[LOGO OF FEDERATED INVESTORS]
Federated
Limited Term
Fund
(formerly, Limited
Term Fund)
Semi-Annual Report
May 31, 1996
Established 1992
INCOME
President's Message
Dear Shareholder:
I am pleased to present the Semi-Annual Report for Federated Limited Term Fund,
which covers the six-month period from December 1, 1995, through May 31, 1996.
The fund was established in 1992, and currently has net assets of $122.2
million. The fund holds short-term investment securities and pays a monthly
dividend.
This report begins with an interview with portfolio managers Randall S. Bauer
and Deborah A. Cunningham, both vice presidents of Federated Advisers.
Following the interview are additional items of shareholder interest: a quality
composition graph, a complete listing of the fund's holdings, and its financial
statements.
The bond market rally of 1995 came to an abrupt end during the first quarter of
1996. Interest rates rose quickly, and our short-term investment arena proved
much less volatile than the longer term issues.
Federated Limited Term Fund's objective of pursuing income with limited
fluctuation in share value was indeed tested during the period, as rising
interest rates caused bond prices to fall. The fund's limited two- to
three-year maturity holdings were impacted less than bonds with longer
maturities. The fund's performance for the six-month period ended May 31, 1996
follows.*
<TABLE>
<CAPTION>
Total Return
based on Net Asset Value Income
<S> <C> <C>
Class A Shares 0.18% $0.29
Class F Shares 0.23% $0.30
</TABLE>
Thank you for choosing Federated Limited Term Fund as a conservative way to
pursue income through a diversified, high-quality portfolio of short-term
securities. This fund is positioned as a short-term bond fund with a maturity
between money market funds and longer term government income funds. The fund
generally offers higher income potential than money market fund instruments+
and lower income potential than longer term government bond funds.
Remember, reinvesting your earnings is a convenient way to build your account
through the benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
Richard B. Fisher
President
July 15, 1996
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for
Class A Shares and Class F Shares were -0.82% and -1.79%, respectively.
+ Unlike the Fund, money market funds seek to maintain a stable $1.00 share
value.
Investment Review
Deborah A. Cunningham
Vice President
Federated Advisers
Q. With 1996 at its mid-point, can you give us a review of the economy and its
impact on the short-term bond market?
A. Economic activity, while certainly not robust, has been sufficient to
rekindle inflationary fears. This in turn has caused bond prices to
fall and bond yields to move upward, regardless of their maturities.
The effect has been most pronounced at the short end of the yield curve.
For example, 2-year yields
moved from a low of 4.79% on February 13, 1996 to 6.24% on May 31, 1996.
Naturally, the fund's performance reflected this difficult period for the bond
market. The net asset value of the Class A Shares moved from $9.97 on the
first day of the period, December 1, 1995, to $9.69 (-$0.28) on the last day,
May 31, 1996. However, the fund continued to pay a stream of income dividends.
Q. How did Federated Limited Term Fund perform over the six-month period
ended May 31, 1996?
A. The fund's Class A Shares produced a total return of 0.18%* based on
net asset value, and paid dividends totaling $0.29 per share, while the
total return for Class F Shares was 0.23%,* and dividends totaled $0.30
per share. The 30-day SEC yields for Class A Shares and Class F Shares
increased from 6.00% and 6.10% to 6.53% and 6.63%, respectively, from the
first day to the last day of the period.
Randall S. Bauer
Vice President
Federated Advisers
Q. How were the fund's assets allocated at the end of the period?
A. On May 31, 1996, 36.5% of assets were invested in asset-backed securities of
various types, 30% were invested in mortgage-backed securities, and 30% in
corporate bonds. The fund also carried a 3.5% cash position.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for
Class A Shares and Class F Shares were -0.82% and -1.79%, respectively.
With regard to credit quality, 43% of fund assets were rated AAA, 8% were rated
AA, 29% were rated A, and 15% were rated BBB.** For the first time, based on
changes in the fund's prospectus during the period, the fund also carried a non
investment-grade position of 2% of assets. Approximately 77% of the fund's
holdings were invested in fixed-rate securities, while 23% were invested in
securities with floating rates.
Q. What is your outlook for rates for the balance of 1996, and do you
anticipate any portfolio adjustments in response?
A. While interest rates have risen significantly over the first half of 1996,
inflation, as measured by the year-on-year increase in the Consumer Price
Index, is actually lower than it was a year ago (2.9% on May 31, 1996, compared
to 3.2% on May 31, 1995). And the 2.9% rate of inflation on May 31, 1996, is
only marginally higher than the 2.6% rate six months earlier.
As long as inflation signals remain benign, it is difficult to see interest
rates moving much higher than current levels. In fact, a reasonable case can be
made that yields should actually decline from here. There is, however, a
considerable degree of negative investor sentiment at the moment, which is
likely to overshadow any positive news. This "fundamentally bullish,
technically bearish'' environment for bonds has led fund management to position
Federated Limited Term Fund with a duration of 2.5 years, which would be
considered approximately neutral. With yields expected neither to rise nor
decline appreciably over the next few months, securities generating current
income, like mortgage-backed and certain asset-backed securities, are currently
being favored over those possessing greater appreciation potential in bullish
markets, such as U.S. Treasuries and bullet maturity corporate bonds.
** Ratings are according to Standard & Poor's Ratings Group.
Federated Limited Term Fund
-
(formerly, Limited Term Fund)
Portfolio Update
GRAPHIC REPRESENTATION "A" OMITTED. SEE APPENDIX.
Federated Limited Term Fund
(formerly, Limited Term Fund)
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES--67.5%
- -------------------------------------------------------------------------------------------------
AUTOMOTIVE--5.6%
-----------------------------------------------------------------------------------
$ 1,000,000 Chrysler Corp., Deb., 10.95%, 8/1/2017 $ 1,100,820
-----------------------------------------------------------------------------------
1,565,165 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 5/15/2002 1,558,747
-----------------------------------------------------------------------------------
2,219,664 Navistar Financial 1994-B Owner Trust, 6.63%, 1/15/2000 2,225,769
-----------------------------------------------------------------------------------
2,000,000 Navistar International Corp., Class B, 6.85%, 11/20/2001 2,001,080
----------------------------------------------------------------------------------- --------------
Total 6,886,416
----------------------------------------------------------------------------------- --------------
BANKING--6.9%
-----------------------------------------------------------------------------------
3,000,000 (a)Chase Manhattan Corp., Sub. Note, 5.25%, 12/5/2009 2,925,000
-----------------------------------------------------------------------------------
2,000,000 (a)Citicorp., Sub. Note, 5.85%, 10/25/2005 1,965,000
-----------------------------------------------------------------------------------
3,615,000 (a)Citicorp., Sub. Note, 6.6875%, 6/28/2005 3,533,663
----------------------------------------------------------------------------------- --------------
Total 8,423,663
----------------------------------------------------------------------------------- --------------
BROADCASTING AND CABLE--2.7%
-----------------------------------------------------------------------------------
3,000,000 TKR Cable, Inc., Sr. Note, 10.50%, 10/30/2007 3,266,010
----------------------------------------------------------------------------------- --------------
CAPITAL GOODS--2.7%
-----------------------------------------------------------------------------------
3,000,000 Joy Technologies, Inc., Sr. Note, 10.25%, 9/1/2003 3,304,800
----------------------------------------------------------------------------------- --------------
COMMERCIAL SERVICES--1.7%
-----------------------------------------------------------------------------------
2,000,000 Valassis Communications, Inc., Sr. Note, 9.55%, 12/1/2003 2,037,500
----------------------------------------------------------------------------------- --------------
CONSUMER PRODUCTS--0.9%
-----------------------------------------------------------------------------------
1,479,217 (b)Encyclopedia Britannica Domestic Funding Corp. 1994-1, Class A, 6.76%, 3/15/2002 1,088,242
----------------------------------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--4.8%
-----------------------------------------------------------------------------------
3,000,000 Ford Credit Auto Loan Master Trust 1996-1, Class A, 5.50%,
2/15/2003 2,823,750
-----------------------------------------------------------------------------------
3,000,000 Ford Motor Credit Corp., Medium Term Note, 7.02%, 10/10/2000 2,996,820
----------------------------------------------------------------------------------- --------------
Total 5,820,570
----------------------------------------------------------------------------------- --------------
FINANCE--RETAIL--11.2%
-----------------------------------------------------------------------------------
3,000,000 Chemical Master Credit Card Trust I 1995-3, Class A, 6.23%, 4/15/2005 2,880,957
-----------------------------------------------------------------------------------
</TABLE>
Federated Limited Term Fund
(formerly, Limited Term Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
-----------------------------------------------------------------------------------
$ 2,000,000 Citibank Credit Card Master Trust I 1994-2, Class A, 7.25%, 4/7/2008 $ 1,982,858
-----------------------------------------------------------------------------------
5,000,000 Household Private Label Credit Card 1994-1, Class B, 7.55%, 6/20/2001 5,057,500
-----------------------------------------------------------------------------------
4,000,000 MBNA Master Credit Card Trust 1995-C, Class A, 6.45%, 2/15/2008 3,764,640
----------------------------------------------------------------------------------- --------------
Total 13,685,955
----------------------------------------------------------------------------------- --------------
FINANCIAL INTERMEDIARIES--1.5%
-----------------------------------------------------------------------------------
2,000,000 United Companies Financial Corp., Note, 7.00%, 7/15/1998 1,991,960
----------------------------------------------------------------------------------- --------------
FOOD RETAILERS--2.4%
-----------------------------------------------------------------------------------
3,000,000 (b)Great Atlantic & Pacific Tea Co., Inc., Note, 7.78%, 11/1/2000 2,914,170
----------------------------------------------------------------------------------- --------------
HOME EQUITY RECEIVABLES--12.0%
-----------------------------------------------------------------------------------
1,169,016 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%, 8/15/2007 936,478
-----------------------------------------------------------------------------------
686,207 Advanta HEL Trust 1991-1, Class A, 9.00%, 2/25/2006 573,412
-----------------------------------------------------------------------------------
1,464,486 (a)Capital Home Equity Loan Trust 1991-1, Class B, 6.05%, 12/25/2011 1,471,618
-----------------------------------------------------------------------------------
2,000,000 (b)Contimortgage HEL Trust 1994-1, Class A-3, 6.07%, 2/15/2014 1,900,000
-----------------------------------------------------------------------------------
3,213,463 (b)Contimortgage HEL Trust 1994-1, Class A-5, 6.12%, 2/15/2014 3,008,604
-----------------------------------------------------------------------------------
3,425,977 HFC Home Equity Loan Trust 1992-2, Class A, 6.65%, 11/20/2012 3,356,910
-----------------------------------------------------------------------------------
1,782,596 Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 6.3125%,
2/15/2003 1,795,164
-----------------------------------------------------------------------------------
1,055,484 TMS Home Equity Loan Trust 1992-A, Class A, 6.95%, 1/15/2007 1,040,211
-----------------------------------------------------------------------------------
622,160 TMS Home Equity Loan Trust 1992-B, Class A, 6.90%, 7/15/2007 610,333
----------------------------------------------------------------------------------- --------------
Total 14,692,730
----------------------------------------------------------------------------------- --------------
INSURANCE--1.6%
-----------------------------------------------------------------------------------
2,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 2,154,960
----------------------------------------------------------------------------------- --------------
LEASING--0.1%
-----------------------------------------------------------------------------------
74,597 (b)Concord Leasing Grantor Trust 1992-C, Class A-1, 5.31%, 1/20/1999 74,597
----------------------------------------------------------------------------------- --------------
MANUFACTURED HOUSING RECEIVABLES--3.7%
-----------------------------------------------------------------------------------
4,803,178 CIT Manufactured Housing Trust 1993-1, Class B, 6.85%, 6/15/2018 4,463,764
----------------------------------------------------------------------------------- --------------
</TABLE>
Federated Limited Term Fund
(formerly, Limited Term Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------------------
MARINE RECEIVABLES--2.4%
-----------------------------------------------------------------------------------
$ 3,148,519 CBNJ Boat Loan Trust 1994-1, Class A, 6.89%, 5/18/2012 $ 2,874,298
----------------------------------------------------------------------------------- --------------
NON-FERROUS METALS--1.8%
-----------------------------------------------------------------------------------
2,000,000 Magma Copper Co., Sr. Sub. Note, 12.00%, 12/15/2001 2,181,240
----------------------------------------------------------------------------------- --------------
RETAILERS--1.4%
-----------------------------------------------------------------------------------
1,500,000 Penney (J.C.) Co., Inc., S.F. Deb., 9.75%, 6/15/2021 1,670,625
----------------------------------------------------------------------------------- --------------
SERVICES--0.8%
-----------------------------------------------------------------------------------
1,000,000 (b)Loewen Group Int'l, Sr. Note, 8.25%, 4/15/2003 992,500
----------------------------------------------------------------------------------- --------------
UTILITIES--3.3%
-----------------------------------------------------------------------------------
2,000,000 Boston Edison Co., Deb., 5.95%, 3/15/1998 1,964,700
-----------------------------------------------------------------------------------
2,000,000 Union Electric Co., 1st Mtg. Bond, 8.75%, 12/1/2021 2,072,940
----------------------------------------------------------------------------------- --------------
Total 4,037,640
----------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS/ASSET-BACKED SECURITIES
(IDENTIFIED COST $85,019,643) 82,561,640
----------------------------------------------------------------------------------- --------------
MORTGAGE BACKED SECURITIES--30.0%
- -------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--MORTGAGED-BACKED SECURITIES--7.9%
-----------------------------------------------------------------------------------
1,037,511 Federal Home Loan Mortgage Corp., ARMs, 7.61%, 9/1/2019 1,082,050
-----------------------------------------------------------------------------------
1,142,212 (a)Federal Home Loan Mortgage Corp., ARMs, 7.86% 12/1/2018 1,178,522
-----------------------------------------------------------------------------------
2,000,000 Federal Home Loan Mortgage Corp., 6.00%, 4/1/2003 1,918,100
-----------------------------------------------------------------------------------
122,787 Federal National Mortgage Association, ARMs, 7.72%, 11/1/2017 127,078
-----------------------------------------------------------------------------------
344,233 Federal National Mortgage Association ARMs, 7.59%, 12/1/2000 359,555
-----------------------------------------------------------------------------------
5,050,000 Government National Mortgage Association, 7.50%, 6/15/2025 4,956,171
----------------------------------------------------------------------------------- --------------
Total 9,621,476
----------------------------------------------------------------------------------- --------------
NON-GOVERNMENT AGENCY--MORTGAGE-BACKED SECURITIES--22.1%
-----------------------------------------------------------------------------------
3,346,213 (a)Citicorp. Mortgage Securities, Inc., Series 1992-18, Class A-1, 6.68%,
6/28/2005 3,396,406
-----------------------------------------------------------------------------------
6,712,231 (a)Greenwich Capital Acceptance Corp. REMIC Trust 5, Class B, 5.96%,
1/25/2024 6,251,628
-----------------------------------------------------------------------------------
</TABLE>
Federated Limited Term Fund
(formerly, Limited Term Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
MORTGAGE BACKED SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------------------
NON-GOVERNMENT AGENCY--CONTINUED
-----------------------------------------------------------------------------------
$ 2,950,000 Prudential Home Mortgage Securities 1993-32, Series 1992-32,
Class A-6, 7.50%, 10/25/2022 $ 2,863,742
-----------------------------------------------------------------------------------
4,000,000 RALI 1995-QS1, Class A2, 6.90%, 1/25/2020 3,952,040
-----------------------------------------------------------------------------------
3,270,000 RTC 1992-15, Class B3, 10.00%, 7/25/2027 3,351,750
-----------------------------------------------------------------------------------
2,060,213 Salomon Brothers Mortgage Sec. VII 1992-6, Class A1, 7.57%,
11/25/2022 2,080,984
-----------------------------------------------------------------------------------
5,278,504 Salomon Brothers Mortgage Sec. VII 1993-9, Class A1, 7.24%,
1/25/2024 5,144,057
----------------------------------------------------------------------------------- --------------
Total 27,040,607
----------------------------------------------------------------------------------- --------------
TOTAL MORTGAGED-BACKED SECURITIES (IDENTIFIED COST $36,676,013) 36,662,083
----------------------------------------------------------------------------------- --------------
(C) REPURCHASE AGREEMENT--3.5%
- -------------------------------------------------------------------------------------------------
4,245,000 BT Securities Corporation, 5.34%, dated 5/31/1996, due 6/3/1996
(at amortized cost) 4,245,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $125,940,656)(D) $ 123,468,723
----------------------------------------------------------------------------------- --------------
</TABLE>
(a) Denotes variable rate and floating rate obligations for which the current
rate is shown.
(b) Denotes a restricted security, which is subject to restrictions on resale
under Federal Securities Laws. At the end of the period, these securities
amounted to $9,978,113 which represents 8.2% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $125,940,656.
The net unrealized depreciation of investments on a federal tax basis
amounts to $2,471,933 which is comprised of $572,471 appreciation and
$3,044,404 depreciation at May 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($122,209,218) at May 31, 1996.
The following acronyms are used throughout this portfolio:
REMIC--Real Estate Mortgage Investment Conduit
TBA--To Be Announced
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Fund
(formerly, Limited Term Fund)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
<TABLE>
ASSETS:
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $125,940,656) $123,468,723
- ---------------------------------------------------------------------------------------------------
Cash 4,397
- ---------------------------------------------------------------------------------------------------
Income receivable 1,357,116
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 80,926
- ---------------------------------------------------------------------------------------------------
Deferred expenses 20,923
- --------------------------------------------------------------------------------------------------- -----------
Total assets 124,932,085
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased $1,936,333
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 155,589
- ----------------------------------------------------------------------------------------
Income distribution payable 615,068
- ----------------------------------------------------------------------------------------
Accrued expenses 15,877
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 2,722,867
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 12,616,660 shares outstanding $122,209,218
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $134,882,967
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,471,933)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (10,159,941)
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (41,875)
- --------------------------------------------------------------------------------------------------- -----------
Total Net Assets $122,209,218
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($112,596,154 / 11,624,243 shares outstanding) $9.69
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/99.00 of $9.69)* $9.79
- --------------------------------------------------------------------------------------------------- -----------
CLASS F SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($9,613,063 / 992,417 shares outstanding) $9.69
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/99.00 of $9.69)* $9.79
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $9.69)** $9.59
- --------------------------------------------------------------------------------------------------- -----------
</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)
Federated Limited Term Fund
(formerly, Limited Term Fund)
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended May 31, 1996 (unaudited)
<TABLE>
INVESTMENT INCOME:
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Interest $4,822,057
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------
Investment advisory fee $ 272,725
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 77,501
- ------------------------------------------------------------------------------------------
Custodian fees 17,860
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 86,027
- ------------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,257
- ------------------------------------------------------------------------------------------
Auditing fees 7,503
- ------------------------------------------------------------------------------------------
Legal fees 2,501
- ------------------------------------------------------------------------------------------
Portfolio accounting fees 32,443
- ------------------------------------------------------------------------------------------
Distribution services fee--Class A Shares 316,047
- ------------------------------------------------------------------------------------------
Distribution services fee--Class F Shares 7,457
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 158,024
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class F Shares 12,428
- ------------------------------------------------------------------------------------------
Share registration costs 29,768
- ------------------------------------------------------------------------------------------
Printing and postage 25,986
- ------------------------------------------------------------------------------------------
Insurance premiums 2,989
- ------------------------------------------------------------------------------------------
Taxes 15,006
- ------------------------------------------------------------------------------------------
Miscellaneous 21,838
- ------------------------------------------------------------------------------------------ ---------
Total expenses 1,088,360
- ------------------------------------------------------------------------------------------
Waivers--
- -------------------------------------------------------------------------------
Waiver of investment advisory fee $(148,668)
- -------------------------------------------------------------------------------
Waiver of distribution services fee--Class A Shares (189,628)
- -------------------------------------------------------------------------------
Waiver of distribution services fee--Class F Shares (994)
- -------------------------------------------------------------------------------
Waiver of shareholder services fee--Class F Shares (1,491)
- ------------------------------------------------------------------------------- ---------
Total waivers (340,781)
- ------------------------------------------------------------------------------------------ ---------
Net expenses 747,579
- ----------------------------------------------------------------------------------------------------- ----------
Net investment income 4,074,478
- ----------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments 854,851
- -----------------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (4,594,252)
- ----------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized loss on investments (3,739,401)
- ----------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ 335,077
- ----------------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Fund
(formerly, Limited Term Fund)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 4,074,478 $ 10,071,213
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments ($854,851 and $9,607,384 net losses,
respectively, as computed for federal tax purposes) 854,851 (1,367,071)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (4,594,252) 8,740,085
- ---------------------------------------------------------------------------------- ------------- ---------------
Change in net assets resulting from operations 335,077 17,444,227
- ---------------------------------------------------------------------------------- ------------- ---------------
NET EQUALIZATION CREDITS (DEBITS)-- -- (28,665)
- ---------------------------------------------------------------------------------- ------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------------------
Class A Shares (3,827,123) (8,587,638)
- ----------------------------------------------------------------------------------
Class F Shares (305,195) (631,389)
- ---------------------------------------------------------------------------------- ------------- ---------------
Change in net assets resulting from distributions to shareholders (4,132,318) (9,219,027)
- ---------------------------------------------------------------------------------- ------------- ---------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 5,723,531 15,174,800
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared 2,357,877 6,145,539
- ----------------------------------------------------------------------------------
Cost of shares redeemed (30,709,247) (73,068,438)
- ---------------------------------------------------------------------------------- ------------- ---------------
Change in net assets resulting from share transactions (22,627,839) (51,748,099)
- ---------------------------------------------------------------------------------- ------------- ---------------
Change in net assets (26,425,080) (43,551,564)
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 148,634,298 192,185,862
- ---------------------------------------------------------------------------------- ------------- ---------------
End of period (including undistributed net investment
income of $0 and $15,964, respectively) $122,209,218 $ 148,634,298
- ---------------------------------------------------------------------------------- ------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Fund
(formerly, Limited Term Fund)
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.97 $ 9.48 $ 10.17 $ 10.00 $ 10.01
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
Net investment income 0.29 0.55 0.53 0.63 0.519
- ------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.27) 0.49 (0.66) 0.19 (0.008)
- ------------------------------------------------------ ------- --------- --------- --------- -----------
Total from investment operations 0.02 1.04 (0.13) 0.82 0.511
- ------------------------------------------------------ ------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------
Distributions from net investment income (b) (0.30) (0.55) (0.53) (0.63) (0.519)
- ------------------------------------------------------
Distributions in excess of net investment income -- -- (0.02) (0.02) (0.002)
- ------------------------------------------------------
Distributions from net realized gains on investment
tranactions -- -- (0.01) -- --
- ------------------------------------------------------ ------- --------- --------- --------- -----------
Total distributions (0.30) (0.55) (0.56) (0.65) (0.521)
- ------------------------------------------------------ ------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.69 $ 9.97 $ 9.48 $ 10.17 $ 10.00
- ------------------------------------------------------ ------- --------- --------- --------- -----------
TOTAL RETURN (C) 0.18% 11.29% (1.30)% 8.19% 5.21%
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
Expenses 1.10%* 1.10% 1.10% 1.01% 0.67%*
- ------------------------------------------------------
Net investment income 5.97%* 6.13% 5.52% 5.75% 6.17%*
- ------------------------------------------------------
Expense waiver/reimbursement (d) 0.52%* 0.43% 0.39% 0.49% 1.06%*
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets, end of period (000 omitted) $112,596 $138,451 $178,771 $248,876 $57,225
- ------------------------------------------------------
Portfolio turnover 47% 63% 63% 38% 60%
- ------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period 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 charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Fund
(formerly, Limited Term Fund)
Financial Highlights--Class F Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.97 $ 9.48 $ 10.17 $ 10.24
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.30 0.61 0.55 0.15
- ------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.28) 0.44 (0.67) (0.07)
- ------------------------------------------------------------------ ------- --------- --------- -----------
Total from investment operations 0.02 1.05 (0.12) 0.08
- ------------------------------------------------------------------ ------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.30) (0.56) (0.55) (0.15)
- ------------------------------------------------------------------
Distributions in excess of net investment income (b) -- -- (0.01) --
- ------------------------------------------------------------------
Distributions from net realized gains on investment transactions -- -- (0.01) --
- ------------------------------------------------------------------
Total distributions (0.30) (0.56) (0.57) (0.15)
- ------------------------------------------------------------------ ------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.69 $ 9.97 $ 9.48 $ 10.17
- ------------------------------------------------------------------ ------- --------- --------- -----------
TOTAL RETURN (C) 0.23% 11.39% (1.20)% 0.78%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 1.01%* 1.00% 0.99% 1.00%*
- ------------------------------------------------------------------
Net investment income 6.07%* 6.22% 5.67% 7.10%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.27%* 0.18% 0.13% 0.39%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $9,613 $10,183 $13,415 $7,230
- ------------------------------------------------------------------
Portfolio turnover 67% 63% 63% 38%
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 31, 1993 (date of initial
public investment) 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 charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Fund
(formerly, Limited Term Fund)
Notes to Financial Statements
- --------------------------------------------------------------------------------
May 31, 1996 (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 portfolios. The
financial statements included herein are only those of Federated Limited Term
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Class A Shares and Class
F Shares. The Fund is designed to pursue monthly income with limited fluctuation
in share value through a diversified portfolio of short term bonds with
two-to-three year maturities.
Effective January 31, 1996, the Board of Directors (the "Directors") approved a
change in the name of the Fund from Limited Term Fund to Federated Limited Term
Fund. Effective
January 31, 1996, the Directors also approved a change in the name of Fortress
Shares to Class F Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities, listed corporate bonds
(other fixed income and asset-backed securities), and unlisted securities
and private placement securities are generally valued at the mean of the
lastest bid and asked price as furnished by an independent pricing service.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities
of sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
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
Federated Limited Term Fund
(formerly, Limited Term Fund)
- --------------------------------------------------------------------------------
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At November 30, 1995, the Fund,
for federal tax purposes, had a capital loss carryforward of $11,014,791,
which will reduce the Fund's taxable income arising from future net
realized gain on investments, if any, to the extent permitted by the Code,
and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will
expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $ 9,607,384
2003 $ 1,407,407
</TABLE>
EQUALIZATION--Prior to November 30, 1995, the Fund followed the accounting
practice known as equalization. With equalization, 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. As of November
30, 1995, the Fund no longer practices equalization.
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 over a period of five years from
the Fund's 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
Federated Limited Term Fund
(formerly, Limited Term Fund)
- --------------------------------------------------------------------------------
registered offering of the securities. Many restricted securities may be
resold in the secondary market in transactions exempt from registration.
Such restricted securities may be determined to be liquid under criteria
established by the Directors. The Fund will not incur any registration
costs upon such resales. The Fund's restricted securities are valued at the
price provided by dealers in the secondary market or, if no market prices
are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at May 31, 1996 is
as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Encyclopedia Britannica Domestic Funding Corporation 1994-1 3/21/94 $ 1,090,281
Great Atlantic & Pacific Tea Co., Inc. 3/1/96 3,000,000
Contimortgage HEL Trust 1994-1, Class A-3 2/18/94 1,999,719
Contimortgage HEL Trust 1994-1, Class A-3 2/18/94 3,212,774
Concord Leasing Grantor Trust 1992-C, Class A-1 8/14/92-2/1/92 74,938
Lowen Group Internation, Sr. Note 3/13/96 1,000,618
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1996, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
# OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A Shares 1,000,000,000
- --------------------------------------------------------------------------------------
Class F Shares 1,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
Total shares authorized 2,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
</TABLE>
Federated Limited Term Fund
(formerly, Limited Term Fund)
- --------------------------------------------------------------------------------
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEDERATED LIMITED TERM FUND MAY 31, 1996 NOVEMBER 30, 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 405,328 $ 4,007,143 1,327,413 $ 13,015,341
- ------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 222,910 2,204,158 595,771 5,785,618
- ------------------------------------------------------
Shares redeemed (2,892,391) (28,544,912) (6,883,983) (66,778,258)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
Class A share transactions (2,264,153) $ (22,333,611) (4,960,799) $ (47,97,299)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTH ENDED YEAR ENDED
FEDERATED LIMITED TERM FUND MAY 31, 1996 NOVEMBER 30, 1995
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 173,763 $ 1,716,388 222,214 $ 2,159,459
- ------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 15,549 153,719 37,164 359,921
- ------------------------------------------------------
Shares redeemed (218,434) (2,164,335) (652,247) (6,290,180)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
Class F share transactions (29,122) $ (294,228) (392,869) $ (3,770,800)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
share transactions (2,293,275) $ (22,627,839) (5,353,668) $ (51,748,099)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</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
0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors 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.
Federated Limited Term Fund
(formerly, Limited Term Fund)
- --------------------------------------------------------------------------------
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 Class F Shares. The Plan provides that the Fund
may incur distribution expenses according to the following schedule annually, to
compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A 0.50 of 1%
- ----------------------------------------------------------------------------------------
Class F 0.15 of 1%
- ----------------------------------------------------------------------------------------
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. This fee is to
obtain certain services for shareholders and to maintain shareholder accounts.
FSS may voluntarily choose to waive any portion of its fee. FSS can modify or
terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $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 effective date.
For the period ended May 31, 1996, the Fund paid $22,206 and $32,209
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.
Federated Limited Term Fund
(formerly, Limited Term Fund)
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 62,535,047
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 76,002,704
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<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. 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
</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 the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectuses which contain facts concerning its
objective and policies, management fees, expenses and other information.
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO OF FEDERATED INVESTORS]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 338319106
Cusip 338319304
3070201 (7/96)
[RECYCLED LOGO]
[LOGO FEDERATED INVESTORS]
Federated
Limited Term
Municipal
Fund
(formerly, Limited
Term Municipal
Fund)
Semi-Annual Report
May 31, 1996
Established 1993
TAX-FREE INCOME
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report for Federated Limited Term
Municipal Fund, which covers the six-month period from December 1, 1995
through May 31, 1996. The fund was established in 1993, and currently has
assets of $95.4 million. The fund holds short-term municipal issues of
high-quality, and pays monthly dividends free of federal regular income tax.
This report begins with an interview with Mary Jo Ochson, Senior Vice
President, Federated Advisers. Following her interview are additional items of
shareholder interest: a graph showing quality composition, a complete listing
of the fund's holdings, and its financial statements.
The bond market rally of 1995 came to an abrupt end in the first quarter of
1996. Interest rates rose quickly, and our short-term investment arena proved
much less volatile than the longer term issues. Federated Limited Term
Municipal Fund's objective of pursuing tax-free income* with limited
fluctuation in share value was indeed tested during the period, as rising
interest rates caused bond prices to fall. In this climate, the fund's two- to
three-year maturity holdings were impacted less than bonds with longer
maturities. As noted by the portfolio manager, the fund performed relatively
well compared to its peer group. The fund's performance for the six-month
period ended May 31, 1996 follows.**
<TABLE>
<CAPTION>
Total Return Income
based on Net Asset Value Distributions
<S> <C> <C>
Class A Shares 1.32% $0.21
Class F Shares 1.44% $0.22
</TABLE>
At the end of the period, the fund's assets were invested as follows: A or
better, 50.49%; BBB, 22.50%, and non-rated, 27.01%.+ The holdings included
bonds issued for hospitals, single-family housing authorities, electric
revenue, and resource recovery bonds. The fund's maturity places it between
tax-free money market fund instruments and longer term municipal bonds, i.e.,
more income potential than money market instruments, but less income potential
than long-term, tax-free municipal bonds.++
* Income may be subject to the federal alternative minimum tax and state
and local taxes.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for
Class A Shares and Class F Shares were 0.30% and 0.41%, respectively.
+ Ratings are according to Standard & Poor's Ratings Group.
++ Unlike the Fund, money market funds seek to maintain a stable $1.00 share
value.
Thank you for choosing Federated Limited Term Municipal Fund as a relatively
conservative way to pursue tax-free income through a diversified, high-quality
portfolio of short-term municipal securities. Remember, reinvesting your
earnings is a convenient way to build your account through the benefit of
compounding.
As always, we welcome your comments and suggestions.
Sincerely,
Richard B. Fisher
President
July 15, 1996
Investment Review
- --------------------------------------------------------------------------------
Mary Jo Ochson
Senior Vice President
Federated Advisers
Q. Mary Jo, could you review the developments in the short-term municipal bond
market for the last six months?
A. During the first half of the period, short-term municipal interest rates
moved gradually downward, bottoming around February, before inching up in
latter half of the period. From November 1995 to February 1996, the yield on
three-year A-rated municipal bonds declined from 4.15% to 3.95%. Then in March,
the market was stunned by a report of a 700,000 increase in the non-farm
payrolls for February, the largest increase in 12 years. Now confronted with a
more robust economy, the three-year A-rated municipal bond moved steadily
higher to end the period at 4.65%.
Q. How did Federated Limited Term Municipal Fund perform?
A. The fund performed relatively well, especially in 1996, which accounts for
five months out of the six month reporting period. According to Lipper
Analytical Services, investors in the Class A Shares of the fund earned a
year-to-date total return of 0.95%* as of May 31, 1996 based on net asset
value. For investors in the Class F Shares, the total return as measured by
Lipper was 1.05%* based on net asset value for the same time period. These
results compared favorably against the 0.84% average return for the Lipper
Short Municipal Debt category.** The fund's net asset value on December 1, 1995
was $9.86 and declined to $9.77 as of May 31, 1996 (-$0.09). However, income
per share totaled $0.21 for Class A Shares and $0.22 for Class F Shares for the
report period.
Federated Limited Term Municipal Fund also had a very good one-year period
compared to other funds in its category. According to Lipper, for the one year
period ending May 31, 1996, an investor in the fund's Class A
* Performance quoted represents past performance and is not indicative of
future results.
Investment return and principal value will fluctuate, so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Total returns for the year-to-date period (January 1, 1996 through May 31,
1996) based on offering price for Class A Shares and Class F Shares were
-0.07% and 0.02%, respectively. Total returns for the 12-month period ended
May 31, 1996 based on offering price for Class A Shares and Class F Shares
were 3.50% and 3.72%, respectively. As of May 31, 1996, the Class A Shares'
average annual since inception total return was 3.28%. The Class F Shares'
average annual total return since inception was 3.48%. These figures are
based on offering price.
** Lipper figures represent the average of the total returns reported by
all of the mutual funds designated by Lipper Analytical Services as falling
into the respective categories indicated. These figures and the rankings
cited do not reflect sales charges. During the time period, fees and
expenses have been waived, otherwise total return would have been lower.
Shares received a total return of 4.55% based on net asset value. For
investors in the fund's Class F Shares, the total return was 4.79% based on net
asset value. During this period, the Lipper Short Municipal Debt fund average
registered a total return of 4.03%.* The fund's one year total returns as of
June 30, 1996 in the Lipper Short Municipal Debt category were as follows:
Class A Shares ranked 8th out of 32 funds and Class F Shares ranked 4th out of
32 funds.**
Q. What strategies helped the fund's performance?
A. The fund outperformed many of its peers because of its shorter duration and
higher exposure to BBB-rated and non-rated securities. In a climate of
rising rates, we sought to protect principal by keeping the fund's duration
over the period at the short end of its 2-3 year range. The fund also
increased its exposure to BBB-rated and non-rated issues over the period, as
credit quality in the municipal sector improved on a broad basis. The higher
income from these securities caused the fund's total return to be positive,
even though interest rates were increasing over most of the period.
Q. What is your outlook for rates near term, and do you anticipate policy
adjustments in response?
A. Our near-term outlook is still one of caution. We expect to see reasonable
growth in the economy throughout the summer months. This, in combination
with the Federal Reserve Board's anti-inflation stance, will keep upward
pressure on interest rates. We do not expect to make major changes in the
portfolio. Going forward, as interest rates find their new yield levels, we
believe that the fund will continue to benefit from the lower price volatility
commensurate with short-term bonds.
*Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the year-to-date period (January 1, 1996
through May 31, 1996) based on offering price for Class A Shares and Class F
Shares were -0.07% and 0.02%, respectively. Total returns for the 12-month
period ended May 31, 1996 based on offering price for Class A Shares and Class
F Shares were 3.50% and 3.72%, respectively. As of May 31, 1996, the Class A
Shares' average annual since inception total return was 3.28%. The Class F
Shares' average annual total return since inception was 3.48%. These figures
are based on offering price.
**Lipper figures represent the average of the total returns reported by
all of the mutual funds designated by Lipper Analytical Services as falling
into the respective categories indicated. These figures and the rankings cited
do not reflect sales charges. During the time period, fees and expenses have
been waived, otherwise total return would have been lower.
Federated Limited Term Municipal Fund
-
(formerly, Limited Term Municipal Fund)
Portfolio Update
GRAPHIC REPRESENTATION "B" OMITTED. SEE APPENDIX.
Federated Limited Term Municipal Fund
(formerly, Limited Term Municipal Fund)
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------- ----------------------------------------------------------------------- --------- --------------
SHORT-TERM MUNICIPAL SECURITIES--12.6%
- --------------------------------------------------------------------------------------
MINNESOTA--10.5%
-----------------------------------------------------------------------
$ 10,000,000 Bass Brook, MN, PCR, 4.70% TOBs (Minnesota Power And Light Co.),
Optional Tender 6/2/1997 Baa2 $ 9,991,800
----------------------------------------------------------------------- --------------
NORTH DAKOTA--2.1%
-----------------------------------------------------------------------
2,000,000 Oliver County, ND, Floating Rate Annual Tender PCR Bonds, 4.50% TOBs
(Square Butte Electric Cooperative), A- 2,000,000
----------------------------------------------------------------------- --------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 11,991,800
----------------------------------------------------------------------- --------------
LONG-TERM MUNICIPAL SECURITIES--93.2%
- --------------------------------------------------------------------------------------
ALABAMA--2.0%
-----------------------------------------------------------------------
450,000 Mobile, AL, GO Warrants, 4.65%, 8/15/1997 NR 453,141
-----------------------------------------------------------------------
470,000 Mobile, AL, GO Warrants, 4.75%, 8/15/1998 NR 472,510
-----------------------------------------------------------------------
490,000 Mobile, AL, GO Warrants, 4.85%, 8/15/1999 NR 488,584
-----------------------------------------------------------------------
515,000 Mobile, AL, GO Warrants, 4.95%, 8/15/2000 NR 511,380
----------------------------------------------------------------------- --------------
Total 1,925,615
----------------------------------------------------------------------- --------------
CALIFORNIA--5.1%
-----------------------------------------------------------------------
3,315,000 California State, UT GO Bonds, 7.375% TOBs, Optional Tender 10/1/1996 A 3,314,801
-----------------------------------------------------------------------
1,500,000 California Statewide Communities Development Authority, Certificates of
Participation, 5.00% (Queen of Angels-Hollywood Presbyterian Medical
Center), 1/1/2001 A 1,483,035
----------------------------------------------------------------------- --------------
Total 4,797,836
----------------------------------------------------------------------- --------------
COLORADO--3.2%
-----------------------------------------------------------------------
500,000 Colorado Student Obligation Bond Authority, Student Loan Revenue Bonds,
5.20%, 9/1/1997 A 505,520
-----------------------------------------------------------------------
1,000,000 Colorado Student Obligation Bond Authority, Student Loan Revenue Bonds,
5.40%, 9/1/1998 A 1,014,280
-----------------------------------------------------------------------
$ 1,500,000 Denver, CO City & County Airport Authority, Subordinate Lien Revenue
Bonds (Series C), 6.00% (Toronto-Dominion Bank LOC), 4/1/1997 (@100) AA $ 1,527,225
----------------------------------------------------------------------- --------------
Total 3,047,025
----------------------------------------------------------------------- --------------
FLORIDA--0.2%
-----------------------------------------------------------------------
200,000 Jacksonville, FL Electric Authority, St. John's River Power Park
Special Obligation Revenue Bonds, 6.50% (Original Issue Yield: 6.968%),
10/1/1999 (@101.5) Aa1 209,215
----------------------------------------------------------------------- --------------
ILLINOIS--3.5%
-----------------------------------------------------------------------
750,000 Chicago, IL Gas Supply System, Revenue Bonds, 7.50% (Peoples Gas Light
& Coke Company), 3/1/2000 (@102) AA- 814,613
-----------------------------------------------------------------------
1,000,000 Illinois Development Finance Authority, (Series 1995) Revenue Bonds,
5.80% (Catholic Charities Housing Development Corp), 1/1/2007 NR 980,610
-----------------------------------------------------------------------
400,000 Illinois Development Finance Authority, Housing Revenue Bonds, 5.25%
(Catholic Charities Housing Development Corp)/(Archdiocese of Chicago
GTD), 1/1/1999 NR 397,792
-----------------------------------------------------------------------
365,000 Illinois Educational Facilities Authority, Revenue Bonds, 4.90%
(Illinois Institute of Technology)/(Original Issue Yield: 5.00%),
12/1/1996 Baa1 366,073
-----------------------------------------------------------------------
380,000 Illinois Educational Facilities Authority, Revenue Bonds, 5.05%
(Illinois Institute of Technology)/(Original Issue Yield: 5.15%),
12/1/1997 Baa1 382,124
-----------------------------------------------------------------------
400,000 Illinois Educational Facilities Authority, Revenue Bonds, 5.25%
(Illinois Institute of Technology)/(Original Issue Yield: 5.35%),
12/1/1998 Baa1 401,672
----------------------------------------------------------------------- --------------
Total 3,342,884
----------------------------------------------------------------------- --------------
INDIANA--2.1%
-----------------------------------------------------------------------
$ 885,000 LaPorte County, IN Hospital Authority, Refunding Revenue Bonds, 5.60%
(LaPorte Hospital, Inc., IN)/(Original Issue Yield: 5.747%), 3/1/1999 NR $ 887,814
-----------------------------------------------------------------------
935,000 LaPorte County, IN Hospital Authority, Refunding Revenue Bonds, 5.80%
(LaPorte Hospital, Inc., IN)/(Original Issue Yield: 5.898%), 3/1/2000 NR 935,842
-----------------------------------------------------------------------
225,000 Marion County, IN Hospital Authority, Hospital Facility Revenue
Refunding Bonds, 6.50% (Methodist Hospital of Indiana)/(Original Issue
Yield: 7.374%), 9/1/1999 (@102) AA 235,064
----------------------------------------------------------------------- --------------
Total 2,058,720
----------------------------------------------------------------------- --------------
IOWA--1.5%
-----------------------------------------------------------------------
1,445,000 Des Moines, IA, Hospital Revenue & Refunding Bonds (Series 1996A),
4.90% (Des Moines General Hospital, IA)/ (Norwest Bank Minnesota,
Minneapolis LOC), 11/15/1999 Aa2 1,443,597
----------------------------------------------------------------------- --------------
KENTUCKY--2.6%
-----------------------------------------------------------------------
2,420,000 Kentucky Higher Education Student Loan Corp., (Series D) Student Loan
Revenue Bonds, 6.45%, 6/1/1998 AA- 2,507,894
----------------------------------------------------------------------- --------------
MASSACHUSETTS--5.5%
-----------------------------------------------------------------------
250,000 Greater New Bedford Regional Refuse Management District, MA, GO
Landfill Bonds, 4.90% (Original Issue Yield: 5.00%), 5/1/1998 NR 249,628
-----------------------------------------------------------------------
750,000 Greater New Bedford Regional Refuse Management District, MA, UT GO
Bonds, 5.00% (Original Issue Yield: 5.10%), 5/1/1999 NR 739,590
-----------------------------------------------------------------------
750,000 Greater New Bedford Regional Refuse Management District, MA, UT GO
Bonds, 5.10% (Original Issue Yield: 5.20%), 5/1/2000 NR 731,648
-----------------------------------------------------------------------
515,000 Massachusetts HEFA, Revenue Bonds (Series B), 5.00% (Holyoke Hospital,
MA)/(Original Issue Yield: 5.25%),
7/1/1996 Baa1 515,052
-----------------------------------------------------------------------
$ 2,000,000 Massachusetts IFA, Solid Waste Disposal Sr. Lien Revenue Bonds (Series
A), 8.00% (Massachusetts Recycling Association), 8/1/1999 NR $ 1,889,220
-----------------------------------------------------------------------
1,000,000 New England Educational Loan Marketing Corp., (Senior Issue A) Student
Loan Refunding Revenue Bonds, 6.00% (Original Issue Yield: 6.046%),
9/1/1998 Aaa 1,032,110
----------------------------------------------------------------------- --------------
Total 5,157,248
----------------------------------------------------------------------- --------------
MINNESOTA--3.3%
-----------------------------------------------------------------------
1,490,000 Minneapolis, MN, Rental Housing Revenue Bonds (Series 1994A), 4.30%
TOBs (Driftwood Apartments Project)/(First Bank NA, Minneapolis LOC),
Mandatory Tender 11/1/1997 A+ 1,490,879
-----------------------------------------------------------------------
1,500,000 St. Paul, MN Housing & Redevelopment Authority , Hospital Revenue Bonds
(Series B), 9.75% (Healtheast, MN)/(Original Issue Yield: 9.802%),
11/1/1997 (@102) BBB- 1,607,745
----------------------------------------------------------------------- --------------
Total 3,098,624
----------------------------------------------------------------------- --------------
MISSOURI--1.1%
-----------------------------------------------------------------------
1,000,000 Kansas City, MO IDA, PCR Bonds, 6.05% (General Motors Corp.), callable
@ 101 on 6/1/99 A- 1,026,109
----------------------------------------------------------------------- --------------
NEBRASKA--3.3%
-----------------------------------------------------------------------
1,600,000 Nebraska Public Gas Agency, Gas Supply System Revenue Bonds (1995
Series A) , 5.00%, 4/1/1998 Baa1 1,614,112
-----------------------------------------------------------------------
1,500,000 Nebraska Public Gas Agency, Gas Supply System Revenue Bonds (1995
Series A), 5.00%, 4/1/1997 Baa1 1,513,995
----------------------------------------------------------------------- --------------
Total 3,128,107
----------------------------------------------------------------------- --------------
NEW MEXICO--2.2%
-----------------------------------------------------------------------
2,000,000 Las Cruces, NM, (Series 1995) Revenue Bonds, 6.00% (MBIA Insurance
Corporation INS), 12/1/2001 Aaa 2,095,140
----------------------------------------------------------------------- --------------
NEW YORK--9.3%
-----------------------------------------------------------------------
$ 2,000,000 New York City, NY, UT GO Bonds (Series B), 5.30%,
8/15/2000 BBB+ $ 2,000,580
-----------------------------------------------------------------------
1,800,000 New York City, NY, UT GO Bonds (Series B), 7.50% (Original Issue Yield:
7.60%), 2/1/2001 BBB+ 1,946,970
-----------------------------------------------------------------------
500,000 New York State Dormitory Authority, Revenue Bonds, 5.10% (Nyack
Hospital), 7/1/1998 NR 500,860
-----------------------------------------------------------------------
1,000,000 New York State Urban Development Corp., Youth Facilities Revenue Bonds
(Series 1995), 4.30%, 4/1/1997 Baa1 1,003,980
-----------------------------------------------------------------------
1,000,000 New York State Urban Development Corp., Youth Facilities Revenue Bonds
(Series 1995), 4.60%, 4/1/1999 Baa1 989,180
-----------------------------------------------------------------------
1,000,000 New York State Urban Development Corp., Youth Facilities Revenue Bonds
(Series 1995), 4.80%, 4/1/2000 Baa1 984,690
-----------------------------------------------------------------------
1,500,000 Port Authority of New York and New Jersey, Revenue Bonds (Series SS),
4.90%, 9/1/1997 AA- 1,500,990
----------------------------------------------------------------------- --------------
Total 8,927,250
----------------------------------------------------------------------- --------------
NORTH CAROLINA--0.7%
-----------------------------------------------------------------------
620,000 North Carolina Eastern Municipal Power Agency, Revenue Bonds (Series
A), 7.25% (Original Issue Yield: 7.50%),
1/1/1997 (@102) A 638,823
----------------------------------------------------------------------- --------------
OHIO--6.9%
-----------------------------------------------------------------------
680,000 Bellefontaine, OH, Hospital Facilities Revenue & Refunding Bonds, 5.00%
(Mary Rutan Health Associates)/(Original Issue Yield: 5.25%), 12/1/1997 BBB 678,450
-----------------------------------------------------------------------
1,500,000 Clyde, OH Waterworks System, Revenue Bonds, 5.60%,
5/1/1997 NR 1,521,540
-----------------------------------------------------------------------
630,000 Marion County, OH Health Care Facilities, Revenue Refunding &
Improvement Bonds, 5.00% (United Church Homes, OH)/(Original Issue
Yield: 5.25%), 11/15/1997 BBB- 629,458
-----------------------------------------------------------------------
$ 250,000 Marion County, OH Health Care Facilities, Revenue Refunding and
Improvement Bonds, 4.75% (United Church Homes, OH)/(Original Issue
Yield: 5.00%), 11/15/1996 BBB- $ 250,045
-----------------------------------------------------------------------
1,400,000 Ohio Enterprise Bond Fund, (Series 1995-3) State Economic Development
Revenue Bonds, 5.60% (Smith Steelite),
12/1/2003 A- 1,387,190
-----------------------------------------------------------------------
2,000,000 Youngstown City School District, OH, 5.40% RANs,
6/15/1998 NR 2,021,260
----------------------------------------------------------------------- --------------
Total 6,487,943
----------------------------------------------------------------------- --------------
PENNSYLVANIA--12.0%
-----------------------------------------------------------------------
1,000,000 Allegheny County, PA Higher Education, Revenue Bonds, 7.625% (La Roche
College), 12/1/1996 (@100) NR 1,026,510
-----------------------------------------------------------------------
495,000 Allegheny County, PA Residential Finance Agency, Revenue Refunding
Bonds (Series W), 4.875% (GNMA COL), 11/1/2003 (@102) Aaa 471,384
-----------------------------------------------------------------------
750,000 Beaver County, PA IDA, PCR Revenue Refunding Bonds (Series A), 7.75%
(Ohio Edison Co.), 9/1/1999 (@102) BBB- 789,548
-----------------------------------------------------------------------
1,500,000 Dover Township, PA Sewer Authority, (Series 1995) Guaranteed BANS,
4.25% (Original Issue Yield: 4.50%),
12/15/1997 NR 1,496,550
-----------------------------------------------------------------------
1,765,000 Lehigh County, PA General Purpose Authority, Hospital Refunding Revenue
Bonds (Series 1996A), 4.80% (Muhlenberg Hospital Center), 7/15/2000 A 1,722,411
-----------------------------------------------------------------------
860,000 Lehigh County, PA General Purpose Authority, Hospital Revenue Bonds
(Series 1996B), 4.80% (Muhlenberg Hospital Center), 7/15/2000 A 836,161
-----------------------------------------------------------------------
1,000,000 Monroeville, PA Hospital Authority, Hospital Refunding Revenue Bonds
(Series 1995), 4.375% (Forbes Health System, PA)/(Original Issue Yield:
4.50%), 10/1/1996 Baa1 1,000,760
-----------------------------------------------------------------------
$ 1,045,000 Monroeville, PA Hospital Authority, Hospital Refunding Revenue Bonds
(Series 1995), 4.50% (Forbes Health System, PA)/(Original Issue Yield:
4.70%), 10/1/1997 Baa1 $ 1,044,676
-----------------------------------------------------------------------
1,000,000 Monroeville, PA Hospital Authority, Hospital Refunding Revenue Bonds
(Series 1995), 4.875% (Forbes Health System, PA)/(Original Issue Yield:
4.90%), 10/1/1998 Baa1 997,210
-----------------------------------------------------------------------
125,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority,
Hospital Revenue Bonds (Series B), 6.60% (Children's Seashore House,
PA)/(Original Issue Yield: 6.80%), 8/15/1998 A- 129,910
-----------------------------------------------------------------------
455,000 Scranton-Lackawanna, PA Health & Welfare Authority, Revenue Bonds
(Series 1994-A), 5.40% (Allied Services Rehabilitation Hospitals, PA),
7/15/1996 NR 455,278
-----------------------------------------------------------------------
485,000 Scranton-Lackawanna, PA Health & Welfare Authority, Revenue Bonds
(Series 1994-A), 5.75% (Allied Services Rehabilitation Hospitals, PA),
7/15/1997 NR 486,843
-----------------------------------------------------------------------
1,080,000 Scranton-Lackawanna, PA Health & Welfare Authority, Revenue Bonds
(Series A), 6.35% (Allied Services Rehabilitation Hospitals, PA),
7/15/1999 NR 1,093,856
----------------------------------------------------------------------- --------------
Total 11,551,097
----------------------------------------------------------------------- --------------
PUERTO RICO--5.9%
-----------------------------------------------------------------------
1,600,000 Puerto Rico Electric Power Authority, Power Revenue (Series T), 5.00%,
7/1/1997 A 1,618,944
-----------------------------------------------------------------------
1,985,000 Puerto Rico Highway and Transportation Authority, Highway Revenue
Bonds, Series Y, 5.00%, 7/1/1998 A 2,009,574
-----------------------------------------------------------------------
2,000,000 Puerto Rico Municipal Finance Agency, Revenue Bonds (Series A), 5.00%
(Original Issue Yield: 5.10%), 7/1/1998 A- 2,022,380
----------------------------------------------------------------------- --------------
Total 5,650,898
----------------------------------------------------------------------- --------------
RHODE ISLAND--4.3%
-----------------------------------------------------------------------
$ 3,885,000 Rhode Island State Student Loan Authority, Student Loan Revenue
Refunding Bond, Series B, 6.75% (Original Issue Yield: 6.80%),
12/1/2001 A $ 4,105,280
----------------------------------------------------------------------- --------------
SOUTH DAKOTA--3.7%
-----------------------------------------------------------------------
105,000 South Dakota State Health & Educational Authority, Revenue Bonds, 5.40%
(Huron Regional Medical Center, SD), 4/1/1997 BBB- 104,839
-----------------------------------------------------------------------
215,000 South Dakota State Health & Educational Authority, Revenue Bonds, 5.50%
(Huron Regional Medical Center, SD)/(Original Issue Yield: 5.75%),
4/1/1998 BBB- 213,618
-----------------------------------------------------------------------
225,000 South Dakota State Health & Educational Authority, Revenue Bonds, 6.00%
(Huron Regional Medical Center, SD), 4/1/1999 BBB 225,965
-----------------------------------------------------------------------
3,000,000 South Dakota Student Loan Finance Corp., (Series A) Student Loan
Revenue Bonds, 5.85%, 8/1/2000 A+ 3,058,470
----------------------------------------------------------------------- --------------
Total 3,602,892
----------------------------------------------------------------------- --------------
TENNESSEE--1.6%
-----------------------------------------------------------------------
1,500,000 Springfield, TN Health & Educational Facilities Board, Hospital Revenue
Bonds, 7.50% (Jesse Holman Jones Hospital Corp, TN), 4/1/2000 NR 1,532,175
----------------------------------------------------------------------- --------------
TEXAS--2.0%
-----------------------------------------------------------------------
1,800,000 Brazos River Authority, TX, Revenue Refunding Bonds (Series B), 8.25%
(Houston Light & Power Co.)/(Original Issue Yield: 8.343%), 5/1/2015 A 1,927,260
----------------------------------------------------------------------- --------------
UTAH--1.0%
-----------------------------------------------------------------------
1,000,000 Hildale, UT , Electric Revenue Bonds (Series 1995), 7.00%, 9/1/2002 NR 999,000
----------------------------------------------------------------------- --------------
VIRGINIA--7.3%
-----------------------------------------------------------------------
$ 2,000,000 Frederick County, VA IDA, (Series 1995) Lease Revenue Notes, 4.75%,
12/1/1997 NR $ 2,001,280
-----------------------------------------------------------------------
2,150,000 King George County IDA, VA, Lease Revenue Notes (Series 1995A), 4.875%
(King George County Elementary School )/(Original Issue Yield: 5.05%),
8/1/1998 NR 2,147,592
-----------------------------------------------------------------------
200,000 Prince William County, VA IDA, Hospital Revenue Bonds, 5.90% (Potomac
Hospital Corp., VA), 10/1/1997 A 204,168
-----------------------------------------------------------------------
255,000 Prince William County, VA IDA, Hospital Revenue Bonds, 6.00% (Potomac
Hospital Corp., VA), 10/1/1998 A 261,941
-----------------------------------------------------------------------
255,000 Prince William County, VA IDA, Hospital Revenue Bonds, 6.10% (Potomac
Hospital Corp., VA), 10/1/1999 A 263,652
-----------------------------------------------------------------------
2,000,000 Virginia State Housing Development Authority, Commonwealth Mortgage
Revenue Bonds (Series G-2), 5.40%, 1/1/1998 AA+ 2,027,800
----------------------------------------------------------------------- --------------
Total 6,906,433
----------------------------------------------------------------------- --------------
WEST VIRGINIA--0.8%
-----------------------------------------------------------------------
360,000 West Virginia HFA, (Series 1995) Hospital Refunding & Improvement
Revenue Bonds, 5.00% (Logan General Hospital), 7/1/1996 BBB- 360,065
-----------------------------------------------------------------------
390,000 West Virginia HFA, (Series 1995) Hospital Refunding & Improvement
Revenue Bonds, 5.10% (Logan General Hospital), 7/1/1997 BBB- 390,507
----------------------------------------------------------------------- --------------
Total 750,572
----------------------------------------------------------------------- --------------
WISCONSIN--2.1%
-----------------------------------------------------------------------
$ 1,000,000 Wisconsin State, UT GO Bonds (Series B), 4.40%, 11/1/1998 AA $ 1,000,650
-----------------------------------------------------------------------
1,000,000 Wisconsin State, UT GO Bonds (Series B), 4.70%, 11/1/1999 AA 1,002,150
----------------------------------------------------------------------- --------------
Total 2,002,800
----------------------------------------------------------------------- --------------
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $89,125,142) 88,920,437
----------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $101,116,942) $ 100,912,237
----------------------------------------------------------------------- --------------
</TABLE>
* 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 $101,116,942. The
net unrealized depreciation on federal tax cost basis amounts to $204,705, and
is comprised of $278,925 appreciation and $483,630 depreciation at May 31,
1996.
Note: The categories of investments are shown as a percentage of net assets
($95,395,663) at May 31, 1996.
The following acronym(s) are used throughout this portfolio:
BANs--Bond Anticipation Notes
COL--Collateralized
GNMA--Government National Mortgage Association
GO--General Obligation
GTD--Guaranty
HEFA--Health and Education Facilities Authority
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IFA--Industrial Finance Authority
INS--Insured
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
PCR--Pollution Control Revenue
RANs--Revenue Anticipation Notes
TOBs--Tender Option Bonds
UT--Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Municipal Fund
(formerly, Limited Term Municipal Fund)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $101,116,942) $ 100,912,237
- ---------------------------------------------------------------------------------------------------
Income receivable 1,762,844
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 410,857
- ---------------------------------------------------------------------------------------------------
Deferred expenses 44,243
- --------------------------------------------------------------------------------------------------- -------------
Total assets 103,130,181
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------
Payable for investments purchased $ 7,007,078
- --------------------------------------------------------------------------------------
Payable to bank 353,152
- --------------------------------------------------------------------------------------
Payable for shares redeemed 49,818
- --------------------------------------------------------------------------------------
Income distribution payable 303,348
- --------------------------------------------------------------------------------------
Accrued expenses 21,122
- -------------------------------------------------------------------------------------- -----------
Total liabilities 7,734,518
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 9,767,894 shares outstanding $ 95,395,663
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 97,990,799
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (204,705)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (2,390,431)
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 95,395,663
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS F SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($29,758,822 / 3,047,109 shares outstanding) $9.77
- --------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/99.00 of $9.77)* $9.87
- --------------------------------------------------------------------------------------------------- -------------
Redemption Price Per Share (99.00/100 of $9.77)** $9.67
- --------------------------------------------------------------------------------------------------- -------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($65,636,841 / 6,720,785 shares outstanding) $9.77
- --------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/99.00 of $9.77)* $9.87
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share $9.77
- --------------------------------------------------------------------------------------------------- -------------
</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)
Federated Limited Term Municipal Fund
(formerly, Limited Term Municipal Fund)
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended May 31, 1996 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest $ 2,317,538
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee $ 186,914
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 77,501
- -----------------------------------------------------------------------------------------
Custodian fees 2,175
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 18,897
- -----------------------------------------------------------------------------------------
Directors'/Trustees' fees 946
- -----------------------------------------------------------------------------------------
Auditing fees 5,924
- -----------------------------------------------------------------------------------------
Legal fees 2,196
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 32,340
- -----------------------------------------------------------------------------------------
Distribution services fee--Class A Shares 80,415
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class F Shares 36,420
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 80,415
- -----------------------------------------------------------------------------------------
Share registration costs 29,877
- -----------------------------------------------------------------------------------------
Printing and postage 14,805
- -----------------------------------------------------------------------------------------
Insurance premiums 1,798
- -----------------------------------------------------------------------------------------
Taxes 2,531
- -----------------------------------------------------------------------------------------
Miscellaneous 12,230
- ----------------------------------------------------------------------------------------- ----------
Total expenses 585,384
- -----------------------------------------------------------------------------------------
Waivers and reimbursements--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $ (186,914)
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses (86,071)
- ----------------------------------------------------------------------------- ----------
Total waivers and reimbursements (272,985)
- ----------------------------------------------------------------------------------------- ----------
Net expenses 312,399
- ----------------------------------------------------------------------------------------------------- -----------
Net investment income 2,005,139
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments 35,664
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments (872,011)
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments (836,347)
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 1,168,792
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Municipal Fund
(formerly, Limited Term Municipal Fund)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 2,005,139 $ 2,427,308
- -----------------------------------------------------------------
Net realized gain (loss) on investments ($35,664 net gain and
$439,009 net loss, respectively, as computed for federal tax
purposes) 35,664 (439,009)
- -----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (872,011) 2,221,502
- ----------------------------------------------------------------- ---------------------- ----------------------
Change in net assets resulting from operations 1,168,792 4,209,801
- ----------------------------------------------------------------- ---------------------- ----------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------
Distributions from net investment income
- -----------------------------------------------------------------
Class F Shares (652,900) (804,559)
- -----------------------------------------------------------------
Class A Shares (1,352,239) (1,622,749)
- ----------------------------------------------------------------- ---------------------- ----------------------
Change in net assets resulting from distributions to
shareholders (2,005,139) (2,427,308)
- ----------------------------------------------------------------- ---------------------- ----------------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------
Proceeds from sale of shares 33,755,395 75,579,715
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 1,100,349 1,474,064
- -----------------------------------------------------------------
Cost of shares redeemed (30,245,044) (32,662,928)
- ----------------------------------------------------------------- ---------------------- ----------------------
Change in net assets resulting from share
transactions 4,610,700 44,390,851
- ----------------------------------------------------------------- ---------------------- ----------------------
Change in net assets 3,774,353 46,173,344
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 91,621,310 45,447,966
- ----------------------------------------------------------------- ---------------------- ----------------------
End of period $ 95,395,663 $ 91,621,310
- ----------------------------------------------------------------- ---------------------- ----------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Municipal Fund
(formerly, Limited Term Municipal Fund)
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
<S> <C> <C> <C> <C>
1996 1995 1994 1993(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 9.49 $ 10.02 $ 10.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.21 0.46 0.43 0.10
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.08) 0.36 (0.53) 0.02
- ------------------------------------------------------------------ ------- --------- --------- -----------
Total from investment operations 0.13 0.82 (0.10) 0.12
- ------------------------------------------------------------------ ------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.21) (0.46) (0.43) (0.10)
- ------------------------------------------------------------------ ------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.85 $ 9.49 $ 10.02
- ------------------------------------------------------------------ ------- --------- --------- -----------
TOTAL RETURN (B) 1.32% 8.67% (0.95)% 1.20%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.74%* 0.68% 0.63% 0.50%*
- ------------------------------------------------------------------
Net investment income 4.21%* 4.72% 4.33% 4.30%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.58%* 1.03% 0.94% 1.71%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted)
$65,637 $65,179 $32,644 $13,694
- ------------------------------------------------------------------
Portfolio turnover 25% 47% 135% 0%
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1993 (date of initial
public investment) to November 30, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Municipal Fund
(formerly, Limited Term Municipal Fund)
Financial Highlights--Class F Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
<S> <C> <C> <C> <C>
1996 1995 1994 1993(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 9.49 $ 10.02 $ 10.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.22 0.47 0.45 0.11
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.08) 0.36 (0.53) 0.02
- ------------------------------------------------------------------ ------- --------- --------- -----------
Total from investment operations 0.14 0.83 (0.08) 0.13
- ------------------------------------------------------------------ ------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.22) (0.47) (0.45) (0.11)
- ------------------------------------------------------------------ ------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.85 $ 9.49 $ 10.02
- ------------------------------------------------------------------ ------- --------- --------- -----------
TOTAL RETURN (B) 1.44% 8.86% (0.75)% 1.26%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.50%* 0.49% 0.44% 0.25%*
- ------------------------------------------------------------------
Net investment income 4.48%* 4.91% 4.57% 4.79%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.58%* 1.11% 0.94% 1.86%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $29,759 $26,442 $12,804 $3,307
- ------------------------------------------------------------------
Portfolio turnover 25% 47% 135% 0%
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1993 (date of initial
public investment) to November 30, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Limited Term Municipal Fund
(formerly, Limited Term Municipal Fund)
Notes to Financial Statements
- --------------------------------------------------------------------------------
May 31, 1996 (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 portfolios. The
financial statements included herein are only those of Federated Limited Term
Municipal Fund (the "Fund"), a diversified portfolio. The financial statements
of the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Class F Shares and Class
A Shares. The investment objective of the Fund is to provide a high level of
current income which is exempt from federal regular income tax (federal regular
income tax does not include the federal alternative minimum tax) consistent with
the preservation of principal.
Effective January 31, 1996, the Board of Directors (the "Directors") approved a
change in the name of the Fund from Limited Term Municipal Fund to Federated
Limited Term Municipal Fund. Effective January 31, 1996, the Directors also
approved a change in the name of Fortress Shares to Class F 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. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
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, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $2,426,095, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax. Pursuant to
the Code, such capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $ 1,987,086
2003 $439,009
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 over a period of five years from
the Fund's commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1996, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
# OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class F Shares 1,000,000,000
- --------------------------------------------------------------------------------------
Class A Shares 1,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
Total shares authorized 2,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
</TABLE>
Federated Limited Term Municipal Fund
(formerly, Limited Term Municipal Fund)
- --------------------------------------------------------------------------------
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
<S> <C> <C> <C> <C>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 2,735,793 $ 26,908,252 5,713,041 $ 55,927,556
- ------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 78,083 767,695 111,389 1,084,149
- ------------------------------------------------------
Shares redeemed (2,708,616) (26,648,234) (2,647,044) (25,684,893)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
Class A share transactions 105,260 $ 1,027,713 3,177,386 $ 31,326,812
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
share transactions 468,744 $ 4,610,700 4,512,490 $ 44,390,851
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
<S> <C> <C> <C> <C>
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 696,422 $ 6,847,143 2,014,269 $ 19,652,159
- ------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 33,839 332,654 40,074 389,915
- ------------------------------------------------------
Shares redeemed (366,777) (3,596,810) (719,239) (6,978,035)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
Class F share transactions 363,484 $ 3,582,987 1,335,104 $ 13,064,039
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</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
0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee and/or reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors 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 Class F Shares and Class A Shares. The Plan provides that the Fund may
incur distribution expenses according to the following schedule annually, to
compensate Federated Securities Corp.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class F Shares 0.15%
</TABLE>
For the six months ended May 31, 1996, Class F Shares did not incur a
distribution services fee.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ('FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational and start-up administrative service
expenses of $99,798 were borne initially by Federated Advisers.
The Fund has agreed to reimburse Federated Advisers for the organizational and
start-up administrative expenses during the five year period following the
effective date. For the period ended May 31, 1996, no payments were made by the
Fund pursuant to this agreement.
INTERFUND TRANSACTIONS--During the period ended May 31, 1996, the Fund engaged
in purchase and sale transactions with funds that have a common investment
adviser (or affiliated investment advisers), common Directors/Trustees, and/or
common Officers. These purchase and sale transactions were made at current
market value pursuant to Rule 17a-7 under the Act amounting to $28,400,000 and
$31,500,000, respectively.
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, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 33,457,864
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 20,483,851
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
<TABLE>
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. 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
</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 the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectuses which contain facts concerning its
objective and policies, management fees, expenses and other information.
[LOGO] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 338319502 (LOGO)
Cusip 338319403 RECYCLED
G00278-01 (7/96) PAPER
[LOGO FEDERATED INVESTORS]
Federated Strategic
Income Fund
(formerly, Strategic
Income Fund)
Semi-Annual Report
May 31, 1996
Established 1994
INCOME
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report for Federated Strategic Income
Fund, which covers the six-month period from December 1, 1995 through May 31,
1996.
This report begins with an interview with the fund's portfolio manager, James
D. Roberge, Vice President, Federated Advisers. Following his interview are
three additional items of shareholder interest: a series of graphs showing
investment performance, a complete listing of the fund's holdings, and its
financial statements.
Federated Strategic Income Fund pursues interest income through a weighted and
diversified portfolio including U.S. government, international,** and U.S.
high-yield corporate bonds.
Despite a relatively difficult environment in the United States for bonds, as
U.S. interest rates rose, which caused bond prices to decline, your fund
delivered relatively good returns due to a healthy dividend stream from
international holdings and high yielding U.S. corporate bonds.
During the six-month period, the fund's net assets have grown from $16.3
million to $65.6 million. Performance by share class is shown below.*
<TABLE>
<CAPTION>
Total Return Income Capital Gains
based on Net Asset Value Distributions Distributions
<S> <C> <C> <C>
Class A Shares 4.57% $0.47 $0.08
Class B Shares 4.19% $0.44 $0.08
Class C Shares 4.20% $0.44 $0.08
Class F Shares 4.52% $0.47 $0.08
</TABLE>
Thank you for participating in a diversified approach to income through
Federated Strategic Income Fund. Remember, reinvesting your earnings is a
convenient way to build your accountNand help your money grow through the
benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
Richard B. Fisher
President
July 15, 1996
*Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for
Class A Shares, Class B Shares, Class C Shares, and Class F Shares were
-0.15%, -1.47%, 3.16%, and 2.48%, respectively.
**International investing can involve additional risks, including currency
risk, increased volatility of foreign securities and differences in auditing
and other financial standards.
Investment Review
- --------------------------------------------------------------------------------
James D. Roberge
Vice President
Federated Advisers
Q. After a relatively positive interest rate environment for bonds in 1995,
the first quarter of 1996 introduced a fairly substantial degree of
volatility to the bond market. Can you comment?
A. The U.S government bond market experienced a particularly difficult time in
early 1996. The long-term U.S. Treasury yield hit its low of 5.95% on the
last trading day of 1995, and then rose steadily in 1996 to close at 6.99% on
May 31, 1996. This increase in yield was driven by several factors, the most
important being inflationary fears fueled by stronger-than-expected U.S.
economic reports.
Q. How did Federated Strategic Income Fund perform versus the overall bond
market?
A. The fund's Class A Shares posted a total return for the six-month period
ended May 31, 1996 of 4.57% based on net asset value. The fund's Class B
Shares, Class C Shares and Class F Shares achieved total returns of 4.19%,
4.20%, and 4.52%, respectively, based on net asset value.*
Q. How were the fund's net assets allocated among U.S. government,
international and U.S. corporate high-yield bonds as of May 31, 1996?
A. The fund's allocations were as follows:
International: 42.1%
U.S. corporate high-yield: 33.7%
U.S. government: 19.8%
The allocations are determined by the various investment managers agreeing on
the most suitable, attractive position of the fund's total assets and cash
flow.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for Class
A Shares, Class B Shares, Class C Shares, and Class F Shares were -0.15 %,
-1.47%, 3.16%, and 2.48%, respectively.
Q. What is your outlook for these three sectors and your overall strategy?
A. We continue to believe that the international arena offers attractive
opportunities, i.e. lower interest rates both in the developed and emerging
markets, which accounts for 42.1% of the fund's assets in that sector. With the
domestic economy continuing to improve, we are positive with respect to U.S.
high-yield corporate bonds, and have 33.7% of the fund's assets in that sector.
However, this economic strength leads us to believe that interest rates may
continue higher, and we are maintaining 19.8% of the fund's assets in U.S.
government issues.
In summary, our international holdings will respond to lower interest rates,
the U.S. domestic economy is positive, and we believe that U.S. interest rates
will remain higher than the international sector.
Two Ways You May Seek to Invest for Success in
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
- --------------------------------------------------------------------------------
Initial Investment
If you had made an initial investment of $3,000 in the Class A Shares of
Federated Strategic Income Fund on 5/4/94, reinvested dividends and capital
gains, and didn't redeem any shares, your account would have been worth $3,463
on 5/31/96. You would have earned a 7.17%* average annual total return for the
2 year investment life span.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends,
and you gain the benefit of compounding.
As of 6/30/96, the Class A Shares' average annual one-year and since
inception (5/4/94) total returns were 6.51% and 7.35%, respectively. Class B
Shares' since inception (7/27/95) total return was 4.62%. Class C Shares'
average annual one-year and since inception (5/2/94) total returns were 9.65%
and 8.84%, respectively. Class F Shares' average annual one-year and since
inception (5/10/94) total returns were 9.07% and 8.31%, respectively.
GRAPHIC REPRESENTATION "C" OMITTED. SEE APPENDIX.
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.5%
sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
- --------------------------------------------------------------------------------
Investing One Step at a Time:
$1,000 invested each year for 2 years (reinvesting all dividends and capital
gains) grew to $3,189.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
Strategic Income Fund on 5/4/94, reinvested your dividends and capital gains
and didn't redeem any shares, you would have invested only $3,000, but your
account would have reached a total value of $3,189* by 5/31/96. You would have
earned an average annual total return of 10.12%.
A practical investment plan in the fund helps you pursue income through a
diversified portfolio primarily invested in U.S. corporate securities, U.S.
government securities, and non-U.S. corporate securities. Through systematic
investing, you buy shares on a regular basis and reinvest all earnings. An
investment plan can work for you when you invest only $1,000 annually. You can
take it one step at a time. Put time and compounding to work!
GRAPHIC REPRESENTATION "D" OMITTED. SEE APPENDIX.
*No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at various
prices, investors can purchase more shares at lower prices, and all accumulated
shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Federated Strategic Income Fund
-
(formerly, Strategic Income Fund)
Hypothetical Investor Profile: Investing for Future Income
- -------------------------------------------------------------------------------
Jim and Leslie Weber are a two income couple who, like many others, want to be
able to afford their present lifestyle and still have something extra for those
special times when they might need it.
They decided a diversified income fund was right for them. The fund's exposure
to U.S. government securities, high-yield U.S. corporate securities, and
international securities gives them a relatively stable income stream. They
invested $100,000 in Federated Strategic Income Fund on 5/4/94 and have allowed
the dividends and capital gains to reinvest.
By 5/31/96, they were pleased to see that their original investment had grown
to $115,443 for an average annual total return of 9.54%. Leslie is already
looking forward to a special anniversary cruise in a few years.
The couple is fictional, but the figures are real.
GRAPHIC REPRESENTATION "E" OMITTED. SEE APPENDIX.
*This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--33.7%
- ------------------------------------------------------------------------------------------------
AUTOMOTIVE--1.1%
-------------------------------------------------------------------------------
$ 300,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 $ 321,750
-------------------------------------------------------------------------------
100,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 99,000
-------------------------------------------------------------------------------
50,000 JPS Automotive Products Corp., Sr. Note, 11.125%, 6/15/2001 51,250
-------------------------------------------------------------------------------
250,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 236,250
------------------------------------------------------------------------------- -------------
Total 708,250
------------------------------------------------------------------------------- -------------
BANKING--0.3%
-------------------------------------------------------------------------------
50,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 54,625
-------------------------------------------------------------------------------
150,000 (a)First Nationwide Holdings, Inc., Sr. Note, 12.50%, 4/15/2003 156,375
------------------------------------------------------------------------------- -------------
Total 211,000
------------------------------------------------------------------------------- -------------
BEVERAGE & TOBACCO--0.8%
-------------------------------------------------------------------------------
250,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 253,125
-------------------------------------------------------------------------------
300,000 Dr Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 256,500
------------------------------------------------------------------------------- -------------
Total 509,625
------------------------------------------------------------------------------- -------------
BROADCAST RADIO & TV--3.5%
-------------------------------------------------------------------------------
100,000 Argyle Television, Inc., Sr. Sub. Note, 9.75%, 11/1/2005 95,500
-------------------------------------------------------------------------------
38,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 41,990
-------------------------------------------------------------------------------
150,000 Chancellor Broadcasting Co., Sr. Sub. Note, 9.375%, 10/1/2004 141,750
-------------------------------------------------------------------------------
200,000 (a)Granite Broadcasting Corp., Sr. Sub. Note, 9.375%, 12/1/2005 184,500
-------------------------------------------------------------------------------
300,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 286,500
-------------------------------------------------------------------------------
100,000 (a)Park Communications, Inc., Sr. Note, 13.75%, 5/15/2004 105,500
-------------------------------------------------------------------------------
100,000 Pegasus Media, Note, 12.50%, 7/1/2005 108,500
-------------------------------------------------------------------------------
350,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 370,125
-------------------------------------------------------------------------------
250,000 (a)SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 250,000
-------------------------------------------------------------------------------
250,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 243,125
-------------------------------------------------------------------------------
$ 200,000 Sullivan Broadcast Holdings, Inc., Sr. Sub. Note, 10.25%, 12/15/2005 $ 190,500
-------------------------------------------------------------------------------
200,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 195,500
-------------------------------------------------------------------------------
50,000 Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 1/15/2006 45,750
------------------------------------------------------------------------------- -------------
Total 2,259,240
------------------------------------------------------------------------------- -------------
BUSINESS EQUIPMENT & SERVICES--0.8%
-------------------------------------------------------------------------------
200,000 (a)Knoll, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 205,000
-------------------------------------------------------------------------------
150,000 Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 161,250
-------------------------------------------------------------------------------
100,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 108,500
------------------------------------------------------------------------------- -------------
Total 474,750
------------------------------------------------------------------------------- -------------
CABLE TELEVISION--4.0%
-------------------------------------------------------------------------------
100,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 63,250
-------------------------------------------------------------------------------
400,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 289,000
-------------------------------------------------------------------------------
200,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 192,500
-------------------------------------------------------------------------------
100,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 5/15/2006 99,750
-------------------------------------------------------------------------------
100,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 108,500
-------------------------------------------------------------------------------
200,000 (a)Charter Communications Southeast, L.P., Sr. Note, 11.25%,
3/15/2006 205,000
-------------------------------------------------------------------------------
200,000 (a)CS Wireless Systems, Inc., Unit, 0/11.375%, 3/1/2006 106,000
-------------------------------------------------------------------------------
300,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 179,250
-------------------------------------------------------------------------------
225,000 Diamond Cable Co., Sr. Disc. Note, 0/11.75%, 12/15/2005 136,687
-------------------------------------------------------------------------------
125,000 (a)EchoStar Satellite Broadcasting Corp., Sr. Secd. Disc. Note,
0/13.125%, 3/15/2004 83,437
-------------------------------------------------------------------------------
50,000 Insight Communication Co., Sr. Sub. Note, 11.25%, 3/1/2000 51,000
-------------------------------------------------------------------------------
100,000 International Cabletel, Inc., Sr. Note, 0/11.50%, 2/1/2006 59,250
-------------------------------------------------------------------------------
100,000 International Cabletel, Inc., Sr. Note, 0/12.75%, 4/15/2005 65,625
-------------------------------------------------------------------------------
50,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 52,875
-------------------------------------------------------------------------------
$ 200,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 $ 122,500
-------------------------------------------------------------------------------
100,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
12/1/2007 100,750
-------------------------------------------------------------------------------
150,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 152,250
-------------------------------------------------------------------------------
500,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 302,500
-------------------------------------------------------------------------------
350,000 (a)UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 180,250
-------------------------------------------------------------------------------
50,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 52,750
------------------------------------------------------------------------------- -------------
Total 2,603,124
------------------------------------------------------------------------------- -------------
CHEMICALS & PLASTICS--2.6%
-------------------------------------------------------------------------------
150,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 162,750
-------------------------------------------------------------------------------
150,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 157,875
-------------------------------------------------------------------------------
200,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 203,000
-------------------------------------------------------------------------------
196,000 G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 158,270
-------------------------------------------------------------------------------
42,000 (a)G-I Holdings, Inc., Sr. Note, 10.00%, 2/15/2006 42,000
-------------------------------------------------------------------------------
200,000 Harris Chemical North America, Inc., Sr. Secd. Disc. Note, 9.625,
7/15/2001 203,000
-------------------------------------------------------------------------------
150,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 163,500
-------------------------------------------------------------------------------
200,000 (a)RBX Corp., Sr. Sub. Note, 11.25%, 10/15/2005 191,500
-------------------------------------------------------------------------------
100,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 93,250
-------------------------------------------------------------------------------
300,000 Viridian, Inc., Note, 9.75%, 4/1/2003 310,500
------------------------------------------------------------------------------- -------------
Total 1,685,645
------------------------------------------------------------------------------- -------------
CLOTHING & TEXTILES--0.6%
-------------------------------------------------------------------------------
100,000 Dan River, Inc., Sr. Sub. Note, 10.125%, 12/15/2003 97,375
-------------------------------------------------------------------------------
300,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 292,500
------------------------------------------------------------------------------- -------------
Total 389,875
------------------------------------------------------------------------------- -------------
CONSUMER PRODUCTS--1.6%
-------------------------------------------------------------------------------
$ 200,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 $ 204,000
-------------------------------------------------------------------------------
50,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 53,000
-------------------------------------------------------------------------------
50,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 53,750
-------------------------------------------------------------------------------
100,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 112,000
-------------------------------------------------------------------------------
300,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 282,375
-------------------------------------------------------------------------------
200,000 (a)Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 201,000
-------------------------------------------------------------------------------
150,000 (a)Twin Laboratories, Inc., Sr. Sub. Note, 10.25%, 5/15/2006 153,375
------------------------------------------------------------------------------- -------------
Total 1,059,500
------------------------------------------------------------------------------- -------------
CONTAINER & GLASS PRODUCTS--1.4%
-------------------------------------------------------------------------------
150,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 155,437
-------------------------------------------------------------------------------
350,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 357,000
-------------------------------------------------------------------------------
100,000 (a)Packaging Resources, Inc., Sr. Secd. Note, 11.625%, 5/1/2003 101,750
-------------------------------------------------------------------------------
250,000 Plastic Containers, Inc., Sr. Secd. Note, 10.75%, 4/1/2001 249,688
-------------------------------------------------------------------------------
50,000 Portola Packaging, Inc., Sr. Note, 10.75%, 10/1/2005 51,000
------------------------------------------------------------------------------- -------------
Total 914,875
------------------------------------------------------------------------------- -------------
COSMETICS & TOILETRIES--0.3%
-------------------------------------------------------------------------------
25,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 24,750
-------------------------------------------------------------------------------
175,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 178,063
------------------------------------------------------------------------------- -------------
Total 202,813
------------------------------------------------------------------------------- -------------
ECOLOGICAL SERVICES & EQUIPMENT--0.3%
-------------------------------------------------------------------------------
150,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%, 12/31/2003 141,750
-------------------------------------------------------------------------------
50,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%,
2/15/2003 29,750
------------------------------------------------------------------------------- -------------
Total 171,500
------------------------------------------------------------------------------- -------------
FOOD & DRUG RETAILERS--1.0%
-------------------------------------------------------------------------------
100,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 104,000
-------------------------------------------------------------------------------
$ 50,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 $ 47,625
-------------------------------------------------------------------------------
300,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 287,625
-------------------------------------------------------------------------------
200,000 Smith's Food & Drug Centers, Inc., Sr. Sub. Note, 11.25%,
5/15/2007 203,500
------------------------------------------------------------------------------- -------------
Total 642,750
------------------------------------------------------------------------------- -------------
FOOD PRODUCTS--0.5%
-------------------------------------------------------------------------------
100,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 99,000
-------------------------------------------------------------------------------
125,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 100,625
-------------------------------------------------------------------------------
100,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 107,250
------------------------------------------------------------------------------- -------------
Total 306,875
------------------------------------------------------------------------------- -------------
FOOD SERVICES--0.5%
-------------------------------------------------------------------------------
100,000 Americold Corp., Sr. Sub. Note, 12.875%, 5/1/2008 101,500
-------------------------------------------------------------------------------
100,000 Flagstar Corp., Sr. Note, 10.75%, 9/15/2001 90,000
-------------------------------------------------------------------------------
150,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 135,000
------------------------------------------------------------------------------- -------------
Total 326,500
------------------------------------------------------------------------------- -------------
FOREST PRODUCTS--1.3%
-------------------------------------------------------------------------------
200,000 (a)Four M Corporation, Sr. Secd. Note, 12.00%, 6/1/2006 205,000
-------------------------------------------------------------------------------
125,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 116,875
-------------------------------------------------------------------------------
250,000 Riverwood International Corp., Sr. Sub. Note, 10.875%, 4/1/2008 249,375
-------------------------------------------------------------------------------
150,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 159,000
-------------------------------------------------------------------------------
50,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 50,938
-------------------------------------------------------------------------------
100,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 97,000
------------------------------------------------------------------------------- -------------
Total 878,188
------------------------------------------------------------------------------- -------------
HEALTHCARE--1.4%
-------------------------------------------------------------------------------
52,813 AmeriSource Health Corp., Sr. Deb., 11.25%, 7/15/2005 59,547
-------------------------------------------------------------------------------
$ 250,000 (a)Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 $ 258,125
-------------------------------------------------------------------------------
250,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 256,875
-------------------------------------------------------------------------------
50,000 Tenet Healthcare Corp., Sr. Note, 8.625%, 12/1/2003 51,250
-------------------------------------------------------------------------------
300,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 320,250
------------------------------------------------------------------------------- -------------
Total 946,047
------------------------------------------------------------------------------- -------------
HOTELS, MOTELS, INNS & CASINOS--0.2%
-------------------------------------------------------------------------------
100,000 (a)Courtyard by Marriott II L.P., Sr. Secd. Note, 10.75%, 2/1/2008 99,125
-------------------------------------------------------------------------------
50,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 48,250
------------------------------------------------------------------------------- -------------
Total 147,375
------------------------------------------------------------------------------- -------------
INDUSTRIAL PRODUCTS & EQUIPMENT--0.4%
-------------------------------------------------------------------------------
125,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 140,625
-------------------------------------------------------------------------------
50,000 Pace Industries, Inc., Sr. Note, 10.625%, 12/1/2002 56,250
-------------------------------------------------------------------------------
100,000 Spreckels Industries, Inc., Sr. Secd. Note, 11.50%, 9/1/2000 103,500
------------------------------------------------------------------------------- -------------
Total 300,375
------------------------------------------------------------------------------- -------------
LEISURE & ENTERTAINMENT--1.3%
-------------------------------------------------------------------------------
100,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 101,750
-------------------------------------------------------------------------------
200,000 (a)AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 109,000
-------------------------------------------------------------------------------
100,000 (a)AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 99,500
-------------------------------------------------------------------------------
150,000 (a)Cobblestone Golf Group, Inc., Sr. Note, 11.50%, 6/1/2003 153,375
-------------------------------------------------------------------------------
100,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 107,250
-------------------------------------------------------------------------------
350,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 300,125
------------------------------------------------------------------------------- -------------
Total 871,000
------------------------------------------------------------------------------- -------------
MACHINERY & EQUIPMENT--0.3%
-------------------------------------------------------------------------------
100,000 (a)Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 103,500
-------------------------------------------------------------------------------
$ 100,000 Primeco, Inc., Sr. Sub. Note, 12.75%, 3/1/2005 $ 107,000
------------------------------------------------------------------------------- -------------
Total 210,500
------------------------------------------------------------------------------- -------------
OIL & GAS--1.3%
-------------------------------------------------------------------------------
150,000 (a)Benton Oil & Gas Co., Sr. Note, 11.625%, 5/1/2003 155,250
-------------------------------------------------------------------------------
200,000 Clark USA, Inc., Sr. Note, Series B, 10.875%, 12/1/2005 208,250
-------------------------------------------------------------------------------
200,000 (a)Coda Energy, Inc., Sr. Sub. Note, 10.50%, 4/1/2006 200,500
-------------------------------------------------------------------------------
100,000 Falcon Drilling Co., Inc., Sr. Note, 8.875%, 3/15/2003 98,750
-------------------------------------------------------------------------------
50,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 51,750
-------------------------------------------------------------------------------
150,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 154,875
------------------------------------------------------------------------------- -------------
Total 869,375
------------------------------------------------------------------------------- -------------
PRINTING & PUBLISHING--1.1%
-------------------------------------------------------------------------------
150,000 (a)Adams Outdoor Advertising L.P., Sr. Note, 10.75%, 3/15/2006 153,000
-------------------------------------------------------------------------------
50,000 Affiliated Newspaper, Sr. Disc. Note, 0/13.25%, 7/1/2006 35,250
-------------------------------------------------------------------------------
250,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 260,000
-------------------------------------------------------------------------------
200,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%,
2/1/2006 187,000
-------------------------------------------------------------------------------
100,000 (a)K-III Communications Corp., Sr. Note, 8.50%, 2/1/2006 92,750
------------------------------------------------------------------------------- -------------
Total 728,000
------------------------------------------------------------------------------- -------------
REAL ESTATE--0.3%
-------------------------------------------------------------------------------
200,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 202,500
------------------------------------------------------------------------------- -------------
RETAILERS--0.6%
-------------------------------------------------------------------------------
250,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 238,125
-------------------------------------------------------------------------------
150,000 (a)Hills Stores Co., Sr. Note, 12.50%, 7/1/2003 154,500
------------------------------------------------------------------------------- -------------
Total 392,625
------------------------------------------------------------------------------- -------------
SERVICES--0.2%
-------------------------------------------------------------------------------
100,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 104,000
------------------------------------------------------------------------------- -------------
STEEL--1.1%
-------------------------------------------------------------------------------
$ 150,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 $ 137,250
-------------------------------------------------------------------------------
50,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 49,875
-------------------------------------------------------------------------------
50,000 (a)Bar Technologies, Inc., Unit, 13.50%, 4/1/2001 50,875
-------------------------------------------------------------------------------
50,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 46,000
-------------------------------------------------------------------------------
200,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 184,000
-------------------------------------------------------------------------------
150,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 154,875
-------------------------------------------------------------------------------
100,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%, 10/1/2005 103,500
------------------------------------------------------------------------------- -------------
Total 726,375
------------------------------------------------------------------------------- -------------
SURFACE TRANSPORTATION--1.5%
-------------------------------------------------------------------------------
100,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 99,375
-------------------------------------------------------------------------------
200,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 211,000
-------------------------------------------------------------------------------
50,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 48,250
-------------------------------------------------------------------------------
200,000 OMI Corp., Sr. Note, 10.25%, 11/1/2003 197,000
-------------------------------------------------------------------------------
100,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 99,000
-------------------------------------------------------------------------------
200,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 199,000
-------------------------------------------------------------------------------
50,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 51,750
-------------------------------------------------------------------------------
100,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 95,500
------------------------------------------------------------------------------- -------------
Total 1,000,875
------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--2.9%
-------------------------------------------------------------------------------
200,000 (a)American Communications Services, Inc., Sr. Disc. Note, 0/12.75%, 4/1/2006 105,500
-------------------------------------------------------------------------------
175,000 Arch Communications Group, Inc., Sr. Disc. Note, 0/10.875%,
3/15/2008 98,875
-------------------------------------------------------------------------------
250,000 (a)Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 137,812
-------------------------------------------------------------------------------
50,000 Cellular Communications International, Inc., Sr. Disc. Note, 13.25% accrual,
8/15/2000 31,250
-------------------------------------------------------------------------------
$ 200,000 Cellular Communications International, Inc., Unit, 13.25% accrual, 8/15/2000 $ 129,000
-------------------------------------------------------------------------------
75,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 81,750
-------------------------------------------------------------------------------
200,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note,
0/12.50%, 5/15/2006 112,500
-------------------------------------------------------------------------------
450,000 (a)Millicom International Cellular S. A., Sr. Sub. Disc. Note, 0/13.50%,
6/1/2006 237,375
-------------------------------------------------------------------------------
50,000 MobileMedia Communications, Inc., Sr. Sub. Note, 9.375%,
11/1/2007 47,500
-------------------------------------------------------------------------------
50,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 34,625
-------------------------------------------------------------------------------
150,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 92,250
-------------------------------------------------------------------------------
200,000 (a)NEXTLINK Communications, L.L.C., Sr. Note, 12.50%, 4/15/2006 202,500
-------------------------------------------------------------------------------
200,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 204,500
-------------------------------------------------------------------------------
75,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 64,500
-------------------------------------------------------------------------------
50,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 48,125
-------------------------------------------------------------------------------
300,000 Vanguard Cellular System, Inc., Deb., 9.375%, 4/15/2006 297,000
------------------------------------------------------------------------------- -------------
Total 1,925,062
------------------------------------------------------------------------------- -------------
UTILITIES--0.5%
-------------------------------------------------------------------------------
150,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 144,750
-------------------------------------------------------------------------------
200,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 196,976
------------------------------------------------------------------------------- -------------
Total 341,726
------------------------------------------------------------------------------- -------------
TOTAL U.S. CORPORATE BONDS (IDENTIFIED COST $25,227,009) 22,110,345
------------------------------------------------------------------------------- -------------
</TABLE>
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY IN U.S.
PAR AMOUNT DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
INTERNATIONAL BONDS--42.1%
- ------------------------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--1.3%
- ------------------------------------------------------------------------------------------------
CORPORATE--0.1%
-------------------------------------------------------------------------------
150,000 News America Holdings, Inc., 8.625%, 2/7/2014 $ 99,070
------------------------------------------------------------------------------- -------------
STATE/PROVINCIAL--1.2%
-------------------------------------------------------------------------------
1,000,000 Queensland Treasury, Local Government Guarantee, 8.00%,
5/14/2003 759,781
------------------------------------------------------------------------------- -------------
Total Australian Dollar 858,851
------------------------------------------------------------------------------- -------------
BRITISH POUND--2.3%
- ------------------------------------------------------------------------------------------------
UTILITIES--2.3%
-------------------------------------------------------------------------------
1,000,000 British Gas PLC, 8.875%, 7/8/2008 1,517,705
------------------------------------------------------------------------------- -------------
CANADIAN DOLLAR--2.0%
- ------------------------------------------------------------------------------------------------
BEVERAGE & TOBACCO--1.3%
-------------------------------------------------------------------------------
1,100,000 Molson Breweries, Unsub., 9.10%, 3/11/2013 832,451
------------------------------------------------------------------------------- -------------
CHEMICALS & PLASTICS--0.1%
-------------------------------------------------------------------------------
100,000 Viridian, Inc., Note, 11.00%, 3/31/2004 80,085
------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--0.6%
-------------------------------------------------------------------------------
500,000 Bell Canada, Deb., 8.80%, 8/17/2005 381,329
------------------------------------------------------------------------------- -------------
Total Canadian Dollar 1,293,865
------------------------------------------------------------------------------- -------------
CZECH KORUNA--1.3%
- ------------------------------------------------------------------------------------------------
FINANCE--0.7%
-------------------------------------------------------------------------------
13,000,000 General Electric Capital Corp., Sr. Unsub., 10.50%, 10/23/1998 469,738
------------------------------------------------------------------------------- -------------
SOVEREIGN--0.6%
-------------------------------------------------------------------------------
10,500,000 International Finance Corp., Sr. Unsub., 10.50%, 11/30/1998 379,404
------------------------------------------------------------------------------- -------------
Total Czech Koruna 849,142
------------------------------------------------------------------------------- -------------
DANISH KRONE--1.3%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--1.3%
-------------------------------------------------------------------------------
6,000,000 Kingdom of Denmark, Bond, 7.00%, 11/10/2024 871,616
------------------------------------------------------------------------------- -------------
ITALIAN LIRA--1.4%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--1.4%
-------------------------------------------------------------------------------
900,000,000 Buoni Poliennali Del Tes, Bond, 10.50%, 9/1/2005 $ 621,182
-------------------------------------------------------------------------------
450,000,000 Italy (Republic of), Bond, 9.00%, 11/1/2023 271,968
------------------------------------------------------------------------------- -------------
Total Italian Lira 893,150
------------------------------------------------------------------------------- -------------
MEXICAN PESO--0.6%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--0.6%
-------------------------------------------------------------------------------
327,571 Mexican Cetes, Foreign Government Guarantee, 11/7/1996 386,827
------------------------------------------------------------------------------- -------------
NORWEGIAN KRONE--0.6%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--0.6%
-------------------------------------------------------------------------------
2,300,000 Norwegian Government, Bond, 9.00%, 1/31/1999 383,662
------------------------------------------------------------------------------- -------------
POLISH ZLOTY--1.5%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--1.5%
-------------------------------------------------------------------------------
850,000 Poland T-Bill, 6/5/1996 316,711
-------------------------------------------------------------------------------
1,800,000 Poland, 17.00%, 2/12/1998 638,617
------------------------------------------------------------------------------- -------------
Total Polish Zloty 955,328
------------------------------------------------------------------------------- -------------
PORTUGUESE ESCUDO--0.4%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--0.4%
-------------------------------------------------------------------------------
43,000,000 Portuguese Government, Deb., 8.375%, 1/23/1999 277,619
------------------------------------------------------------------------------- -------------
SOUTH AFRICAN RAND--1.9%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--1.6%
-------------------------------------------------------------------------------
5,700,000 Republic of South Africa, 12.00%, 2/28/2005 1,055,968
------------------------------------------------------------------------------- -------------
SURFACE TRANSPORTATION--0.3%
-------------------------------------------------------------------------------
1,000,000 Transnet Ltd., Deb., 12.50%, 4/1/1997 223,106
------------------------------------------------------------------------------- -------------
Total South African Rand 1,279,074
------------------------------------------------------------------------------- -------------
SPANISH PESETA--1.6%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--1.6%
-------------------------------------------------------------------------------
10,000,000 Spain (Government), 10.00%, 2/28/2005 $ 81,818
-------------------------------------------------------------------------------
36,000,000 Spain (Government), Bond, 10.15%, 1/31/2006 296,587
-------------------------------------------------------------------------------
60,000,000 Spain (Government), Deb., 10.10%, 2/28/2001 494,447
-------------------------------------------------------------------------------
26,000,000 Spain (Government), Foreign Government Guarantee, 8.00%,
5/30/2004 190,395
------------------------------------------------------------------------------- -------------
Total Spanish Peseta 1,063,247
------------------------------------------------------------------------------- -------------
SWEDISH KRONA--1.4%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--1.4%
-------------------------------------------------------------------------------
3,000,000 AB Spinrab, Unsub., 12.00%, 12/17/1997 479,630
-------------------------------------------------------------------------------
3,000,000 Stadshypotekskas, Foreign Government Guarantee, Series 1551, 7.50%, 3/17/1999 448,194
------------------------------------------------------------------------------- -------------
Total Swedish Krona 927,824
------------------------------------------------------------------------------- -------------
U.S. DOLLAR--24.5%
- ------------------------------------------------------------------------------------------------
BEVERAGE & TOBACCO--1.6%
-------------------------------------------------------------------------------
$ 1,000,000 Empresas La Moderna, 11.375%, 1/25/1999 1,022,500
------------------------------------------------------------------------------- -------------
FOREST PRODUCTS--2.7%
-------------------------------------------------------------------------------
300,000 Aracruz Cellulose, Deb., 10.375%, 1/31/2002 287,532
-------------------------------------------------------------------------------
800,000 Indah Kiat Intl. Finance, Company Guarantee, 12.50%, 6/15/2006 855,000
-------------------------------------------------------------------------------
600,000 Klabin Fabricadora Papel, Company Guarantee, 12.125%,
12/28/2002 621,000
------------------------------------------------------------------------------- -------------
Total 1,763,532
------------------------------------------------------------------------------- -------------
OIL & GAS--5.0%
-------------------------------------------------------------------------------
625,494 Centragas, 10.65%, 12/1/2010 648,950
-------------------------------------------------------------------------------
500,000 Invergas S.A., Note, 12.50%, 12/16/1999 533,125
-------------------------------------------------------------------------------
1,000,000 MetroGas S.A., Sr. Note, 12.00%, 8/15/2000 1,060,000
-------------------------------------------------------------------------------
$ 1,000,000 Petroleo Brasileiro S.A., 10.0875%, 6/8/1998 $ 1,032,500
------------------------------------------------------------------------------- -------------
Total 3,274,575
------------------------------------------------------------------------------- -------------
SOVEREIGN--11.6%
-------------------------------------------------------------------------------
500,000 Asian Pulp & Paper, Company Guarantee, 11.75%, 10/1/2005 510,000
-------------------------------------------------------------------------------
2,000,000 Ecuador Discount, 6.0625%, 2/28/2025 1,117,500
-------------------------------------------------------------------------------
400,000 Nacional Financiera, SNC, Foreign Government Guarantee, 10.625%, 11/22/2001 407,500
-------------------------------------------------------------------------------
1,050,000 Telecom Argentina S.A., Unsecd. Note, 12.00%, 11/15/2002 1,132,875
-------------------------------------------------------------------------------
1,500,000 (a)Telecom Brazil, Collateral Trust, Series EMTN, 11.12891%,
12/9/1999 1,541,875
-------------------------------------------------------------------------------
500,000 Transportadora de Gas de Sur S.A., Sr. Note, 10.25%, 4/25/2001 505,625
-------------------------------------------------------------------------------
500,000 Turkey, Note, 9.00%, 6/15/1999 507,500
-------------------------------------------------------------------------------
1,000,000 Venezuala Par, Foreign Government Guarantee, 6.75%, 3/31/2020 600,000
-------------------------------------------------------------------------------
2,000,000 Venezuela DCB, Deb., 6.75%, 12/18/2008 1,305,000
------------------------------------------------------------------------------- -------------
Total 7,627,875
------------------------------------------------------------------------------- -------------
STEEL--1.9%
-------------------------------------------------------------------------------
400,000 HYLSA SA de CV, Deb., 11.00%, 2/23/1998 408,000
-------------------------------------------------------------------------------
775,000 Tubos de Acero de Mexico S.A., Unsub., 13.75%, 12/8/1999 832,156
------------------------------------------------------------------------------- -------------
Total 1,240,156
------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--1.7%
-------------------------------------------------------------------------------
1,050,000 Telefonica de Argentina S.A., Note, 11.875%, 11/1/2004 1,131,375
------------------------------------------------------------------------------- -------------
Total U.S. Dollar 16,060,013
------------------------------------------------------------------------------- -------------
TOTAL INTERNATIONAL BONDS (IDENTIFIED COST $24,454,154) 27,617,923
------------------------------------------------------------------------------- -------------
</TABLE>
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT IN U.S.
OR SHARES DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT/AGENCY--19.8%
- ------------------------------------------------------------------------------------------------
LONG-TERM GOVERNMENT OBLIGATIONS--18.5%
-------------------------------------------------------------------------------
$ 596,363 Federal Home Loan Mortgage Corp., 8.50%, 9/1/2025 $ 609,775
-------------------------------------------------------------------------------
99,785 Federal Home Loan Mortgage Corp., 8.50%, 1/1/2026 102,030
-------------------------------------------------------------------------------
487,755 Federal Home Loan Mortgage Corp., 7.50%, 10/1/2025 477,995
-------------------------------------------------------------------------------
272,702 Federal Home Loan Mortgage Corp., 8.50%, 9/1/2025 278,835
-------------------------------------------------------------------------------
2,000,000 Federal Home Loan Mortgage Corp., 7.50%, 6/1/2099 1,962,200
-------------------------------------------------------------------------------
136,977 Federal National Mortgage Association, 6.50%, 2/1/2009 132,173
-------------------------------------------------------------------------------
480,036 Federal National Mortgage Association, 7.00%, 5/1/2024 459,044
-------------------------------------------------------------------------------
471,125 Federal National Mortgage Association, 7.00%, 12/1/2010 463,412
-------------------------------------------------------------------------------
400,000 Federal National Mortgage Association, 8.00%, 6/1/2099 400,868
-------------------------------------------------------------------------------
46,428 Government National Mortgage Association, 9.00%, 12/15/2024 48,546
-------------------------------------------------------------------------------
293,689 Government National Mortgage Association, 9.00%, 10/15/2016 310,940
-------------------------------------------------------------------------------
470,784 Government National Mortgage Association, 7.50%, 3/15/2024 461,096
-------------------------------------------------------------------------------
2,050,000 Government National Mortgage Association, 7.50%, 3/15/2026 2,007,811
-------------------------------------------------------------------------------
431,945 Government National Mortgage Association, 9.50%, 2/15/2025 461,499
-------------------------------------------------------------------------------
735,179 Government National Mortgage Association, 7.50%, 1/15/2026 719,322
-------------------------------------------------------------------------------
979,019 Government National Mortgage Association, 7.50%, 2/15/2026 958,871
-------------------------------------------------------------------------------
1,998,832 Government National Mortgage Association, 11.00%, 9/15/2015 2,236,153
------------------------------------------------------------------------------- -------------
Total 12,090,570
------------------------------------------------------------------------------- -------------
U.S. TREASURY BOND--1.3%
-------------------------------------------------------------------------------
700,000 10.75%, 8/15/2005 881,006
------------------------------------------------------------------------------- -------------
TOTAL U.S. GOVERNMENT/AGENCY (IDENTIFIED COST $13,182,162) 12,971,576
------------------------------------------------------------------------------- -------------
COMMON STOCKS--0.0%
- ------------------------------------------------------------------------------------------------
BROADCAST RADIO & TV--0.0%
-------------------------------------------------------------------------------
5 (a)Pegasus Media, Class B 3,500
------------------------------------------------------------------------------- -------------
CABLE TELEVISION--0.0%
-------------------------------------------------------------------------------
150 Wireless One, Inc., Warrants 900
------------------------------------------------------------------------------- -------------
</TABLE>
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS--0.0%
-------------------------------------------------------------------------------
1,000 Uniroyal Technology Corp., Warrants $ 2,063
------------------------------------------------------------------------------- -------------
CONSUMER PRODUCTS--0.0%
-------------------------------------------------------------------------------
100 (a)IHF Capital, Inc., Warrants 2,500
------------------------------------------------------------------------------- -------------
ECOLOGICAL SERVICES & EQUIPMENT--0.0%
-------------------------------------------------------------------------------
480 ICF Kaiser International, Inc., Warrants 300
------------------------------------------------------------------------------- -------------
FOOD & DRUG RETAILERS--0.0%
-------------------------------------------------------------------------------
883 Grand Union Co. 5,960
------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $52,919) 15,223
------------------------------------------------------------------------------- -------------
PREFERRED STOCKS--0.2%
- ------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING--0.2%
-------------------------------------------------------------------------------
1,500 (a)K-III Communications Corp., Pfd., Series C, 10.00% 140,251
------------------------------------------------------------------------------- -------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $141,000) 140,251
------------------------------------------------------------------------------- -------------
(B) REPURCHASE AGREEMENT--11.8%
- ------------------------------------------------------------------------------------------------
$ 7,735,000 BT Securities Corporation, 5.34%, dated 5/31/1996, due 6/3/1996
(at amortized cost) 7,735,000
------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $70,792,244)(C) $ 70,590,318
------------------------------------------------------------------------------- -------------
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At May 31, 1996, these securities amounted
to $6,371,500 which represents 9.7% of net assets.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $70,792,244.
The net unrealized depreciation of investments on a federal tax basis
amounts to $201,926 which is comprised of $757,980 appreciation and
$959,906 depreciation at May 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($65,574,869) at May 31, 1996.
The following acronyms are used throughout this portfolio:
LP--Limited Partnership
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------
Investments in securities $62,855,318
- ----------------------------------------------------------------------------------------
Investments in repurchase agreements 7,735,000
- ---------------------------------------------------------------------------------------- ----------
Total investments in securities, at value (identified and tax cost $70,792,244) $70,590,318
- ----------------------------------------------------------------------------------------------------
Cash denominated in foreign currencies (at cost, $32,133) 31,981
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 1,784,503
- ----------------------------------------------------------------------------------------------------
Income receivable 1,699,185
- ----------------------------------------------------------------------------------------------------
Receivable for investments sold 278,505
- ----------------------------------------------------------------------------------------------------
Deferred expenses 28,976
- ---------------------------------------------------------------------------------------------------- ----------
Total assets 74,413,468
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased 8,164,017
- ----------------------------------------------------------------------------------------
Income distribution payable 374,029
- ----------------------------------------------------------------------------------------
Payable to Bank 143,691
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 62,727
- ----------------------------------------------------------------------------------------
Capital gain distribution payable 40,633
- ----------------------------------------------------------------------------------------
Payable for taxes withheld 11,080
- ----------------------------------------------------------------------------------------
Accrued expenses 42,422
- ---------------------------------------------------------------------------------------- ----------
Total liabilities 8,838,599
- ---------------------------------------------------------------------------------------------------- ----------
NET ASSETS for 6,530,996 shares outstanding $65,574,869
- ---------------------------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $65,592,601
- ----------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and translation of assets and liabilities in foreign
currency (205,323)
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 324,348
- ----------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (136,757)
- ---------------------------------------------------------------------------------------------------- ----------
Total Net Assets $65,574,869
- ---------------------------------------------------------------------------------------------------- ----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($8,939,969 / 890,362 shares outstanding) $10.04
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share (100/95.50 of $10.04)*** $10.51
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (99.50/100 of $10.04)** $9.99
- ---------------------------------------------------------------------------------------------------- ----------
CLASS B SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($42,896,683 / 4,272,270 shares outstanding) $10.04
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share $10.04
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (94.50/100 of $10.04)** $9.49
- ---------------------------------------------------------------------------------------------------- ----------
CLASS C SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($5,791,354 / 576,818 shares outstanding) $10.04
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share $10.04
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (99.00/100 of $10.04)** $9.94
- ---------------------------------------------------------------------------------------------------- ----------
CLASS F SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($7,946,863 / 791,546 shares outstanding) $10.04
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share (100/99.00 of $10.04)* $10.14
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (99.00/100 of $10.04)** $9.94
- ---------------------------------------------------------------------------------------------------- ----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
*** See "How to Purchase Shares" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended May 31, 1996 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest (net of dollar roll expense of $2,618) (net of foreign taxes withheld of $18,076) $ 1,604,749
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------
Investment advisory fee $ 143,030
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 107,500
- ------------------------------------------------------------------------------------------
Custodian fees 18,492
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 44,648
- ------------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,464
- ------------------------------------------------------------------------------------------
Auditing fees 7,986
- ------------------------------------------------------------------------------------------
Legal fees 485
- ------------------------------------------------------------------------------------------
Portfolio accounting fees 49,567
- ------------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 69,871
- ------------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 13,339
- ------------------------------------------------------------------------------------------
Distribution services fee--Class F Shares 1,570
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 7,978
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 23,290
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 4,446
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class F Shares 6,353
- ------------------------------------------------------------------------------------------
Share registration costs 40,770
- ------------------------------------------------------------------------------------------
Printing and postage 21,061
- ------------------------------------------------------------------------------------------
Insurance premiums 3,142
- ------------------------------------------------------------------------------------------
Taxes 807
- ------------------------------------------------------------------------------------------
Miscellaneous 26,602
- ------------------------------------------------------------------------------------------ ---------
Total expenses 592,401
- ------------------------------------------------------------------------------------------
Waivers and reimbursements--
- ------------------------------------------------------------------------------
Waiver of investment advisory fee $(143,030)
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses (195,580)
- ------------------------------------------------------------------------------ ----------
Total waivers and reimbursements (338,610)
- ------------------------------------------------------------------------------------------ ---------
Net expenses 253,791
- ----------------------------------------------------------------------------------------------------- -----------
Net investment income 1,350,958
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 325,663
- -----------------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments and translation
of assets and liabilities in foreign currency (536,970)
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized loss on investments and foreign currency (211,307)
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 1,139,651
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 1,350,958 $ 788,120
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions
($325,663 and $150,376 net gains, respectively,
as computed for federal tax purposes) 325,663 127,454
- ---------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currency (536,970) 480,617
- --------------------------------------------------------------------------- -------------------- ---------------
Change in net assets resulting from operations 1,139,651 1,396,191
- --------------------------------------------------------------------------- -------------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income
- ---------------------------------------------------------------------------
Class A Shares (296,074) (298,490)
- ---------------------------------------------------------------------------
Class B Shares (794,344) (56,417)
- ---------------------------------------------------------------------------
Class C Shares (152,662) (146,756)
- ---------------------------------------------------------------------------
Class F Shares (237,259) (259,159)
- ---------------------------------------------------------------------------
Distributions from net realized gains on investments
and foreign currency transactions
- ---------------------------------------------------------------------------
Class A Shares (41,612) --
- ---------------------------------------------------------------------------
Class B Shares (46,343) --
- ---------------------------------------------------------------------------
Class C Shares (18,841) --
- ---------------------------------------------------------------------------
Class F Shares (30,084) --
- --------------------------------------------------------------------------- -------------------- ---------------
Change in net assets resulting from distributions to shareholders (1,617,219) (760,822)
- --------------------------------------------------------------------------- -------------------- ---------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of shares 51,430,853 11,455,785
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 570,362 335,692
- ---------------------------------------------------------------------------
Cost of shares redeemed (2,244,044) (2,013,555)
- --------------------------------------------------------------------------- -------------------- ---------------
Change in net assets resulting from share transactions 49,757,171 9,777,922
- --------------------------------------------------------------------------- -------------------- ---------------
Change in net assets 49,279,603 10,413,291
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 16,295,266 5,881,975
- --------------------------------------------------------------------------- -------------------- ---------------
End of period $ 65,574,869 $ 16,295,266
- --------------------------------------------------------------------------- -------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
<S> <C> <C> <C>
1996 1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.14 $ 9.54 $ 10.00
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income 0.44 0.82 0.45
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 0.01 0.61 (0.45)
- ----------------------------------------------------------------------------- ------------- --------- -----------
Total from investment operations 0.45 1.43 0.00
- ----------------------------------------------------------------------------- ------------- --------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------
Distributions from net investment income (0.47) (0.83) (0.45)
- -----------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- -- (0.01)
- -----------------------------------------------------------------------------
Distributions from net realized gain on investment transactions and foreign
currency (0.08) -- --
- ----------------------------------------------------------------------------- ------------- --------- -----------
Total distributions (0.55) (0.83) (0.46)
- ----------------------------------------------------------------------------- ------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.04 $ 10.14 $ 9.54
- ----------------------------------------------------------------------------- ------------- --------- -----------
TOTAL RETURN (C) 4.57% 15.64% 0.05%
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------
Expenses 1.00%* 0.25% 0.25%*
- -----------------------------------------------------------------------------
Net investment income 8.29%* 8.68% 8.38%*
- -----------------------------------------------------------------------------
Expense waiver/reimbursement (d) 2.01%* 5.69 (e) 8.87%*
- -----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (000 omitted) 8,940 $ 5,089 $ 2,366
- -----------------------------------------------------------------------------
Average commissions rate paid $0.0000 -- --
- -----------------------------------------------------------------------------
Portfolio turnover 45 % 158% 34 %
- -----------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations 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 charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.14 $ 10.00
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------
Net investment income 0.42 0.25
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency -- 0.13
- ---------------------------------------------------------------------------------- ------------- -------
Total from investment operations 0.42 0.38
- ---------------------------------------------------------------------------------- ------------- -------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Distributions from net investment income (0.44) (0.24)
- ----------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions and foreign
currency (0.08) --
- ---------------------------------------------------------------------------------- ------------- -------
Total distributions (0.52) (0.24)
- ---------------------------------------------------------------------------------- ------------- -------
NET ASSET VALUE, END OF PERIOD $ 10.04 $ 10.14
- ---------------------------------------------------------------------------------- ------------- -------
TOTAL RETURN (B) 4.19% 5.13%
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses 1.76%* 1.00%*
- ----------------------------------------------------------------------------------
Net investment income 7.94%* 7.95%*
- ----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 2.01%* 5.69%*(d)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $42,897 $ 5,193
- ----------------------------------------------------------------------------------
Average commissions rate paid $0.0000 --
- ----------------------------------------------------------------------------------
Portfolio turnover 45 % 158 %
- ----------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 27, 1995 (date of initial
public offering) to November 30, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
<S> <C> <C> <C>
1996 1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.14 $ 9.54 $ 10.00
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income 0.42 0.74 0.40
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency -- 0.61 (0.44)
- ----------------------------------------------------------------------------- ------------- --------- -----------
Total from investment operations 0.42 1.35 (0.04)
- ----------------------------------------------------------------------------- ------------- --------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------
Distributions from net investment income (0.44) (0.75) (0.40)
- -----------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- -- (0.02)
- -----------------------------------------------------------------------------
Distributions from net realized gain on investment transactions and foreign
currency (0.08) -- --
- ----------------------------------------------------------------------------- ------------- --------- -----------
Total distributions (0.52) (0.75) (0.42)
- ----------------------------------------------------------------------------- ------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.04 $ 10.14 $ 9.54
- ----------------------------------------------------------------------------- ------------- --------- -----------
TOTAL RETURN (C) 4.20% 14.79% (0.41%)
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------
Expenses 1.75%* 1.00% 1.00%*
- -----------------------------------------------------------------------------
Net investment income 7.63%* 7.93% 7.99%*
- -----------------------------------------------------------------------------
Expense waiver/reimbursement (d) 2.01%* 5.69 (e) 8.87%*
- -----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 5,791 $ 2,323 $ 1,190
- -----------------------------------------------------------------------------
Average commissions rate paid $0.0000 -- --
- -----------------------------------------------------------------------------
Portfolio turnover 45 % 158% 34 %
- -----------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations 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 charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Financial Highlights--Class F Shares
(formerly, Fortress Shares)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
<S> <C> <C> <C>
1996 1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.14 $ 9.54 $ 10.00
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income 0.45 0.77 0.41
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency -- 0.61 (0.44)
- ----------------------------------------------------------------------------- ------------- --------- -----------
Total from investment operations 0.45 1.38 (0.03)
- ----------------------------------------------------------------------------- ------------- --------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------
Distributions from net investment income (0.47) (0.78) (0.41)
- -----------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- -- (0.02)
- -----------------------------------------------------------------------------
Distributions from net realized gain on investment transactions and foreign
currency (0.08) -- --
- ----------------------------------------------------------------------------- ------------- --------- -----------
Total distributions (0.55) (0.78) (0.43)
- ----------------------------------------------------------------------------- ------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.04 $ 10.14 $ 9.54
- ----------------------------------------------------------------------------- ------------- --------- -----------
TOTAL RETURN (C) 4.52% 15.07% (0.19%)
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------
Expenses 1.06%* 0.75% 0.75%*
- -----------------------------------------------------------------------------
Net investment income 8.29%* 8.19% 8.34%*
- -----------------------------------------------------------------------------
Expense waiver/reimbursement (d) 2.01%* 5.69 (e) 8.87%*
- -----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 7,947 $ 3,691 $ 2,326
- -----------------------------------------------------------------------------
Average commissions rate paid $0.0000 -- --
- -----------------------------------------------------------------------------
Portfolio turnover 45 % 158% 34 %
- -----------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations 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 charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
Notes to Financial Statements
- --------------------------------------------------------------------------------
May 31, 1996 (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 portfolios. The
financial statements included herein are only those of Federated Strategic
Income Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers four classes of shares: Class A Shares, Class B
Shares, Class C Shares, and Class F Shares. The investment objective of the Fund
is to seek a high level of current income.
Effective January 31, 1996, the Board of Directors (the "Directors") approved a
change in the name of the Fund from Strategic Income Fund to Federated Strategic
Income Fund. Effective January 31, 1996, the Directors also approved a change in
the name of Fortress Shares to Class F Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities, listed foreign and
domestic corporate bonds, other fixed income and asset-backed securities,
unlisted securities and private placement securities are generally valued
at the mean of the latest bid and asked price as furnished by an
independent pricing service. Listed equity securities are valued at the
last sale price reported on a national securities exchange. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of sixty
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the the Directors. Risks may arise
from the potential inability of counterparties to honor the terms of
the repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date. Certain dividends from foreign securities may be recorded after the
ex-dividend date based upon when information becomes available to the Fund.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for
in accordance with the Fund's understanding of the applicable country's tax
rules and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
CONCENTRATION OF CREDIT RISK--The Fund invests in securities of non-U.S.
issuers. The political or economic developments within a particular country
or region may have an adverse effect on the ability of domiciled issuers to
meet their obligations. Additionally, political or economic developments
may have an effect on the liquidity and volatility of portfolio securities
and currency holdings.
At May 31, 1996, the diversification of industries was as follows:
<TABLE>
<CAPTION>
% OF % OF
NET NET
INDUSTRY ASSETS INDUSTRY ASSETS
<S> <C> <C> <C>
Agency 18.4% Forest Products 4.0%
Automotive 1.1% Healthcare 1.4%
Banking 0.3% Hotels, Motels, Inns & Casinos 0.2%
Beverage & Tobacco 3.6% Industrial Products & Equipment 0.5%
Broadcast & Radio 3.5% Leisure & Entertainment 1.3%
Business Equipment & Services 0.7% Machinery & Equipment 0.3%
Cable Television 4.0% Printing & Publishing 1.3%
Chemicals & Plastics 2.7% Oil & Gas 6.3%
Clothing & Textiles 0.6% Real Estate 0.3%
Consumer Products 1.6% Retailers 0.6%
Container & Glass Products 1.4% Services 0.2%
Corporate 0.2% Sovereign 22.6%
Cosmetics & Toiletries 0.3% State/Provincial 1.2%
Ecological Services & Equipment 0.3% Steel 3.0%
Finance 0.7% Surface Transportation 1.9%
Food & Drug Retailers 1.0% Telecommunications & Cellular 5.2%
Food Products 0.5% Treasury 1.3%
Food Services 0.5% Utilities 2.8%
</TABLE>
FOREIGN EXCHANGE CONTRACTS--The Fund may enter into foreign currency
exchange contracts as a way of managing foreign exchange rate risk. The
Fund may enter into these contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date as a hedge or
cross-hedge against either specific transactions or portfolio positions.
The objective of the Fund's foreign currency hedging transactions is to
reduce the risk that the U.S. dollar value of the Fund's foreign currency
denominated securities will decline in value due to changes in foreign
currency exchange rates. All foreign currency exchange contracts are
"marked-to-market" daily at the applicable translation rates resulting in
unrealized gains or losses. Realized gains or losses are recorded at the
time the foreign currency exchange contract is offset by entering into a
closing transaction or by delivery or receipt of the currency. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
At May 31, 1996, the Fund had no outstanding foreign exchange contracts.
OPTIONS CONTRACTS--The Fund may write option contracts. A written option
obligates the Fund to deliver a call, or to receive a put, the contract
amount upon exercise by the holder of the option. The value of the option
contract is recorded as a liability and unrealized gain
or loss is measured by the difference between the current value and the
premium received. For the period ended May 31, 1996, the Fund had no
written option activity.
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities
at fiscal year end, resulting from changes in the exchange rate.
DOLLAR ROLL TRANSACTIONS--The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA and 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.
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, 1996 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
First Nationwide Holdings. Inc. 4/12/1996 $ 148,295
Granite Broadcasting Corp. 2/23/196-4/23/1996 193,500
Park Communications, Inc. 5/6/1996 100,000
SFX Broadcasting, Inc. 5/23/1996 250,000
Knoll, Inc. 2/22/1996-3/5/1996 204,000
Charter Communications Southeast, L.P. 3/22/1996-4/23/1996 200,375
CS Wireless Systems, Inc. 2/16/1996 118,282
EchoStar Broadcasting Corp. 3/19/1996 77,285
UIH Australia/Pacific 5/8/1996 179,083
G-I Holdings, Inc. 2/15/1996 42,000
RBX Corp. 2/9/1996-5/30/1996 194,125
Simmons Co. 4/15/1996-5/16/1996 201,344
Twin Labratories, Inc. 2/5/1996 150,250
Packaging Resources, Inc. 5/10/1996 100,000
Four M Corporation 5/23/1996-5/30/1996 202,500
Dade International, Inc. 4/30/1996-5/2/1996 253,875
Courtyard by Marriott II L.P. 1/12/1996-1/18/1996 100,813
AMF Group, Inc. 3/7/1996 213,259
Cobblestone Golf Group, Inc. 5/29/1992 152,000
Alvey Systems, Inc. 1/19/1996 100,938
Benton Oil & Gas Co. 4/29/1996-5/17/1996 151,125
Coda Energy, Inc. 3/12/1996-4/23/1996 200,500
Adams Outdoor Advertising L.P. 3/15/1996-4/22/1996 151,938
K-III Communications Corp. 1/29/1996 100,313
Hills Stores Co. 4/17/1996-4/29/1996 152,500
Bar Technologies, Inc. 3/28/1996 49,206
American Communications Services, Inc. 3/21/1996 110,136
Brooks Fiber Properities, Inc. 3/16/1996 151,215
Millicom International Cellular S.A. 5/24/1996 238,525
NEXTLINK Communications, L.L.C. 4/18/1996 200,000
Telecom Brazil, Collateral Trust 4/18/1996 1,028,750
Pegasus Media 12/6/1995 1,250
IHF Capital, Inc. 11/4/1994 494
K-III Communications Corp., Pfd. 5/1/1996 141,000
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1996, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
# OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A Shares 1,000,000,000
- --------------------------------------------------------------------------------------
Class B Shares 1,000,000,000
- --------------------------------------------------------------------------------------
Class C Shares 1,000,000,000
- --------------------------------------------------------------------------------------
Class F Shares 1,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
Total 4,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995
<S> <C> <C> <C> <C>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 437,959 $ 4,417,700 311,635 $ 3,066,086
- -------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 14,717 148,672 14,799 145,018
- -------------------------------------------------------------
Shares redeemed (64,365) (651,942) (72,417) (707,245)
- ------------------------------------------------------------- ---------- ------------- --------- ------------
Net change resulting from
Class A share transactions 388,311 $ 3,914,430 254,017 $ 2,503,859
- ------------------------------------------------------------- ---------- ------------- --------- ------------
</TABLE>
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995(A)
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,841,829 $ 38,834,676 518,732 $ 5,178,214
- -------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 25,415 256,688 2,277 22,812
- -------------------------------------------------------------
Shares redeemed (107,057) (1,081,309) (8,926) (89,477)
- ------------------------------------------------------------- ---------- ------------- --------- ------------
Net change resulting from
Class B share transactions 3,760,187 $ 38,010,055 512,083 $ 5,111,549
- ------------------------------------------------------------- ---------- ------------- --------- ------------
</TABLE>
(a) For the period July 27, 1995 (date of initial public offering) to November
30, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995
<S> <C> <C> <C> <C>
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 374,538 $ 3,793,607 134,093 $ 1,298,053
- -------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 8,726 88,182 10,624 104,012
- -------------------------------------------------------------
Shares redeemed (35,603) (360,192) (40,201) (394,089)
- ------------------------------------------------------------- ---------- ------------- --------- ------------
Net change resulting from
Class C share transactions 347,661 $ 3,521,597 104,516 $ 1,007,976
- ------------------------------------------------------------- ---------- ------------- --------- ------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 434,816 $ 4,384,870 197,486 $ 1,913,432
- -------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 7,601 76,820 6,505 63,850
- -------------------------------------------------------------
Shares redeemed (14,918) (150,601) (83,709) (822,744)
- ------------------------------------------------------------- ---------- ------------- --------- ------------
Net change resulting from
Class F share transactions 427,499 $ 4,311,089 120,282 $ 1,154,538
- ------------------------------------------------------------- ---------- ------------- --------- ------------
Net change resulting from
share transactions 4,923,658 $ 49,757,171 990,898 $ 9,777,922
- ------------------------------------------------------------- ---------- ------------- --------- ------------
</TABLE>
Federated Strategic Income Fund
(formerly, Strategic Income Fund)
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.85% of the Fund's average 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.
Under the terms of a sub-advisory agreement between the Adviser and Federated
Global Research Corp., Federated Global Research Corp. receives an allocable
portion of the Fund's advisory fee. Such allocation is based on the amount of
foreign securities which Federated Global Research Corp. manages for the Fund.
This fee is paid by the Adviser out of its resources and is not an incremental
Fund expense.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors 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 B Shares, Class C Shares, and Class F Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class B Shares 0.75 of 1%
- -----------------------------------------------------------------------------------------
Class C Shares 0.75 of 1%
- -----------------------------------------------------------------------------------------
Class F Shares 0.50 of 1%
- -----------------------------------------------------------------------------------------
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive any portion of its
fee. FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC"), serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational and start-up administrative service
expenses of $103,466 and $46,630 were borne initially by Adviser. The Fund has
agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five-year period following the effective
date. For the period ended May 31, 1996, the Fund paid $18,413 and $8,300
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, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 64,326,351
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 14,352,542
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
<TABLE>
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. 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
</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 Funds' prospectuses, which contain facts concerning its
objective and policies, management fees, expenses and other information.
[LOGO] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
(LOGO)
Cusip 338319700 RECYCLED
Cusip 338319866 PAPER
Cusip 338319809
Cusip 338319882
G00324-02 (7/96)
FIXED INCOME SECURITIES, INC.
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
in Federated Limited Term Fund that are invested in securities of certain
ratings as of May 31, 1996. The pie chart is made up of six pieces labeled
as follows (going clockwise starting from 7:00): AAA, 43%; AA, 8%; A, 29%;
BBB, 15%; BB, 2%; and Repurchase Agreements, 3%.
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
in Federated Limited Term Municipal Fund that are invested in securities of
certain ratings as of May 31, 1996. The pie chart is made up of five
pieces labeled as follows (going clockwise starting from 9:00): NR,
27.01%; AAA, 4.05%; AA, 13.80%; A, 32.64%; and BBB, 22.50%.
C. The graphic representation here displayed, entitled "Initial
Investment of $3,000", consists of a boxed legend in the lower left
quadrant indicating the components of the corresponding mountain chart.
The lighter shaded portion represents Reinvested Income and the darker
shaded portion represents the Principal Value of $3,000 Investment (287
Shares). The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that an initial investment of $3,000
in the Class A Shares of Federated Strategic Income Fund on 5/4/94 would
have a reinvested total worth of $3,463 on 5/31/96. The "x" axis reflects
quarterly computation periods from 5/4/94 to 5/31/96. The right margin of
the chart reflects the ending values of a hypothetical investment of $3,000
in the Fund measured in increments of $500 ranging from $0 to $3,500.
D. The graphic representation here displayed, entitled "Yearly
Investments of $1,000", consists of a boxed legend in the upper left
quadrant indicating the components of the corresponding mountain chart.
The lighter shaded portion represents Reinvested Income and the darker
shaded portion represents the Principal Value of $1,000 Investments
(totaling $3,000 by 5/31/96). The color-coded mountain chart is a visual
representation of the narrative text above it, which shows that if you had
started investing $1,000 annually in the Class A Shares of Federated
Strategic Income Fund on 5/4/94, you would have a reinvested total worth of
$3,189/318 Shares on 5/31/96. The "x" axis reflects quarterly computation
periods from 5/4/94 to 5/31/96. The right margin reflects the ending
values of a hypothetical annual investment of $1,000 in the Fund measured
in increments of $500 ranging from $0 to $3,500.
E. The graphic representation here displayed, entitled "Income Over
Time", consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The lighter shaded portion
represents the value of Reinvested Income and the darker shaded portion
represents the Principal Value of $100,000 Investment (9,550 Shares). The
color-coded mountain chart is a visual representation of the narrative text
above it, which shows that an original $100,000 investment in Federated
Strategic Income Fund on 5/4/94 would have a reinvested total worth of
$115,443/11,498 Shares on 5/31/96. The "x" axis reflects quarterly
computation periods from 5/4/94 to 5/31/96. The right margin reflects the
ending values of a hypothetical investment of $100,000 in the Fund measured
in $20,000 increments ranging from $0 to $140,000.
