------------------------------------------------------------------- ------ ----------- ----------
------ ----------- ----------
TOTAL RETURN (C) 6.88% (1.20%) 0.78%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 1.00%(d) 0.99% 1.00%(d)
- -------------------------------------------------------------------------
Net investment income 6.24%(d) 5.67% 7.10%(d)
- -------------------------------------------------------------------------
Expense waiver/reimbursement (e) 0.17%(d) 0.13% 0.39%(d)
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $10,923 $13,415 $7,230
- -------------------------------------------------------------------------
Portfolio turnover 33 % 63 % 38 %
- -------------------------------------------------------------------------
<FN>
(a) Reflects operations for the period from August 31, 1993 (date of initial
public offering) to November 30, 1993.
(b) 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.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
13
LIMITED TERM FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995 (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 three, diversified
portfolios. The financial statements included herein are 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; Class A Shares and Fortress Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Listed corporate bonds (and other fixed
income and asset-backed securities), unlisted securities (and other
fixed-income and asset-backed securities and/or private placements) and
short-term securities 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 valued at amortized cost, which
approximates value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/ or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral securities.
14
LIMITED TERM FUND
- ---------------------------------------------------------
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.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At November 30, 1994, the Fund, for federal tax purposes, had a capital loss
carryforward of $9,607,384, 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 2002, ($9,607,384).
EQUALIZATION--The Fund follows the accounting practice known as
equalization, in which a portion of the proceeds from sales and costs of
redemptions of fund shares 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 fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Funds' commencement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Directors. The Fund will not incur any
registration costs upon
15
LIMITED TERM FUND
- ---------------------------------------------------------
such resales. The Fund's restricted securities are valued at the prices
provided by dealers in the secondary market or, if no market prices are
available, at the fair value as determined by the Fund's pricing committee.
Additional information on each restricted security held at May 31, 1995, is
as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
- ------------------------------------------------------ ----------- -----------
<S> <C> <C>
Encyclopedia Britannica Dom. Funding Corp., Series
1994-1 3/21/94 $1,479,217
- ------------------------------------------------------
Conti Mortgage Home Equity Loan Trust 1993-3, Class
A-2 9/16/94 4,251,039
- ------------------------------------------------------
Conti Mortgage Home Equity Loan Trust 1994-1, Class
A-3 2/18/94 1,999,719
- ------------------------------------------------------
Conti Mortgage Home Equity Loan Trust 1994-1, Class
A-5 2/18/94 4,117,806
- ------------------------------------------------------
Concord Leasing Grantor Trust 1992-C, Class A-1 8/14/92 249,143
- ------------------------------------------------------
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1995, there were 10,000,000,000 shares of $0.001 par value capital
stock authorized for the Corporation. 2,000,000,000 shares have been designated
for the Fund. Of these shares 1,000,000,000 have been designated as Class A
Shares and 1,000,000,000 as Fortress Shares of the Fund. Transactions in shares
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 31, YEAR ENDED
1995 NOVEMBER 30, 1994
------------------------ -------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares Sold 342,471 $ 3,280,954 6,954,884 $ 69,748,905
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 316,384 3,030,388 935,518 9,190,553
- ----------------------------------------
Shares redeemed (4,106,814) (39,361,434) (13,505,266) (133,005,809)
- ---------------------------------------- ---------- ------------ ----------- ------------
Net change resulting from Class A
Shares share transactions (3,447,959) ($33,050,092) (5,614,864) ($54,066,351)
- ---------------------------------------- ---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
</TABLE>
16
LIMITED TERM FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994*
------------------------ ------------------------
FORTRESS SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares Sold 110,405 $ 1,059,776 1,322,242 $ 13,171,453
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 19,220 183,507 48,336 472,000
- ----------------------------------------
Shares redeemed (434,816) (4,151,348) (666,787) (6,475,435)
- ---------------------------------------- ---------- ------------ ---------- ------------
Net change resulting from Fortress
Shares share transactions (305,191) ($ 2,908,065) 703,791 $ 7,168,018
- ---------------------------------------- ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
Net change resulting from Fund share
transactions (3,753,150) ($35,958,157) (4,911,073) ($46,898,333)
- ---------------------------------------- ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<FN>
* For the period from August 31, 1993 (date of initial public offering) to
November 30, 1993.
</TABLE>
(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"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. 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 the period
of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A Shares and Fortress Shares. The
Plan provides that the Fund may incur distribution expenses up to .50 and
.15, respectively, of 1% of the average daily net assets of the Class A
Shares and Fortress Shares, respectively, annually, to compensate FSC. The
distributor may voluntarily choose to waive a portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to .25 of 1% of average daily
17
LIMITED TERM FUND
- ---------------------------------------------------------
net assets of the Fund for the period. This fee is to obtain certain
personal services for shareholders and to maintain the shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent
for the Fund. This fee is based on the size, type, and number of accounts
and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Fserv also maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of each
Fund's average net assets for the period plus, out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $66,620 and start-up
administrative service expenses of $65,386 were borne initially by the
Adviser. The Fund has agreed to reimburse the adviser for the organizational
and start-up administrative expenses during the five year period following
December 24, 1991 (date the Fund became effective). For the period ended May
31, 1995, the Fund paid $17,765 and $8,988, respectively, pursuant to this
agreement.
GENERAL--Certain of the Officers and Directors of the Fund 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, 1995, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
<S> <C>
PURCHASES-- $56,327,275
- ------------------------------------------------------------------- -----------
SALES-- $61,392,186
- ------------------------------------------------------------------- -----------
</TABLE>
18
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley CHAIRMAN
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland PRESIDENT
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. VICE PRESIDENT
Richard B. Fisher Edward C. Gonzales
Edward L. Flaherty, Jr. VICE PRESIDENT AND TREASURER
Peter E. Madden John W. McGonigle
Gregor F. Meyer VICE PRESIDENT AND SECRETARY
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar ASSISTANT TREASURER
Marjorie P. Smuts Charles H. Field
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves investment risk, including 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.
19
[LOGO]
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 338319106
Cusip 338319304
3070201 (7/95)
[LOGO] FEDERATED INVESTORS
Limited
Term Municipal
Fund
Semi-Annual Report
May 31, 1995
Established 1993
MUNICIPAL
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
[PHOTO]
Dear Shareholder:
Limited Term Municipal Fund was established in 1993, and I am
pleased to present the 1995 Semi-Annual Report to shareholders.
This report features an investment review by the fund's portfolio
manager, Mary Jo Ochson, Vice President of Federated Advisers,
followed by the fund's Portfolio of Investments and Financial Highlights.
The fund's assets totaled $42.5 million as of May 31, 1995, and the fund paid
monthly dividends during the six-month period totaling $0.23 per share for
Class A Shares and $0.24 per share for Fortress Shares. The 30-day yields for
the fund as of May 31, 1995 were 4.81% for Class A Shares and 4.93% for
Fortress Shares. Investors in the 39.6% tax bracket have a taxable equivalent
yield of 7.96% for Class A Shares and 8.16% for Fortress Shares.
The Limited Term Municipal Fund continues to serve as an excellent vehicle
for investors seeking a combination of competitive, tax-free income with a
short effective maturity. The fund's holdings as of May 31, 1995 are rated
as follows: 48% are rated A or better, 28% are rated BBB, and 17% are
non-rated.* The fund's diversification includes bonds issued by hospitals,
single-family housing authorities, electric revenue, and resource recovery
bonds.
The fund's total returns for the six-month period were 4.21% for Class A Shares
and 3.32% for Fortress Shares**, up significantly from our last report in
November, 1994.
With the Republican resurgence, there has been a great deal of publicity
- --written and oral--about the proposed flat income tax. This proposal
will receive a considerable amount of attention, but we do not believe
much action will be taken in 1995 or 1996. However, investors are
watchful in selecting their maturities, and it may be prudent to err on the
short side. The fund is currently in that arena--the fund's effective
maturity is 2.6 years, and its effective duration is 2.3 years.
This fund can be considered as a tax-free security with an average credit
rating of A* and an effective maturity of under 3 years offering an
attractive yield.
Thank you for choosing Limited Term Municipal Fund as a way to
pursue competitive, tax-free monthly income. We appreciate your
continued support and welcome your comments or questions.
Sincerely,
/s/ RICHARD B. FISHER
Richard B. Fisher
President
July 14, 1995
* RATINGS ARE ACCORDING TO STANDARD AND POOR'S RATINGS GROUP AND ARE SUBJECT
TO CHANGE.
** PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE, THEREFORE AN INVESTOR'S SHARES WHEN
REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
[PHOTO]
MARY JO OCHSON
VICE PRESIDENT OF FEDERATED ADVISERS
AND SENIOR PORTFOLIO MANAGER
For the six-month period ended May 31, 1995, investors in Limited Term
Municipal Fund experienced a total return of 4.21% and 3.32% for Class A
Shares and Fortress Shares, respectively.*
During the same period, the Lehman Brothers Five-Year Municipal Bond Index
experienced a total return of 5.18%, and the Lehman Brothers Three-Year
Municipal Bond Index experienced a total return of 3.46%.** The positive price
component of both the fund and these indexes was the result of the recent
decline in interest rates that caused bond prices to rise.
In the face of resilient economic growth and pressures on resource
utilization, the Federal Reserve Board (the "Fed") continued to tighten
credit throughout the fourth quarter of 1994 and into February, 1995. Since
February, however, there has been a continued outpouring of sluggish economic
data, suggesting that the 1994/1995 tightening cycle by the Fed is starting
to take hold. As a result, market participants took these signs of slowing,
coupled with a modest acceleration in inflation, to mean that the Fed would
not increase rates further and perhaps move to cut borrowing costs if the
downturn in economic growth continued.
Interest rates for short-intermediate fixed rate income issues responded to
the market's expectations with a sharp drop. From November 30, 1994, to May
31, 1995, Five-Year U.S. Treasury bonds declined from 7.78% to 6.05%. Over
the same period, rates for five-year "A"*** rated general obligation bonds
descended from 5.68% to 4.73%. The threat of potential tax law changes and
the lure of the equity market caused weak demand for municipal securities
during the period. Consequently, municipals underperformed government
securities.
From November 30, 1994 to May 31, 1995, net assets of the fund decreased from
$45.4 million to $42.5 million. We maintained an effective duration in the two
to three year range over the period. A fund with a short duration, such as
ours, will be less responsive to interest rate changes than a fund with a
long duration. This is an important consideration for investors that want to
limit volatility in their municipal investments.
* PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE, THEREFORE AN INVESTOR'S SHARES WHEN
REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
** THESE INDEXES ARE UNMANAGED.
*** RATINGS ARE ACCORDING TO STANDARD AND POOR'S RATINGS GROUP AND ARE
SUBJECT TO CHANGE.
2
Over the period, the entire fund has been invested in tax-exempt securities
with an average credit quality of "A."*** Management has found value over the
period in "A" rated hospitals and BBB rated utility and airport bonds.***
Our credit expertise in these areas has allowed us to take advantage of the
credit spreads available in the marketplace. In addition, we have continued
to avoid derivative securities due to liquidity and valuation concerns.
*** RATINGS ARE ACCORDING TO STANDARD AND POOR'S RATINGS GROUP AND ARE
SUBJECT TO CHANGE.
3
LIMITED TERM MUNICIPAL FUND--
PORTFOLIO UPDATE
- --------------------------------------------------------------------------------
PLEASE SEE APPENDIX B
4
LIMITED TERM MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------- ------- -----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--11.6%
- --------------------------------------------------------------
KENTUCKY--9.2%
--------------------------------------------------
$3,900,000 Kentucky Pollution Abatement & Water Resource
Finance Authority Daily VRDNs (Toyota Motor Credit
Corp.) AAA $ 3,900,000
-------------------------------------------------- -----------
MINNESOTA--2.4%
--------------------------------------------------
1,000,000 Bass Brook, MN, PCR, 4.50% CP (Minnesota Power And
Light Co.), Mandatory Tender 6/7/1995 P-2 1,000,000
-------------------------------------------------- -----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (AT
AMORTIZED COST) 4,900,000
-------------------------------------------------- -----------
LONG-TERM MUNICIPAL SECURITIES--84.1%
- --------------------------------------------------------------
CALIFORNIA--2.4%
--------------------------------------------------
1,000,000 California State Veteran Affairs, 7.375% GO Bond
(Subject to AMT)/(Citibank N.A. LOC), Optional
Tender 10/1/1995 (@100) A+ 1,000,000
-------------------------------------------------- -----------
COLORADO--7.2%
--------------------------------------------------
500,000 Colorado Student Obligation Bond Authority, 5.20%
Student Loan Revenue Bonds, (Series 1994J),
9/1/1997 A 499,745
--------------------------------------------------
1,000,000 Colorado Student Obligation Bond Authority, 5.40%
Student Loan Revenue Bonds, (Series 1994J),
9/1/1998 A 1,002,560
--------------------------------------------------
1,500,000 Denver, (City & County), CO, Airport System, 6.00%
Subordinate Revenue Bonds, (Series
1991C)/(Sumitomo Trust & Banking Co, Ltd Osaka
LOC), Mandatory Tender 4/1/1997 (@100) A 1,532,430
-------------------------------------------------- -----------
Total 3,034,735
-------------------------------------------------- -----------
FLORIDA--0.5%
--------------------------------------------------
200,000 Jacksonville, FL, Electric Authority, 6.50%
Special Obligation Revenue (St. John's River Power
Park System), Callable 10/1/1999 (@101.5) AA 209,236
-------------------------------------------------- -----------
ILLINOIS--11.2%
--------------------------------------------------
750,000 Chicago, IL, 7.50% Gas Supply Revenue Bonds
(Peoples Gas, Light & Coke Co.), Callable 3/1/2000
(@102) AA- 817,230
--------------------------------------------------
</TABLE>
5
LIMITED TERM MUNICIPAL FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------
ILLINOIS--CONTINUED
--------------------------------------------------
$ 500,000 Illinois Development Finance Authority, 5.25%
Revenue Bonds (Series 1993C)/(Catholic Charities
Housing Development Corp.)/(Archdiocese of Chicago
Guaranty), 1/1/1999 NR $ 490,400
--------------------------------------------------
365,000 Illinois Educational Facilities Authority, 4.90%
Refunding Revenue Bonds (Illinois Institute of
Technology), 12/1/1996 BBB 365,584
--------------------------------------------------
380,000 Illinois Educational Facilities Authority, 5.05%
Refunding Revenue Bonds (Illinois Institute of
Technology) 12/1/1997 BBB 380,543
--------------------------------------------------
400,000 Illinois Educational Facilities Authority, 5.25%
Refunding Revenue Bonds (Illinois Institute of
Technology), 12/1/1998 BBB 402,632
--------------------------------------------------
220,000 Illinois Health Facilities Authority, 5.30%
Refunding Revenue Bonds (Lutheran Social Services
of Illinois), 8/15/1998 NR 217,371
--------------------------------------------------
1,000,000 Illinois Health Facilities Authority, 6.15%
Revenue Bonds (Trinity Medical Center)/(Original
Issue Yield: 6.25%), 7/1/1998 Baa1 1,016,800
--------------------------------------------------
1,000,000 Illinois Health Facilities Authority, 6.30%
Revenue Bonds (Trinity Medical Center)/(Original
Issue Yield: 6.50%), 7/1/1999 Baa1 1,019,810
-------------------------------------------------- -----------
Total 4,710,370
-------------------------------------------------- -----------
INDIANA--0.6%
--------------------------------------------------
225,000 Marion County, IN, 6.50% Hospital Authority
Refunding Revenue Bonds, (Methodist Hospital),
Callable 9/1/1999 (@102) AA 236,376
-------------------------------------------------- -----------
MASSACHUSETTS--9.2%
--------------------------------------------------
250,000 Greater New Bedford, MA, Regional Refuse
Management District, 4.90% Landfill GO Bonds,
(Subject to AMT), 5/1/1998 Baa 248,058
--------------------------------------------------
515,000 Massachusetts State HEFA, 5.00% Revenue Bonds
(Series B)/ (Holyoke Hospital), 7/1/1996 Baa1 513,960
--------------------------------------------------
545,000 Massachusetts State HEFA, 5.25% Revenue Bonds
(Series A)/ (Holyoke Hospital), 7/1/1997 Baa1 541,207
--------------------------------------------------
605,000 Massachusetts State HEFA, 5.75% Revenue Bonds,
(Series B)/ (Holyoke Hospital), 7/1/1999 Baa1 599,240
--------------------------------------------------
</TABLE>
6
LIMITED TERM MUNICIPAL FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------
$2,000,000 Massachusetts State IFA, 8.00% Solid Waste
Disposal Revenue Bonds (Series 1994A)/(Sr.
Lien-Massachusetts Recycling Association/Fitchburg
Project)/(Subject to AMT), 7/1/1999 NR $ 2,008,040
-------------------------------------------------- -----------
Total 3,910,505
-------------------------------------------------- -----------
MINNESOTA--4.0%
--------------------------------------------------
1,500,000 St. Paul, MN, Housing & Redevelopment Authority,
9.75% Hospital Revenue Bonds (Series
B)/(Healtheast Project), Callable 11/1/1997 (@102) BBB- 1,674,405
-------------------------------------------------- -----------
MISSOURI--2.4%
--------------------------------------------------
1,000,000 Kansas City, MO, IDA, 6.05% PCR Revenue Bonds
(General Motors Corp.), Callable 6/1/1999 (@101) BBB+ 1,019,100
-------------------------------------------------- -----------
NEW YORK--2.0%
--------------------------------------------------
350,000 New York City, NY, 4.88% UT GO Bonds (Series E),
8/1/1999 A- 345,786
--------------------------------------------------
200,000 New York City, NY, 4.88% UT GO Bonds (Series F),
8/1/1999 A- 197,592
--------------------------------------------------
300,000 New York City, NY, 4.88% UT GO Bonds (Series G),
8/1/1999 A- 296,388
-------------------------------------------------- -----------
Total 839,766
-------------------------------------------------- -----------
NORTH CAROLINA--1.5%
--------------------------------------------------
620,000 North Carolina Eastern Municipal Power Agency,
7.25% Revenue Bonds, Callable 1/1/1997 (@102) A 648,346
-------------------------------------------------- -----------
OHIO--8.0%
--------------------------------------------------
1,000,000 Bellefontaine, OH, 5.00% Hospital Revenue Bonds
(Mary Rutan Health Association), 12/1/1997 BBB 987,090
--------------------------------------------------
1,500,000 Clyde, OH, Temp. Water System, 5.60% Improvement
Revenue Bonds (Series 1994), 5/1/1997 MIG1 1,536,825
--------------------------------------------------
250,000 Marion County, OH, Health Care Facilities, 4.75%
Refunding Revenue Bonds, (Series 1993)/(United
Church Homes, Inc.), 11/15/1996 BBB- 248,678
--------------------------------------------------
</TABLE>
7
LIMITED TERM MUNICIPAL FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------
$ 630,000 Marion County, OH, Health Care Facilities, 5.00%
Refunding Revenue Bonds (Series 1993)/(United
Church Homes, Inc.), 11/15/1997 BBB- $ 625,395
-------------------------------------------------- -----------
Total 3,397,988
-------------------------------------------------- -----------
PENNSYLVANIA--9.5%
--------------------------------------------------
1,000,000 Allegheny County, PA, Higher Education Building
Authority, 7.625% Revenue Bonds, (La Roche
College), Callable 12/1/96 (@100) NR 1,025,110
--------------------------------------------------
495,000 Allegheny County, PA, Residential Finance
Authority, 4.875% Single Family Mortgage Refunding
Revenue Bonds (GNMA/ FMNA Collateralized),
Callable 11/1/2003 (@102) Aaa 473,705
--------------------------------------------------
750,000 Beaver County, PA, IDA, 7.75% PCR Bonds (Series
A)/(Ohio Edison Project), Callable 9/1/1999 (@102) BBB- 786,053
--------------------------------------------------
125,000 Philadelphia, PA, Hospital & Higher Education
Facilities Authority, 6.60% Hospital Revenue Bonds
(Series B)/ (Children's Seashore House), 8/15/1998 BBB+ 129,310
--------------------------------------------------
675,000 Scranton, PA, Lackawanna Health & Welfare
Authority, 5.00% Revenue Bonds (Allied Services
Rehabilitation Hospital), 7/15/1995 NR 669,701
--------------------------------------------------
455,000 Scranton, PA, Lackawanna Health & Welfare
Authority, 5.40% Revenue Bonds (Allied Services
Rehabilitation Hospitals, PA), 7/15/1996 NR 452,579
--------------------------------------------------
485,000 Scranton, PA, Lackawanna Health & Welfare
Authority, 5.75% Revenue Bonds (Allied Services
Rehabilitation Hospital), 7/15/1997 NR 483,050
-------------------------------------------------- -----------
Total 4,019,508
-------------------------------------------------- -----------
PUERTO RICO--8.6%
--------------------------------------------------
2,000,000 Puerto Rico, 5.00% Municipal Finance Agency Bonds
(Series 1994A)/(Original Issue Yield: 5.10%),
7/1/1998 A- 2,010,780
--------------------------------------------------
</TABLE>
8
LIMITED TERM MUNICIPAL FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------
PUERTO RICO--CONTINUED
--------------------------------------------------
$1,600,000 Puerto Rico, Electric Power Authority, 5.00% Power
Revenue Bonds (Series T), 7/1/1997 A- $ 1,624,832
-------------------------------------------------- -----------
Total 3,635,612
-------------------------------------------------- -----------
SOUTH DAKOTA--1.3%
--------------------------------------------------
215,000 South Dakota HEFA, 5.50% Revenue Bonds, (Series
1994)/ (Huron Regional Medical Center Issue),
4/1/1998 BBB- 212,904
--------------------------------------------------
225,000 South Dakota HEFA, 6.00% Revenue Bonds, (Series
1994)/ (Huron Regional Medical Center Issue),
4/1/1999 BBB- 224,444
--------------------------------------------------
105,000 South Dakota State HEFA, 5.40% Revenue Bonds,
(Series 1994)/(Huron Regional Medical Center),
4/1/1997 BBB- 104,720
-------------------------------------------------- -----------
Total 542,068
-------------------------------------------------- -----------
TENNESSEE--3.6%
--------------------------------------------------
1,500,000 Springfield, TN, Health & Educational Facilities
Board, 7.50% Hospital Revenue Bonds (Jesse Holman
Jones Hospital), 4/1/2000 NR 1,522,140
-------------------------------------------------- -----------
TEXAS--5.6%
--------------------------------------------------
1,800,000 Brazos River Authority, TX, 8.25% Revenue Bonds
(Houston Light & Power Company), Callable 5/1/1998
(@102) A 1,977,660
--------------------------------------------------
350,000 Brazos River Authority, TX, 9.875% PCR Bonds,
(Texas Utilities Electric Company)/(Subject to
AMT), 5/1/1998 @102 BBB 394,576
-------------------------------------------------- -----------
Total 2,372,236
-------------------------------------------------- -----------
VIRGINIA--6.5%
--------------------------------------------------
255,000 Prince William County, VA Industrial Development
Authority, Hospital Revenue Bond, 6.00% (Potomac
Hospital Corp., VA), 10/1/1998 A 262,877
--------------------------------------------------
200,000 Prince William County, VA, IDA, 5.90% Hospital
Facilities Revenue Bonds (Potomac Hospital Corp.),
10/1/1997 A 204,830
--------------------------------------------------
255,000 Prince William County, VA, IDA, 6.10% Hospital
Facilities Revenue Bonds (Potomac Hospital Corp.),
10/1/1999 A 264,078
--------------------------------------------------
</TABLE>
9
LIMITED TERM MUNICIPAL FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------
VIRGINIA--CONTINUED
--------------------------------------------------
$2,000,000 Virginia State Housing Development Authority
Commission, 5.40% Mortgage Revenue Bonds (Series
1994G-2)/(Subject to AMT), 1/1/1998 AA+ $ 2,021,000
-------------------------------------------------- -----------
Total 2,752,785
-------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED
COST, $35,442,183) 35,525,176
-------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $40,342,183) $40,425,176+
-------------------------------------------------- -----------
-----------
<FN>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
+ The cost of investments for federal tax purposes amounts to $40,342,183.
The net unrealized appreciation on federal tax cost basis amounts to
$82,993, and is comprised of $238,743 appreciation and $155,750
depreciation at May 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($42,464,055) at May 31, 1995.
</TABLE>
The following abbreviations are used throughout this portfolio:
AMT --Alternative Minimum Tax
CP --Commercial Paper
FNMA --Federal National Mortgage Association
GNMA --Government National Mortgage Association
GO --General Obligation
HEFA --Health and Education Facilities Authority
IDA --Industrial Development Authority
IFA --Industrial Finance Authority
LOC --Letter of Credit
PCR --Pollution Control Revenue
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements.)
10
LIMITED TERM MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $40,342,183) $ 40,425,176
- -------------------------------------------------------------------------------------------
Cash 45,313
- -------------------------------------------------------------------------------------------
Income receivable 709,604
- -------------------------------------------------------------------------------------------
Receivable for shares sold 1,434,117
- -------------------------------------------------------------------------------------------
Deferred expenses 58,641
- ------------------------------------------------------------------------------------------- ------------
Total assets 42,672,851
- -------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------
Payable for shares redeemed $ 95,476
- --------------------------------------------------------------------------------
Income distribution payable 55,278
- --------------------------------------------------------------------------------
Accrued expenses 58,042
- -------------------------------------------------------------------------------- --------
Total liabilities 208,796
- ------------------------------------------------------------------------------------------- ------------
NET ASSETS for 4,346,964 shares outstanding $ 42,464,055
- ------------------------------------------------------------------------------------------- ------------
------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------------------
Paid in capital $ 44,824,648
- -------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 82,993
- -------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (2,443,586)
- ------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 42,464,055
- ------------------------------------------------------------------------------------------- ------------
------------
FORTRESS SHARES:
- -------------------------------------------------------------------------------------------
Net Asset Value Per Share ($14,494,197 DIVIDED BY 1,483,736 shares outstanding) $ 9.77
- ------------------------------------------------------------------------------------------- ------------
------------
Offering Price Per Share (100/99 of $9.77)* $ 9.87
- ------------------------------------------------------------------------------------------- ------------
------------
Redemption Proceeds Per Share (99/100 of $9.77)** $ 9.67
- ------------------------------------------------------------------------------------------- ------------
------------
CLASS A SHARES:
- -------------------------------------------------------------------------------------------
Net Asset Value Per Share ($27,969,858 DIVIDED BY 2,863,228 shares outstanding) $ 9.77
- ------------------------------------------------------------------------------------------- ------------
------------
Offering Price Per Share (100/99 of $9.77)* $ 9.87
- ------------------------------------------------------------------------------------------- ------------
------------
Redemption Proceeds Per Share (100/100 of $9.77) $ 9.77
- ------------------------------------------------------------------------------------------- ------------
------------
<FN>
* See "What Shares Cost" in the Prospectus.
** See "Redeeming Fortress Shares" in the Prospectus.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
11
LIMITED TERM MUNICIPAL FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest income $ 1,183,279
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $ 84,186
- -----------------------------------------------------------------------
Administrative personnel and services fee 77,288
- -----------------------------------------------------------------------
Custodian fees 23,784
- -----------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and
expenses 17,258
- -----------------------------------------------------------------------
Directors'/Trustees' fees 2,730
- -----------------------------------------------------------------------
Auditing fees 10,010
- -----------------------------------------------------------------------
Legal fees 3,688
- -----------------------------------------------------------------------
Portfolio accounting fees 3,250
- -----------------------------------------------------------------------
Distribution services fee--Fortress Shares 6,671
- -----------------------------------------------------------------------
Distribution services fee--Class A Shares 35,940
- -----------------------------------------------------------------------
Shareholder services fee--Fortress Shares 15,342
- -----------------------------------------------------------------------
Shareholder services fee--Class A Shares 30,189
- -----------------------------------------------------------------------
Share registration costs 28,756
- -----------------------------------------------------------------------
Printing and postage 24,934
- -----------------------------------------------------------------------
Insurance premiums 2,730
- -----------------------------------------------------------------------
Taxes 2,002
- -----------------------------------------------------------------------
Miscellaneous 8,369
- ----------------------------------------------------------------------- --------
Total expenses 377,127
- -----------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fee $ 84,186
- ------------------------------------------------------------
Reimbursement of other operating expenses by Adviser 120,578
- ------------------------------------------------------------ --------
Total waivers/reimbursements 204,764
- ----------------------------------------------------------------------- --------
Net expenses 172,363
- ---------------------------------------------------------------------------------- -----------
Net investment income 1,010,916
- ---------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain(loss) on investments (456,501)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation(depreciation) on investments 1,637,189
- ---------------------------------------------------------------------------------- -----------
Net realized and unrealized gain(loss) on investments 1,180,688
- ---------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 2,191,604
- ---------------------------------------------------------------------------------- -----------
-----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
12
LIMITED TERM MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30,
(UNAUDITED) 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 1,010,916 $ 1,950,059
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments ($456,501 net loss and $1,987,086
net loss, respectively, as computed for federal income tax purposes) (456,501) (1,987,086)
- ---------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 1,637,189 (1,490,568)
- --------------------------------------------------------------------------- ------------- -------------
Change in assets resulting from operations 2,191,604 (1,527,595)
- --------------------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income:
- ---------------------------------------------------------------------------
Fortress Shares (329,750) (452,363)
- ---------------------------------------------------------------------------
Class A Shares (681,166) (1,497,696)
- --------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions to shareholders (1,010,916) (1,950,059)
- --------------------------------------------------------------------------- ------------- -------------
SHARE TRANSACTIONS
- ---------------------------------------------------------------------------
Proceeds from sale of Shares 9,429,453 84,145,643
- ---------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 663,339 1,275,042
- ---------------------------------------------------------------------------
Cost of Shares redeemed (14,257,391) (53,496,962)
- --------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from share transactions (4,164,599) 31,923,723
- --------------------------------------------------------------------------- ------------- -------------
Change in net assets (2,983,911) 28,446,069
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 45,447,966 17,001,897
- --------------------------------------------------------------------------- ------------- -------------
End of period $ 42,464,055 $ 45,447,966
- --------------------------------------------------------------------------- ------------- -------------
------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
13
LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1995 ------------------------
(UNAUDITED) 1994 1993(a)
--------------- ----------- -----------
<S> <C> <C> <C>
- --------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.49 $ 10.02 $ 10.00
- --------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------
Net investment income 0.23 0.43 0.10
- --------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.28 (0.53) 0.02
- -------------------------------------------------------- ------ ----------- -----------
Total from investment operations 0.51 (0.10) 0.12
- --------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------
Distributions from net investment income (0.23) (0.43) (0.10)
- -------------------------------------------------------- ------ ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.49 $ 10.02
- -------------------------------------------------------- ------ ----------- -----------
------ ----------- -----------
TOTAL RETURN (b) 5.31% (0.95%) 1.20%
- --------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------
Expenses 0.86%(c) 0.63% 0.50%(c)
- --------------------------------------------------------
Net investment income 4.74%(c) 4.33% 4.30%(c)
- --------------------------------------------------------
Expense waiver/reimbursement (d) 0.97%(c) 0.94% 1.71%(c)
- --------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------
Net assets, end of period (000 omitted) $27,970 $32,644 $13,694
- --------------------------------------------------------
Portfolio turnover 7% 135% 0%
- --------------------------------------------------------
<FN>
(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to November 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
14
LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED NOVEMBER 30,
ENDED
MAY 31, 1995 ------------------------
(UNAUDITED) 1994 1993(a)
--------------- ----------- -----------
<S> <C> <C> <C>
- --------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.49 $ 10.02 $ 10.00
- --------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------
Net investment income 0.24 0.45 0.11
- --------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.28 (0.53) 0.02
- -------------------------------------------------------- ------ ----------- -----------
Total from investment operations 0.52 (0.08) 0.13
- --------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------
Distributions from net investment income (0.24) (0.45) (0.11)
- -------------------------------------------------------- ------ ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.49 $ 10.02
- -------------------------------------------------------- ------ ----------- -----------
------ ----------- -----------
TOTAL RETURN (b) 5.38% (0.75%) 1.26%
- --------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------
Expenses 0.73%(c) 0.44% 0.25%(c)
- --------------------------------------------------------
Net investment income 4.88%(c) 4.57% 4.79%(c)
- --------------------------------------------------------
Expense waiver/reimbursement (d) 0.97%(c) 0.94% 1.86%(c)
- --------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------
Net assets, end of period (000 omitted) $14,494 $12,804 $3,307
- --------------------------------------------------------
Portfolio turnover 7% 135% 0%
- --------------------------------------------------------
<FN>
(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to November 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
15
LIMITED TERM MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995
- --------------------------------------------------------------------------------
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
diversified management investment company. The Corporation consists of three
diversified portfolios. The financial statements included herein are 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--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 the
pricing service 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 valued at amortized cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At November 30, 1994, the Fund,
for federal tax purposes, had a capital loss carryforward of $1,987,086,
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 2002
($1,987,086).
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
16
LIMITED TERM MUNICIPAL FUND
- ---------------------------------------------------------
for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest
on the settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
OTHER--Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1995 there were 10,000,000,000 shares of $0.001 par value capital
stock authorized for the Corporation. 2,000,000,000 shares have been designated
for the Fund. Of these shares, 1,000,000,000 have been designated as Fortress
Shares of the Fund and 1,000,000,000 have been designated as Class A shares of
the Fund. Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
--------------------- ----------------------
FORTRESS SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares Sold 427,160 $ 4,099,681 1,295,783 $12,793,467
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 18,378 177,103 22,393 218,275
- ----------------------------------------
Shares redeemed (310,323) (2,970,678) (299,885) (2,914,764)
- ---------------------------------------- -------- ----------- --------- -----------
Net change resulting from share
transactions 135,215 $ 1,306,106 1,018,291 $10,096,978
- ---------------------------------------- -------- ----------- --------- -----------
-------- ----------- --------- -----------
<FN>
* For the six months ended May 31, 1995.
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
------------------------ -----------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares Sold 554,147 $ 5,329,772 7,174,691 $71,352,176
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 50,462 486,236 108,095 1,056,767
- ----------------------------------------
Shares redeemed (1,179,520) (11,286,713) (5,211,977) (50,582,198)
- ---------------------------------------- ---------- ------------ ---------- -----------
Net change resulting from share
transactions (574,911) $ (5,470,705) 2,070,809 $21,826,745
- ---------------------------------------- ---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
Net change resulting from Fund share
transactions (439,696) (4,164,599) 3,089,100 $31,923,723
- ---------------------------------------- ---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
</TABLE>
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
17
LIMITED TERM MUNICIPAL FUND
- ---------------------------------------------------------
daily net assets. The Adviser may voluntarily choose to waive any 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"), uner the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. 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 the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp., the principal distributor, from the net
assets of the Fund to finance activities intended to result in the sale of the
Fund's Fortress Shares and Class A Shares. The Plan provides that the Fund may
incur distribution expenses up to .15 and .25, respectively, of 1% of the
average daily net assets of the Fortress Shares and Class A Shares,
respectively, annually, to compensate FSC.
SHAREHOLDER SERVICES FEE--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 services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average net
assets for the period plus, out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $53,065 and start-up
administrative service expenses of $46,733 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 August
31, 1993 (date the Fund's portfolio first became effective). For the six months
ended May 31, 1995, the Fund paid $0 and $0 respectively pursuant to this
agreement.
INTERFUND TRANSACTIONS--During the six months ended May 31, 1995, the Fund
engaged in purchase and sale transactions with funds that have a common
investment advisor (or affiliated investment advisors), common
directors/Trustees, and or common Officers. These transactions were made at
current market value pursuant to Rule 17a-7 under the Act amounting to
$14,750,000 and $12,000,000, respectively.
18
LIMITED TERM MUNICIPAL FUND
- ---------------------------------------------------------
GENERAL--Certain of the Officers and Directors of the Fund 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, 1995, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
<S> <C>
PURCHASES $ 2,726,730
- -------------------------------------------------------- ------------
SALES $ 13,760,640
- -------------------------------------------------------- ------------
</TABLE>
19
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley CHAIRMAN
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland PRESIDENT
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. VICE PRESIDENT
Richard B. Fisher Edward C. Gonzales
Edward L. Flaherty, Jr. VICE PRESIDENT AND TREASURER
Peter E. Madden John W. McGonigle
Gregor F. Meyer VICE PRESIDENT AND SECRETARY
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar ASSISTANT TREASURER
Marjorie P. Smuts Charles H. Field
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves investment risk, including 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.
20
[LOGO]
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 338319502
Cusip 338319403
G00278-01 (7/95)
[LOGO] FEDERATED INVESTORS
Strategic
Income
Fund
Semi-Annual Report
May 31, 1995
Established 1994
FIXED INCOME
President's Message
Dear Shareholder:
Strategic Income Fund was established in 1994, and I am pleased to present the
1995 Semi-Annual Report to shareholders.
The report begins with an interview with the fund's principal portfolio
manager, Randall S. Bauer, Vice President of Federated Advisers. Following the
interview, you will find a series of investment performance charts, a complete
listing of the fund's holdings, and its Financial Statements.
I am pleased to report that the fund's net asset value increased over the
reporting period. From December 1, 1994, to May 31, 1995, the net asset value
for the Class A Shares, Class C Shares and Fortress Shares has increased from
$9.54 to $9.99. The fund paid monthly dividends for the six-month period
totalling $0.42 per share for Class A Shares, $0.39 per share for Class C
Shares and $0.40 per share for Fortress Shares.*
The total returns over the period were 4.49% for Class A Shares, 7.93% for
Class C Shares and 6.95% for Fortress Shares.*
The fund seeks high monthly income for shareholders and invests in three
distinct bond markets, each with its own potential benefit: high-yield U.S.
corporate bonds for high yield, high quality international bonds for current
income and portfolio diversification, and U.S. government bonds for relative
safety and liquidity. This diversification across multiple fixed income sectors
gives management more opportunities to enhance yield and reduce risk, while not
overexposing fund assets in any single bond market.
Reflecting investors' confidence, the fund's net assets have grown to
$8,906,768.
We are pleased to inform you of the fund's positive performance, and we look
forward to communicating with you about future developments. I encourage you to
add to your investment in the fund. By reinvesting dividends, you can increase
your share balance on which future dividends will be paid.
As always, we invite your comments and suggestions.
Sincerely,
Richard B. Fisher
President
July 14, 1995
* Past performance does not guarantee future results. Investment return and
principal value will fluctuate, so that an investors shares, when redeemed,
may be worth more or less than their original cost.
Investment Review
[INSERT PHOTO HERE]
Randall S. Bauer
Vice President,
Federated Advisers
Q What should an investor expect from Strategic Income Fund?
A The fund attempts to optimize the risk/return trade-off available to the
bond income fund investor by investing in a portfolio that is diversified
across several bond sectors. We do not make any large bets in any single
sector, but we will be overweight in a sector_that is, allow it to represent
more than one-third of the fund's portfolio_if we feel it offers current value.
Q What were the factors that affected fund performance during the first half
of the fiscal year?
A Probably the single biggest factor was the rally in the U.S. bond market,
which began around the beginning of the fund's fiscal year on December 1, 1994.
Since then, bond prices have risen significantly as the yield on the ten-year
U.S. Treasury bond has declined by nearly 200 basis points. This has accounted
for much of the fund's favorable performance.
Secondly, the U.S. dollar declined substantially in value against major
foreign currencies, particularly the German Mark and Japanese Yen. This meant
that the foreign bonds the fund owned that were denominated in these currencies
increased in value.
Thirdly, our decision, beginning in mid-February, to overweight in highgrade
U.S. assets (Treasurys and mortgage backed securities) while underweighting
high-yield assets, has also helped performance. On the negative side, the
turmoil in emerging markets beginning in December, 1994, had some effect, but
with the fund's exposure to emerging markets at less than 5% of total holdings
at that time, the downside was limited.
Q Please give us an overview of the fund's holdings. What sectors do you favor
now?
A We are overweight in U.S. government securities: They represent 39% of the
portfolio, making them the largest segment.
Q Government securities represent a very broad sector. Which
types of those securities is the fund holding?
A We have a blend of Treasury bonds and mortgage-backed securities. We have
been increasing our holdings of Treasurys over the past few months because we
believe they will benefit to a greater degree from a decline in the general
level of interest rates than will mortgages. With U.S. economic activity past
its peak (at least in our opinion), we believe the trend in U.S. interest rates
will continue downward. This decline over the next few years may make these
types of securities a wise investment.
Q Where is the fund "treading lightly," so to speak?
A We are underweighted in U.S. corporate high-yield securities at 27% of
the portfolio. This is because, as the economic cycle turns down,
we expect credit-sensitive issues such as high yield bonds to underperform
government bonds.
Q What about the fund's international holdings and your outlook for that
sector?
A At 34% of the portfolio, we are slightly overweighted in inter- national
securities. This may allow us to take advantage of the current weakness of the
U.S. dollar, a healthier outlook for European government markets, and the
improving picture for emerging markets, which now represent about 7% of the
portfolio.
Q What is the fund's portfolio breakdown?
A The Strategic Income Fund's portfolio breakdown as of May 31, 1995:
International Bonds_34.34% U.S.
Government/Agency Bonds_31.07%
U.S. Corporate Bonds_26.55%
Repurchase Agreements_7.90%
Other_.14%
Q What is the outlook going forward?
A We see value in the U.S. high-grade bond market, so we are likely to remain
overweighted in that sector for some time. There will be occasional backups in
yields as the market "gets ahead of itself" from time to time, but it appears
as though the fundamentals do indeed point to lower yields over the
intermediate term.
In the foreign sector, even though the dollar has sold off substantially
against other major currencies, the intermediate term outlook does not favor
any strong reversal of the trend. The U.S. declining proportion of Gross
Domestic Product as a percentage of the global total indicates stronger demand
for currencies other than our own. In addition, our inability to come to grips
with our chronic twin fiscal and trade deficits continues to whittle away at
the long-term equilibrium value of the dollar. We will, therefore, continue an
overweight of our non-U.S. position.
The accelerating economic downturn is likely to generate weaker performances
from high yield companies, which will broaden the yield spread between high
yield and investment grade issues. Should these spreads increase past historic
norms without valid reasons, we might increase our high yield holdings to take
advantage of it. Except for those instances, we expect to remain underweight in
high yields for some time.
Strategic Income Fund_
Portfolio Update
Please see appendix C
Strategic Income Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- --------------------------------------------------------------------------------- ------------
U.S. CORPORATE BONDS--27.9%
- -------------------------------------------------------------------------------------------------
AUTOMOTIVE--0.6%
---------------------------------------------------------------------------------
$ 50,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 $ 51,250
--------------------------------------------------------------------------------- ------------
BANKING--1.2%
---------------------------------------------------------------------------------
100,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 107,500
--------------------------------------------------------------------------------- ------------
BROADCAST RADIO & TV--1.2%
---------------------------------------------------------------------------------
100,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 105,750
--------------------------------------------------------------------------------- ------------
CABLE TELEVISION--2.7%
---------------------------------------------------------------------------------
100,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 51,250
---------------------------------------------------------------------------------
50,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 50,875
---------------------------------------------------------------------------------
100,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/12.75%, 4/15/2005 57,250
---------------------------------------------------------------------------------
50,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 53,000
---------------------------------------------------------------------------------
50,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 26,500
--------------------------------------------------------------------------------- ------------
Total 238,875
--------------------------------------------------------------------------------- ------------
CHEMICALS & PLASTICS--2.8%
---------------------------------------------------------------------------------
50,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 52,000
---------------------------------------------------------------------------------
50,000 LaRoche Industries, Inc., Sr. Sub. Note, 13.00%, 8/15/2004 52,125
---------------------------------------------------------------------------------
50,000 (a)Polymer Group, lnc., Sr. Note, 12.75%, 7/15/2002 50,375
---------------------------------------------------------------------------------
100,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 91,000
--------------------------------------------------------------------------------- ------------
Total 245,500
--------------------------------------------------------------------------------- ------------
CONGLOMERATES--1.1%
---------------------------------------------------------------------------------
100,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 100,500
--------------------------------------------------------------------------------- ------------
CONSUMER PRODUCTS--1.1%
---------------------------------------------------------------------------------
100,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 95,750
--------------------------------------------------------------------------------- ------------
CONTAINERS & GLASS PRODUCTS--0.6%
---------------------------------------------------------------------------------
50,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 52,250
--------------------------------------------------------------------------------- ------------
COSMETICS & TOILETRIES--0.3%
---------------------------------------------------------------------------------
25,000 Revlon Consumer Products Corp. Note 9.375% 4/1/2001 24,125
--------------------------------------------------------------------------------- ------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- --------------------------------------------------------------------------------- ------------
U.S. CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
ECOLOGICAL SERVICES & EQUIPMENT--0.6%
---------------------------------------------------------------------------------
$ 50,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 $ 51,750
--------------------------------------------------------------------------------- ------------
FOOD & DRUG RETAILERS--1.8%
---------------------------------------------------------------------------------
50,000 (e)(f)Grand Union Co., Sr. Sub. Note, 12.25%, 7/15/2002 16,125
---------------------------------------------------------------------------------
50,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 98,250
---------------------------------------------------------------------------------
50,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 50,000
--------------------------------------------------------------------------------- ------------
Total 164,375
--------------------------------------------------------------------------------- ------------
FOOD PRODUCTS--2.3%
---------------------------------------------------------------------------------
100,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 107,000
---------------------------------------------------------------------------------
50,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 48,750
---------------------------------------------------------------------------------
50,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 49,750
--------------------------------------------------------------------------------- ------------
Total 205,500
--------------------------------------------------------------------------------- ------------
FOREST PRODUCTS--1.7%
---------------------------------------------------------------------------------
50,000 Repap New Brunswick, 1st Priority Sr. Secd. Note, 9.875%, 7/15/2000 50,750
---------------------------------------------------------------------------------
50,000 (a)S.D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 54,625
---------------------------------------------------------------------------------
50,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 50,125
--------------------------------------------------------------------------------- ------------
Total 155,500
--------------------------------------------------------------------------------- ------------
HEALTHCARE--1.3%
---------------------------------------------------------------------------------
52,813 AmeriSource Corp., Sr. PIK Deb., 11.25%, 7/15/2005 59,283
---------------------------------------------------------------------------------
50,000 National Medical Enterprises, Inc., Sr. Sub. Note, 10.125%, 3/1/2005 52,937
--------------------------------------------------------------------------------- ------------
Total 112,220
--------------------------------------------------------------------------------- ------------
HOME PRODUCTS & FURNISHINGS--0.4%
---------------------------------------------------------------------------------
50,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 37,624
--------------------------------------------------------------------------------- ------------
MACHINERY & EQUIPMENT--0.6%
---------------------------------------------------------------------------------
50,000 WatersCorp., Sr. Sub. Note, 12.75%, 9/30/2004 53,000
--------------------------------------------------------------------------------- ------------
OIL & GAS--0.5%
---------------------------------------------------------------------------------
50,000 Falcon Drilling Co., Inc., Sr. Note, 9.75% 1/15/2001 48,750
--------------------------------------------------------------------------------- ------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR
FOREIGN
CURRENCY U.S.
PAR DOLLARS
AMOUNT VALUE
<S> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
RETAILERS--1.7%
---------------------------------------------------------------------------------
$ 50,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 $ 48,875
---------------------------------------------------------------------------------
100,000 (a)ICON Health & Fitness, Inc., Sr. Sub Note, 13.00%, 7/15/2002 103,000
--------------------------------------------------------------------------------- ------------
Total 151,875
--------------------------------------------------------------------------------- ------------
STEEL--2.3%
---------------------------------------------------------------------------------
100,000 Carbide/Graphite Group, Sr. Note, 11.50%, 9/1/2003 107,000
---------------------------------------------------------------------------------
50,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 50,875
---------------------------------------------------------------------------------
50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 46,750
--------------------------------------------------------------------------------- ------------
Total 204,625
--------------------------------------------------------------------------------- ------------
SURFACE TRANSPORTATION--0.6%
---------------------------------------------------------------------------------
50,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25% 7/1/2004 50,750
--------------------------------------------------------------------------------- ------------
TELECOMMUNICATIONS & CELLULAR--1.8%
---------------------------------------------------------------------------------
100,000 NEXTEL Communications Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 57,500
---------------------------------------------------------------------------------
150,000 PanAmSat Corp., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 108,000
--------------------------------------------------------------------------------- ------------
Total 165,500
--------------------------------------------------------------------------------- ------------
UTILITIES--0.7%
---------------------------------------------------------------------------------
75,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 63,375
--------------------------------------------------------------------------------- ------------
TOTAL U.S. CORPORATE BONDS (IDENTIFIED COST $2,402,078) 2,486,344
--------------------------------------------------------------------------------- ------------
INTERNATIONAL BONDS--36.1%
- -------------------------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--3.1%
- -------------------------------------------------------------------------------------------------
CORPORATE--1.0%
---------------------------------------------------------------------------------
150,000 News America Holdings, lnc., 8.625%, 2/7/2014 89,690
--------------------------------------------------------------------------------- ------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY U.S.
PAR DOLLARS
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
AUSTRALIAN DOLLAR--CONTINUED
- -------------------------------------------------------------------------------------------------
SOVEREIGN--1.1%
---------------------------------------------------------------------------------
150,000 Treasury Corp. of Victoria, 8.25%, 10/15/2003 $ 102,551
--------------------------------------------------------------------------------- ------------
STATE/PROVINCIAL--1.0%
---------------------------------------------------------------------------------
100,000 State Bank of New South Wales, 12.25%, 2/26/2001 82,462
--------------------------------------------------------------------------------- ------------
TOTAL AUSTRALIAN DOLLAR 274,703
--------------------------------------------------------------------------------- ------------
BELGIAN FRANC--1.7%
- -------------------------------------------------------------------------------------------------
SOVEREIGN--1.7%
---------------------------------------------------------------------------------
2,000,000 Belgium, 10.00%, 8/2/2000 79,476
---------------------------------------------------------------------------------
2,000,000 Belgium, 7.75%, 10/15/2004 71,034
--------------------------------------------------------------------------------- ------------
TOTAL BELGIAN FRANC 150,510
--------------------------------------------------------------------------------- ------------
CANADIAN DOLLAR--2.5%
- -------------------------------------------------------------------------------------------------
AGENCY--1.7%
---------------------------------------------------------------------------------
200,000 Ontario Hydro, 9.00%, 6/24/2002 152,388
--------------------------------------------------------------------------------- ------------
CORPORATE--0.8%
---------------------------------------------------------------------------------
100,000 Sherritt, lnc., 11.00%, 3/31/2004 72,375
--------------------------------------------------------------------------------- ------------
TOTAL CANADIAN DOLLAR 224,763
--------------------------------------------------------------------------------- ------------
DEUTSCHE MARK--3.7%
- -------------------------------------------------------------------------------------------------
CORPORATE--1.2%
---------------------------------------------------------------------------------
150,000 Ford Credit Europe, PLC, 6.00%, 3/30/1999 106,400
--------------------------------------------------------------------------------- ------------
SOVEREIGN--2.5%
---------------------------------------------------------------------------------
100,000 Germany, 8.00%, 7/22/2002 77,004
---------------------------------------------------------------------------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY U.S.
PAR DOLLARS
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
DEUTSCHE MARK--CONTINUED
- -------------------------------------------------------------------------------------------------
SOVEREIGN--CONTINUED
---------------------------------------------------------------------------------
200,000 Germany, 7.375%, 1/3/2005 $ 148,560
--------------------------------------------------------------------------------- ------------
Total 225,564
--------------------------------------------------------------------------------- ------------
TOTAL DEUTSCHE MARK 331,964
--------------------------------------------------------------------------------- ------------
DANISH KRONE--2.5%
- -------------------------------------------------------------------------------------------------
SOVEREIGN--2.5%
---------------------------------------------------------------------------------
600,000 Denmark, 8.00%, 5/15/2003 108,661
---------------------------------------------------------------------------------
600,000 Denmark, 9.00%, 11/15/1996 112,085
--------------------------------------------------------------------------------- ------------
TOTAL DANISH KRONE 220,746
--------------------------------------------------------------------------------- ------------
FRENCH FRANC--0.9%
- -------------------------------------------------------------------------------------------------
AGENCY--0.9%
---------------------------------------------------------------------------------
400,000 KFW International Finance, 7.00%, 5/12/2000 80,369
--------------------------------------------------------------------------------- ------------
BRITISH POUND--4.3%
- -------------------------------------------------------------------------------------------------
CORPORATE--3.0%
---------------------------------------------------------------------------------
100,000 Abbey National Treasury, 8.00%, 4/2/2003 154,240
---------------------------------------------------------------------------------
70,000 Daimler-Benz U.K., 10.75%, 5/17/1996 114,499
--------------------------------------------------------------------------------- ------------
Total 268,739
--------------------------------------------------------------------------------- ------------
SOVEREIGN--1.3%
---------------------------------------------------------------------------------
70,000 Republic of Iceland, 8.75%, 5/12/2003 111,720
--------------------------------------------------------------------------------- ------------
TOTAL BRITISH POUND 380,459
--------------------------------------------------------------------------------- ------------
JAPANESE YEN--6.8%
- -------------------------------------------------------------------------------------------------
AGENCY--5.3%
---------------------------------------------------------------------------------
25,000,000 Export/Import Bank, 4.375%, 10/1/2003 329,025
---------------------------------------------------------------------------------
10,000,000 KFW lnternational Finance, 6.00%, 11/29/1999 137,814
--------------------------------------------------------------------------------- ------------
Total 466,839
--------------------------------------------------------------------------------- ------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
PAR
AMOUNT U.S.
OR PRINCIPAL DOLLARS
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
JAPANESE YEN--CONTINUED
- -------------------------------------------------------------------------------------------------
CORPORATE--1.5%
---------------------------------------------------------------------------------
10,000,000 Bank of Tokyo, Cayman Finance, Perpetual Convertible Subordinated Note, 4.25% $ 135,894
--------------------------------------------------------------------------------- ------------
TOTAL JAPANESE YEN 602,733
--------------------------------------------------------------------------------- ------------
NETHERLANDS GUILDER--1.5%
- -------------------------------------------------------------------------------------------------
SOVEREIGN--1.5%
---------------------------------------------------------------------------------
200,000 Netherlands Government, 7.75%, 3/1/2005 135,479
--------------------------------------------------------------------------------- ------------
NEW ZEALAND DOLLAR--1.6%
- -------------------------------------------------------------------------------------------------
AGENCY--1.6%
---------------------------------------------------------------------------------
200,000 Electricity Corp. of New Zealand, 10.00%, 10/15/2001 146,513
--------------------------------------------------------------------------------- ------------
U.S. DOLLAR--7.5%
- -------------------------------------------------------------------------------------------------
SOVEREIGN--7.5%
---------------------------------------------------------------------------------
100,000 Argentina Bocon Pre 4 (2), 4.875%, 9/1/2002 (b) 64,250
---------------------------------------------------------------------------------
97,000 Brazel IDU, Deb., 1/1/2001 (b) 77,721
---------------------------------------------------------------------------------
250,000 Republic of Argentina, 5.00%, 3/31/2023 124,844
---------------------------------------------------------------------------------
250,000 Republic of Argentina, Foreign Gov't Guarantee, 3/31/2023 152,500
---------------------------------------------------------------------------------
500,000 Republic of Brazil, Foreign Gov't Guarantee, 4.00%, 4/15/2014 248,750
--------------------------------------------------------------------------------- ------------
TOTAL U.S. DOLLAR 668,065
--------------------------------------------------------------------------------- ------------
TOTAL INTERNATIONAL BONDS (IDENTIFIED COST $2,993,422) 3,216,304
--------------------------------------------------------------------------------- ------------
U.S. GOVERNMENT/AGENCY--32.7%
- -------------------------------------------------------------------------------------------------
AGENCY--31%
---------------------------------------------------------------------------------
$ 317,905 Federal Home Loan Mortgage Corp., Pool C00227, 9.50%, 12/1/2022 333,498
---------------------------------------------------------------------------------
300,000 Federal Home Loan Mortgage Corp., Pool TBA, 8.00%, 6/30/1995 308,058
---------------------------------------------------------------------------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<S> <S> <C>
U.S. GOVERNMENT/AGENCY--CONTINUED
- -------------------------------------------------------------------------------------------------
AGENCY--CONTINUED
---------------------------------------------------------------------------------
$ 153,472 Federal National Mortgage Association, Pool TBA, 6.50%, 2/1/2009 $ 151,695
---------------------------------------------------------------------------------
300,000 Federal National Mortgage Association, Pool TBA, 8.00%, 6/30/1995 307,122
---------------------------------------------------------------------------------
495,006 Government National Mortgage Association, Pool 351468,
7.50%, 3/15/2024 498,402
---------------------------------------------------------------------------------
190,169 Government National Mortgage Association, Pool 356579,
8.50%, 6/15/2023 198,012
---------------------------------------------------------------------------------
180,271 Government National Mortgage Association, Pool 371837,
8.50%, 6/15/2024 187,705
---------------------------------------------------------------------------------
143,550 Government National Mortgage Association, Pool 403933,
8.50%, 8/15/2024 149,470
---------------------------------------------------------------------------------
587,116 Government National Mortgage Association, Pool 401272,
9.50%, 2/15/2025 620,136
--------------------------------------------------------------------------------- ------------
Total 2,754,098
--------------------------------------------------------------------------------- ------------
TREASURY--1.7%
---------------------------------------------------------------------------------
140,000 United States Treasury Note, 7.875%, 11/15/2004 155,207
--------------------------------------------------------------------------------- ------------
TOTAL U.S. GOVERNMENT/AGENCY (IDENTIFIED COST $2,839,766) 2,909,305
--------------------------------------------------------------------------------- ------------
COMMON STOCKS--0.0%
- -------------------------------------------------------------------------------------------------
CHEMICAL & PLASTICS--0.00%
---------------------------------------------------------------------------------
1,000 Uniroyal Technology Corp., Warrants 2,375
--------------------------------------------------------------------------------- ------------
RETAILERS--0.00%
---------------------------------------------------------------------------------
100 (a)ICON Health & Fitness, Inc., Warrants 2,000
--------------------------------------------------------------------------------- ------------
TOTAL COMMON STOCK (IDENTIFIED COST $1,494) 4,375
--------------------------------------------------------------------------------- ------------
CURRENCY OPTIONS--0.1%
- -------------------------------------------------------------------------------------------------
4 Japanese Yen, Sept. 1995 Future, Strike Price 116, PUT
(IDENTIFIED COST, $9,300) 8,550
--------------------------------------------------------------------------------- ------------
(C)REPURCHASE AGREEMENTS--8.3%
- -------------------------------------------------------------------------------------------------
300,000 CS First Boston, Corp., 5.99%, dated 5/31/1995, due 6/8/1995 300,000
---------------------------------------------------------------------------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <S> <C>
(C)REPURCHASE AGREEMENTS--CONTINUED
- -------------------------------------------------------------------------------------------------
$ 140,000 J.P. Morgan & Co., Inc., 6.17% dated 5/31/1995,
due 6/1/1995 $ 140,000
---------------------------------------------------------------------------------
300,000 Merrill Lynch, Pierce, Fenner and Smith, 5.96%, dated 5/31/1995,
due 6/8/1995 300,000
--------------------------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 740,000
--------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $8,986,060) (D) $ 9,364,878
--------------------------------------------------------------------------------- ------------
</TABLE>
(a) Restricted Securities--Investment in securities not registered under the
Securities Act of 1933. At the end of the period, these securities amounted
to 2.4% of net assets.
(b) Denotes Variable Rate and Floating Rate Obligations for which the current
rate is shown.
(c) 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 investment in the repurchase agreements are through
participation in a joint account with other Federated Funds.
(d) The cost of investments for federal tax purposes amounts to $8,986,060. The
net unrealized appreciation on a federal tax cost basis amounts to $378,818
and is comprised of $468,718 appreciation and $89,900 depreciation at May
31, 1995.
(e) Non-income producing.
(f) On May 31, 1995, the Grand Union Company's plan of reorganization was
confirmed by the U.S. Bankruptcy Court. The distribution of new securities
in exchange for the Fund's notes is pending.
The following acronyms are used in this portfolio:
PIK--Payment in kind
PLC--Public Limited Company
Note: The categories of investments are shown as a percentage of net assets
($8,906,768) at May 31, 1995.
(See Notes which are an integral part of the Financial Statements)
Strategic Income Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1995 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost; $8,986,060) $9,364,878
- -------------------------------------------------------------------------------------------------------
Cash 16,374
- -------------------------------------------------------------------------------------------------------
Income receivable 143,166
- -------------------------------------------------------------------------------------------------------
Receivable for investments sold 126,232
- -------------------------------------------------------------------------------------------------------
Receivable for foreign currency sold 84,212
- -------------------------------------------------------------------------------------------------------
Receivable for shares sold 61,897
- -------------------------------------------------------------------------------------------------------
Deferred expenses 28,976
- ------------------------------------------------------------------------------------------------------- ---------
Total assets 9,825,735
- -------------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------------
Payable for funds borrowed $ 611,403
- --------------------------------------------------------------------------------------------
Payable for investments purchased 188,296
- --------------------------------------------------------------------------------------------
Payable for currency purchased 83,920
- --------------------------------------------------------------------------------------------
Income distribution payable 32,940
- --------------------------------------------------------------------------------------------
Payable for shares redeemed 816
- --------------------------------------------------------------------------------------------
Accrued expenses 1,592
- -------------------------------------------------------------------------------------------- ---------
Total liabilities 918,967
- ------------------------------------------------------------------------------------------------------- ---------
NET ASSETS for 891,788 shares outstanding $8,906,768
- ------------------------------------------------------------------------------------------------------- ---------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in-capital $8,708,041
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and translation of assets and
liabilities in foreign currencies 379,771
- -------------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (14,004)
- -------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and foreign currency transactions (167,040)
- ------------------------------------------------------------------------------------------------------- ---------
Total Net Assets $8,906,768
- ------------------------------------------------------------------------------------------------------- ---------
CLASS C SHARES:
- -------------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($1,992,353 / 199,452 shares outstanding) $9.99
- ------------------------------------------------------------------------------------------------------- ---------
Offering Price Per Share $9.99
- ------------------------------------------------------------------------------------------------------- ---------
Redemption Proceeds Per Share (99/100 of $9.99)** $9.89
- ------------------------------------------------------------------------------------------------------- ---------
CLASS A SHARES:
- -------------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($3,572,190 / 357,725 shares outstanding) $9.99
- ------------------------------------------------------------------------------------------------------- ---------
Offering Price Per Share (100/95.5 of $9.99)* $10.46
- ------------------------------------------------------------------------------------------------------- ---------
Redemption Proceeds Per Share $9.99
- ------------------------------------------------------------------------------------------------------- ---------
FORTRESS SHARES:
- -------------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($3,342,225 / 334,611 shares outstanding) $9.99
- ------------------------------------------------------------------------------------------------------- ---------
Offering Price Per Share (100/99 of $9.99)* $10.09
- ------------------------------------------------------------------------------------------------------- ---------
Redemption Proceeds Per Share (99/100 of $9.99)** $9.89
- ------------------------------------------------------------------------------------------------------- ---------
</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, 1995 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest (net of foreign taxes withheld of $810 and interest expense of $8,691) $ 332,897
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------
Investment advisory fee $ 30,853
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 92,247
- ------------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 14,938
- ------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 22,565
- ------------------------------------------------------------------------------------------
Printing and postage 14,910
- ------------------------------------------------------------------------------------------
Legal fees 1,322
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 3,504
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 1,991
- ------------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares 3,580
- ------------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 5,973
- ------------------------------------------------------------------------------------------
Distribution services fee--Fortress Shares 7,159
- ------------------------------------------------------------------------------------------
Share registration costs 15,448
- ------------------------------------------------------------------------------------------
Taxes 84
- ------------------------------------------------------------------------------------------
Insurance premiums 2,758
- ------------------------------------------------------------------------------------------
Directors'/Trustees' Fees 1,246
- ------------------------------------------------------------------------------------------
Auditing fees 5,010
- ------------------------------------------------------------------------------------------
Miscellaneous 11,282
- ------------------------------------------------------------------------------------------ ---------
Total expenses 234,870
- ------------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------
Waiver of investment advisory fee $ 30,853
- -------------------------------------------------------------------------------
Reimbursement of other operating expenses by Adviser 181,810 212,663
- ------------------------------------------------------------------------------- --------- ---------
Net expenses 22,207
- ----------------------------------------------------------------------------------------------------- ----------
Net investment income 310,690
- ----------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions (146,073)
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and translation of assets and
liabilities in foreign currencies 528,741
- ----------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments and foreign currency 382,668
- ----------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ 693,358
- ----------------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Strategic Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, YEAR ENDED
1995 NOVEMBER 30,
(UNAUDITED) 1994*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 310,690 $ 146,412
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions
($146,073 net loss and $13,691 net loss, respectively, as computed for federal
income tax purposes) (146,073) (27,206)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currencies 528,741 (148,970)
- ---------------------------------------------------------------------------------- ------------- ---------------
Change in net assets resulting from operations 693,358 (29,764)
- ---------------------------------------------------------------------------------- ------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------------------------------
Class A Shares (124,171) (67,293)
- ----------------------------------------------------------------------------------
Fortress Shares (120,411) (46,354)
- ----------------------------------------------------------------------------------
Class C Shares (65,279) (26,526)
- ----------------------------------------------------------------------------------
Distributions in excess of net investment income
- ----------------------------------------------------------------------------------
Class A Shares -- (5,083)
- ----------------------------------------------------------------------------------
Fortress Shares -- (6,411)
- ----------------------------------------------------------------------------------
Class C Shares (370) (2,969)
- ---------------------------------------------------------------------------------- ------------- ---------------
Change in net assets from distributions to shareholders (310,231) (154,636)
- ---------------------------------------------------------------------------------- ------------- ---------------
SHARES TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of Shares 3,374,070 7,743,495
- ----------------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 129,859 64,166
- ----------------------------------------------------------------------------------
Cost of Shares redeemed (862,263) (1,741,286)
- ---------------------------------------------------------------------------------- ------------- ---------------
Change in net assets resulting from share transactions 2,641,666 6,066,375
- ---------------------------------------------------------------------------------- ------------- ---------------
Change in net assets 3,024,793 5,881,975
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 5,881,975 --
- ---------------------------------------------------------------------------------- ------------- ---------------
End of period $ 8,906,768 $ 5,881,975
- ---------------------------------------------------------------------------------- ------------- ---------------
</TABLE>
*For the period from April 29, 1994 (date of initial public investment) to
November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
Strategic Income Fund
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, 1995 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- ---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment income 0.41 0.40
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency transactions 0.43 (0.44)
- --------------------------------------------------------------------- ------- -------
Total from investment operations 0.84 (0.04)
- ---------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------
Distributions from net investment income (0.39) (0.40)
- ---------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.02)
- --------------------------------------------------------------------- ------- -------
Total distributions (0.39) (0.42)
- --------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.54
- --------------------------------------------------------------------- ------- -------
TOTAL RETURN (C) 9.02% (0.41%)
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Expenses 1.00%(e) 1.00%(e)
- ---------------------------------------------------------------------
Net investment income 8.20%(e) 7.99%(e)
- ---------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.86%(e) 8.87%(e)
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,992 $1,190
- ---------------------------------------------------------------------
Portfolio turnover 50 % 34 %
- ---------------------------------------------------------------------
</TABLE>
(a) For the period from April 29, 1994 (date of initial public investment) to
November 30, 1994.
(b) 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.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Strategic Income Fund
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, 1995 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- ---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment income 0.45 0.45
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency transactions 0.42 (0.45)
- --------------------------------------------------------------------- ------- -------
Total from investment operations 0.87 0.00
- ---------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------
Distributions from net investment income (0.42) (0.45)
- ---------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.01)
- --------------------------------------------------------------------- ------- -------
Total distributions (0.42) (0.46)
- --------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.54
- --------------------------------------------------------------------- ------- -------
TOTAL RETURN (C) 9.42% 0.05%
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Expenses 0.25%(e) 0.25%(e)
- ---------------------------------------------------------------------
Net investment income 8.91%(e) 8.38%(e)
- ---------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.86%(e) 8.87%(e)
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,572 $2,366
- ---------------------------------------------------------------------
Portfolio turnover 50 % 34 %
- ---------------------------------------------------------------------
</TABLE>
(a) For the period from May 3, 1994 (date of initial public offering) to
November 30, 1994.
(b) 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.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Strategic Income Fund
Financial Highlights--Fortress Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, 1995 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- ---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment income 0.42 0.41
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency transactions 0.43 (0.44)
- --------------------------------------------------------------------- ------- -------
Total from investment operations 0.85 (0.03)
- ---------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------
Distributions from net investment income (0.40) (0.41)
- ---------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.02)
- --------------------------------------------------------------------- ------- -------
Total distributions (0.40) (0.43)
- --------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.54
- --------------------------------------------------------------------- ------- -------
TOTAL RETURN (C) 9.16% (0.19%)
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Expenses 0.75%(e) 0.75%(e)
- ---------------------------------------------------------------------
Net investment income 8.42%(e) 8.34%(e)
- ---------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.86%(e) 8.87%(e)
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,342 $2,326
- ---------------------------------------------------------------------
Portfolio turnover 50 % 34 %
- ---------------------------------------------------------------------
</TABLE>
(a) For the period from May 9, 1994 (date of initial public offering) to
November 30, 1994.
(b) 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.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) 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, 1995 (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 three, 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.
Effective July 26, 1995, the Fund will add a class, Class B Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities, and other fixed income
securities are valued at the last sale price reported on national
securities exchanges. Listed corporate bonds, unlisted securities, and
short-term securities are generally valued at the price provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure the value of collateral at least equals
the repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined in accordance with income
Strategic Income Fund
- --------------------------------------------------------------------------------
tax regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of capital for
federal income tax purposes.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. However, federal taxes may be
imposed on the Fund upon the disposition of certain investments in passive
foreign investment companies. Withholding taxes on foreign dividends have
been provided for in accordance with the Fund's understanding of the
applicable country's tax rules and rates. At November 30, 1994, the Fund,
for federal tax purposes, had a capital loss carryforward of $13,691, 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
2002 ($13,691).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
FORWARD COMMITMENTS--The Fund may enter into forward commitments for the
delayed delivery of securities or forward foreign currency exchange
contracts which are based upon financial indicies at fixed price or
exchange rate at a future date. Risks may arise upon entering these
contracts and from the potential inability of counterparts to meet the
terms of their contracts and from unanticipated movements in security
prices or foreign exchange rates. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until contract settlement date. At May 31, 1995, the
Fund had no outstanding forward commitments.
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of the
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results
Strategic Income Fund
- --------------------------------------------------------------------------------
of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FC's, currency gains or
losses realized between the trade and settlement dates on the securities
transactions, the difference between the amounts of dividends, interest,
and foreign withholding taxes recorded on the Fund's books, and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets
and liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under Federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee. Additional information on each
restricted security held at May 31, 1995, is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
ICON Health & Fitness, Warrants 11/4/94 $ 494
Polymer Group, Inc. Sr. Note 8/10/94 50,000
S.D. Warren Company, Sr. Sub. Note 12/13/94 50,000
ICON Health & Fitness, Inc., Unit 5/17/95 98,277
</TABLE>
DOLLAR ROLL TRANSACTIONS--The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA, FHLMC, in which
the Fund sells mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions are short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments which may enhance the
Fund's current yield and total return.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1995, there were 10,000,000,000 shares of $0.001 par value capital
stock authorized for the Corporation. 4,000,000,000 shares have been designated
for the Fund. 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.
1,000,000,000 shares have been designated for additional classes not currently
offered. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994*
CLASS C SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 86,159 $ 820,786 124,790 $ 1,226,296
- --------------------------------------------------------------
Shares issued in payment of distributions declared 4,820 46,340 1,844 17,926
- --------------------------------------------------------------
Shares redeemed (16,168) (155,062) (1,993) (19,338)
- -------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Class C share
transactions 74,811 $ 712,064 124,641 $ 1,224,884
- -------------------------------------------------------------- --------- ------------ --------- -------------
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994**
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 135,688 $ 1,312,586 410,346 $ 4,053,169
- --------------------------------------------------------------
Shares issued in payment of distributions declared 6,177 59,358 3,091 30,074
- --------------------------------------------------------------
Shares redeemed (32,174) (306,472) (165,403) (1,633,770)
- -------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Class A share transactions 109,691 $ 1,065,472 248,034 $ 2,449,473
- -------------------------------------------------------------- --------- ------------ --------- -------------
</TABLE>
* For the period from April 29, 1994 (date of initial public investment) to
November 30, 1994.
** For the period from May 3, 1994 (date of initial public offering) to November
30, 1994.
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994***
FORTRESS SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 129,921 $ 1,240,698 251,274 $ 2,464,030
- -------------------------------------------------------------
Shares issued in payment of distributions declared 2,513 24,161 1,656 16,166
- -------------------------------------------------------------
Shares redeemed (41,588) (400,729) (9,165) (88,178)
- ------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Fortress share transactions 90,846 $ 864,130 243,765 $ 2,392,018
- ------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Fund share transactions 275,348 $ 2,641,666 616,440 $ 6,066,375
- ------------------------------------------------------------- --------- ------------ --------- -------------
</TABLE>
*** For the period from May 9, 1994 (date of initial public offering) to
November 30, 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% ofthe Fund's average daily net assets. The Adviser may voluntarily
choose to waive 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"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. 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 the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-l under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class C Shares and Fortress Shares. The Plan
provides that the Fund may incur distribution expenses up to .75 and .50,
respectively, of 1% of the average daily net assets of the Class C Shares and
Fortress Shares, respectively, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets of the Fund for the period. This fee is to obtain certain personal
services for shareholders and to maintain shareholder accounts.
Strategic Income Fund
- --------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The fee is based on the size, type and number of accounts and
transactions made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses $103,466 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). For the period ended May 31, 1995,
the Fund paid ($11,517) and ($5,192), respectively pursuant to this agreement.
GENERAL--Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
May 31, 1995 were as follows:
Directors Officers
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Richard B. Fisher Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including 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.
[LOGO]
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 338319700
Cusip 338319809
Cusip 338319882
G00324-01 (7/95)
Fixed Income Securities Appendix
A. The graphic representation here displayed consists of a boxed pie
chart in the upper center of the page which shows the percentage of
assets and the rating of the securities invested in for Limited Term
Fund as of May 31, 1995. The chart also displays the percentage of
assets that are invested in Repurchase Agreements. The pie chart is
made up of five pieces labeled as follows (going clockwise starting from
12:00 noon): AA 11.51%, A 21.10%, BBB 15.58%, Repurchase Agreements
2.17% and AAA 49.64%.
B. The graphic representation here displayed consists of a boxed pie
chart in the upper center of the page which shows the percentage of
assets and the ratings of the securities invested in for Limited Term
Municipal Fund as of May 31, 1995. The chart also displays the
percentage of assets that are invested in securities that are not rated.
The pie chart is made up of five pieces labeled as follows (going
clockwise starting from 12:00 noon): AA 11.51%, A 21.10%, BBB 15.58%,
Repurchase Agreements 2.17% and AAA 49.64%.
C The graphic representation here displayed consists of a boxed pie
chart in the upper center of the page which shows the percentage of
assets in Strategic Income Fund that are diversified across different
types of securities as of May 31, 1995. The pie chart is made up of
five pieces labeled as follows (going clockwise starting from 12:00
noon): U.S. Corporate Bonds 26.55%, Repurchase Agreements 7.90%, Other
0.14%, International Bonds 34.34%, U.S. Government/Agency Bonds 31.07%.
