Federated
Limited Term Fund
5th Annual Report
November 30, 1996
Established 1992
INCOME
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
I am pleased to present the Fifth Annual Report of the Federated Limited
Term Fund, which was established in 1992. This report covers the period from
December 1, 1995, through November 30, 1996. The fund's assets of $125
million are invested in selected short-term bonds with an average duration
of 2.2 years. These issues have provided generous current income, and your
fund received a 4-star rating out of 1104 taxable bond funds rated by
Morningstar as of December 31, 1996.*
This report begins with a discussion with portfolio managers, Randall S.
Bauer and Deborah A. Cunningham, both vice presidents of Federated Advisers.
Following the interview are three additional items of shareholder interest:
a series of graphs showing investment performance, a complete listing of the
fund's holdings, and its financial statements.
The bond market rally of 1995 is a just memory as 1996 saw rising interest
rates, unwarranted fears of inflation, and mixed economic signals which
caused a high degree of volatility in the bond market.
* Morningstar proprietary ratings reflect historical risk-adjusted
performance as of December 31, 1996. They are subject to change every month.
Past performance is no guarantee of future results. Ratings are calculated
from the funds' 3-, 5- and 10-year average annual returns in excess of
90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. The
1-year rating is calculated using the same methodology, but is not a
component of the overall rating. The fund received 4 stars for the 3- and
5-year periods and was rated among 1,104 and 597 taxable bond funds,
respectively. For the 1-year period, the fund received 3 stars and was rated
among 1,670 taxable bond funds. Ten percent of funds in a rating universe
receive 5 stars, the next 22.5% receive 4 stars, and 35% receive 3 stars.
Ratings quoted are for the Class A Shares. Star ratings for other classes
may vary and are available only for classes with 3 years of performance
history.
Nevertheless, consistent with its income objective, Federated Limited Term
Fund weathered this volatile period nicely through its diversified portfolio
of short-term bonds with 2- to 3-year maturities. As outlined in the
portfolio managers' discussion, the fund outperformed its peer group, the
Lipper Short Investment Grade Debt Average category. On November 30, 1996,
the 30-day SEC current net yields for Class A and Class F Shares were 6.02%
and 6.13%, respectively, based on net asset value. Share class performance
for the 12-month period follows.**
<TABLE>
<CAPTION>
INCOME TOTAL RETURN
DISTRIBUTIONS BASED ON NAV
<S> <C> <C>
Class A Shares $0.59 5.54%
Class F Shares $0.60 5.64%
</TABLE>
Thank you for participating in Federated Limited Term Fund as a way to
pursue a competitive income stream through all types of bond market
environments. 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,
[Graphic]
Richard B. Fisher
President
January 15, 1997
** Performance quoted is based on net asset value and 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 and Class F Shares were 4.49% and 3.54%, respectively. The 30-day
SEC current net yields for Class A and Class F Shares, based on offering
price were 5.96 and 6.06, respectively.
INVESTMENT REVIEW
Randall S. Bauer
Vice President
Federated Advisers
Deborah A. Cunningham
Vice President
Federated Advisers
CAN YOU COMMENT ON WHAT WAS A RELATIVELY VOLATILE BOND MARKET OVER THE
12-MONTH REPORTING PERIOD?
Year-end 1995 closed with expectations of lower interest rates brought on by
a slowing economy. The extent to which market yields were expected to
decline was reflected in the inverted shape of the yield curve early in
1996. At that time, yields on 3-year government securities were lower than
those on 3-month Treasury bills, signaling that the market expected the
Federal Reserve Board (the Fed) to lower short-term interest rates in the
face of slower growth.
This expectation turned out to be premature, however, as reports showing
significant growth in employment fueled fears of inflation, which in turn
caused rates to rise and even short-term bond prices to decline. By June,
interest rates across the curve had risen at least a full percentage point.
Through the summer months, rates continued to be quite volatile on a
day-to-day basis, while remaining essentially range-bound until September,
when the combination of weaker-than-expected employment figures and a
continuance of benign inflation news began to move yields downward and bond
prices upward.
By the end of the period, yields had declined significantly from their
highs, but were still approximately 50 basis points on average above where
they had been in December, 1995. The current expectations of the Fed's
activity once again has changed, this time to an expectation of no action in
the near term 1997.
THIS ENVIRONMENT CERTAINLY TESTED THE STRATEGY OF THE FUND, WHICH STRIVES TO
DELIVER COMPETITIVE INCOME STREAM WITH MINIMAL PRINCIPAL FLUCTUATION. HOW
DID THE FUND PERFORM OVER THE 12-MONTH PERIOD ENDED NOVEMBER 30, 1996?
Class F Shares produced a return of 5.64% for the 12-month period based on
net asset value, compared to a return of 5.44% for the average fund in the
Lipper Short Investment Grade Debt category. Class A Shares also bested the
Lipper Short Investment Grade Debt average with a return of 5.54% based on
net asset value.*
Dividends paid for the period totaled $0.60 per Class F Share and $0.59 per
Class A Share. The 30-day SEC current net yields at the end of the period
for Class F and Class A Shares were 6.13% and 6.02%, respectively.
The net asset value of both Class F and Class A Shares varied by only $0.06
from the first day of the period ($9.97) to the last day of the period
($9.91).
* Performance quoted is based on net asset value and 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 and Class F Shares were 4.49% and 3.54%, respectively.
WHAT STRATEGIES, SUCH AS PORTFOLIO COMPOSITION AND DURATION, HELPED IN
OUTPERFORMING THE LIPPER SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE?
With regard to interest rate exposure, the fund is generally managed within
a duration range of 1 to 3 years -- a duration of 1 signifying the lowest
sensitivity to interest rate changes and duration of 3 signifying the
highest sensitivity. Early in the period, the fund was positioned to take
advantage of the anticipated decline in yields, i.e., a positive duration
bias.
When the market began to move in the opposite direction in late February,
fund duration was progressively shortened until late June, when it was
reduced to around 2 years, i.e., the fund's duration midpoint. Subsequently,
fund duration was again extended until late September, when it reached its
current level of around 2.2 years. This mildly positive positioning is
consistent with our currently constructive view on the fixed-income market.
With regard to portfolio composition, the fund may buy any security type
that appears to offer value. During the middle of the period, an overweight
position in mortgage-backed securities worked well, as the spread received
on such bonds over Treasurys and traditional corporate bonds translated into
a total return advantage. Later in the period, a higher weighting in
corporates provided better capital appreciation relative to mortgage-backed
securities as yields declined.
HOW WERE THE FUND'S ASSETS ALLOCATED AT THE END OF THE PERIOD?
On November 30, 1996, 26% of the portfolio was invested in asset-backed
securities of various types, 31% was invested in mortgage-backed securities,
and 40% in corporate bonds. The fund also carried a 3% cash position.
With regard to credit quality, 44% of the portfolio was rated AAA, 8% was
rated AA, 20% was rated A, and 14% was rated BBB. During the current fiscal
year, based on changes to the fund's prospectus made during the period, the
fund also carried a non-investment grade position for the first time (10% of
assets). Approximately 79% of the fund's holdings were invested in
fixed-rate securities, while 21% were invested in securities with floating
rates.
WHAT IS YOUR OUTLOOK FOR RATES FOR 1997?
Though interest rates have fallen from their late summer highs, the yields
on the 2- and 3-year U.S. Treasury notes are still 45 and 52 basis points,
respectively, higher at this writing than they were at the beginning of the
period under review. Given that current inflationary pressures do not appear
any worse than those that existed at the beginning of the period, and that
economic activity is not appreciably stronger, we do not expect any
significant increase in market yields going forward. Instead, mildly
declining yield levels are expected in conjunction with slow, sustainable
growth of the economy.
This means that bond yields could continue to fall somewhat even without a
move by the the Fed to lower short-term interest rates. The economy is not
faltering. Nonetheless, year-over-year inflation comparisons should become
more favorable in 1997 relative to 1996 which, coupled with any slowdown in
economic growth (below the 2.2% year-over-year figure recorded in the third
quarter of 1996), could conceivably lead to a Fed easing later in 1997. Such
an outcome would only enhance the case for bonds.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED LIMITED TERM FUND
IF YOU HAD MADE AN INITIAL INVESTMENT OF $5,000 IN THE CLASS A SHARES OF
FEDERATED LIMITED TERM FUND ON 1/14/92, REINVESTED YOUR DIVIDENDS AND
CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH
$6,500 ON 11/30/96. YOU WOULD HAVE EARNED A 5.51%* AVERAGE ANNUAL TOTAL
RETURN FOR THE 5-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 12/31/96, the Class A Shares' average annual one-year, and since
inception (1/14/92) total returns were 3.96%* and 5.55%*, respectively. The
Class F Shares' average annual one-year, and since inception (9/1/93) total
returns were 3.01% and 4.28%, respectively.
[Graphic representation A1 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.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
FEDERATED LIMITED TERM FUND
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 5 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $5,857.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated Limited Term Fund on 1/14/92, reinvested your dividends and
capital gains, and didn't redeem any shares, you would have invested only
$5,000, but your account would have reached a total value of $5,857* by
11/30/96. You would have earned an average annual total return of 5.53%.
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, money, and
compounding to work!
[Graphic representation A2 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.
FEDERATED LIMITED TERM FUND (CLASS A SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM FUND (CLASS A SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Limited Term Fund (Class A Shares) (the "Fund") from January 14,
1992 (start of performance) to November 30, 1996, compared to the Merrill
Lynch 1-3 Year Short-Term Corporate Index (MLSTC)+ and the Lipper Short
Investment Grade Debt Funds Average (LSIGDFA).++
[Graphic representation A3 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 THEIR 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.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The MLSTC 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 MLSTC and the LSIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
++ 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. The MLSTC and the
LSIGDFA have been adjusted to reflect reinvestment of dividends on
securities in the index and average.
FEDERATED LIMITED TERM FUND (CLASS F SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM FUND (CLASS F SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Limited Term Fund (Class F Shares) (the "Fund") from September 1,
1993 (start of performance) to November 30, 1996, compared to the Merrill
Lynch 1-3 Year Short-Term Corporate Index (MLSTC)+ and the Lipper Short
Investment Grade Debt Funds Average (LSIGDFA).++
[Graphic representation A4 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 THEIR 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.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The MLSTC 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 MLSTC and the LSIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
++ 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. The MLSTC and the
LSIGDFA have been adjusted to reflect reinvestment of dividends on
securities in the index and average.
FEDERATED LIMITED TERM FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES -- 65.7%
AUTOMOTIVE -- 10.3%
$ 3,000,000 Bridgestone/Firestone Master Trust
1996-1, Class B, 6.49%, 7/1/2003 A2 $ 2,999,520
775,000 Chrysler Corp., Deb., 10.95%, 8/1/2017 A- 843,208
928,061 Daimler-Benz Auto Grantor Trust
1995-A, Class A, 5.85%, 5/15/2002 AAA 931,736
1,582,800 Navistar Financial Owner Trust 1994-B,
Class B, 6.63%, 1/15/2000 A+ 1,593,643
1,657,616 Navistar Financial Owner Trust 1995-A,
Class B, 6.85%, 11/20/2001 A+ 1,678,121
2,887,000 Premier Auto Trust 1995-3, Class B,
6.25%, 8/6/2001 AAA 2,910,558
1,850,000 Yamaha Motor Master Trust 1995-1, Class A, 6.20%,
5/15/2003 AAA 1,858,676
Total 12,815,462
BANKING -- 11.4%
3,000,000 (a)Chase Manhattan Corp., 5.75%, 12/5/2009 A- 2,936,250
2,000,000 Chase Manhattan Credit Card Master
Trust 1996-3, Class A, 7.04%, 2/15/2004 AAA 2,075,064
3,000,000 Citibank Credit Card Master Trust
1996-2, Class A, 5.625%, 3/7/2003 AAA 2,920,320
2,000,000 (a)Citicorp Sub. FRN, 5.47%, 10/25/2005 A 1,965,000
3,615,000 (a)Citicorp, Sub., 6.00%, 6/29/2005 A 3,594,937
750,000 Dayton Hudson Credit Card Master Trust
1995-1, Class A, 6.10%, 2/25/2002 AAA 756,045
Total 14,247,616
BROADCASTING & CABLE -- 4.1%
1,900,000 Continental Cablevision, 10.625%, BBB 2,044,894
6/15/2002
2,800,000 TKR Cable, Inc., 10.50%, 10/30/2007 BBB- 3,101,896
Total 5,146,790
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES -- CONTINUED
COMMERCIAL SERVICES -- 1.6%
$ 1,900,000 Valassis Inserts, Inc., 9.55%, 12/1/2003 BB+ $ 2,026,806
ENERGY -- 2.5%
3,000,000 Amoco Canada, 7.25%, 12/1/2002 AAA 3,147,630
FINANCE -- 1.6%
2,000,000 Merrill Lynch & Co., Inc., 6.64%, 9/19/2002 Aa3 2,023,620
FINANCE - AUTOMOTIVE -- 2.5%
3,000,000 Ford Motor Credit Corp., MTN, 7.02%, 10/10/2000 A+ 3,080,670
FINANCE - RETAIL -- 2.8%
850,000 Chemical Master Credit Card Trust
1995-3, Class A, 6.23%, 4/15/2005 AAA 853,901
2,000,000 Household Affinity Credit Card Master
Trust 1993-1, Class B, 5.30%, 9/15/2000 A 1,970,080
700,000 Standard Credit Card Master Trust
1995-2, Class A, 8.625%, 1/7/2002 AAA 710,745
Total 3,534,726
FINANCIAL SERVICES -- 3.2%
3,750,000 AIM Management Group, 9.00%, 11/15/2003 BB+ 4,031,250
FOOD RETAILING -- 4.1%
3,000,000 (b)Great Atlantic & Pacific Tea Co., Inc., 7.78%, 11/1/2000 Baa3 3,063,210
1,929,000 Super Rite Foods, Inc., 10.625%, 4/1/2002 BB+ 2,064,030
Total 5,127,240
HOME EQUITY RECEIVABLES -- 4.6%
475,001 Advanta Home Equity Loan Trust 1991-1, Class A, 9.00%,
2/25/2006 AAA 506,280
766,324 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%,
8/15/2007 AAA 781,781
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES -- CONTINUED
HOME EQUITY RECEIVABLES -- CONTINUED
$ 1,266,413 (a)Capitol Home Equity Loan Trust 1991-1, Class B, 6.038%,
12/25/2011 AAA $ 1,270,947
1,700,924 Merrill Lynch Home Equity Loan Trust
1993-1, Class B, 6.44%, 2/15/2003 A 1,708,442
539,460 TMS Home Equity Loan Trust 1992-B, Class A, 6.90%,
7/15/2007 AAA 545,075
931,962 TMS Home Equity Loan Trust 1992-A,
Class A, 6.95%, 12/15/2007 AAA 931,757
Total 5,744,282
INSURANCE -- 3.6%
2,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 AA 2,256,680
2,000,000 Penn Central Corp., Sub. Note, 10.625%, 4/15/2000 BBB- 2,226,800
Total 4,483,480
LEISURE & ENTERTAINMENT -- 1.3%
2,000,000 NWCG Holding Corp., 8.37% 6/15/1999 B 1,670,000
LODGING -- 2.0%
2,400,000 La Quinta Motor Inns, Inc., Sr. Sub. Note, 9.25%,
5/15/2003 BB+ 2,544,000
MARINE RECEIVABLES -- 1.8%
2,268,089 CBNJ Boat Loan Trust 1994-1, Class A, 6.89%,
5/18/2012 AAA 2,271,673
NON-FERROUS METALS -- 1.5%
1,770,000 Magma Copper Co., Sr. Sub. Note, 12.00%, 12/15/2001 A 1,877,297
SERVICES -- 0.8%
1,000,000 Loewen Group International, Inc., 8.25%, 4/15/2003 BB+ 1,031,310
SOVEREIGN GOVERNMENT -- 0.8%
1,000,000 (a)(b)United Mexican States, 7.56%, 8/6/2001 BBB- 1,002,250
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES -- CONTINUED
TELECOMMUNICATIONS -- 1.8%
$ 2,000,000 British Telecom Finance, 9.625%, 2/15/2019 AAA $ 2,207,480
UTILITIES -- 3.4%
2,000,000 Boston Edison Co., 5.95%, 3/15/1998 Baa2 1,995,400
2,000,000 Union Electric Power Co., 8.75%, 12/1/2021 AA- 2,218,440
Total 4,213,840
TOTAL CORPORATE BONDS/ASSET-BACKED SECURITIES
(IDENTIFIED COST $81,864,306) 82,227,422
MORTGAGE-BACKED SECURITIES -- 29.7%
GOVERNMENT AGENCY -- MORTGAGE-BACKED
SECURITIES -- 9.6%
1,957,108 Federal Home Loan Mortgage Corp., 6.00%, 4/1/2003 AAA 1,930,179
1,070,567 Federal Home Loan Mortgage Corp., 7.56%, 12/1/2018 AAA 1,111,570
979,483 Federal Home Loan Mortgage Corp., 7.58%, 9/1/2019 AAA 1,017,183
121,674 Federal National Mortgage Association, 7.78%, 11/1/2017 AAA 128,009
341,658 Federal National Mortgage Association, 8.07%, 12/1/2020 AAA 358,525
4,790,089 Government National Mortgage Association, 7.50%, 6/15/2025 AAA 4,884,358
2,421,026 Government National Mortgage Association, 8.50%, 8/15/2026 AAA 2,529,197
Total 11,959,021
MANUFACTURED HOUSING RECEIVABLES -- 0.8%
1,000,000 Merrill Lynch Mortgage Investors, Inc. 1993-C, Class A-4,
6.375%, 3/15/2018 AAA 1,008,700
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
MORTGAGE-BACKED SECURITIES -- CONTINUED
NON-GOVERNMENT AGENCY --
MORTGAGE-BACKED SECURITIES -- 19.3%
$ 3,011,796 Citicorp Mortgage Securities, Inc. 1992-18, Class A-1,
7.18%, 10/25/2022 AAA $ 3,088,506
4,966,753 (b)Prudential Home Mortgage 1995-G,
Class B-2, 7.916%, 5/30/2024 BBB- 4,271,408
2,950,000 Prudential Home Mortgage Securities 1993-32,
Class A-6, 7.50%, 10/25/2022 AAA 2,946,106
3,270,000 Resolution Trust Corp. 1992-15, Class B-3, 10.00%, 7/25/2027 AA 3,391,611
3,750,000 Residential Accredit Loans, Inc.
1996-QS8, Class A-1, 7.05%, 12/1/2000 AAA 3,775,800
4,695,112 Salomon Brothers Mortgage Securities VII, Inc. 1993-9,
Class A-1, 7.24%, 1/25/2024 AAA 4,702,436
1,873,021 Salomon Brothers Mortgage Securities VII, Inc.
1992-6, Class A-1, 7.17%, 11/25/2022 AAA 1,904,637
Total 24,080,504
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $36,275,795) 37,048,225
(C) REPURCHASE AGREEMENT -- 3.0%
3,700,000 BT Securities Corporation, 5.72%, dated 11/29/1996,
due 12/2/1996 (AT AMORTIZED COST) 3,700,000
TOTAL INVESTMENTS (IDENTIFIED COST $121,840,101)(D) $122,975,647
</TABLE>
(a) Denotes variable rate and floating rate obligations for which the
current rate is shown.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At the end of the period, these securities
amounted to $8,336,868 which represents 6.7% 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
$121,869,205. The net unrealized appreciation of investments on a federal
tax basis amounts to $1,106,442 which is comprised of $1,568,703
appreciation and $462,261 depreciation at November 30, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
FEDERATED LIMITED TERM FUND
Note: The categories of investments are shown as a percentage of net assets
($125,112,697) at November 30, 1996.
The following acronyms are used throughout this portfolio:
FRN -- Floating Rate Note
MTN -- Medium Term Note
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $ 122,975,647
$121,840,100 and tax cost $121,869,205)
Income receivable 1,646,745
Receivable for investments sold 4,813,780
Receivable for shares sold 651,778
Deferred expenses 20,923
Total assets 130,108,873
LIABILITIES:
Payable for investments purchased $ 3,795,078
Payable for shares redeemed 302,756
Income distribution payable 268,061
Payable to Bank 525,421
Accrued expenses 104,860
Total liabilities 4,996,176
Net Assets for 12,626,986 shares $ 125,112,697
outstanding
NET ASSETS CONSIST OF:
Paid in capital $ 135,065,689
Net unrealized appreciation of 1,135,546
investments
Accumulated net realized loss on (11,141,846)
investments
Undistributed net investment income 53,308
Total Net Assets $ 125,112,697
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share $9.91
($116,174,431 / 11,724,886 shares
outstanding)
Offering Price Per Share (100/99.00 $10.01
of $9.91)*
Redemption Proceeds Per Share $9.81
CLASS F SHARES:
Net Asset Value Per Share ($8,938,266 $9.91
/ 902,100 shares outstanding)
Offering Price Per Share (100/99.00 $10.01
of $9.91)*
Redemption Proceeds Per Share $9.81
(99.00/100 of $9.91)**
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 9,206,343
EXPENSES:
Investment advisory fee $ 515,204
Administrative personnel and 155,001
services fee
Custodian fees 27,650
Transfer and dividend 210,746
disbursing agent fees and
expenses
Directors'/Trustees' fees 3,797
Auditing 14,461
fees
Legal fees 3,119
Portfolio accounting fees 65,600
Distribution services fee -- 596,032
Class A Shares
Distribution services fee -- 14,391
Class F Shares
Shareholder services fee -- 298,016
Class A Shares
Shareholder services fee -- 23,986
Class F Shares
Share registration costs 60,438
Printing and postage 48,106
Insurance premiums 4,993
Taxes 23,121
Miscellaneous 39,038
Total expenses 2,103,699
Waivers --
Waiver of investment $ (328,347)
advisory fee
Waiver of distribution (357,619)
services fee -- Class A
Shares
Waiver of distribution (1,919)
services fee -- Class F
Shares
Waiver of shareholder (2,878)
services fee -- Class F
Shares
Total waivers (690,763)
Net expenses 1,412,936
Net investment 7,793,407
income
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss on (127,055)
investments
Net change in unrealized (986,773)
appreciation of investments
Net realized and (1,113,828)
unrealized loss on
investments
Change in net assets $ 6,679,579
resulting from
operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
NOVEMBER 30,
1996 1995
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS --
Net investment income $ 7,793,407 $ 10,071,213
Net realized gain (loss) on
investments ($97,950 net loss
and $1,407,407
net loss, respectively, as (127,055) (1,367,071)
computed for federal tax
purposes)
Net change in unrealized (986,773) 8,740,085
appreciation (depreciation)
Change in net assets resulting 6,679,579 17,444,227
from operations
NET EQUALIZATION CREDITS -- (28,665)
(DEBITS) --
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net
investment income
Class A Shares (7,170,778) (8,587,638)
Class F Shares (585,285) (631,389)
Change in net assets resulting (7,756,063) (9,219,027)
from distributions to
shareholders
SHARE TRANSACTIONS --
Proceeds from sale of shares 29,931,476 15,174,800
Net asset value of shares issued
to shareholders in payment of
distributions declared 5,052,858 6,145,539
Cost of shares redeemed (57,429,451) (73,068,438)
Change in net assets resulting (22,445,117) (51,748,099)
from share transactions
Change in net assets (23,521,601) (43,551,564)
NET ASSETS:
Beginning of period 148,634,298 192,185,862
End of period (including
undistributed net investment
income of $53,308
and $15,964, respectively) $ 125,112,697 $ 148,634,298
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $ 9.97 $ 9.48 $10.17 $10.00 $10.01
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.59 0.55 0.53 0.63 0.519
Net realized and
unrealized gain (loss) on
investments (0.06) 0.49 (0.66) 0.19 (0.008)
Total from investment 0.53 1.04 (0.13) 0.82 0.511
operations
LESS DISTRIBUTIONS
Distributions from net (0.59) (0.55) (0.53) (0.63) (0.519)
investment income
Distributions in excess -- -- (0.02) (0.02) (0.002)
of net investment
income(b)
Distributions from net
realized gains on
investment transactions -- -- (0.01) -- --
TOTAL DISTRIBUTIONS (0.59) (0.55) (0.56) (0.65) (0.521)
NET ASSET VALUE, END OF $ 9.91 $ 9.97 $ 9.48 $10.17 $10.00
PERIOD
TOTAL RETURN(C) 5.54% 11.29% (1.30%) 8.19% 5.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.10% 1.10% 1.01% 0.67%*
Net investment income 6.04% 6.13% 5.52% 5.75% 6.17%*
Expense 0.56% 0.43% 0.39% 0.49% 1.06%*
waiver/reimbursement(d)
SUPPLEMENTAL DATA
Net assets, end of period $116,174 $138,451 $178,771 $248,876 $57,225
(000 omitted)
Portfolio turnover 104% 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
purpose.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
FINANCIAL HIGHLIGHTS -- CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $ 9.97 $ 9.48 $10.17 $10.24
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.66 0.61 0.55 0.15
Net realized and unrealized gain (0.12) 0.44 (0.67) (0.07)
(loss) on investments
Total from investment operations 0.54 1.05 (0.12) 0.08
LESS DISTRIBUTIONS
Distributions from net investment (0.60) (0.56) (0.55) (0.15)
income
Distributions in excess of net -- -- (0.01) --
investment income(b)
Distributions from net realized -- -- (0.01) --
gain on investments
Total distributions (0.60) (0.56) (0.57) (0.15)
NET ASSET VALUE, END OF PERIOD $ 9.91 $ 9.97 $ 9.48 $10.17
TOTAL RETURN(C) 5.64% 11.39% (1.20%) 0.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.00% 1.00% 0.99% 1.00%*
Net investment income 6.14% 6.22% 5.67% 7.10%*
Expense waiver/reimbursement(d) 0.31% 0.18% 0.13% 0.39%*
SUPPLEMENTAL DATA
Net assets, end of period (000 $8,938 $10,183 $13,415 $7,230
omitted)
Portfolio turnover 104% 63% 63% 38%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 31, 1993 (date of initial
public investment) to November 30, 1993.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios.
The financial statements included herein are only those of Federated Limited
Term Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in
which shares are held. The Fund offers two classes of shares: Class A Shares
and Class F Shares. The investment objective of the Fund is to seek a high
level of current income consistent with minimum fluctuation in principal
value through compilation of a portfolio, the weighted-average duration of
which will at all times be limited to three years.
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 Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERATED LIMITED TERM FUND
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At November 30, 1996, the Fund,
for federal tax purposes, had a capital loss carryforward of $11,112,740,
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:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $9,607,384
2003 1,407,407
2004 97,949
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 over a period not to exceed five years from the Fund's
commencement date.
OPTIONS CONTRACTS -- The Fund may write option contracts. A written option
obligates the Fund to deliver a call, or to receive a put, the contract
amount upon exercise by the holder of the option. The value of the option
contract is recorded as a liability and unrealized gain or loss is measured
by the difference between the current value and the premium received. For
the period ended November 30, 1996, the Fund had a realized loss of $215,250
on written options.
The following is a summary of the Fund's written option activity:
NUMBER OF AGGREGATE
CONTRACTS CONTRACTS FACE VALUE
Outstanding at prior period-end 0 $ 0
Contracts opened 150 215,250
Contracts expired 150 215,250
Outstanding at November 30, 1996 0 0
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at November 30,
1996, is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Great Atlantic & Pacific Tea Co. 3/1/96 - 10/7/96 $3,003,295
United Mexican States 7/29/96 998,107
Prudential Home Mortgage Security 1995-G 6/13/96 4,220,226
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 1996, par value shares ($ 0.001 per share) authorized were
as follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A 1,000,000,000
Class F 1,000,000,000
Total shares authorized 2,000,000,000
Transactions in capital stock were as follows:
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,805,603 $ 27,464,259 1,327,413 $ 13,015,341
Shares issued
to shareholders
in payment of
distributions declared 480,026 4,713,413 595,771 5,785,618
Shares redeemed (5,449,139) (53,449,243) (6,883,983) (66,778,258)
Net change
resulting from Class A
Share transactions (2,163,510) $(21,271,571) (4,960,799) $(47,977,299)
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 250,466 $ 2,467,217 222,214 $ 2,159,459
Shares issued
to shareholders
in payment of
distributions 34,590 339,445 37,164 359,921
declared
Shares redeemed (404,495) (3,980,208) (652,247) (6,290,180)
Net change
resulting from
Class F Share
transactions (119,439) $ (1,173,546) (392,869) $ (3,770,800)
Net change
resulting
from share
transactions (2,282,949) $(22,445,117) (5,353,668) $(51,748,098)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify
or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
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 shares. The Plan provides that the Fund
may incur distribution expenses according to the following schedule
annually, to compensate FSC.
PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
Class A 0.50%
Class F 0.15%
FSC may voluntarily choose to waive any portion of its fee. FSC can modify
or terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended November 30, 1996, the
Fund engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $5,053,516 and $20,145,864, respectively.
FEDERATED LIMITED TERM FUND
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, 1996, the Fund paid $22,207 pursuant
to this agreement.
GENERAL -- Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended November 30, 1996, were as follows:
PURCHASES $131,023,626
SALES $153,128,311
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of FEDERATED LIMITED TERM FUND:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Limited Term Fund as of
November 30, 1996, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended November
30, 1996, and 1995, 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
securities owned as of November 30, 1996, 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 Federated
Limited Term Fund as of November 30, 1996, the results of its operations,
the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 17, 1997
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
Officers
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
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 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.
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 338319106
Cusip 338319304
G01176-01 (1/97)
Federated
Limited Term
Municipal Fund
[Graphic]
3RD ANNUAL REPORT
NOVEMBER 30, 1996
ESTABLISHED 1993
TAX-FREE INCOME
PRESIDENT'S MESSAGE
[Graphic]
The Federated Limited Term Municipal Fund was established in 1993, and I am
pleased to present the third Annual Report. This report covers the
12-month period from December 1, 1995, through November 30, 1996. This
short-term, tax-free* fund typically selects bonds with durations of under
five years, and approximately 37% of the fund's assets are invested in bonds
rated A, AA, and AAA.
First, you'll find a discussion with Mary Jo Ochson, Senior Vice President,
Federated Advisers. Next are three additional items of shareholder interest:
a series of graphs showing investment performance, a complete listing of the
fund's holdings, and its financial statements.
The bond rally of 1995 is just a memory as fears of inflation caused
interest rates to rise even though there was no action by the Federal
Reserve Board. In the past 12 months, first the perception of a weakened
economy and then a stronger economy created mixed economic signals in the
bond markets -- even in short-term bond issues.
In this environment, the total return of Federated Limited Term Municipal
Fund was 3.34% for Class A Shares and 3.60% for Class F Shares, based on net
asset value. This performance was below the fund's benchmark, the Lipper
Short Municipal Debt Average category. However, thanks to holdings in higher
yielding sectors of the municipal market, the fund's distribution rate of
4.14% for Class A Shares and 4.39% for Class F Shares, based on net asset
value was above par, which equates to a tax-equivalent yield of 6.08% and
6.40% for investors in the 31% tax bracket. The 30-day SEC yields for Class
A and Class F Shares based on net asset value were 3.89% and 4.14%,
respectively.* As a result, the fund paid a solid, tax-free income stream --
$0.41/share for Class A Shares and $0.44/share for Class F Shares.**
At the end of the period, the fund's assets of $99.8 million were invested
as follows: 37% A or better, 17% BBB, 31%, non-rated.+ The fund's more than
90 securities included bonds issued for hospitals, single-family housing
authorities, electric revenue, and resource recovery bonds -- with an
average of 1.5% in each of the above issues.
* Income may be subject to the alternative minimum tax and state and local
taxes.
** 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 and F Shares were 2.30% and
2.54%, respectively. The fund's distribution rates for Class A Shares based
on offering price were 4.10%. The tax-equivalent yields for Class A Shares
based on offering price were 5.94%. The 30-day SEC yields for Class A Shares
based on offering price were 3.85%.
+ Ratings are according to Standard & Poor's Ratings Group.
The fund's maturity places it between tax-free money market fund instruments
and intermediate municipal bonds, i.e., it may offer more income potential
and increased risk than money market instruments, but less income and less
risk than long-term tax-free municipal bonds.++
Thank you for choosing Federated Limited Term Municipal Fund as a relatively
conservative way to pursue a tax-free income from short-term municipal
issues. Remember, reinvesting your earnings is a convenient way to build
your account through the benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
January 15, 1997
++ Unlike the fund, money market funds seek to maintain a stable $1.00 share
value.
INVESTMENT REVIEW
[Graphic]
Mary Jo Ochson
Senior Vice President
Federated Advisers
[Graphic]
MARY JO, COULD YOU REVIEW THE DEVELOPMENTS IN THE SHORT-TERM MUNICIPAL BOND
MARKET FOR THE 12-MONTH REPORTING PERIOD?
The period of December 1, 1995, through November 30, 1996, was characterized
by shifts in market sentiment regarding the strength of the U.S. economy.
During the first several months of the period, short-term municipal interest
rates moved gradually lower, driven by a moderation in real gross domestic
product ("GDP") growth and inflation. From December 1995 to February 1996,
the yield on 3-year, A-rated municipal bonds declined from 4.14% to 3.97%.
Then, in early March, economic growth accelerated, led by a rebound in
consumer spending and manufacturing, combined with a sturdy housing market.
By early June, yields on 3-year municipal bonds moved to a period high of
4.82%, as the market was coping with strong real GDP growth. In September,
market sentiment reversed again as real GDP growth gave way to a more modest
pace in the third quarter. The yields on 3-year, A-rated municipal bonds
inched lower to end the period on November 30, 1996, at 4.25%.
HOW DID FEDERATED LIMITED TERM MUNICIPAL FUND PERFORM OVER THE 12-MONTH
PERIOD?
On a total return basis, the fund underperformed its peer group, the Lipper
Short Municipal Debt Average category over the 12-month report period.
Investors in the Class F Shares of the fund earned an annual total return of
3.60%* based on net asset value. For investors in the Class A Shares, the
return was 3.34%* based on net asset value for the same period. In
comparison the average return on the Lipper Short Municipal Debt Average
category was 4.05%.+
The fund is invested in more than 90 issues with an average position of 1.5%
of the fund's assets. We own one issue, a Massachusetts IFA Solid Waste
Disposal Facility Revenue Bond (Series A), 8.00% due 8/1/1999 that
particularly impacted the fund's performance. This bond is dependent upon
revenue from de-inking plants that convert office wastepaper to recycled,
marketable pulp. Weakness of pulp prices over the past twelve months drove
down the price of the bond and affected its ability to pay income over the
period. We are in negotiations with the issuer about the amount that
bondholders may recover. However, the bond's situation is, of course,
reflected in the fund's income and share value.
* 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 and Class F Shares were 2.30% and
2.54%, respectively.
+ Lipper figures do not reflect sales charges.
[Graphic]
MARY JO, HOW DID THE FUND PERFORM IN TERMS OF INCOME OR DISTRIBUTION YIELD?
Very well. According to Lipper Analytical Services, investors in the Class A
Shares of the fund received a distribution rate of 4.14% for the 12 months
ended November 30, 1996. For investors in the Class F Shares, the
distribution rate as measured by Lipper was 4.39% for the same time period.
In comparison, the Lipper Short Municipal Debt Fund Average was 4.13%. The
above-average income performance was the result of a high concentration in
higher yielding sectors of the municipal market such as hospital, electric,
and housing bonds.
[Graphic]
WHAT IS YOUR OUTLOOK FOR RATES NEAR TERM, AND DO YOU ANTICIPATE ANY POLICY
CHANGES IN RESPONSE?
Our near-term outlook is still one of caution. We expect to see reasonable
growth in the economy throughout the fourth quarter. This, in combination
with the Federal Reserve Board's anti-inflation stance, should keep pressure
on short-term interest rates. Nonetheless, we do not expect any major move
toward higher rates either. Going forward, we intend to keep the portfolio's
effective duration in the 2-3 year range.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED LIMITED TERM MUNICIPAL FUND
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $4,000 IN THE CLASS A SHARES OF
FEDERATED 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 $4,458 ON 11/30/96. YOU WOULD HAVE EARNED A 3.39%* AVERAGE ANNUAL
TOTAL RETURN FOR THE 3-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 12/31/96, the Class A Shares' average annual one-year and since
inception (9/1/93) total returns were 1.96%, and 3.32%, respectively. F
Shares' average annual one-year and since inception (9/1/93) total returns
were 2.19% and 3.53%, respectively.
[Graphic representation A5 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.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
FEDERATED LIMITED TERM MUNICIPAL FUND
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 3 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $4,246.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated 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
$4,000 but your account would have reached a total value of $4,246* by
11/30/96. You would have earned an average annual total return of 3.56%.
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, money, and compounding to work!
[Graphic representation A6 omitted. See Appendix.]
* No method of investing can guarantee a profit or protect against loss in
down markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED LIMITED TERM MUNICIPAL FUND
(CLASS A SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM MUNICIPAL FUND (CLASS A
SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Limited Term Municipal Fund (Class A Shares) (the "Fund") from
September 1, 1993 (start of performance) to November 30, 1996, compared to
the Lehman Brothers Three-Year State General Obligation Index (LB3YRSGO)+
and the Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB).+
[Graphic representation A7 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 THEIR 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.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB3YRSGO and LB3YRMB are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. The LB3YRSGO and LB3YRMB have been adjusted to reflect
reinvestment of dividends on securities in the indices. The indices are
unmanaged. The investment adviser has elected to change the benchmark of the
Fund from the LB3YRSGO to the LB3YRMB. The LB3YRMB is a broader index and is
more representative of the various market sectors in which the Fund invests.
It consists of government obligations, revenue bonds, pre-refunded bonds,
insured bonds, zero coupon bonds, and AMT bonds with an average quality
rating of AA1 and AA2. In contrast, the LB3YRSGO represents state-only
general obligation bonds. Since the fund regularly has holdings in
municipal sectors in addition to state-only general obligation bonds,
the investment adviser believes that the LB3YRMB is more appropriate.
FEDERATED LIMITED TERM MUNICIPAL FUND
(CLASS F SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM MUNICIPAL FUND (CLASS F
SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Limited Term Municipal Fund (Class F Shares) (the "Fund") from
September 1, 1993 (start of performance) to November 30, 1996, compared to
the Lehman Brothers Three-Year State General Obligation Index (LB3YRSGO)+
and the Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB).+
[Graphic representation A8 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 THEIR 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.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB3YRSGO and LB3YRMB are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. The LB3YRSGO and LB3YRMB have been adjusted to reflect
reinvestment of dividends on securities in the indices. The indices are
unmanaged. The investment adviser has elected to change the benchmark of the
Fund from the LB3YRSGO to the LB3YRMB. The LB3YRMB is a broader index and is
more representative of the various market sectors in which the Fund invests.
It consists of government obligations, revenue bonds, pre-refunded bonds,
insured bonds, zero coupon bonds, and AMT bonds with an average quality
rating of AA1 and AA2. In contrast, the LB3YRSGO represents state-only
general obligation bonds. Since the fund regularly has holdings in municipal
sectors in addition to state-only general obligation bonds, the investment
adviser believes that the LB3YRMB is more appropriate.
FEDERATED LIMITED TERM MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- 92.8%
ALABAMA -- 1.9%
$ 450,000 Mobile, AL, GO Warrants, 4.65%, 8/15/1997 NR $ 452,993
470,000 Mobile, AL, GO Warrants, 4.75%, 8/15/1998 NR 474,122
490,000 Mobile, AL, GO Warrants, 4.85%, 8/15/1999 NR 495,170
515,000 Mobile, AL, GO Warrants, 4.95%, 8/15/2000 NR 520,526
Total 1,942,811
CALIFORNIA -- 1.5%
1,500,000 California Statewide Communities Development
Authority, Certificates of Participation, 5.00% (Queen of
Angels-Hollywood Presbyterian Medical Center),
1/1/2001 A 1,507,305
COLORADO -- 5.1%
500,000 Colorado Student Obligation Bond Authority, Student
Loan Revenue Bonds, 5.20%, 9/1/1997 NR 504,480
1,000,000 Colorado Student Obligation Bond Authority, Student
Loan Revenue Bonds, 5.40%, 9/1/1998 NR 1,014,790
2,000,000 Denver, CO City & County Airport Authority, Airport
System Revenue Bonds (Series 1996C), 5.05%,
11/15/2000 BBB 2,022,840
1,500,000 Denver, CO City & County Airport Authority,
Subordinate Lien Revenue Bonds (Series C), 6.00%
(Toronto-Dominion Bank LOC), 4/1/1997 (@100) AA 1,512,495
Total 5,054,605
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%), 10/1/2014 (@101.5) AA 212,654
ILLINOIS -- 5.8%
750,000 Chicago, IL, Gas Supply Revenue Bonds, 7.50% (Peoples
Gas Light & Coke Company), 3/1/2000 (@102) AA- 819,735
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
ILLINOIS -- CONTINUED
$ 1,000,000 Illinois Development Finance Authority,
(Series 1995) Revenue Bonds, 5.80% (Catholic
Charities Housing Development Corp.), 1/1/2007 NR $ 1,005,100
400,000 Illinois Development Finance Authority, Housing
Revenue Bonds, 5.25% (Catholic Charities Housing
Development Corp.)/(Archdiocese of Chicago GTD),
1/1/1999 NR 400,592
365,000 Illinois Educational Facilities Authority, Revenue Bonds,
4.90% (Illinois Institute of Technology)/(Original Issue
Yield: 5.00%), 12/1/1996 BBB- 365,011
380,000 Illinois Educational Facilities Authority, Revenue Bonds,
5.05% (Illinois Institute of Technology)/(Original Issue
Yield: 5.15%), 12/1/1997 BBB- 382,709
400,000 Illinois Educational Facilities Authority, Revenue Bonds,
5.25% (Illinois Institute of Technology)/(Original Issue
Yield: 5.35%), 12/1/1998 BBB- 403,400
580,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds (Series 1996B), 4.80% (Sarah Bush Lincoln Health
Center), 2/15/1999 A- 584,559
505,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds (Series 1996B), 5.00% (Sarah Bush Lincoln Health
Center), 2/15/2000 A- 509,580
615,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds (Series 1996B), 5.00% (Sarah Bush Lincoln Health
Center)/(Original Issue Yield: 5.10%), 2/15/2001 A- 617,964
670,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds (Series 1996B), 5.125% (Sarah Bush Lincoln
Health Center)/(Original Issue Yield: 5.25%), 2/15/2002 A- 673,109
Total 5,761,759
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
INDIANA -- 4.2%
$ 630,000 Indiana Health Facility Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625%
(Hancock Memorial Hospital and Health Services),
8/15/2000 BBB+ $ 643,564
685,000 Indiana Health Facility Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625%
(Hancock Memorial Hospital and Health Services),
8/15/2001 BBB+ 697,823
725,000 Indiana Health Facility Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625%
(Hancock Memorial Hospital and Health Services),
8/15/2002 BBB+ 737,274
885,000 LaPorte County, IN Hospital Authority, Refunding
Revenue Bonds, 5.60% (LaPorte Hospital, Inc., IN)/
(Original Issue Yield: 5.747%), 3/1/1999 NR 897,815
935,000 LaPorte County, IN Hospital Authority, Refunding
Revenue Bonds, 5.80% (LaPorte Hospital, Inc., IN)/
(Original Issue Yield: 5.898%), 3/1/2000 NR 952,073
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 237,821
Total 4,166,370
IOWA -- 1.5%
1,445,000 Des Moines, IA, Hospital Revenue & Refunding Bonds
(Series 1996A), 4.90% (Des Moines General Hospital, IA)/
(Norwest Bank Minnesota, Minneapolis LOC),
11/15/1999 NR 1,465,635
KENTUCKY -- 4.6%
1,000,000 Jefferson County, KY, UT GO Trust Certificates , 5.25%,
9/1/1999 A+ 1,019,940
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
KENTUCKY -- CONTINUED
$ 1,050,000 Jefferson County, KY, UT GO Trust Certificates, 5.25%,
9/1/2000 A+ $ 1,072,859
2,420,000 Kentucky Higher Education Student Loan Corp.,
(Series D) Student Loan Revenue Bonds, 6.45%, 6/1/1998 AA- 2,496,496
Total 4,589,295
LOUISIANA -- 1.6%
1,500,000 Louisiana State Offshore Term Authority, Deepwater
Port Refunding Revenue Bonds (First Stage Series
1992B), 6.00% (Loop, Inc.), 9/1/2001 A 1,581,465
MASSACHUSETTS -- 2.8%
250,000 Greater New Bedford Regional Refuse Management
District, MA, GO Landfill Bonds, 4.90% (Original Issue
Yield: 5.00%), 5/1/1998 NR 250,638
750,000 Greater New Bedford Regional Refuse Management
District, MA, UT GO Bonds, 5.00% (Original Issue
Yield: 5.10%), 5/1/1999 NR 750,308
750,000 Greater New Bedford Regional Refuse Management
District, MA, UT GO Bonds, 5.10% (Original Issue
Yield: 5.20%), 5/1/2000 NR 748,110
2,000,000 Massachusetts IFA, Solid Waste Disposal Sr. Lien
Revenue Bonds (Series A), 8.00% (Massachusetts
Recycling Association), 8/1/1999 NR 1,017,380
Total 2,766,436
MINNESOTA -- 3.0%
1,500,000 Maplewood, MN, Health Care Facility Revenue Bonds
(Series 1996), 5.95% (Healtheast, MN), 11/15/2006 BBB 1,525,560
1,480,000 Minneapolis, MN, Rental Housing Revenue Bonds
(Series 1994A), 4.30% TOBs (Driftwood Apartments
Project)/(First Bank NA, Minneapolis LOC), Mandatory
Tender 11/1/1997 A+ 1,480,118
Total 3,005,678
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MISSOURI -- 1.0%
$ 1,000,000 Kansas City, MO IDA, PCR Bonds, 6.05% (General
Motors Corp.), 4/1/2006 A- $ 1,034,350
NEW MEXICO -- 2.1%
2,000,000 Las Cruces, NM, (Series 1995) Revenue Bonds, 6.00%
(MBIA INS), 12/1/2001 AAA 2,129,440
NEW YORK -- 9.1%
2,000,000 New York City, NY, UT GO Bonds (Series B), 5.30%,
8/15/2000 BBB+ 2,045,060
1,800,000 New York City, NY, UT GO Bonds (Series B), 7.50%
(Original Issue Yield: 7.60%), 2/1/2001 BBB+ 1,975,554
1,000,000 New York State Dormitory Authority, Educational
Facilities Revenue Bonds (Series 1996), 4.70% (State
University of New York), 5/15/1999 BBB+ 1,007,140
500,000 New York State Dormitory Authority, Revenue Bonds,
5.10% (Nyack Hospital), 7/1/1998 NR 503,160
1,000,000 New York State Urban Development Corp., Youth
Facilities Revenue Bonds (Series 1995), 4.60%, 4/1/1999 BBB 1,003,240
1,000,000 New York State Urban Development Corp., Youth
Facilities Revenue Bonds (Series 1995), 4.80%, 4/1/2000 BBB 1,004,530
1,500,000 Port Authority of New York and New Jersey, Revenue
Bonds (Series SS), 4.90%, 9/1/1997 AA- 1,501,365
Total 9,040,049
NORTH CAROLINA -- 2.7%
1,000,000 North Carolina Eastern Municipal Power Agency,
Power System Refunding Revenue Bonds
(Series 1996A), 5.10%, 1/1/2000 BBB 1,012,190
1,000,000 North Carolina Eastern Municipal Power Agency,
Refunding Revenue Bonds (Series B), 5.375% (Original
Issue Yield: 5.50%), 1/1/2001 BBB 1,019,210
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
NORTH CAROLINA -- CONTINUED
$ 620,000 North Carolina Eastern Municipal Power Agency,
Revenue Bonds (Series A), 7.25% (Original Issue
Yield: 7.50%), 1/1/1997 (@102) BBB $ 633,008
Total 2,664,408
OHIO -- 7.8%
680,000 Bellefontaine, OH, Hospital Facilities Revenue &
Refunding Bonds, 5.00% (Mary Rutan Health
Associates)/(Original Issue Yield: 5.25%), 12/1/1997 BBB 679,878
1,500,000 Clyde, OH Waterworks System, Revenue Bonds, 5.60%,
5/1/1997 NR 1,511,595
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- 631,821
1,550,000 Marion County, OH Hospital Authority, Hospital
Refunding & Improvement Revenue Bonds
(Series 1996), 5.50% (Community Hospital of
Springfield), 5/15/2000 BBB+ 1,565,500
1,400,000 Ohio Enterprise Bond Fund, (Series 1995-3) State
Economic Development Revenue Bonds, 5.60% (Smith
Steelite), 12/1/2003 A- 1,430,870
2,000,000 Youngstown City School District, OH, Revenue
Anticipation Note, 5.40%, 6/15/1998 NR 2,024,280
Total 7,843,944
PENNSYLVANIA -- 10.2%
1,000,000 Allegheny County, PA Higher Education, Revenue
Bonds, 7.625% (La Roche College), 12/1/1996 (@100) NR 1,002,470
450,000 Allegheny County, PA Residential Finance Agency,
Revenue Refunding Bonds (Series W), 4.875% (GNMA
COL), 11/1/2014 (@102) NR 440,613
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 1,500,000 Dover Township, PA Sewer Authority, (Series 1995)
Guaranteed BANS, 4.25% (Original Issue Yield: 4.50%),
12/15/1997 NR $ 1,499,925
130,000 Jeannette Health Services Authority, PA, Hospital
Revenue Bonds (Series A of 1996), 4.50% (Jeannette
District Memorial Hospital)/(Original Issue
Yield: 4.55%), 11/1/1998 BBB+ 129,459
180,000 Jeannette Health Services Authority, PA, Hospital
Revenue Bonds (Series A of 1996), 4.65% (Jeannette
District Memorial Hospital)/(Original Issue
Yield: 4.75%), 11/1/1999 BBB+ 178,686
195,000 Jeannette Health Services Authority, PA, Hospital
Revenue Bonds (Series A of 1996), 4.85% (Jeannette
District Memorial Hospital)/(Original Issue
Yield: 4.95%), 11/1/2000 BBB+ 193,551
155,000 Jeannette Health Services Authority, PA, Hospital
Revenue Bonds (Series A of 1996), 5.05% (Jeannette
District Memorial Hospital)/(Original Issue
Yield: 5.15%), 11/1/2001 BBB+ 154,261
220,000 Jeannette Health Services Authority, PA, Hospital
Revenue Bonds (Series A of 1996), 5.15% (Jeannette
District Memorial Hospital)/(Original Issue
Yield: 5.30%), 11/1/2002 BBB+ 218,904
1,765,000 Lehigh County, PA General Purpose Authority, Hospital
Refunding Revenue Bonds (Series 1996A), 4.80%
(Muhlenberg Hospital Center), 7/15/2000 A 1,775,996
860,000 Lehigh County, PA General Purpose Authority, Hospital
Revenue Bonds (Series 1996B), 4.80% (Muhlenberg
Hospital Center), 7/15/2000 A 865,358
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 BBB+ 1,048,031
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 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 BBB+ $ 1,004,210
125,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series B), 6.60%
(Children's Seashore House, PA)/(Original Issue
Yield: 6.80%), 8/15/1998 A- 129,725
485,000 Scranton-Lackawanna, PA Health & Welfare Authority,
Revenue Bonds (Series 1994-A), 5.75% (Allied Services
Rehabilitation Hospitals, PA), 7/15/1997 NR 486,974
1,080,000 Scranton-Lackawanna, PA Health & Welfare Authority,
Revenue Bonds (Series A), 6.35% (Allied Services
Rehabilitation Hospitals, PA), 7/15/1999 NR 1,100,164
Total 10,228,327
PUERTO RICO -- 5.7%
1,600,000 Puerto Rico Electric Power Authority, Power Revenue
(Series T), 5.00%, 7/1/1997 A- 1,612,512
1,985,000 Puerto Rico Highway and Transportation Authority,
Highway Revenue Bonds, Series Y, 5.00%, 7/1/1998 A 2,013,663
2,000,000 Puerto Rico Municipal Finance Agency, Revenue Bonds
(Series A), 5.00% (Original Issue Yield: 5.10%), 7/1/1998 A- 2,027,660
Total 5,653,835
RHODE ISLAND -- 4.2%
3,885,000 Rhode Island State Student Loan Authority, Student
Loan Revenue Refunding Bond, Series B, 6.75%
(Original Issue Yield: 6.80%), 12/1/2001 NR 4,198,830
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
SOUTH DAKOTA -- 3.6%
$ 105,000 South Dakota State Health & Educational Authority,
Revenue Bonds, 5.40% (Huron Regional Medical
Center, SD), 4/1/1997 BBB- $ 105,043
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- 215,389
225,000 South Dakota State Health & Educational Authority,
Revenue Bonds, 6.00% (Huron Regional Medical
Center, SD), 4/1/1999 BBB- 227,506
3,000,000 South Dakota Student Loan Finance Corp., (Series A)
Student Loan Revenue Bonds, 5.85%, 8/1/2000 A+ 3,111,810
Total 3,659,748
TENNESSEE -- 1.5%
1,500,000 Springfield, TN Health & Educational Facilities Board,
Hospital Revenue Bonds, 7.50% (Jesse Holman Jones
Hospital Corp, TN), 4/1/2000 NR 1,542,734
TEXAS -- 3.8%
1,800,000 Brazos River Authority, TX, Revenue Refunding Bonds
(Series B), 8.25% (Houston Light & Power Co.)/
(Original Issue Yield: 8.343%), 5/1/2015 A 1,916,136
800,000 Greenville, TX Industrial Development Corp., Airport
Revenue Refunding Bonds, Series 1996, 4.75%
(Raytheon/E-Systems, Inc.), 8/1/1998 NR 803,007
1,000,000 Greenville, TX Industrial Development Corp., Airport
Revenue Refunding Bonds, Series 1996, 5.15%
(Raytheon/E-Systems, Inc.), 8/1/2000 NR 1,005,570
Total 3,724,713
UTAH -- 1.0%
1,000,000 Davis County, Utah Solid Waste Management & Energy
Recovery Special Service Dist., Refunding Revenue
Bonds, 5.30% (Original Issue Yield: 5.40%), 6/15/1999 BBB+ 1,005,850
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
VIRGINIA -- 6.9%
$ 2,000,000 Frederick County, VA IDA, (Series 1995) Lease Revenue
Notes, 4.75%, 12/1/1997 NR $ 2,004,180
2,150,000 King George County IDA, VA, Lease Revenue Notes
(Series 1995A), 4.875% (King George County Elementary
School )/(Original Issue Yield: 5.05%), 8/1/1998 NR 2,151,269
200,000 Prince William County, VA IDA, Hospital Revenue
Bonds, 5.90% (Potomac Hospital Corp., VA), 10/1/1997 NR 203,358
255,000 Prince William County, VA IDA, Hospital Revenue
Bonds, 6.00% (Potomac Hospital Corp., VA), 10/1/1998 NR 262,433
255,000 Prince William County, VA IDA, Hospital Revenue
Bonds, 6.10% (Potomac Hospital Corp., VA), 10/1/1999 NR 265,602
2,000,000 Virginia State Housing Development Authority,
Commonwealth Mortgage Revenue Bonds (Series G-2),
5.40%, 1/1/1998 AA+ 2,028,400
Total 6,915,242
WISCONSIN -- 1.0%
1,000,000 Wisconsin State, UT GO Bonds (Series B), 4.70%,
11/1/1999 AA 1,012,210
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $92,849,977) 92,707,693
SHORT-TERM MUNICIPAL SECURITIES -- 9.4%
ILLINOIS -- 2.6%
2,550,000 Rockford, IL, EDRB, 4.45% TOBs (Independence Village
of Rockford)/(Banque Paribas, Paris LOC), Optional
Tender 12/1/1996 A 2,550,000
KENTUCKY -- 1.8%
1,800,000 Kentucky Pollution Abatement & Water Resource
Finance Authority Daily VRDNs (Toyota Motor Credit
Corp.) VMIG1 1,800,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
MINNESOTA -- 5.0%
$ 5,000,000 Bass Brook, MN, PCR, 4.70% TOBs (Minnesota Power
and Light Co.), Optional Tender 6/2/1997 P-2 $ 5,000,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 9,350,000
TOTAL INVESTMENTS (IDENTIFIED COST $102,199,977)(A) $102,057,693
(a) The cost of investments for federal tax purposes amounts to
$102,199,977. The net unrealized depreciation of investments on a federal
tax basis amounts to $142,284 which is comprised of $801,597 appreciation
and $943,881 depreciation at November 30, 1996.
* 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
($99,870,388) at November 30, 1996.
The following acronyms are used throughout this portfolio:
BANs -- Bond Anticipation Notes
COL -- Collateralized
EDRB -- Economic Development Revenue Bonds
GNMA -- Government National Mortgage Association
GO -- General Obligation
GTD -- Guaranty
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)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $102,199,977) $ 102,057,693
Cash 1,625,913
Income receivable 1,903,242
Receivable for shares sold 34,495
Deferred expenses 29,496
Total assets 105,650,839
LIABILITIES:
Payable for investments purchased $ 5,515,726
Payable for shares redeemed 99,882
Income distribution payable 92,956
Accrued expenses 71,887
Total liabilities 5,780,451
Net Assets for 10,227,402 shares outstanding $ 99,870,388
NET ASSETS CONSIST OF:
Paid in capital $ 102,467,028
Net unrealized depreciation of investments (142,284)
Accumulated net realized loss on investments (2,401,023)
Distributions in excess of net investment income (53,333)
Total Net Assets $ 99,870,388
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($73,570,328 / 7,534,098 shares outstanding) $9.76
Offering Price Per Share (100/99.00 of $9.76)* $9.86
Redemption Proceeds Per Share** $9.76
CLASS F SHARES:
Net Asset Value Per Share ($26,300,060 / 2,693,304 shares outstanding) $9.76
Offering Price Per Share (100/99.00 of $9.76)* $9.86
Redemption Proceeds Per Share (99.00/100 of $9.76)** $9.66
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,726,174
EXPENSES:
Investment advisory fee $ 381,182
Administrative personnel and services fee 155,001
Custodian fees 27,885
Transfer and dividend disbursing agent fees and expenses 55,364
Directors'/Trustees' fees 4,750
Auditing fees 14,561
Legal fees 3,049
Portfolio accounting fees 62,624
Distribution services fee -- Class A Shares 166,935
Distribution services fee -- Class F Shares 42,573
Shareholder services fee -- Class A Shares 166,935
Shareholder services fee -- Class F Shares 71,295
Share registration costs 50,819
Printing and postage 31,782
Insurance premiums 2,633
Taxes 7,785
Miscellaneous 16,558
Total expenses 1,261,731
Waivers and reimbursements --
Waiver of investment advisory fee $ (381,182)
Waiver of distribution services fee -- Class F Shares (42,573)
Reimbursement of other operating expenses (136,099)
Total waivers and reimbursements (559,854)
Net expenses 701,877
Net investment income 4,024,297
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 25,072
Net change in unrealized (depreciation) of investments (809,590)
Net realized and unrealized loss on investments (784,518)
Change in net assets resulting from operations $ 3,239,779
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 4,024,297 $ 2,427,308
Net realized gain (loss) on investments ($25,072 net gain and $439,009
net loss, respectively, as computed for federal tax purposes) 25,072 (439,009)
Net change in unrealized appreciation (depreciation) (809,590) 2,221,502
Change in net assets resulting from operations 3,239,779 4,209,801
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (2,771,053) (1,622,749)
Class F Shares (1,253,244) (804,559)
Distributions in excess of net investment income
Class A Shares (37,377) --
Class F Shares (15,956) --
Change in net assets resulting from distributions to shareholders (4,077,630) (2,427,308)
SHARE TRANSACTIONS --
Proceeds from sale of shares 55,986,867 75,579,715
Net asset value of shares issued to shareholders in payment of
distributions declared 2,751,888 1,474,064
Cost of shares redeemed (49,651,826) (32,662,928)
Change in net assets resulting from share transactions 9,086,929 44,390,851
Change in net assets 8,249,078 46,173,344
NET ASSETS:
Beginning of period 91,621,310 45,447,966
End of period $ 99,870,388 $ 91,621,310
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 9.49 $10.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.40 0.46 0.43 0.10
Net realized and unrealized gain (loss) on investments (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.32 0.82 (0.10) 0.12
LESS DISTRIBUTIONS
Distributions from net investment income (0.40) (0.46) (0.43) (0.10)
Distributions in excess of net investment income(b) (0.01) -- -- --
Total distributions (0.41) (0.46) (0.43) (0.10)
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 3.34% 8.67% (0.95%) 1.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81% 0.68% 0.63% 0.50%*
Net investment income 4.14% 4.72% 4.33% 4.30%*
Expense waiver/reimbursement(d) 0.54% 1.03% 0.94% 1.71%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $73,570 $65,179 $32,644 $13,694
Portfolio turnover 49% 47% 135% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1993 (date of
initial public investment) to November 30, 1993.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS -- CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 9.49 $10.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.43 0.47 0.45 0.11
Net realized and unrealized gain (loss) on investments (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.35 0.83 (0.08) 0.13
LESS DISTRIBUTIONS
Distributions from net investment income (0.43) (0.47) (0.45) (0.11)
Distributions in excess of net investment income(b) (0.01) -- -- --
Total distributions (0.44) (0.47) (0.45) (0.11)
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 3.60% 8.86% (0.75%) 1.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.56% 0.49% 0.44% 0.25%*
Net investment income 4.40% 4.91% 4.57% 4.79%*
Expense waiver/reimbursement(d) 0.69% 1.11% 0.94% 1.86%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $26,300 $26,442 $12,804 $3,307
Portfolio turnover 49% 47% 135% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 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)
FEDERATED LIMITED TERM MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios.
The financial statements included herein are only those of Federated Limited
Term Municipal Fund (the "Fund"), a diversified portfolio. The financial
statements of the other portfolios are presented separately. The assets of
each portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held. The Fund offers two classes of shares:
Class F Shares and Class A Shares. The investment objective of the Fund is
to provide a high level of current income which is exempt from federal
regular income tax (federal regular income tax does not include the federal
alternative minimum tax) consistent with the preservation of principal.
Effective January 31, 1996, the Board of Directors (the "Directors")
approved a change in the name of the Fund from Limited Term Municipal Fund
to Federated Limited Term Municipal Fund. Effective January 31, 1996, the
Directors also approved a change in the name of Fortress Shares to Class F
Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At November 30, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $2,401,023, 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:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $ 1,962,014
2003 $ 439,009
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 over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 1996, par value shares ($ 0.001 per share) authorized were
as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A 1,000,000,000
Class F 1,000,000,000
Total shares authorized 2,000,000,000
Transactions in capital stock were as follows:
YEAR ENDED NOVEMBER 30,
1996 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,903,674 $ 48,006,252 5,713,041 $ 55,927,556
Shares issued to shareholders in payment of
distributions declared 200,244 1,957,251 111,389 1,084,149
Shares redeemed (4,185,345) (41,018,299) (2,647,044) (25,684,893)
Net change resulting from Class A Share
transactions 918,573 $ 8,945,204 3,177,386 $ 31,326,812
YEAR ENDED NOVEMBER 30,
1996 1995
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 812,884 $ 7,980,615 2,014,269 $ 19,652,159
Shares issued to shareholders in payment of
distributions declared 81,282 794,637 40,074 389,915
Shares redeemed (884,487) (8,633,527) (719,239) (6,978,035)
Net change resulting from Class F Share
transactions 9,679 141,725 1,335,104 $ 13,064,039
Net change resulting from share
transactions 928,252 $ 9,086,929 4,512,490 $ 44,390,851
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp., the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A and Class F Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate Federated Securities Corp.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class F Shares 0.15%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, the Fund will pay Federated
Shareholder Services up to 0.25% of average daily net assets of the Fund
shares for the period. The fee paid to Federated Shareholder Services is
used to finance certain services for shareholders and to maintain
shareholder accounts. Federated Shareholder Services may voluntarily choose
to waive any portion of its fee. Federated Shareholder Services can modify
or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- Federated
Services Company ("FServ"), through its subsidiary, Federated Shareholder
Services Company ("FSSC") serves as transfer and dividend disbursing agent
for the Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- Federated Services Company 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, 1996, the Fund
paid $21,459 pursuant to this agreement.
INTERFUND TRANSACTIONS -- During the period ended November 30, 1996, 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 $49,700,000 and $58,692,499, 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, 1996, were as follows:
PURCHASES $58,225,580
SALES $41,257,220
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of FEDERATED LIMITED TERM MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Limited Term Municipal
Fund as of November 30, 1996, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended
November 30, 1996 and 1995 and the 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, 1996, 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 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 Federated
Limited Term Municipal Fund as of November 30, 1996, the results of its
operations, the changes in its net assets and the financial highlights for
the respective stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 17, 1997
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
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 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.
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 338319502
Cusip 338319403
G00278-02 (1/97)
Federated Strategic Income Fund
2ND ANNUAL REPORT
NOVEMBER 30, 1996
ESTABLISHED 1994
INCOME
PRESIDENT'S MESSAGE
[Graphic]
Dear Fellow Shareholder:
Federated Strategic Income Fund was established in 1994, and I am pleased to
present the second Annual Report for the fund, which covers the period from
December 1, 1995, through November 30, 1996.
This report begins with an interview with the fund's primary portfolio
manager, Joseph M. Balestrino, Vice President, Federated Advisers. Following
his interview are three additional items of shareholder interest: a series
of graphs showing investment performance, a complete listing of the fund's
holdings, and its financial statements.
Federated Strategic Income Fund produced a generous monthly income through a
widely diversified portfolio of bonds. The fund's managers shift the
composition of the portfolio in three bond sectors: U.S. government,
international, and domestic high-yield corporate bonds. The bond sectors are
not correlated, which means the risks and rewards do not occur at the same
time. The bonds' price movements act, to some degree, independently, which
has rewarded shareholders with a very good total return.
Despite considerable bond market volatility during the year, your fund's
ability to diversify among different bond market sectors resulted in strong,
double-digit total return performance, as shown below by share class.*
<TABLE>
<CAPTION>
NET ASSET CAPITAL TOTAL
VALUE INCREASE INCOME GAINS RETURN
<S> <C> <C> <C> <C>
Class A Shares $10.14 to $10.47 = 3% $0.92 $0.08 13.89%
Class B Shares $10.14 to $10.47 = 3% $0.84 $0.08 13.03%
Class C Shares $10.14 to $10.47 = 3% $0.84 $0.08 13.05%
Class F Shares $10.14 to $10.47 = 3% $0.91 $0.08 13.83%
</TABLE>
This generous income and total return performance has attracted over $176
million in net assets.
* Performance quoted is based on net asset value and 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, B, C, and F Shares were 8.74%, 7.02%, 11.98%, and 11.65%,
respectively.
Thank you for joining other shareholders who have entrusted a portion of
their wealth in Federated Strategic Income Fund. Remember, reinvesting your
monthly dividends 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,
[Graphic]
Richard B. Fisher
President
January 15, 1997
Investment Review
[Graphic]
Joseph M. Balestrino
Vice President
Federated Advisers
[Graphic]
JOE, PLEASE COMMENT ON WHAT HAS BEEN A VOLATILE BOND MARKET ENVIRONMENT
DURING MUCH OF THE 12-MONTH REPORTING PERIOD.
The bond markets -- U.S. government, U.S. high-yield bond and international
bonds -- exhibited tremendous volatility that, in retrospect, displayed
three distinct interest rate environments. The fiscal year both started and
ended in a very positive fashion with interest rates falling under the
expectation of a slower U.S. economy. The middle months of the period
(February-June 1996) were characterized by sharply higher U.S. interest
rates in response to much stronger than anticipated economic data releases,
although there was no action by the Federal Reserve Board to raise rates. As
the period drew to a close, the economy was once again sending mixed
signals, but with a bias toward reduced economic activity. In particular,
both U.S. consumer debt creation and incremental consumer spending, which
historically have been closely correlated, declined in October 1996, and
U.S. interest rates fell significantly.
Outside the U.S., rates declined as many countries suffered with high
unemployment and a desire to reduce inflationary fears.
[Graphic]
IN THIS ENVIRONMENT, HOW DID FEDERATED STRATEGIC INCOME FUND PERFORM FOR
SHAREHOLDERS?
Despite considerable bond market volatility, the fund produced very strong
total returns. Class A, B, C, and F Shares posted total returns of 13.89%,
13.03%, 13.05%, and 13.83% respectively, based on net asset value. * The
fund's returns outpaced the Lipper Multi-Sector Income Funds Average, which
returned 13.69% for the same period.* *
* Performance quoted is based on net asset value and 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, B, C, and F Shares were 8.74%, 7.02%, 11.98%, and 11.65%,
respectively.
** Lipper returns do not take sales charges into account.
[Graphic]
WHAT STRATEGIES ACCOUNTED FOR THE FUND'S PERFORMANCE?
(Shareholders' Note: This fund is co-managed by a team of portfolio managers
along with Joseph Balestrino who are all experts in their key bond market
sectors: U.S. government -- Kathy Foody-Malus, Vice President, Federated
Advisers; high-yield corporate bonds -- Mark E. Durbiano, Senior Vice
President, Federated Advisers; and international bonds -- Robert Kowit, Vice
President, Federated Global Research. Their outlooks follow.)
HIGH-YIELD BONDS delivered excellent performance compared to high-quality
bonds. The strong relative performance for high-yield securities was driven
by two factors. First, the U.S. economy generally continued to exceed
expectations. While there are some indications that future growth will
decline from a very strong environment earlier in 1996, the overall economic
outlook continues to be positive. This strong economic outlook may reduce
investors' fears of credit deterioration. Second, the high-yield market
benefited from strong demand for high-yield securities. Simply stated, there
were more buyers than sellers. These factors caused the yield spread between
high-yield bonds and U.S. Treasury securities to narrow during the period,
producing superior relative performance for high-yield bonds.
Due to attractive yield spreads over other high-quality sectors, the U.S.
MORTGAGE SECTOR continued to provide attractive relative returns versus
other high-quality, fixed-income market sectors. Near term performance
prospects continued to appear favorable as the fourth quarter progressed.
The technicals should continue to look fair for the mortgage market due to a
combination of low prepayment volatility and an anticipated decline in
supply as a result of housing affordability and fall/winter seasonal
effects.
On the INTERNATIONAL front, all of the bond markets continued to be driven
by relatively low inflation, high unemployment, and historically steep yield
curves. Absolute returns over 1996 have been very favorable, and with the
fund weighted slightly higher in the international sector, overall
performance was enhanced.+
+ Foreign investing involves special risks, including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards.
[Graphic]
THE FUND INVESTS IN THREE DISTINCT SECTORS: U.S. DOMESTIC HIGH-QUALITY
BONDS, U.S. HIGH-YIELD CORPORATES, AND INTERNATIONAL. THE INTERNATIONAL
PORTION OF THE FUND INCLUDES BOTH EMERGING MARKET AND DEVELOPED COUNTRY
DEBT. HOW WERE THE FUND'S ASSETS ALLOCATED AMONG THESE THREE BOND SECTORS AS
OF NOVEMBER 30, 1996?
The fund's allocations were: international bonds 34%; U.S. government bonds
33%; U.S. high-yield corporate bonds 33%. Sector allocation is slightly
overweighted in the international segment, neutral in the high-yield bond
segment, and slightly underweighted in the government domestic high-quality
area.
[Graphic]
WHAT IS YOUR BRIEF OUTLOOK FOR THE U.S. AND INTERNATIONAL BOND MARKETS?
While the U.S. economy has continued to display pockets of both strength and
weakness, one must recognize that the current economic expansion is now over
5 years in length, when expansions typically last 3 years. Given that
inflation remains relatively low and corporate earnings are exhibiting a
slower growth pattern, we maintain a positive outlook for the year ahead. As
a result, the fund's shareholders can likely expect to see more of the same
from a portfolio strategy perspective, with a desire to produce
above-average income, and capital appreciation potential should interest
rates fall.
Our international bond market outlook for 1997 continues to be favorable.
Most of the countries still have very high unemployment and low inflation.
Short-term interest rates are at or close to their all-time lows but real
yields on bonds remain quite attractive. Concern over the upcoming European
Monetary Union deliberations in advance of the move to a single European
currency in 1999 have kept many local investors in shorter dated maturities.
Yield curves are, therefore, much steeper in Europe than they are in the
U.S. As investors move further out the local yield curves, we expect 25-50
basis points of additional performance from most of the European markets.
Japan seems to be on the road to economic recovery.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED STRATEGIC INCOME FUND
IF YOU HAD MADE AN INITIAL INVESTMENT OF $3,000 IN THE CLASS A SHARES OF
FEDERATED STRATEGIC INCOME FUND ON 5/4/94, REINVESTED DIVIDENDS AND CAPITAL
GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH $3,772 ON
11/30/96. YOU WOULD HAVE EARNED A 9.30%* 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 12/31/96, the Class A Shares' average annual one-year and since
inception (5/4/94) total returns were 7.46% and 9.17%, respectively. Class B
Shares' average annual one-year and since inception (7/27/95) total returns
were 5.62% and 9.59%, respectively. Class C Shares' average annual one-year
and since inception (5/2/94) total returns were 10.55% and 10.23%,
respectively. Class F Shares' average annual one-year and since inception
(5/10/94) total returns were 10.28% and 9.98%, respectively.
[Graphic representation A9 omitted. See Appendix.]
* Total returns represent the change in the value of an investment after
reinvesting all income and capital gains, and take into account the 4.5%
sales charge for Class A Shares.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
FEDERATED STRATEGIC INCOME FUND
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 2 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $3,447.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated Strategic Income Fund on 5/4/94, reinvested your dividends and
capital gains and didn't redeem any shares, you would have invested only
$3,000, but your account would have reached a total value of $3,447* by
11/30/96. You would have earned an average annual total return of 9.33%.
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,
money, and compounding to work!
[Graphic representation A10 omitted. See Appendix.]
* No method of investing can guarantee a profit or protect against loss in
down markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED STRATEGIC INCOME FUND
PORTFOLIO UPDATE
[Graphic representation A11 omitted. See Appendix.]
FEDERATED STRATEGIC INCOME FUND (CLASS A SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS A
SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Strategic Income Fund (Class A Shares) (the "Fund") from May 4,
1994 (start of performance) to November 30, 1996, compared to the Lehman
Brothers Government/Corporate Bond Index (LBG/CBI)+ and the Lipper Multi-
Sector Income Funds Average (LMSIFA).++
[Graphic representation A12 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 THEIR 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.
** 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. The
LBG/CBI has been adjusted to reflect reinvestment of dividends on securities
in the index. The index is unmanaged.
++ The LMSIFA 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. The LMSIFA
has been adjusted to reflect reinvestment of dividends on securities in
the average.
FEDERATED STRATEGIC INCOME FUND (CLASS B SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND
(CLASS B SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Strategic Income Fund (Class B Shares) (the "Fund") from July 27,
1995 (start of performance) to November 30, 1996, compared to the Lehman
Brothers Government/Corporate Bond Index (LBG/CBI)+ and the Lipper Multi-
Sector Income Funds Average (LMSIFA).++
[Graphic representation A13 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 THEIR 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.
** 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 LBG/CBI has been adjusted to reflect reinvestment of
dividends on securities in the index.
++ The LMSIFA 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. The LMSIFA has
been adjusted to reflect reinvestment of dividends on securities in the
average.
FEDERATED STRATEGIC INCOME FUND (CLASS C SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND
(CLASS C SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Strategic Income Fund (Class C Shares) (the "Fund") from May 2,
1994 (start of performance) to November 30, 1996, compared to the Lehman
Brothers Government/Corporate Bond Index (LBG/CBI)+ and the Multi-
Sector Income Funds Average (LMSIFA).++
[Graphic representation A14 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 THEIR 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.
** 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 LBG/CBI has been adjusted to reflect reinvestment of
dividends on securities in the index.
++ The LMSIFA 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. The LMSIFA has
been adjusted to reflect reinvestment of dividends on securities in the
average.
FEDERATED STRATEGIC INCOME FUND (CLASS F SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND
(CLASS F SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Strategic Income Fund (Class F Shares) (the "Fund") from May 10,
1994 (start of performance) to November 30, 1996, compared to the Lehman
Brothers Government/Corporate Bond Index (LBG/CBI)+ and the Lipper Multi-
Sector Income Funds Average (LMSIFA).++
[Graphic representation A15 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 THEIR 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.
** 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 LBG/CBI has been adjusted to reflect reinvestment of
dividends on securities in the index.
++ The LMSIFA 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. The LMSIFA has
been adjusted to reflect reinvestment of dividends on securities in the
average.
FEDERATED STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- 39.6%
AUTOMOTIVE -- 1.0%
$ 300,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 $ 334,500
50,000 (a)Blue Bird Body Co., Sr. Sub. Note, 10.75%, 11/15/2006 51,875
500,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 536,250
400,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 419,000
50,000 JPS Automotive Products Corp., Sr. Note, 11.125%, 6/15/2001 52,250
75,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 80,719
100,000 Lear Seating Corp., Sr. Sub. Note, 11.25%, 7/15/2000 103,250
250,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 253,125
Total 1,830,969
BANKING -- 0.5%
600,000 (a)First Nationwide Escrow Corp., Sr. Sub. Note, 10.625%, 10/1/2003 642,000
50,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 56,375
250,000 First Nationwide Holdings, Inc., Sr. Sub. Note, 9.125%, 1/15/2003 253,750
Total 952,125
BEVERAGE & TOBACCO -- 0.3%
250,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 264,375
300,000 Dr Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 279,000
Total 543,375
BROADCAST RADIO & TV -- 2.6%
38,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 42,370
525,000 Chancellor Broadcasting Co., Sr. Sub. Note, 9.375%, 10/1/2004 525,656
500,000 Granite Broadcasting Corp., Sr. Sub. Note, 9.375%, 12/1/2005 478,750
300,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 291,000
300,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 306,750
100,000 Park Communications, Inc., Sr. Note, 13.75%, 5/15/2004 112,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
BROADCAST RADIO & TV -- CONTINUED
$ 100,000 Pegasus Media, Note, 12.50%, 7/1/2005 $ 108,500
350,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 377,125
500,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 526,250
900,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 906,750
500,000 Sullivan Broadcast Holdings, Inc., Sr. Sub. Note, 10.25%, 12/15/2005 501,250
200,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 202,000
50,000 Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 1/15/2006 47,375
Total 4,426,276
BUSINESS EQUIPMENT & SERVICES -- 0.8%
450,000 Knoll, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 492,750
300,000 Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 334,500
200,000 (a)Outsourcing Solutions, Inc., Sr. Sub. Note, 11.00%, 11/1/2006 209,000
400,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 443,500
Total 1,479,750
CABLE TELEVISION -- 3.9%
200,000 (a)Australis Holdings Pty Limited, Unit, 0/15.00%, 11/1/2002 113,500
275,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 162,470
100,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.875%, 9/15/2005 79,250
400,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 346,000
200,000 CAI Wireless Systems, Inc., Sr. Note, 12.25%, 9/15/2002 165,000
100,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 116,500
200,000 (a)CS Wireless Systems, Inc., Unit, 0/11.375%, 3/1/2006 77,000
400,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 389,500
450,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 438,750
100,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 5/15/2006 101,250
500,000 Charter Communications Southeast, L.P., Sr. Note, 11.25%, 3/15/2006 517,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
CABLE TELEVISION -- CONTINUED
$ 300,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 $ 209,250
225,000 Diamond Cable Co., Sr. Disc. Note, 0/11.75%, 12/15/2005 157,500
525,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/13.125%,
3/15/2004 401,625
100,000 Cabletel, Inc., Sr. Disc. Note, 0/12.75%, 4/15/2005 72,000
1,150,000 Cabletel, Inc., Sr. Note, 0/11.50%, 2/1/2006 743,188
550,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 606,375
300,000 Lenfest Communications, Inc., Sr. Sub. Note, 10.50%, 6/15/2006 315,750
250,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 98,750
250,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
12/1/2007 265,000
150,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 161,250
1,475,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 1,010,375
350,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 187,250
50,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 48,188
250,000 Wireless One, Inc., Unit, 0/13.50%, 8/1/2006 119,375
Total 6,902,596
CHEMICALS & PLASTICS -- 2.8%
250,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 276,875
500,000 (a)Astor Corp., Sr. Sub. Note, 10.50%, 10/15/2006 510,000
250,000 Buckeye Cellulose Corp., Sr. Sub. Note, 8.50%, 12/15/2005 245,625
250,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 254,375
300,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 338,250
350,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 378,000
700,000 Harris Chemical North America, Inc., Sr. Note, 9.625, 7/15/2001 722,750
500,000 (a)ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 510,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
CHEMICALS & PLASTICS -- CONTINUED
$ 42,000 (a)ISP Holding, Inc., Sr. Note, 9.75%, 2/15/2002 $ 44,100
500,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 542,500
500,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 10/15/2005 432,500
400,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%,
8/15/2008 227,000
75,000 Sterling Chemicals, Inc., Sr. Sub. Note, 11.75%, 8/15/2006 77,813
100,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 100,000
300,000 Viridian, Inc., Note, 9.75%, 4/1/2003 328,458
Total 4,988,246
CLOTHING & TEXTILES -- 0.8%
200,000 (a)Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 206,000
1,050,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 1,084,125
125,000 (a)William Carter Co., Sr. Sub. Note, 10.375%, 12/1/2006 127,500
Total 1,417,625
CONGLOMERATES -- 0.6%
1,000,000 RJR Nabisco, Inc., Note, 8.75%, 7/15/2007 1,015,950
CONSUMER PRODUCTS -- 1.1%
400,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 430,000
50,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 53,750
50,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 55,250
350,000 (a)ICON Fitness Corp., Sr. Disc. Note, 0/14.00%, 11/15/2006 182,875
100,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 113,500
750,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 746,250
400,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 418,000
Total 1,999,625
CONTAINER & GLASS PRODUCTS -- 1.0%
325,000 Owens-Illinois, Inc., Sr. Amort. Deb., 11.00%, 12/1/2003 360,750
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
CONTAINER & GLASS PRODUCTS -- CONTINUED
$ 200,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 $ 212,750
350,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 365,750
350,000 Packaging Resources, Inc., Sr. Note, 11.625%, 5/1/2003 369,250
250,000 Plastic Containers, Inc., Sr. Secd. Note, 10.75%, 4/1/2001 263,000
100,000 (a)U.S. Can Corp., Sr. Sub. Note, 10.125%, 10/15/2006 104,875
Total 1,676,375
COSMETICS & TOILETRIES -- 0.3%
25,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 25,688
500,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 526,250
Total 551,938
ECOLOGICAL SERVICES & EQUIPMENT -- 0.2%
225,000 (a)Allied Waste North America, Inc., Sr. Sub. Note, 10.25%, 12/1/2006 230,906
150,000 ICF Kaiser, Inc., Sr. Sub. Note, 13.00%, 12/31/2003 142,500
50,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 20,500
Total 393,906
ELECTRONICS -- 0.8%
300,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 8/1/2003 326,625
1,000,000 Anixter, Inc., Company Guarantee, 8.00%, 9/15/2003 1,042,470
Total 1,369,095
FINANCE -- 0.2%
300,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 312,045
100,000 (a)Dollar Financial Group, Inc., Sr. Note, 10.875%, 11/15/2006 102,000
Total 414,045
FINANCIAL INTERMEDIARIES -- 1.2%
1,000,000 Lehman Brothers Holdings, Inc., 8.50%, 5/1/2007 1,104,930
1,000,000 Morgan Stanley Group, Inc., Deb., 9.25%, 3/1/1998 1,041,530
Total 2,146,460
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
FOOD & DRUG RETAILERS -- 0.9%
$ 450,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 $ 481,500
600,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 623,250
425,000 Smith's Food & Drug Centers, Inc., Sr. Sub. Note, 11.25%, 5/15/2007 467,500
Total 1,572,250
FOOD PRODUCTS -- 0.7%
100,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 103,500
600,000 (a)International Home Foods, Inc., Sr. Sub. Note, 10.375%, 11/1/2006 616,500
125,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 106,875
300,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 330,000
Total 1,156,875
FOOD SERVICES -- 0.1%
200,000 Americold Corp., Sr. Sub. Note, 12.875%, 5/1/2008 208,500
FOREST PRODUCTS -- 1.4%
200,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 215,500
350,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 361,375
225,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 219,375
750,000 Riverwood Corp., Sr. Sub. Note, 10.875%, 4/1/2008 682,500
400,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 420,000
75,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 79,125
150,000 Stone Container Corp., Sr. Note, 11.875%, 8/1/2016 157,500
250,000 (a)Uniforet, Inc., Sr. Note, 11.125%, 10/15/2006 238,750
Total 2,374,125
HEALTHCARE -- 1.2%
500,000 (a)Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 542,500
500,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 525,000
50,000 (a)Prime Succession Acquisition Corp., Sr. Sub. Note, 10.75%, 8/15/2004 54,250
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
HEALTHCARE -- CONTINUED
$ 100,000 (a)Rose Hills Acquisition Corp., Sr. Sub. Note, 9.50%, 11/15/2004 $ 101,250
825,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 915,750
Total 2,138,750
HOTELS, MOTELS, INNS & CASINOS -- 0.2%
400,000 Courtyard by Marriott II L.P., Sr. Note, 10.75%, 2/1/2008 424,000
INDUSTRIAL PRODUCTS & EQUIPMENT -- 1.1%
325,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 364,812
425,000 (a)Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 437,750
250,000 (a)Hawk Corp., Sr. Note, 10.25%, 12/1/2003 254,375
150,000 (a)International Knife & Saw, Inc., Sr. Sub. Note, 11.375%, 11/15/2006 154,500
200,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 191,000
50,000 Mettler-Toledo, Inc., Sr. Sub. Note, 9.75%, 10/1/2006 52,625
475,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 489,250
Total 1,944,312
INSURANCE -- 1.2%
1,000,000 (a)Equitable Life, Note, 7.70%, 12/1/2015 1,031,800
1,000,000 (a)Union Central Life Insurance Co., 8.20%, 11/1/2026 1,025,000
Total 2,056,800
LEISURE & ENTERTAINMENT -- 1.3%
700,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 446,250
100,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 105,375
100,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 105,125
200,000 Cobblestone Golf Group, Inc., Sr. Note, 11.50%, 6/1/2003 209,500
100,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 109,500
625,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 578,125
800,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 778,000
Total 2,331,875
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
MACHINERY & EQUIPMENT -- 0.4%
$ 150,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 $ 157,500
133,000 Primeco, Inc., Sr. Sub. Note, 12.75%, 3/1/2005 151,620
300,000 (a)Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 317,250
Total 626,370
METALS & MINING -- 0.8%
750,000 Inco Ltd., Note, 9.60%, 6/15/2022 845,078
500,000 Royal Oak Mines, Sr. Sub. Note, 11.00%, 8/15/2006 511,250
Total 1,356,328
MUNICIPAL SERVICES -- 0.6%
1,000,000 Minneapolis/St. Paul, MN Airport Commission, UT GO Taxable
Revenue Bonds (Series 9), 8.95% (Minneapolis/St. Paul, MN),
1/1/2022 1,120,790
OIL & GAS -- 1.1%
500,000 (a)Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 518,750
150,000 Clark USA, Inc., Sr. Note, Series B, 10.875%, 12/1/2005 156,000
100,000 Falcon Drilling Co., Inc., Sr. Note, 8.875%, 3/15/2003 101,500
50,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 52,500
150,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%, 11/1/2006 157,125
300,000 (a)HS Resources, Inc., Sr. Sub. Note, 9.25%, 11/15/2006 306,750
250,000 Mesa Operating Company, Sr. Sub. Disc. Note, 0/11.625%, 7/1/2006 170,625
200,000 Mesa Operating Company, Sr. Sub. Note, 10.625%, 7/1/2006 216,500
300,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 327,750
Total 2,007,500
PRINTING & PUBLISHING -- 2.1%
750,000 Affiliated Newspaper, Sr. Disc. Note, 0/13.25%, 7/1/2006 611,250
250,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 268,125
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
PRINTING & PUBLISHING -- CONTINUED
$ 300,000 Hollinger Publishing, Inc., Sr. Sub. Note, 9.25%, 2/1/2006 $ 294,000
350,000 K-III Communications Corp., Company Guarantee, Series B, 8.50%,
2/1/2006 344,313
1,000,000 News America Holdings, Inc., 8.15%, 10/17/2036 1,027,630
300,000 (a)Petersen Publishing Co., L.L.C., Sr. Sub. Note, 11.125%, 11/15/2006 307,875
750,000 Valassis Communication, Inc., Sr. Note, 9.55%, 12/1/2003 800,055
Total 3,653,248
REAL ESTATE -- 0.2%
300,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 332,250
RETAILERS -- 0.7%
250,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 259,375
1,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 1,045,030
Total 1,304,405
SERVICES -- 0.3%
100,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 108,500
200,000 (a)Intertek Finance PLC, Sr. Sub. Note, 10.25%, 11/1/2006 206,500
125,000 (a)Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 12/1/2006 127,969
Total 442,969
STEEL -- 0.9%
225,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 226,125
50,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 50,375
50,000 Bar Technologies, Inc., Company Guarantee, 13.50%, 4/1/2001 50,750
50,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 46,750
400,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 373,680
150,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 155,250
250,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%, 10/1/2005 261,250
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
STEEL -- CONTINUED
$ 150,000 Republic Engineered Steel, Inc., 1st Mtg. Note, 9.875%, 12/15/2001 $ 137,063
300,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 319,125
Total 1,620,368
SURFACE TRANSPORTATION -- 2.0%
300,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 298,500
500,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 545,000
300,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 301,500
325,000 (a)Statia Terminals, 1st Mtg. Note, 11.75%, 11/15/2003 329,875
500,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 535,625
1,000,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 1,203,260
200,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 193,000
Total 3,406,760
TELECOMMUNICATIONS & CELLULAR -- 3.3%
200,000 American Communications Services, Inc., Sr. Disc. Note, 0/12.75%,
4/1/2006 109,500
175,000 Arch Communications Group, Inc., Sr. Disc. Note, 0/10.875%,
3/15/2008 101,937
1,000,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 665,000
750,000 Cellular Communications, Inc., Sr. Disc. Note, 13.25% accrual,
8/15/2000 513,750
75,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 81,937
1,000,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note, 0/12.50%,
5/15/2006 662,500
600,000 Millicom Cellular S. A., Sr. Disc. Note, 0/13.50%, 6/1/2006 355,500
50,000 MobileMedia Communications, Inc., Sr. Sub. Note, 9.375%, 11/1/2007 27,500
50,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 37,875
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN VALUE
CURRENCY IN U.S.
PAR AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
TELECOMMUNICATIONS & CELLULAR -- CONTINUED
$ 575,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 $ 385,250
200,000 Nextlink Communications, L.L.C., Sr. Note, Series AI, 12.50%,
4/15/2006 211,000
250,000 (a)Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 250,313
400,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 402,500
125,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 115,469
550,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 555,500
400,000 Teleport Communications Group, Inc., Sr. Disc. Note, 0/11.125%,
7/1/2007 274,000
75,000 Teleport Communications Group, Inc., Sr. Note, 9.875%, 7/1/2006 79,313
250,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 236,250
725,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 730,438
Total 5,795,532
UTILITIES -- 1.0%
250,000 (a)CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 258,750
650,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 680,875
700,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 758,079
Total 1,697,704
TOTAL U.S. CORPORATE BONDS (IDENTIFIED COST $67,662,418 ) 69,680,067
INTERNATIONAL BONDS -- 34.7%
AUSTRALIAN DOLLAR -- 1.1%
PRINTING & PUBLISHING -- 0.1%
150,000 News America Holdings, Inc., 8.625%, 2/7/2014 116,901
STATE/PROVINCIAL -- 1.0%
2,000,000 Queensland Treasury, Local Government Guarantee, 8.00%, 5/14/2003 1,708,245
TOTAL AUSTRALIAN DOLLAR 1,825,146
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY IN U.S.
PAR AMOUNT DOLLARS
<C> <S> <C>
CANADIAN DOLLAR -- 1.3%
BEVERAGE & TOBACCO -- 0.6%
1,100,000 Molson Breweries, Unsub., 9.10%, 3/11/2013 $ 967,609
CHEMICALS & PLASTICS -- 0.0%
100,000 Viridian, Inc., Note, 11.00%, 3/31/2004 87,417
STATE/PROVINCIAL -- 0.5%
1,000,000 (a)Metro Toronto, Deb., 7.40%, 9/27/2006 805,465
TELECOMMUNICATIONS & CELLULAR -- 0.2%
500,000 Bell Canada, Deb., 8.80%, 8/17/2005 433,964
TOTAL CANADIAN DOLLAR 2,294,455
CZECH KRONA -- 1.0%
CONGLOMERATES -- 0.5%
26,000,000 General Electric Capital Corp., Sr. Unsub., 10.50%, 10/23/1998 955,000
SOVEREIGN -- 0.2%
10,500,000 Finance Corp., Sr. Unsub., 10.50%, 11/30/1998 384,704
SUPRANATIONAL -- 0.3%
12,000,000 Bank Recon and Development, Note, 11.50%, 10/9/1997 443,427
TOTAL CZECH KRONA 1,783,131
DANISH KRONE -- 0.9%
SOVEREIGN -- 0.9%
6,000,000 Kingdom of Denmark, Bond, 7.00%, 11/10/2024 959,361
3,500,000 Unikredit Realkredit, Mtg. Bond, 8.00%, 10/1/2029 590,925
TOTAL DANISH KRONE 1,550,286
DEUTSCHE MARK -- 1.4%
SOVEREIGN -- 1.4%
3,800,000 Deutschland Republic, Deb., 6.25%, 1/4/2024 2,364,346
GREEK DRACHMA -- 0.9%
SOVEREIGN -- 0.9%
250,000,000 Hellenic Republic, Bond, 13.40%, 11/26/2003 1,032,065
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY IN U.S.
PAR AMOUNT DOLLARS
<C> <S> <C>
GREEK DRACHMA -- CONTINUED
SOVEREIGN -- CONTINUED
120,000,000 Hellenic Republic, Bond, 14.00%, 10/23/2003 $ 495,888
TOTAL GREEK DRACHMA 1,527,953
IRISH POUND -- 0.3%
BANKING -- 0.3%
300,000 Bank of Ireland, Sub., 9.75%, 3/21/2005 549,449
ITALIAN LIRA -- 0.6%
SOVEREIGN -- 0.6%
450,000,000 Italy (Republic of), Bond, 9.00%, 11/1/2023 332,762
1,100,000,000 Italian T-Bill (BOTS), 4/28/1997 708,928
TOTAL ITALIAN LIRA 1,041,690
MEXICAN PESO -- 0.6%
SOVEREIGN -- 0.6%
500,000,000 Mexican Cetes, 7/3/1997 544,728
600,000,000 Mexican Cetes, 11/6/1997 605,906
TOTAL MEXICAN PESO 1,150,634
NORWEGIAN KRONE -- 0.5%
SOVEREIGN -- 0.5%
3,000,000 Norwegian Government, Bond, 7.00%, 5/31/2001 498,146
2,300,000 Norwegian Government, Bond, 9.00%, 1/31/1999 389,903
TOTAL NORWEGIAN KRONE 888,049
POLISH ZLOTY -- 0.8%
SOVEREIGN -- 0.8%
4,100,000 Poland, Republic of, 17.00%, 2/12/1998 1,388,088
PORTUGESE ESCUDO -- 0.4%
SOVEREIGN -- 0.4%
100,000,000 Portuguese Government, Bond, 11.875%, 2/23/2000 747,263
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY IN U.S.
PAR AMOUNT DOLLARS
<C> <S> <C>
SOUTH AFRICAN RAND -- 1.1%
SOVEREIGN -- 1.0%
10,000,000 South Africa, Republic of, 12.00%, 2/28/2005 $ 1,788,092
SURFACE TRANSPORTATION -- 0.1%
1,000,000 Transnet Ltd., Deb., 12.50%, 4/1/1997 213,582
TOTAL SOUTH AFRICAN RAND 2,001,674
SPANISH PESETA -- 1.1%
SOVEREIGN -- 1.1%
10,000,000 Spain (Government), 10.00%, 2/28/2005 91,725
36,000,000 Spain (Government), Bond, 10.15%, 1/31/2006 335,877
60,000,000 Spain (Government), Deb., 10.10%, 2/28/2001 528,948
126,000,000 Spain (Government), Foreign Gov't. Guarantee, 8.00%, 5/30/2004 1,043,094
TOTAL SPANISH PESETA 1,999,644
SWEDISH KRONA -- 0.9%
BANKING -- 0.3%
3,000,000 AB Spinrab, Unsub., 12.00%, 12/17/1997 479,421
SOVEREIGN -- 0.6%
3,000,000 Stadshypotekskas, Foreign Gov't. Guarantee, Series 1551, 7.50%,
3/17/1999 465,488
3,500,000 Swedish Government, Bond, 8.00%, 8/15/2007 553,592
Total 1,019,080
TOTAL SWEDISH KRONA 1,498,501
UNITED KINGDOM POUND -- 1.6%
INSURANCE -- 0.3%
300,000 Commercial Union PLC, Company Guarantee, 8.625%, 9/28/2005 521,394
UTILITIES -- 1.3%
1,300,000 British Gas PLC, 8.875%, 7/8/2008 2,296,255
TOTAL UNITED KINGDOM POUND 2,817,649
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. DOLLAR -- 20.2%
BANKING -- 1.3%
$ 200,000 Banco De Boston, Bank Guarantee, 9.5675%, 1/16/2002 $ 200,000
2,000,000 Bancomext Trust, Bank Guarantee, 11.25%, 5/30/2006 2,166,880
Total 2,366,880
BEVERAGE & TOBACCO -- 0.6%
1,000,000 Empresas La Moderna, 11.375%, 1/25/1999 1,055,000
FINANCE -- 1.4%
2,250,000 Polysindo Intl. Fin Co BV, Company Guarantee, 11.375%, 6/15/2006 2,424,375
FOREST PRODUCTS -- 3.5%
300,000 Aracruz Cellulose, Deb., 10.375%, 1/31/2002 285,000
2,500,000 Asian Pulp & Paper, Company Guarantee, 11.75%, 10/1/2005 2,685,250
1,000,000 Indah Kiat Intl. Finance, Company Guarantee, 11.875%, 6/15/2002 1,086,250
1,300,000 Indah Kiat Intl. Finance, Company Guarantee, 12.50%, 6/15/2006 1,433,250
600,000 Klabin Fabricadora Papel, Company Guarantee, 12.125%, 12/28/2002 618,000
Total 6,107,750
INDUSTRIAL PRODUCTS & EQUIPMENT -- 1.2%
2,000,000 Sophora Comercio, 11.50%, 11/10/1998 2,100,000
OIL & GAS -- 4.7%
3,000,000 Bariven S.A., Company Guarantee, 10.625%, 3/17/2002 3,237,300
625,494 Centragas, 10.65%, 12/1/2010 685,491
1,500,000 Invergas S.A., Note, 12.50%, 12/16/1999 1,621,875
1,000,000 MetroGas S.A., Sr. Note, 12.00%, 8/15/2000 1,090,000
1,000,000 Petroleo Brasileiro S.A., 10.15%, 6/8/1998 1,036,250
500,000 Transportadora de Gas de Sur S.A., Sr. Note, 10.25%, 4/25/2001 528,125
Total 8,199,041
SOVEREIGN -- 3.1%
3,000,000 Ecuador Discount, 6.50%, 2/28/2025 2,098,110
500,000 Morocco - R & C A, Foreign Gov't. Guarantee, 6.375%, 1/1/2009 405,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. DOLLAR -- CONTINUED
SOVEREIGN -- CONTINUED
$ 900,000 Nacional Financiera, SNC, Foreign Gov't. Guarantee, 10.625%,
11/22/2001 $ 954,562
500,000 Petacalco Topolo, Note, 8.125%, 12/15/2003 452,265
500,000 Swedish Export Credit, Deb., 9.875%, 3/15/2038 544,925
1,000,000 Turkey, Note, 9.00%, 6/15/1999 1,022,500
Total 5,477,362
STATE/PROVINCIAL -- 0.9%
1,500,000 (a)Zhuhai Highway, Sub. Note, 11.50%, 7/1/2008 1,661,250
STEEL -- 1.3%
1,400,000 HYLSA S.A. de C.V., Deb., 11.00%, 2/23/1998 1,445,500
775,000 Tubos de Acero de Mexico S.A., Unsub., 13.75%, 12/8/1999 877,688
Total 2,323,188
TELECOMMUNICATIONS & CELLULAR -- 2.2%
1,050,000 Telecom Argentina S.A., Unsecd. Note, 12.00%, 11/15/2002 1,162,875
1,500,000 (a)Telecom Brazil, Collateral Trust, Series EMTN, 11.30078%, 12/9/1999 1,563,750
1,050,000 Telefonica de Argentina S.A., Note, 11.875%, 11/1/2004 1,157,625
Total 3,884,250
TOTAL U.S. DOLLAR 35,599,096
TOTAL INTERNATIONAL BONDS (IDENTIFIED COST $58,813,507) 61,027,054
U.S. GOVERNMENT/AGENCY -- 21.5%
LONG-TERM GOVERNMENT OBLIGATIONS -- 21.5%
538,888 Federal Home Loan Mortgage Corp., 8.50%, 9/1/2025 562,120
95,549 Federal Home Loan Mortgage Corp., 8.50%, 1/1/2026 99,668
2,439,802 Federal Home Loan Mortgage Corp., 8.00%, 6/1/2025 2,514,948
448,506 Federal Home Loan Mortgage Corp., 7.50%, 10/1/2025 455,229
1,033,596 Federal Home Loan Mortgage Corp., 7.00%, 12/1/2025 1,028,417
999,105 Federal Home Loan Mortgage Corp., 6.50%, 3/1/2026 971,929
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. GOVERNMENT/AGENCY -- CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS -- CONTINUED
$ 1,985,286 Federal Home Loan Mortgage Corp., 7.50%, 5/1/2026 $ 2,012,544
1,513,396 Federal Home Loan Mortgage Corp., 6.50%, 7/1/2011 1,501,546
2,042,818 Federal Home Loan Mortgage Corp., 7.00%, 5/1/2011 2,061,938
253,329 Federal Home Loan Mortgage Corp., 8.50%, 9/1/2025 264,250
1,038,139 Federal Home Loan Mortgage Corp., 6.00%, 6/1/2003 1,023,844
1,111,449 Federal National Mortgage Association, 6.50%, 2/1/2009 1,109,937
458,387 Federal National Mortgage Association, 7.00%, 5/1/2024 457,667
448,228 Federal National Mortgage Association, 7.00%, 12/1/2010 451,863
871,654 Federal National Mortgage Association, 9.00%, 9/1/2026 922,036
1,074,932 Federal National Mortgage Association, 6.50%, 12/1/2025 1,044,006
1,548,974 Federal National Mortgage Association, 6.00%, 4/1/2011 1,509,258
1,007,887 Federal National Mortgage Association, 6.50%, 9/1/2003 1,007,554
1,507,219 Federal National Mortgage Association, 7.00%, 9/1/2026 1,496,367
999,341 Federal National Mortgage Association, 8.00%, 10/1/2026 1,027,752
263,228 Government National Mortgage Association, 9.00%, 10/15/2016 283,707
441,938 Government National Mortgage Association, 7.50%, 3/15/2024 448,421
1,986,967 Government National Mortgage Association, 7.50%, 3/15/2026 2,016,116
272,496 Government National Mortgage Association, 9.50%, 2/15/2025 295,740
724,150 Government National Mortgage Association, 7.50%, 1/15/2026 736,040
946,941 Government National Mortgage Association, 7.50%, 2/15/2026 960,832
2,483,914 Government National Mortgage Association, 7.00%, 5/15/2026 2,471,470
2,477,482 Government National Mortgage Association, 8.00%, 12/15/2025 2,554,854
503,263 Government National Mortgage Association, 8.00%, 6/15/2026 518,980
502,932 Government National Mortgage Association, 8.00%, 6/15/2026 518,639
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. GOVERNMENT/AGENCY -- CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS -- CONTINUED
$ 2,954,363 Government National Mortgage Association, 8.50%, 6/15/2026 $ 3,086,335
401,554 Government National Mortgage Association, 8.00%, 8/15/2026 414,094
1,725,754 Government National Mortgage Association, 11.00%, 9/15/2015 1,945,218
TOTAL U.S. GOVERNMENT/AGENCY (IDENTIFIED COST $36,977,727)
37,773,319
COMMON STOCKS -- 0.0%
NIGERIA -- 0.0%
SOVEREIGN -- 0.0%
250 Nigeria Par, Warrants 3
UNITED STATES -- 0.0%
BROADCAST RADIO & TV -- 0.0%
1,000 Park Communications, Inc., Warrants 20,500
5 (a)Pegasus Media, Class B 1,500
Total 22,000
CABLE TELEVISION -- 0.0%
150 Wireless One, Inc., Warrants 150
CHEMICALS & PLASTICS -- 0.0%
400 Sterling Chemicals Holdings, Inc., Warrants 14,000
1,000 Uniroyal Technology Corp., Warrants 1,500
Total 15,500
CONSUMER PRODUCTS -- 0.0%
100 (a)IHF Capital, Inc., Warrants 6,000
ECOLOGICAL SERVICES & EQUIPMENT -- 0.0%
480 ICF Kaiser, Inc., Warrants 240
FOOD & DRUG RETAILERS -- 0.0%
884 (a)Grand Union Co. 5,083
STEEL -- 0.0%
50 (a)Bar Technologies, Inc., Warrants 3,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
UNITED STATES -- CONTINUED
TELECOMMUNICATIONS & CELLULAR -- 0.0%
700 Cellular Communications, Inc., Warrants $ 8,750
TOTAL UNITED STATES 60,723
TOTAL COMMON STOCKS (IDENTIFIED COST $71,104) 60,726
PREFERRED STOCKS -- 0.4%
PRINTING & PUBLISHING -- 0.3%
1,904 K-III Communications Corp., Cumulative PIK Pfd., Series B, 11.625% 191,352
3,500 K-III Communications Corp., Pfd., Series D, $10.00 329,000
Total 520,352
TELECOMMUNICATIONS & CELLULAR -- 0.1%
212 PanAmSat Corp., PIK Pfd., 12.75% 259,700
TOTAL PREFERRED STOCKS (IDENTIFIED COST $759,092) 780,052
(B) REPURCHASE AGREEMENT -- 0.8%
$ 1,340,000 BT Securities Corporation, 5.72%, dated 11/29/1996, due 12/2/1996
(AT AMORTIZED COST) 1,340,000
TOTAL INVESTMENTS (IDENTIFIED COST $165,623,848)(C) $ 170,661,218
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At November 30, 1996, these securities
amounted to $14,238,386 which represents 8.3% of net assets.
(b) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to
$165,627,473. The net unrealized appreciation of investments on a federal
tax basis amounts to $5,033,745 which is comprised of $5,949,465
appreciation and $915,720 depreciation at November 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($175,887,877) at November 30, 1996.
The following acronyms are used throughout this portfolio:
GO -- General Obligation
LP -- Limited Partnership
PIK -- Payment in Kind
PLC -- Public Limited Company
SA -- Support Agreement
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $165,623,848, and tax cost $ 170,661,218
$165,627,473)
Cash 2,560
Income receivable 3,999,518
Receivable for investments sold 232,621
Receivable for shares sold 2,221,857
Deferred expenses 20,283
Total assets 177,138,057
LIABILITIES:
Payable for investments purchased $ 626,250
Payable for shares redeemed 25,726
Income distribution payable 417,469
Payable for taxes withheld 1,168
Accrued expenses 179,567
Total liabilities 1,250,180
Net Assets for 16,802,725 shares outstanding $ 175,887,877
NET ASSETS CONSIST OF:
Paid in capital $ 170,234,705
Net unrealized appreciation of investments and translation of assets and liabilities 5,029,350
in foreign currency
Accumulated net realized gain on investments and foreign currency transactions 704,568
Distributions in excess of net investment income (80,746)
Total Net Assets $ 175,887,877
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($28,020,914 / 2,677,159 shares outstanding) $10.47
Offering Price Per Share (100/95.50 of $10.47)* $10.96
Redemption Proceeds Per Share $10.47
CLASS B SHARES:
Net Asset Value Per Share ($120,019,630 / 11,465,981 shares outstanding) $10.47
Offering Price Per Share $10.47
Redemption Proceeds Per Share (94.50/100 of $10.47)** $9.89
CLASS C SHARES:
Net Asset Value Per Share ($10,480,761 / 1,000,967 shares outstanding) $10.47
Offering Price Per Share $10.47
Redemption Proceeds Per Share (99.00/100 of $10.47)** $10.37
CLASS F SHARES:
Net Asset Value Per Share ($17,366,572 / 1,658,618 shares outstanding) $10.47
Offering Price Per Share (100/99.00 of $10.47)* $10.58
Redemption Proceeds Per Share (99.00/100 of $10.47)** $10.37
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
NOVEMBER 30, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 38,780
Interest (net of dollar roll expense of $6,019) (net of foreign taxes
withheld of $20,985) 7,059,562
Total income 7,098,342
EXPENSES:
Investment advisory fee $ 629,398
Administrative personnel and services fee 214,999
Custodian fees 48,589
Transfer and dividend disbursing agent fees and expenses 132,751
Directors'/Trustees' fees 4,269
Auditing fees 17,081
Legal fees 2,823
Portfolio accounting fees 105,525
Distribution services fee -- Class B Shares 363,937
Distribution services fee -- Class C Shares 42,436
Distribution services fee -- Class F Shares 45,147
Shareholder services fee -- Class A Shares 27,086
Shareholder services fee -- Class B Shares 121,312
Shareholder services fee -- Class C Shares 14,145
Shareholder services fee -- Class F Shares 22,574
Share registration costs 90,278
Printing and postage 39,309
Insurance premiums 4,860
Taxes 1,795
Miscellaneous 29,536
Total expenses 1,957,850
Waiver and reimbursement --
Waiver of investment advisory fee $ (629,398)
Waiver of distribution services fee -- Class F Shares (43,577)
Reimbursement of other operating expenses by Adviser (97,576)
Total waiver and reimbursement (770,551)
Net expenses 1,187,299
Net investment income 5,911,043
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency transactions 688,404
Net change in unrealized appreciation of investments and translation of 4,697,703
assets and liabilities in foreign currency
Net realized and unrealized gain on investments and foreign currency 5,386,107
Change in net assets resulting from operations $ 11,297,150
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 5,911,043 $ 788,120
Net realized gain (loss) on investments and foreign currency
transactions ($711,312 and $150,376, respectively, as computed for
federal tax purposes) 688,404 127,454
Net change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currency 4,697,703 480,617
Change in net assets resulting from operations 11,297,150 1,396,191
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (924,874) (298,490)
Class B Shares (3,785,124) (56,417)
Class C Shares (435,543) (146,756)
Class F Shares (734,765) (259,159)
Distributions in excess of net investment income
Class A Shares (30,719)
Class B Shares (26,253)
Class C Shares (20,790)
Distributions from net realized gains on investments and
foreign currency transactions
Class A Shares (41,612) --
Class B Shares (46,342) --
Class C Shares (18,841) --
Class F Shares (30,084) --
Change in net assets resulting from distributions to shareholders (6,094,947) (760,822)
SHARE TRANSACTIONS --
Proceeds from sale of shares 160,543,684 11,455,785
Net asset value of shares issued to shareholders in payment of
distributions declared 2,826,955 335,692
Cost of shares redeemed (8,980,231) (2,013,555)
Change in net assets resulting from share transactions 154,390,408 9,777,922
Change in net assets 159,592,611 10,413,291
NET ASSETS:
Beginning of period 16,295,266 5,881,975
End of period $ 175,887,877 $ 16,295,266
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.91 0.82 0.45
Net realized and unrealized gain (loss) on investments
and foreign currency 0.42 0.61 (0.45)
Total from investment operations 1.33 1.43 0.00
LESS DISTRIBUTIONS
Distributions from net investment income (0.89) (0.83) (0.45)
Distributions in excess of net investment income(b) (0.03) -- (0.01)
Distributions from net realized gain on investments (0.08) -- --
Total distributions (1.00) (0.83) (0.46)
NET ASSET VALUE, END OF PERIOD $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 13.89% 15.64% 0.05%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.05% 0.25% 0.25%*
Net investment income 8.54% 8.68% 8.38%*
Expense waiver/reimbursement(d) 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $28,021 $5,089 $2,366
Portfolio turnover 47% 158% 34%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 3, 1994 (date of initial
public investment) to November 30, 1994.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.14 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.83 0.25
Net realized and unrealized gain (loss) on investments and foreign currency 0.42 0.13
Total from investment operations 1.25 0.38
LESS DISTRIBUTIONS
Distributions from net investment income (0.83) (0.24)
Distributions in excess of net investment income(b) (0.01) --
Distributions from net realized gain on investments (0.08) --
Total distributions (0.92) (0.24)
NET ASSET VALUE, END OF PERIOD $10.47 $10.14
TOTAL RETURN(C) 13.03% 5.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.80% 1.00%*
Net investment income 7.80% 7.95%*
Expense waiver/reimbursement(d) 0.98% 5.69%*(e)
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $120,020 $5,193
Portfolio turnover 47% 158%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 27, 1995 (date of initial
public investment) to November 30, 1995.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.82 0.74 0.40
Net realized and unrealized gain (loss) on investments
and foreign currency 0.43 0.61 (0.44)
Total from investment operations 1.25 1.35 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.80) (0.75) (0.40)
Distributions in excess of net investment income(b) (0.04) -- (0.02)
Distributions from net realized gain on investments (0.08) -- --
Total distributions (0.92) (0.75) (0.42)
NET ASSET VALUE, END OF PERIOD $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 13.05% 14.79% (0.41%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.80% 1.00% 1.00%*
Net investment income 7.70% 7.93% 7.99%*
Expense waiver/reimbursement(d) 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $10,481 $2,323 $1,190
Portfolio turnover 47% 158% 34%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 29, 1994 (date of initial
public investment) to November 30, 1994.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.95 0.77 0.41
Net realized and unrealized gain (loss) on investments
and foreign currency 0.37 0.61 (0.44)
Total from investment operations 1.32 1.38 (0.03)
LESS DISTRIBUTIONS
Distributions from net investment income (0.91) (0.78) (0.41)
Distributions in excess of net investment income(b) -- -- (0.02)
Distributions from net realized gain on investments (0.08) -- --
Total distributions (0.99) (0.78) (0.43)
NET ASSET VALUE, END OF PERIOD $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 13.83% 15.07% (0.19%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.07% 0.75% 0.75%*
Net investment income 8.48% 8.19% 8.34%*
Expense waiver/reimbursement(d) 1.46% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,367 $3,691 $2,326
Portfolio turnover 47% 158% 34%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 9, 1994 (date of initial
public investment) to November 30, 1994.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios
shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios.
The financial statements included herein are only those of Federated
Strategic Income Fund (the "Fund"), a diversified portfolio. The financial
statements of the other portfolios are presented separately. The assets of
each portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held. The Fund offers four classes of shares:
Class A Shares, Class B Shares, Class C Shares, and Class F Shares. The
investment objective of the Fund is to seek a high level of current income.
Effective March 31, 1996, the shareholders approved a change in the name of
the Fund from Strategic Income Fund to Federated Strategic Income Fund.
Effective March 31, 1996, the shareholders also approved a change in the
name of Fortress Shares to Class F Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- U.S. government securities, listed foreign and
domestic corporate bonds, other fixed income and asset-backed securities,
unlisted securities and private placement securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Listed equity securities are valued at the last sale price
reported on a national securities exchange. Short-term securities are valued
at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Distributions in excess of net investment income were the
result of certain book and tax timing differences. These distributions do
not represent a return of capital for federal income tax purposes.
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 reclassification was made to
the financial statements:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED
DISTRIBUTIONS IN
ACCUMULATED NET EXCESS OF NET
PAID-IN CAPITAL REALIZED GAIN/LOSS INVESTMENT INCOME
<C> <C> <C>
$8,867 $17,478 ($26,345)
</TABLE>
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for
in accordance with the Fund's understanding of the applicable country's tax
rules and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
FOREIGN CURRENCY COMMITMENTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Risks may arise upon entering into these transactions
from the potential inability of counter-parts to meet the terms of their
commitments and from unanticipated movements in security prices or foreign
exchange rates. The foreign currency transactions 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 settlement
date. At November 30, 1996, the Fund had no outstanding foreign currency
commitments.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the rate
of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in the exchange rate.
DOLLAR ROLL TRANSACTIONS -- The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in which
the Fund sells mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon and
maturity) securities at a later date at an agreed upon price. Dollar roll
transactions are short-term financing arrangements which will not exceed
twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the
Fund's current yield and total return.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the 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, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Abraxas Petroleum Corp. 11/05/1996 $ 502,625
Allied Waste North America, Inc. 11/25/1996 225,000
Astor Corp. 10/02/1996-10/16/1996 502,750
Australis Holdings Pty Limited 10/29/1996 113,575
Bar Technologies, Inc. 08/27/1996 2,794
Blue Bird Body Co. 11/13/1996 49,848
CS Wireless Systems, Inc. 02/16/1996 125,048
CalEnergy Co., Inc. 11/19/1996 256,875
Dade International, Inc. 04/30/1996-09/5/1996 515,375
Dollar Financial Group, Inc. 11/12/1996 100,000
Equitable Life 10/17/1996 993,550
Euromax International 09/18/1996 429,875
First Nationwide Escrow Corp. 09/13/1996 606,250
Grand Union 05/25/1994 49,875
HS Resources, Inc. 11/22/1996 298,446
Hawk Corp. 11/22/1996 250,000
ICON Fitness Corp. 11/15/1996 179,011
IHF Capital, Inc. 11/04/1996 494
ISP Holding, Inc. 08/29/1996-02/15/1996 42,652
ISP Holding, Inc. 10/15/1996 498,605
International Home Foods, Inc. 10/29/1996-11/19/1996 606,250
Intertek Finance 10/31/1996 200,000
International Knife & Saw, Inc. 10/31/1996 150,000
Metro Toronto 09/18/1996 723,341
Outsourcing Solutions, Inc. 10/31/1996 201,250
Paging Network, Inc. 10/10/1996 250,000
Pegasus Media 12/06/1995 1,250
Petersen Publishing Co. 11/20/1996 303,000
Pillowtex Corp. 11/06/1996 200,000
Prime Succession Aquisition Corp. 08/13/1996 50,000
Rose Hills Aquisition Corp. 11/14/1996 100,000
Ryder TRS, Inc. 11/20/1996 125,000
Statia Terminals 11/22/1996 325,000
Telecom Brazil, Collateral Trust 04/18/1996-05/30/1996 1,543,125
Tokheim Corp. 08/16/1996-09/04/1996 307,188
U.S. Can Corp. 10/10/1996 100,000
Uniforet Inc. 10/07/1996 250,000
Union Central Life Insurance Co. 10/31/1996 994,780
William Carter Co. 11/20/1996 125,000
Zhuhai Highway 08/16/1996-09/17/1996 1,545,938
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 1996, par value shares ($ 0.001 per share) authorized were
as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A 1,000,000,000
Class B 1,000,000,000
Class C 1,000,000,000
Class F 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,
1996 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,290,977 $ 23,397,580 311,635 $ 3,066,086
Shares issued to shareholders in payment of
distributions declared 47,188 480,390 14,799 145,018
Shares redeemed (163,057) (1,660,810) (72,417) (707,245)
Net change resulting from Class A Share
transactions 2,175,108 $ 22,217,160 254,017 $ 2,503,859
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995(A)
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 11,345,851 $ 115,125,074 518,732 $ 5,178,214
Shares issued to shareholders in payment of
distributions declared 170,336 1,739,077 2,277 22,812
Shares redeemed (562,289) (5,646,436) (8,926) (89,477)
Net change resulting from Class B Share
transactions 10,953,898 $ 111,217,715 512,083 $ 5,111,549
<CAPTION>
(a) For the period July 27, 1995 (date of initial public investment) to November 30, 1995.
YEAR ENDED NOVEMBER 30,
1996 1995
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 824,314 $ 8,385,573 134,093 $ 1,298,053
Shares issued to shareholders in payment of
distributions declared 27,616 280,927 10,624 104,012
Shares redeemed (80,120) (815,841) (40,201) (394,089)
Net change resulting from Class C Share
transactions 771,810 $ 7,850,659 104,516 $ 1,007,976
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,347,566 $ 13,635,457 197,486 $ 1,913,432
Shares issued to shareholders in payment of
distributions declared 32,001 326,561 6,505 63,850
Shares redeemed (84,996) (857,144) (83,709) (822,744)
Net change resulting from Class F Share
transactions 1,294,571 $ 13,104,874 120,282 $ 1,154,538
Net change resulting from share transactions 15,195,387 $ 154,390,408 990,898 $ 9,777,922
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisors, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.85% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee and reimburse
certain operating expenses of the Fund. The Adviser can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion.
Under the terms of a sub-advisory agreement between the Adviser and
Federated Global Research Corp., Federated Global Research Corp. receives an
allocable portion of the Fund's advisory fee. Such allocation is based on
the amount of foreign securities which Federated Global Research Corp.
manages for the Fund. This fee is paid by the Adviser out of its resources
and is not an incremental Fund expense.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class B Shares, Class C Shares, and
Class F Shares. The Plan provides that the Fund may incur distribution
expenses according to the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
Class F Shares 0.50%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of daily average net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES -- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FServ
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and start-up administrative
service expenses of $150,096 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, 1996, the Fund paid $26,713 pursuant
to this agreement.
GENERAL -- Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended November 30, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 184,816,045
SALES $ 34,097,836
</TABLE>
6. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund
maintains a diversified investment portfolio, the political or economic
developments within a particular country or region may have an adverse
effect on the ability of domiciled issuers to meet their obligations.
Additionally, political or economic developments may have an effect on the
liquidity and volatility of portfolio securities and currency holdings.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of FEDERATED STRATEGIC INCOME FUND:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Strategic Income Fund
(a portfolio of Fixed Income Securities, Inc.) as of November 30, 1996, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended November 30, 1996 and 1995, and
the 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, 1996, by correspondence with the
custodian and 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
Strategic Income Fund as of November 30, 1996, 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
<TABLE>
<S> <S>
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, Treasurer,
John E. Murray, Jr. and Secretary
Wesley W. Posvar S. Elliott Cohan
Marjorie P. Smuts Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 338319700
Cusip 338319866
Cusip 338319809
Cusip 338319882
G00324-02 (1/97)
APPENDIX
A1. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation
of the narrative text above it. The `x'' axis reflects computation periods
from 1/14/92 to 11/30/96. The `y'' axis is measured in increments of
$1,000 ranging from $0 to $8,000 and indicates that the ending value of
hypothetical initial investment of $5,000 in the fund's Class A Shares,
assuming a 1.00% sales charge and the reinvestment of all capital gains and
dividends, would have grown to $6,500 on 11/30/96.
A2. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation
of the narrative text above it. The `x'' axis reflects computation periods
from 1/14/92 to 11/30/96. The `y'' axis is measured in increments of
$1,000 ranging from $0 to $6,000 and indicates that the ending value of
hypothetical yearly investments of $1,000 in the fund's Class A Shares,
assuming the reinvestment of all capital gains and dividends, would have
grown to $5,857 on 11/30/96.
A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Class A Shares of Federated Limited Term Fund based on a 1.00% sales charge
are represented by a solid line. The Merrill Lynch 1-3 Year Short-Term
Corporate Index (the `MLSTC'') is represented by a broken line. The Lipper
Short Investment Grade Debt Funds Average (the `LSIGDFA") is represented
by a dotted line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in the Class A
Shares of the fund and the MLSTC and the LSIGDFA. The `x'' axis reflects
computation periods from 1/14/92 to 11/30/96. The `y'' axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class A Shares based on a 1.00% sales
charge, as compared to the MLSTC and the LSIGDFA; the ending values were
$13,064, $13,809, and $13,104, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Class A Shares
Average Annual Total Returns for the period ended 11/30/96, beginning with
the inception date of the fund (1/14/92), and the one-year period
thereafter, the Average Annual Total Returns were 5.63%, and 4.49%,
respectively.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Class F Shares of Federated Limited Term Fund based on a 1.00% sales charge
and 1.00% contingent deferred sales charge are represented by a solid line.
The Merrill Lynch 1-3 Year Short-Term Corporate Index (the `MLSTC'') is
represented by a broken line. The Lipper Short Investment Grade Debt Funds
Average (the `LSIGDFA") is represented by a dotted line. The line graph is
a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class F Shares of the fund and the MLSTC and
the LSIGDFA. The `x'' axis reflects computation periods from 9/1/93 to
11/30/96. The `y'' axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
fund's Class F Shares based on a 1.00% sales charge and a 1.00% contingent
deferred sales charge, as compared to the MLSTC and the LSIGDFA; the ending
values were $11,425, $12,106, and $11,660, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class F
Shares Average Annual Total Returns for the period ended 11/30/96,
beginning with the inception date of the fund (9/1/93), and the one-year
period thereafter, the Average Annual Total Returns were 4.36%, and 3.54%,
respectively.
A5. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation
of the narrative text above it. The `x'' axis reflects computation periods
from 9/1/93 to 11/30/96. The `y'' axis is measured in increments of $1,000
ranging from $0 to $6,000 and indicates that the ending value of
hypothetical initial investment of $4,000 in the fund's Class A Shares,
assuming a 1.00% sales charge and the reinvestment of all capital gains and
dividends, would have grown to $4,458 on 11/30/96.
A6. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation
of the narrative text above it. The `x'' axis reflects computation periods
from 9/1/93 to 11/30/96. The `y'' axis is measured in increments of $500
ranging from $0 to $4,500 and indicates that the ending value of
hypothetical yearly investments of $1,000 in the fund's Class A Shares,
assuming the reinvestment of all capital gains and dividends, would have
grown to $4,246 on 11/30/96.
A7. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Class A Shares of Federated Limited Term Municipal Fund based on a 1.00%
sales charge are represented by a solid line. The Lehman Brothers Three
Year State General Obligation Index (the `LB3YRSGO'') is represented by a
dotted line. The Lehman Brothers Three Year Municipal Bond Index (the
`LB3YRMB") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class A Shares of the fund and the LB3YRSGO and the
LB3YRMB. The `x'' axis reflects computation periods from 9/1/93 to
11/30/96. The `y'' axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
fund's Class A Shares based on a 1.00% sales charge, as compared to the
LB3YRSGO and the LB3YRMB; the ending values were $11,145, $11,641, and
$11,624, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class A Shares Average Annual Total
Returns for the period ended 11/30/96, beginning with the inception date of
the fund (9/1/93), and the one-year period thereafter, the Average Annual
Total Returns were 3.39%, and 2.30%, respectively.
A8. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Class F Shares of Federated Limited Term Municipal Fund based on a 1.00%
sales charge and 1.00% contingent deferred sales charge are represented by
a solid line. The Lehman Brothers Three Year State General Obligation Index
(the `LB3YRSGO'') is represented by a dotted line. The Lehman Brothers
Three Year Municipal Bond Index (the `LB3YRMB") is represented by a broken
line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class F Shares of the
fund and the LB3YRSGO and the LB3YRMB. The `x'' axis reflects computation
periods from 9/1/93 to 11/30/96. The `y'' axis reflects the cost of the
investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class F Shares based on a 1.00% sales charge and a
1.00% contingent deferred sales charge, as compared to the LB3YRSGO and the
LB3YRMB; the ending values were $11,065, $11,641, and $11,624,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Class F Shares Average Annual Total Returns for the
period ended 11/30/96, beginning with the inception date of the fund
(9/1/93), and the one-year period thereafter, the Average Annual Total
Returns were 3.60%, and 2.54%, respectively.
A9. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation
of the narrative text above it. The `x'' axis reflects computation periods
from 5/4/94 to 11/30/96. The `y'' axis is measured in increments of $500
ranging from $0 to $4,500 and indicates that the ending value of
hypothetical initial investment of $3,000 in the fund's Class A Shares,
assuming a 4.50% sales charge and the reinvestment of all capital gains and
dividends, would have grown to $3,772 on 11/30/96.
A10. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation
of the narrative text above it. The `x'' axis reflects computation periods
from 5/4/94 to 11/30/96. The `y'' axis is measured in increments of $500
ranging from $0 to $4,000 and indicates that the ending value of
hypothetical yearly investments of $1,000 in the fund's Class A Shares,
assuming the reinvestment of all capital gains and dividends, would have
grown to $3,447 on 11/30/96.
A11. The graphic representation displayed consists of a pie chart showing
a portfolio overview of the Fund as of 11/30/96. The pie chart is divided
into portions as follows: Domestic High Quality - 33%; High Yield - 33%;
and International - 34%.
A12. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class A Shares of Federated Strategic Income Fund based on a 4.50% sales
charge are represented by a solid line. The Lehman Brothers
Government/Corpotate Bond Index (the `LBG/CBI'') is represented by a
dotted line. The Lipper Multi-Sector Income Funds Average (the `LMSIFA")
is represented by a broken line. The line graph is a visual representation
of a comparison of change in value of a $10,000 hypothetical investment in
the Class A Shares of the fund and the LBG/CBI and the LMSIFA. The `x''
axis reflects computation periods from 5/4/94 to 11/30/96. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund's Class A Shares based on
a 4.50% sales charge, as compared to the LBG/CBI and the LMSIFA; the ending
values were $12,573, $12,466, and $12,790, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class A
Shares Average Annual Total Returns for the period ended 11/30/96,
beginning with the inception date of the fund (5/4/94), and the one-year
period thereafter, the Average Annual Total Returns were 9.30%, and 8.74%,
respectively.
A13. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class B Shares of Federated Strategic Income Fund based on a 5.50%
contingent deferred sales charge are represented by a solid line. The
Lehman Brothers Government/Corpotate Bond Index (the `LBG/CBI'') is
represented by a dotted line. The Lipper Multi-Sector Income Funds Average
(the `LMSIFA") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class B Shares of the fund and the LBG/CBI and the
LMSIFA. The `x'' axis reflects computation periods from 7/27/95 to
11/30/96. The `y'' axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
fund's Class B Shares based on a 5.50% contingent deferred sales charge, as
compared to the LBG/CBI and the LMSIFA; the ending values were $11,282,
$11,144, and $11,800, respectively. The legend in the bottom quadrant of
the graphic presentation indicates the fund's Class B Shares Average Annual
Total Returns for the period ended 11/30/96, beginning with the inception
date of the fund (7/27/95), and the one-year period thereafter, the Average
Annual Total Returns were 9.88%, and 7.02%, respectively.
A14. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class C Shares of Federated Strategic Income Fund based on a 1.00%
contingent deferred sales charge are represented by a solid line. The
Lehman Brothers Government/Corpotate Bond Index (the `LBG/CBI'') is
represented by a broken line. The Lipper Multi-Sector Income Funds Average
(the `LMSIFA") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class C Shares of the fund and the LBG/CBI and the
LMSIFA. The `x'' axis reflects computation periods from 5/2/94 to
11/30/96. The `y'' axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
fund's Class C Shares based on a 1.00% contingent deferred sales charge, as
compared to the LBG/CBI and the LMSIFA; the ending values were $12,917,
$12,466, and $12,790, respectively. The legend in the bottom quadrant of
the graphic presentation indicates the fund's Class C Shares Average Annual
Total Returns for the period ended 11/30/96, beginning with the inception
date of the fund (5/2/94), and the one-year period thereafter, the Average
Annual Total Returns were 10.43%, and 11.98%, respectively.
A15. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Class F Shares of Federated Strategic Income Fund based on a 1.00% sales
charge and a 1.00% contingent deferred sales charge are represented by a
solid line. The Lehman Brothers Government/Corpotate Bond Index (the
`LBG/CBI'') is represented by a dotted line. The Lipper Multi-Sector
Income Funds Average (the `LMSIFA") is represented by a broken line. The
line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class F Shares of the fund and the
LBG/CBI and the LMSIFA. The `x'' axis reflects computation periods from
5/10/94 to 11/30/96. The `y'' axis reflects the cost of the investment.
The right margin reflects the ending value of the hypothetical investment
in the fund's Class F Shares based on a 1.00% sales charge and a 1.00%
contingent deferred sales charge, as compared to the LBG/CBI and the
LMSIFA; the ending values were $12,715, $12,466, and $12,790, respectively.
The legend in the bottom quadrant of the graphic presentation indicates the
fund's Class F Shares Average Annual Total Returns for the period ended
11/30/96, beginning with the inception date of the fund (5/10/94), and the
one-year period thereafter, the Average Annual Total Returns were 10.14%,
and 11.65%, respectively.
