[LOGO OF FEDERATED] Federated Investors
Limited Term
Fund
Annual Report
November 30, 1995
Established 1992
President's Message
- ------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report for Federated Limited Term Fund,
formerly Limited Term Fund, which covers December 1, 1994 to November 30, 1995.
This report begins with an interview with the portfolio managers Deborah A.
Cunningham, and Randall S. Bauer, Vice Presidents of Federated Advisers.
Following the interview are three additional items of shareholder interest:
. First a series of graphs indicating the fund's performance over time. These
investment charts show the value of reinvesting dividends and the benefit
of a continuous investment program.
. Second, a complete listing of the fund's holdings indicating the income
opportunities available through a diversified portfolio of income-producing
bond investments.
. Third, we have published the fund's complete financial statements.
Federated Limited Term 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. At least 65% of the fund's assets are
invested in securities rated "A" or better by one or more nationally recognized
statistical rating organizations. All notes and bonds in the fund's portfolio
must meet or exceed industry standards for "investment grade," which means a
BBB or better rating.*
Consistent with a favorable environment for bonds, i.e. lower interest rates
during the year, the fund's Class A Shares and Fortress Shares delivered total
returns of 11.29% and 11.39%, respectively, based on net asset value.** During
the reporting period, the net asset value of Class A Shares and Fortress Shares
increased by $0.49 from $9.48 to $9.97. Class A Shares paid income of $0.55 per
share while Fortress Shares paid income of $0.56 per share. At the end of the
period, the fund's net assets stood at $148.6 million.
* Ratings are according to Standard & Poor's Ratings Group and are subject to
change.
** Performance quoted represents past performance. 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
Fortress Shares were 10.12% and 9.24%, respectively.
- -------------------------------------------------------------------------------
In 1995 bond fund managers were pleased to work in a favorable environment in
sharp contrast to 1994's rising rates condition. In 1996, Federated Limited
Term Fund will continue to seek income from its diversified short-term bond
holdings.
We trust you were pleased with the positive performance of your investment in
Limited Term Fund. Remember, reinvesting your earnings is a convenient way to
build your account-and help your money grow through the benefit of compounding.
We welcome your comments and suggestions.
Sincerely,
Richard B. Fisher
President
January 15, 1996
Management Discussion and Analysis
- ------------------------------------------------------------------------------
Deborah A. Cunningham
Vice President,
Federated Advisers
Q
As we enter 1996, can you give us a review of the 1995 economy and its impact
on the bond market?
A
The overall Gross Domestic Product throughout the year was somewhat erratic.
The second quarter growth of 1.3% reflected the beginning of an economic growth
slowdown commonly referred to as a "soft landing." However, contrary to a
slowdown, the third quarter growth rate of 4.2% reflected a strong consumer
segment. Most recent statistics for the fourth quarter seem to reflect a
slowdown as retail sales declined 0.2%, with industrial production also falling
0.2%.
Throughout the period, inflation remained tame. Looking at the bond market,
yields declined about 2.37% in the two- to three-year sector of the
investment-grade bond market. The Federal Reserve Board lowered the Federal
Funds target once, from 6% to 5.75% on July 6, 1995. The two-year Treasury Note
began 1995 with a yield of 7.73% and decreased steadily to end the period at
5.36% on November 30, 1995. The yield curve-the relationship between bond
yields and maturities-flattened considerably. The spread, or difference in
yield, between the two-year Treasury Bill and one-year Treasury Note decreased
from 0.5% to zero.
Randall S. Bauer
Vice President,
Federated Advisers
Q
In this environment, how did Limited Term Fund perform for shareholders over
the twelve-month period ended November 30, 1995?
The fund's Class A Shares achieved a total return of 11.29%, while the Fortress
Shares total return was 11.39% based on net asset value.* The net asset value
increased by $0.49 from the first day of the period to the last day. Class A
Shares paid income of $0.55 per share while Fortress Shares paid income of
$0.56 per share. The 30-day net distribution yields as of November 30, 1995,
for Class A Shares and Fortress Shares increased from 5.55% and 5.66% to 6% and
6.10%, respectively, on the first and last days of the period.
* Performance quoted represents past performance. 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 Fortress Shares were
10.12% and 9.24%, respectively.
- -------------------------------------------------------------------------------
Q
The fund offers a prudent approach to income-with minimal principal
fluctuation-by investing in a variety of investment-grade and government
securities, while maintaining an effective duration of less than three years.
How were the fund's assets allocated as of November 30, 1995?
A
Approximately 31% of the fund's assets were invested in floating-rate
securities, with 68.2% in fixed-rate securities. From a credit perspective, 47%
were AAA rated, 10% were AA rated, 30% were A rated, and 13% were BBB rated.
Q
What is your outlook for rates in 1996, and do you anticipate any portfolio
adjustments in response?
A
The near-term outlook for rates in 1996 is based on the assumption of a
continuing slow-growth economy, with little or no inflationary pressure. In
that scenario, we will continue to modestly lengthen the fund's average
maturity and increase the percentage of its assets invested in higher quality
securities.
Two Ways You May Seek to Invest for Success in
Limited Term Fund
- ------------------------------------------------------------------------------
If you had made an initial investment of $4,000 in the Limited Term Fund on
1/14/92, reinvested your dividends and capital gains, and didn't redeem any
shares, your account would be worth $4,952 on 11/30/95. You would have earned a
5.65%* average annual total return for the 4-year investment lifespan.
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,
gaining the benefit of compounding at the same time.
As of 12/31/95, the Class A Shares' average annual one-year, and since
inception (1/14/92) total returns were 10.51%* and 5.69%*, respectively. The
Fortress Class Shares' average annual and since inception (9/1/93) total
returns were 9.63% and 3.94%, respectively.
Graphic representation "A" 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 1% sales
charge for Class A Shares, and the 1% sales charge and 1% contingent deferred
sales charge for Fortress 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.
Limited Term Fund
- ------------------------------------------------------------------------------
One Step at a Time
$1,000 invested each year for 4 years (rein-
vesting all dividends and capital gains) grew
to $4,549.
With this approach, the key is consistency.
-----------
If you had started investing $1,000 annually in Limited Term Fund on 1/14/92,
reinvested your dividends and capital gains, and didn't redeem any shares, you
would have invested only $4,000, but your account would have reached a total
value of $4,549* by 11/30/95. You would have earned an average annual total
return of 5.55%.
A practical investment plan helps you pursue income from short-term bonds.
Through systematic investing, you buy shares on a regular basis and reinvest
all earnings. This investment plan works for you even if you invest only $1,000
annually. You can take it one step at a time. Put time and compounding to work!
Graphic representation "B" 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 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.
Limited Term Fund-
Serving a Wide Range of Investors
- ------------------------------------------------------------------------------
Limited Term Fund appeals to a broad range of investors-both individuals and
institutions-seeking a relatively conservative approach to income.
Graphic representation "C" omitted. See Appendix.
Limited Term Fund-
(Class A Shares)
- ------------------------------------------------------------------------------
Growth of $10,000 Invested in
Limited Term Fund (Class A Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Limited Term Fund (Class A Shares) (the "Fund") from January 14, 1992 (start of
performance) to November 30, 1995 compared to the Merrill Lynch Short-Term Debt
Index (MLSTD)+ and the Lipper Short Investment Grade Debt Funds Average
(LSIGDFA).++
Graphic representation "D" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900). The Fund's performance assumes the reinvestment of all
dividends and distributions. The MLSTD and the LSIGDFA have been adjusted
to reflect reinvestment of dividends on securities in the index and average.
The index is unmanaged.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The MLSTD is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
++ The LSIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees
that the SEC requires to be reflected in a fund's performance.
Limited Term Fund-
(Fortress Shares)
- ------------------------------------------------------------------------------
Growth of $10,000 Invested in
Limited Term Fund (Fortress Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Limited Term Fund (Fortress Shares) (the "Fund") from September 1, 1993 (start
of performance) to November 30, 1995 compared to the Merrill Lynch Short-Term
Debt Index (MLSTD)+ and the Lipper Short Investment Grade Debt Funds Average
(LSIGDFA).++
Grahpic representation "E" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900). The ending value of the Fund reflects a contingent deferred
sales charge of 1.00% on any redemption less than 4 years from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The MLSTD and the LSIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The MLSTD is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
++ The LSIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees
that the SEC requires to be reflected in a fund's performance.
Limited Term Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ----------------------------------------------------------------------- --------- --------------
CORPORATE BONDS/ASSET BACKED SECURITIES--70.1%
- -------------------------------------------------------------------------------------
AUTOMOTIVE--11.9%
-----------------------------------------------------------------------
$ 2,000,000 Daimler-Benz Auto Grantor Trust 1995-A, Class 1, 5.85%,
5/15/2002 AAA $ 2,002,040
-----------------------------------------------------------------------
8,000,000 Ford Credit Auto Loan Master Trust 1992-1, 6.88%,
1/15/1999 AAA 8,172,080
-----------------------------------------------------------------------
2,550,000 (a)Navistar Financial Dealer Note 1990, Class A-3, 6.78%,
1/25/2003 AAA 2,590,239
-----------------------------------------------------------------------
2,909,035 Navistar Financial Owner Trust 1994-B, Class-B, 6.63%,
1/15/2000 A 2,923,900
-----------------------------------------------------------------------
2,000,000 Navistar Financial Owner Trust 1995-A, Class B, 6.85%,
11/20/2001 A+ 2,031,562
----------------------------------------------------------------------- --------------
Total 17,719,821
----------------------------------------------------------------------- --------------
BANKING--19.5%
-----------------------------------------------------------------------
7,000,000 (a)Chase Manhattan Corp., EFRN, 6.00%, 12/30/2009 A- 6,807,500
-----------------------------------------------------------------------
5,000,000 (a)Chemical Bank, FRN, 6.00%, 7/29/2003 A 4,933,580
-----------------------------------------------------------------------
3,615,000 (a)Citicorp, EFRN, 6.00%, 6/29/2005 A- 3,583,369
-----------------------------------------------------------------------
5,000,000 MBNA Master Credit Card Trust 1991-1, Class A, 7.75%,
10/15/1998 AAA 5,168,450
-----------------------------------------------------------------------
2,000,000 PNC Bank Sub. Note, 7.88%, 4/15/2005 A- 2,188,240
-----------------------------------------------------------------------
6,000,000 Toronto Dominion Bank Sub. Note, 7.88%, 8/15/2004 AA- 6,346,200
----------------------------------------------------------------------- --------------
Total 29,027,339
----------------------------------------------------------------------- --------------
COMMUNICATION--0.7%
-----------------------------------------------------------------------
1,000,000 TCI Communications, Inc., 6.82%, 9/15/2010 BBB- 1,012,670
----------------------------------------------------------------------- --------------
CONSUMER PRODUCTS--1.0%
-----------------------------------------------------------------------
1,479,217 (b)Encyclopedia Britannica Dom. Funding Corp.,
Series 1994-1, 6.76%, 3/15/2000 AAA 1,486,613
----------------------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--2.1%
-----------------------------------------------------------------------
3,000,000 Ford Motor Credit Corp., MTN 7.02%, 10/10/2000 A- 3,067,380
----------------------------------------------------------------------- --------------
</TABLE>
Limited Term Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ----------------------------------------------------------------------- --------- --------------
CORPORATE BONDS/ASSET BACKED SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
FINANCE--RETAIL--6.9%
-----------------------------------------------------------------------
$ 3,000,000 Discover Credit Card Trust 1991-B, Class B, 8.85%,
7/15/1998 AA $ 3,084,750
-----------------------------------------------------------------------
5,000,000 Household Private Label Credit Card 1994-1, Class B,
7.55%, 6/20/2001 A 5,087,500
-----------------------------------------------------------------------
2,000,000 United Cos. Financial Corp., 7.00%, 7/15/1998 BBB- 2,031,080
----------------------------------------------------------------------- --------------
Total 10,203,330
----------------------------------------------------------------------- --------------
HOME EQUITY RECEIVABLES--14.1%
-----------------------------------------------------------------------
637,727 Advanta Home Equity Loan Trust 1991-1, Class A,
9.00%, 2/25/2006 AAA 679,116
-----------------------------------------------------------------------
1,088,785 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%,
8/15/2007 AAA 1,108,002
-----------------------------------------------------------------------
1,500,000 (a)Capitol Home Equity Loan Trust 1991-1, Class B, 6.47%,
11/14/2011 AAA 1,507,275
-----------------------------------------------------------------------
2,000,000 (b)Conti Mortgage Home Equity Loan Trust 1994-1, Class A-3, 6.07%,
11/15/2013 AAA 1,939,220
-----------------------------------------------------------------------
3,745,929 (b)Conti Mortgage Home Equity Loan Trust 1994-1, Class A-5, 6.12%,
1/15/2024 AAA 3,631,641
-----------------------------------------------------------------------
4,096,055 HFC Home Equity Loan Trust 1992-2, Class A, 6.65%,
11/20/2012 AAA 4,097,611
-----------------------------------------------------------------------
4,016,653 (a)Merrill Lynch Home Equity Loan Trust 1991-2, Class B, 6.75%,
4/15/2006 A 4,046,778
-----------------------------------------------------------------------
1,998,975 (a)Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 6.88%,
2/15/2003 Aa3 2,014,087
-----------------------------------------------------------------------
1,225,297 TMS Home Equity Loan Trust 1992-A, Class A, 6.95%,
12/15/2007 AAA 1,233,237
-----------------------------------------------------------------------
708,746 TMS Home Equity Loan Trust 1992-B, Class A, 6.90%,
7/15/2007 AAA 713,232
----------------------------------------------------------------------- --------------
Total 20,970,199
----------------------------------------------------------------------- --------------
INSURANCE--7.1%
-----------------------------------------------------------------------
4,503,000 Orion Capital Corp., Note, 9.13%, 9/1/2002 BBB 5,110,725
-----------------------------------------------------------------------
</TABLE>
Limited Term Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ----------------------------------------------------------------------- --------- --------------
CORPORATE BONDS/ASSET BACKED SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
INSURANCE--CONTINUED
-----------------------------------------------------------------------
$ 5,000,000 USF&G Corp., Note, 8.38%, 6/15/2001 BBB- $ 5,431,450
----------------------------------------------------------------------- --------------
Total 10,542,175
----------------------------------------------------------------------- --------------
LEASING--0.1%
-----------------------------------------------------------------------
159,057 (b)Concord Leasing Grantor Trust 1992-C, Class A-1, 5.31%,
1/20/1999 AAA 157,239
----------------------------------------------------------------------- --------------
MANUFACTURED HOUSING RECEIVABLES--3.3%
-----------------------------------------------------------------------
5,083,125 CIT Group Manufactured Housing PTC 1993-1, Class B, 6.85%, 6/15/2018 BBB+ 4,907,961
----------------------------------------------------------------------- --------------
MARINE RECEIVABLES--2.2%
-----------------------------------------------------------------------
3,254,148 CBNJ Boat Loan Trust, Series 1994-1, 6.89%, 4/27/2012 AAA 3,296,859
----------------------------------------------------------------------- --------------
RETAIL & APPAREL--1.2%
-----------------------------------------------------------------------
1,500,000 JC Penney, Inc., Sinking Fund Deb., 9.75%, 6/15/2021 A+ 1,762,305
----------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS/ASSET BACKED SECURITIES
(IDENTIFIED COST $102,372,714) 104,153,891
----------------------------------------------------------------------- --------------
GOVERNMENT AGENCIES--4.4%
- -------------------------------------------------------------------------------------
2,500,000 Federal Farm Credit Bank, 6.96%, 6/6/2000 AAA 2,513,125
-----------------------------------------------------------------------
2,000,000 Federal Home Loan Bank, 6.655%, 12/11/2000 AAA 2,007,860
-----------------------------------------------------------------------
2,000,000 Federal Home Loan Mortgage Corp., 7.84%, 4/26/2000 AAA 2,015,500
----------------------------------------------------------------------- --------------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $6,507,021) 6,536,485
----------------------------------------------------------------------- --------------
MORTGAGE-BACKED SECURITIES--21.4%
- -------------------------------------------------------------------------------------
GOVERNMENT AGENCY 1/2MORTGAGE-BACKED SECURITIES--2.1%
-----------------------------------------------------------------------
1,139,250 (a)Federal Home Loan Mortgage Corp., 7.63%,
9/1/2019 AAA 1,168,096
-----------------------------------------------------------------------
1,273,977 (a)Federal Home Loan Mortgage Corp., 7.91%,
12/1/2018 AAA 1,307,343
-----------------------------------------------------------------------
107,115 Federal Home Loan Mortgage Corp., Series 1132, Class G, 8.00%,
1/15/2005 AAA 107,135
-----------------------------------------------------------------------
180,194 (a)Federal National Mortgage Association, 7.72%, 11/1/2017 AAA 187,167
-----------------------------------------------------------------------
$ 382,192 (a)Federal National Mortgage Association, 7.71%, 12/1/2020 AAA $ 397,407
----------------------------------------------------------------------- --------------
</TABLE>
Limited Term Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ----------------------------------------------------------------------- --------- --------------
MORTGAGE-BACKED SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
GOVERNMENT AGENCY 1/2MORTGAGE-BACKED SECURITIES-- CONTINUED
-----------------------------------------------------------------------
Total 3,167,148
----------------------------------------------------------------------- --------------
NON-GOVERNMENT AGENCY--
MORTGAGE-BACKED SECURITIES--19.3%
-----------------------------------------------------------------------
3,733,403 (a) Citicorp Mortgage Securities, Inc., Series 1992-18, Class A-1,
7.69%, 10/25/2022 AAA 3,784,737
-----------------------------------------------------------------------
6,712,231 (a)GCA REMIC Trust V, Class B, 5.96%, 5/1/2020 A- 6,229,823
-----------------------------------------------------------------------
2,950,000 Prudential Home Mortgage 1992-32, Class A-6, 7.50%,
10/25/2022 AAA 2,975,635
-----------------------------------------------------------------------
4,000,000 Residential Accredit Insurance, Inc. Mortgage Certificate, Series
1995-QS1, Class A-2, 6.90%, 1/25/2020 AAA 4,018,280
-----------------------------------------------------------------------
3,270,000 Resolution Trust Corp., 1992-15, Class B-3, 10.00%, 7/25/2027 AA 3,359,925
-----------------------------------------------------------------------
2,626,547 (a)Salomon Brothers Mortgage Securities VII, Series 1992-6, Class A-1,
7.88%, 11/25/2022 AAA 2,652,812
-----------------------------------------------------------------------
5,594,647 Salomon Brothers Mortgage Securities, Series 1993-9, Class A-1, 7.24%,
1/25/2024 AAA 5,640,132
----------------------------------------------------------------------- --------------
Total 28,661,344
----------------------------------------------------------------------- --------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $31,516,814) 31,828,492
----------------------------------------------------------------------- --------------
</TABLE>
Limited Term Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ----------------------------------------------------------------------- --------- --------------
(C) REPURCHASE AGREEMENT--3.3%
- -------------------------------------------------------------------------------------
$ 4,925,000 J.P. Morgan Securities, Inc., 5.93%, dated 11/30/1995,
due 12/1/1995 (at amortized cost) $ 4,925,000
----------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $145,321,549)(D) $ 147,443,868
----------------------------------------------------------------------- --------------
</TABLE>
(a) Denotes Variable Rate and Floating Rate securities which show current rate.
(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 $7,214,713 which represents 4.9% 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 $145,321,549.
The net unrealized appreciation of investments on a federal tax basis
amounts to $2,122,319 which is comprised of $3,197,715 appreciation and
$1,075,396 depreciation at November 30, 1995.
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($148,634,298) at November 30, 1995.
The following acronyms are used throughout this portfolio:
EFRN--Euro Floating Rate Note
FRN--Floating Rate Note
MTN--Medium Term Note
PTC--Pass Through Certificate
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
Limited Term Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost and tax cost $145,321,549) $147,443,868
- ---------------------------------------------------------------------------------------------------
Cash 1,296
- ---------------------------------------------------------------------------------------------------
Income receivable 1,717,302
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 4,052,176
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 23,226
- ---------------------------------------------------------------------------------------------------
Deferred expenses 54,061
- --------------------------------------------------------------------------------------------------- -----------
Total assets 153,291,929
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased $4,000,206
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 335,912
- ----------------------------------------------------------------------------------------
Income distribution payable 232,201
- ----------------------------------------------------------------------------------------
Accrued expenses 89,312
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 4,657,631
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 14,909,935 shares outstanding $148,634,298
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $157,510,806
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,122,319
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (11,014,791)
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 15,964
- --------------------------------------------------------------------------------------------------- -----------
Total Net Assets $148,634,298
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($138,451,183 / 13,888,396 shares outstanding) $9.97
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/99.00 of $9.97)* $10.07
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (100.00/100 of $9.97)** $9.97
- --------------------------------------------------------------------------------------------------- -----------
FORTRESS SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($10,183,115 / 1,021,539 shares outstanding) $9.97
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/99.00 of $9.97)* $10.07
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $9.97)** $9.87
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Limited Term Fund
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended November 30, 1995
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $11,868,805
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee $ 656,470
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 155,000
- -----------------------------------------------------------------------------------------
Custodian fees 61,776
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 152,656
- -----------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,262
- -----------------------------------------------------------------------------------------
Auditing fees 15,092
- -----------------------------------------------------------------------------------------
Legal fees 5,129
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 36,170
- -----------------------------------------------------------------------------------------
Distribution services fee--Class A Shares 765,077
- -----------------------------------------------------------------------------------------
Distribution services fee--Fortress Shares 16,653
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 382,539
- -----------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares 27,755
- -----------------------------------------------------------------------------------------
Share registration costs 59,093
- -----------------------------------------------------------------------------------------
Printing and postage 55,864
- -----------------------------------------------------------------------------------------
Insurance premiums 5,779
- -----------------------------------------------------------------------------------------
Taxes 27,789
- -----------------------------------------------------------------------------------------
Miscellaneous 41,452
- ----------------------------------------------------------------------------------------- ---------
Total expenses 2,466,556
- -----------------------------------------------------------------------------------------
Waivers--
- ------------------------------------------------------------------------------
Waiver of investment advisory fee ($204,367)
- ------------------------------------------------------------------------------
Waiver of distribution services fee--Class A Shares (459,046)
- ------------------------------------------------------------------------------
Waiver of distribution services fee--Fortress Shares (3,566)
- ------------------------------------------------------------------------------
Waiver of shareholder services fee--Fortress Shares (1,985)
- ------------------------------------------------------------------------------ ---------
Total waivers (668,964)
- ----------------------------------------------------------------------------------------- ---------
Net expenses 1,797,592
- ---------------------------------------------------------------------------------------------------- ----------
Net investment income 10,071,213
- ---------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized loss on investments (1,367,071)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 8,740,085
- ---------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 7,373,014
- ---------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $17,444,227
- ---------------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Limited Term Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------
Net investment income $ 10,071,213 $ 13,252,956
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments ($1,407,407 net gain and $9,607,384 net
loss, respectively, as computed for federal tax purposes) (1,367,071) (9,647,720)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 8,740,085 (6,903,560)
- ----------------------------------------------------------------------------------- ------------- --------------
Change in net assets resulting from operations 17,444,227 (3,298,324)
- ----------------------------------------------------------------------------------- ------------- --------------
NET EQUALIZATION CREDITS (DEBITS)-- (28,665) 7,025
- ----------------------------------------------------------------------------------- ------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------
Distributions from net investment income
- -----------------------------------------------------------------------------------
Class A Shares (8,587,638) (12,483,582)
- -----------------------------------------------------------------------------------
Fortress Shares (631,389) (776,400)
- -----------------------------------------------------------------------------------
Distributions in excess of net investment income
- -----------------------------------------------------------------------------------
Class A Shares -- (97,229)
- -----------------------------------------------------------------------------------
Fortress Shares -- (4,798)
- -----------------------------------------------------------------------------------
Distributions from net realized gains on investments
- -----------------------------------------------------------------------------------
Class A Shares -- (356,098)
- -----------------------------------------------------------------------------------
Fortress Shares -- (12,247)
- ----------------------------------------------------------------------------------- ------------- --------------
Change in net assets resulting from distributions to shareholders (9,219,027) (13,730,354)
- ----------------------------------------------------------------------------------- ------------- --------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------------------
Proceeds from sale of shares 15,174,800 82,920,358
- -----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 6,145,539 9,662,553
- -----------------------------------------------------------------------------------
Cost of shares redeemed (73,068,438) (139,481,244)
- ----------------------------------------------------------------------------------- ------------- --------------
Change in net assets resulting from share transactions (51,748,099) (46,898,333)
- ----------------------------------------------------------------------------------- ------------- --------------
Change in net assets (43,551,564) (63,919,986)
- -----------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------
Beginning of period 192,185,862 256,105,848
- ----------------------------------------------------------------------------------- ------------- --------------
End of period (including undistributed net investment
income of $15,964 and $0, respectively) $ 148,634,298 $ 192,185,862
- ----------------------------------------------------------------------------------- ------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Limited Term Fund
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994 1993 1992(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.48 $ 10.17 $ 10.00 $ 10.01
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income 0.55 0.53 0.63 0.519
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.49 (0.66) 0.19 (0.008)
- -------------------------------------------------------------------- --------- --------- --------- -----------
Total from investment operations 1.04 (0.13) 0.82 0.511
- -------------------------------------------------------------------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income (0.55) (0.53) (0.63) (0.519)
- --------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.02) (0.02) (0.002)
- --------------------------------------------------------------------
Distributions from net realized gains on investment transactions -- (0.01) -- --
- -------------------------------------------------------------------- --------- --------- --------- -----------
Total distributions (0.55) (0.56) (0.65) (0.521)
- -------------------------------------------------------------------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.97 $ 9.48 $ 10.17 $ 10.00
- -------------------------------------------------------------------- --------- --------- --------- -----------
TOTAL RETURN (C) 11.29% (1.30%) 8.19% 5.21%
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 1.10% 1.10% 1.01% 0.67%*
- --------------------------------------------------------------------
Net investment income 6.13% 5.52% 5.75% 6.17%*
- --------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.43% 0.39% 0.49% 1.06%*
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $138,451 $178,771 $248,876 $57,225
- --------------------------------------------------------------------
Portfolio turnover 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)
Limited Term Fund
Financial Highlights--Fortress Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994 1993(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.48 $ 10.17 $ 10.24
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------
Net investment income 0.61 0.55 0.15
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.44 (0.67) (0.07)
- ------------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 1.05 (0.12) 0.08
- ------------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------
Distributions from net investment income (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 (0.56) (0.57) (0.15)
- ------------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.97 $ 9.48 $ 10.17
- ------------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (C) 11.39% (1.20%) 0.78%
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------
Expenses 1.00% 0.99% 1.00%*
- -------------------------------------------------------------------------------
Net investment income 6.22% 5.67% 7.10%*
- -------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.18% 0.13% 0.39%*
- -------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $10,183 $13,415 $7,230
- -------------------------------------------------------------------------------
Portfolio turnover 63% 63% 38 %
- -------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 31, 1993 (date of initial
public offering) to November 30, 1993.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales 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)
Limited Term Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
November 30, 1995
(1) ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three diversified
portfolios. The financial statements included herein are only those of Limited
Term Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers two classes of shares: Class A Shares and Fortress Shares.
During the fiscal year ended November 30, 1994, the Corporation offered five
portfolios (Limited Term Fund, Limited Term Municipal Fund, Strategic Income
Fund, Limited Maturity Government Fund, and Multi-State Municipal Income Fund).
As of December 23, 1994, and April 7, 1995 the Board of Directors approved the
liquidation of Limited Maturity Government Fund and Multi-State Municipal Income
Fund, respectively.
(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--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. All other securities are valued at
prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the
Limited Term Fund
- --------------------------------------------------------------------------------
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--The Fund follows 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 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.
Limited Term Fund
- --------------------------------------------------------------------------------
Additional information on each restricted security held at November 30,
1995 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
- ----------------------------------------------------------------------------- -------------- --------------
Encyclopedia Britannica Dom. Funding Corp. 3/21/94 $ 1,479,217
- -----------------------------------------------------------------------------
Conti Mortgage Equity Loan Trust 1994-1, Class A-3 2/18/94 1,999,719
- -----------------------------------------------------------------------------
Conti Mortgage Equity Loan Trust 1994-1, Class A-5 2/18/94 3,745,126
- -----------------------------------------------------------------------------
Concord Leasing Grantor Trust 1992-C, Class A-1 8/14/92 132,569
- -----------------------------------------------------------------------------
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At November 30, 1995, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
POUND OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A 1,000,000,000
- --------------------------------------------------------------------------------------
Fortress 1,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
Total shares authorized 2,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,327,413 $ 13,015,341 6,954,884 $ 69,748,905
- ----------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 595,771 5,785,618 935,518 9,190,553
- ----------------------------------------------------
Shares redeemed (6,883,983) (66,778,258) (13,505,266) (133,005,809)
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
Net change resulting from Class A share
transactions (4,960,799) ($ 47,977,299) (5,614,864) ($ 54,066,351)
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
</TABLE>
Limited Term Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
FORTRESS SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 222,214 $ 2,159,459 1,322,242 $ 13,171,453
- ------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 37,164 359,921 48,336 472,000
- ------------------------------------------------------
Shares redeemed (652,247) (6,290,180) (666,787) (6,475,435)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from Fortress share
transactions (392,869) ($ 3,770,800) 703,791 $ 7,168,018
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from share transactions (5,353,668) ($ 51,748,099) (4,911,073) ($ 46,898,333)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive 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 Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Class A Shares and Fortress Shares. The Plan provides that the
Fund may incur distribution expenses 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%
- ----------------------------------------------------------------------------------------
Fortress 0.15 of 1%
- ----------------------------------------------------------------------------------------
</TABLE>
Limited Term Fund
- --------------------------------------------------------------------------------
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 .25 of
1% 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 AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
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 Adviser. The
Fund has agreed to reimburse Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended November 30, 1995, the Fund paid $17,765 and $16,798,
respectively, pursuant to this agreement.
GENERAL--Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended
November 30, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 92,910,042
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 156,207,880
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
SUBSEQUENT EVENT--Effective January 31, 1996, the Fund changed its name from
Limited Term Fund to Federated Limited Term Fund.
Effective January 31, 1996, the Fortress Shares changed its name to Class F
Shares.
Independent Auditors
- --------------------------------------------------------------------------------
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of LIMITED TERM FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Limited Term Fund (a portfolio of Fixed Income
Securities Inc.) as of November 30, 1995, the related statement of operations
for the year then ended, the statement of changes in net assets for the years
ended November 30, 1995 and 1994 and financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of November 30, 1995
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Limited Term Fund as
of November 30, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
January 17, 1996
Directors Officers
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Richard B. Fisher Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses, which contain facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO OF FEDERATED] Federated Funds
Where Experts Invest
Federated Securities Corp. is the distributor of the fund.
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 338319106
Cusip 338319304
G01176-01 (1/96) [RECYCLED PAPER LOGO]
[logo] FEDERATED INVESTORS
Limited Term
Municipal
Fund
Annual Report
November 30, 1995
Established 1993
President's Message
Dear Shareholder:
I am pleased to present the Annual Report for Federated Limited Term Municipal
Fund, formerly Limited Term Municipal Fund, which covers the 12-month period
ended November 30, 1995.
This report begins with an interview with portfolio manager Mary Jo Ochson,
Senior Vice President of Federated Advisers. Following her interview are three
additional items of shareholder interest:
First a series of graphs indicating the fund's performance over time.
These investment charts show the value of reinvesting dividends and the
benefit of a continuous investment program.
Second, a complete listing of the fund's holdings indicating the income
opportunities available through a diversified portfolio of
income-producing bond investments.
Third, we have published the fund's complete financial statements.
Federated Limited Term Municipal Fund pursues tax-free income with limited
fluctuation in share value through a diversified portfolio of short-term
municipal bonds.* On November 30, 1995, the fund's holdings were rated as
follows: A or better, 41.4%; BBB, 40.2%, and non-rated, 18.4%.** The holdings
included bonds issued for hospitals, single-family housing authorities,
electric revenue, and resource recovery bonds.
Consistent with a favorable economic environment during the reporting period,
the fund's Class A Shares and Fortress Shares delivered total returns of 8.67%
and 8.86%, respectively, based on net asset value.+ The net asset value of
Class A Shares and Fortress Shares increased by $0.36 from the first day of the
period to the last day. Class A Shares paid in-come of $0.46 per share while
Fortress Shares paid income of $0.47 per share. At the end of the period, the
fund's net assets stood at $91.6 million.
We trust you were pleased with the positive performance of your investment in
Federated Limited Term Municipal Fund. Remember, reinvesting your earnings is a
convenient way to build your account and help your money grow through the
-
benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
Richard B. Fisher
President
January 15, 1996
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
** Ratings are according to Standard & Poor's Ratings Group.
+ Performance quoted represents past performance. 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 Fortress Shares were
7.54% and 7.86%, respectively.
Management Discussion and Analysis
[PHOTO]
Mary Jo Ochson
Senior Vice President
Federated Advisers
Q Mary Jo, could you review the developments in the limited-maturity,
fixed-income markets for the twelve months ending November 30, 1995?
A Reasonable economic growth without rampant inflation set the stage for a
dramatic fall in yields on fixed-income (as well as variable rate) issues
over the past twelve months. After a brief ascent from 7.80% on November 30,
1994 to 7.90% on January 9, 1995, yields on five-year U.S. Treasury notes
fell to 5.55% by November 30, 1995.
In the limited-maturity municipal bond market, rates also exhibited a
broad-based downward trend. From November 30, 1994 to September 14, 1995,
yields for five-year, A-rated general obligation issues descended from 5.70%
to 4.40% prior to a modest climb to 4.45% by November 30, 1995. The strength
of the Treasury market overshadowed that of the municipal market largely due
to uncertainties created by tax reform debate ``flat tax'' vs.
-
``consumption tax'' vs. ``value-added tax'' that would impact the treatment
-
of municipal bond interest. Reflected as a percentage of five-year Treasury
yields, five-year A-rated municipal yields started the period at 72.9%;
reached a trough of 70.8% on February 2, 1995; peaked at 82.6% on July 6,
1995; and retraced modestly to 80.3% by November 30, 1995.
Q How did an investor in Limited Term Municipal Fund do over the past twelve
months?
A For the twelve months ending November 30, 1995, an investor in Limited Term
Municipal Fund Class A Shares received a total return of 8.67% based on net
asset value and 7.54% based on offering price. Investors in the Fortress
Shares received a total return of 8.86% based on net asset value and 7.86%
based on offering price.* The fund's returns compared very favorably with
the 7.45% total return of the Lipper Short Municipal Debt Fund Average for
the same period.
As for income, the fund's distribution yields of 4.44% for Class A Shares and
4.69% for Fortress Shares for the 30 days ended November 30, 1995 also
compared favorably to the Lipper Short Municipal Debt Fund Average yield of
4.10% for the same period. These yields are calculated on a net asset value
basis.
* Performance quoted represents past performance. 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.
Q What portfolio strategies have been employed over the past twelve months to
pursue the investment objective of the fund?
A During the first eight months of fiscal year 1995 of the fund, management
sought to increase the exposure to BBB-rated issues, as credit quality in the
municipal sector improved on a broad basis the result of increased property
-
tax, sales tax, and corporate/individual income tax receipts. The intent of
this strategy was to capture attractive yields and potential price escalation
due to rating agency upgrading. The fund's management also sought to avoid
market discount issues which, despite strong price appreciation with the
decline in market yields, could lead to the distribution of taxable ordinary
income via the accretion of the market discount. As yield spreads between
high-grade and medium-grade issues narrowed over the last four months of
fiscal year 1995 to unreasonable levels, fund management sought to increase
the credit quality of purchases.
Q In what sectors of the municipal market has the fund been invested?
A As of November 30, 1995, the Fund directed 19.1% of its total assets in
hospital/healthcare issues; 12.5% in collateralized student loan revenue
issues typically AAA rated first tranches of a senior-junior structured deal;
-
11.6% in local general obligation issues; 6.1% in municipal electric system
issues; and 5.5% in industrial and utility pollution control revenue issues.
For the remaining 45.2% of assets, no sector represented more than 3% of fund
assets. One should note that the exposure to healthcare has been reduced from
24.4% of fund assets due to yield spread contraction, internal credit
determinations, and portfolio repositioning/fund growth over the past twelve
months.
Q Could you describe the volatility characteristics of the fund over the past
twelve months?
The net asset value per share of the fund was less susceptible to change
during the past twelve months, in part due to a reduction of market
volatility and to adjustments in the portfolio. The table below compares the
net asset value, or NAV, for the fiscal years ending 11/30/95 and 11/30/94:
11/30/95 11/30/94
Average $9.71 $9.82
Maximum $9.85 $10.16
Minimum $9.48 $9.45
Range $0.37 $0.71
% Average 3.81% 7.23%
During the past twelve months the NAV volatility has been internally reduced
by tight duration constraints and by the acquisition of securities with
positive convexity (outperformance potential) or lesser degrees of negative
convexity. The fund's modified duration began fiscal 1995 at 3.18 years and
was gradually reduced to 2.21 years by the fiscal year end. Convexity was
improved by the disposition of near-the money callable issues for the
purchase of medium-grade noncallable bullet maturities. This made the NAV
less prone to extension risk, should market yields rise, and to contraction
risk should market yields fall. Predictability of NAV duration was deemed a
critical investment posture as the fund grew in assets from $45.5 million to
$91.6 million during the twelve months ending November 30, 1995.
Two Ways You May Seek to Invest for Success in
Limited Term Municipal Fund
Initial Investment:
If you had made an initial investment of $3,000 in the Class A Shares of
Limited Term Municipal Fund on 9/1/93, reinvested dividends and capital gains,
and didn't redeem any shares, your account would have been worth $3,236 on
11/30/95. You would have earned a 3.42% 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 12/31/95, the Class A Shares' average annual one-year and since inception
(9/1/93) total returns were 7.51%, and 3.46%, respectively. Fortress Shares'
average annual one-year and since inception (9/1/93) total returns were 7.85%
and 3.65%, respectively.
Graphic representation "F" 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 1% sales
charge applicable to an initial investment in Class A Shares and the 1% sales
charge and 1% contingent deferred sales charge for Fortress 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.
Limited Term Municipal Fund
One Step at a Time:
$1,000 invested each year for 2 years (reinvesting all dividends and capital
gains) grew to $3,140.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Limited
Term Municipal Fund on 9/1/93, 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 $3,140* by 11/30/95. You would have earned
an average annual total return of 3.85%.
A practical investment plan helps you pursue income by investing in short-term
municipal securities. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. You can take it one step at a time. Put time, and
compounding to work!
Graphic representation "G" 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.
Limited Term Municipal Fund
-
Portfolio Update
Grahpic representation "H" omitted. See Appendix.
Serving a Wide Range of Investors
Graphici Representation "I" omitted. See Appendix.
Limited Term Municipal Fund
-
(Class A Shares)
Growth of $10,000 Invested in Limited Term Municipal Fund (Class A Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Limited Term Municipal Fund (Class A Shares) (the ``Fund'') from September 1,
1993 (start of performance) to November 30, 1995 compared to the Lehman
Brothers Three Year State General Obligation Index (LB3YRSGO).+
Grahpic representation "J" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge
= $9,900). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LB3YRSGO has been adjusted to reflect reinvestment of
dividends on securities in the index. The index is unmanaged.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB3YRSGO is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
Limited Term Municipal Fund
-
(Fortress Shares)
Growth of $10,000 Invested in Limited Term Municipal Fund (Fortress Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Limited Term Municipal Fund (Fortress Shares) (the ``Fund'') from September 1,
1993 (start of performance) to November 30, 1995 compared to the Lehman
Brothers Three Year State General Obligation Index (LB3YRSGO).+
Grahpic representation "K" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $9,900 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900) that was in effect prior to July 17, 1995. As of July 17,
1995, the Fund did not have a sales charge. The ending value of the Fund
reflects a contingent deferred sales charge of 1.00% on any redemption less
than 4 years from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The LB3YRSGO has been
adjusted to reflect reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB3YRSGO is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
Limited Term Municipal Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
SHORT-TERM MUNICIPAL SECURITIES--18.4%
- ---------------------------------------------------------------------------------------
CALIFORNIA--3.2%
-------------------------------------------------------------------------
$ 3,000,000 California State, UT GO Bonds, 7.375% TOBs, Optional Tender 4/1/1996 A+ $ 3,002,370
------------------------------------------------------------------------- -------------
KENTUCKY--1.2%
-------------------------------------------------------------------------
1,100,000 Kentucky Pollution Abatement & Water Resource Finance Authority Daily
VRDNs (Toyota Motor Credit Corp.) A-1+ 1,100,000
------------------------------------------------------------------------- -------------
MINNESOTA--5.4%
-------------------------------------------------------------------------
5,000,000 Bass Brook, MN, PCR, 4.50% TOBs (Minnesota Power And Light Co.),
Mandatory Tender 5/31/1996 Baa1 4,991,800
------------------------------------------------------------------------- -------------
NEW YORK--3.3%
-------------------------------------------------------------------------
3,000,000 Yonkers, NY, 4.75% BANs, 4/23/1996 NR 3,000,870
------------------------------------------------------------------------- -------------
NORTH DAKOTA--2.2%
-------------------------------------------------------------------------
2,000,000 Oliver County, ND, Floating Rate Annual Tender PCR Bonds, 4.50% TOBs
(Square Butte Electric Cooperative), Optional Tender 9/01/1996 A- 2,000,000
------------------------------------------------------------------------- -------------
TEXAS--3.0%
-------------------------------------------------------------------------
2,800,000 Harris County, TX HFDC Daily VRDNs (St. Luke's Episcopal Hospital) A-1+ 2,800,000
------------------------------------------------------------------------- -------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 16,895,040
------------------------------------------------------------------------- -------------
LONG-TERM MUNICIPAL SECURITIES--80.7%
- ---------------------------------------------------------------------------------------
ALABAMA--2.1%
-------------------------------------------------------------------------
450,000 Mobile, AL, GO Warrants, 4.65%, 8/15/1997 NR 453,722
-------------------------------------------------------------------------
470,000 Mobile, AL, GO Warrants, 4.75%, 8/15/1998 NR 475,085
-------------------------------------------------------------------------
490,000 Mobile, AL, GO Warrants, 4.85%, 8/15/1999 NR 494,268
-------------------------------------------------------------------------
515,000 Mobile, AL, GO Warrants, 4.95%, 8/15/2000 NR 519,264
------------------------------------------------------------------------- -------------
Total 1,942,339
------------------------------------------------------------------------- -------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------------------------
COLORADO--3.3%
-------------------------------------------------------------------------
$ 500,000 Colorado Student Obligation Bond Authority, Student Loan Revenue Bonds,
5.20%, 9/1/1997 A $ 509,010
-------------------------------------------------------------------------
1,000,000 Colorado Student Obligation Bond Authority, Student Loan Revenue Bonds,
5.40%, 9/1/1998 A 1,027,680
-------------------------------------------------------------------------
1,500,000 Denver, CO City & County Airport Authority, Subordinate Lien Revenue
Bonds (Series C), 6.00% (Sumitomo Trust & Banking Co., Ltd Osaka LOC),
4/1/1997 (@100) BBB 1,519,035
------------------------------------------------------------------------- -------------
Total 3,055,725
------------------------------------------------------------------------- -------------
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 213,506
------------------------------------------------------------------------- -------------
ILLINOIS--6.1%
-------------------------------------------------------------------------
750,000 Chicago, IL Gas Supply System, Revenue Bonds, 7.50% (Peoples Gas Light &
Coke Company), 3/1/2000 (@102) AA- 832,500
-------------------------------------------------------------------------
1,000,000 Illinois Development Finance Authority, (Series 1995) Revenue Bonds,
5.80% (Catholic Charities Housing Development Corp), Callable 1/01/2005
(@102) NR 1,014,730
-------------------------------------------------------------------------
500,000 Illinois Development Finance Authority, Housing Revenue Bonds, 5.25%
(Catholic Charities Housing Development Corp)/(Archdiocese of Chicago
GTD), 1/1/1999 NR 501,385
-------------------------------------------------------------------------
365,000 Illinois Educational Facilities Authority, Revenue Bonds, 4.90% (Illinois
Institute of Technology)/(Original Issue Yield: 5.00%), 12/1/1996 Baa1 367,577
-------------------------------------------------------------------------
380,000 Illinois Educational Facilities Authority, Revenue Bonds, 5.05% (Illinois
Institute of Technology)/(Original Issue Yield: 5.15%), 12/1/1997 Baa1 382,728
-------------------------------------------------------------------------
400,000 Illinois Educational Facilities Authority, Revenue Bonds, 5.25% (Illinois
Institute of Technology)/(Original Issue Yield: 5.35%), 12/1/1998 Baa1 404,088
-------------------------------------------------------------------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------------------------
ILLINOIS--CONTINUED
-------------------------------------------------------------------------
$ 1,000,000 Illinois Health Facilities Authority, Revenue Bonds, 6.15% (Trinity
Medical Center, IL)/(Original Issue Yield: 6.25%),
7/1/1998 Baa1 $ 1,021,690
-------------------------------------------------------------------------
1,000,000 Illinois Health Facilities Authority, Revenue Bonds, 6.30% (Trinity
Medical Center, IL)/(Original Issue Yield: 6.50%),
7/1/1999 Baa1 1,022,720
------------------------------------------------------------------------- -------------
Total 5,547,418
------------------------------------------------------------------------- -------------
INDIANA--2.3%
-------------------------------------------------------------------------
885,000 LaPorte County, IN Hospital Authority, Refunding Revenue Bonds, 5.60%
(LaPorte Hospital)/(Original Issue Yield: 5.747%), 3/1/1999 Baa 896,443
-------------------------------------------------------------------------
935,000 LaPorte County, IN Hospital Authority, Refunding Revenue Bonds, 5.80%
(LaPorte Hospital)/(Original Issue Yield: 5.898%), 3/1/2000 Baa 949,306
-------------------------------------------------------------------------
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 238,228
------------------------------------------------------------------------- -------------
Total 2,083,977
------------------------------------------------------------------------- -------------
KENTUCKY--2.8%
-------------------------------------------------------------------------
2,420,000 Kentucky Higher Education Student Loan Corp., (Series D) Student Loan
Revenue Bonds, 6.45%, 6/1/1998 AA- 2,537,539
------------------------------------------------------------------------- -------------
MASSACHUSETTS--10.5%
-------------------------------------------------------------------------
250,000 Greater New Bedford Regional Refuse Management District, MA, GO Landfill
Bonds, 4.90% (Original Issue Yield: 5.00%), 5/1/1998 Baa 250,667
-------------------------------------------------------------------------
750,000 Greater New Bedford Regional Refuse Management District, MA, UT GO Bonds,
5.00% (Original Issue Yield: 5.10%),
5/1/1999 Baa 745,553
-------------------------------------------------------------------------
750,000 Greater New Bedford Regional Refuse Management District, MA, UT GO Bonds,
5.10% (Original Issue Yield: 5.20%),
5/1/2000 Baa 741,510
-------------------------------------------------------------------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
-------------------------------------------------------------------------
$ 515,000 Massachusetts HEFA, Revenue Bonds (Series B), 5.00% (Holyoke Hospital,
MA)/(Original Issue Yield: 5.25%),
7/1/1996 Baa1 $ 515,654
-------------------------------------------------------------------------
545,000 Massachusetts HEFA, Revenue Bonds (Series B), 5.25% (Holyoke Hospital,
MA)/(Original Issue Yield: 5.50%),
7/1/1997 Baa1 544,809
-------------------------------------------------------------------------
605,000 Massachusetts HEFA, Revenue Bonds (Series B), 5.75% (Holyoke Hospital,
MA)/(Original Issue Yield: 5.95%),
7/1/1999 Baa1 603,227
-------------------------------------------------------------------------
2,000,000 Massachusetts, IFA, Solid Waste Disposal Sr. Lien Revenue Bonds (Series
A), 8.00% (Massachusetts Recycling Association), 8/1/1999 NR 2,053,720
-------------------------------------------------------------------------
4,000,000 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 4,175,520
------------------------------------------------------------------------- -------------
Total 9,630,660
------------------------------------------------------------------------- -------------
MINNESOTA--3.4%
-------------------------------------------------------------------------
1,500,000 Minneapolis, MN, Rental Housing Revenue Bonds (Series 1994A), 4.30% TOBs
(Driftwood Apartments Project)/(First Bank NA, Minneapolis LOC),
Mandatory Tender 11/01/1997 A+ 1,501,965
-------------------------------------------------------------------------
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- 1,654,005
------------------------------------------------------------------------- -------------
Total 3,155,970
------------------------------------------------------------------------- -------------
MISSOURI--1.1%
-------------------------------------------------------------------------
1,000,000 Kansas City, MO IDA, PCR Bonds, 6.05% (General Motors Corp.), Callable
6/01/1999 (@101) BBB+ 1,024,860
------------------------------------------------------------------------- -------------
NEBRASKA--3.4%
-------------------------------------------------------------------------
1,600,000 Nebraska Public Gas Agency, Gas Supply System Revenue Bonds (1995 Series
A) , 5.00%, 4/1/1998 Baa1 1,623,488
-------------------------------------------------------------------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------------------------
NEBRASKA--CONTINUED
-------------------------------------------------------------------------
$ 1,500,000 Nebraska Public Gas Agency, Gas Supply System Revenue Bonds (1995 Series
A), 5.00%, 4/1/1997 Baa1 $ 1,517,490
------------------------------------------------------------------------- -------------
Total 3,140,978
------------------------------------------------------------------------- -------------
NEW MEXICO--2.4%
-------------------------------------------------------------------------
2,000,000 Las Cruces, NM, (Series 1995) Revenue Bonds, 6.00% (MBIA Insurance
Corporation INS), 12/1/2001 Aaa 2,148,680
------------------------------------------------------------------------- -------------
NEW YORK--9.3%
-------------------------------------------------------------------------
2,000,000 New York City, NY, UT GO Bonds (Series B), 5.30%,
8/15/2000 BBB+ 2,026,420
-------------------------------------------------------------------------
1,000,000 New York City, NY, UT GO Bonds (Series D), 4.70%,
2/15/1999 BBB+ 998,170
-------------------------------------------------------------------------
1,000,000 New York City, NY, UT GO Bonds (Series E), 4.70%,
2/15/1999 BBB+ 998,170
-------------------------------------------------------------------------
1,000,000 New York State Urban Development Corp., Youth Facilities Revenue Bonds
(Series 1995), 4.30%, 4/1/1997 Baa1 1,003,170
-------------------------------------------------------------------------
1,000,000 New York State Urban Development Corp., Youth Facilities Revenue Bonds
(Series 1995), 4.60%, 4/1/1999 Baa1 998,110
-------------------------------------------------------------------------
1,000,000 New York State Urban Development Corp., Youth Facilities Revenue Bonds
(Series 1995), 4.80%, 4/1/2000 Baa1 997,230
-------------------------------------------------------------------------
1,500,000 Port Authority of New York and New Jersey, Revenue Bonds (Series SS),
4.90%, 9/1/1997 AA- 1,501,095
------------------------------------------------------------------------- -------------
Total 8,522,365
------------------------------------------------------------------------- -------------
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 641,173
------------------------------------------------------------------------- -------------
OHIO--5.3%
-------------------------------------------------------------------------
1,000,000 Bellefontaine, OH, Hospital Facilities Revenue & Refunding Bonds, 5.00%
(Mary Rutan Health Associates)/(Original Issue Yield: 5.25%), 12/1/1997 BBB 998,680
-------------------------------------------------------------------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------------------------
OHIO--CONTINUED
-------------------------------------------------------------------------
$ 1,500,000 Clyde, OH Waterworks System, Revenue Bonds, 5.60%,
5/1/1997 MIG1 $ 1,532,010
-------------------------------------------------------------------------
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- 631,499
-------------------------------------------------------------------------
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- 250,893
-------------------------------------------------------------------------
1,400,000 Ohio Enterprise Bond Fund, (Series 1995-3) State Economic Development
Revenue Bonds, 5.60% (Smith Steelite),
12/1/2003 A- 1,417,094
------------------------------------------------------------------------- -------------
Total 4,830,176
------------------------------------------------------------------------- -------------
PENNSYLVANIA--9.9%
-------------------------------------------------------------------------
1,000,000 Allegheny County, PA Higher Education, Revenue Bonds, 7.625% (La Roche
College), 12/1/1996 (@100) NR 1,041,610
-------------------------------------------------------------------------
495,000 Allegheny County, PA Residential Finance Agency, Revenue Refunding Bonds
(Series W), 4.875% (GNMA COL), 11/1/2003 (@102) AAA 484,501
-------------------------------------------------------------------------
750,000 Beaver County, PA IDA, PCR Revenue Refunding Bonds (Series A), 7.75%
(Ohio Edison Co.), 9/1/1999 (@102) BBB- 802,815
-------------------------------------------------------------------------
1,500,000 Dover Township, PA Sewer Authority, (Series 1995) Guaranteed BANS, 4.25%
(Original Issue Yield: 4.50%),
12/15/1997 NR 1,497,510
-------------------------------------------------------------------------
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 1,003,500
-------------------------------------------------------------------------
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 1,045,491
-------------------------------------------------------------------------
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 1,005,060
-------------------------------------------------------------------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------------
$ 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 BBB+ $ 129,868
-------------------------------------------------------------------------
455,000 Scranton-Lackawanna, PA Health & Welfare Authority, Revenue Bonds (Series
1994-A), 5.40% (Allied Services Rehabilitation Hospitals, PA), 7/15/1996 NR 457,525
-------------------------------------------------------------------------
485,000 Scranton-Lackawanna, PA Health & Welfare Authority, Revenue Bonds (Series
1994-A), 5.75% (Allied Services Rehabilitation Hospitals, PA), 7/15/1997 NR 490,049
-------------------------------------------------------------------------
1,080,000 Scranton-Lackawanna, PA Health & Welfare Authority, Revenue Bonds (Series
A), 6.35% (Allied Services Rehabilitation Hospitals, PA), 7/15/1999 NR 1,128,082
------------------------------------------------------------------------- -------------
Total 9,086,011
------------------------------------------------------------------------- -------------
PUERTO RICO--4.0%
-------------------------------------------------------------------------
1,600,000 Puerto Rico Electric Power Authority, Power Revenue
(Series T), 5.00%, 7/1/1997 A- 1,625,536
-------------------------------------------------------------------------
2,000,000 Puerto Rico Municipal Finance Agency, Revenue Bonds (Series A), 5.00%
(Original Issue Yield: 5.10%), 7/1/1998 A- 2,036,300
------------------------------------------------------------------------- -------------
Total 3,661,836
------------------------------------------------------------------------- -------------
SOUTH DAKOTA--4.0%
-------------------------------------------------------------------------
105,000 South Dakota State Health & Educational Authority, Revenue Bonds, 5.40%
(Huron Regional Medical Center, SD), 4/1/1997 BBB- 105,192
-------------------------------------------------------------------------
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- 214,796
-------------------------------------------------------------------------
225,000 South Dakota State Health & Educational Authority, Revenue Bonds, 6.00%
(Huron Regional Medical Center, SD), 4/1/1999 BBB- 226,800
-------------------------------------------------------------------------
3,000,000 South Dakota Student Loan Finance Corp., (Series A) Student Loan Revenue
Bonds, 5.85%, 8/1/2000 A+ 3,106,050
------------------------------------------------------------------------- -------------
Total 3,652,838
------------------------------------------------------------------------- -------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------------------------
TENNESSEE--1.7%
-------------------------------------------------------------------------
$ 1,500,000 Springfield, TN Health & Educational Facilities Board, Hospital Revenue
Bonds, 7.50% (Jesse Holman Jones Hospital Corp, TN), 4/1/2000 NR $ 1,552,845
------------------------------------------------------------------------- -------------
TEXAS--2.2%
-------------------------------------------------------------------------
1,800,000 Brazos River Authority, TX, Revenue Refunding Bonds (Series B), 8.25%
(Houston Light & Power Company)/(Original Issue Yield: 8.343%), Callable
5/1/1998 (@102) A 1,969,218
------------------------------------------------------------------------- -------------
VIRGINIA--5.2%
-------------------------------------------------------------------------
2,000,000 Frederick County, VA IDA, (Series 1995) Lease Revenue Notes, 4.75%,
12/1/1997 NR 2,005,100
-------------------------------------------------------------------------
200,000 Prince William County, VA IDA, Hospital Revenue Bonds, 5.90% (Potomac
Hospital Corp., VA), 10/1/1997 A 206,163
-------------------------------------------------------------------------
255,000 Prince William County, VA IDA, Hospital Revenue Bonds, 6.00% (Potomac
Hospital Corp., VA), 10/1/1998 A 266,164
-------------------------------------------------------------------------
255,000 Prince William County, VA IDA, Hospital Revenue Bonds, 6.10% (Potomac
Hospital Corp., VA), 10/1/1999 A 268,640
-------------------------------------------------------------------------
2,000,000 Virginia State Housing Development Authority, Commonwealth Mortgage
Revenue Bonds (Series G-2), 5.40%, 1/1/1998 AA+ 2,040,400
------------------------------------------------------------------------- -------------
Total 4,786,467
------------------------------------------------------------------------- -------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- --------- -------------
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------------------------
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- $ 361,390
-------------------------------------------------------------------------
390,000 West Virginia HFA, (Series 1995) Hospital Refunding & Improvement Revenue
Bonds, 5.10% (Logan General Hospital), 7/1/1997 BBB- 391,630
------------------------------------------------------------------------- -------------
Total 753,020
------------------------------------------------------------------------- -------------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $73,270,295) 73,937,601
------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $90,165,335)(A) $ 90,832,641
------------------------------------------------------------------------- -------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $90,165,335. The
net unrealized appreciation of investments on a federal tax basis amounts to
$667,306 which is comprised of $714,425 appreciation and $47,119
depreciation at November 30, 1995.
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($91,621,310) at November 30, 1995.
The following acronyms 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
HFDC-- Health Facility Development Corporation
IDA--Industrial Development Authority
IFA--Industrial Finance Authority
INS--Insured
LOC--Letter of Credit
MBIA-- Municipal Bond Investors Assurance
PCR--Pollution Control Revenue
TOBs--Tender Option Bonds
UT--Unlimited Tax
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Limited Term Municipal Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $90,165,335) $ 90,832,641
- ----------------------------------------------------------------------------------------------------
Cash 101,863
- ----------------------------------------------------------------------------------------------------
Income receivable 1,319,782
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 741,586
- ----------------------------------------------------------------------------------------------------
Deferred expenses 44,243
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 93,040,115
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased $ 1,003,061
- ---------------------------------------------------------------------------------------
Payable for shares redeemed 211,332
- ---------------------------------------------------------------------------------------
Income distribution payable 138,047
- ---------------------------------------------------------------------------------------
Accrued expenses 66,365
- --------------------------------------------------------------------------------------- -----------
Total liabilities 1,418,805
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 9,299,150 shares outstanding $ 91,621,310
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $ 93,380,099
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 667,306
- ----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (2,426,095)
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 91,621,310
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
FORTRESS SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($26,441,947 / 2,683,625 shares outstanding) $9.85
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/99 of $9.85)* $9.95
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Price Per Share (99/100 of $9.85)** $9.75
- ---------------------------------------------------------------------------------------------------- ------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($65,179,363 / 6,615,525 shares outstanding) $9.85
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/99 of $9.85)* $9.95
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Price Per Share (100/100 of $9.85) $9.85
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
* See " What Shares Cost" in the prospectus
** See " Redeeming Fortress Shares" in the prospectus
(See Notes which are an integral part of the Financial Statements)
Limited Term Municipal Fund
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended November 30, 1995
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest $ 2,739,807
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee $ 203,057
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 155,000
- -----------------------------------------------------------------------------------------
Custodian fees 45,766
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 41,068
- -----------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,590
- -----------------------------------------------------------------------------------------
Auditing fees 10,927
- -----------------------------------------------------------------------------------------
Legal fees 4,430
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 36,389
- -----------------------------------------------------------------------------------------
Distribution services fee--Fortress Shares 24,592
- -----------------------------------------------------------------------------------------
Distribution services fee--Class A Shares 85,924
- -----------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares 39,653
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 80,173
- -----------------------------------------------------------------------------------------
Share registration costs 59,260
- -----------------------------------------------------------------------------------------
Printing and postage 31,281
- -----------------------------------------------------------------------------------------
Insurance premiums 2,666
- -----------------------------------------------------------------------------------------
Taxes 4,898
- -----------------------------------------------------------------------------------------
Miscellaneous 17,290
- ----------------------------------------------------------------------------------------- ----------
Total expenses 843,964
- -----------------------------------------------------------------------------------------
Waivers and reimbursements--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $ (203,057)
- -----------------------------------------------------------------------------
Waiver of distribution services fee--Fortress Shares (16,382)
- -----------------------------------------------------------------------------
Waiver of shareholder services fee--Fortress Shares (366)
- -----------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (1,360)
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses (310,300)
- ----------------------------------------------------------------------------- ----------
Total waivers and reimbursements (531,465)
- ----------------------------------------------------------------------------------------- ----------
Net expenses 312,499
- ----------------------------------------------------------------------------------------------------- -----------
Net investment income 2,427,308
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments (439,009)
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 2,221,502
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 1,782,493
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 4,209,801
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Limited Term Municipal Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 2,427,308 $ 1,950,059
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments ($439,009 net loss and $1,987,086 net
loss, respectively, as computed for federal tax
purposes) (439,009) (1,987,086)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 2,221,502 (1,490,568)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 4,209,801 (1,527,595)
- ---------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------------------
Fortress Shares (804,559) (452,363)
- ----------------------------------------------------------------------------------
Class A Shares (1,622,749) (1,497,696)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (2,427,308) (1,950,059)
- ---------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 75,579,715 84,145,643
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 1,474,064 1,275,042
- ----------------------------------------------------------------------------------
Cost of shares redeemed (32,662,928) (53,496,962)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 44,390,851 31,923,723
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets 46,173,344 28,446,069
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 45,447,966 17,001,897
- ---------------------------------------------------------------------------------- -------------- --------------
End of period $ 91,621,310 $ 45,447,966
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Limited Term Municipal Fund
Financial Highlights--Fortress Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994 1993(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.49 $ 10.02 $ 10.00
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
Net investment income 0.47 0.45 0.11
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.36 (0.53) 0.02
- ------------------------------------------------------------------------------ --------- --------- -----------
Total from investment operations 0.83 (0.08) 0.13
- ------------------------------------------------------------------------------ --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------
Distributions from net investment income (0.47) (0.45) (0.11)
- ------------------------------------------------------------------------------ --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.49 $ 10.02
- ------------------------------------------------------------------------------ --------- --------- -----------
TOTAL RETURN (B) 8.86% (0.75%) 1.26%
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
Expenses 0.49% 0.44% 0.25%(d)
- ------------------------------------------------------------------------------
Net investment income 4.91% 4.57% 4.79%(d)
- ------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.12% 0.94% 1.86%(d)
- ------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $26,442 $12,804 $3,307
- ------------------------------------------------------------------------------
Portfolio turnover 47% 135% 0 %
- ------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to November 30, 1993.
(b) Based on net asset value, which does not reflect the sales 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) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Limited Term Municipal Fund
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994 1993(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.49 $ 10.02 $ 10.00
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
Net investment income 0.46 0.43 0.10
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.36 (0.53) 0.02
- ------------------------------------------------------------------------------ --------- --------- -----------
Total from investment operations 0.82 (0.10) 0.12
- ------------------------------------------------------------------------------ --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------
Distributions from net investment income (0.46) (0.43) (0.10)
- ------------------------------------------------------------------------------ --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.49 $ 10.02
- ------------------------------------------------------------------------------ --------- --------- -----------
TOTAL RETURN (B) 8.67% (0.95%) 1.20%
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
Expenses 0.68% 0.63% 0.50%(d)
- ------------------------------------------------------------------------------
Net investment income 4.72% 4.33% 4.30%(d)
- ------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.03% 0.94% 1.71%(d)
- ------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $65,179 $32,644 $13,694
- ------------------------------------------------------------------------------
Portfolio turnover 47% 135% 0 %
- ------------------------------------------------------------------------------
</TABLE>
(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.
(d) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Limited Term Municipal Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
November 30, 1995
(1) ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three diversified
portfolios. The financial statements included herein are only those of Limited
Term Municipal Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: Fortress Shares and Class A Shares.
During the fiscal year ended November 30, 1994, the Corporation offered five
portfolios (Limited Term Fund, Limited Term Municipal Fund, Strategic Income
Fund, Limited Maturity Government Fund, and Multi-State Municipal Income Fund).
As of December 23, 1994, and April 7, 1995 the Board of Directors approved the
liquidation of Limited Maturity Government Fund and Multi-State Municipal Income
Fund, respectively.
(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--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. All other securities are valued at
prices provided by an independent pricing service.
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 capital loss
carryforwards of $2,426,095, which will reduce the Fund's taxable income
arising from future net realized gains on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforwards will expire as follows:
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXPIRATION AMOUNT EXPIRATION DATE
<S> <C>
$ 1,987,086 2002
439,009 2003
</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.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At November 30, 1995, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
POUND OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Fortress 1,000,000,000
Class A 1,000,000,000
-----------------
Total shares authorized 2,000,000,000
-----------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
<CAPTION>
FORTRESS SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,014,269 $ 19,652,159 1,295,783 $ 12,793,467
- ------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 40,074 389,915 22,393 218,275
- ------------------------------------------------------
Shares redeemed (719,239) (6,978,035) (299,885) (2,914,764)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
Fortress share transactions 1,335,104 $ 13,064,039 1,018,291 $ 10,096,978
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,713,041 $ 55,927,556 7,174,691 $ 71,352,176
- ------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 111,389 1,084,149 108,095 1,056,767
- ------------------------------------------------------
Shares redeemed (2,647,044) (25,684,893) (5,211,977) (50,582,198)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
Class A share transactions 3,177,386 $ 31,326,812 2,070,809 $ 21,826,745
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from
share transactions 4,512,490 $ 44,390,851 3,089,100 $ 31,923,723
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.40 of 1% of the Fund's average 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 Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. This fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp., the principal distributor, from the net
assets of the Fund to finance activities intended to result in the sale of the
Fund's Fortress Shares and Class A shares. The Plan provides that the Fund may
incur distribution expenses 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>
Fortress Shares 0.15 of 1%
Class A Shares 0.25 of 1%
</TABLE>
Limited Term Municipal Fund
- --------------------------------------------------------------------------------
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 up to .25 of 1%
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 AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("Fserv") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational and/or 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/or start-up administrative expenses during the five year period following
effective date. For the period ended November 30, 1995, the Fund paid $8,053
pursuant to this agreement.
INTERFUND TRANSACTIONS--During the period ended November 30, 1995, the
Corporation 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 $61,050,000 and $66,599,999, 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
November 30, 1995, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 52,006,348
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 22,124,447
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
SUBSEQUENT EVENT--Effective January 31, 1996, the Fund changed its name from
Limited Term Municipal Fund to Federated Limited Term Municipal Fund. Effective
January 31, 1996, the Fortress Shares changed its name to Class F Shares.
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of LIMITED TERM MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Limited Term Municipal Fund as of November 30,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended November 30, 1995 and
1994 and financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of November 30, 1995
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Limited Term
Municipal Fund as of November 30, 1995, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 17, 1996
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 prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
[logo] FEDERATED FUNDS
Since 1955 WHERE EXPERTS INVEST
Federated Securities Corp. is the distributor of the fund.
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 338319502
Cusip 338319403
G00278-02 (1/96)
[LOGO] FEDERATED INVESTORS
Strategic
Income
Fund
Annual Report
November 30, 1995
Established 1994
FIXED INCOME
President's Message
Dear Shareholder:
I am pleased to present the first Annual Report for Federated Strategic Income
Fund, formerly Strategic Income Fund, which covers the period from November 30,
1994 to November 30, 1995.
This report begins with an interview with the portfolio manager Randall S.
Bauer, Vice President, Federated Advisers. Following his interview are three
additional items of shareholder interest:
First a series of graphs indicating the fund's performance over time. These
investment charts show the value of reinvesting dividends and the benefit of a
continuous investment program.
Second, a complete listing of the fund's holdings indicating the income
opportunities available through a diversified portfolio of income-producing
bond investments.
Third, we have published the fund's complete financial statements.
Federated Strategic Income Fund is designed to pursue generous income from
bonds selected in three areas including U.S. government bonds, international
bonds, and U.S. high-yield, lower-rated corporate bonds.
Consistent with a favorable environment for bonds, i.e. lower interest rates in
the U.S. and in many international arenas, your fund delivered strong
performance during the reporting period. The Fund's Class A Shares posted a
total return of 15.64% based on net asset value for the 12-month period ending
November 30, 1995. The Fund's Class B Shares, Class C Shares and Fortress
Shares achieved total returns of 5.13%, 14.79% and 15.07%, respectively, based
on net asset value.*
The value of the fund's shares increased during the reporting period as
follows: Class A from $9.54 to $10.14; Class C from $9.54 to $10.14; and
Fortress Shares from $9.54 to $10.14. Class B Shares for the period from July
27, 1995 (date of initial public offering) to November 30, 1995, increased from
$10.00 to $10.14. Dividends paid per share during the reporting period totaled
$0.83 for Class A Shares, $0.24 for Class B Shares, $0.75 for Class C Shares,
and $0.78 for Fortress Shares. At the end of the period, the fund's net assets
stood at $16.3 million.
* Performance quoted represents past performance. 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 Fortress Shares were 10.43%, (.47%), 13.66%, and 12.76%,
respectively.
In 1995 bond fund managers were pleased to be working in a favorable market
environment which was in sharp contrast to 1994. In 1996, Federated Strategic
Income Fund will continue its diversification by class and by countries, and
will concentrate on selected issues.
We trust you were pleased with the positive performance of your investment in
Federated Strategic Income Fund. Remember, reinvesting your earnings is a
convenient way to build your account-and help your money grow through the
benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
Richard B. Fisher
President
January 15, 1996
Investment Review
Randall S. Bauer
Vice President
Federated Advisers
Q During the 12-month reporting period from November 30, 1994 to November 30,
1995, the bond markets in the U.S. and around the world generated very
positive returns. This was quite a contrast to the previous year. Can you
comment?
A The main reason behind the fine general performance of the U.S. bond
market in 1995 was the fairly clear evidence that economic activity is
slowing down, and along with it, a favorable outlook for inflation. Also
bolstering the market, some progress was perceived on taming the chronic
U.S. budget deficit.
Overseas markets have also performed well as a result of slowing economic
activity, though a significant portion of the return to U.S. investors from
these markets has been the result of a decline in the value of the U.S. dollar
against many foreign currencies.
Q How did Strategic Income Fund perform for shareholders?
A The fund's Class A Shares posted a total return for the fiscal year ended
November 30, 1995 of 15.64% based on net asset value. The fund's returns
were consistent with the Lipper General Bond fund category return of 15.63%
for the same period.* The fund's Class B Shares, Class C Shares and Fortress
Shares achieved total returns of 5.13%, 14.79% and 15.07%, respectively,
based on net asset value.**
Specific areas that performed very well were U.S. Treasury and high- quality
U.S. corporate securities, as well as non-dollar securities issued by the "core
European" governments like Germany and the Netherlands. Areas which performed
less well on a relative basis (though still quite well on an absolute basis)
were U.S. mortgage securities, emerging markets securities and U.S. high yield
securities, particularly those in the single-B ratings category.
* Past performance is not indicative of future results. Lipper returns do not
take sales charges into account.
** Performance quoted represents past performance. 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 Fortress Shares were 10.43%, (0.47%), 13.66%, and 12.76%,
respectively.
Q Strategic Income Fund invests primarily in three key sectors of the bond
market: U.S. government, international and U.S. corporate high-yield,
lower-rated bonds. How are the fund's assets allocated among these three
sectors as of November 30, 1995?
A The fund's allocation targets at November 30, 1995 were as follows: 20.3%
in international bonds; 34.8% in U.S. government bonds; and 26.4% in U.S.
high-yield, lower-rated corporate bonds.
Q What is your outlook for each sector?
A The U.S. bond market had an excellent run over the past twelve months. Thus,
we have moved our U.S. government allocation back a bit to 30% from 35%-40%
range where it had been for the past several months. Within the government
allocation, both mortgages and Treasuries will continue to be owned, with a
slight bias toward the former.
U.S. corporate high yield bonds continue to receive a moderate underweight
position in the portfolio (26.4%). We believe there will still be high yield
issuers that perform well in 1996.
Finally, in the non-U.S. market, prospects for steady lower rates look
reasonable in both developed and emerging countries, justifying the
international sector allocation of 20.3% as the fund's largest. Growth in
nearly all developed markets is waning, and long-term bond yields in most of
these offer a yield premium over their U.S. counterparts. Emerging markets will
continue to exhibit volatility, but in general investors are being rewarded for
this greater volatility with higher yield potential and improving economic
fundamentals. Diversifying emerging markets exposure across 26 countries should
help to dampen volatility, though the investor should remember that investments
in less mature markets will exhibit a greater degree of variability than
similar investments in more developed economies. The fund will continue to hold
a combination of both developed and emerging markets exposure in its
international component, though current exposure is biased toward the latter.
Q With 1994's series of rate increases, do you foresee a continued positive
environment for bonds?
A Yes. As long as the Federal Reserve maintains its current vigilant posture,
economic activity continues to decline into the 0%-2% Gross Domestic
Product growth range, current progress on the reduction of the U.S. fiscal
and trade deficits continues to occur, there is no reason to expect
otherwise. As you can tell from our remarks, 1995 was a very good year, and
even the combination of 1994-1995 performance, in hindsight, is acceptable.
1996 is expected to be positive, but not to the same extent of 1995.
Two Ways You May Seek to Invest for Success in
Strategic Income Fund
If you had made an initial investment of $2,000 in the Class A Shares of
Strategic Income Fund on 5/4/94, reinvested dividends and capital gains, and
didn't redeem any shares, your account would have been worth $2,208 on
11/30/95. You would have earned a 6.49% average annual total return for the
1-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 12/31/95, the Class A Shares' average annual one-year and since
inception (5/4/94) total returns were 12.94% and 7.18%, respectively. Class B
Shares' since inception (7/27/95) cumulative total return was 1.18%. Class C
Shares' average annual one-year and since inception (5/2/94) total returns were
16.42% and 9.41%, respectively. Fortress Shares' average annual one-year and
since inception (5/10/94) total returns were 15.48% and 8.49%, respectively.
Graphic representation "L" omitted. See Appendix.
* The total return stated takes into account the 4.50% sales charge for Class
A Shares, the 5.50% contingent deferred sales charge for Class B Shares, the
1.00% contingent deferred sales charge for Class C Shares and the 1.00%
sales charge and 1.00% contingent deferred sales charge for Fortress 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.
Strategic Income Fund
One Step at a Time:
$1,000 invested each year for 1 year (reinvesting all dividends and capital
gains) grew to $2,113.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Strategic
Income Fund on 5/4/94, reinvested your dividends and capital gains and didn't
redeem any shares, you would have invested only $2,000, but your account would
have reached a total value of $2,113* by 11/30/95. You would have earned an
average annual total return of 5.40%.
A practical investment plan helps you pursue a high level of income by
investing in high-quality debt securities invested in the United States and
around the world. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. You can take it one step at a time. Put time and
compounding to work!
Grahpic representation "M" 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.
Strategic Income Fund-
Portfolio Update
Graphic representation "N" omitted. See Appendix.
Serving a Wide Range of Investors
Grahpic representaion "O" omitted. See Appendix.
Strategic Income Fund-
(Class A Shares)
Growth of $10,000 Invested in
Strategic Income Fund (Class A Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Strategic Income Fund (Class A Shares) (the "Fund") from May 4, 1994 (start of
performance) to November 30, 1995 compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)+ and the Lipper General Bond Funds
Average (LGBFA).++
Grahpic representation "P" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after
deducting the maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge = $9,550). The Fund's performance assumes the reinvestment of
all dividends and distributions. The LBG/CBI and the LGBFA have been
adjusted to reflect reinvestment of dividends on securities in the index
and average. The index is unmanaged.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
++ The LGBFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees
that the SEC requires to be reflected in a fund's performance.
Strategic Income Fund-
(Class B Shares)
Growth of $10,000 Invested in
Strategic Income Fund (Class B Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Strategic Income Fund (Class B Shares) (the "Fund") from July 27, 1995 (start
of performance) to November 30, 1995 compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)+ and Lipper General Bond Funds
Average (LGBFA).++
Graphic representation "Q" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 5.50% contingent deferred sales charge on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The LBG/CBI
and the LGBFA have been adjusted to reflect reinvestment of dividends on
securities in the index and average. The index is unmanaged.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
++ The LGBFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees
that the SEC requires to be reflected in a fund's performance.
Strategic Income Fund-
(Class C Shares)
Growth of $10,000 Invested in
Strategic Income Fund (Class C Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Strategic Income Fund (Class C Shares) (the "Fund") from May 2, 1994 (start of
performance) to November 30, 1995 compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)+ and the Lipper General Bond Funds
Average (LGBFA).++
Graphic representation "R" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less
than 1 year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The LBG/CBI and the LGBFA
have been adjusted to reflect reinvestment of dividends on securities in
the index and average. The index is unmanaged.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
++ The LGBFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees
that the SEC requires to be reflected in a fund's performance.
Strategic Income Fund-
(Fortress Shares)
Growth of $10,000 Invested in
Strategic Income Fund (Fortress Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Strategic Income Fund (Fortress Shares) (the "Fund") from May 10, 1994 (start
of performance) to November 30, 1995 compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)+ and the Lipper General Bond Funds
Average (LGBFA).++
Graphic representation "S" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900). The ending value of the Fund reflects a contingent
deferred sales charge of 1.00% on any redemption less than 4 years from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The LBG/CBI and the LGBFA have been adjusted
to reflect reinvestment of dividends on securities in the index and average.
The index is unmanaged.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
++ The LGBFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the SEC requires to be reflected in a fund's performance.
Strategic Income Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--25.9%
- ------------------------------------------------------------------------------------------------
AUTOMOTIVE--0.7%
-------------------------------------------------------------------------------
$ 50,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 $ 52,375
-------------------------------------------------------------------------------
50,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 54,000
------------------------------------------------------------------------------- -------------
Total 106,375
------------------------------------------------------------------------------- -------------
BANKING--0.4%
-------------------------------------------------------------------------------
50,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 57,062
------------------------------------------------------------------------------- -------------
BEVERAGE & TOBACCO--0.6%
-------------------------------------------------------------------------------
50,000 Cott Corp., Sr. Note, 9.375%, 7/1/2005 49,500
-------------------------------------------------------------------------------
50,000 Dr Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 40,250
------------------------------------------------------------------------------- -------------
Total 89,750
------------------------------------------------------------------------------- -------------
BROADCAST RADIO & TV--1.9%
-------------------------------------------------------------------------------
50,000 Argyle Television, Inc., Sr. Sub., 9.75%, 11/1/2005 49,312
-------------------------------------------------------------------------------
50,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 53,750
-------------------------------------------------------------------------------
100,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 106,000
-------------------------------------------------------------------------------
50,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 51,375
-------------------------------------------------------------------------------
50,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 52,875
------------------------------------------------------------------------------- -------------
Total 313,312
------------------------------------------------------------------------------- -------------
BUSINESS EQUIPMENT & SERVICES--0.3%
-------------------------------------------------------------------------------
50,000 (a)Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 52,250
------------------------------------------------------------------------------- -------------
CABLE TELEVISION--2.9%
-------------------------------------------------------------------------------
100,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 71,500
-------------------------------------------------------------------------------
50,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 52,750
-------------------------------------------------------------------------------
25,000 Fundy Cable Ltd./Ltee, Sr. Secd. 2nd Priority Note, 11.00%,
11/15/2005 25,562
-------------------------------------------------------------------------------
50,000 Insight Communication Co., Sr. Sub. Note, 8.25%, 3/1/2000 50,250
-------------------------------------------------------------------------------
100,000 International Cabletel, Inc., Sr. Note, 0/12.75%, 4/15/2005 61,125
-------------------------------------------------------------------------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
CABLE TELEVISION--CONTINUED
-------------------------------------------------------------------------------
$ 50,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 $ 52,938
-------------------------------------------------------------------------------
50,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 28,125
-------------------------------------------------------------------------------
125,000 TeleWest plc, Sr. Disc. Deb., 0/11.00%, 10/1/2007 73,281
-------------------------------------------------------------------------------
50,000 Wireless One, Inc., Unit, 13.00%, 10/15/2003 51,750
------------------------------------------------------------------------------- -------------
Total 467,281
------------------------------------------------------------------------------- -------------
CHEMICALS & PLASTICS--2.0%
-------------------------------------------------------------------------------
50,000 Arcadian Partners, L.P., Sr. Note, Series B, 10.75%, 5/1/2005 55,000
-------------------------------------------------------------------------------
50,000 (a)Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 50,875
-------------------------------------------------------------------------------
100,000 G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 75,875
-------------------------------------------------------------------------------
50,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 51,750
-------------------------------------------------------------------------------
100,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 95,500
------------------------------------------------------------------------------- -------------
Total 329,000
------------------------------------------------------------------------------- -------------
CLOTHING & TEXTILES--0.6%
-------------------------------------------------------------------------------
100,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 101,500
------------------------------------------------------------------------------- -------------
CONGLOMERATES--0.6%
-------------------------------------------------------------------------------
100,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 104,500
------------------------------------------------------------------------------- -------------
CONSUMER PRODUCTS--1.6%
-------------------------------------------------------------------------------
50,000 (a)Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 52,875
-------------------------------------------------------------------------------
50,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 54,750
-------------------------------------------------------------------------------
100,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 108,500
-------------------------------------------------------------------------------
50,000 (a)Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 44,250
------------------------------------------------------------------------------- -------------
Total 260,375
------------------------------------------------------------------------------- -------------
CONTAINER & GLASS PRODUCTS--1.0%
-------------------------------------------------------------------------------
50,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 53,000
-------------------------------------------------------------------------------
50,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 52,500
-------------------------------------------------------------------------------
$ 50,000 Portola Packaging Inc., Sr. Note, 10.75%, 10/1/2005 $ 51,625
------------------------------------------------------------------------------- -------------
Total 157,125
------------------------------------------------------------------------------- -------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
COSMETICS & TOILETRIES--0.2%
-------------------------------------------------------------------------------
25,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 25,000
------------------------------------------------------------------------------- -------------
ECOLOGICAL SERVICES & EQUIPMENT--0.3%
-------------------------------------------------------------------------------
50,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%,
2/15/2003 48,500
------------------------------------------------------------------------------- -------------
FOOD & DRUG RETAILERS--0.9%
-------------------------------------------------------------------------------
50,000 (a)Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 50,125
-------------------------------------------------------------------------------
50,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 46,812
-------------------------------------------------------------------------------
50,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 49,375
------------------------------------------------------------------------------- -------------
Total 146,312
------------------------------------------------------------------------------- -------------
FOOD PRODUCTS--1.2%
-------------------------------------------------------------------------------
100,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 103,000
-------------------------------------------------------------------------------
50,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 43,250
-------------------------------------------------------------------------------
50,000 (a)Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 51,625
------------------------------------------------------------------------------- -------------
Total 197,875
------------------------------------------------------------------------------- -------------
FOOD SERVICES--0.3%
-------------------------------------------------------------------------------
50,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 45,750
------------------------------------------------------------------------------- -------------
FOREST PRODUCTS--0.9%
-------------------------------------------------------------------------------
50,000 Repap New Brunswick, 1st Priority Sr. Secd. Note, 9.875%,
7/15/2000 50,563
-------------------------------------------------------------------------------
50,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 55,500
-------------------------------------------------------------------------------
50,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 48,688
------------------------------------------------------------------------------- -------------
Total 154,751
------------------------------------------------------------------------------- -------------
HEALTHCARE--1.3%
-------------------------------------------------------------------------------
52,813 AmeriSource Health Corp., Sr. Deb., 11.25%, 7/15/2005 57,830
-------------------------------------------------------------------------------
$ 50,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 $ 52,062
-------------------------------------------------------------------------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
HEALTHCARE--CONTINUED
-------------------------------------------------------------------------------
100,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 108,875
------------------------------------------------------------------------------- -------------
Total 218,767
------------------------------------------------------------------------------- -------------
HOME PRODUCTS & FURNISHINGS--0.3%
-------------------------------------------------------------------------------
50,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 42,250
------------------------------------------------------------------------------- -------------
HOTELS, MOTELS, INNS & CASINOS--0.3%
-------------------------------------------------------------------------------
50,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 50,125
------------------------------------------------------------------------------- -------------
INDUSTRIAL PRODUCTS & EQUIPMENT--0.3%
-------------------------------------------------------------------------------
50,000 (a)Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 53,000
------------------------------------------------------------------------------- -------------
LEISURE & ENTERTAINMENT--1.1%
-------------------------------------------------------------------------------
50,000 Alliance Entertainment Corp., Sr. Sub. Note, 11.25%, 7/15/2005 50,000
-------------------------------------------------------------------------------
50,000 (a)Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 51,250
-------------------------------------------------------------------------------
100,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 78,250
------------------------------------------------------------------------------- -------------
Total 179,500
------------------------------------------------------------------------------- -------------
MACHINERY & EQUIPMENT--0.3%
-------------------------------------------------------------------------------
50,000 Waters Corp., Sr. Sub. Note, 12.75%, 9/30/2004 55,250
------------------------------------------------------------------------------- -------------
OIL & GAS--0.6%
-------------------------------------------------------------------------------
50,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 50,750
-------------------------------------------------------------------------------
50,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 51,125
------------------------------------------------------------------------------- -------------
Total 101,875
------------------------------------------------------------------------------- -------------
PRINTING & PUBLISHING--0.3%
-------------------------------------------------------------------------------
50,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 50,250
------------------------------------------------------------------------------- -------------
RETAILERS--0.3%
-------------------------------------------------------------------------------
50,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 43,750
------------------------------------------------------------------------------- -------------
STEEL--0.9%
-------------------------------------------------------------------------------
50,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 44,000
-------------------------------------------------------------------------------
$ 50,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 $ 49,500
-------------------------------------------------------------------------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
- --------------- ------------------------------------------------------------------------------- -------------
U.S. CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
STEEL--CONTINUED
-------------------------------------------------------------------------------
50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 49,500
------------------------------------------------------------------------------- -------------
Total 143,000
------------------------------------------------------------------------------- -------------
SURFACE TRANSPORTATION--1.4%
-------------------------------------------------------------------------------
50,000 (a)AmeriTruck Distribution, Sr. Sub. Note, 12.25%, 11/15/2005 49,375
-------------------------------------------------------------------------------
50,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 53,125
-------------------------------------------------------------------------------
25,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 22,625
-------------------------------------------------------------------------------
50,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 49,125
-------------------------------------------------------------------------------
50,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 52,000
------------------------------------------------------------------------------- -------------
Total 226,250
------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--2.0%
-------------------------------------------------------------------------------
50,000 Cellular Communications International, Inc., Unit,
13.25% zero coupon, 8/15/2000 30,250
-------------------------------------------------------------------------------
50,000 (a)IXC Communications, Inc., Sr. Note, 13.00%, 10/1/2005 52,375
-------------------------------------------------------------------------------
50,000 MobileMedia Corp., Sr. Sub. Note, 9.375%, 11/1/2007 50,625
-------------------------------------------------------------------------------
50,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 30,125
-------------------------------------------------------------------------------
50,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 53,375
-------------------------------------------------------------------------------
75,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 61,125
-------------------------------------------------------------------------------
50,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 49,188
------------------------------------------------------------------------------- -------------
Total 327,063
------------------------------------------------------------------------------- -------------
UTILITIES--0.4%
-------------------------------------------------------------------------------
75,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 69,750
------------------------------------------------------------------------------- -------------
TOTAL U.S. CORPORATE BONDS (IDENTIFIED COST $4,053,083) 4,217,548
------------------------------------------------------------------------------- -------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY IN U.S.
PAR AMOUNT DOLLARS
<S> <S> <C>
INTERNATIONAL BONDS--19.9%
- ------------------------------------------------------------------------------------------------
AUSTRALIAN DOLLAR--0.6%
- ------------------------------------------------------------------------------------------------
CORPORATE--0.6%
-------------------------------------------------------------------------------
150,000 News America Holdings, Inc., 8.625%, 2/7/2014 $ 98,245
------------------------------------------------------------------------------- -------------
CANADIAN DOLLAR--0.5%
- ------------------------------------------------------------------------------------------------
CORPORATE--0.5%
-------------------------------------------------------------------------------
100,000 Sherritt, Inc., 11.00%, 3/31/2004 75,856
------------------------------------------------------------------------------- -------------
BRITISH POUND--0.9%
- ------------------------------------------------------------------------------------------------
CORPORATE--0.9%
-------------------------------------------------------------------------------
100,000 Abbey National Treasury Services PLC, 8.00%, 4/2/2003 153,858
------------------------------------------------------------------------------- -------------
MEXICAN PESO--3.5%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--3.5%
-------------------------------------------------------------------------------
2,206,250 Mexican Cetes, 1/11/1996 276,052
-------------------------------------------------------------------------------
3,275,710 Mexican Cetes, 11/7/1996 299,403
------------------------------------------------------------------------------- -------------
Total 575,455
------------------------------------------------------------------------------- -------------
SOUTH AFRICAN RAND--1.7%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--1.7%
-------------------------------------------------------------------------------
1,000,000 Transnet Ltd., 12.50%, 4/1/1997 274,324
------------------------------------------------------------------------------- -------------
SPANISH PESETA--0.5%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--0.5%
-------------------------------------------------------------------------------
10,000,000 Spain (Government), 10.00%, 2/28/2005 80,208
------------------------------------------------------------------------------- -------------
U.S. DOLLAR--12.2%
- ------------------------------------------------------------------------------------------------
SOVEREIGN--12.2%
-------------------------------------------------------------------------------
$ 100,000 (b)Argentina Bocon Pre 4 (2), 5.8359%, 9/1/2002 67,500
-------------------------------------------------------------------------------
97,000 (b)Brazil IDU, 6.6875%, 1/1/2001 82,450
-------------------------------------------------------------------------------
250,000 Central Bank of Nigeria, 6.25%, 11/15/2020 117,500
-------------------------------------------------------------------------------
300,000 Indah Kiat International Finance, 12.50%, 6/15/2006 306,000
-------------------------------------------------------------------------------
250,000 (b)Republic of Argentina, Discount Bond, 6.5625%, 3/31/2023 151,250
-------------------------------------------------------------------------------
$ 750,000 Republic of Argentina, Par Bond, 5.00%, 3/31/2023 $ 391,875
-------------------------------------------------------------------------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
PAR AMOUNT
OR PRINCIPAL VALUE
AMOUNT IN U.S.
OR SHARES DOLLARS
<S> <S> <C>
U.S. DOLLAR--CONTINUED
- ------------------------------------------------------------------------------------------------
SOVEREIGN--CONTINUED
-------------------------------------------------------------------------------
500,000 Republic of Brazil, 'C' Bond, 4.00%, 4/15/2014 265,000
-------------------------------------------------------------------------------
300,000 Petroleo Brasileiro S.A., 10.2125%, 6/8/1998 303,750
-------------------------------------------------------------------------------
300,000 Telefonica de Argentina S.A., Note, 11.875%, 11/1/2004 301,782
------------------------------------------------------------------------------- -------------
Total 1,987,107
------------------------------------------------------------------------------- -------------
TOTAL INTERNATIONAL BONDS (IDENTIFIED COST $3,151,529) 3,245,053
------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT/AGENCY--34.2%
- ------------------------------------------------------------------------------------------------
LONG-TERM GOVERNMENT OBLIGATIONS--16.1%
-------------------------------------------------------------------------------
489,682 Federal Home Loan Mortgage Corp., 7.50%, 10/1/2025 498,853
-------------------------------------------------------------------------------
145,272 Federal National Mortgage Association, 6.50%, 2/1/2009 144,952
-------------------------------------------------------------------------------
497,360 Federal National Mortgage Association, 7.00%, 5/1/2024 497,355
-------------------------------------------------------------------------------
304,030 Government National Mortgage Association, 9.00%, 10/15/2016 323,312
-------------------------------------------------------------------------------
479,883 Government National Mortgage Association, 7.50%, 3/15/2024 490,071
-------------------------------------------------------------------------------
478,293 Government National Mortgage Association, 9.50%, 2/15/2025 512,214
-------------------------------------------------------------------------------
165,000 (c)Government National Mortgage Association, 6.50%, 1/31/1996 162,111
------------------------------------------------------------------------------- -------------
Total 2,628,868
------------------------------------------------------------------------------- -------------
U.S. TREASURY NOTES--18.1%
-------------------------------------------------------------------------------
2,855,000 United States Treasury Notes, 5.75%-6.50%, 8/15/2002-11/15/2005 2,942,164
------------------------------------------------------------------------------- -------------
TOTAL U.S. GOVERNMENT/AGENCY (IDENTIFIED COST $5,447,847) 5,571,032
------------------------------------------------------------------------------- -------------
COMMON STOCKS--0.0%
- ------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS--0.0%
-------------------------------------------------------------------------------
1,000 Uniroyal Technology Corp., Warrants 3,000
------------------------------------------------------------------------------- -------------
CONSUMER PRODUCTS--0.0%
-------------------------------------------------------------------------------
100 IHF Capital, Inc., Warrants 2,500
------------------------------------------------------------------------------- -------------
</TABLE>
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<S> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--0.0%
-------------------------------------------------------------------------------
883 (f)Grand Union Co. $ 6,622
------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $51,369) 12,122
------------------------------------------------------------------------------- -------------
(D) REPURCHASE AGREEMENT--18.1%
- ------------------------------------------------------------------------------------------------
$ 2,955,000 J.P. Morgan Securities, Inc., 5.93%, dated 11/30/1995,
due 12/1/1995 (at amortized cost) 2,955,000
------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $15,658,828) (E) $ 16,000,755
------------------------------------------------------------------------------- -------------
</TABLE>
(a) 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 $508,000 which represents 3.1% of net assets.
(b) Denotes variable rate and floating rate securities which show current rate.
(c) Includes securities with a market value of $162,111 subject to Dollar Roll
transactions.
(d) 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 agreements is through participation in a joint
account with other Federated funds.
(e) The cost of investments for federal tax purposes amounts to $15,658,828.
The net unrealized appreciation of investments on a federal tax basis
amounts to $341,927 which is comprised of $457,386 appreciation and
$115,459 depreciation at November 30, 1995.
(f) Non-income producing security.
Note: The categories of investments are shown as a percentage of net assets
($16,295,266) at November 30, 1995.
The following acronyms are used throughout this portfolio:
LP--Limited Partnership
PLC--Public Limited Company
TBA--To Be Announced
TRANs--Tax and Revenue Anticipation Notes
(See Notes which are an integral part of the Financial Statements)
Strategic Income Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Investments in repurchase agreements $2,955,000
- ----------------------------------------------------------------------------------------
Investments in securities 13,045,755
- ---------------------------------------------------------------------------------------- ----------
Total investments in securities, at amortized cost and at value (identified and tax cost
$15,658,828) $16,000,755
- ----------------------------------------------------------------------------------------------------
Income receivable 270,770
- ----------------------------------------------------------------------------------------------------
Receivable for investments sold 1,921,786
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 334,700
- ----------------------------------------------------------------------------------------------------
Receivable for foreign currency sold 3,044,066
- ----------------------------------------------------------------------------------------------------
Deferred expenses 28,976
- ---------------------------------------------------------------------------------------------------- ----------
Total assets 21,601,053
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased 1,949,086
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 48,758
- ----------------------------------------------------------------------------------------
Income distribution payable 47,802
- ----------------------------------------------------------------------------------------
Payable to Bank 26,767
- ----------------------------------------------------------------------------------------
Payable for dollar roll transactions 158,762
- ----------------------------------------------------------------------------------------
Payable for foreign currency purchased 3,038,116
- ----------------------------------------------------------------------------------------
Accrued expenses 36,496
- ---------------------------------------------------------------------------------------- ----------
Total liabilities 5,305,787
- ---------------------------------------------------------------------------------------------------- ----------
NET ASSETS for 1,607,338 shares outstanding $16,295,266
- ---------------------------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $15,835,430
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and liabilities in foreign
currency 331,647
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 135,565
- ----------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (7,376)
- ---------------------------------------------------------------------------------------------------- ----------
Total Net Assets $16,295,266
- ---------------------------------------------------------------------------------------------------- ----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($5,088,830 / 502,051 shares outstanding) $10.14
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share (100/95.50 of $10.14)*** $10.62
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share $10.14
- ---------------------------------------------------------------------------------------------------- ----------
CLASS B SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($5,192,599 / 512,083 shares outstanding) $10.14
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share $10.14
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (94.50/100 of $10.14)** $9.58
- ---------------------------------------------------------------------------------------------------- ----------
CLASS C SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($2,323,210 / 229,157 shares outstanding) $10.14
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share $10.14
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (99.00/100 of $10.14)** $10.04
- ---------------------------------------------------------------------------------------------------- ----------
FORTRESS SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($3,690,627 / 364,047 shares outstanding) $10.14
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share (100/99.00 of $10.14)* $10.24
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (99.00/100 of $10.14)** $10.04
- ---------------------------------------------------------------------------------------------------- ----------
</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)
Strategic Income Fund
Statement of Operations
- -----------------------------------------------------------------------------
Year Ended November 30, 1995
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest (net of dollar roll expense of $13,608) (net of foreign taxes withheld of $1,286) $ 848,265
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee $ 80,713
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 195,438
- -----------------------------------------------------------------------------------------
Custodian fees 61,174
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 48,766
- -----------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,670
- -----------------------------------------------------------------------------------------
Auditing fees 10,787
- -----------------------------------------------------------------------------------------
Legal fees 2,585
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 40,050
- -----------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 5,750
- -----------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 14,272
- -----------------------------------------------------------------------------------------
Distribution services fee--Fortress Shares 16,351
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 8,890
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 1,916
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 4,758
- -----------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares 8,175
- -----------------------------------------------------------------------------------------
Share registration costs 25,544
- -----------------------------------------------------------------------------------------
Printing and postage 39,740
- -----------------------------------------------------------------------------------------
Insurance premiums 5,962
- -----------------------------------------------------------------------------------------
Taxes 200
- -----------------------------------------------------------------------------------------
Miscellaneous 26,554
- ----------------------------------------------------------------------------------------- ----------
Total expenses 600,295
- -----------------------------------------------------------------------------------------
Waivers and reimbursements--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee ($80,712)
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses (459,438)
- ----------------------------------------------------------------------------- ----------
Total waivers and reimbursements (540,150)
- ----------------------------------------------------------------------------------------- ----------
Net expenses 60,145
- ----------------------------------------------------------------------------------------------------- -----------
Net investment income 788,120
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 127,454
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency 480,617
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments and foreign currency 608,071
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 1,396,191
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Strategic Income Fund
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
1995 1994(A)
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 788,120 $ 146,412
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions
($150,376 net gain and $13,691 net loss, respectively, as computed
for federal income tax purposes) 127,454 (27,206)
- -------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currency 480,617 (148,970)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from operations 1,396,191 (29,764)
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------------
Class A Shares (298,490) (67,293)
- -------------------------------------------------------------------------------
Class B Shares (56,417) --
- -------------------------------------------------------------------------------
Class C Shares (146,756) (26,526)
- -------------------------------------------------------------------------------
Fortress Shares (259,159) (46,354)
- -------------------------------------------------------------------------------
Distributions in excess of net investment income
- -------------------------------------------------------------------------------
Class A Shares -- (5,083)
- -------------------------------------------------------------------------------
Class C Shares -- (2,969)
- -------------------------------------------------------------------------------
Fortress Shares -- (6,411)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to shareholders (760,822) (154,636)
- ------------------------------------------------------------------------------- --------------- ---------------
SHARES TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 11,455,785 7,743,495
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 335,692 64,166
- -------------------------------------------------------------------------------
Cost of shares redeemed (2,013,555) (1,741,286)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 9,777,922 6,066,375
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets 10,413,291 5,881,975
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 5,881,975 --
- ------------------------------------------------------------------------------- --------------- ---------------
End of period $ 16,295,266 $ 5,881,975
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(a) For the period from April 29, 1994 (date of initial public investment) to
November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
Strategic Income Fund
Financial Highlights--Class A Shares
-----------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.82 0.45
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.61 (0.45)
- ------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.43 0.00
- ------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions from net investment income (0.83) (0.45)
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.01)
- ------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.83) (0.46)
- ------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 9.54
- ------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (C) 15.64% 0.05%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.25% 0.25%*
- -------------------------------------------------------------------------------------------
Net investment income 8.68% 8.38%*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.69 (e) 8.87%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $5,089 $2,366
- -------------------------------------------------------------------------------------------
Portfolio turnover 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)
Strategic Income Fund
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30, 1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income 0.25
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency 0.13
- ----------------------------------------------------------------------------------- -------
Total from investment operations 0.38
- ----------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------
Distributions from net investment income (0.24)
- ----------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 10.14
- ----------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 5.13%
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 1.00%*
- -----------------------------------------------------------------------------------
Net investment income 7.95%*
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 5.69%*(d)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $5,193
- -----------------------------------------------------------------------------------
Portfolio turnover 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)
Strategic Income Fund
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.74 0.40
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.61 (0.44)
- ------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.35 (0.04)
- ------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions from net investment income (0.75) (0.40)
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.02)
- ------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.75) (0.42)
- ------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 9.54
- ------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (C) 14.79% (0.41%)
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 1.00% 1.00%*
- -------------------------------------------------------------------------------------------
Net investment income 7.93% 7.99%*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.69 (e) 8.87%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $2,323 $1,190
- -------------------------------------------------------------------------------------------
Portfolio turnover 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)
Strategic Income Fund
Financial Highlights--Fortress Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1995 1994(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.77 0.41
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.61 (0.44)
- ------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.38 (0.03)
- ------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions from net investment income (0.78) (0.41)
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.02)
- ------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.78) (0.43)
- ------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 9.54
- ------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (C) 15.07% (0.19%)
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.75% 0.75%*
- -------------------------------------------------------------------------------------------
Net investment income 8.19% 8.34%*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 5.69 (e) 8.87%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,691 $2,326
- -------------------------------------------------------------------------------------------
Portfolio turnover 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)
Strategic Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
November 30, 1995
(1) ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, (the "Act") as an open-end, management
investment company. The Corporation consists of three diversified portfolios.
The financial statements included herein are only those of Strategic Income Fund
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. During the fiscal
year ended November 30, 1994, the Corporation offered five portfolios (Limited
Term Fund, Limited Term Municipal Fund, Strategic Income Fund, Limited Maturity
Government Fund, and Multi-State Municipal Income Fund). As of December 23,
1994, and April 7, 1995 the Board of Directors approved the liquidation of
Limited Maturity Government Fund and Multi-State Municipal Income Fund,
respectively.
Effective July 26, 1995, the Fund added an additional class of shares Class B
Shares. The Fund currently offers four classes of shares: Class A Shares,
Fortress Shares, Class B Shares and Class C 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--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. All other securities are valued at
prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
Strategic Income Fund
- --------------------------------------------------------------------------------
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions. The following reclassifications have been
made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
<S> <C> <C>
ACCUMULATED
ACCUMULATED NET DISTRIBUTIONS IN EXCESS OF
PAID-IN CAPITAL REALIZED GAIN/LOSS NET INVESTMENT INCOME
($8,867) $29,078 ($20,211)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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
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.
FORWARD COMMITMENTS--The Fund may enter into forward commitments for the
delayed delivery of securities and forward foreign currency exchange
contracts which are based upon financial indices at a fixed price and
exchange rate at a future date. Risks may arise upon entering these
contracts from the potential inability of counterparts to meet the terms of
their contracts and from unanticipated movements in security prices and
foreign exchange rates. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any
gains or losses are recorded for financial statement purposes as unrealized
until the contract settlement date.
Strategic Income Fund
- --------------------------------------------------------------------------------
At November 30, 1995, the Fund had outstanding forward commitments set
forth below:
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT CONTRACTS TO IN EXCHANGE FOR APPRECIATION
DATE DELIVER/RECEIVE US $ (DEPRECIATION)
<S> <C> <C> <C> <C>
CONTRACTS--PURCHASED
- -------------------------------------
Canadian Dollar 01/08/1996 1,000,000 $ 747,552 $ 11,432
- -------------------------------------
Deutsche Mark 12/14/1995 500,000 340,460 (5,494)
- -------------------------------------
French Franc 01/23/1996 2,500,000 501,645 934
- -------------------------------------
Japanese Yen 12/08/1995 20,000,000 205,212 8,410
- -------------------------------------
CONTRACTS--SOLD
- -------------------------------------
Canadian Dollar 01/08/1996 1,000,000 736,198 (78)
- -------------------------------------
French Franc 01/23/1996 2,500,000 507,048 (6,337)
- ------------------------------------- -----------------
Net Unrealized
Appreciation on
Forward Commitments $ 8,867
- ------------------------------------- -----------------
</TABLE>
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, and 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 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 November 30,
1995 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
AmeriTruck Distribution, Sr. Sub. Note 11/10/95 $ 49,298
Cabot Safety Acquisition Corp., Sr. Sub. Note 6/29/95 50,000
Carr- Gottstein Foods Co., Sr. Sub. Note 11/29/95 50,000
Crain Industries, Inc., Sr. Sub. Note 11/27/95 51,000
Herff Jones, Inc., Sr. Sub. Note 8/14/95 50,578
IXC Communications, Inc., Sr. Sub. Note 9/25/95 48,639
Monarch Acquisition Corp., Sr. Note 6/23/95 50,000
Playtex Family Products Corp., Sr. Sub. Note 10/28/94 43,250
Premier Parks, Inc., Sr. Note 12/14/95 51,250
Van de Kamps Inc., Sr. Sub Note 11/27/95 51,625
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At November 30, 1995, par value shares ($0.001 per share) authorized were as
follows:
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POUND OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A 1,000,000,000
- --------------------------------------------------------------------------------------
Class B 1,000,000,000
- --------------------------------------------------------------------------------------
Class C 1,000,000,000
- --------------------------------------------------------------------------------------
Fortress 1,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
Total shares authorized 4,000,000,000
- -------------------------------------------------------------------------------------- --------------------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994(A)
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 311,635 $ 3,066,086 410,346 $ 4,053,169
- --------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 14,799 145,018 3,091 30,074
- --------------------------------------------------------------
Shares redeemed (72,417) (707,245) (165,403) (1,633,770)
- -------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Class A share
transactions 254,017 $ 2,503,859 248,034 $ 2,449,473
- -------------------------------------------------------------- --------- ------------ --------- -------------
</TABLE>
(a) For the period from May 3, 1994 (date of initial public offering) to
November 30, 1994.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
1995(B) 1994
CLASS B SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 518,732 $ 5,178,214 -- --
- --------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 2,277 22,812 -- --
- --------------------------------------------------------------
Shares redeemed (8,926) (89,477) -- --
- -------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Class B share
transactions 512,083 5,111,549 -- --
- -------------------------------------------------------------- --------- ------------ --------- -------------
</TABLE>
(b) For the period July 27, 1995 (date of initial public offering) to November
30, 1995.
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994(C)
CLASS C SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 134,093 $ 1,298,053 124,790 $ 1,226,296
- --------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 10,624 104,012 1,844 17,926
- --------------------------------------------------------------
Shares redeemed (40,201) (394,089) (1,993) (19,338)
- -------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Class C share
transactions 104,516 $ 1,007,976 124,641 $ 1,224,884
- -------------------------------------------------------------- --------- ------------ --------- -------------
</TABLE>
(c) For the period from April 29, 1994 (date of initial public investment) to
November 30, 1994.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994(D)
FORTRESS SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 197,486 $ 1,913,432 251,274 $ 2,464,030
- --------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 6,505 63,850 1,656 16,166
- --------------------------------------------------------------
Shares redeemed (83,709) (822,744) (9,165) (88,178)
- -------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Fortress Shares share
transactions 120,282 $ 1,154,538 243,765 $ 2,392,018
- -------------------------------------------------------------- --------- ------------ --------- -------------
Net change resulting from Fund share
transactions 990,898 $ 9,777,922 616,440 $ 6,066,375
- -------------------------------------------------------------- --------- ------------ --------- -------------
</TABLE>
(d) For the period May 9, 1994 (date of initial public offering) to November 30,
1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.85 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee and/ or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement at any time at its sole discretion.
Under the terms of a sub-advisory agreement between the Adviser and Federated
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.
Strategic Income Fund
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Class B Shares, Class C Shares, and Fortress 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 0.75 of 1%
- -----------------------------------------------------------------------------------------
Class C 0.75 of 1%
- -----------------------------------------------------------------------------------------
Fortress 0.50 of 1%
- -----------------------------------------------------------------------------------------
</TABLE>
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund shares for the period. This fee is to
obtain certain services for shareholders and to maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $103,466 and start-up
administrative service expenses of $46,630 were borne initially by Adviser. The
Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following effective
date. For the period ended November 30, 1995, the Fund paid $11,517 and $5,192,
pursuant to this agreement.
GENERAL--Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
Strategic Income Fund
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended November 30, 1995, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES-- $ 20,906,799
- --------------------------------------------------------------------------------------------------- -------------
SALES-- $ 14,081,643
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
SUBSEQUENT EVENT--Effective January 31, 1996, the Fund changed its name from
Strategic Income Fund to Federated Strategic Income Fund.
Effective January 31, 1996, the Fortress Shares changed its name to Class F
Shares.
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of STRATEGIC INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Strategic Income Fund (a portfolio of Fixed
Income Securities, Inc.) as of November 30, 1995, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended November 30, 1995 and 1994 and financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
November 30, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Strategic Income
Fund as of November 30, 1995, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
January 17, 1996
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 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 FUNDS
Where Experts Invest
Federated Securities Corp. is the distributor of the fund.
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 338319700
Cusip 338319809
Cusip 338319882
G00324-02 (1/96)
A. The graphic presentation here displayed consists of a legend in the upper
left quadrant of the chart indicating the components of the corresponding line
graph. The color-coded line graph is a visual representation of the narrative
text above it, which shows that an initial investment of $5,000 on 01/14/92 in
Limited Term Fund, would have grown to $4,952 by 11/30/95. The "x" axis
reflects the cost of the investment, the "y" axis reflects computation periods
from 1992 through 1995, and the right margin of the chart reflects a total
investment range from $0 to $5,000. The chart further indicates the ending
value attributable to principal, as well as the ending value attributable to
reinvested income.
B. The graphic presentation here displayed consists of a legend in the upper
left quadrant of the chart indicating the components of the corresponding line
graph. The color-coded line graph is a visual representation of the narrative
text above it, which shows that four annual investments of $1,000 beginning on
01/14/92 in Limited Term Fund, would have grown to $4,549 by 11/30/95. The
"x" axis reflects the cost of the investment, the "y" axis reflects
computation periods from 1992 through 1995, and the right margin of the chart
reflects a total investment range from $0 to $5,000. The chart further
indicates the ending value attributable to principal, as well as the ending
value attributable to reinvested income.
C. The graphic representation here consists of a two column table with the
heading "Some of the Fund's Major Shareholder Groups". The left hand column
lists the shareholder groups as follows: Individuals and Joint Tenants;
Trusts; Corporations; and Individual Retirement Accounts. The right-hand
column lists the net assets attributable to each group, respectively, as
follows: $24,418,769; $14,250,975; $11,840,710; and $7,876,544.
D. The graphic presentation here displayed consists of a legend beneath the
chart indicating the components of the corresponding line graph. Limited Term
Fund - Class A Shares (the "Fund") is represented by a solid line. Lipper
Short Intermediate Grade Debt Funds Average ("LSIGDFA") is represented by a
long broken line, and Merrill Lynch Short-Term Debt Index ("MLSTD") is
represented by a short broken line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 purchase in the
Fund and LSIGDFA and MLSTD. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the Fund's start of
performance, 01/14/92, through 11/30/95. The right margin of the chart
reflects the ending value of the hypothetical investment in the Fund as
compared to LSIGDFA and MLSTD; the ending values are $12,380, $12,248 and
$12,950, respectively.
E. The graphic presentation here displayed consists of a legend beneath the
chart indicating the components of the corresponding line graph. Limited Term
Fund -Fortress Shares (the "Fund") is represented by a solid line. Lipper
Short Intermediate Grade Debt Funds Average ("LSIGDFA") is represented by a
long broken line, and Merrill Lynch Short-Term Debt Index ("MLSTD") is
represented by a short broken line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 purchase in the
Fund and LSIGDFA and MLSTD. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the Fund's start of
performance, 01/14/92, through 11/30/95. The right margin of the chart
reflects the ending value of the hypothetical investment in the Fund as
compared to LSIGDFA and MLSTD; the ending values are $10,875, $11,058 and
$11,353, respectively.
F. The graphic presentation here displayed consists of a legend in the upper
left quadrant of the chart indicating the components of the corresponding line
graph. The color-coded line graph is a visual representation of the narrative
text above it, which shows that an initial investment of $3,000 on 09/01/93 in
Limited Term Municipal Fund, would have grown to $3,236 by 11/30/95. The "x"
axis reflects the cost of the investment, the "y" axis reflects computation
periods from 1993 through 1995, and the right margin of the chart reflects a
total investment range from $0 to $5,000. The chart further indicates the
ending value attributable to principal, as well as the ending value
attributable to reinvested income.
G. The graphic presentation here displayed consists of a legend in the upper
left quadrant of the chart indicating the components of the corresponding line
graph. The color-coded line graph is a visual representation of the narrative
text above it, which shows that two annual investments of $1,000 beginning on
09/01/93 in Limited Term Municipal Fund, would have grown to $3,140 by
11/30/95. The "x" axis reflects the cost of the investment, the "y" axis
reflects computation periods from 1992 through 1995, and the right margin of
the chart reflects a total investment range from $0 to $5,000. The chart
further indicates the ending value attributable to principal, as well as the
ending value attributable to reinvested income.
H. The graphic representation here consists of a pie graph with a heading
"Portfolio Overview as of November 30, 1995". The graph indicates the
percentages of securities that comprise the portfolio, and the bond ratings
assigned thereto. The ratings and percentages are as follows: "AAA"=7.5%;
"AA"=8.1%; "A"=25.8%; "NR"=18.4%; and "BBB"=40.2%.
I. The second graphic representation on this page consists of a two column
table with the heading "Some of the Fund's Major Shareholder Groups". The
left hand column lists the shareholder groups as follows: Individuals and
Joint Tenants; Trusts; Corporations; and Individual Retirement Accounts. The
right-hand column lists the net assets attributable to each group,
respectively, as follows: $24,418,769; $14,250,975; $11,840,710; and
$7,876,544.
J. The graphic presentation here displayed consists of a legend beneath the
chart indicating the components of the corresponding line graph. Limited Term
Municipal Fund - Class A Shares (the "Fund") is represented by a solid line.
Lehman Brothers Three Year State General Obligation Index ("LB3YRSGO") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a hypothetical $10,000 purchase in the Fund
and LB3YRSGO. The "y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the Fund's start of performance, 09/01/93,
through 11/30/95. The right margin of the chart reflects the ending value of
the hypothetical investment in the Fund as compared to LB3YRSGO; the ending
values are $10,786 and $11,097, respectively.
K. The graphic presentation here displayed consists of a legend beneath the
chart indicating the components of the corresponding line graph. Limited Term
Municipal Fund - Fortress Shares (the "Fund") is represented by a solid line.
Lehman Brothers Three Year State General Obligation Index ("LB3YRSGO") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a hypothetical $10,000 purchase in the Fund
and LB3YRSGO. The "y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the Fund's start of performance, 09/01/93,
through 11/30/95. The right margin of the chart reflects the ending value of
the hypothetical investment in the Fund as compared to LB3YRSGO; the ending
values are $10,723 and $11,097, respectively.
L. The graphic presentation here displayed consists of a legend in the upper
left quadrant of the chart indicating the components of the corresponding line
graph. The color-coded line graph is a visual representation of the narrative
text above it, which shows that an initial investment of $2,000 on 05/04/94 in
Strategic Income Fund-Class A Shares, would have grown to $2,208 by 11/30/95.
The "x" axis reflects the cost of the investment, the "y" axis reflects
computation periods from 1994 through 1995, and the right margin of the chart
reflects a total investment range from $0 to $2,500. The chart further
indicates the ending value attributable to principal, as well as the ending
value attributable to reinvested income.
M. The graphic presentation here displayed consists of a legend in the upper
left quadrant of the chart indicating the components of the corresponding line
graph. The color-coded line graph is a visual representation of the narrative
text above it, which shows that an annual investment of $1,000 on 09/01/93 in
Strategic Income Fund-Class A Shares, would have grown to $2,113 by 11/30/95.
The "x" axis reflects the cost of the investment, the "y" axis reflects
computation periods from 1994 through 1995, and the right margin of the chart
reflects a total investment range from $0 to $2,500. The chart further
indicates the ending value attributable to principal, as well as the ending
value attributable to reinvested income.
N. The graphic representation here consists of a pie graph with a heading
"Portfolio Overview as of November 30, 1995". The graph indicates the
percentages of the portfolio invested in each of the following securities:
U.S. Government/Agency Bonds-34.8%; U.S. Corporate Bonds-26.4%; International
Corporate Bonds-20.3%; and Repurchase Agreements-18.5%.
O. The second graphic representation on this page consists of a two column
table with the heading "Some of the Fund's Major Shareholder Groups". The
left hand column lists the shareholder groups as follows: Individuals and
Joint Tenants; and Individual Retirement Accounts; and Trusts. The right-hand
column lists the net assets attributable to each group, respectively, as
follows: $2,979,609; $1,896,559; and $506,568.
P. The graphic presentation here displayed consists of a legend beneath the
chart indicating the components of the corresponding line graph. Strategic
Income Fund - Class A Shares (the "Fund") is represented by a solid line.
Lipper General Bond Funds Average ("LGBFA") is represented by a short broken
line, and Lehman Brothers Government/Corporate Bond Index ("LBG/CBI") is
represented by a long broken line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 purchase in the
Fund and LGBFA and LBG/CBI. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the Fund's start of
performance, 05/04/94, through 11/30/95. The right margin of the chart
reflects the ending value of the hypothetical investment in the Fund as
compared to LGBFA and LBG/CBI; the ending values are $11,041, $11,460 and
$11,805, respectively.
Q. The graphic presentation here displayed consists of a legend beneath the
chart indicating the components of the corresponding line graph. Strategic
Income Fund - Class B Shares (the "Fund") is represented by a solid line.
Lipper General Bond Funds Average ("LGBFA") is represented by a short broken
line, and Lehman Brothers Government/Corporate Bond Index ("LBG/CBI") is
represented by a long broken line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 purchase in the
Fund and LGBFA and LBG/CBI. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the Fund's start of
performance, 07/27/95, through 11/30/95. The right margin of the chart
reflects the ending value of the hypothetical investment in the Fund as
compared to LGBFA and LBG/CBI; the ending values are $9,953, $10,439 and
$10,553, respectively.
R. The graphic presentation here displayed consists of a legend beneath the
chart indicating the components of the corresponding line graph. Strategic
Income Fund - Class C Shares (the "Fund") is represented by a solid line.
Lipper General Bond Funds Average ("LGBFA") is represented by a short broken
line, and Lehman Brothers Government/Corporate Bond Index ("LBG/CBI") is
represented by a long broken line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 purchase in the
Fund and LGBFA and LBG/CBI. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the Fund's start of
performance, 05/02/94, through 11/30/95. The right margin of the chart
reflects the ending value of the hypothetical investment in the Fund as
compared to LGBFA and LBG/CBI; the ending values are $11,426, $11,460 and
$11,805, respectively.
S. The graphic presentation here displayed consists of a legend beneath the
chart indicating the components of the corresponding line graph. Strategic
Income Fund -Fortress Shares (the "Fund") is represented by a solid line.
Lipper General Bond Funds Average ("LGBFA") is represented by a short broken
line, and Lehman Brothers Government/Corporate Bond Index ("LBG/CBI") is
represented by a long broken line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 purchase in the
Fund and LGBFA and LBG/CBI. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the Fund's start of
performance, 05/10/94, through 11/30/95. The right margin of the chart
reflects the ending value of the hypothetical investment in the Fund as
compared to LGBFA and LBG/CBI; the ending values are $11,245, $11,460 and
